<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1997
REGISTRATION NO. 333-33385
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
LOGILITY, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 7379 58-2281338
(STATE OR JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
---------------
470 EAST PACES FERRY ROAD, N.E.
ATLANTA, GEORGIA 30305
(404) 261-9777
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
HENRY B. LEVI, ESQ.
GAMBRELL & STOLZ, L.L.P.
SUITE 4300, SUNTRUST PLAZA
303 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30308
(404) 577-6000
FACSIMILE: (404) 221-6501
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE AND
FACSIMILE NUMBERS, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
WILLIAM B. ASHER, JR., ESQ.
TESTA, HURWITZ & THIBEAULT, LLP
125 HIGH STREET
BOSTON, MASSACHUSETTS 02110
(617) 248-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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,
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1997
2,200,000 SHARES
[LOGO
OF LOGILITY, INC. APPEARS HERE]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by the
Company. Prior to this offering, there has been no public market for the Common
Stock of the Company. Following this offering, American Software, Inc. will own
approximately 84% of the outstanding shares of Common Stock (assuming no
exercise of the Underwriters' over-allotment option). See "Relationship with
American Software and Certain Transactions."
It is currently estimated that the initial public offering price of the
Common Stock will be between $11.00 and $13.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation on the
Nasdaq National Market, upon completion of this offering, under the symbol
"LGTY."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $850,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 330,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will
total $ and Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of Montgomery Securities on or about , 1997.
-----------
Montgomery Securities
Cowen & Company
Interstate/Johnson Lane
Corporation
Hampshire Securities Corporation
, 1997
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
[ART WORK TO BE ADDED HERE]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Combined Financial Statements and
the Notes thereto, appearing elsewhere in this Prospectus. Except as otherwise
noted herein, all information in this Prospectus (i) reflects a 11,300-for-1
split of the shares of Common Stock effected in August 1997 and (ii) assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
THE COMPANY
Logility, Inc. ("Logility" or the "Company") develops, markets and supports
software applications that optimize the operating efficiencies of
manufacturers, suppliers, distributors, retailers and other organizations along
the "value chain." The value chain refers to the complex network of
relationships that organizations maintain with trading partners to source,
manufacture and deliver products to the customer. The Company's solution,
Logility Value Chain Solutions, consists of an integrated software suite that
provides advanced collaborative planning and integrated logistics capabilities
that are designed to reduce inventory costs, improve forecast accuracy,
decrease order cycle times, optimize production scheduling, streamline
logistics operations, reduce transportation costs and improve customer service.
The Company markets its solution world-wide, primarily to large enterprises
that require a comprehensive planning and execution solution. Sales are made
through a dedicated sales force and through relationships with third-party
vendors and service providers.
Enterprises are under increasing pressure to better manage the value chain as
they seek to improve manufacturing efficiency and logistics operations, while
maintaining flexibility and responsiveness to changing market conditions and
customer demands. To manage and facilitate enhanced collaboration among the
various participants in the value chain, organizations are increasingly
deploying value chain management software solutions to address their planning
and execution requirements. Industry sources estimate that the supply chain
planning and execution software market was $246 million in 1996, and is
projected to grow at a compound annual growth rate of 48% to more than $1.7
billion by 2001. The warehouse management systems software market was
approximately $104 million in 1996, and is projected to grow at a compound
annual growth rate of 41% to $586 million by 2001.
Logility Value Chain Solutions is designed to be an end-to-end solution that
synchronizes demand opportunities with supply constraints and logistics
operations, and consists of two solution groups, Logility Planning Solutions
and Logility Execution Solutions. Logility Planning Solutions enables users to
analyze information to more effectively manage demand and respond to changing
market conditions, while optimizing the use of production and distribution
assets. Logility Execution Solutions is designed to enable users to effectively
and efficiently manage the flow of products through distribution centers and
warehouses and ensure that those products are delivered to the right location
using the optimal transportation alternatives available. Logility Value Chain
Solutions is highly modular, allowing for rapid deployment. In addition, the
software is scaleable to meet the management requirements of complex processes
involving tens of thousands of products across multiple sites.
The Company believes that it is a technology leader in the field of value
chain management software solutions and intends to continue to provide
innovative, advanced solutions to the marketplace. The Company believes that it
was one of the earliest providers of planning software solutions on a client-
server platform, one of the first on Windows NT and the first to introduce a
collaborative planning software solution that operates over the Internet. The
Company intends to leverage its installed base of customers to broaden the
utilization of its solution suite, and to sell newly developed modules that
complement the functionality of its existing product line. The Company has a
number of recent marketing or product relationships with leading Enterprise
Resource Planning ("ERP") vendors and systems integrators, including CAPS
Logistics, Oracle, PeopleSoft, Ross
3
<PAGE>
Systems and SAP. The Company intends to utilize these and future relationships
with other service providers, software vendors and systems consulting
organizations, and to leverage its relationship with its parent, American
Software, Inc. ("American Software"), to enhance its indirect distribution
channels.
The Company has licensed one or more modules of Logility Value Chain
Solutions to more than 200 companies worldwide, including Eastman Chemical,
FINA, Heineken USA, Newell, Pharmacia & Upjohn, Pfizer International, Reynolds
Metals, Sony Electronics and VF Corporation. The Company sells its products
through direct and indirect channels in the United States and Canada and
primarily through indirect channels outside North America. The Company derived
approximately 12% of its revenues in fiscal year ended April 30, 1997 from
international sales.
The Company is currently a wholly-owned subsidiary of American Software.
References herein to the Company include, as required by the context, the
business of the Company as conducted by American Software and certain of its
other subsidiaries prior to the transfer of that business to the Company.
References herein to American Software include, as required by the context,
American Software and certain of its subsidiaries. The Company was incorporated
in Georgia on July 25, 1996. Its principal executive offices are located at 470
East Paces Ferry Road, N.E., Atlanta, Georgia 30305, and its telephone number
is (404) 261-9777.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company. 2,200,000 shares
Common Stock to be outstanding after
the offering....................... 13,500,000 shares(1)
Use of proceeds..................... For (i) research and development, (ii)
sales and marketing, (iii) working capital
and other general corporate purposes and
(iv) possible acquisitions.
Nasdaq National Market symbol ...... LGTY
</TABLE>
- --------
(1) Based on the number of shares of Common Stock outstanding as of the date of
this Prospectus. Excludes an aggregate of 295,000 shares of Common Stock
reserved for future option grants under the Company's 1997 Stock Plan. See
"Management--1997 Stock Plan."
4
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JULY
YEARS ENDED APRIL 30, 31,
------------------------- --------------
1995 1996 1997 1996 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenues............................ $10,210 $16,633 $21,824 $4,792 $7,748
Cost of revenues.................... 3,838 6,023 7,158 1,564 2,279
------- ------- ------- ------ ------
Gross margin........................ 6,372 10,610 14,666 3,228 5,469
------- ------- ------- ------ ------
Operating income (loss)............. (3,246) (2,874) (1,954) (497) 224
Net income (loss)................... $(3,246) $(2,874) $(1,954) $ (497) $ 224
======= ======= ======= ====== ======
Pro forma net income (loss) per
common share (1)................... $ (0.17) $ 0.02
======= ======
Pro forma weighted-average common
shares outstanding (1)............. 11,300 11,300
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1997
----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 400 $24,102
Working capital......................................... 644 24,346
Total assets............................................ 16,651 40,353
Total stockholder's equity.............................. 6,661 30,363
</TABLE>
- --------
(1) Computed on the basis described in Note 1 of Notes to Combined Financial
Statements.
(2) Gives effect to the sale of the 2,200,000 shares of Common Stock offered
hereby and the application of the net proceeds therefrom.
FORWARD-LOOKING STATEMENTS
Information contained in this Prospectus includes "forward-looking
statements" that are based largely on the Company's current expectations and
are subject to a number of risks and uncertainties. The Company faces many
risks and uncertainties, including without limitation those described in this
Prospectus under the caption "Risk Factors." Because of these risks and
uncertainties, the Company's actual results may differ materially from any
results presented in or implied by the forward-looking statements included in
this Prospectus.
----------------
Logility, Logility Execution Solutions, Logility Planning Solutions, Logility
Value Chain Solutions, Demand Chain Voyager, Supply Chain Voyager and
WarehousePRO are trademarks of the Company. This Prospectus also contains
trademarks and trade names of companies other than the Company.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Common Stock offered hereby.
RECENT ORGANIZATION; ABSENCE OF OPERATING HISTORY AS AN INDEPENDENT BUSINESS
The Company is a wholly-owned subsidiary of American Software and initially
conducted its business and operations as the Supply Chain Planning division of
American Software. In January 1997, American Software transferred
substantially all of the client-server value chain management software
operations (including research and development), assets and associated
liabilities of its Supply Chain Planning division to the Company. In August
1997, American Software transferred to the Company its WarehousePRO software
and substantially all of the associated operations and liabilities. Also in
August 1997, American Software transferred to the Company the business,
operations, assets and liabilities of Distribution Sciences, Inc., a wholly-
owned subsidiary of American Software, including the software now known as
Transportation Management and Transportation Planning, by merging that
subsidiary into the Company. Accordingly, the Company has only a limited
independent operating history upon which an evaluation of the Company and its
prospects can be based. The Company's management has no experience, as a
group, operating the Company as a stand-alone business. The inability of the
Company to operate successfully as a separate entity would have a material
adverse effect on the Company's business, operating results and financial
condition.
Certain financial information included in the Company's combined results of
operations have been determined on the basis of allocations of expenses and
other items between American Software and the Company, which allocations
management believes to be reasonable. The financial information included
herein does not necessarily indicate the results of operations, financial
position and cash flows of the Company in the future or what the results of
operations, financial position and cash flows would have been had the Company
been operated as a separate, stand-alone business during the periods
presented.
Because the Company operated as a division of American Software until
January 1997, and the name "Logility" was not used by American Software or the
Company in the marketplace until that time, the Company has had only a short
period to establish name recognition in the market for value chain management
software products. Achieving this name recognition may be delayed by the
Company's continuing ties to American Software as a majority-owned subsidiary.
The Company has in place a marketing campaign to establish and enhance name
recognition for its products and services, but there can be no assurance that
this campaign will be successful. Failure to achieve such name recognition
could deprive the Company of sales opportunities and could have a material
adverse affect on the Company's business, operating results and financial
condition. See "Business--Sales and Marketing."
CONTINUING RELIANCE ON AMERICAN SOFTWARE
Because the Company has historically operated as a division of American
Software, until recently it has received substantially all of its financial,
accounting, marketing and management services from American Software. To date,
all sales of WarehousePRO software products have been made by American
Software's sales force. The Company and American Software have entered into an
agreement whereby American Software has agreed to act as a sales and marketing
agent for the Company. The Company expects that it will rely to a substantial
extent on this continuing sales and marketing relationship with American
Software. In addition, the Company will continue to rely on financial,
accounting and management services provided by American Software. Except as
otherwise described in this Prospectus, American Software has no obligation to
provide these services to the Company. The Company's business, operating
results and financial condition may be adversely affected by a reduction or
discontinuation of services from American Software. See "Relationship with
American Software and Certain Transactions."
6
<PAGE>
HISTORY OF LOSSES; SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND
SEASONALITY; POTENTIAL QUARTERLY LOSSES
The Company has had a history of losses. Although the Company has generated
net income in two of its most recent quarterly periods, there can be no
assurance that it will achieve profitability for any future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Operating Results." The Company has
experienced, and expects to continue to experience, significant fluctuations
in quarterly operating results that may be caused by many factors, including,
among others: the size and timing of orders for the Company's products; the
length of the sales cycle and implementation schedule for the Company's
products, and delays in the implementation process; customer order deferrals
in anticipation of new products and product enhancements; introduction or
enhancement of products by the Company or its competitors; changes in pricing
policy of the Company or its competitors; increased competition; seasonality
of revenue; technological changes in computer systems and environments;
quality control of products sold; readiness of the market to deploy value
chain management products; the Company's success in expanding its sales,
support, service, marketing and product development organizations; personnel
changes; fluctuation in foreign currency exchange rates; mix of license,
maintenance and service revenues; and general economic conditions. Because a
significant portion of the Company's revenues has been, and the Company
believes will continue to be, derived from large orders, the timing of orders
and their fulfillment has caused, and is expected to continue to cause,
material fluctuations in the Company's operating results, particularly on a
quarterly basis. In addition, the Company intends to continue to expand its
direct sales force. The timing of such expansion and the rate at which new
sales personnel become productive has in the past caused, and could in the
future cause, material fluctuations in the Company's quarterly operating
results. As a result of these and other factors, the Company believes that
period-to-period quarterly comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
The Company's future quarterly revenues are difficult to forecast in part
because the value chain management software market is an emerging market that
is subject to rapid change. Further, because the Company generally ships
software products within a short period after receipt of an order, it
typically does not have a material backlog of unfulfilled orders. Accordingly,
license revenues in any quarter are substantially dependent on orders booked
and shipped in that quarter and cannot be predicted with any degree of
certainty. In addition, the Company typically receives a significant portion
of product orders in the last two weeks of a quarter. Because a high
percentage of the Company's expenses, primarily personnel and facilities
costs, are relatively fixed, a small variation in the timing of software
licensing transactions, particularly at or near the end of any quarter, can
cause significant variations in operating results from quarter to quarter, and
may result in losses.
Due to the foregoing factors, it is possible that in future periods the
Company's revenues and thus its operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock could be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Operating Results."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to continue to enhance its current product line, to maintain and
extend compatibility with leading ERP systems and with widely used hardware
and operating system platforms, and to develop and introduce new products that
keep pace with technological developments, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. The introduction of
products using new technologies and the emergence of new industry standards
could render the Company's existing products, and products currently under
development, obsolete and unmarketable. In addition, there are special risks
associated with products, such as the Demand Chain Voyager and Supply Chain
Voyager modules, that must comply with rapidly changing
7
<PAGE>
Internet standards. See "Dependence on and Risks Associated with the Internet
and Intranets." There can be no assurance that the Company will be successful
in developing and marketing, on a timely and cost-effective basis, fully
functional product enhancements or new products that respond to technological
advances by others, or that its new products will achieve market acceptance.
The Company's failure to successfully develop and market product enhancements
or new products could have a material adverse effect on the Company's
business, operating results and financial condition.
As a result of the complexities inherent in client/server computing
environments and the broad functionality and performance demanded by customers
for value chain management products, major new products and product
enhancements can require long development and testing periods. Software
products as complex as those offered by the Company often encounter
development delays and may contain undetected defects when introduced or when
new versions are released. There can be no assurance that the Company will not
encounter product development delays in the future or that, despite testing by
the Company, errors will not be found in new products or product enhancements
after commencement of commercial shipments, resulting in damage to the
Company's reputation, loss of revenue, loss of market share, delay in market
acceptance or warranty claims, any of which could have a material adverse
effect upon the Company's business, results of operations and financial
condition. Although the Company generally attempts to limit by contract its
exposure to incidental and consequential damages, if a court failed to enforce
the liability limiting provisions of the Company's contracts for any reason,
or if liabilities arose which were not effectively limited, the Company's
business, results of operations and financial condition could be materially
and adversely affected. See "Business--Research and Product Development."
DEPENDENCE ON EMERGING MARKET FOR VALUE CHAIN MANAGEMENT SOFTWARE
The Company currently derives, and expects to continue to derive,
substantially all of its revenues from licenses and services related to value
chain management software products. Although demand for these products has
grown in recent periods, the market for value chain management software is
still emerging. There can be no assurance that this market will continue to
grow or, even if it does grow, that businesses will purchase the Company's
products. The Company has spent, and intends to continue to spend,
considerable resources educating potential customers generally about value
chain management software solutions and specifically about the Company's
products. There can be no assurance, however, that such expenditures will
enable the Company to achieve any additional degree of market acceptance. If
the market for value chain management software fails to grow or grows more
slowly than the Company currently anticipates, the Company's business,
operating results and financial condition would be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Products and Services."
COMPETITION
The Company's products are targeted at emerging markets within the
application software market, which is intensely competitive and characterized
by rapid technological change. The Company's existing competitors are diverse
and offer a variety of solutions directed at various aspects of the value
chain, as well as the enterprise as a whole. In addition, the Company faces
potential competition for the Logility Value Chain Solutions software from
(i) internal development efforts by corporate information technology
departments, (ii) smaller independent companies that have developed or are
attempting to develop value chain management software that competes with the
Company's software solution, and (iii) other business application software
vendors that may broaden their product offerings by internally developing, or
by acquiring or partnering with independent developers of, value chain
management software.
Many of the Company's competitors and potential competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition and a larger installed base of
customers than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to technological
change and competitors' innovations. The Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or
8
<PAGE>
devote greater resources to the development, promotion and sale of their
products than the Company. The principal competitive factors affecting the
market for the Company's products include vendor and product reputation;
product architecture, functionality and features; costs; ease and speed of
implementation; return on investment; product quality, price and performance;
and level of support. There can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the
failure to do so could have a material adverse effect upon the Company's
business, operating results and financial condition. See "Business--
Competition."
MANAGEMENT OF GROWTH; RELIANCE ON MANAGEMENT AND KEY PERSONNEL
The Company's business has grown significantly in the last two fiscal years,
with total revenues increasing to $21.8 million in fiscal year ended April 30,
1997 from $10.2 million in fiscal year ended April 30, 1995. The Company's
recent expansion has resulted in substantial growth in the number of its
employees (to 185 at April 30, 1997 from 81 at July 31, 1995), the scope of
its operations and the geographic distribution of its operations and
customers. This recent growth has placed, and if such growth is maintained
will continue to place, a significant strain on the Company's management and
operations. Moreover, the Chief Financial Officer of the Company, James M.
Modak, recently joined the Company in August 1997. The Company's future
operating results will depend on the ability of its officers and other key
employees to continue to implement and improve its operational, customer
support and financial control systems, and to effectively expand, train and
manage its employee base. There can be no assurance that the Company will be
able to manage any future growth successfully, and any inability to do so
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
The Company's future performance also depends in part upon the continued
service of key members of management, as well as sales, support, service,
marketing and product development personnel. The loss of one or more of the
Company's key personnel could have a material adverse effect on the Company's
business, operating results and financial condition. The Company believes its
future success will depend in part upon its ability to attract and retain
highly skilled management, sales, support, service, marketing and product
development personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be able to retain its key employees
or that it will be successful in attracting, assimilating and retaining such
personnel in the future. Failure to attract and retain key personnel could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Employees" and "Management--Executive
Officers and Directors."
The Company does not have, and does not currently intend to obtain, key man
insurance on any of its executive management. There are generally no post-
employment restrictions on the right of executive management to compete with
the Company or solicit its customers or employees. The absence of key man
insurance and post-employment restrictions could adversely affect the
Company's business, operating results and financial condition, particularly if
an executive officer of the Company elected to terminate his or her employment
and become associated with a competitor of the Company. See "Management--
Executive Officers and Directors."
RELIANCE ON AND NEED TO DEVELOP AND ENHANCE RELATIONSHIPS WITH THIRD PARTIES
Prospective customers of the Company increasingly rely on consulting and
systems integration firms and third-party software and hardware vendors in
selecting and implementing value chain management software solutions.
Accordingly, the Company expects to rely in part on such third parties for
sales and lead generation and for implementation services. The Company has
formal and informal arrangements with a number of third-party software and
hardware vendors and consulting and systems integration firms to enhance its
marketing, sales, support, service and product development efforts as well as
software implementation services. Such firms include CAPS Logistics, Oracle,
PeopleSoft, Ross Systems, SAP, management consulting firms in the United
9
<PAGE>
States, and local consulting and sales organizations in Europe and in the
Asia/Pacific region. Many of these firms have similar, and often more
established, relationships with the Company's competitors. Even when the
Company establishes such a relationship, the success of the relationship will
depend on a variety of factors, some of which will not be within the control
of the Company. Moreover, there can be no assurance that these firms, many of
which have significantly greater financial and marketing resources than the
Company, will not develop or market software products that compete with the
Company's products in the future or will not otherwise discontinue their
relations with or support of the Company. The failure of the Company to
maintain its existing relationships, or to establish new relationships in the
future, for any reason, could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--Sales
and Marketing."
DEPENDENCE UPON SUCCESSFUL EXPANSION OF MARKETING, SALES, SUPPORT AND SERVICE
ORGANIZATIONS
Many of the personnel in the Company's marketing, sales, support and service
organizations have been employed by the Company for less than one year,
particularly those in the sales organization. The Company's future success
depends upon the successful expansion of these organizations and its ability
to establish indirect distribution channels, including resellers, systems
solution vendors, application software vendors and systems integrators. The
Company currently plans to continue to expand its direct sales force, to
develop additional indirect distribution channels and to expand its customer
service and support organizations. Although the Company believes that such
initiatives ultimately will improve the Company's operating results, to the
extent related expenditures are incurred and revenues do not correspondingly
increase, the Company's operating results will be materially and adversely
affected. In addition, the Company is currently shifting the organization of
its sales force from a geographic focus to a vertical market focus, and has
recently established a new sales organization for the Company's WarehousePRO
software product. There can be no assurance that these steps will be
successful. Further, competition for experienced and effective sales personnel
in the software industry has increased substantially and continues to
increase, making expansion of a sales organization more difficult and
expensive. If the Company is unable to expand its marketing, sales, support
and service organizations or develop additional distribution channels on a
timely basis, the Company's business, operating results and financial
condition could be materially and adversely affected. See "Business--Sales and
Marketing."
INTERNATIONAL OPERATIONS
The Company derived approximately 7%, 12%, 20% and 12% of its total revenues
from international sales in the three months ended July 31, 1997 and in fiscal
years ended April 30, 1997, 1996 and 1995, respectively. The Company believes
that continued growth and profitability will require increased sales in
international markets. In order to successfully expand international sales,
the Company must establish additional foreign operations and hire additional
personnel, as well as expand its indirect sales channels in markets outside
North America. To the extent that the Company is unable to do so in a timely
and effective manner, the Company's growth, if any, in international sales
will be limited, and the Company's business, operating results and financial
condition could be materially adversely affected. In addition, even if
international operations are successfully expanded, there can be no assurance
that the Company will be able to maintain or increase international market
demand for its products or that such operations will be profitable.
The Company's international operations are subject to risks inherent in
international business activities, including, in particular, management and
staffing of an organization spread over various countries, longer accounts
receivable payment cycles in certain countries, compliance with a variety of
foreign laws and regulations, unexpected changes in regulatory requirements,
overlap of different tax structures, foreign currency exchange rate
fluctuations and general economic and political conditions. To date, the
Company's revenues from international operations have primarily been
denominated in United States dollars. Other risks associated with
international operations include import and export licensing requirements,
trade restrictions and changes in tariff rates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Sales and Marketing."
10
<PAGE>
INTEGRATION OF TRANSPORTATION MANAGEMENT, TRANSPORTATION PLANNING AND
WAREHOUSEPRO PRODUCTS
The Company acquired the Transportation Management, Transportation Planning
and WarehousePRO software products from American Software in August 1997.
Prior to such transfers, these products were not marketed or sold as part of
Logility Value Chain Solutions, but rather were marketed and sold through
separate organizations. To maximize the value of these additional products,
the Company intends to fully integrate them into its software solution suite.
There can be no assurance, however, that these integration efforts will be
effective or that they will be implemented on a timely basis. Failure to
successfully integrate these products could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business--Sales and Marketing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
In the future, the Company may be required to raise additional capital in
order to conduct its operations. Such capital may be raised through additional
public or private equity financings, borrowings and other available sources.
There can be no assurance that additional funding, if necessary, will be
available on favorable terms, if at all. In addition, for so long as American
Software desires to include the Company in its consolidated group for federal
income tax purposes, which requires that American Software retain at least 80%
of the total voting power and stock with a value of at least 80% of the total
value of the Company, the Company might be unable to raise capital through
equity financings. If adequate funds are not available, the Company may be
required to meet its working capital requirements with debt financing or to
curtail operations. To the extent that additional capital is raised through
the sale of equity or securities convertible into equity, the issuance of such
securities could result in dilution to the Company's then existing
stockholders. See "Relationship With American Software and Certain
Transactions," "--Continuing Reliance on American Software" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions and technical
measures to protect its proprietary rights in its products. The Company has
not sought to patent its software products and thus does not have the
protection that patents might provide. There can be no assurance that the
protections relied upon by the Company will be adequate to protect its
proprietary rights. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties, including customers, 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. In addition, the laws of
certain foreign countries in which the Company's products are or may be
licensed do not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. As a result, there
can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not
independently develop similar technology. Although the Company believes that
its products, trademarks and other proprietary rights do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company. Defense of
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
results of operations and financial condition. See "Business--Proprietary
Rights and Licenses."
Certain software used in the Company's products is licensed by the Company
from third parties. There can be no assurance that the Company will continue
to be able to resell this software under its licenses or, if any licensor
terminates its agreement with the Company, that the Company will be able to
develop or otherwise procure replacement software from another supplier on a
timely basis or on commercially reasonable terms. In addition, such third-
party software may contain errors that would be difficult for the Company to
detect and correct.
11
<PAGE>
RELATIONSHIP WITH AMERICAN SOFTWARE
Upon completion of this offering, American Software will own approximately
84% of the Company's outstanding Common Stock (or approximately 82% if the
Underwriters' over-allotment option is exercised in full). As long as American
Software beneficially owns a majority of the outstanding Common Stock,
American Software will be able to determine, without the consent of the other
stockholders of the Company, the outcome of any corporate action requiring
approval of the Company's stockholders, including the election of the entire
Board of Directors of the Company. In addition, through its beneficial
ownership of a majority of the Common Stock and control of the Board of
Directors, American Software will be able to control the management and
affairs of the Company, including all determinations with respect to
acquisitions, dispositions, mergers, and other business combinations,
borrowings, issuances of Common Stock or other equity securities of the
Company, the Company's dividend policy, and any change in control of the
Company. Further, the Amended and Restated Articles of Incorporation of the
Company (the "Articles") permit stockholder action by written consent if
approved by holders of a majority of the outstanding shares of Common Stock,
which currently would permit American Software to act without calling a
meeting of stockholders. See "Description of Capital Stock--Certain Provisions
of Articles and Bylaws."
The Company's relationship with American Software also is governed by
various agreements between the Company and American Software and certain of
American Software's other direct and indirect subsidiaries, including a
Subsidiary Formation Agreement, Services Agreement, Facilities Agreement, Tax
Sharing Agreement, Stock Option Agreement, Technology License Agreement, and
Marketing License Agreement, the material terms of which are summarized
herein. Because the Company was a wholly-owned subsidiary of American Software
at the time these agreements were executed, none of these arrangements have
resulted from arm's-length negotiations and, therefore, the costs charged or
allocated to the Company for services thereunder may be higher or lower than
those that may be charged by third parties. See "Relationship with American
Software and Certain Transactions."
The Articles provide that any agreement or arrangement between the Company
and American Software or an affiliate of American Software, or any amendment
or termination of any such agreement or arrangement, that is (i) approved by a
majority of the Company's directors who are not officers of either the Company
or American Software (or its affiliates) or directors of American Software (or
its affiliates) (the "Disinterested Directors"), or (ii) approved by the
holders of a majority of the Company's outstanding voting stock (not including
stock owned by American Software or an affiliate of American Software), or
(iii) consistent with arrangements, standards, protocols, or guidelines
approved by the Disinterested Directors of the Company, shall be deemed fair
to the Company and its shareholders, provided that no presumption shall arise
that such agreement or arrangement (or amendment or termination thereof) is
not fair to the Company and its shareholders solely by reason of the fact that
the approval procedures described in items (i), (ii) and (iii) above were not
obtained. The Articles also contain provisions allocating corporate
opportunities between American Software (and its affiliates) and the Company
based primarily on the relationship to the Company and American Software (or
its affiliates) of the individual to whom such opportunity is presented. In
general, corporate opportunities are allocated to the entity of which such
individual is an officer or for which the officer is acting when the
opportunity is presented. If at the time the opportunity is presented the
individual is an officer acting for both the Company and American Software, or
if it is unclear for which entity such individual is acting, the opportunity
is allocated to American Software. See "Relationship with American Software
and Certain Transactions" and "Description of Capital Stock."
