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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED APRIL 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-12456
AMERICAN SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 470 EAST PACES FERRY ROAD, N.E.
ATLANTA, GEORGIA
(STATE OR OTHER JURISDICTION OF (ADDRESS OF PRINCIPAL EXECUTIVE
INCORPORATION OR ORGANIZATION) OFFICES)
58-1098795 30305
(IRS EMPLOYER IDENTIFICATION NO.) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (404) 261-4381
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON SHARES, $.10 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
At July 10, 1998, 17,907,817 Class A Common Shares and 4,797,289 Class B
Common Shares of the registrant were outstanding. The aggregate market value
(based upon the closing price of Class A Common Shares as quoted on the NASDAQ
National Market System at July 10, 1998) of the Class A shares held by
nonaffiliates was approximately $123 million.
DOCUMENTS INCORPORATED BY REFERENCE; LOCATION IN FORM 10-K
1. 1998 Proxy Statement into Part III.
2. Form S-1 Registration Statement No. 2-81444 into Part IV.
3. Form S-8 Registration Statement No. 33-55214 into Part IV.
4. Form 10-K's for fiscal years ended April 30, 1990 and 1995 into Part IV.
5. Form 10-Q's for the quarters ended January 31, 1990, October 31, 1990,
July 31, 1997 and October 31, 1997 into Part IV.
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PART I
ITEM 1. BUSINESS
A. GENERAL
American Software, through its subsidiaries, develops, markets and supports
a portfolio of application software solutions that enable businesses to
respond to today's dynamic global marketplace. The Company's software
solutions are designed to automate many planning and operational functions
principally in the areas of: (i) Enterprise Resource Planning (ERP), (ii) Flow
Manufacturing, (iii) Value Chain Planning, and (iv) Warehouse Management. The
Company's products are designed to provide rapid return on investment while
offering maximum scaleability. The Company also provides support for its
software products, such as software enhancements, documentation updates,
customer education, consulting, systems integration services, millennium
conversions and maintenance.
ERP is an integrated suite of products designed to automate many of the
daily operational tasks of a global enterprise. ERP is responsible for the
execution of many key business processes including the physical movement of
and accounting for goods throughout the value chain. ERP functions may include
inventory management, order management, purchasing and finance.
Flow Manufacturing is a solution, that is designed to automate the
manufacture of discrete products. Flow Manufacturing is designed around a new
manufacturing paradigm which states that materials should be "pulled" into the
manufacturing process based on customer demand instead of "pushing" materials
based on quarterly production schedules and safety stock needs. Flow
Manufacturing can co-reside with traditional manufacturing solutions or it can
completely replace traditional manufacturing. Flow Manufacturing techniques
are also known as agile or lean, or demand flow manufacturing.
Value Chain Planning, which is part of the Company's Logility Inc.
subsidiary, involves the proactive use of information to ensure that the right
products are delivered to the right place at the right time. This planning
process is focused on demand forecasting, inventory management, replenishment
and manufacturing planning, manufacturing scheduling as well as transportation
management. The Logility Planning Solutions product suite consists of software
that enables suppliers, manufacturers, distributors and wholesalers to more
effectively manage their value chains.
Warehouse management solutions, which is part of the Company's Logility Inc.
subsidiary, refer to the management of activities necessary to operate a
warehouse or distribution center. Key warehouse management functions include
the storage of newly received goods, picking goods from warehouse storage for
shipment to a customer, and packing items for shipment. WarehousePRO is the
Company's integrated solution for automating warehouse operations.
The Company markets and supports its application software products to a wide
range of end users, including manufacturers of chemicals, consumer products,
electronics, food and beverage products, pharmaceuticals, pulp and paper,
steel, and textiles, as well as retailers, wholesale distributors, and the
health and beauty care industry, petroleum producers, public utilities and the
transportation industry.
B. INDUSTRY BACKGROUND
Many dynamics are occurring in industrial businesses that are forcing
companies to re-engineer the way they develop products and deliver services.
Changes in markets, products, partnerships and competition impact business
plans on a daily basis. Competitive pressures are forcing companies to shorten
their product life cycles, which creates significant risks. Retailers and
consumers are becoming more demanding because of the broad range of choices
available. Many companies are acquiring other businesses or even being
acquired in order to assemble a competitive portfolio of products and
services. This means a constant flux in business structures and organizational
models. Manufacturing is also now a global operation, and it is not uncommon
to have an
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enterprise sourcing supplies in one country, conducting pre-assembly in
another country and performing final assembly in yet a third country. All of
these dynamics mean that swift, accurate decision making is critical to
survival.
Effective information technology (IT) solutions, which support not only the
operational aspects of the business but also, support intelligent decision-
making can often mean increased competitive advantage. IT solutions which
provide the ability to quickly respond to market opportunities, customer needs
and/or value chain constraints can often lead to increased market share,
increased profitability and improved shareholder returns. All of the Company's
software solutions are designed to support either a company's operational
requirements or its decision support needs.