Conflicts of interest may arise between the Company and American Software in
a number of areas relating to their past and ongoing relationships, including
the nature and quality of services rendered by the Company to American
Software and its affiliates or by American Software and its affiliates to the
Company, potential competitive business activities, shared administrative and
finance functions, shared facilities, tax and employment benefit matters,
stock option agreements, sales or distributions by American Software of all or
any portion of its ownership in the Company, and American Software's ability
to control the management and affairs of the Company. There can be no
assurance that American Software and the Company will be able to resolve
potential
12
<PAGE>
conflicts or that, if resolved, the Company would not receive more favorable
resolution than if it were dealing with an unaffiliated party. In addition,
certain of the agreements between the Company and American Software contain
specific procedures for resolving disputes between the Company and American
Software with respect to the subject matter of those agreements. There can be
no assurance that more favorable results to the Company would not be obtained
under different procedures.
As long as American Software desires to include the Company as a member of
its consolidated group for federal income tax purposes (which requires that
American Software owns at least 80% of the total voting power and stock of the
Company with a value equal to at least 80% of the total value of the Company),
the Company will be constrained in its ability to issue stock pursuant to
equity compensation plans, raise equity capital, or issue Common Stock in
connection with acquisitions. For any period of time that the Company
continues to be a member of American Software's consolidated group, it will be
jointly and severally liable for the federal income tax liability of other
members of the consolidated group and for funding and termination liabilities
applicable to the consolidated group's tax-qualified employee benefit plans.
American Software could decide to sell or otherwise dispose of all or a
portion of its ownership of the Company's Common Stock at some future date,
and there can be no assurance that, in any transfer by American Software of a
controlling interest in the Company, any other holders of Common Stock will be
allowed to participate in such transaction or will realize any premium with
respect to their shares of Common Stock. Sales or distributions by American
Software of substantial amounts of Common Stock in the public market or to its
shareholders could adversely affect prevailing market prices for the Common
Stock. See "Relationship with American Software and Certain Transactions" and
"Shares Eligible for Future Sale."
DEPENDENCE ON AND RISKS ASSOCIATED WITH THE INTERNET AND INTRANETS
The Company believes that sales of Demand Chain Voyager and Supply Chain
Voyager will depend in large part upon the adoption of the Internet and
intranets for commerce and communications by businesses and other end-users.
The Internet and intranets are new and evolving, and there can be no assurance
of their widespread adoption for such purposes. Critical issues concerning the
Internet and intranets, including security, reliability, cost, ease of use and
access, and quality of service, remain unresolved at this time, inhibiting
adoption by many enterprises and other end-users. The failure of enterprises
to use the Internet and intranets could have a material adverse effect on the
Company's business, results of operations and financial condition.
SHARES ELIGIBLE FOR SALE AFTER THIS OFFERING
The 11,300,000 shares of Common Stock owned by American Software will become
eligible for resale under Rule 144 promulgated under the Securities Act
commencing in January 1998. In addition, so long as American Software is able
to elect a majority of the Company's Board of Directors, it will have the
ability to cause the Company at any time to register for resale all or a
portion of the Common Stock owned by American Software. American Software and
the Company have agreed not to sell or issue any shares of Common Stock for a
180-day period after the date of this Prospectus, other than (i) shares of
Common Stock to be sold to the Underwriters in this offering, (ii) the grant
of options to purchase shares of Common Stock pursuant to the 1997 Stock Plan
and the issuance of shares of Common Stock upon the exercise of any options,
and (iii) shares issued by the Company in connection with any acquisitions.
American Software may, in the future, elect to distribute its shares of
Common Stock to its shareholders. In that event, it is anticipated that such
shares thereafter would be freely tradeable by persons other than "affiliates"
of the Company, without restriction or registration under the Securities Act.
No assurance can be given that American Software will make any such
distribution, and American Software has advised the Company that it has no
present intention of doing so.
Any shares of Common Stock issued upon exercise of options granted under the
Company's 1997 Stock Plan and any shares of Common Stock issued in connection
with any acquisitions will be subject to a lock-up during the 180-day period
following the date hereof and will become available for future sale in the
public
13
<PAGE>
market at prescribed times. Alternatively, the Company may elect to provide
that any options to purchase shares of Common Stock will not vest during such
180-day period. Montgomery Securities, on behalf of the Underwriters may, in
its sole discretion and at any time without notice, release all or any portion
of the shares subject to lock-up agreements. Sales of a significant number of
shares of Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock and affect the Company's
ability to raise capital. See "Relationship with American Software and Certain
Transactions" and "Shares Eligible for Future Sale."
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS
The primary purposes of this offering are to increase the Company's equity
capital, create a public market for the Company's Common Stock and to
facilitate future access by the Company to public capital markets. A
significant portion of the anticipated net proceeds to the Company from this
offering have not been designated for specific uses. Accordingly, management
of the Company will have broad discretion with respect to the use of these
funds. A portion of the net proceeds of this offering may also be used to
acquire or invest in products, technologies or businesses that broaden or
enhance the Company's current product offerings. There are no current
agreements or negotiations with respect to any acquisitions, investments or
other transactions. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
The Articles and the Amended and Restated Bylaws of the Company (the
"Bylaws") contain certain provisions that, along with American Software's
beneficial ownership of a majority of the Common Stock and control of the
Board of Directors of the Company, may have the effect of discouraging,
delaying, or preventing a change in control of the Company or unsolicited
acquisition proposals that another holder of the Common Stock might consider
favorable. Such provisions include authorizing the issuance of "blank check"
preferred stock, providing for a Board of Directors with staggered, three-year
terms, requiring supermajority voting to effect certain amendments to the
Articles and Bylaws, restricting certain business combinations with interested
shareholders, limiting the persons who may call special meetings of
shareholders, and establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at meetings of shareholders. Certain provisions of Georgia law and the
Company's 1997 Stock Plan also may have the effect of discouraging, delaying,
or preventing a change in control of the Company or unsolicited acquisition
proposals. See "Management--1997 Stock Plan" and "Description of Capital
Stock."
DILUTION
Purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution in the net tangible book value per share of the Common
Stock of $10.30 from the assumed initial public offering price. See
"Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiation between the
Company and the Representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. In the event that the Company fails to appoint two independent
directors within 90 days after this offering, Nasdaq could terminate the
listing of the Company's Common Stock on the Nasdaq National Market, which
would have a material adverse effect on the liquidity and trading price of the
Common Stock. See "Management."
The market price of the Company's Common Stock is likely to be highly
volatile and could be subject to substantial fluctuations in response to
quarterly variations in operating results, losses or additions of significant
customers, announcements of technological innovations or new products by the
Company or its competitors,
14
<PAGE>
changes in financial estimates by securities analysts, or other events or
factors, including the risk factors described herein. In addition, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of many high
technology companies and that often have been unrelated to the operating
performance of such companies. In the past, securities class action litigation
has often been instituted against such companies following periods of
volatility in the market price of their securities. Such litigation, if
commenced, could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Underwriting."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company currently intends to retain its
earnings, if any, for the development of its business. See "Dividend Policy."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $23.7 million, assuming an
initial public offering price of $12.00 per share ($27.4 million if the
Underwriters' over-allotment option is exercised in full), after deducting the
estimated underwriting discount and offering expenses. The Company expects to
use the net proceeds from this offering for research and development, sales
and marketing, working capital and other general corporate purposes. However,
the Company has not allocated any specific portion of the net proceeds to such
purposes and management will have the ability to allocate such proceeds at its
discretion. From time to time in the ordinary course of business, the Company
evaluates the acquisition of products, businesses and technologies that
complement the Company's business, for which a portion of the net proceeds may
be used. Currently, however, the Company does not have any understandings,
commitments or agreements with respect to any such acquisitions. Pending use
of the net proceeds, the Company intends to invest such funds in short-term,
interest-bearing securities. See "Risk Factors--Broad Management Discretion
over Use of Proceeds."
DIVIDEND POLICY
The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate that it will pay any cash
dividends in the foreseeable future. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, operations, capital requirements and the
general financial condition of the Company, general business conditions and
contractual restrictions on payment of dividends, if any. See "Risk Factors--
Relationship with American Software."
16
<PAGE>
CAPITALIZATION
The following table sets forth as of July 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company giving effect to the merger of Distribution Sciences, Inc. into the
Company and the contribution of the WarehousePRO division to the Company by
American Software subsequent to July 31, 1997, and (iii) the pro forma
capitalization as adjusted to give effect to the sale of the shares of Common
Stock offered hereby (at an assumed initial public offering price of $12.00
per share and after deducting the estimated underwriting discount and offering
expenses) and the application of the net proceeds therefrom. The table should
be read in conjunction with the Company's Combined Financial Statements and
related Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JULY 31, 1997
-----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Stockholder's equity:
Preferred stock; 2,000,000 shares authorized; no
shares issued.................................. $ -- $ -- $ --
Common stock, no par value; 20,000,000 shares
authorized; 11,300,500 shares issued and
outstanding as of July 31, 1997(1)............. -- -- --
Additional paid-in capital...................... 8,034 10,035 33,737
Divisional equity............................... 2,001 -- --
Accumulated deficit............................. (3,374) (3,374) (3,374)
------ ------ -------
Total stockholder's equity..................... 6,661 6,661 30,363
------ ------ -------
Total capitalization........................... $6,661 $6,661 $30,363
====== ====== =======
</TABLE>
- --------
(1) The 11,300,500 issued and outstanding shares include 11,300,000 shares of
Common Stock of the Company and 500 shares of common stock of Distribution
Sciences, Inc. On August 5, 1997, Distribution Sciences, Inc. was merged
into the Company and the 500 shares of common stock of Distribution
Sciences, Inc. were cancelled as of that date. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
17
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company as of July
31, 1997 was approximately $(729,000), or $(0.06) per share. Pro forma net
tangible book value per share is determined by dividing the Company's net
worth (tangible assets less liabilities) by the number of shares of Common
Stock outstanding. After giving effect to the sale of the shares of Common
Stock offered by the Company hereby at an assumed initial offering price of
$12.00 per share and after deducting the estimated underwriting discount and
offering expenses payable, the pro forma net tangible book value of the
Company as of July 31, 1997 would have been approximately $22,973,000, or
$1.70 per share. This represents an immediate increase in such pro forma net
tangible book value of $1.76 per share to the existing stockholder and an
immediate dilution of $10.30 per share to new investors purchasing shares in
this offering. If the initial public offering price is higher or lower, the
dilution to new investors will be greater or less, respectively. The following
table illustrates the dilution in net tangible book value per share to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $12.00
------
Pro forma net tangible book value (deficit) per share as of
July 31, 1997................................................. $(0.06)
Increase per share attributable to new investors............... 1.76
------
Pro forma, as adjusted, net tangible book value per share after
this offering................................................... 1.70
------
Dilution per share to new investors.............................. $10.30
======
</TABLE>
The following table summarizes, on a pro forma basis as of July 31, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the price paid per share by the existing
stockholder and by new investors purchasing shares in this offering, based on
an assumed initial public offering price of $12.00 per share (before deducting
the estimated underwriting discount and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder....... 11,300,000 83.7% $10,035,000 27.5% $ 0.89
New investors.............. 2,200,000 16.3 26,400,000 72.5 12.00
---------- ----- ----------- -----
Total..................... 13,500,000 100.0% $36,435,000 100.0%
========== ===== =========== =====
</TABLE>
18
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data presented below as of and for the years
ended April 30, 1995, 1996 and 1997 are derived from combined financial
statements of the Company that have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The combined statements of
operations data for the years ended April 30, 1993 and 1994 and the three
months ended July 31, 1996 and 1997 and the combined balance sheet data at
April 30, 1993 and 1994 and July 31, 1997 are derived from unaudited combined
financial statements that include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The combined financial
statements as of April 30, 1996 and 1997 and for each of the years in the
three-year period ended April 30, 1997 and the report thereon, together with
the combined financial statements as of July 31, 1997 and for the three months
ended July 31, 1996 and 1997, are included elsewhere in this Prospectus. The
results of operations for the three months ended July 31, 1997 are not
necessarily indicative of the results of operations to be expected for the
full year. The selected combined financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Combined Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED APRIL 30, ENDED JULY 31,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Licenses.............. $ 4,330 $ 6,967 $ 5,767 $10,700 $12,359 $ 2,686 $ 4,347
Maintenance........... 1,089 2,040 2,628 3,797 5,051 1,145 1,895
Services.............. 595 1,232 1,815 2,136 4,414 961 1,506
------- ------- ------- ------- ------- ------- -------
Total revenues....... 6,014 10,239 10,210 16,633 21,824 4,792 7,748
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses.............. 1,200 2,097 2,184 4,016 3,970 853 1,231
Maintenance........... 410 539 624 876 1,219 249 353
Services.............. 304 744 1,030 1,131 1,969 462 695
------- ------- ------- ------- ------- ------- -------
Total cost of reve-
nues................ 1,914 3,380 3,838 6,023 7,158 1,564 2,279
------- ------- ------- ------- ------- ------- -------
Gross margin........... 4,100 6,859 6,372 10,610 14,666 3,228 5,469
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and develop-
ment................. 1,208 1,369 1,168 1,452 3,484 694 1,205
Sales and marketing... 2,398 4,249 6,295 9,892 10,628 2,503 3,430
General and adminis-
trative.............. 606 1,529 2,155 2,140 2,508 528 610
------- ------- ------- ------- ------- ------- -------
Total operating ex-
penses.............. 4,212 7,147 9,618 13,484 16,620 3,725 5,245
------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................ (112) (288) (3,246) (2,874) (1,954) (497) 224
Income taxes........... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $ (112) $ (288) $(3,246) $(2,874) $(1,954) $ (497) $ 224
======= ======= ======= ======= ======= ======= =======
Pro forma net income
(loss) per common
share (1)............. $ (0.17) $ 0.02
======= =======
Pro forma weighted-
average common shares
outstanding (1)....... 11,300 11,300
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
---------------------------------- --------
1993 1994 1995 1996 1997 1997
----- ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 49 $ 38 $ 66 $ 13 $ 732 $ 400
Working capital.................... 526 2,023 (1,705) 1,223 557 644
Total assets....................... 7,674 10,455 10,081 14,170 16,367 16,651
Total stockholder's equity......... 5,840 7,319 6,302 7,224 6,668 6,661
</TABLE>
- --------
(1) Computed on the basis described in Note 1 of Notes to Combined Financial
Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. Actual results
could differ materially. See "Risk Factors."
OVERVIEW
Logility, Inc. ("Logility" or the "Company") develops, markets and supports
software applications that optimize the operating efficiencies of
manufacturers, suppliers, distributors, retailers and other organizations
along the "value chain." The Company's products have been licensed to more
than 200 customers in a variety of industry segments including consumer
packaged goods, chemicals and pharmaceuticals and manufacturing. The Company
markets its products through direct and indirect sales channels in North
America and primarily through indirect sales channels outside North America.
Historically, the Company has financed its operations through its parent,
American Software, as well as through cash generated from operations.
The Company until recently conducted its business and operations as three
separate business units of American Software: a supply chain planning software
group, a warehouse management software group and a transportation management
software group. Effective January 1997, American Software transferred
substantially all of the business, operations (including research and
development), assets and associated liabilities of its Supply Chain Planning
division to the Company. Effective August 1997, American Software transferred
to the Company the WarehousePRO software and substantially all associated
operations, assets and liabilities. Effective August 1997, American Software's
wholly-owned subsidiary, Distribution Sciences, Inc., was merged into the
Company, transferring its business, operations, assets and liabilities,
including the Transportation Planning and Transportation Management software,
to the Company. The Company's combined financial statements included herein
present the combined assets, liabilities and results of operations for the
three business units for all periods.
The Company's revenues are derived primarily from three sources: software
licenses, maintenance and services. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. License revenues
are recognized at the time of product delivery, provided no significant future
obligations exist and collection is deemed probable. Maintenance agreements
typically are for a one- to three-year term and usually are entered into at
the time of the initial product license. Maintenance revenues are recognized
ratably over the term of the maintenance agreement. Services revenues consist
primarily of fees from software implementation, training, consulting and
customization services and are recognized as the services are rendered.
Certain software development costs related to completion of internally
developed products are capitalized in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Research and development expenses are
charged against earnings during the design phase of a project. Certain
research and development expenditures are capitalized after technological
feasibility of the project has been established until the product is generally
available to the public. At general availability, the capitalized costs of the
project are amortized ratably based on the projected revenues associated with
the related software or on a straight-line basis over three years, whichever
method results in a higher level of amortization. In the three months ended
July 31, 1997 and the fiscal years ended April 30, 1997, 1996 and 1995, the
Company capitalized 34%, 45%, 71% and 66%, respectively, of total research and
development expenditures. Total research and development expenditures for such
periods, which included both research and development expenses and capitalized
computer software development costs, were $1.8 million, $6.3 million, $5.1
million and $3.4 million, respectively. Amortization of capitalized computer
software development costs was $918,000 in the three months ended July 31,
1997 and $2.8 million, $1.1 million and $456,000 in fiscal years ended April
30, 1997, 1996 and 1995, respectively.
Certain costs related to the purchase of software that is intended for use
or resale are capitalized. In the three months ended July 31, 1997 and in the
fiscal years ended April 30, 1997, 1996 and 1995, the Company capitalized
$34,000, $36,000, $574,000 and $255,000, respectively, of purchased computer
software. Purchased
20
<PAGE>
computer software costs are amortized using the straight-line method over a
period of three to five years. Amortization of purchased computer software
costs was $73,000, $233,000, $1.2 million and $1.1 million in the three months
ended July 31, 1997 and fiscal years ended April 30, 1997, 1996 and 1995,
respectively. In addition, the Company wrote off $1.2 million of mainframe-
based purchased computer software costs during fiscal year ended April 30,
1996.
The combined financial statements included in this Prospectus have been
derived from American Software's consolidated financial statements and reflect
the revenues and costs (certain costs include allocations from American
Software) of the Company's products, as well as allocations from American
Software's selling, general and administrative expenses. Prior to fiscal year
ended April 30, 1997, the Supply Chain Planning division shared sales and
marketing activities with American Software and, for reporting purposes, sales
and marketing expenses for these periods were allocated to the Company on the
basis of its license revenues as a percentage of the total American Software
license revenues. Beginning in fiscal year ended April 30, 1997, selling
expenses were based on direct costs and also included commissions to American
Software based upon its sales of the Company's products at commissions of 30%
(50% for certain international licenses), while certain marketing expenses
continued to include an allocation from American Software. The Company and its
predecessor, the Supply Chain Planning division, directly incurs research and
development expenditures, while certain general and administrative expenses
are allocated from American Software based on estimated usage of personnel and
facilities and other indirect costs.
For the three years ended April 30, 1997, the WarehousePRO division shared
sales and marketing activities with American Software and, for reporting
purposes, sales and marketing expenses were allocated to the Company on the
basis of its license revenues as a percentage of the total American Software
license revenues. Beginning in the fiscal year ending April 30, 1998, selling
expenses are based on direct costs and also include commissions to American
Software based upon its sales of WarehousePRO at commissions of 30% (50% for
certain international licenses). In addition, the WarehousePRO division
directly incurs research and development expenditures, while certain general
and administrative expenses are allocated from American Software based on
estimated usage of personnel and facilities and other indirect costs.
Distribution Sciences, Inc. has operated as a wholly-owned subsidiary of
American Software since its purchase in June 1992 and since that time it has
conducted its business separately.
Accordingly, the Company's combined financial statements may not reflect the
operating results of a stand-alone company and should not be relied upon as
indicative of future results. After this offering, the Company will continue
to be a subsidiary of American Software, but will operate as a separate
business. American Software provides facilities and services to the Company
pursuant to a Services Agreement, a Facilities Agreement, and a Marketing
License Agreement, each of which became effective August 1, 1997. These
agreements provide the basis for the allocation of shared expenses and the
reimbursement of direct expenses. See "Relationship with American Software and
Certain Transactions."
In accordance with the Company's Tax Sharing Agreement with American
Software, the Company computes a separate, stand-alone income tax provision
and settles balances due to or from American Software on this basis. All
benefits derived from deferred tax assets as defined in the Tax Sharing
Agreement (which include net operating loss and tax credit carryforwards) that
arise prior to this offering will be allocated to American Software.
Accordingly, the Company will not receive any benefit from the $5.8 million of
gross deferred tax assets calculated on a separate return basis at April 30,
1997. However, deferred tax liabilities will be allocated to the Company
(which gave rise to the Company's net deferred tax liability of $2.8 million
at April 30, 1997 and $2.8 million at April 30, 1996). After this offering, to
the extent the tax computation produces a tax benefit for the Company,
American Software will be required to pay such amounts to the Company only if
and when such benefit is realized by American Software by the reduction in
taxes payable with respect to the current tax period. At April 30, 1997,
American Software had net operating loss carryforwards of approximately $20
million, which must be utilized by American Software before the Company would
receive payment for any currently generated tax benefits.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues of certain line items included in the Company's combined
statements of operations:
<TABLE>
<CAPTION>
YEARS THREE MONTHS
ENDED APRIL 30, ENDED JULY 31,
----------------------- ------------------
1995 1996 1997 1996 1997
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
License........................ 56% 64% 57% 56% 56%
Maintenance.................... 26 23 23 24 25
Services....................... 18 13 20 20 19
----- ----- ----- ------- -------
Total revenues................ 100 100 100 100 100
----- ----- ----- ------- -------
Cost of revenues:
License........................ 22 24 18 18 16
Maintenance.................... 6 5 6 5 4
Services....................... 10 7 9 9 9
----- ----- ----- ------- -------
Total cost of revenues........ 38 36 33 32 29
----- ----- ----- ------- -------
Gross margin.................. 62 64 67 68 71
Operating expenses:
Research and development....... 11 9 16 15 16
Sales and marketing............ 62 59 49 52 44
General and administrative..... 21 13 11 11 8
----- ----- ----- ------- -------
Total operating expenses...... 94 81 76 78 68
----- ----- ----- ------- -------
Operating income (loss)......... (32) (17) (9) (10) 3
Income taxes.................... -- -- -- -- --
----- ----- ----- ------- -------
Net income (loss)............. (32)% (17)% (9)% (10)% 3%
===== ===== ===== ======= =======
</TABLE>
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996
REVENUES
Total revenues increased 62% to $7.7 million in the three months ended July
31, 1997 from $4.8 million in the three months ended July 31, 1996. This
increase was attributable to an increase in license revenues generated
primarily from the Company's WarehousePRO product as well as growth in
services and maintenance revenues. International revenues were comparable in
absolute dollars, but decreased to 7% of total revenues in the three months
ended July 31, 1997 from 11% of total revenues in the three months ended July
31, 1996 due to the substantial growth in domestic revenues.
License Revenues. License revenues increased 62% to $4.3 million in the
three months ended July 31, 1997 from $2.7 million in the three months ended
July 31, 1996. The increase was due primarily to increased sales of the
Company's WarehousePRO product.
Maintenance Revenues. Maintenance revenues increased 66% to $1.9 million in
the three months ended July 31, 1997 from $1.1 million in the three months
ended July 31, 1996. The increase was due primarily to a greater number of
customers under maintenance contracts in the 1997 period.
Services Revenues. Services revenues increased 57% to $1.5 million in the
three months ended July 31, 1997 from $1.0 million in the three months ended
July 31, 1996. The increase was attributable to greater demand for services
driven by the growth in the Company's customer base.
22
<PAGE>
COST OF REVENUES
Cost of License Revenues. Cost of license revenues consists primarily of
amortization of capitalized computer software development costs and purchased
computer software costs, salaries and benefits and royalties paid to third-
party software vendors. Cost of license revenues increased 44% to $1.2 million
in the three months ended July 31, 1997 from $853,000 in the three months
ended July 31, 1996. The increase resulted primarily from an increase in the
amortization of capitalized computer software costs. Cost of license revenues
as a percentage of license revenues decreased to 28% from 32% in the three
months ended July 31, 1997 and 1996, respectively. This decrease resulted
primarily from the operating leverage realized through increasing license
revenues.
Cost of Maintenance Revenues. Cost of maintenance revenues consists
primarily of the salaries and benefits of professionals involved in customer
support and product enhancement activities. Cost of maintenance revenues
increased 42% to $353,000 in the three months ended July 31, 1997 from
$249,000 in the three months ended July 31, 1996. Cost of maintenance revenues
as a percentage of maintenance revenues remained relatively flat at 19% in the
three months ended July 31, 1997 versus 22% in the three months ended July 31,
1996, as the cost of supporting maintenance contracts kept pace with the
growth in maintenance revenues.
Cost of Services Revenues. Cost of services revenues consists primarily of
salaries, benefits, and travel expenses related to personnel performing
professional services. Cost of services revenues increased 50% to $695,000 in
the three months ended July 31, 1997 from $462,000 in the three months ended
July 31, 1996. The increase resulted from higher costs related to the hiring
of additional personnel needed to support a growing services business. Cost of
services revenues as a percentage of services revenues decreased to 46% from
48% during the same period as a result of a greater proportion of revenues
generated from higher margin professional services.
OPERATING EXPENSES
Research and Development. Research and development expenditures consist
primarily of salaries, benefits, and certain indirect costs of personnel
responsible for developing new products and enhancing existing ones. Total
research and development expenditures increased 8% to $1.8 million in the
three months ended July 31, 1997 from $1.7 million in the three months ended
July 31, 1996. The increase resulted from increased development of enhanced
features and additional functionality for the Company's value chain management
solution. Research and development expenditures as a percentage of total
revenues decreased to 23% in the three months ended July 31, 1997 from 34% in
the three months ended July 31, 1996. These expenses declined as a percentage
of revenues due to the increased operating leverage generated from the
Company's growth in revenues. Capitalized software decreased 31% to $616,000
in the three months ended July 31, 1997 from $898,000 in the three months
ended July 31, 1996, primarily as a result of the relative stage of
development of projects in the respective periods. Capitalized software as a
percentage of research and development expenditures decreased to 34% from 56%
during the same period. As a result of the above fluctuations, research and
development expenses increased 74% to $1.2 million in the three months ended
July 31, 1997 from $694,000 in the three months ended July 31, 1996.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions, and travel for Company personnel, advertising programs and other
promotional activities. Sales and marketing expenses increased 37% to $3.4
million in the three months ended July 31, 1997 from $2.5 million in the three
months ended July 31, 1996. This increase resulted from higher costs
associated with an expanded sales force. Sales and marketing as a percentage
of total revenues decreased to 44% from 52% during the same period due to the
rapid growth rate of the Company's revenues.
General and Administrative. General and administrative expenses consist
primarily of salaries and benefits of administrative, executive and financial
personnel as well as facilities, legal, business insurance and accounting
expenses. General and administrative expenses increased 16% to $610,000 in the
three months ended July 31, 1997 from $528,000 in the three months ended July
31, 1996. General and administrative expenses as a
23
<PAGE>
percentage of total revenues decreased to 8% from 11% during the same period,
due to the operating leverage realized from the growth in the Company's
revenues.
Income Taxes. For financial reporting purposes, the Company has recorded
income taxes on a separate company basis although the Company is included in
the consolidated Federal income tax return filed by American Software. As a
result of the operating losses incurred since the Company's inception, the
Company did not record any income taxes in the three-month periods ended July
31, 1997 and 1996.
FISCAL YEAR ENDED APRIL 30, 1997 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1996
REVENUES
Total revenues increased 31% to $21.8 million in fiscal year ended April 30,
1997 from $16.6 million in fiscal year ended April 30, 1996. This increase was
primarily attributable to the increased acceptance of the Company's supply
chain planning software products and associated services and maintenance
revenues generated by new licensees, and the introduction of WarehousePRO, the
Company's object-oriented warehouse management solution. International
revenues decreased 24% to $2.6 million in fiscal year ended April 30, 1997
from $3.4 million in fiscal year ended April 30, 1996. As a percentage of
total revenues, international revenues decreased to 12% from 20% during the
same period. The decrease resulted primarily from two substantial orders
received in fiscal year ended April 30, 1996. International revenues were
derived primarily from customers in Canada, Europe, Australia and Asia. The
Company's international revenues are primarily denominated in U.S. dollars.