Companies rely on ERP systems to conduct the daily transactions vital to
running a business, from taking an order, to sending a purchase order to a
supplier, to collecting monies from customers. The systems, which manage these
operational aspects of running an enterprise, are the province of ERP systems.
Warehouse Management systems are concerned with the physical movement of goods
within a warehouse or distribution center. Flow Manufacturing is designed to
deliver optimal conversion of raw materials into finished products. Value
Chain Planning allows companies to proactively synchronize their supply
activities and manufacturing schedules so that inventory plans are sufficient
to meet customer demand.
C. PRODUCTS
The Company's strategy has been to create an integrated line of standard
application software operating on four strategic computer platforms: (1) IBM
System/390 Mainframe or compatible, (2) IBM Midrange--AS/400, (3) UNIX--HP
9000, IBM RS/6000 and other Unix platforms and (4) Intel-based servers and
clients that operate Windows 3.1, Windows NT and OS/2. The products are
written in various standard programming languages utilized for business
application software, including ANS COBOL, COBOL II, Micro Focus COBOL, C,
C++, Visual Basic and other programming languages, and many have both on-line
and batch capabilities. An integral part of this strategy has been to
integrate unique characteristics of personal computers as workstations or
clients in the products provided by the Company. ES/9000, RS/6000 and AS/400
are registered trademarks of the International Business Machine Corporation.
HP 9000 is a registered trademark of Hewlett Packard Corporation. The
following is a summary of the Company's main software solutions.
ENTERPRISE SOLUTIONS SOFTWARE
The Company's enterprise solutions are comprehensive applications designed
to operate complex, multi-site, multi-national enterprises. Most applications
can operate on a stand-alone basis, integrated with one or other solutions
offered by the Company and/or integrate with one or more systems from other
vendors. The Company's Enterprise Solutions are comprised of the following
module groups: Manufacturing, Logistics and Financials.
In April 1998, the Company introduced the next generation ERP solution
called INTELLIPRISE(TM). This client server based ERP solution supports
multiple international business and manufacturing models, features an "out of
the box" data warehouse and offers the flexibility to quickly respond to
changing business environments.
MANUFACTURING MODULES
Companies may choose either the Company's Traditional Manufacturing solution
or Flow Manufacturing solution. The modules listed below are the solution
components within Traditional Manufacturing:
1. Master Scheduling
2. Material Requirements Planning II
3. Bill of Materials
4. Capacity Planning
5. Production Order Status
6. Route and Work Center Maintenance
7. Shop Floor Control
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LOGISTICS MODULES
The Company's logistics solution consists of an integrated system of six
modules which provides information concerning the status of purchasing
activities, customer orders, inventory position and internal inventory
requisition requirements. These modules perform primarily the following
functions:
1. Inventory Control and Accounting
2. Purchasing
3. Material Request
4. Item Information Management System
5. Bid (Request for Quotation)
6. Customer Order Management
FINANCIAL MODULES
The Company's comprehensive financial solutions provide functions such as
financial reporting, budgeting, asset management, cash management, credit
management and receivables management. These systems assist in resolving
customers' specific financial control issues faster and more effectively. The
specific applications available are:
1. General Ledger and Budgeting
2. Accounts Receivable
3. Accounts Payable
4. Capital Project Accounting
5. Fixed Asset Accounting
6. Continuing Property Records
Key benefits of Enterprise Solutions include the following:
Modular, Scaleable Solution. Companies may purchase one or more modules for
point solution(s), which can be integrated with other enterprise software.
They may also purchase an integrated product suite to handle increased
requirements for storage, processing and/or transactions.
Year 2000 compliance. All Enterprise Solutions are year 2000-enabled, which
means that the applications have been modified and tested to handle dating
logic beyond the year 2000. The Company believes that Year 2000 compliant
applications will be sold to both existing customers as well as new companies.
Broad Product Offering. The Company's long-term market presence has enabled
it to develop an extensive portfolio of solutions. The Company believes that
the combined offerings of all product lines are among the broadest range of
solutions in the marketplace today. Users that only license one application
module typically are candidates to license other applications offered by the
Company.
Extensive Functionality. The Company's enterprise software provides
extensive strategic and tactical functionality to facilitate operations and/or
support decision-making across one or multiple sites. This functionality
includes multi-currency and multi-language, as well as support of multiple
databases and extensive analytical capabilities.
FLOW MANUFACTURING SOFTWARE
The Flow Manufacturing solution is designed to operate with the Company's
Enterprise Solution or with an enterprise solution provided by other
companies. Flow Manufacturing can be used in conjunction with Traditional
Manufacturing or it can be the sole manufacturing solution deployed throughout
an enterprise. The
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solution is designed to support complex multi-plant global manufacturing
requirements. The solution is comprised of the following modules:
1. Line Design
2. Kanban Management
3. Demand Smoothing
4. Product Costing
5. Engineering Change
6. Method Sheets
Key benefits of Flow Manufacturing include the following:
Market Leadership. After several years of working with companies developing
custom Flow solutions, the Company believes it is first-to-market with a
comprehensive packaged software solution that meets the requirements of
discrete manufacturing.