License Revenues. License revenues increased 16% to $12.4 million in fiscal
year ended April 30, 1997 from $10.7 million in fiscal year ended April 30,
1996. The increase resulted primarily from an increase in revenues generated
by the Company's supply chain planning solution, both from the sale of a
greater number of licenses and from price increases, coupled with the
introduction of WarehousePRO in May 1996.
Maintenance Revenues. Maintenance revenue increased 33% to $5.1 million in
fiscal year ended April 30, 1997 from $3.8 million in fiscal year ended April
30, 1996. The increase resulted from a greater number of customers under
maintenance contracts.
Services Revenues. Services revenues increased 107% to $4.4 million in
fiscal year ended April 30, 1997 from $2.1 million in fiscal year ended April
30, 1996. The increase was attributable to a greater demand for services
generated primarily by increased sales of the Company's products, increased
focus on providing more services to its customers and an increase in the rates
charged for services provided.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues remained flat at $4.0
million in fiscal year ended April 30, 1997 versus April 30, 1996. Cost of
license revenues as a percentage of license revenues decreased to 32% from 38%
during the same period. Cost of license revenues in fiscal year ended April
30, 1996 included a write-off of $1.2 million of purchased computer software
costs. Amortization of capitalized software development costs and purchased
computer software costs increased to $3.1 million in fiscal year ended April
30, 1997 from $2.3 million in fiscal year ended April 30, 1996.
Cost of Maintenance Revenues. Cost of maintenance revenues increased 39% to
$1.2 million in fiscal year ended April 30, 1997 from $876,000 in fiscal year
ended April 30, 1996. The increase resulted from higher costs related to
personnel needed to support a growing maintenance customer base. Cost of
maintenance revenues as a percentage of maintenance revenues remained
relatively flat at 24% in fiscal year ended April 30, 1997 versus 23% in
fiscal year ended April 30, 1996.
Cost of Services Revenues. Cost of services revenues increased 74% to $2.0
million in fiscal year ended April 30, 1997 from $1.1 million in fiscal year
ended April 30, 1996. Cost of services revenues increased
24
<PAGE>
primarily due to higher costs related to personnel needed to provide systems
implementation and consulting services purchased by a growing customer base.
Cost of services revenues as a percentage of services revenues decreased to
45% from 53% during the same period, due to a greater proportion of revenues
generated from higher margin professional services.
OPERATING EXPENSES
Research and Development. Total research and development expenditures, which
include both research and development expenses and capitalized software
development costs, increased 24% to $6.3 million in fiscal year ended April
30, 1997 from $5.1 million in fiscal year ended April 30, 1996 due to an
increase in development personnel. Research and development as a percentage of
total revenues remained relatively flat in both years. Capitalized software
decreased 23% to $2.8 million in fiscal year ended April 30, 1997 from $3.6
million in fiscal year ended April 30, 1996. Capitalized software as a
percentage of total research and development expenditures decreased to 45%
from 71% during the same period. These decreases resulted primarily from the
completion of the development and subsequent commercial release of
WarehousePRO in May 1996. As a result of the above fluctuations, research and
development expenses increased 140% to $3.5 million in fiscal year ended April
30, 1997 from $1.5 million in fiscal year ended April 30, 1996.
Sales and Marketing. Sales and marketing expenses increased 7% to $10.6
million in fiscal year ended April 30, 1997 from $9.9 million in fiscal year
ended April 30, 1996. The increase primarily resulted from costs incurred with
the establishment of a direct sales force in fiscal year ended April 30, 1997.
Sales and marketing expenses as a percentage of total revenues decreased to
49% from 59% during the same period. The decrease resulted primarily from the
Company incurring direct commission rates on sales made by American Software
personnel in fiscal year ended April 30, 1997, which were lower than the
amount allocated to the Company by American Software for sales and marketing
in fiscal year ended April 30, 1996.
General and Administrative. General and administrative expenses increased
17% to $2.5 million in fiscal year ended April 30, 1997 from $2.1 million in
fiscal year ended April 30, 1996. The increase was primarily due to increased
costs of allocated personnel and related costs to support the growing revenue
base. General and administrative expenses as a percentage of total revenues
decreased to 11% from 13% during the same period.
Income Taxes. The Company is included in the consolidated Federal income tax
return filed by American Software. As a result of the operating losses
incurred since the Company's inception, the Company has not recorded any
income taxes in fiscal years ended April 30, 1997 or 1996.
FISCAL YEAR ENDED APRIL 30, 1996 COMPARED TO FISCAL YEAR ENDED APRIL 30, 1995
REVENUES
Total revenues increased 63% to $16.6 million in fiscal year ended April 30,
1996 from $10.2 million in fiscal year ended April 30, 1995. This increase can
be attributed to increases in license, maintenance and services revenues
related to the introduction of a Windows version of the Company's supply chain
planning solution in August 1995. International revenues increased 178% to
$3.4 million in fiscal year ended April 30, 1996 from $1.2 million in fiscal
year ended April 30, 1995. As a percentage of total revenues, international
revenues increased to 20% in fiscal year ended April 30, 1996 from 12% in
fiscal year ended April 30, 1995. The increase resulted primarily from two
substantial orders received in fiscal year ended April 30, 1996.
License revenues. License revenues increased 86% to $10.7 million in fiscal
year ended April 30, 1996 from $5.8 million in fiscal year ended April 30,
1995. The increase was due to increased demand for the Company's planning
solution generated by the introduction of a Windows version of the supply
chain planning solution in August 1995.
Maintenance Revenues. Maintenance revenues increased 44% to $3.8 million in
fiscal year ended April 30, 1996 from $2.6 million in fiscal year ended April
30, 1995. The increase was primarily due to a greater number of customers
under maintenance contracts.
25
<PAGE>
Services Revenues. Services revenues increased 18% to $2.1 million in fiscal
year ended April 30, 1996 from $1.8 million in fiscal year ended April 30,
1995. The increase was attributable to a greater demand for services
associated with the growth in the Company's customer base.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues increased 84% to $4.0
million in fiscal year ended April 30, 1996 from $2.2 million in fiscal year
ended April 30, 1995. The increase resulted primarily from a write-off of $1.2
million of purchased computer software costs related to an older version of
the Transportation Management module, together with higher third-party
royalties paid out with the release of the Windows version of the Company's
planning solution in fiscal year ended April 30, 1996. Cost of license
revenues as a percentage of license revenues remained constant at 38% during
both periods. Excluding the one-time charge in fiscal year ended April 30,
1996, cost of license revenues as a percentage of license revenues decreased
to 27% from 38%.
Cost of Maintenance Revenues. Cost of maintenance revenues increased 40% to
$876,000 in fiscal year ended April 30, 1996 from $624,000 in fiscal year
ended April 30, 1995. Cost of maintenance revenues as a percentage of
maintenance revenues remained relatively flat at 23% in fiscal year ended
April 30, 1996 versus 24% in fiscal year ended April 30, 1995, as the cost of
supporting maintenance contracts kept pace with the growth in maintenance
revenues.
Cost of Services Revenues. Cost of services revenues increased 10% to $1.1
million in fiscal year ended April 30, 1996 from $1.0 million in fiscal year
ended April 30, 1995. The increase resulted from higher costs related to
additional personnel needed to support a growing services business. Cost of
services revenues as a percentage of services revenues decreased to 53% from
57% during the same period.
OPERATING EXPENSES
Research and Development. Total research and development expenditures
increased 49% to $5.1 million in fiscal year ended April 30, 1996 from $3.4
million in fiscal year ended April 30, 1995. The increase resulted from the
hiring of approximately 20 new research and development personnel focused on
developing enhanced features and additional functionality for the Company's
value chain management solution. Research and development expenditures as a
percentage of total revenues decreased to 30% in fiscal year ended April 30,
1996 from 33% in fiscal year ended April 30, 1995. These expenditures declined
as a percentage of revenues due to the increased operating leverage generated
from the Company's growth in revenues. Capitalized software increased 62% to
$3.6 million in fiscal year ended April 30, 1996 from $2.2 million in fiscal
year ended April 30, 1995, primarily as a result of increased development
costs related to the Company's WarehousePRO product line, which was not
generally available until May 1996. Capitalized software as a percentage of
research and development expenditures increased to 71% from 66% during the
same period. As a result of the above fluctuations, research and development
expenses increased 24% to $1.5 million in fiscal year ended April 30, 1996
from $1.2 million in fiscal year ended April 30, 1995.
Sales and Marketing. Sales and marketing expenses increased 57% to $9.9
million in fiscal year ended April 30, 1996 from $6.3 million in fiscal year
ended April 30, 1995. This increase resulted from a greater allocation of
sales and marketing expenses from American Software due to the growth in the
Company's license revenues. Sales and marketing as a percentage of total
revenues decreased to 59% from 62% during the same period.
General and Administrative. General and administrative expenses were
relatively flat at $2.1 million in fiscal year ended April 30, 1996 versus
$2.2 million in fiscal year ended April 30, 1995. General and administrative
expenses as a percentage of total revenues decreased to 13% from 21% during
the same period, due to the growth in the Company's revenues.
Income Taxes. The Company is included in the consolidated Federal income tax
return filed by American Software. As a result of the operating losses
incurred since the Company's inception, the Company has not recorded any
income taxes in fiscal years ended April 30, 1996 or 1995.
26
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth the unaudited quarterly results of operations
for each of the eight most recent fiscal quarters, as well as the percentage of
the Company's total revenue by each item. In management's opinion, this
unaudited quarterly information has been prepared on the same basis as the
annual combined financial statements and includes all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented when read in conjunction with the
audited combined financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ $2,592 $2,699 $ 2,416 $2,686 $ 1,724 $4,360 $3,589 $4,347
Maintenance............ 861 1,038 1,127 1,145 1,208 1,346 1,352 1,895
Services............... 560 451 556 961 957 946 1,550 1,506
------ ------ ------- ------ ------- ------ ------ ------
Total revenues......... 4,013 4,188 4,099 4,792 3,889 6,652 6,491 7,748
------ ------ ------- ------ ------- ------ ------ ------
Cost of revenues:
License................ 562 829 2,095 853 907 937 1,273 1,231
Maintenance............ 231 215 254 249 291 316 363 353
Services............... 297 257 288 462 463 417 627 695
------ ------ ------- ------ ------- ------ ------ ------
Total cost of
revenues............. 1,090 1,301 2,637 1,564 1,661 1,670 2,263 2,279
------ ------ ------- ------ ------- ------ ------ ------
Gross margin............ 2,923 2,887 1,462 3,228 2,228 4,982 4,228 5,469
------ ------ ------- ------ ------- ------ ------ ------
Operating expenses:
Research and
development........... 367 284 481 694 827 642 1,320 1,205
Sales and marketing.... 2,558 2,305 2,497 2,503 2,373 3,160 2,592 3,430
General and
administrative........ 434 607 692 528 572 716 693 610
------ ------ ------- ------ ------- ------ ------ ------
Total operating
expenses............. 3,359 3,196 3,670 3,725 3,772 4,518 4,605 5,245
------ ------ ------- ------ ------- ------ ------ ------
Operating income (loss). (436) (309) (2,208) (497) (1,544) 464 (377) 224
Income taxes............ -- -- -- -- -- -- -- --
------ ------ ------- ------ ------- ------ ------ ------
Net income (loss)....... $ (436) $ (309) $(2,208) $ (497) $(1,544) $ 464 $ (377) $ 224
====== ====== ======= ====== ======= ====== ====== ======
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License................ 64.6% 64.4% 58.9% 56.1% 44.3% 65.5% 55.3% 56.1%
Maintenance............ 21.5 24.8 27.5 23.9 31.1 20.2 20.8 24.5
Services............... 13.9 10.8 13.6 20.0 24.6 14.3 23.9 19.4
------ ------ ------- ------ ------- ------ ------ ------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------- ------ ------- ------ ------ ------
Cost of revenues:
License................ 14.0 19.8 51.1 17.8 23.3 14.1 19.6 15.9
Maintenance............ 5.8 5.1 6.2 5.2 7.5 4.7 5.6 4.5
Services............... 7.4 6.2 7.0 9.6 11.9 6.3 9.7 9.0
------ ------ ------- ------ ------- ------ ------ ------
Total cost of reve-
nues................. 27.2 31.1 64.3 32.6 42.7 25.1 34.9 29.4
------ ------ ------- ------ ------- ------ ------ ------
Gross margin............ 72.8 68.9 35.7 67.4 57.3 74.9 65.1 70.6
------ ------ ------- ------ ------- ------ ------ ------
Operating expenses:
Research and develop-
ment.................. 9.2 6.8 11.7 14.5 21.3 9.6 20.3 15.5
Sales and marketing.... 63.7 55.0 61.0 52.3 61.0 47.5 39.9 44.3
General and administra-
tive.................. 10.8 14.5 16.9 11.0 14.7 10.8 10.7 7.9
------ ------ ------- ------ ------- ------ ------ ------
Total operating ex-
penses............... 83.7 76.3 89.6 77.8 97.0 67.9 70.9 67.7
------ ------ ------- ------ ------- ------ ------ ------
Operating income
(loss)................ (10.9) (7.4) (53.9) (10.4) (39.7) 7.0 (5.8) 2.9
Income taxes........... -- -- -- -- -- -- -- --
------ ------ ------- ------ ------- ------ ------ ------
Net income (loss)...... (10.9)% (7.4)% (53.9)% (10.4)% (39.7)% 7.0% (5.8)% 2.9%
====== ====== ======= ====== ======= ====== ====== ======
</TABLE>
27
<PAGE>
The Company's results of operations have been, and in the future will be,
subject to significant quarterly fluctuations that may be caused by many
factors, including among others: the size and timing of orders for the
Company's products; the length of the sales cycle and implementation schedule
for the Company's products, and delays in the implementation process; customer
order deferrals in anticipation of new products and product enhancements;
introduction or enhancement of products by the Company or its competitors;
changes in pricing policy of the Company or its competitors; increased
competition; seasonality of revenues; technological changes in computer
systems and environments; quality control of products sold; readiness of the
market to deploy value chain management products; the Company's success in
expanding its sales, support, service, marketing and product development
organizations; personnel changes; fluctuation in foreign currency exchange
rates; mix of license, maintenance and services revenues; and general economic
conditions. These uncertainties, combined with the fact that the value chain
management software market is an emerging market that is subject to rapid
change, make the estimation of revenues and results of operations on a
quarterly basis difficult and increase the potential margin for error in
performance forecasts derived from such estimates. As a result, the Company
believes that period-to-period comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as an indication of
future performance.
License revenues are difficult to forecast on a quarter-to-quarter basis as
no significant backlog typically exists at the end of any quarter. Revenues
are substantially dependent on deliveries related to new contracts executed in
that quarter. Additionally, orders for a significant portion of the Company's
license revenues typically are received in the last two weeks of a quarter.
The decrease in revenues that occurred in the three-month period ended
October 31, 1996 resulted primarily from a realignment of the Company's sales
force during this three-month period, which affected sales efforts and
resulted in the delay of certain software license sales until the three-month
period ended January 31, 1997. In addition, higher than average cost of
license revenues occurred in the three-month period ended April 30, 1996 due
to the one-time write-off of purchased computer software related to mainframe
applications in the amount of $1.2 million. Cost of license revenues increased
in the three-month period ended April 30, 1997 principally due to increased
amortization of capitalized software relating to completion of certain
software development projects.
See "Risk Factors--Significant Fluctuations in Quarterly Operating Results
and Seasonality; Potential Quarterly Losses."
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has received funding from American Software to
support its research and development efforts and to fund its growth and
working capital requirements. Following the completion of this offering, the
Company's principal sources of liquidity will consist of cash and investments
and cash generated from operations.
The Company's operating activities provided cash of $864,000 and $2.7
million during the three months ended July 31, 1997 and fiscal year ended
April 30, 1997, respectively, and used cash of $197,000 and $309,000 during
the two fiscal years ended April 30, 1996 and 1995, respectively. The cash
provided by operations during the three months ended July 31, 1997 was
primarily attributable to non-cash depreciation and amortization expense of
$1.1 million, an increase in deferred revenues of $955,000 and net income of
$224,000, which were partially offset by an increase in accounts receivable of
$723,000 and a decrease in accounts payable, accrued costs and other current
liabilities of $553,000. The cash provided by operations during fiscal year
ended April 30, 1997 was attributable to non-cash depreciation and
amortization expense of $3.3 million, an increase in accounts payable, accrued
costs and other current liabilities of $1.8 million and an increase in
deferred revenues of $933,000. These increases were partially offset by an
increase in accounts receivable of $1.2 million and a net loss from operations
of $2.0 million. The Company's use of cash for the year ended April 30, 1996
was primarily caused by an operating loss of $2.9 million and a net increase
in accounts receivable of $2.8 million. These uses of cash were offset by
depreciation and amortization of $2.4 million, a write-off of purchased
computer software costs of $1.2 million, and an increase in deferred revenues
of $1.7 million. The Company's use of cash for fiscal year ended April 30,
1995 was primarily caused by an operating loss of $3.2 million. This use of
cash was offset by depreciation and amortization of $1.6 million and a
decrease in accounts receivable of $1.4 million.
28
<PAGE>
Cash used in investing activities was approximately $854,000, $3.4 million,
$4.6 million and $2.6 million in the three months ended July 31, 1997 and
fiscal years ended April 30, 1997, 1996 and 1995, respectively. The majority
of the cash was used for computer software development costs.
The Company believes that its sources of liquidity and capital resources
will be sufficient to satisfy its cash requirements for the next twelve
months. To the extent that such amounts are insufficient to finance the
Company's capital requirements, the Company will be required to raise
additional funds through equity or debt financing. The Company does not
currently have a bank line of credit. No assurance can be given that bank
lines of credit or other financing will be available on terms acceptable to
the Company. If available, such financing may result in further dilution to
the Company's shareholders and higher interest expense.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS 128,
Earnings per Share. SFAS 128 specifies modifications to the calculation of
earnings per share from those currently utilized by the Company. Under SFAS
128, "basic" earnings per share will be calculated based upon the weighted
average number of common shares actually outstanding, and "diluted" earnings
per share will be calculated based upon the weighted average number of common
shares and dilutive potential common shares. SFAS 128 is effective in the
Company's fourth quarter of fiscal year ending April 30, 1998 and the Company
intends that it will be adopted at that time. The Company believes that the
adoption of SFAS 128 will have no effect on the Company's financial position
or cash flows.
In February 1997, the Financial Accounting Standards Board issued SFAS 129,
Disclosure of Information about Capital Structure. SFAS 129 requires companies
to disclose descriptive information about securities that is not necessarily
related to the computation of earnings per share. It also requires disclosure
of information about the liquidation preference of preferred stock and
redeemable stock. SFAS 129 is effective for financial statements for periods
ending after December 15, 1997. The Company does not expect that SFAS 129 will
require significant revision of prior disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income. SFAS 130 requires companies to display, with
the same prominence as other financial statements, the components of other
comprehensive income. SFAS 130 requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
balance sheet. SFAS 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company's financial
statements will include the disclosure of other comprehensive income in
accordance with the provisions of SFAS 130 beginning in the first quarter of
fiscal year ending April 30, 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS 131
requires that an enterprise disclose certain information about operating
segments. SFAS 131 is effective for financial statements for periods beginning
after December 15, 1997. The Company will evaluate the need for such
disclosures at that time.
29
<PAGE>
BUSINESS
COMPANY OVERVIEW
Logility develops, markets and supports software applications that optimize
the operating efficiencies of manufacturers, suppliers, distributors,
retailers and other organizations along the value chain. The Company's
solution, Logility Value Chain Solutions, consists of an integrated software
suite that provides advanced collaborative planning and integrated logistics
capabilities that are designed to reduce inventory costs, improve forecast
accuracy, decrease order cycle times, optimize production scheduling,
streamline logistics operations, reduce transportation costs and improve
customer service. The Company's software solution is modular and scaleable to
meet the management requirements of complex processes involving tens of
thousands of products across multiple sites. In addition, it can be integrated
with existing software systems and a variety of client-server operating
environments and platforms.
The Company has licensed one or more modules of Logility Value Chain
Solutions to more than 200 companies worldwide, including Eastman Chemical,
FINA, Heineken USA, Newell, Pharmacia & Upjohn, Pfizer International, Reynolds
Metals, Sony Electronics and VF Corporation. The Company sells its products
through direct and indirect channels in the United States and Canada and
primarly through indirect channels outside North America. The Company derived
approximately 12% of its revenues in fiscal year ended April 30, 1997 from
international sales.
INDUSTRY BACKGROUND
In response to global competitive pressures, companies are continually
seeking new ways to enhance the productivity of their enterprise business
systems and processes. Significant competitive advantages in the form of lower
costs and greater customer responsiveness can be realized by those companies
that effectively communicate, collaborate and integrate with their suppliers,
distributors, retailers, consumers and other parties within the "value chain."
Value chain management refers to the process of managing the complex network
of relationships that organizations maintain with trading partners to source,
manufacture and deliver goods and services to the customer. Value chain
management involves both the activities related to supplying products or
services as well as the sales and marketing activities that impact the demand
for goods and services, such as promotions, pricing and forecasting.
Today, several market trends are driving organizations to expand
collaboration with trading partners along the value chain. A general shift in
market power has forced manufacturers and distributors to become more
responsive to retailers and consumers, which has created a need for improved
planning capabilities. At the same time, competitive pressures are forcing
manufacturers to reduce costs, decrease order cycle times and improve
operating efficiencies. As a result, manufacturers are increasingly under
pressure to better manage the value chain, as they seek to improve
manufacturing efficiency and logistics operations while maintaining
flexibility and responsiveness to changing market conditions and customer
demands. These pressures are compounded by the increasing complexity and
globalization of the interactions among suppliers, manufacturers,
distributors, retailers and consumers.
Advances in communications and computing technology have enhanced the
ability of organizations along the value chain to integrate their processes
through collaborative information sharing and planning and to improve internal
operations through refined workflow management. These technology developments
include the proliferation of the client-server computing environment, the
introduction of data collection technology such as point of sale and radio
frequency devices, the growth of the wide area network infrastructure and the
emergence of the Internet and corporate intranets. In addition, businesses are
beginning to extend their corporate intranets to establish dedicated links, or
extranets, with suppliers and customers. Corporations are increasingly taking
advantage of this technology and the general availability of more powerful
software applications to improve the effectiveness of their information
gathering and analysis processes, which in turn is leading to improved
decision-making capabilities.
30
<PAGE>
To manage and facilitate enhanced collaboration among the various
participants in the value chain, organizations are increasingly deploying
value chain management software solutions to address their planning and
execution requirements. The planning function involves the proactive use of
information to facilitate the delivery of the right products on time to the
correct location and at the lowest cost. The planning process focuses on
demand forecasting, inventory simulation, distribution, transportation and
manufacturing planning and scheduling. Planning software is designed to
improve forecast accuracy, optimize production scheduling, reduce inventory
costs, decrease order cycle times, reduce transportation costs, and improve
customer service. The execution function addresses procuring, manufacturing
and distributing products throughout the value chain. Within the execution
function, increasing focus is being placed by organizations on the effective
management of warehouse and transportation operations and the need for their
integration with planning systems and other enterprise software applications.
The market for value chain management solutions is relatively new and is
experiencing rapid growth. Industry sources estimate that the supply chain
planning and execution software market was $246 million in 1996, and is
projected to grow at a compound annual growth rate of 48% to more than $1.7
billion by 2001. The warehouse management systems software market was
approximately $104 million in 1996, and is projected to grow at a compound
annual growth rate of 41% to $586 million by 2001.
Organizations increasingly are recognizing that an integrated value chain
management solution has a measurable impact on productivity and is critical in
addressing changing market requirements. An important element of managing the
value chain is the ability to incorporate the requirements of a diverse group
of constituents both within and outside the organization to create an
integrated, accurate consensus plan that can be synchronized with the
manufacturing, distribution, transportation and warehousing processes. In
general, existing value chain management solutions do not provide robust,
integrated, end-to-end solutions that address the needs of the entire value
chain and do not synchronize demand opportunities with supply constraints and
logistics operations.
In order to effectively manage and coordinate value chain activities,
companies require planning and execution software that provides for integrated
communication and collaboration among the various constituents along the value
chain. This enhanced collaboration synchronizes production plans with demand
forecasts, thereby minimizing bottlenecks that lead to production delays and
excess inventory. In addition, companies seek integrated planning and
execution systems that further optimize the flow of products to the customer
through enhanced transportation and warehouse management capabilities.
Organizations are also demanding solutions that are modular and scaleable to
fit the changing needs of the organization and that can be rapidly deployed.
LOGILITY VALUE CHAIN SOLUTIONS
The Company's integrated product line, Logility Value Chain Solutions, is a
value chain management software suite that enables manufacturers, distributors
and retailers to more effectively manage the activities along their respective
value chains.
The key benefits of the Company's software solution include the following:
Integrated End-to-End Value Chain Solution. The Company's Logility Value
Chain Solutions provides functionality that addresses both the flow of
information and the flow of products throughout the value chain. By
synchronizing its comprehensive planning software suite with its
transportation and warehouse management software solutions, the Company's
product suite can more efficiently and accurately coordinate the delivery
of products to the customer. This end-to-end approach allows maximum
synchronization of activities along the value chain.
Comprehensive Planning Solution. The Company's planning solution is
comprised of demand, inventory, manufacturing, replenishment and
transportation planning modules that balance demand opportunities with
supply constraints through the synchronization of information gathered from
value chain
31
<PAGE>
participants. A key component of the Company's planning solution is its
emphasis on addressing the full range of complex demand planning
requirements of its customers, including comprehensive forecasting
capabilities that take into account each user's unique perspective of the
value chain.
Advanced Collaborative Planning Functionality. The Company's products
allow for collaboration among the various levels within an organization and
among external constituents throughout the value chain. The architecture of
Logility Planning Solutions enables key constituents to participate in the
planning process, including marketing, sales, manufacturing, procurement,
logistics and transportation personnel, so that the requirements of all
groups are factored in to create one consensus plan. The Company's
collaborative planning functionality is further enhanced with the Company's
Demand Chain Voyager and Supply Chain Voyager modules, which leverage
Internet technology to facilitate information sharing directly with trading
partners.
Robust Warehouse Management Solution. The Company's integrated
WarehousePRO solution is designed to optimize operations within the
warehouse by improving inventory turnover, increasing inventory accuracy
and customer service and reducing inventory levels. The solution's object-
oriented design and user-configurable architecture allows for flexible and
rapid implementation. In addition, the solution features a comprehensive
library of industry best-practice workflows that can be configured by the
customer, thereby minimizing the need for custom programming.
Rapid Deployment. The Company's products utilize a modular design,
thereby streamlining implementation and allowing deployment in a relatively
short time frame. The comprehensive functionality of each module generally
permits customers to implement the solutions with nominal modifications. In
addition, the Company's software combines sophisticated techniques and
tools with an intuitive, Windows-based interface to reduce training
requirements and implementation tasks.
Open, Scaleable, Client-Server Architecture. Logility's software has been
designed to integrate with existing in-house and third-party software
applications and a variety of operating environments and platforms. The
software is scaleable to manage complex processes involving tens of
thousands of products across multiple sites.
STRATEGY
The Company's objective is to become the leading provider of value chain
management software solutions that are designed to enhance collaboration among
participants along the value chain and optimize the operations associated with
manufacturing and the distribution of products. The Company's strategy
includes the following key elements:
Leverage and Expand Installed Base of Customers. The Company currently
targets businesses in both the discrete and process manufacturing
industries, including consumer packaged goods, chemicals and
pharmaceuticals, food and beverage, and telecommunications and utilities.
The Company intends to continue to leverage its installed base of more than
200 customers to introduce additional functionality, product upgrades and
complementary modules. In addition, the Company intends to expand sales to
new customers in its existing vertical markets and to target additional
vertical markets.
Continue to Expand Sales and Marketing. The Company intends to continue
to pursue an increased share of the market for value chain management
software solutions by expanding its sales and marketing activities. The
Company intends to continue building a direct sales force that is focused
on selected vertical markets, such as chemicals and pharmaceuticals and
consumer packaged goods manufacturers.
Maintain Technology Leadership. The Company believes that it is a
technology leader in the field of value chain management software solutions
and intends to continue to provide innovative, advanced solutions to this
market. The Company believes that it was one of the earliest providers of
value chain planning software solutions on a client-server platform and on
Windows NT, and the first to introduce a value chain planning software
solution that operates over the Internet. The Company intends to continue
to develop and introduce new or enhanced products and keep pace with
technological developments and emerging industry standards.
32
<PAGE>
Focus on Integrated Planning and Logistics Execution Solution. The
Company believes it is one of the few providers of integrated value chain
management software solutions addressing both demand and supply planning as
well as transportation and warehousing logistics requirements. The Company
is focused on providing the most comprehensive planning and execution
solution aimed at optimizing operations along the value chain. The Company
intends to continue to focus its development initiatives on enhancing its
end-to-end solution and introducing additional capabilities that complement
its integrated solution.
Increase Penetration of International Markets. In fiscal year ended April
30, 1997, the Company generated 12% of its total revenues from
international sales and has marketing relationships with a number of
foreign distributors. The Company intends to expand its international
presence by adding additional direct sales personnel to address
international markets and creating additional relationships with
distributors in Europe, Latin America and the Asia/Pacific region.
Leverage Strategic Relationships. The Company has a number of recent
marketing or product relationships with leading ERP providers, systems
integrators and systems consulting organizations, including Andersen
Consulting, CAPS Logistics, Deloitte & Touche, Oracle, PeopleSoft, Ross
Systems and SAP. The Company intends to utilize these and future
relationships with other service providers and hardware and software
vendors to enhance its sales and marketing efforts. The Company also
intends to leverage its relationship with American Software by selling
through its established distribution channels, targeting both existing and
new customers.
Continue to Focus on Providing High Quality Customer Service. Providing
high quality customer service is a critical element of the Company's
strategy. The Company intends to continue to invest in technology and
personnel to accommodate the needs of its growing customer base. The
Company is installing a new help desk solution to further enhance the
service function and expects to add additional service and support staff
going forward.
PRODUCTS
Logility Value Chain Solutions is an integrated suite of value chain
management solutions designed to synchronize demand opportunities with supply
constraints and logistics operations. The suite is comprised of two solution
groups: Logility Planning Solutions and Logility Execution Solutions, which in
turn are comprised of a series of integrated modules. These modules can be
implemented individually in certain cases, as well as in combinations or as a
full solution suite. Logility Value Chain Solutions supports multiple
communications protocols and is designed to operate with industry-standard
open technologies, including leading client-server environments, such as
HP9000, IBM RS/6000 and Intel-based servers running Windows NT. The Company's
WarehousePRO solution operates on the OS/2 platform and is designed to
interface with a broad range of operating systems and platforms. A Windows NT
version is under development and scheduled for general availability by the end
of 1997. The following table summarizes the Company's product line:
33
<PAGE>
<TABLE>
<CAPTION>
SOLUTION GROUP MODULE FEATURES
- -------------------------------------------------------------------------------
<C> <C> <S>
LOGILITY PLANNING
SOLUTIONS Demand Planning . Item and group forecasting
. Self selecting forecast
models
. Personalized data views
. Item stratification
. Product life cycle
management with simulation
. Drag and drop data
manipulation
- -------------------------------------------------------------------------------
. Time-phased view of
Inventory Planning inventory
. Graphical simulations of
inventory trade-offs
. Views of dependent and
independent demand
. Inventory management
variables
- -------------------------------------------------------------------------------
Event Planning* . Promotion planning
. Self-learning capabilities
using artificial
intelligence
. Causal-based forecasting
. Promotion profitability
simulations
- -------------------------------------------------------------------------------
Demand Chain Voyager . Forecast retrieval and
modifications via the
Internet
. Tight integration with
Demand Planning
. Promotion planning
calendars
. Comprehensive security
features
. Collaborative planning
with trading partners
- -------------------------------------------------------------------------------
. Enterprise-wide capacity
Manufacturing Planning planning
. Plant-level scheduling
. Supports activity-based
costing
. Optimizes sourcing
decisions' actual costs
. Interactive simulation
. Real-time, in memory model
- -------------------------------------------------------------------------------
. Supports continuous
Replenishment Planning replenishment strategies
. Constrained, time-phased
distribution
requirements planning
. Proactive action messages
. EDI integration
. Available to promise
methodologies
. Multi-site sourcing and
allocation
- -------------------------------------------------------------------------------
Transportation Planning . Load Control Center
. Shipment planning and
consolidation
. Freight rating and routing
. Carrier selection
- -------------------------------------------------------------------------------
Supply Chain Voyager . Replenishment ordering via
the Internet
. Tight integration with
Replenishment Planning
. Remote analysis of orders
. Comprehensive security
features
. Collaborative planning
with trading partners
- -------------------------------------------------------------------------------
LOGILITY EXECUTION Transportation
SOLUTIONS Management . Load tendering
. Shipment confirmation
. Freight audit and payment
control
. Shipment documentation and
tracking
- -------------------------------------------------------------------------------
. Object oriented
WarehousePRO architecture
. User configurable options
. Advanced workflow
technology
. Dynamic label and report
printing
. Integrated graphical user
interface
</TABLE>
*Under development. See "--Research and Product Development."
34
<PAGE>
LOGILITY PLANNING SOLUTIONS
Logility Planning Solutions is designed to optimize demand opportunities
with supply constraints. The solution enables users to generate and analyze
information to effectively manage demand and respond to changes in the
marketplace while optimizing the utilization of production, distribution and
transportation assets. Demand Chain Voyager and Supply Chain Voyager enhance
the functionality of Logility Planning Solutions by utilizing the Internet to
extend planning capabilities to remote users and trading partners.
Demand Planning. The Demand Planning module reconciles demand history,
existing customer orders, point-of-sale data, market forecasts and other
information to generate a graphical representation of demand by item,
location, customer and/or group. Demand Planning has an automatic self-
correcting, self-selecting modeling process that utilizes a number of
advanced forecasting models to generate sales, marketing, logistics and
other forecasts. The system allows for user-override of certain modeling
parameters, such as quantities or percentages, to account for promotions,
supply constraints and other "what-if" scenarios.
Inventory Planning. The Inventory Planning module is designed to
determine the optimal balance between inventory and service levels. With
extensive simulation capabilities, Inventory Planning helps manufacturers
and distributors reduce inventory costs while meeting customer service
requirements at the individual stock keeping unit ("SKU") level. Built
around industry best-practices, Inventory Planning can enhance planning and
scheduling of inventory while taking into consideration replenishment
frequency and order size, seasonal build and manufacturing plans. Service
level targets and policies can be applied individually to every product
within an enterprise or uniformly throughout the various product lines.
Event Planning. The Company is developing an Event Planning module that
is currently scheduled for general availability by the end of 1997. The
Event Planning module will be a causal-based forecasting solution designed
to facilitate product life-cycle management and promotion planning, and
will provide forecasting capabilities to help determine the impact of
promotions, price changes or other events, enabling manufacturers to adjust
production to match changing demand. Event Planning will utilize advanced
forecasting algorithms based on neural network techniques that allow the
system to refine forecasting by incorporating the results of ongoing
promotions and other activities.
Demand Chain Voyager. Through the use of the Internet, the Demand Chain
Voyager module extends the reach of Demand Planning by allowing remote
users to view corporate forecasts and to input demand data in real-time.
Demand Chain Voyager provides an online, updated schedule of events
including promotions, product launches and holidays. In addition, it allows
for the revision of inventory goals and objectives such as service levels
and turns.
Manufacturing Planning. The Manufacturing Planning module is designed as
a constraint-based planning solution that balances manufacturing processes
and resources with demand priorities and corporate objectives.
Manufacturing Planning models the operations of a business by capturing
capacity constraints such as equipment capabilities, intermediate storage
limitations, shop floor calendars and raw material availability and
production constraints such as synchronization of multi-step operations,
product sequencing, production changeovers and inventory policies.
Manufacturing Planning enables collaborative decision-making by comparing
the feasibility and cost effectiveness of various scheduling strategies
through the use of simulation.
Replenishment Planning. The Replenishment Planning module addresses the
planning needs of an organization to determine the optimal balance between
customer service levels and inventory. Replenishment Planning takes into
account manufacturing constraints, inventory investment, desired service
levels, and current orders and commitments. Features of Replenishment
Planning include automatic detailed item planning to balance delivery loads
and orders, filtered order review, SKU change simulation, and constrained
distribution requirements planning. The benefits of Replenishment Planning
include, among others, faster inventory turns, optimized inventory levels
and the ability to allocate customer orders based
35
<PAGE>
on user-defined priorities. Replenishment Planning provides support for
continuous replenishment strategies, such as Vendor Managed Inventory,
Quick Response and Efficient Consumer Response.
Transportation Planning. The Transportation Planning module synchronizes
transportation plans with demand, inventory, manufacturing and
replenishment strategies. Transportation Planning consolidates shipments
and determines the optimal transportation mode and carrier while providing
a list of alternatives. The solution includes a Load Control Center that
reviews all inbound, outbound and inter-facility shipments and provides an
integrated view of all orders requiring shipping decisions. The product is
designed to reduce freight costs, improve customer service levels and
increase responsiveness to customer requirements. A Windows NT version of
Transportation Planning is under development and is currently scheduled for
general availability by the end of 1997.
Supply Chain Voyager. The Supply Chain Voyager module operates over the
Internet and provides trading partners with enhanced functionality for
consumption monitoring and order review, approval and tracking. Consumption
monitoring facilitates the process of tracking inventory consumption at the
point of demand and comparing real-time inventory levels to inventory
targets. Order review, approval and tracking automatically generate
proposed replenishment orders and allow trading partners to track the
status of orders.
LOGILITY EXECUTION SOLUTIONS
Logility Execution Solutions is designed to enable users to effectively and
efficiently manage the flow of products through distribution centers and
warehouses and helps ensure that products are delivered to the right location
using the best transportation alternatives available. Integrated analysis
reporting is included to allow users to analyze cost and productivity across
the value chain, enabling companies to make real-time decisions about the
operations of their warehouses and the transport of products.
Transportation Management. Transportation Management facilitates the
timely execution of the optimized shipping plan developed by the
Transportation Planning module. Load tendering and shipment tracking are
included via Electronic Data Interchange ("EDI"), E-mail or automatic fax.
The freight audit and payment capabilities enable flexible reporting of
landed cost by shipment, customer or product group. The module is designed
to reduce freight costs, improve carrier utilization and provide
comprehensive freight management reporting. A Windows NT version of
Transportation Management is currently under development and is scheduled
for general availability by the end of 1997.
WarehousePRO. WarehousePRO incorporates advanced workflow technology,
industry-specific best practices and radio frequency data collection
terminals to optimize warehouse operations. The software's object-oriented
design allows users to define the properties of specific items, locations,
or processes, thereby reducing the need for custom programming. The
solution is highly flexible and can be reconfigured by the user to adapt to
changing business requirements. WarehousePRO features an extensive workflow
library of user-selected templates incorporating industry-specific best-
practice warehousing techniques. With built-in standard interfaces to major
radio frequency data collection systems, the software delivers more
accurate inventory accountability and improved warehouse efficiency.
WarehousePRO's performance analysis tools generate graphical reports that
illustrate productivity gains, warehouse efficiency and inventory controls,
enabling users to make real-time management decisions. A Windows NT version
of WarehousePRO is under development and is currently scheduled for general
availability by the end of 1997.
The price for the Company's products typically is determined based upon the
number of modules licensed and the number of servers, users and/or sites for
which the solution is designed. During fiscal year ended April 30, 1997,
license fees for a new customer generally ranged from $200,000 to $1,000,000.
36
<PAGE>
CUSTOMERS
The Company primarily targets businesses in the consumer packaged goods,
chemicals and pharmaceuticals and manufacturing industries. As of July 31,
1997, one or more of the Company's solutions had been licensed to more than
200 customers worldwide. No single customer accounted for 10% or greater of
the Company's revenues in the three years ended April 30, 1997. The following
companies purchased at least $200,000 in products and services from the
Company on a cumulative basis since April 30, 1995:
<TABLE>
<CAPTION>
CONSUMER CHEMICALS AND
PACKAGED GOODS PHARMACEUTICALS MANUFACTURING AND OTHERS
-------------- --------------- ------------------------
<S> <C> <C>
Bausch & Lomb Eastman Chemical Appleton Paper
Goody (a division of FINA Inc. British Telecommunications
Newell Company) Pfizer International Mercury Marine
Heineken USA Pharmacia & Upjohn Reynolds Metals
Nestle Rhone-Poulenc Siecor (joint venture
Sara Lee Knit Products Sigma-Aldrich Corporation between Siemens & Corning)
S.C. Johnson & Sons Sony Electronics
The Glidden Company Union Camp
Tiffany's
VF Corporation
</TABLE>
The following examples illustrate how certain customers have adopted and are
implementing the Company's solutions:
Heineken USA, a subsidiary of Heineken, NV, is the sole US importer for
the Heineken, Amstel and Murphy's brands of beer. With a network of more
than 400 independent distributors, Heineken USA was evaluating solutions
that could provide enhanced collaboration within its network. Specifically,
Heineken USA was looking to increase forecast accuracy and streamline
replenishment orders, thereby reducing order cycle times. After a
competitive sales process, Heineken USA selected Logility Planning
Solutions primarily for its ability to leverage the functionality of the
Internet in a cost-effective manner to allow for real-time collaboration
with its distributors. Heineken USA implemented the Demand Planning,
Inventory Planning and Replenishment Planning modules into its core ERP
system and connected its distribution network via the Internet utilizing
the Demand Chain Voyager and Supply Chain Voyager modules. Distributors are
now able to report sales and place replenishment orders on a customized
Heineken Web page based upon forecasts and replenishment recommendations
provided by Heineken USA. Although the system has only been operational
since January 1997, order cycle times have been reduced substantially,
resulting in improved customer satisfaction.
FINA Inc. is an integrated oil and chemical company that produces a
number of plastic products including polystyrene, polypropylene and
polyethylene. These plastics are sold to manufacturers who make various
products including medical devices, cutlery, toys, appliances, food
packaging, plastic bags and carpet. FINA was looking for an integrated
software solution to help improve forecasting, inventory management and
manufacturing planning. Because FINA maintains a multi-tiered distribution
system, it was important to have the right inventory at the right warehouse
at the right time. After a competitive evaluation, FINA selected the
Company's Demand Planning, Inventory Planning, Replenishment Planning, and
Manufacturing Planning modules. As a result of implementing Logility
Planning Solutions, FINA expects to optimize inventory, improve production
scheduling and increase customer service levels. Benefits achieved to date
include a significant reduction in the time needed to generate a production
schedule and to make decisions regarding inventory replenishments at
outside warehouses. FINA also is benefiting from the ability to review the
future effects of a time-phased inventory.
37
<PAGE>
Goody, a division of Newell Company, is a leading manufacturer of hair
accessories such as combs, hair brushes and barrettes. With a broad and
complex product line consisting of manufactured and sourced products,
accurate and timely order fulfillment is an important element to Goody's
success. Following an evaluation process, Goody chose the Company as its
partner and purchased the Company's WarehousePRO product to manage all
warehouse operations in its 290,000-square-foot facility. Goody selected
the Company on the basis of its ability to meet and support an aggressive
implementation schedule and the ability to integrate WarehousePRO with its
existing systems. Since implementing WarehousePRO in May 1997, Goody has
substantially enhanced its ability to accommodate increasingly demanding
order response times.
SALES AND MARKETING
The Company markets its products through direct and indirect sales channels
in the United States and Canada and primarily through indirect channels
outside North America. The Company conducts its principal sales and marketing
activities from corporate headquarters in Atlanta, Georgia, and has sales
and/or support offices in Boston, Chicago, Columbus, Dallas, Detroit,
Minneapolis, Newport Beach, Philadelphia, Raleigh, and Toronto, Canada. Sales
channels outside of North America are managed from a sales office in the
United Kingdom.
The Company has a number of joint-marketing relationships with business
application software vendors, including CAPS Logistics, PeopleSoft and Ross
Systems. The Company also has a sales and marketing relationship with its
parent, American Software. See "Relationship with American Software and
Certain Transactions." These agreements promote the cross-marketing of the
Company's products with the products of these other vendors.
The Company has arrangements with independent distributors and resellers
throughout Europe and the Asia/Pacific region which distribute the Company's
product line in foreign countries. These vendors typically sell their own
consulting and systems integration services in conjunction with the licensing
of the Company's products.
As of July 31, 1997, the Company employed 66 sales and marketing personnel.
The Company intends to increase expenditures to expand its direct sales and
marketing organizations in the United States, Europe and the Asia/Pacific
region, as well as increase the name recognition of the Company and its
products.
To support its direct sales force, the Company conducts marketing programs
that include public relations, direct mail, advertising campaigns, trade
shows, product seminars, user group conferences and ongoing customer
communication programs.
CUSTOMER SERVICE AND SUPPORT
The Company believes that providing a high level of customer service and
technical support is essential to customer satisfaction and timely
implementation of the Logility Value Chain Solutions. As of July 31, 1997, the
Company had 59 employees in its customer service and support organization,
providing software maintenance and support, training and consulting services.
The Company provides the following services and support to its customers:
Implementation; Training Services. The Company offers its customers post-
delivery professional services consisting primarily of implementation and
training services, for which the Company charges separately on either an
hourly or daily basis. Customers that choose to purchase implementation
services receive assistance in integrating the Company's solution with
existing software applications and databases. Implementation of Logility
Value Chain Solutions typically requires three to twelve months, depending
on the complexity of a customer's existing system, the number of modules
purchased, and the training requirements.
38
<PAGE>
Product Maintenance and Updates; Support Services. The Company provides
its customers with ongoing product support services. Support or maintenance
contracts typically are sold to customers for a one- to three-year term at
the time of the initial product license and may be renewed for additional
periods. Under these contracts, the Company provides telephone consulting,
product updates and releases of new versions of products previously
purchased by the customer, as well as error reporting and correction
services. The Company provides ongoing support and maintenance services on
a seven-days-a-week, 24-hours-a-day basis through telephone and electronic
mail, using a call logging and tracking system for quality assurance.
RESEARCH AND PRODUCT DEVELOPMENT
The Company has dedicated significant resources to the development of the
Logility Value Chain Solutions and its associated modules. The Company's
product development expenditures (including capitalized software costs) in
fiscal years ended April 30, 1997, 1996 and 1995 were $6.3 million, $5.1
million and $3.4 million, respectively. As of July 31, 1997, the Company had
53 employees devoted to product development. The Company intends to continue
to increase its investment in product development in future periods.
The Company believes that its future success depends in part upon its
ability to continue to enhance existing products, respond to changing customer
requirements, develop and introduce new or enhanced products and keep pace
with technological developments and emerging industry standards. The Company's
development efforts are focused on, but are not limited to, enhancing
operability of its products across distributed and changing heterogeneous
hardware platforms, operating systems and relational databases and the
addition of new functionality to existing products.
The Company is in the process of releasing version 5.0 of Logility Planning
Solutions. This version is based on an integrated object-oriented architecture
for maximum scaleability and messaging functionality that supports the
increasingly distributed nature of value chain planning. The product
incorporates advanced Microsoft technology, including ActiveX and DCOM. The
Event Planning module is currently under development and is currently
scheduled for general availability by the end of 1997. Windows NT versions of
the Company's Transportation Planning, Transportation Management and
WarehousePRO modules are currently under development and are currently
scheduled for general availability by the end of 1997. The Company has
developed interfaces with PeopleSoft's manufacturing application and has
active interface development initiatives with other leading ERP vendors, such
as Oracle and SAP.
There can be no assurance that the Company will be successful in developing
these new or enhanced products or other new products on a timely basis, or
that such enhancements or new products, when introduced, will achieve market
acceptance or will adequately address the changing needs of the marketplace.
See "Risk Factors--Rapid Technological Change and New Products."
COMPETITION
The Company's products are targeted at emerging markets within the
application software market, which is intensely competitive and characterized
by rapid technological change. The Company's competitors are diverse and offer
a variety of solutions directed at various aspects of the value chain, as well
as the enterprise as a whole. The Company's existing competitors include
application software vendors, such as BDM, i2 Technologies, Manugistics,
Numetrix, Optum and Weseley Software. In addition, the Company faces potential
competition for the Logility Value Chain Solutions from (i) internal
development efforts by corporate information technology departments, (ii)
smaller independent companies that have developed or are attempting to develop
value chain management software that competes with the Company's software
solution, and (iii) other business application software vendors that may
broaden their product offerings by internally developing, or by acquiring or
partnering with independent developers of, value chain management software.
39
<PAGE>
In addition, the Company may face competition from other application
software vendors, including ERP vendors, that from time to time jointly market
the Company's products as a complement to their own systems. To the extent
such vendors develop or acquire systems with functionality comparable or
superior to Logility's products, their significant installed customer base,
long-standing customer relationships and ability to offer a broad solution
could provide a significant competitive advantage over the Company.
The Company also expects to face additional competition as other established
and emerging companies enter the market for value chain management software
and new products and technologies are introduced. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Increased competition could result in price reductions, fewer customer
orders, reduced gross margins and loss of market share.
Many of the Company's competitors and potential competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, greater name recognition and a larger installed base of
customers than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to technological
change and competitors' innovations. The Company's competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or devote greater resources to the development, promotion and
sale of their products than the Company. The principal competitive factors
affecting the market for the Company's products include vendor and product
reputation; product architecture, functionality and features; costs; ease and
speed of implementation; return on investment; product quality, price and
performance; and level of support. See "Risk Factors--Competition."
PROPRIETARY RIGHTS AND LICENSES
The Company's success and ability to compete is dependent in part upon its
proprietary technology. To protect its proprietary technology, the Company
relies on a combination of copyright and trade secret laws, confidentiality
procedures and contractual provisions, which may afford only limited
protection. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. Although the Company
relies on the limited protection afforded by such confidential and contractual
procedures and intellectual property laws, it also believes that factors such
as the technological and creative skills of its personnel, new product
developments, frequent product enhancements and reliable maintenance are
essential to establishing and maintaining a technology leadership position.
The Company presently has no patents or patent applications pending. The
source code for the Company's proprietary software is protected both as a
trade secret and as a copyrighted work. The Company generally enters into
confidentiality or license agreements with its employees, consultants and
customers, and generally controls access to and distribution of its software,
documentation and other proprietary information.
The Company provides its software products to customers under non-exclusive
license agreements. As is customary in the software industry, in order to
protect its intellectual property rights, the Company does not sell or
transfer title to its products to its customers. Under the Company's current
standard form of license agreement, licensed software may be used solely for
the customer's internal operations. Although the license agreements place
restrictions on the use by the customer of the Company's products, there can
be no assurance that unauthorized use of the Company's products will not
occur. In addition, the Company has licensed the source code for its software
to American Software on a limited basis to enable American Software to perform
warranty, maintenance and support obligations for certain customers, for which
it is responsible under certain license agreements that were not assigned to
the Company in connection with the formation of the Company. See "Relationship
with American Software and Certain Transactions."
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,
40
<PAGE>
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.
In the future, the Company may increasingly be subject to claims of
intellectual property infringement as the number of products and competitors
in the Company's industry segment grows and the functionality of products in
different industry segments overlaps. Although the Company is not aware that
any of its products infringes upon the proprietary rights of third parties,
there can be no assurance that third parties will not claim infringement by
the Company 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 claims against the Company, with
or without merit, as well as claims initiated by the Company against third
parties, can be time consuming and expensive to defend, prosecute or resolve.
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 a substantial amount of attention from management, 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. See "Risk Factors--Dependence on Proprietary Technology."
The Company has resold and expects in the future to resell certain software
that it licenses from third parties for use in connection with the Company's
products. There can be no assurance that these third-party software licenses
will continue to be available to the Company on commercially reasonable terms,
if at all. The termination of any such licenses, or the failure of the third-
party licensors to adequately maintain or update their products, could result
in delay in the Company's ability to ship certain of its products while it
seeks to implement technology offered by alternative sources. Any required
replacement licenses could prove costly. Further, any such delay, to the
extent it becomes extended, could result in a material adverse effect on the
Company's results of operations.
EMPLOYEES
As of July 31, 1997, the Company had 185 full-time employees, consisting of
66 in sales and marketing, 53 in product development, 59 in customer support
and 7 in administration and finance. In addition, the Company shares a number
of administrative and finance personnel with American Software. See
"Relationship with American Software and Certain Transactions." None of the
Company's employees is represented by a labor union or is subject to a
collective bargaining agreement. The Company believes its employee relations
are good.
FACILITIES
The Company maintains its headquarters in Atlanta, Georgia. Some of the
Company's offices are occupied pursuant to the Facilities Agreement. The
Company believes its existing facilities are adequate for its current needs
and that suitable additional or substitute space will be available as needed
on commercially reasonable terms. See "Relationship with American Software and
Certain Transactions."
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
James C. Edenfield......................... 62 Chairman of the Board of
Directors
J. Michael Edenfield....................... 39 Chief Executive Officer,
President and Director
James M. Modak............................. 40 Chief Financial Officer and
Senior Vice President
Larry R. Olin.............................. 45 Vice President--Sales, North
America
Donald L. Thomas........................... 50 Vice President--Customer
Service
Andrew G. White............................ 32 Vice President--Research and
Development
</TABLE>
James C. Edenfield has served as Chairman of the Board of Directors of the
Company since January 1997. He is a co-founder of American Software, where he
has served as Chief Executive Officer and Director since 1971. Prior to
founding American Software, Mr. Edenfield held several executive positions at
and was a Director of Management Science America, Inc., an applications
software development and sales company. He holds a Bachelor of Industrial
Engineering degree from the Georgia Institute of Technology.
J. Michael Edenfield has served as a Director and as President and Chief
Executive Officer of the Company since January 1997. He also serves as
Executive Vice President and Chief Operating Officer of American Software,
Inc. and its principal operating subsidiary, American Software USA, Inc.,
positions he has held since June 1994. Mr. Edenfield intends to resign his
position as Chief Operating Officer of American Software USA, Inc. upon the
completion of this offering. Prior to June 1994, Mr. Edenfield served in the
following positions with American Software USA, Inc.: Senior Vice President of
North American Sales and Marketing from July 1993 to June 1994, Senior Vice
President of North American Sales from August 1992 to July 1993, Group Vice
President from May 1991 to August 1992 and Regional Vice President from May
1987 to May 1991. Mr. Edenfield holds a Bachelor of Industrial Management
degree from the Georgia Institute of Technology. Mr. Edenfield is the son of
James C. Edenfield, Chairman of the Board of Directors of the Company.
James M. Modak has served as Chief Financial Officer and Senior Vice
President of the Company since August 1997. From January 1996 to July 1997,
Mr. Modak served as Senior Vice President--Finance of Total System Services,
Inc., a New York Stock Exchange-listed credit card processing company. From
September 1993 to January 1996, Mr. Modak served as Senior Vice President--
Financial Analysis of First Financial Management Corp., a financial services
processing company. From February 1993 to August 1993 he was Chief Financial
Officer of Shop 'N Chek, a quality service provider for the retail industry.
From July 1991 to February 1993, Mr. Modak was Senior Vice President--
Controller of DF Southeastern, Inc., a savings bank holding company. From 1979
to 1991 he was a CPA with KPMG Peat Marwick. Mr. Modak is a Certified Public
Accountant with a Bachelor of Business Administration degree from the
University of Notre Dame.
Larry R. Olin has served as Vice President, North American Sales of the
Company since January 1997. From November 1996 to January 1997, Mr. Olin
served as Vice President of Sales of the Supply Chain Planning division of
American Software USA, Inc. From August 1992 to November 1996, he was Group
Vice President of American Software USA, Inc. He holds a B.S. degree in
Business Administration from Lake Superior State University and an M.B.A. in
Finance from Central Michigan University.
Donald L. Thomas has served as Vice President, Customer Service of the
Company since January 1997. From October 1976 to January 1997, he served in a
variety of positions with American Software, most recently as Vice President,
Customer Service of the Supply Chain Planning division of American Software
USA, Inc. He holds a B.S. degree in Industrial Engineering from Auburn
University.
42
<PAGE>
Andrew O. White has served as Vice President, Research and Development of
the Company since January 1997. From March 1992 to January 1997, Mr. White was
employed by American Software (UK) Ltd. and American Software USA, Inc., most
recently as the Vice President of Research and Development of American
Software USA, Inc. He holds a Bachelor of Arts (Honors) degree in Economics
from The Open University in the United Kingdom.
Each Director holds office until the next annual meeting of the stockholders
of the Company or until his successor is duly elected and qualified. At such
time as the Board of Directors is comprised of more than two directors,
however, directors will be assigned to classes and will serve staggered three-
year terms. Officers are chosen by, and serve at the discretion of, the Board
of Directors.
The Company has received commitments from three individuals, C. Tycho Howle,
Parker H. Petit and Dr. John A. White, to serve as members of the Board of
Directors of the Company, with terms to commence following completion of this
offering. Each of these individuals would be considered an "independent
director", having no employment or other business relationship with the
Company or with American Software. It is anticipated that two or more of these
individuals will serve, at least initially, on each of the Audit and
Compensation Committees of the Board of Directors of the Company. The
following is summarized biographical information about these individuals:
C. Tycho Howle, age 48, was a founder and since 1983 has served as Chairman
of Harbinger Corporation, a Nasdaq-listed world-wide provider of electronic
commerce products and services, and served as its Chief Executive Officer from
1983 to March 1997. From 1981 to 1983, Mr. Howle was a consultant with
McKenzie and Company, a management consulting firm. From 1979 to 1981, Mr.
Howle was a product line manager with Hewlett-Packard. From 1973 to 1977, he
was a project manager with Booz, Allen and Hamilton's Applied Research Unit.
Mr. Howle holds a BS degree (with honors) in Physics and an MS degree in
Systems Engineering from Clemson University and an MBA from the Harvard
Business School.
Parker H. Petit, age 58, was the founder of Healthdyne, Inc. and served as
its Chairman and Chief Executive Officer from 1970 to March 1996. Healthdyne
spun off to its shareholders two of its subsidiaries, Healthdyne Technologies
(Nasdaq: HDTC) and Healthdyne Information Enterprises (Nasdaq: HDIE) in 1995.
Subsequently, its remaining subsidiary, Healthdyne Maternity Management, was
merged with Tokos Medical Corporation to form Matria Healthcare (Nasdaq: MATR)
in 1996. Mr. Petit currently serves as Chairman of Healthdyne Technologies,
Healthdyne Information Enterprises and Matria Healthcare. Mr. Petit is a
member of the Board of Directors of Atlantic Southeast Airlines, a regional
air carrier, and Intelligent Systems Corporation, a technology company. He is
also a director of the Georgia Research Alliance, a coalition of government
and industry leaders formed to encourage development of high technology
business in Georgia, and has been elected to the Georgia Technology Hall of
Fame.
John A. White, age 57, is Chancellor of the University of Arkansas. From
July 1991 to July 1997, Dr. White served as Dean of Engineering at Georgia
Institute of Technology, having been a member of the faculty since 1975. From
July 1988 to September 1991, he served as Assistant Director of the National
Science Foundation in Washington, D.C. Mr. White is a member of the Board of
Directors of Motorola, Eastman Chemical Company, CAPS Logistics and Russell
Corporation. He is a member of the National Science Board and the National
Academy of Engineering, a past President of the Institute of Industrial
Engineers and past Chairman of the American Association of Engineering
Societies. Dr. White founded SysteCon, a logistics consulting firm, and served
as its Chairman and Chief Executive Officer until its acquisition by Coopers
and Lybrand. Dr. White received a B.S.I.E. degree from the University of
Arkansas, a M.S.I.E. degree from Virginia Polytechnic Institute and State
University and a Ph.D. from The Ohio State University.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors currently acts as the Compensation
Committee, and reviews and approves compensation and benefits for the
Company's executive officers and administers the Company's 1997 Stock Plan.
The Board is currently comprised of James C. Edenfield and J. Michael
Edenfield. James C.
43
<PAGE>
Edenfield is Chief Executive Officer of American Software and J. Michael
Edenfield is Chief Executive Officer of the Company and Chief Operating
Officer of American Software, Inc. and American Software USA, Inc. J. Michael
Edenfield intends to resign his position as Chief Operating Officer of
American Software USA, Inc. upon the completion of this offering. The Board
expects to appoint independent directors to the Compensation Committee within
30 days following the date of this Prospectus. See "Relationship with American
Software and Certain Transactions."
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued in fiscal
year ended April 30, 1997 by the Company's chief executive officer and its two
other most highly compensated executive officers who were serving as executive
officers and whose total annual salary and bonus exceeded $100,000 per year
during fiscal year ended April 30, 1997 (together, the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION(1) COMPENSATION
----------------- ------------
SECURITIES ALL OTHER
BASE UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS (1) (2)
--------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
J. Michael Edenfield .............. $240,000 $102,735 30,000(3) $-0-
President and Chief Executive Of-
ficer
Larry R. Olin...................... 175,000 84,281 -0- -0-
Vice President--Sales, North Amer-
ica
Donald L. Thomas................... 133,000 4,000 -0- -0-
Vice President--Customer Service
</TABLE>
- --------
(1) The Company was organized in January 1997, and the persons named in the
table above became executive officers of the Company at that time or
shortly thereafter. Reported in the table are the total amounts paid and
options granted to purchase shares of American Software to such persons
for their services in all capacities to American Software and its
subsidiaries, including the Company.
(2) The aggregate amount of perquisites and other personal benefits,
securities or property given to each Named Officer, valued on the basis of
aggregate incremental cost to American Software or the Company, was less
than either $50,000 or 10% of the total annual salary and bonus for that
individual.
(3) Consists entirely of options granted in fiscal year ended April 30, 1997
under the American Software, Inc. Director and Officer Stock Option Plan.
44
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information with respect to options granted
during fiscal year ended April 30, 1997, by American Software under its
Director and Officer Stock Option Plan, to J. Michael Edenfield, who was the
only Named Officer who received option grants during that fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT OF POTENTIAL
TOTAL REALIZED VALUE
OPTIONS AT ASSUMED MARKET VALUE
GRANTED TO ANNUAL RATES OF AT END OF 10
AMERICAN STOCK PRICE YEARS ASSUMING
SOFTWARE FAIR MARKET APPRECIATION FOR 5%/10% PER
NUMBER OF EMPLOYEES EXERCISE OR VALUE ON OPTION TERM(2) ANNUM
OPTIONS IN FISCAL BASE PRICE EXPIRATION DATE OF ------------------ COMPOUNDED
NAME GRANTED(1) YEAR (PER SHARE) DATE GRANT 5% 10% INCREASE
---- ---------- ---------- ----------- ---------- ----------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Michael Edenfield ... 30,000 4% $4.375 08/06/2006 $4.375 $82,650 / $209,250 $7.13 / $11.35
</TABLE>
- --------
(1) Such options may not be exercised earlier than one year after the date of
grant. Options vest ratably over a period of four years.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of American Software's Class A Common Stock and overall market
conditions. The amounts reflected in this table may not necessarily be
achieved.
STOCK OPTION EXERCISES AND OUTSTANDING OPTIONS
The following table contains information, with respect to the Named
Officers, regarding options to purchase shares of American Software common
stock outstanding as of April 30, 1997. No stock options were exercised by the
Named Officers during fiscal year ended April 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ------------------------- ----------------------------
<S> <C> <C>
J. Michael Edenfield.... 65,969 / 95,031 $195,332 / $221,156
Larry R. Olin........... 56,000 / 56,000 168,000 / 168,000
Donald L. Thomas........ 23,750 / 31,250 67,950 / 83,850
</TABLE>
- --------
(1) The market price of American Software's Class A Common Stock on April 30,
1997 was $5.75.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Modak on July 24,
1997, pursuant to which he serves as Chief Financial Officer and Senior Vice
President of the Company. The agreement provides that Mr. Modak is entitled to
receive a base salary of $150,000 per year and is eligible to receive an
incentive bonus based upon the Company's completion of this offering, the
average price of the Company's common stock during a pre-determined period and
the revenue growth of the Company for the twelve-month period ending July 31,
1998. In addition, the agreement provides for Mr. Modak to receive an option
to purchase 35,000 shares of American Software common stock. The agreement
also provides for an option to purchase 10,000 shares of the Company's Common
Stock, to be granted under the 1997 Stock Plan. In the event there is a change
in the ownership of the Company, and if Mr. Modak's employment is terminated
by him or by the Company within six months of such change of control, Mr.
Modak will be entitled to receive severance compensation in an amount equal to
two years of his then-current salary.
None of the other executive officers of the Company has entered into an
employment agreement with the Company. Each of the other executive officers,
however, is entitled to incentive compensation based on certain individualized
fiscal 1998 performance standards.
45
<PAGE>
1997 STOCK PLAN
The Company's 1997 Stock Plan (the "Stock Plan") was adopted by the Board of
Directors and approved by the sole stockholder of the Company in August 1997.
Up to 295,000 shares of Common Stock (subject to adjustment in the event of
stock splits and other similar events) may be issued pursuant to stock options
granted under the Stock Plan. Up to 300,000 stock appreciation right ("SAR")
units may be granted under the Stock Plan, each SAR unit being equivalent to
the appreciation in the market value of one share of Common Stock. The Company
will be required to recognize compensation expense over the vesting period of
any SAR's granted. No options or SARs are outstanding under the Stock Plan.
The Stock Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), nonstatutory stock options and SARs (collectively, "Awards").
Officers, employees, directors, advisors and consultants of the Company and
any subsidiaries of the Company are eligible to be granted Awards under the
Stock Plan. Under present law, however, incentive stock options may only be
granted to employees.
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may
be granted at an exercise price that may be less than, equal to or greater
than the fair market value of the Common Stock on the date of grant. Under
present law, incentive stock options may not be granted at an exercise price
less than the fair market value of the Common Stock on the date of grant (or
less than 110% of the fair market value in the case of incentive stock options
granted to optionees holding more than 10% of the voting power of the
Company). The Stock Plan permits the payment of the exercise price of options
to be in the form of cash, by surrender to the Company of shares of Common
Stock or by any combination of these two forms of payment.
Under the terms of the Stock Plan, each independent, nonemployee director
automatically receives an option to purchase 2,000 shares of the Company's
Common Stock upon his or her election to the Board. Each non-employee director
also automatically receives an option to purchase an additional 1,000 shares
on the last day of each fiscal quarter. The exercise price of each option will
be equal to the fair market value of the Company's Common Stock on the date it
is granted.
Approximately 185 persons are eligible to receive Awards under the Stock
Plan, including the Company's five executive officers. The granting of Awards
under the Stock Plan is discretionary.
The Stock Plan will be administered by the Board of Directors and by two
stock option committees to be appointed by the Board of Directors. A committee
to be composed of nonemployee directors, which also is expected to act as the
Compensation Committee, will be responsible for the administration and
granting of Awards granted to executive officers of the Company. The Stock
Option Committee of the Board of Directors, consisting of other directors of
the Company, will be responsible for the administration and granting of Awards
to other employees and eligible persons. To date, neither of such Committees
has been formed, pending the election of nonemployee directors to the Board of
Directors. The Board and the Stock Option Committee will have the authority to
adopt, amend and repeal the administrative rules, guidelines and practices
relating to the Stock Plan generally and to interpret the provisions thereof.
The Board of Directors, and the respective committees when they are
established, may amend, modify or terminate any outstanding Award and with
respect to new Awards will determine (i) the number of shares of Common Stock
or units covered by options or SARs and the dates upon which such options or
SARs become exercisable, (ii) the exercise price of options and SARs, and
(iii) the duration of options and SARs.
The stock option agreements and stock appreciation rights agreements will
provide that in the event of a Change in Control (as defined in the Stock
Plan) of the Company, or a threatened Change in Control of the Company as
determined by the Board of Directors, outstanding Awards will automatically
become fully exercisable, subject to the right of the individual Award holder
to accept a substitute stock option or similar equity right from the surviving
entity in the Change of Control transaction.
46
<PAGE>
No Award may be made under the Stock Plan after August 2007, but Awards
previously granted may extend beyond that time. The Board of Directors may at
any time terminate the Stock Plan. Any such termination will not affect
outstanding options or SARs.
So long as the Company remains a majority-owned subsidiary of American
Software, officers and other employees of the Company will be eligible to
receive grants of stock options under stock option plans of American Software.
The grant of such options, if any, will be entirely within the discretion of
the respective committees of the American Software board of directors. James
C. Edenfield, a director of the Company, serves on a committee of the American
Software board which has authority over one of the American Software stock
option plans. See "Relationship with American Software and Certain
Transactions."
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Articles include provisions that limit the personal liability of the
Company's directors to the Company or its shareholders for monetary damages
for any action taken, or the failure to take any action, as a director of the
Company to the fullest extent permitted under the Georgia Business Corporation
Code (the "Georgia Code"). In accordance with the Georgia Code, however, the
Articles do not eliminate liability (i) for any appropriation, in violation of
a director's duties, of any business opportunity of the Company; (ii) for acts
or omissions that involve intentional misconduct or a knowing violation of
law; (iii) for unlawful payment of dividends or unlawful stock repurchases or
redemptions; or (iv) for any transaction for which a director derived an
improper personal benefit. In addition, the Articles and Bylaws provide that
the Company shall indemnify its directors and officers to the fullest extent
permitted under the Georgia Code, including those circumstances in which
indemnification would otherwise be discretionary, subject to certain
exceptions.
The Company will enter into Indemnification Agreements with each of its
directors and executive officers that provide the maximum indemnification
allowed to directors and executive officers under the Georgia Code, subject to
certain exceptions. In addition, as authorized by the Bylaws and Georgia Code,
the Indemnification Agreements will provide generally that the Company will
advance expenses incurred by directors and executive officers in any action or
proceeding as to which they may be entitled to indemnification, subject to
certain exceptions.
The indemnification provisions in the Company's Articles and Bylaws and the
Indemnification Agreements described above may permit indemnification of
directors and executive officers for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"). Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and, therefore, is unenforceable.
American Software currently maintains directors and officers liability
insurance for the benefit of its and the Company's directors and officers.
47
<PAGE>
RELATIONSHIP WITH AMERICAN SOFTWARE AND CERTAIN TRANSACTIONS
Since January 1, 1994, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than five percent of the Common
Stock of the Company had or will have a direct or indirect material interest
other than (i) compensation agreements which are described, where required, in
"Management," and (ii) the transactions described below.
The descriptions of agreements set forth below are intended to be summaries
and, while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety by reference to the relevant
agreements filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
SERVICES AGREEMENT
The Company and American Software have entered into a Services Agreement
effective August 1, 1997 (the "Services Agreement") with respect to certain
services to be provided by American Software (or subsidiaries of American
Software) to the Company. The Services Agreement provides that such services
are provided in exchange for fees which (based on the current cost for such
services) management of the Company believes would not be substantially
different from fees that would be paid if such services were provided by
independent third parties. Such fees are payable monthly in arrears. The
Company may request an expansion of services, in which case the parties will
discuss, without obligation, the provision of such services and an appropriate
increase in charges for such services. Services are provided to the Company
based on a number of billing and allocation methodologies depending on the
nature of the service, including: (i) a "customary billing method," whereby
specified services are provided to the Company at costs comparable to those
charged from time to time to other businesses operated by American Software;
(ii) a "pass-through billing method," whereby specified services are provided
to the Company at the cost or expense incurred by American Software; and (iii)
a "cost-plus billing method," whereby specified services are provided to the
Company at the cost or expense incurred by American Software to a third party,
plus an additional specified fixed percentage of such cost or expense.
The purpose of the Services Agreement is to ensure that American Software
continues to provide the Company with the range of services that American
Software provided to the Company prior to this offering. With respect to
matters covered by the Services Agreement, the relationship between American
Software and the Company is intended to continue in a manner generally
consistent with current practices. The services initially provided by American
Software to the Company under the Services Agreement include, among other
things, certain accounting, corporate development, professional services,
employee benefit plan administration, human resources and compensation,
general and administrative services, and risk management and tax services.
In addition to the identified services, American Software has agreed to
allow eligible employees of the Company to participate in certain of American
Software's employee benefit plans. In addition to a monthly services fee under
the Services Agreement, the Company will reimburse American Software for
American Software's costs (including any contributions and premium costs and
including third-party expenses and allocations of certain personnel expenses),
generally in accordance with past practice relating to the participation by
the Company's employees in any of American Software's benefit plans.
The Services Agreement has an initial term of three years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or American Software elects not to renew its term. The Company may
terminate the Services Agreement with respect to one or more services
following 60 days' notice to American Software, and American Software may
terminate the Services Agreement with respect to one or
48
<PAGE>
more services following 120 days' notice to the Company. Additionally, the
Services Agreement is subject to early termination at any time by either the
Company or American Software upon 90 days' prior written notice if American
Software ceases to own shares of Common Stock representing more than 50% of
the voting power of the Common Stock of the Company.
Pursuant to the Services Agreement, the Company will indemnify American
Software against any damages that American Software may incur in connection
with its performance of services under the Services Agreement (other than
those arising from American Software's gross negligence or willful
misconduct), and American Software will indemnify the Company against any
damages arising out of American Software's gross negligence or willful
misconduct in connection with its rendering of services under the Services
Agreement.
FACILITIES AGREEMENT
The Company and American Software have entered into a Facilities Agreement
effective August 1, 1997 (the "Facilities Agreement"), which provides that the
Company may occupy space located in certain facilities owned or leased by
American Software (or subsidiaries of American Software) in exchange for
rental fees. The Facilities Agreement obligates American Software, if so
requested by the Company, to continue to provide the Company with the same or
comparable facilities that American Software provided to the Company prior
this offering. With respect to matters covered by the Facilities Agreement,
the relationship between American Software and the Company is intended to
continue in a manner generally consistent with past practices.
The Facilities Agreement has an initial term of two years and is renewed
automatically thereafter for successive one-year terms unless either the
Company or American Software elects not to renew its term. The Facilities
Agreement may be terminated by the Company for any reason with respect to any
particular facility upon 90 days' written notice. The Facilities Agreement
also is subject to early termination by either the Company or American
Software upon 180 days' written notice if American Software ceases to own
shares of Common Stock representing more than 50 percent of the voting power
of the Common Stock of the Company. The Company's lease of space at any
facility under the Facilities Agreement is limited by the term of the
underlying lease between American Software and a landlord with respect to any
facility leased by American Software and by the disposition by American
Software of any facility owned by American Software.
TAX SHARING AGREEMENT
The Company is, and immediately following the consummation of this offering
will continue to be, included in American Software's federal consolidated
income tax group, and the Company's federal income tax liability will be
included in the consolidated federal income tax liability of American Software
and its subsidiaries. In certain circumstances, the Company will also be
included with certain other subsidiaries of American Software in combined,
consolidated, or unitary income tax groups for federal, state and local tax
purposes. The Company and American Software have entered into a Tax Sharing
Agreement effective January 23, 1997 (the "Tax Sharing Agreement"). In
accordance with that agreement, the Company computes a separate, stand-alone
income tax provision and settles balances due to or from American Software on
this basis. All benefits derived from deferred tax assets as defined in the
Tax Sharing Agreement (which include net operating loss and tax credit
carryforwards) that arise prior to this offering will be allocated to American
Software. After this offering, to the extent the tax computation produces a
tax benefit for the Company, American Software will be required to pay such
amounts to the Company only if and when such benefit is realized by American
Software by the reduction in taxes payable with respect to the current tax
period. At April 30, 1997, American Software had net operating loss
carryforwards of approximately $20 million, which must be utilized by American
Software before the Company would receive payment for any currently generated
tax benefits. Accordingly, there can be no assurance that American Software
will have future taxable income sufficient to utilize any tax losses of the
Company in whole or in part.
In determining the amount of tax sharing payments under the Tax Sharing
Agreement, American Software will prepare for the Company pro forma returns
with respect to federal and applicable state and local income taxes that
reflect the same positions and elections used by American Software in
preparing the returns for
49
<PAGE>
American Software's consolidated group and other applicable groups. American
Software will continue to have all the rights of a parent of a consolidated
group (and similar rights provided by applicable state and local law with
respect to a parent of a combined, consolidated, or unitary group), will be
the sole and exclusive agent for the Company in any and all matters relating
to the income, franchise, and similar tax liabilities of the Company, will
have sole and exclusive responsibility for the preparation and filing of
consolidated federal and consolidated or combined state income tax returns (or
amended returns), and will have the power, in its sole discretion, to contest
or compromise any asserted tax adjustment or deficiency and to file, litigate
or compromise any claim for refund on behalf of the Company. In addition,
American Software has undertaken to provide the aforementioned services with
respect to the Company's separate state and local returns and the Company's
foreign returns. Under the Tax Sharing Agreement, the Company will pay
American Software a fee intended to reimburse American Software for all direct
and indirect costs and expenses incurred with respect to the Company's share
of the overall costs and expense incurred by American Software with respect to
tax-related services.
In general, the Company will be included in American Software's consolidated
group for federal income tax purposes for so long as American Software
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock. Each member of a consolidated group is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, although the Tax Sharing Agreement
allocates tax liabilities between the Company and American Software during the
period in which the Company is included in American Software's consolidated
group, the Company could be liable in the event that any federal income tax
liability is incurred, but not discharged, by any other member of American
Software's consolidated group. See "Risk Factors--Relationship with American
Software."
STOCK OPTION AGREEMENT
The Company and American Software have entered into a Stock Option Agreement
pursuant to which the Company has granted to American Software a continuing
option (the "Stock Option"), transferable to any of American Software's
affiliates, to purchase, under certain circumstances, additional shares of
Common Stock and/or shares of Preferred Stock of the Company (if any shall be
issued and outstanding). The Stock Option may be exercised by American
Software simultaneously with the issuance of any equity security of the
Company (other than in connection with this offering or upon the exercise of
the Underwriters' over-allotment option), with respect to Common Stock, only
to the extent necessary to maintain its then-existing percentage of the total
voting power and value of the Company and, with respect to shares of Preferred
Stock, to the extent necessary to own eighty percent (80%) of each outstanding
series of such stock. The purchase price of the shares of Common Stock and/or
Preferred Stock purchased upon any exercise of the Stock Option, subject to
certain exceptions, will be based on the market price at which the stock may
be purchased by third parties. The Stock Option expires (i) on the tenth
anniversary date thereof (subject to extensions, at American Software's
option, for one or more successive ten-year terms), or (ii) on the date on
which American Software makes a distribution to its shareholders of all or any
portion of its Common Stock, or (iii) on the date that the Company, with
American Software's express consent, issues, or enters into an agreement to
issue, shares of Common Stock (other than pursuant to the 1997 Stock Plan)
such that, when issued and combined with Common Stock authorized under the
1997 Stock Plan and all issued and outstanding shares of Common Stock not held
by American Software, exceeds twenty percent (20%) of the issued and
outstanding Common Stock.
TECHNOLOGY LICENSE AGREEMENT
The Company and American Software have entered into a Technology License
Agreement pursuant to which the Company has granted American Software a non-
exclusive, worldwide license to use, execute, reproduce, display, modify, and
prepare derivatives of the Logility Value Chain Solutions product line,
provided such license is limited to maintaining and supporting users that have
licensed Logility Value Chain Solutions products from American Software.
Pursuant to the Technology License Agreement, the Company and American
Software are required to disclose to one another any and all enhancements and
improvements which they may
50
<PAGE>
make or acquire in relation to a Logility Value Chain Solutions product,
subject to confidentiality requirements imposed by third parties. The term of
the Technology License Agreement is indefinite, although the Company may
terminate the Technology License Agreement for cause, and American Software
may terminate the Technology License Agreement at any time upon 60 days'
notice to the Company. Upon termination of the Technology License Agreement,
all rights to Logility Value Chain Solutions products licensed by the Company
to American Software revert to the Company, while all rights to enhancements
and improvements made by American Software to Logility Value Chain Solutions
products revert to American Software.
MARKETING LICENSE AGREEMENT
The Company and American Software USA, Inc. ("USA"), a wholly-owned
subsidiary of American Software, have entered into a Marketing License
Agreement pursuant to which USA has agreed to act as a non-exclusive marketing
representative of the Company for the solicitation of license agreements
relating to the Logility Value Chain Solutions product line. The Marketing
License Agreement provides for the payment to USA of a commission equal to 30%
(or 50% for affiliates of USA located in the United Kingdom and France if they
carry out installation and provide first-line support services) of the net
license revenue collected by the Company under license agreements for Logility
Value Chain Solutions with end-users who are also licensees of software
products of American Software which are secured and forwarded to the Company
by USA and accepted by the Company. Payments to USA are subject to a charge-
back or credit in favor of the Company equal to the amount previously paid to
USA with respect to amounts that are refunded to end-users. The Company has no
obligation to reimburse USA for expenses and costs incurred by it in the
performance of its duties under the Marketing License Agreement. The Marketing
License Agreement has a five-year term, although the Company may terminate the
Marketing License Agreement for cause, and either party may terminate the
Marketing License Agreement at any time upon 12 months' notice to the other
party.
SUBSIDIARY FORMATION AGREEMENT
The Company, American Software, and certain subsidiaries of American
Software have entered into a Subsidiary Formation Agreement which provides for
the transfer to the Company by American Software and such subsidiaries of
American Software of certain assets and the assumption by the Company of
certain liabilities relating to the former Supply Chain Planning division of
American Software. This Agreement subsequently was amended to include the
WarehousePRO software and certain related operations, assets and liabilities.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, as
adjusted to reflect the sale of the shares by the Company pursuant to this
offering, by (a) each stockholder known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (b) each director of
the Company, (c) each of the executive officers, and (d) all directors and
executive officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power
with respect to such shares.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AFTER
COMPLETION OF
OFFERING
---------------------
NAME AND ADDRESS(1) NUMBER PERCENT
- ------------------- ---------- -------
<S> <C> <C>
American Software...................................... 11,300,000 83.7%(2)
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
James C. Edenfield..................................... 11,300,000(3) 83.7%(2)
J. Michael Edenfield................................... -0- --
James M. Modak......................................... -0- --
Lawrence R. Olin....................................... -0- --
Donald L. Thomas....................................... -0- --
Andrew G. White........................................ -0- --
All directors and executive officers as a group (6
persons).............................................. 11,300,000 83.7%(2)
</TABLE>
- --------
(1) The address of each of these persons is in care of the Company, 470 East
Paces Ferry Road, N.E., Atlanta, Georgia 30305.
(2) As of the date of this Prospectus, American Software is the owner of 100%
of the outstanding Common Stock of the Company. See "Relationship With
American Software and Certain Transactions."
(3) Consists of shares held by American Software. James C. Edenfield owns 0.4%
of the outstanding Class A Common Shares and 53.6% of the outstanding
Class B Common Shares of American Software. Under the American Software
articles of incorporation, the holders of Class B Common Shares, as a
class, have the right to elect a majority of the board of directors of
American Software. Accordingly, Mr. Edenfield may be deemed to share
beneficial ownership of the Common Stock of the Company held by American
Software.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of (i) twenty million
(20,000,000) shares of Common Stock having no par value, of which 11,300,000
shares are outstanding as of the date hereof, and (ii) two million (2,000,000)
shares of Preferred Stock, of which no shares are outstanding as of the date
hereof. Of the 20,000,000 shares of Common Stock, 2,200,000 shares are being
offered hereby (not including over-allotment shares), and 11,300,000 shares
will be outstanding and held by American Software upon consummation of this
offering. A description of the material terms and provisions of the Articles
affecting the relative rights of holders of the Common Stock and the Preferred
Stock is set forth below. The description is intended as a summary and is
qualified in its entirety by reference to the form of the Articles filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share of
Common Stock held of record on all matters submitted to a vote of the
stockholders. Holders of shares of Common Stock are not entitled to cumulate
their votes in the election of directors. Generally, all matters to be voted
on by stockholders must be approved by a majority (or, in the case of the
election of directors, by a plurality) of the votes entitled to be cast by all
shares of Common Stock, present in person or represented by proxy, subject to
any voting rights granted to holders of any Preferred Stock. Upon completion
of this offering and the addition of independent directors, the Board of
Directors will be divided into three classes serving staggered three-year
terms. Except as otherwise provided by law or expressly permitted in the
Articles, and subject to any voting rights granted to holders of any
outstanding Preferred Stock, amendments to the Articles must be approved by a
majority of the voting power of the Common Stock. Holders of shares of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of holders of Preferred Stock.
In the event of any merger or consolidation of the Company with or into
another company in connection with which shares of Common Stock are converted
into or exchangeable for shares of stock, other securities, or property
(including cash), all holders of Common Stock will be entitled to receive the
same kind and amount of shares of stock and other securities and property
(including cash). In the event of a liquidation, dissolution, or winding up of
the Company, after payment in full of the amounts required to be paid to
holders of Preferred Stock, all holders of Common Stock are entitled to share
ratably in all assets available for distribution to holders of shares of
Common Stock. No shares of Common Stock are subject to redemption, have
preemptive rights to purchase additional shares of Common Stock, or have
rights of conversion to any other securities. The Company and American
Software, however, have entered into a Stock Option Agreement pursuant to
which the Company has granted to American Software a continuing option to
purchase, under certain circumstances, at market price, additional shares of
Common Stock or Preferred Stock to the extent necessary to maintain its then-
existing percentage of the total voting power and value of the Company and,
with respect to shares of Preferred Stock, to the extent necessary to own 80%
of each outstanding class of such stock. See "Relationship with American
Software and Certain Transactions--Stock Option Agreement."
There are no redemption or sinking fund provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are, and the shares of
Common Stock to be sold in this offering will be, when issued and paid for,
fully paid and non-assessable.
PREFERRED STOCK
Subject to certain limitations prescribed by law, the Board of Directors is
authorized, without stockholder approval, to issue from time to time up to an
aggregate of 2,000,000 shares of Preferred Stock in one or more series and to
fix the relative preferences, rights, voting powers, restrictions, limitations
and qualifications of the
53
<PAGE>
shares within each series, including the dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights, preemptive rights and number of shares constituting any series. An
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
adversely affect the voting and other rights of holders of Common Stock and,
under certain circumstances, could have the effect of delaying, deferring or
preventing the removal of existing management, or could make it more difficult
or costly for a third party to acquire, or otherwise could discourage a third
party from attempting to acquire, control of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF ARTICLES AND BYLAWS
The Articles provide that any person purchasing or acquiring an interest in
shares of capital stock of the Company, whether Common Stock or Preferred
Stock, is deemed to have consented to the provisions summarized below relating
to intercompany agreements, transactions with interested parties, and
corporate opportunities. The Articles of Incorporation of American Software do
not include comparable provisions relating to intercompany agreements,
transactions with interested parties, or corporate opportunities. For a
general discussion of anti-takeover provisions, see "Risks Factors--Anti-
Takeover Provisions. "
TRANSACTIONS WITH INTERESTED PARTIES
The Articles contain certain provisions intended to clarify the duties and
obligations of directors and officers of the Company and American Software
with respect to related party transactions. The Articles provide that no
contract or arrangement between the Company and American Software, or between
the Company and any director or officer of the Company or American Software,
will be void or voidable solely because: (i) American Software or such officer
or director is a party; or (ii) such officer or director participated in, or
voted with respect to, the authorization of such contract or arrangement.
Further, the Articles provide that neither American Software nor any of its
officers or directors are liable to the Company or its stockholders for breach
of any fiduciary duty or duty of loyalty, failure to act in the best interests
of the Company, or the derivation of any improper personal benefit, if they in
good faith take any action or exercise any right in connection with a contract
or arrangement between the Company and American Software.
COMPETITION BY AMERICAN SOFTWARE WITH THE COMPANY
Corporate Opportunities. The Articles provide that except as American
Software may otherwise agree in writing, and except as expressly provided in
the Georgia Code, the Articles or the Bylaws, neither American Software nor
any subsidiary of American Software (other than the Company) shall have a duty
to refrain from (i) engaging in the same or similar business activities or
lines of business as the Company; (ii) doing business with any potential or
actual customer or supplier of the Company; or (iii) employing or otherwise
engaging any officer or employee of the Company. Subject to the foregoing,
neither American Software nor any subsidiary (other than the Company), officer
or director of American Software will be liable to the Company or its
stockholders for breach of any fiduciary duty by reason of any of the
activities described in the preceding sentence by American Software or any
subsidiary (other than the Company), officer or director of American Software.
The Articles also provide that if American Software or any subsidiary of
American Software (other than the Company) acquires knowledge of a potential
transaction or a matter that may be a corporate opportunity both for American
Software or such subsidiary and for the Company, neither American Software nor
such subsidiary (nor the officers and directors of American Software or such
subsidiary) shall have a duty to communicate or offer such corporate
opportunity to the Company and shall not be liable to the Company or its
stockholders for breach of fiduciary duty as a stockholder of the Company or
controlling person of a stockholder by reason of the
54
<PAGE>
fact that American Software or such subsidiary pursues or acquires such
opportunity for itself, directs such corporate opportunity to another person,
or does not communicate information regarding such corporate opportunity to
the Company. The Articles also contain provisions allocating corporate
opportunities between American Software (and its affiliates) and the Company
based primarily on the relationship to the Company and American Software (or
its affiliate) of the individual to whom such opportunity is presented. In
general, corporate opportunities are allocated to the entity of which such
individual is an officer or for which the officer is acting when the
opportunity is presented. If the individual is an officer acting for both the
Company and American Software or if it is unclear for which entity such
individual is acting, the opportunity is allocated to American Software. See
"Relationship with American Software and Certain Transactions."
The enforceability under the Georgia Code of the above-described provisions
of the Articles has not been established, and due to the absence of relevant
judicial authority, counsel to the Company is not able to deliver an opinion
as to the enforceability of such provisions. These provisions of the Articles,
assuming they are enforceable, eliminate certain rights that might have been
available to stockholders under Georgia law had such provisions not been
included in the Articles.
At the time of the consummation of this offering, certain of the directors
and/or officers of the Company also will be officers and employees of American
Software. See "Management."
Actions Under Intercompany Agreements. The Articles also will limit the
liability of American Software and its subsidiaries (other than the Company)
for certain breaches of their fiduciary duties in connection with actions that
may be taken or not taken in good faith under the intercompany agreements. See
"Relationship with American Software and Certain Transactions."
ADVANCE NOTICE AND CONSENT PROVISIONS
The Bylaws provide for an advance notice procedure to be utilized for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as other stockholder proposals to
be considered at annual meetings of stockholders. In general, notice of intent
to nominate a director or raise matters at such meetings will have to be
received by the Company not less than 115 days nor more than 150 days prior to
the first anniversary of the preceding year's annual meeting, and must contain
certain information concerning the person to be nominated or the matters to be
brought before the meeting and concerning the stockholder submitting the
proposal. The Articles permit stockholders to act by written consent in lieu
of a stockholders meeting. Any action taken by consent is required to be
reported to the non-consenting stockholders within ten days after the action
is taken. See "Risk Factors--Relationship with American Software."
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Bylaws and Georgia Code provide that, subject to certain exceptions
specified therein, the Company shall not engage in any "business combination"
with any "interested stockholder" for a period of five years following the
time that such stockholder has become an interested stockholder, unless: (i)
prior to such date, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 90% of the Common Stock of the Company outstanding
at the time the transaction commenced (excluding certain shares); or (iii)
subsequent to becoming an interested stockholder, such stockholder acquired
additional shares resulting in the interested stockholder owning at least 90%
of the outstanding voting stock of the Company (excluding certain shares), and
the business combination was approved at an annual or special meeting of the
stockholders by the holders of a majority of the voting stock entitled to vote
thereon (excluding certain shares). An "interested stockholder" means any
person, other than the Company or its subsidiaries, that is (x) the beneficial
owner of ten percent or more of the voting power of the outstanding voting
shares of the Company; or (y) an affiliate of the Company which, at any time
within the two-year period immediately prior to the date in question, was the
beneficial owner
55
<PAGE>
of ten percent or more of the voting power of the then outstanding voting
shares of the Company. A "business combination" is broadly defined to include
business combinations of every type (including share exchanges); sales or
transfers of assets to an interested stockholder; the issuance to an
interested stockholder of shares which have an aggregate market value of five
percent of the total market value of all shares; plans of liquidation or
dissolution; and any recapitalization which directly or indirectly increases
the ownership of shares by the interested stockholder by at least five
percent. This provision of the By-Laws may be repealed only by vote of holders
of a majority of outstanding shares, excluding those shares held by an
interested stockholder. Any such repeal would become effective 18 months after
such vote, and would not apply to a person who became an interested
stockholder prior to such vote.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Wachovia
Bank of North Carolina, N.A.
LISTING
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market, upon completion of this offering, under the trading symbol
"LGTY." See "Risk Factors--No Prior Public Market; Possible Volatility of
Stock Price."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Upon completion of this offering, the Company will have 13,500,000 shares of
Common Stock outstanding. Of these shares, the 2,200,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations
of Rule 144 described below. The remaining 11,300,000 shares of outstanding
Common Stock held by American Software are deemed "Restricted Shares" under
Rule 144 of the Securities Act and will be eligible for sale without
restriction or further registration pursuant to Rule 144 upon the expiration
of American Software's one-year holding period, expiring in January 1998,
subject to the volume, manner of sale and other limitations of Rule 144.
American Software may, in the future, elect to distribute to its
stockholders all of the shares of Common Stock that it holds, provided that
such a distribution would be treated as a tax-free distribution for federal
income tax purposes. American Software has no present plans or intention to
make such a distribution, however. Accordingly, there can be no assurance as
to when, if ever, such a distribution may occur. Any shares of Common Stock
that would be distributed in such a distribution are expected to be freely
tradeable, without restriction under the Securities Act, other than shares
distributed to "affiliates" of the Company. See "Risk Factors--Shares Eligible
for Sale After this Offering."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least one year is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock, or the average weekly
trading volume in the Common Stock in the Nasdaq National Market during the
four calendar weeks preceding the date on which notice of such sale is filed
under Rule 144. In addition, under Rule 144(k), a person who is not an
Affiliate and has not been an Affiliate for at least three months prior to the
sale, and who has beneficially owned Restricted Shares for at least two years
may resell such shares without compliance with the foregoing requirements. In
calculating the one- and two-year holding periods described above, a holder of
Restricted Shares can include the holding periods of a prior owner who was not
an Affiliate.
The Company intends to register pursuant to a registration statement on Form
S-8 the 295,000 shares of Common Stock reserved for future issuance under the
Company's 1997 Stock Plan. Such shares of Common Stock (to the extent issued)
will be eligible for sale, subject to vesting and exercisability restrictions.
The Company expects to file such registration statement as soon as practicable
after the closing of this offering, and such registration statement is
expected to become effective upon filing. Shares covered by such registration
statement will thereupon be eligible for sale in the public markets. No
options have yet been granted under this Plan.
The Company and American Software have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Montgomery
Securities, on behalf of the Underwriters, except that the Company may issue,
and may grant options to purchase shares of Common Stock under its 1997 Stock
Plan, and except for shares issued in connection with acquisitions. Any shares
sold pursuant to the exercise of stock options or pursuant to acquisitions
during such 180-day period would be subject to a lock-up through the end of
that period. Alternatively, the Company may elect to provide that any options
to purchase shares of Common Stock will not vest during such 180-day period.
Montgomery Securities, on behalf of the Underwriters may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements. See "Risk Factors--Shares Eligible for
Sale After this Offering."
57
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Cowen & Company Interstate/Johnson Lane Corporation and Hamphire
Securities Corporation (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent, and that the Underwriters are
committed to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Montgomery Securities.................................................
Cowen & Company.......................................................
Interstate/Johnson Lane Corporation...................................
Hampshire Securities Corporation......................................
---------
Total................................................................ 2,200,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may re-allow, a concession of not
more than $ per share to certain other dealers. After the offering,
the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 330,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,200,000 shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Company and American Software have agreed, subject to certain limited
exceptions, that they will not, without the prior written consent of
Montgomery Securities (which consent may be withheld in its sole discretion),
directly or indirectly, sell, offer, contract or grant any option to sell,
pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose or
transfer of any shares of Common Stock, options or warrants to acquire shares
of Common Stock, or securities exchangeable or exercisable for or convertible
into shares of Common Stock or publicly announce such party's intention to do
any of the foregoing, for a period of 180 days after the date of this
Prospectus. The Company may issue shares of Common Stock or options to
purchase Common Stock pursuant to the 1997 Plan or in connection with an
acquisition if the holders of such shares or options agree not to sell, offer,
dispose of or otherwise transfer any such shares or options during that
period. Alternatively, the Company may elect to provide that any options to
purchase shares of Common Stock will not vest during such 180-day period.
Montgomery Securities, on behalf of the Underwriters may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to lock-up agreements. See "Shares Eligible for Future Sale."
58
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilization, syndicate covering
transactions and imposition of penalty bids. In an over-allotment, the
Underwriters would allot more shares of Common Stock to their customers in the
aggregate than are available for purchase by the Underwriters under the
Underwriting Agreement. Stabilizing means the placing of any bid, or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of a security. In a syndicate covering transaction, the Underwriters
would place a bid or effect a purchase to reduce a short position created in
connection with this offering. Pursuant to a penalty bid, Montgomery
Securities, on behalf of the Underwriters, would be able to reclaim a selling
concession from an Underwriter if shares of Common Stock originally sold by
such Underwriter are purchased in syndicate covering transactions. These
transactions may result in the price of the Common Stock being higher than the
price that might otherwise prevail in the open market. These transactions may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that the Underwriters will not
confirm sales to any accounts over which they exercise discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiations between the Company and the Representatives. Among the
factors to be considered in such negotiations are the history of, and
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, its past and present operations and
financial performance, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state
of the Company's development, the prevailing market conditions at the time of
the offering, market valuations of publicly traded companies that the Company
and the Representatives believe to be comparable to the Company, and other
factors deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Gambrell & Stolz, L.L.P., Atlanta,
Georgia. Certain legal matters in connection with this offering will be passed
upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The combined financial statements of Logility, Inc. as of April 30, 1996 and
1997 and for each of the years in the three-year period ended April 30, 1997,
have been included herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all
amendments, exhibits, schedules and supplements thereto) on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
59
<PAGE>
certain portions of which have been omitted in accordance with the rules and
regulations of the Commission, to which Registration Statement reference is
hereby made. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete and, in each instance, reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and the exhibits and schedules thereto
may be inspected without charge at the public reference facilities of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Midwest Regional Office of the Commissioner located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of all or any
part thereof may be obtained from the Commission at prescribed rates. In
addition, the Company is required to file electronic versions of these
documents with the Commission through the Commissioner's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited financial statements. The Company also intends to make
available to its stockholders, within 45 days after the end of each fiscal
quarter, reports for the first three quarters of each fiscal year containing
interim unaudited financial information.
60
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Combined Financial Statements:
Combined Balance Sheets as of April 30, 1996 and 1997 and as of July 31,
1997 (Unaudited)........................................................ F-3
Combined Statements of Operations for the Years ended April 30, 1995,
1996 and 1997 and for the Three Months ended July 31, 1996 and 1997
(Unaudited)............................................................. F-4
Combined Statements of Stockholder's Equity for the Years ended April 30,
1995, 1996 and 1997 and for the Three Months ended July 31, 1997
(Unaudited)............................................................. F-5
Combined Statements of Cash Flows for the Years ended April 30, 1995,
1996 and 1997 and for the Three Months ended July 31, 1996 and 1997
(Unaudited)............................................................. F-6
Notes to Combined Financial Statements................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Logility, Inc.:
We have audited the accompanying combined balance sheets of Logility, Inc.
(a wholly-owned subsidiary of American Software, Inc.) as of April 30, 1996
and 1997, and the related combined statements of operations, stockholder's
equity, and cash flows for each of the years in the three-year period ended
April 30, 1997. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Logility, Inc. as
of April 30, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended April 30, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 1, 1997, except as to note 10,
which is as of August 12, 1997
F-2
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
--------------- -----------------------
1996 1997 1997 1997
------- ------ ----------- -----------
PRO FORMA
ACTUAL (NOTE 1)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 13 732 400
Trade accounts receivable, less
allowance for doubtful accounts of
$330, $421 and $421 at April 30,
1996 and 1997 and July 31, 1997,
respectively:
Billed............................. 3,756 3,843 4,894
Unbilled........................... 1,576 2,737 2,409
Prepaid expenses and other current
assets.............................. 35 147 245
------- ------ ------
Total current assets.............. 5,380 7,459 7,948
Furniture and equipment, less
accumulated depreciation............. 529 876 1,013
Intangible assets, less accumulated
amortization......................... 7,961 7,732 7,390
Other assets, net..................... 300 300 300
------- ------ ------
$14,170 16,367 16,651
======= ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................... $ 101 1,266 1,093
Accrued compensation and related
costs............................... 920 1,305 1,126
Deferred revenues.................... 2,953 3,886 4,841
Other current liabilities............ 183 445 244
------- ------ ------
Total current liabilities......... 4,157 6,902 7,304
Deferred income taxes................. 2,789 2,797 2,686
------- ------ ------
Total liabilities................. 6,946 9,699 9,990
------- ------ ------
Stockholder's equity:
Preferred stock; 2,000,000 shares
authorized; no shares issued........ -- -- -- --
Common stock, no par value;
20,000,000 shares authorized; 500
shares issued and outstanding as of
April 30, 1996 and 11,300,500 shares
(pro forma 11,300,000 shares) issued
and outstanding as of April 30, 1997
and July 31, 1997................... -- -- -- --
Additional paid-in capital........... 3,664 7,919 8,034 10,035
Divisional equity.................... 6,698 1,871 2,001 --
Accumulated deficit.................. (3,138) (3,122) (3,374) (3,374)
------- ------ ------ ------
Total stockholder's equity........ 7,224 6,668 6,661 6,661
Commitments and contingencies......... -- -- --
------- ------ ------
$14,170 16,367 16,651
======= ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED ENDED
APRIL 30, JULY 31,
----------------------- -------------
1995 1996 1997 1996 1997
------- ------ ------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License................................ $ 5,767 10,700 12,359 2,686 4,347
Maintenance............................ 2,628 3,797 5,051 1,145 1,895
Services............................... 1,815 2,136 4,414 961 1,506
------- ------ ------ ----- ------
Total revenues...................... 10,210 16,633 21,824 4,792 7,748
------- ------ ------ ----- ------
Cost of revenues:
License................................ 2,184 4,016 3,970 853 1,231
Maintenance............................ 624 876 1,219 249 353
Services............................... 1,030 1,131 1,969 462 695
------- ------ ------ ----- ------
Total cost of revenues.............. 3,838 6,023 7,158 1,564 2,279
------- ------ ------ ----- ------
Gross margin........................ 6,372 10,610 14,666 3,228 5,469
------- ------ ------ ----- ------
Operating expenses:
Research and development............... 1,168 1,452 3,484 694 1,205
Sales and marketing.................... 6,295 9,892 10,628 2,503 3,430
General and administrative including
provisions for doubtful accounts of
$710, $431, $302, $108 and none in
years ended April 30, 1995, 1996 and
1997 and the three months ended July
31, 1996 and 1997, respectively....... 2,155 2,140 2,508 528 610
------- ------ ------ ----- ------
Total operating expenses............ 9,618 13,484 16,620 3,725 5,245
------- ------ ------ ----- ------
Operating income (loss)............. (3,246) (2,874) (1,954) (497) 224
Income taxes............................ -- -- -- -- --
------- ------ ------ ----- ------
Net income (loss)................... $(3,246) (2,874) (1,954) (497) 224
======= ====== ====== ===== ======
Pro forma net income (loss) per common
share.................................. (0.17) 0.02
====== ======
Pro forma weighted-average common shares
outstanding............................ 11,300 11,300
====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED APRIL 30, 1995, 1996 AND 1997
AND THE THREE MONTHS ENDED JULY 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN DIVISIONAL ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EQUITY DEFICIT EQUITY
------ ------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1994................... -- $-- 4,113 4,172 (966) 7,319
Contribution from
(dividend to) American
Software, Inc.......... -- -- (205) 2,434 -- 2,229
Net loss................ -- -- -- (2,742) (504) (3,246)
------ ---- ------ ------ ------ ------
Balance at April 30,
1995................... -- -- 3,908 3,864 (1,470) 6,302
Contribution from
(dividend to) American
Software, Inc.......... -- -- (244) 4,040 -- 3,796
Net loss................ -- -- -- (1,206) (1,668) (2,874)
------ ---- ------ ------ ------ ------
Balance at April 30,
1996................... -- -- 3,664 6,698 (3,138) 7,224
Contribution from
(dividend to) American
Software, Inc.......... -- -- (798) 2,196 -- 1,398
Issuance of common stock
in connection with
formation.............. 11,300 -- 5,053 (5,053) -- --
Net loss................ -- -- -- (1,970) 16 (1,954)
------ ---- ------ ------ ------ ------
Balance at April 30,
1997................... 11,300 -- 7,919 1,871 (3,122) 6,668
Contribution from
(dividend to) American
Software, Inc.
(Unaudited)............ -- -- 115 (346) -- (231)
Net income (loss)
(Unaudited)............ -- -- -- 476 (252) 224
------ ---- ------ ------ ------ ------
Balance at July 31, 1997
(Actual) (Unaudited)... 11,300 $-- 8,034 2,001 (3,374) 6,661
====== ==== ====== ====== ====== ======
Balance at July 31, 1997
(Pro Forma) (Unaudited)
(Note 1)............... 11,300 $-- 10,035 -- (3,374) 6,661
====== ==== ====== ====== ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED APRIL 30, JULY 31,
----------------------- ------------------
1995 1996 1997 1996 1997
------- ------ ------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $(3,246) (2,874) (1,954) (497) 224
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization. 1,592 2,394 3,258 693 1,059
Write-off of purchased com-
puter software costs......... -- 1,154 -- -- --
(Increase) decrease in assets:
Accounts receivable.......... 1,403 (2,794) (1,248) 541 (723)
Other assets................. (26) (289) (111) 4 (98)
Increase (decrease) in liabil-
ities:
Accounts payable, accrued
costs and other............. (93) 491 1,812 (116) (553)
Deferred revenues............ 61 1,721 933 (579) 955
------- ------ ------ --------- --------
Net cash provided by (used
in) operating activities... (309) (197) 2,690 46 864
------- ------ ------ --------- --------
Cash flows from investing activi-
ties:
Additions to capitalized com-
puter software development
costs.......................... (2,223) (3,611) (2,795) (898) (616)
Additions to purchased computer
software costs................. (255) (574) (36) (6) (34)
Purchases of furniture and
equipment...................... (88) (422) (545) (128) (204)
------- ------ ------ --------- --------
Net cash used in investing
activities................. (2,566) (4,607) (3,376) (1,032) (854)
------- ------ ------ --------- --------
Cash flows from financing activi-
ties:
Deferred income taxes resulting
from Tax Sharing Agreement..... 674 955 7 109 (111)
Contributions from (dividends
to) American Software, Inc..... 2,229 3,796 1,398 946 (231)
------- ------ ------ --------- --------
Net cash provided by (used
in) financing activities... 2,903 4,751 1,405 1,055 (342)
------- ------ ------ --------- --------
Net change in cash.......... 28 (53) 719 69 (332)
Cash and cash equivalents at be-
ginning of year................. 38 66 13 13 732
------- ------ ------ --------- --------
Cash and cash equivalents at end
of year......................... $ 66 13 732 82 400
======= ====== ====== ========= ========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Presentation
Logility, Inc. (the "Company") develops, markets, and supports an integrated
suite of client-server value chain management software products. This suite of
products is designed to manage the flow of information and products along the
entire value chain of an enterprise, from raw materials, manufacturing and
warehousing to final consumption. The Company's products and services are used
by customers within the United States and certain international markets.
The Company is headquartered in Atlanta, Georgia, and is a wholly owned
subsidiary of American Software, Inc. ("ASI"). The Company's operations
consist of the following divisions and subsidiary of ASI which have been
derived from ASI's consolidated financial statements: Supply Chain Planning
and WarehousePRO divisions of ASI; and Distribution Sciences Inc., a wholly
owned subsidiary of ASI. Effective January 23, 1997, in connection with the
purchase of 11,300,000 shares of the common stock of the Company, ASI formally
contributed its Supply Chain Planning division to the Company. Accordingly,
divisional equity was reduced by $5,053,000 and that same amount was
transferred to additional paid-in capital to reflect the contribution of the
Supply Chain Planning division to the Company.
Divisional equity reflects each division's net equity and net income (loss)
prior to the division being contributed to the Company inasmuch as the
divisions are not separate legal entities. Upon contribution of a division to
the Company, divisional equity is reclassified to additional paid-in capital.
Subsequent to the date a division is contributed to the Company, net income
(loss) for that division is included in accumulated deficit.
The accompanying combined financial statements include the historical cost
of the assets and liabilities and the results of operations of the Company's
constituent businesses as reflected in ASI's consolidated financial
statements. The Supply Chain Planning and WarehousePRO divisions required
certain estimates and allocations which ASI believes approximates costs that
relate to the Company's operations. Balance sheet amounts were generally
derived based upon specific identification of assets and liabilities and
certain allocations relating to the Supply Chain Planning division and
WarehousePRO division. Since Distribution Sciences, Inc. was a separate
business, no allocations were necessary, other than income taxes.
Revenue Recognition
License. License revenues in connection with license agreements for standard
proprietary and tailored software are recognized upon delivery of the
software, providing collection is considered probable and no significant
obligations remain outstanding. Maintenance included in initial license
revenues is deferred and recognized ratably over the term of the agreement.
Maintenance. Maintenance fees are generally billed annually in advance and
the resulting revenues are recognized ratably over the term of the maintenance
agreement.
Services. Revenues derived from services primarily include consulting,
implementation, and training. Fees are billed under both time and materials
and fixed fee arrangements and are recognized as services are performed.
Deferred Revenues. Deferred revenues represent advance payments or billings
for software licenses, services, and maintenance billed in advance of the time
revenues are recognized.
F-7
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cost of Revenues
Cost of revenues for licenses include amortization of capitalized computer
software development costs and purchased computer software costs, salaries and
benefits, and royalties paid to third-party software vendors. Costs for
maintenance and services include the cost of personnel to conduct
implementations and customer support, consulting and other personnel-related
expenses.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
Furniture and Equipment
Furniture and equipment are recorded at cost, less accumulated depreciation.
Depreciation of computer equipment and office furniture and equipment is
calculated using the straight-line method based upon an estimated useful life
of five and seven years, respectively.
Intangible Assets
Capitalized Computer Software Development Costs. The Company capitalizes
certain computer software development costs in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Costs incurred internally
to create a computer software product or to develop an enhancement to an
existing product are charged to expense when incurred as research and
development expense until technological feasibility for the respective product
is established. Thereafter, all software development costs are capitalized and
reported at the lower of unamortized cost or net realizable value.
Capitalization ceases when the product or enhancement is available for general
release to customers. The Company makes ongoing evaluations of the
recoverability of its capitalized software projects by comparing the amount
capitalized for each product to the estimated net realizable value of the
product. If such evaluations indicate that the unamortized software
development costs exceed the net realizable value, the Company writes off the
amount by which the unamortized software development costs exceed net
realizable value. Capitalized computer software development costs are being
amortized ratably based on the projected revenue associated with the related
software or on a straight-line basis over three years, whichever method
results in a higher level of amortization.
Purchased Computer Software Costs. Purchased computer software costs
represent the cost of acquiring computer software. Amortization of purchased
computer software costs is calculated using the straight-line method over
periods of three to five years.
F-8
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Total Expenditures, Amortization and Write-offs. Total expenditures for
capitalized computer software development costs, total research and
development expense, total amortization of capitalized computer software
development costs, total amortization of purchased computer software costs and
write-off of purchased computer software costs are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL
30,
------------------
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Total capitalized computer software development costs....... $2,223 3,611 2,795
Total research and development expense...................... 1,168 1,452 3,484
------ ----- -----
Total research and development expense and capitalized
computer software development costs........................ $3,391 5,063 6,279
====== ===== =====
Total amortization of capitalized computer software
development costs.......................................... $ 456 1,129 2,828
====== ===== =====
Total amortization of purchased computer software costs..... $1,090 1,159 233
====== ===== =====
Write-off of purchased computer software costs as a result
of net realizable value test............................... $ -- 1,154 --
====== ===== =====
</TABLE>
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
SFAS No. 109 requires an asset and liability method of accounting for income
taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company's results of operations are
included in the consolidated Federal income tax return filed by ASI.
Pro Forma Loss Per Share
Pro forma net income (loss) per common share has been computed based upon
net income (loss) applicable to the common shareholder as though the shares
were outstanding for all periods presented. Historical income (loss) per share
has not been presented because such amounts are not deemed meaningful due to
the significant changes in the Company's capital structure.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these combined financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
F-9
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its business.
The carrying values of cash equivalents, trade accounts receivable, accounts
payable, accrued compensation costs, and deferred revenues approximate fair
value due to the short-term maturities of these assets and liabilities.
Stock Compensation Plans
The Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), which encourages
entities to recognize as compensation expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 allows entities to apply the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and provide
pro forma disclosures for employee stock option grants made in fiscal year
ended April 30, 1996 and future years as if the fair-value-based method as
defined in SFAS No. 123 had been applied. Under APB Opinion No. 25,
compensation expense is recorded on the date of grant if the current market
price of the underlying stock granted exceeds the exercise price. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosures under the provisions of SFAS No. 123.
Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of ("SFAS No. 121"). SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles held and used by a company be reviewed for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. SFAS No. 121 also
requires that long-lived assets and certain identifiable intangibles held for
sale, other than those related to discontinued operations, be reported at the
lower of carrying amount or fair value less costs to sell. The Company's
adoption of SFAS No. 121 did not have an impact on its combined financial
statements.
Pro Forma Balance Sheet (Unaudited)
As a result of ASI's contribution of the WarehousePRO division to the
Company in August 1997, the pro forma unaudited balance sheet reflects the
effect of the reclassification of divisional equity to additional paid-in
capital as though the above described transaction occurred on July 31, 1997.
Interim Financial Statements (Unaudited)
In the Company's opinion, all adjustments (consisting only of normal,
recurring adjustments) which the Company considers necessary for a fair
presentation of the unaudited balance sheet as of July 31, 1997 and results of
operations for the three months ended July 31, 1996 and 1997 are included. The
results of operations for the three months ended July 31, 1997 are not
necessarily indicative of the results of operations to be expected for the
full year.
(2) RELATED PARTY TRANSACTIONS
ASI provides marketing services, employees, and office space to the Company,
allows the Company to participate in insurance coverage and benefit plans, and
provides certain other administrative services to the Company. The combined
statements of operations include the allocation of these expenses incurred by
ASI to the Company based on percentage of license fees, specific
identification, direct labor hours, head count, product license fees to total
license fees, and square footage of leased properties. Management believes the
methods of allocation are reasonable.
F-10
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(3) FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following at April 30, 1996 and 1997:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
1996 1997
---- -----
<S> <C> <C>
Computer and communications equipment.............................. $704 1,172
Furniture and fixtures............................................. 44 121
---- -----
748 1,293
Less accumulated depreciation...................................... (219) (417)
---- -----
$529 876
==== =====
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consist of the following at April 30, 1996 and 1997:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
1996 1997
------ ------
<S> <C> <C>
Capitalized computer software development costs................. $8,948 11,743
Purchased computer software costs............................... 859 895
------ ------
9,807 12,638
Less accumulated amortization................................... (1,846) (4,906)
------ ------
$7,961 7,732
====== ======
</TABLE>
(5) INCOME TAXES
The Company is included in the consolidated Federal income tax return filed
by ASI; however, the Company has provided for income taxes as if it were
filing a separate income tax return.
The Company has not recorded any income tax expense (benefit) for the years
ended April 30, 1995, 1996 and 1997 because of cumulative operating losses
incurred since inception. The Company's effective tax rate differs from the
"expected" income tax benefit for those years calculated by applying the
Federal statutory rate of 34% to operating loss as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL
30,
--------------------
1995 1996 1997
------- ----- ----
<S> <C> <C> <C>
Computed "expected" income tax benefit................... $(1,104) (977) (664)
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax effect.... (129) (114) (78)
Change in the beginning-of-year balance of the valuation
allowance for deferred tax assets...................... 1,135 1,069 719
Other, net.............................................. 98 22 23
------- ----- ----
$ -- -- --
======= ===== ====
</TABLE>
F-11
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The significant components of deferred income tax benefit attributable to
operating loss for the years ended April 30, 1995, 1996 and 1997, are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL
30,
---------------------
1995 1996 1997
------- ------ ----
<S> <C> <C> <C>
Deferred income tax benefit............................. $(1,135) (1,069) (719)
Increase in beginning-of-the-year balance of the
valuation allowance for deferred tax assets............ 1,135 1,069 719
------- ------ ----
$ -- -- --
======= ====== ====
</TABLE>
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
computed on a separate return basis and before consideration of the Company's
Tax Sharing Agreement with ASI at April 30, 1996 and 1997 are presented as
follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
APRIL 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Deferred income tax assets:
Compensated absences and other expenses, due to accrual for
financial reporting purposes................................. $ 281 405
Accounts receivable, due to allowance for doubtful accounts... 125 160
Net operating loss carryforwards.............................. 4,635 5,203
------ ------
Total gross deferred income tax assets...................... 5,041 5,768
Less valuation allowance...................................... (2,252) (2,971)
------ ------
Net deferred income tax assets.............................. 2,789 2,797
------ ------
Deferred income tax liabilities:
Capitalized computer software development costs............... 2,774 2,782
Property and equipment, primarily due to differences in
depreciation................................................. 15 15
------ ------
Total gross deferred income tax liabilities................. 2,789 2,797
------ ------
Net deferred income tax asset (liability)................... $ -- --
====== ======
</TABLE>
In accordance with the Company's Tax Sharing Agreement with ASI, the Company
computes a separate, stand-alone income tax provision and settles balances due
to or from ASI on this basis. All benefits derived from deferred tax assets as
defined in the Tax Sharing Agreement (which include net operating loss and tax
credit carryforwards) that arise prior to the proposed initial public offering
will be allocated to ASI. Accordingly, the Company will not receive any
benefit from the $5,768,000 of gross deferred tax assets calculated on a
separate return basis at April 30, 1997. However, deferred tax liabilities
will be allocated to the Company (which gave rise to the Company's net
deferred tax liability of $2,789,000 at April 30, 1996 and $2,797,000 at April
30, 1997). After this offering, to the extent the tax computation produces a
tax benefit for the Company, ASI will be required to pay such amounts to the
Company only if and when realized by ASI by the reduction in income taxes
payable with respect to the current tax period. At April 30, 1997, ASI had net
operating loss carryforwards of approximately $20,000,000 which must be
utilized by ASI before the Company would receive payment for any currently
generated tax benefits. Such net operating losses expire in varying amounts
through 2011.
F-12
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(6) STOCKHOLDER'S EQUITY
Amendments to the Articles of Incorporation
On July 25, 1996, the Company was incorporated as Supply Chain Management,
Inc. with 1,000,000 authorized shares of common stock at no par value,
although no operations were conducted in the Company until January 23, 1997.
Effective November 25, 1996, the Company changed its name to Logility, Inc. On
January 21, 1997, the Company increased its authorized shares of common stock
to 20,000,000. All amounts included in these combined financial statements
have been restated to reflect these changes.
Stock Compensation
The Company has not issued any stock options; however, certain employees of
the Company received stock options of ASI. Under SFAS No. 123 ASI applies the
provisions of APB Opinion No. 25 and related interpretations in accounting for
its stock option plans. Accordingly, no compensations cost has been recognized
for ASI's stock option plans. Had compensation cost for the Company's share of
stock-based compensation plans been determined consistent with SFAS No. 123,
the Company's net loss and net loss per common share would have been increased
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED APRIL 30,
-----------------------
1996 1997
----------- ----------
<S> <C> <C>
Net loss:
as reported.......................................... $(2,874) (1,954)
pro forma............................................ (3,207) (2,759)
Net loss per common share:
as reported.......................................... $ (0.25) (0.17)
pro forma............................................ (0.28) (0.24)
</TABLE>
The fair value of each option grant was determined using the same
assumptions as those used by ASI and is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997: dividend yield of 0%; expected
volatility of 211.9%; risk-free interest rates of 6.1%; and expected lives of
8 years.
(7) INTERNATIONAL REVENUES
International revenues were $1,210,000 or 12%, $3,366,000 or 20%, and
$2,574,000 or 12% of combined revenues for the years ended April 30, 1995,
1996 and 1997, respectively, and were derived primarily from customers in
Canada, Europe, Australia, and Asia. Included in international revenues for
1996 were revenues from the United Kingdom of $2,148,000 or 13% of combined
revenues.
(8) COMMITMENTS AND CONTINGENCIES
401(k) Profit Sharing Plan
The employees of the Company are offered the opportunity to participate in
the ASI 401(k) Profit Sharing Plan (the "401(k) Plan"), which is intended to
be a tax-qualified defined contribution plan under Section 401(k) of the
Internal Revenue Code. Under the 401(k) Plan, employees who have completed one
year of service are eligible to participate. Eligible employees may contribute
up to 15% of pretax income to the 401(k) Plan. Subject to certain limitations,
the Company may make a discretionary matching contribution at an amount
determined by the Board of Directors of the Company. The Company did not make
contributions for 1995, 1996 or 1997.
F-13
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Lease Commitments
The Company occupies its principal office facilities under a facilities
agreement with ASI dated August 1, 1997, that is cancelable upon 90-day notice
by either party (see note 9). Amounts allocated to the Company for rent
expense for these facilities were $524,000 for each of the years ended
April 30, 1995, 1996 and 1997. In addition, the Company has a operating lease
for office space that expires in June 2000. Rent expense under this lease was
$112,000, $122,000 and $126,000 for the years ended April 30, 1995, 1996 and
1997, respectively.
Future minimum lease payments under noncancelable operating leases (excludes
cancelable leases with ASI) are as follows (in thousands):
<TABLE>
<S> <C>
1998 $ 130
1999 134
2000 138
2001 22
</TABLE>
Contingencies
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
(9)AGREEMENTS WITH ASI
Effective August 1, 1997 (except for the Tax Sharing Agreement, which was
effective January 23, 1997), the Company entered into certain contractual
arrangements with ASI related to the following:
TAX SHARING AGREEMENT--The terms of the Tax Sharing Agreement are described
in note 5.
SERVICES AGREEMENT--Commencing August 1, 1997, the Company began purchasing
(or selling) various services from (to) ASI based upon various cost
methodologies as described below:
<TABLE>
<CAPTION>
SERVICE COST METHODOLOGY
------- ----------------
<S> <C>
. General corporate services Apportioned based on apportionment
formula to all ASI subsidiaries
. Computing and communications Actual usage
. Professional services to customers Cost plus billing with the percentage
on behalf of the Company (services of costs and expenses to be negotiated
are available unless ASI
determines it is not economic or
otherwise feasible)
. Employee benefits services Apportioned based on apportionment
formula to all ASI subsidiaries
</TABLE>
FACILITIES AGREEMENT--The Company leases various properties from ASI for
specified square foot rates. The stated term of the agreement is for two
years; however, the lease may be terminated by either party after a 90-day
notice.
F-14
<PAGE>
LOGILITY, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN SOFTWARE, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
STOCK OPTION AGREEMENT--The Company has granted ASI an option to purchase
Company common stock to enable ASI to maintain the necessary ownership
percentage required to consolidate the Company in ASI's consolidated Federal
income tax return. The purchase price of the option is the average of the
closing price on each of the five business days immediately preceding the date
of payment.
TECHNOLOGY LICENSE AGREEMENT--The Company granted ASI a nonexclusive,
nontransferable, worldwide perpetual right and license to use, execute,
reproduce, display, etc., its Value Chain Planning and Execution Solutions
(which ASI had transferred to the Company) so that ASI may maintain and
support end-users of the software products. The license is fully paid and
royalty-free.
MARKETING LICENSE AGREEMENT--The Company utilizes ASI as a nonexclusive
marketing representative for licensing of its products and pays ASI 30% (50%
for certain international licenses) of net license fees for its services. The
stated term of the agreement is for five years, but may be terminated at
either party's discretion upon 12 months notice.
(10) SUBSEQUENT EVENTS
Effective August 5, 1997, Distribution Sciences, Inc. was merged into the
Company. The merger was accounted for in a manner similar to a pooling of
interests. Effective August 1, 1997, ASI contributed its Warehouse PRO
division to the Company. In conjunction with this contribution, divisional
equity will be eliminated and transferred to additional paid-in capital on the
effective date.
On August 7, 1997, the Company's Board of Directors has approved an 11,300-
for-one stock split effected in the form of a stock dividend. All references
to common stock and stock options in these combined financial statements have
been adjusted to reflect this stock split as if it had occurred prior to May
1, 1994.
Effective August 7, 1997, the Company adopted the Logility, Inc. 1997 Stock
Plan ("Stock Plan"). The Stock Plan provides for grants of incentive stock
options and nonqualified stock options to certain key employees and directors
of the Company. The Stock Plan also allows for stock appreciation rights in
lieu of or in addition to stock options. Options to purchase a maximum of
295,000 shares of common stock and a maximum of 300,000 units of Stock
Appreciation Rights ("SARs"), as defined, may be granted under the Stock Plan.
The options and SARs generally vest over a four-year period The terms of the
options generally will be for ten years, and the terms of the SARs generally
will be for five years.
On August 8, 1997, the Company amended its articles of incorporation to
authorize 2,000,000 shares of preferred stock. The terms, rights, and
preferences of the preferred stock will be determined by the Board of
Directors.
On August 12, 1997, the Company filed with the Securities and Exchange
Commission to register and sell certain common stock.
F-15
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securi-
ties other than the shares of Common Stock to which it relates or an offer to,
or a solicitation of, any person in any jurisdiction where such offer or so-
licitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company or that the information
contained herein is current as of any time subsequent to the date hereof.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Combined Financial Data.......................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 30
Management................................................................ 42
Relationship with American Software and Certain Transactions.............. 48
Principal Stockholders.................................................... 52
Description of Capital Stock.............................................. 53
Shares Eligible for Future Sale........................................... 57
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Combined Financial Statements.................................... F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,200,000 SHARES
[Logo of Logility Appears Here]
COMMON STOCK
---------------
PROSPECTUS
---------------
Montgomery Securities
Cowen & Company
Interstate/Johnson Lane
Corporation
Hampshire Securities Corporation
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses (other than underwriting discounts and commissions) payable
in connection with the sale of Common Stock offered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 9,967
NASD filing fees.................................................. 3,789
NASDAQ National market listing.................................... 50,000
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 260,000
Accounting fees and expenses...................................... 350,000
Blue Sky fees and expenses (including legal fees)................. 10,000
Transfer agent and registrar fees and expenses.................... 5,000
Miscellaneous..................................................... 61,244
---------
Total......................................................... $ 850,000
=========
</TABLE>
The Company will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted under the Georgia Business Corporation Code, the Company's
Amended and Restated Articles of Incorporation (the "Articles"), and the
Company's Amended and Restated Bylaws (the "Bylaws"), as well as certain
indemnification agreements between the Company and its directors and officers,
provide for mandatory indemnification of a director or officer of the Company
to the extent that such individual has been successful in the defense of a
proceeding to which such individual was a party because he or she was a
director or officer of the Company for expenses incurred by such individual in
connection with such proceeding. Additionally, a director or officer may be
indemnified for liabilities and expenses which the indemnified person incurred
in a proceeding if such individual acted in good faith (i) in his or her
capacity as a director or officer, in a manner reasonably believed to be in
the best interests of the Company, (ii) in all other cases, in a manner
reasonably believed to be not opposed to the best interests of the Company,
and (iii) with respect to a criminal proceeding, that the indemnified person
had no reasonable cause to believe his or her conduct was unlawful. Reference
is made to the Company's Articles and Bylaws filed as Exhibits 3.1 and 3.2,
respectively, and the form of Indemnification Agreement between the Company
and the Company's directors and executive officers filed as Exhibit 10.2.
The Articles also provide that any person purchasing or otherwise acquiring
an interest in a share of capital stock of the Company is deemed to have
consented to certain provisions in the Articles that (i) permit the officers
and directors of the Company and American Software, Inc. (together with
successors and certain affiliates of American Software, Inc., "American
Software") to allocate corporate opportunities to either the Company or
American Software as such officers and directors deem appropriate in
accordance with certain policies contained in the Articles, and that none of
the Company, American Software, and their respective officers and directors
shall be liable for any breach of fiduciary duty in connection therewith, and
(ii) eliminate the liability of American Software and its officer and
directors for engaging in business activities similar to those of the Company
and for actions taken in connection with agreements entered into between the
Company and American Software, in accordance with certain guidelines contained
in the Articles.
II-1
<PAGE>
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers, and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
American Software maintains directors and officers liability insurance for
the benefit of its and the Company's directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has not issued any unregistered securities except for the sale
of 1,000 shares of common stock (subsequently increased to 11,300,000 shares
as a result of a stock split) to its parent, American Software, Inc., in
connection with the organization of the Company on January 23, 1997. The
common stock issued to American Software, Inc. was issued in reliance upon the
exemption provided by Section 4(2) under the Act.
As consideration for the common stock issued on January 23, 1997, American
Software, Inc. contributed to the Company the software and other assets that
constitute the principal business of the Company, valued, for purposes of the
Company's combined financial statements, at approximately $5,000,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Amended and Restated Articles of Incorporation of the Company.
3.2+ Amended and Restated By-Laws of the Company.
4.1 Specimen certificate representing the Common Stock.
5.1+ Opinion of Gambrell & Stolz, L.L.P.
10.1+ 1997 Stock Plan and forms of agreement thereunder.
Form of Indemnification Agreement between the Company and the Company's
10.2+ Directors and Officers.
10.3+ Subsidiary Formation Agreement among the Company, American Software,
and certain subsidiaries of American Software, as amended.
10.4+ Merger Agreement between the Company and Distribution Sciences, Inc.
10.5+ Services Agreement between the Company and American Software.
10.6+ Facilities Agreement between the Company and American Software.
10.7+ Tax Sharing Agreement between the Company and American Software.
10.8+ Stock Option Agreement between the Company and American Software.
Technology License Agreement between the Company and American Software,
10.9+ as amended.
Marketing License Agreement between the Company and American Software,
10.10+ as amended.
Employment Agreement and Offer Letter from the Company to James M.
10.11+ Modak.
23.1+ Consent of Gambrell & Stolz, L.L.P. (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
99.1 Consents of nominees for director, pursuant to Rule 438.
</TABLE>
- --------
+ Previously filed.
(b) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in item 14 above, or otherwise, the
Company 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
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company 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 Company hereby undertakes (i) to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser; (ii) that for purposes of
determining any liability under the Act, treat 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 Rule 497(h) under the Act as
part of this registration statement as of the time it was declared effective;
and (iii) that for purposes of determining any liability under the 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 that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Atlanta, Georgia, on September 25,
1997.
LOGILITY, INC.
By: *
----------------------
J. Michael Edenfield, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
* Director and President September 25, 1997
_________________________________ (Principal Executive Officer)
J. Michael Edenfield
* Director September 25, 1997
_________________________________
James C. Edenfield
* Chief Financial Officer and September 25, 1997
_________________________________ Senior Vice President
James M. Modak (Principal Financial Officer)
* Controller September 25, 1997
_________________________________ (Principal Accounting Officer)
David E. Weigand
</TABLE>
*By: /s/ James M. Modak
-------------------------------
James M. Modak, as attorney-in-fact September 25,
1997
II-4
<PAGE>
Schedule II
LOGILITY, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1995, 1996 AND 1997
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
(IN THOUSANDS)
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END OF
OF PERIOD TO EXPENSE DEDUCTIONS(1) PERIOD
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended April 30, 1995........ $74 $710 $484 $300
1996........ 300 431 401 330
1997........ 330 302 211 421
</TABLE>
- --------
(1) Write-off of uncollectible accounts
<PAGE>
EXHIBIT 1
2,530,000 SHARES
LOGILITY, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED __________, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES [OF THE COMPANY]............... 2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND AMERICAN SOFTWARE.. 2
B. REPRESENTATIONS AND WARRANTIES OF AMERICAN SOFTWARE.................. 8
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.............. 10
SECTION 3. ADDITIONAL COVENANTS.......................................... 12
A. COVENANTS OF THE COMPANY AND AMERICAN SOFTWARE....................... 12
B. COVENANTS OF AMERICAN SOFTWARE....................................... 14
SECTION 4. PAYMENT OF EXPENSES........................................... 15
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS............. 15
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES....................... 18
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT............................... 19
SECTION 8. INDEMNIFICATION............................................... 19
SECTION 9. CONTRIBUTION.................................................. 22
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS............ 24
SECTION 11. TERMINATION OF THIS AGREEMENT................................. 24
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY........... 25
SECTION 13. NOTICES....................................................... 25
SECTION 14. SUCCESSORS.................................................... 27
SECTION 15. PARTIAL UNENFORCEABILITY...................................... 27
SECTION 16. GOVERNING LAW................................................. 27
SECTION 17. GENERAL PROVISIONS............................................ 27
</TABLE>
-i-
<PAGE>
UNDERWRITING AGREEMENT
[Date]
MONTGOMERY SECURITIES
COWEN & COMPANY
INTERSTATE/JOHNSON LANE CORPORATION
HAMPSHIRE SECURITIES CORPORATION
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Logility, Inc., a Georgia corporation (the "Company"),
proposes to issue and sell to the several underwriters named in Schedule A (the
----------
"Underwriters") an aggregate of 2,200,000 shares (the "Firm Common Shares") of
its Common Stock, no par value per share (the "Common Stock"). In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional 330,000 shares (the "Optional Common Shares") of Common Stock, as
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares."Montgomery Securities, Cowen & Company, Interstate/Johnson
Lane Corporation and Hampshire Securities Corporation have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company is a wholly-owned subsidiary of American Software, Inc., a
Georgia corporation ("American Software"). To the extent provided herein and
for good and valuable consideration, American Software has become a party to
this Underwriting Agreement.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-33385, which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement." Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement," and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of Montgomery
Securities, elected to
<PAGE>
rely upon Rule 434 Under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [__________] (such preliminary prospectus is called the "Rule
434 preliminary prospectus"), together the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company and American Software hereby confirm their respective
agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND AMERICAN
SOFTWARE. The Company and American Software hereby jointly and severally
represent, warrant and covenant to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company or American Software,
are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and 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. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit 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. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with
-2-
<PAGE>
information relating to any Underwriter furnished to the Company in writing by
the Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives two complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. Neither the
Company nor American Software has distributed and neither will distribute, prior
to the later of the Second Closing Date (as defined below) and the completion of
the Underwriters' distribution of the Common Shares, any offering material in
connection with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement, and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is given
in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company (any such change is called a
"Material Adverse Change"); (ii) the Company has not incurred any material
liability or obligation, indirect, direct or contingent, not in the ordinary
course of business nor entered into any material transaction or agreement not in
the ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
capital stock or repurchase or redemption by the Company of any class of capital
stock.
-3-
<PAGE>
(h) Independent Accountants. KPMG Peat Marwick LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) [and supporting schedules]
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the financial position of the Company as of and
at the dates indicated and the results of its operations and cash flows for the
periods specified. The supporting schedules included in the Registration
Statement present fairly, the information required to be stated therein. Such
financial statements and supporting schedules have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary--Summary Combined
Financial Data," "Selected Combined Financial Data" and "Capitalization" fairly
present the information set forth therein on a basis consistent with that of the
audited financial statements contained in the Registration Statement. The
combined financial statements of the Company and the related notes thereto
included under the caption "Prospectus Summary-Summary Combined Financial Data,"
"Selected Combined Financial Data" and elsewhere in the Prospectus and in the
Registration Statement present fairly the information contained therein, have
been prepared in accordance with the Commission's rules and guidelines with
respect to financial statements and have been properly presented on the basis
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein.
(j) Incorporation and Good Standing of the Company; No Subsidiaries.
The Company has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and to enter into and
perform its obligations under this Agreement. The Company is duly qualified as
a foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing would
not, individually or in the aggregate, result in a Material Adverse Change. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization". The Common Stock (including the
Common Shares) conforms in all material respects to the description thereof
contained in the Prospectus. All of the issued and outstanding shares of Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable and have been issued in compliance with federal and state
securities laws. None
-4-
<PAGE>
of the outstanding shares of Common Stock were issued in violation of any
preemptive rights, rights of first refusal or other similar rights to subscribe
for or purchase securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company other than
those accurately described in the Prospectus. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights,
(l) Stock Exchange Listing. The Common Shares have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. The Company is not in violation of its
charter or by-laws and is not in default (or, with the giving of notice or
lapse of time, would be in default) ("Default") under any indenture, mortgage,
loan or credit agreement, note, contract, license, franchise, lease or other
instrument to which the Company is a party or by which it may be bound or to
which any of the property or assets of the Company is subject (each, an
"Existing Instrument"), except for such Defaults as would not, individually or
in the aggregate, result in a Material Adverse Change. The Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus (i) have been duly authorized by all
necessary corporate action and will not result in any violation of the
provisions of the charter or by the by-laws of the Company , (ii) will not
conflict with or constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to, or require the consent of any other party to,
any Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions contemplated
hereby and by the Prospectus, except such as have been obtained or made by the
Company and are in full force and effect under the Securities Act, applicable
state securities or blue sky laws and from the National Association of
Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's and American Software's knowledge, threatened (i) against or affecting
the Company, (ii) which has as the subject thereof any officer or director of,
or property owned or leased by, the Company or (iii) relating to environmental
or discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined adversely
to the Company and (B) any such action, suit or proceeding, if so determined
adversely, would reasonably be expected to result in a Material Adverse Change
or adversely affect the consummation of the
-5-
<PAGE>
transactions contemplated by this Agreement. No material labor dispute with the
employees of the Company exists or, to the best of the Company's and American
Software's knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively, "Intellectual
Property Rights") reasonably necessary to conduct its business as now conducted;
and the expected expiration of any of such Intellectual Property Rights would
not result in a Material Adverse Change. The Company has not received any notice
of infringement or conflict with asserted Intellectual Property Rights of
others, which infringement or conflict, if the subject of an unfavorable
decision, would result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company possesses such valid and
current certificates, authorizations or permits issued by the appropriate state,
federal or foreign regulatory agencies or bodies necessary to conduct its
business, and the Company has not received any notice of proceedings relating to
the revocation or modification of, or noncompliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(q) Title to Properties. The Company has good and marketable title to
all the properties and assets reflected as owned in the financial statements
referred to in Section 1(A)(1) above (or elsewhere in the Prospectus), in each
case free and clear of any security interests, mortgages, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not materially interfere with
the use made or proposed to be made of such property by the Company. The real
property, improvements, equipment and personal property held under lease by the
Company are held under valid and enforceable leases, with such exceptions as are
not material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by the
Company.
(r) Tax law Compliance. The Company has filed all necessary federal,
state and foreign income and franchise tax returns or have properly requested
extensions thereof and has paid all taxes required to be paid by it and, if
due and payable, any related or similar assessment, fine or penalty levied
against it except as may be being contested in good faith and by appropriate
proceedings. The Company has made adequate charges, accruals and reserves in
the applicable financial statements referred to in Section 1(A)(i) above in
respect of all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company has not been finally
determined.
(s) Company Not an "Investment Company." The Company is not, and
after receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act of 1940, as amended (the
"Investment Company Act"), and will
-6-
<PAGE>
conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(t) Insurance. The Company is insured by recognized, financially sound
and reputable institutions with policies in such amounts and with such
deductibles and covering such risks as are generally deemed adequate and
customary for its business including, but not limited to, policies covering real
and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and earthquakes, The Company has no reason to
believe that it will not be able (i) to renew its existing insurance coverage as
and when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change. The
Company has not been denied any insurance coverage which it has sought or for
which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Common
Shares.
(v) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or American Software or any
other person required to be described in the Prospectus which have not been
described as required.
(w) ERISA Compliance. The Company and any "employee benefit plan" (as
defined under the Employee Retirement Income Security Act of 1974, as amended,.
and the regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company, or its "ERISA Affiliates"
(as defined below) are in compliance in all material respects with ERISA.
"ERISA Affiliate" means any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company is a member. No "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any "employee
benefit plan" established or maintained by the Company or any of its ERISA
Affiliates. No "employee benefit plan" established or maintained by the Company
or any of its ERISA Affiliates, if such "employee benefit plan" were terminated,
would have any "amount of unfunded benefit liabilities" (as defined under
ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit
plan" established or maintained by the Company or any of its ERISA Affiliates
that is intended to be qualified under Section 401 (a) of the Code is so
qualified and nothing has occurred, whether by action or failure to act, which
would cause the loss of such qualification.
(x) Each of the Subsidiary Formation Transfer Agreement dated January
23, 1997, (the "Formation Agreement"), the Tax-Sharing Agreement dated January
23, 1997, the Services Agreement dated August 1, 1997, the Facilities Agreement
dated August 1, 1997, the Stock
-7-
<PAGE>
Option Agreement dated August 7, 1997, the Technology License Agreement dated
August 1, 1997 and the Marketing License Agreement dated August 1, 1997, in each
case between the Company and American Software, and the Agreement and Plan of
Merger dated as of August 5, 1997 by and between the Company and Distribution
Sciences, Inc. and pursuant to which the Company was initially organized and
capitalized (collectively, the "Organization Agreements") has been duly and
validly authorized, executed and delivered by the Company and is a valid and
binding obligation of the Company enforceable in accordance with its terms. The
execution, delivery and performance of each of the Organization Agreements by
the Company, the consummation of the transactions therein contemplated and
compliance with the terms thereof did not and will not result in a breach or
violation of the charter, by-laws or other governing documents of the Company,
or a Default under any Existing Instrument, and do not and will not violate any
existing law, rule, administrative regulation or decree or judgment of any court
or any governmental agency or body having jurisdiction over the Company or any
of its properties, or result in the creation or imposition of any lien, charge,
claim or encumbrance upon any property or asset of the Company. No consent,
approval, authorization or order of any court, governmental agency or body,
financial institution or other person is required in connection with the
consummation of the transactions contemplated by such Organization Agreements.
B. REPRESENTATIONS AND WARRANTIES OF AMERICAN SOFTWARE . In addition
to the representations, warranties and covenants set forth in Section 1(A),
American Software represents, warrants and covenants to each Underwriter as
follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of American Software and is a
valid and binding agreement of American Software, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by American Software of, and the
performance by American Software of its obligations under, this Agreement will
not contravene or conflict with, result in a breach of, or constitute a Default
under, or require the consent of any other party to, the charter or by-laws, or
other organizational documents of American Software or any other agreement or
instrument to which American Software is a party or by which it is bound or
under which it is entitled to any right or benefit, any provision of applicable
law or any judgment, order, decree or regulation applicable to American Software
of any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over American Software. No consent, approval,
authorization or other order of, or registration or filing with, any court or
other governmental authority or agency, is required for the consummation by
American Software of the transactions contemplated in this Agreement, except
such as have been obtained or made and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from the NASD.
-8-
<PAGE>
(c) No Registration or Other Similar Rights. American Software does
not have any registration or other similar rights to have any equity or debt
securities registered for sale by the Company under the Registration Statement
or included in the offering contemplated by this Agreement.
(d) Disclosure Made by American Software. All information furnished
by or on behalf of American Software for use in the Registration Statement and
Prospectus and all information concerning the Company contained in any document
filed with the Commission or made publicly available by American Software is,
and on the First Closing Date and the Second Closing Date will be, true,
correct, and complete in all material respects, and does not, and on the First
Closing Date and the Second Closing Date will not, contain any untrue statement
of a material fact or omit to state any material fact necessary to make such
information not misleading.
(e) No Price Stabilization or Manipulation. American Software has not
taken and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the Common
Shares.
(f) Each of the Organization Agreements to which American Software is
a party has been duly and validly authorized, executed and delivered by American
Software and is a valid and binding obligation of American Software enforceable
against American Software in accordance with its terms. The execution, delivery
and performance of each of the Organization Agreements by American Software, the
consummation of the transactions therein contemplated and compliance with the
terms thereof do not and will not result in a breach or violation of, or
constitute a default under, the charter, by-laws or other governing documents of
American Software, or any indenture, mortgage, deed of trust, trust
(constructive or other), note, loan agreement, lease, franchise, license or
other material agreement or instrument to which American Software is a party or
by which it is bound, or to which any of its properties is subject, and do not
and will not violate any existing law, rule, administrative regulation or decree
or judgment of any court or any governmental agency or body having jurisdiction
over American Software or any of its properties, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of American Software. No consent, approval, authorization or order of any
court, governmental agency or body, financial institution or other person is
required in connection with the consummation by American Software of the
transactions contemplated by the Organization Agreements. American Software has
performed all of its obligations under the Formation Agreement.
Any certificate signed by an officer of the Company or American
Software, as the case may be, and delivered to the Representatives or to counsel
for the Underwriters shall be deemed to be a representation and warranty by the
Company or American Software, as the case may be, to each Underwriter as to the
matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
-9-
<PAGE>
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
- ----------
Underwriters to the Company shall be $[_____] per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [_____], or such other
time and date not later than 10:30 a.m. San Francisco time, on [ ] as
the Representatives shall designate by notice to the Company (the time and date
of such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Representatives may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the
Representatives to recirculate to the public copies of an amended or
supplemented Prospectus or a delay as contemplated by the provisions of Section
10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 330,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by Montgomery
Securities, on behalf of the Representatives, to the Company, which notice may
be given at any time within 30 days from the date of this Agreement. Such notice
shall set forth (i) the aggregate number of Optional Common Shares as to which
the Underwriters are exercising the option, (ii) the names and denominations in
which the certificates for the Optional Common Shares are to be registered and
(iii) the time, date and place at which such certificates will be delivered
(which time and date may be simultaneous with, but not earlier than, the First
Closing Date; and in such case the "First Closing Date" shall refer to the time
and date of delivery of certificates for the Firm Common Shares and the Optional
Common Shares). Such time and date of delivery, if subsequent to the First
Closing Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
----------
such Underwriter bears to the total number of Firm Common
-10-
<PAGE>
Shares. Montgomery Securities, on behalf of the Representatives, may cancel
the option at any time prior to its expiration by giving written notice of such
cancellation to the Company.
Public Offering of the Common Shares. The Representatives hereby
advise the Company that the Underwriters intend to offer for sale to the public,
as described in the Prospectus, their respective portions of the Common Shares
as soon after this Agreement has been executed and the Registration Statement
has been declared effective as the Representatives, in their sole judgment, has
determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall deliver
or cause to be delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase at the First Closing Date or the Second Closing Date, as the
case may be, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The certificates
for the Common Shares shall be in definitive form and registered in such names
and denominations as the Representatives shall have requested at least two full
business days prior to the First Closing Date (or the Second Closing Date, as
the case may be) and shall be made available for inspection on the business day
preceding the First Closing Date (or the Second Closing Date, as the case may
be) at a location in New York City as the Representatives may designate. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
-11-
<PAGE>
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY AND AMERICAN SOFTWARE. The Company and
American Software further covenant and agree with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as 'in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information from,
the Commission, (ii) of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time, and date that any
post-effective amendment to the Registration Statement becomes effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any of
such purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Additionally, the Company agrees that it shall comply
with the provisions of Rules 424(b), 430A and 434, as applicable, under the
Securities Act and will use its reasonable efforts to confirm that any filings
made by the Company under such Rule 424(b) were received in a timely manner by
the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, 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 the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with law,
the Company agrees to promptly prepare (subject to Section 3(A)(a) hereof), file
with the Commission and furnish at its own expense to the Underwriters and to
dealers, 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.
-12-
<PAGE>
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any amendments
and supplements thereto as the Representatives may reasonably request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
or state securities or blue sky laws or Canadian provincial securities laws of
those jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [____] that satisfies the provisions of the last paragraph of Section
11(a) of the Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(j) Agreement Not To Offer or Sell Additional Securities. During
the period of 180 days following the date of the Prospectus, the Company will
not, without the prior written consent of Montgomery Securities (which consent
may be withheld at the sole discretion of Montgomery Securities), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge, transfer
or establish an open "put equivalent position" within the meaning of Rule 16a-
1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce
the offering of, or file any registration statement under the Securities Act in
respect of, any shares of Common Stock, options or warrants to acquire shares of
the Common Stock or securities exchangeable or exercisable for or convertible
into shares of Common Stock (other than as contemplated by this Agreement with
respect to the Common Shares); provided, however, that the Company may
-13-
<PAGE>
issue (i) shares of its Common Stock or options to purchase its Common Stock
pursuant to any stock option, stock bonus or other stock plan or arrangement
described in the Prospectus, (ii) shares of or Common Stock upon exercise of
options, issued pursuant to any stock option, stock bonus or other stock plan or
arrangement described in the Prospectus or (iii) shares of Common Stock in
connection with any acquisition or merger, but, in any event, only if (a) the
holders of such shares, options, or shares issued upon exercise of such options,
agree in writing not to sell, offer, dispose of or otherwise transfer any such
shares or options during such 180 day period without the prior written consent
of Montgomery Securities (which consent may be withheld at the sole discretion
of the Montgomery Securities) or (b) in the case of options, such options are
not exercisable and can not become exercisable during such 180 day period.
(k) Future Reports to the Representatives. During the period of
five years hereafter the Company will furnish to the Representatives at Two
International Place, Boston, MA 02110 Attention: Ben Howe: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, shareholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock..
Montgomery Securities, on behalf of the Representatives and the
several Underwriters, may, in its sole discretion, waive in writing the
performance by the Company or American Software or any one or more of the
foregoing covenants or extend the time for their performance.
B. COVENANT OF AMERICAN SOFTWARE. American Software further
covenants and agrees with each Underwriter that it will not, without the prior
written consent of Montgomery Securities (which consent may be withheld in its
sole discretion), directly or indirectly, sell, offer, contract or grant any
option to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Exchange Act, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 180 days after the date of the Prospectus, other
than announcements, if any, as to American Software's plans or intentions with
respect to a possible distribution to its stockholders of all of the shares of
Common Stock held by American Software.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all
-14-
<PAGE>
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs), (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments and
supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the state securities or blue sky laws or the provincial securities laws of
Canada, and, if requested by the Representatives, preparing and printing a "Blue
Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with listing the Common Shares
on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
American Software set forth in Sections 1(A) and 1(B) hereof as of the date
hereof and as of the First Closing Date as though then made and, with respect to
the Optional Common Shares, as of the Second Closing Date as though then made,
to the timely performance by the Company and American Software of their
respective covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from KPMG Peat Marwick LLP, independent
public or certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered according
to Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus (and the
Representatives shall have received an additional three conformed copies of such
accountants' letter for each of the several Underwriters).
-15-
<PAGE>
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the Securities
Act) in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required by such Rule
430A, and such post-effective amendment shall have become effective; or, if the
Company elected to rely upon Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed a Term Sheet with
the Commission in the manner and within the time period required by such Rule
424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any post-
effective amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the
period from and after the date of this Agreement and prior to the First Closing
Date and, with respect to the Optional Common Shares, the Second Closing Date:
(i) in the judgment of the Representatives there shall not have
occurred any Material Adverse Change; and
(ii) 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 securities of the Company by any "nationally
recognized statistical rating organization" as such term is defined for purposes
of Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Gambrell & Stolz, L.L.P., counsel for the Company, dated as
of such Closing Date, the form of which is attached as Exhibit A (and the
---------
Representatives shall have received an additional five conformed copies of
such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
such opinion or opinions of Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters, with respect to the incorporation of the Company, the sufficiency
of all corporate proceedings and other legal matters relating to this Agreement,
the validity of the Common Shares, the Registration Statement and the Prospectus
and other related matters as the Underwriters may reasonably require, and the
-16-
<PAGE>
Company shall have furnished to such counsel such documents and shall have
exhibited to them such papers and records as they may reasonably request for the
purpose of enabling them to pass upon such matters (and the Representatives
shall have received an additional five conformed copies of such counsel's
legal opinion for each of the several Underwriters).
(f) Officer's Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:
(i) for the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of the Company
set forth in Section 1(A) of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received from KPMG Peat
Marwick LLP, independent public or certified public accountants for the Company,
a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional three conformed copies of such accountants' letter for
each of the several Underwriters).
(h) American Software's Certificate. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received a
written certificate executed by the Chairman of the Board, Chief Executive
Officer or President of American Software, dated as of such Closing Date, to the
effect that:
(i) the representations, warranties and covenants of American
Software set forth in Section 1 of this Agreement are true and correct with the
same force and effect as though expressly made by American Software on and as of
such Closing Date; and
(ii) American Software has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(i) Opinion of Counsel for American Software. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Gambrell & Stolz, L.L.P., counsel for American
Software, dated as of such Closing Date, the
-17-
<PAGE>
form of which is attached as Exhibit B (and the Representatives shall have
---------
received an additional five conformed copies of such counsel's legal
opinion for each of the several Underwriters).]
(j) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representatives and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by Montgomery
Securities, on behalf of the Representatives, by notice to the Company and
American Software at any time on or prior to the First Closing Date and, with
respect to the Optional Common Shares, at any time prior to the Second Closing
Date, which termination shall be without liability on the part of any party to
any other party, except that Section 4, Section 6, Section 8 and Section 9 shall
at all times be effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representatives pursuant to Section 5, Section 7,
Section 10 or Section 11, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or American Software to perform
any agreement herein or to comply with any provision hereof, the Company and
American Software jointly and severally agree to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by the Representatives
and the Underwriters in connection with the proposed purchase and the offering
and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or American Software
to any Underwriter, except that the Company and American Software shall be
obligated to reimburse the expenses of the Representatives and the Underwriters
pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the Company or
American Software, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
-18-
<PAGE>
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. Each of the Company and
American Software, jointly and severally, agrees to indemnify and hold harmless
each Underwriter, its officers and employees, and each person, if any, who
controls any Underwriter within the meaning of the Securities Act and the
Exchange Act against any loss, claim, damage, liability or expense, as incurred,
to which such Underwriter or such controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company), insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company or American Software contained herein; or (iv) in whole or in part
upon any failure of the Company or American Software to perform their respective
obligations hereunder or under law; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Montgomery Securities in accordance with
Section 8(c)) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent, but only
to the extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with information furnished to the Company by the Representatives
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common Shares,
or any person controlling such Underwriter, if copies of the Prospectus were
timely delivered to the Underwriter pursuant to Section 2 and 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 Common Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or
-19-
<PAGE>
expanse. The indemnity agreement set forth in this Section 8(a) shall be in
addition to any liabilities that the Company and American Software may otherwise
have.
(b) Indemnification of the Company, American Software and their Directors
and Officers. Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, American Software, each of their respective
directors, each of their respective officers who signed the Registration
Statement and each person, if any, who controls the Company or American Software
within the meaning of the Securities Act or the Exchange Act, against any loss,
claim, damage, liability or expense, as incurred, to which the Company or
American Software, or any such director, officer or controlling person may
become subject, under the Securities Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement if effected with the written
consent of such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based upon any untrue or alleged untrue statement of a material fact
contained in the Registrant Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or arises out of or is
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any preliminary prospectus, or the Prospectus (or
any amendment or supplement thereto), in reliance upon and in conformity with
information furnished to the Company or American Software by the
Representatives expressly for use therein; and to reimburse the Company or
American Software, or any such director, officer or controlling person for any
legal and other expense reasonably incurred by the Company or American Software,
or any such director, officer or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. Each of the Company and American Software
hereby acknowledges that the only information that the Underwriters have
furnished to the Company or American Software expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) are the statements set forth (A) as the last
paragraph on the inside front cover page of the Prospectus concerning
stabilization by the Underwriters and (B) in the table in the first paragraph
and as the second and seventh paragraphs under the caption "Underwriting" in the
Prospectus; and the Underwriters confirm that such statements are correct. The
indemnity agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a
-20-
<PAGE>
proximate result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with all other
indemnifying parties similarly notified, by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that a conflict may
arise between the positions of the indemnifying party and the indemnified party
in conducting the defense of any such action or that there may be legal defense
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (Montgomery Securities in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 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
against any loss, claim, damage, liability or expense by reason of such
settlement of 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 Section
8(c) hereof, 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, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional
-21-
<PAGE>
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for in Section 8
is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, from the offering of the Common Shares pursuant
to this Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Underwriters, on the other hand,
in connection with the statement or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and American
Software, on the one hand, and the Underwriters, on the other hand, in
connection with the offering of the Common Shares pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company, and the total underwriting
discount received by the Underwriters, in each case as set forth on the front
cover page of the Prospectus (or, if Rule 434 under the Securities Act is used,
the corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set froth on such cover. The
relative fault of the Company and American Software, on the one hand, and the
Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact or any such
inaccurate or alleged inaccurate representations or warranty relates to
information supplied by the Company or American Software, on the one hand, or
the Underwriters, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement of omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company, American Software and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation
-22-
<PAGE>
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Common Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party (other
than the defaulting Underwriter(s)) to any other party except that the
provisions of Section 4, Section 6, Section 8 and Section 9 shall at all times
be effective and shall survive such termination. In any such case either the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes, if any, to the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected.
-23-
<PAGE>
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date
this Agreement may be terminated by the Representatives by notice given to the
Company and American Software if at any time (i) trading or quotation in any of
the Company's securities shall have been suspended or limited by the Commission
or by the Nasdaq Stock Market, or trading in securities generally on either the
Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission of the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York or
California authorities; (iii) there shall have occurred any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any change in the United States or international financial markets, or any
substantial change or development involving a prospective substantial change in
the United States' or international political, financial or economic conditions,
as in the judgment of the Representatives is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the judgment of the Representatives there shall have occurred any
Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representatives may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company or American Software to any
Underwriter, except that the Company and American Software shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Section 4 and 6 hereof, (b) any Underwriter to the Company or American Software,
or (c) of any party hereto to any other party except that the provisions of
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statement of the Company and American Software, of their respective officers,
and of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by or
on behalf of any underwriter or the Company or American Software or any of their
partners, officers or directors or any controlling person, as the case may be,
and will survive delivery of and payment for the Common Shares sold hereunder
and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
-24-
<PAGE>
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Logility, Inc.
470 East Paces Ferry Road
Atlanta, GA 30305
Facsimile: (404) 238-8450
Attention: J. Michael Edenfield
with a copy to:
James R. McGuone, Esq.
Gambrell & Stolz, L.L.P.
Suite 4300
303 Peachtree Street, NE
Atlanta, GA 30308
Facsimile: (404) 221-6501
If to American Software:
American Software, Inc.
470 East Paces Ferry Road
Atlanta, GA 30305
Facsimile: (404) 264-5394
Attention: James C. Edenfield
-25-
<PAGE>
with a copy to:
James R. McGuone, Esq.
Gambrell & Stolz, L.L.P.
Suite 4300
303 Peachtree Street, NE
Atlanta, GA 30308
Facsimile: (404) 221-6501
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 16. GOVERNING LAW.
(a) Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States located in the City and County of San Francisco (collectively, the
"Specified Courts"), and each party irrevocably submits to the exclusive
jurisdiction (except for proceedings instituted in regard to the enforcement of
a judgment of any such court (a "Related Judgment"), as to which such
jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or
-26-
<PAGE>
claim in any such court that any such suit, action or other proceeding brought
in any such court has been brought in an inconvenient forum.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and contribution provisions of Section 9, and is fully
informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
-27-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company and American Software the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
LOGILITY, INC.
By:_________________________
Title:______________________
AMERICAN SOFTWARE, INC.
By:_________________________
Title:______________________
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
COWEN & COMPANY
INTERSTATE/JOHNSON LANE CORPORATION
HAMPSHIRE SECURITIES CORPORATION
Acting as Representatives of the
several Underwriters named in the
attached Schedule A.
By MONTGOMERY SECURITIES
By:_________________________
-28-
<PAGE>
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section 5(e)
of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Georgia.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement and each of the Organization Agreements.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason or the ownership or
leasing or property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change. To such counsel's knowledge, the Company does not own or control,
directly or indirectly, any corporation, association or other entity.
(iv) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof
set forth in the Prospectus. All of the outstanding shares of Common Stock
have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been
issued in compliance with the registration and qualification requirements
of federal and state securities laws. The form of certificate used to
evidence the Common Stock is in due and proper form and complies with all
applicable requirements of the charter and by-laws of the Company and the
Georgia Business Corporation Code. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(v) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Georgia or (ii) to the best knowledge of
such counsel, otherwise.
-29-
<PAGE>
(vi) Each of the Organization Agreements and the Underwriting
Agreement have been duly authorized, executed and delivered by, and are
valid and binding agreements of, the Company, enforceable in accordance
with their respective terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles and except as to rights to indemnification or
contribution, as to which no opinion is expressed.
(vii) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(viii) The Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or
are pending or are contemplated or threatened by the Commission. Any
required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within
the time period required by such Rule 424(b).
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to
the Registration Statement and the Prospectus, as of their respective
effective or issue dates (other than the financial statements and
supporting schedules included therein or in exhibits to or excluded from
the Registration Statement, as to which no opinion need be rendered) comply
as to form in all material respects with the applicable requirements of the
Securities Act.
(x) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
-30-
<PAGE>
(xi) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct in
all material respects.
(xii) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xiii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder
(other than performance by the Company of its obligations under the
indemnification and contribution section of the Underwriting Agreement, as
to which no opinion need be rendered) (i) have been duly authorized by all
necessary corporate action on the part of the Company; (ii) will not result
in any violation of the provisions of the charter or by-laws of the
Company; (iii) will not constitute a breach of, or Default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or to the best knowledge of such
counsel, any other material Existing Instrument; or (iv) to the best
knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to
the Company.
(xiv) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of
Investment Company Act.
(xv) Except as disclosed in the Prospectus , to the best knowledge
of such counsel, there are no persons with registration or other similar
rights to have any equity or debt securities registered for sale under the
Registration Statement or included in the offering contemplated by the
Underwriting Agreement.
(xvi) To the best knowledge of such counsel, the Company is not in
violation of its charter or by-laws or any law, administrative regulation
or administrative or court decree applicable to the Company or in Default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any material Existing Instrument, except in each
such case for such violations or Defaults as would not, individually or in
the aggregate, result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants
for the Company and with representatives of the Underwriters at which the
contents of the Registration Statement and the Prospectus, and any
supplements or amendments thereto, and related matters
-31-
<PAGE>
were discussed and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (other
than as specified above), and any supplements or amendments thereto, on the
basis of the foregoing, nothing has come to their attention which would
lead them to believe that either the Registration Statement or any
amendments thereto, at the time the Registration Statement or such
amendments became effective, contained an 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 fact required to be
stated therein or necessary to make the statements therein not misleading
or that the Prospectus, as of its date or at the First Closing Date or the
Second Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted 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 (it being understood that such counsel need
express no belief as to the financial statements or schedules or other
financial or statistical data derived therefrom, included in the
Registration Statement or the Prospectus or any amendments or supplements
thereto.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and public officials.
-32-
<PAGE>
EXHIBIT B
The final opinion in draft form should be attached as Exhibit B at the time this
Agreement is executed.
The opinion of such counsel pursuant to Section 5 shall be rendered to the
Representatives at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B includes any supplements thereto
---------
at the Closing Date.
(i) Each of the Organization Agreements and the Underwriting Agreement
have been duly authorized, executed and delivered by or on behalf of, and are
valid and binding agreements of, American Software, enforceable in accordance
with their respective terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally equitable principles and
except as to rights to indemnification or contribution, as to which no opinion
is expressed.
(ii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by American Software of its obligations thereunder
(other than performance by American Software of its obligations under the
indemnification and contribution section of the Underwriting Agreement, as to
which no opinion need be rendered) (i) have been duly authorized by all
necessary corporate action on the part of American Software; (ii) will not
result in any violation of the provisions of the charter or by-laws of American
Software; (iii) will not constitute a breach of, or Default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of American Software or to the best knowledge of such counsel, any
other material Existing Instrument; or (iv) to the best knowledge of such
counsel, will not result in any violation of any law, administrative regulation
or administrative or court decree applicable to American Software.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of American
Software the Company and public officials.
-33-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF
FIRM COMMON
SHARES TO BE PURCHASED
<S> <C>
Montgomery Securities................... [__]
Cowen & Company......................... [__]
Interstate/Johnson Lane Corporation..... [__]
Hampshire Securities Corporation........ [__]
[_____]................................. [__]
[_____]................................. [__]
[_____]................................. [__]
Total............................. 2,200,000
</TABLE>
-34-
<PAGE>
LOGILITY, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
COMMON STOCK
COMMON STOCK
CUSIP 54140Y 10 3
SEE REVERSE FOR
CERTAIN DEFINITIONS
This Certifies that
is the owner of
SHARES OF FULLY PAID AND NON-ASSESSABLE COMMON STOCK, NO PAR VALUE, OF
LOGILITY, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar. IN WITNESS WHEREOF, the said Corporation has
caused this Certificate to be signed by its duly authorized officers and its
Corporate Seal to be hereunto affixed.
Dated:
Secretary
President
Countersigned and Registered:
WACHOVIA BANK, N.A.
(WINSTON-SALEM, NC)
Transfer Agent
and Registrar
By
Authorized Signature
<PAGE>
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED, THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF
A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
- -
- -
- -
as tenants in common
as tenants by the entireties
as joint tenants with
right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT- Custodian
(Cust) (Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
represented by the within Certificate and do hereby irrevocably constitute
and appoint
Attorney
to transfer the said Shares on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, AS
DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS
AMENDED.
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Logility, Inc.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Combined Financial Data" and "Experts" in
the prospectus.
KPMG Peat Marwick LLP
Atlanta, Georgia
September 25, 1997
<PAGE>
Mr. J. Michael Edenfield
President
Logility, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Dear Mr. Edenfield:
Pursuant to Rule 438 of the Securities Act of 1933, I hereby consent to be
named as a nominee for election as a director of Logility, Inc. in its
Registration Statement on Form S-1 (and in the Prospectus forming a part hereof)
and in any and all amendments thereto.
Very truly yours,
/s/ C. Tycho Howle
_______________________________
C. Tycho Howle
Date: September 19, 1997
<PAGE>
Mr. J. Michael Edenfield
President
Logility, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Dear Mr. Edenfield:
Pursuant to Rule 438 of the Securities Act of 1933, I hereby consent to be
named as a nominee for election as a director of Logility, Inc. in its
Registration Statement on Form S-1 (and in the Prospectus forming a part hereof)
and in any and all amendments thereto.
Very truly yours,
/s/ Parker H. Petit
____________________________________
Parker H. Petit
Date: September 19, 1997
<PAGE>
Mr. J. Michael Edenfield
President
Logility, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Dear Mr. Edenfield:
Pursuant to Rule 438 of the Securities Act of 1933, I hereby consent to be
named as a nominee for election as a director of Logility, Inc. in its
Registration Statement on Form S-1 (and in the Prospectus forming a part hereof)
and in any and all amendments thereto.
Very truly yours,
/s/ John A. White
____________________________
John A.White
Date: September 19, 1997