Scaleable Implementation. Flow Manufacturing can be scaled to handle a
single production line up to the requirements of a complex multi-plant, multi-
source manufacturing environment. The solution can also co-exist with
traditional manufacturing such that Flow Manufacturing can be used for some
portions of production and assembly while traditional manufacturing is
maintained for others. The Company believes that this hybrid approach to the
implementation of Flow Manufacturing offers companies significant flexibility.
Integration. Flow Manufacturing can be licensed in conjunction with the
Company's other enterprise solutions or it can be licensed to companies that
are using other vendors' enterprise solutions. Industry-standard data formats,
interfaces and protocols facilitate this integration.
LOGILITY VALUE CHAIN SOLUTIONS
The Company's solutions in Value Chain Planning, warehouse and
transportation planning are provided through Logility, Inc. The Company
currently owns approximately 84% of the common stock of Logility, Inc., the
remaining 16% being publicly held.
Logility Value Chain Solutions(TM) 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(TM) and Logility Execution Solutions(TM),
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(TM) 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
following table summarizes the Company's product line:
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SOLUTION GROUP MODULE FEATURES
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Logility Planning Demand Planning . Item and Group forecasting
Solutions
. Self selecting forecast models
. Personalized data views
. Item stratification
. Product life cycle management with
simulation
. Drag and drop data manipulation
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Inventory Planning . Time-phased view of inventory
. Graphical simulations of inventory
trade-off
. Views of dependent and independent
demand
. Inventory management variables
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SOLUTION GROUP MODULE FEATURES
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Event Planning . Promotion planning
. Self-learning capabilities using
artificial intelligence
. Causal-based forecasting
. Promotion profitability simulations
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Demand Chain Voyager(TM) . Forecast retrieval and modifications
via the Internet and Corporate
Intranets
. Tight integration with Demand Planning
. Promotion planning calendars
. Comprehensive security features
. Collaborative planning with trading
partners
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Manufacturing Planning . Enterprise-wide capacity planning
. Plant-level scheduling
. Supports activity-based costing
. Optimizes sourcing decisions' actual
costs
. Interactive simulation
. Real-time, in memory model
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Replenishment Planning . Supports continuous replenishment
strategies
. Constrained, time-phased distribution
requirements planning
. Proactive action messages
. EDI integration
. Available-to-promise methodologies
. Multi-site sourcing and allocation
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Transportation Planning . Load Control Center
. Shipment planning and consolidation
. Freight rating and routing
. Carrier selection
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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
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Value Chain Designer . Strategic distribution network
optimization
. Customer assignment
. Facility location
. Balancing customer service levels and
cost
. Sourcing selection and capacity
planning
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Logility Execution Transportation Management . Load tendering
Solutions
. Shipment confirmation
. Freight audit and payment control
. Shipment documentation and tracking
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WarehousePRO(R) . Object oriented architecture
. User configurable options
. Advanced workflow technology
. Dynamic label and report printing
. Integrated graphical user interface
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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 has recently made generally available an Event
Planning module, a causal-based forecasting solution designed to facilitate
product life-cycle management and promotion planning, and 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 utilizes advanced genetic 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
other faster inventory turns, optimized inventory levels and the ability to
allocate customer orders based on user-defined priorities. Replenishment
Planning provides support for continuous replenishment strategies, such as
Vendor Managed Inventory, Quick Response and Efficient Consumer Response.
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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.
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 generates proposed
replenishment orders and allow trading partners to track the status of orders.
Value Chain Designer. The Value Chain Designer module provides a strategic
view of the Supply Chain Network. Companies can optimize location decisions,
resource allocation, and customer assignment and transportation strategies to
minimize costs or maximize profitability.
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.
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 was made generally available in the fourth quarter of the
Company's fiscal year 1998.
D. STRATEGY
Leverage and Expand Installed Base of Customers. The Company's modular-based
product line allows initial sales to create significant opportunities for
additional product licensing. The Company intends to continue to leverage its
installed base 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 over time.
Continued Investment in ISO 9001 Certified Research & Development. The
Company's quality system has received ISO 9001 certification, an international
standard for product and operational quality. The Company will
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continue to make substantial investments in research and development to
develop new products, enhance existing products and incorporate new
technologies such as the Internet.
Customer Satisfaction. The Company continues to have the highest corporate
commitment to superior, rapid implementations and ongoing customer service.
The Company has made substantial investments in its help desk, Internet-based
support and other areas, and will continue its emphasis on quality and
responsiveness.
Increase Penetration of International Markets. In fiscal year ended April
30, 1998, the Company generated 9% 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.
E . INTEGRATED SYSTEM DESIGN
While the Company's software applications can be used individually, they are
designed to be combined as integrated systems to meet unique customer
requirements. The user may select virtually any combination of modules to form
an integrated solution to a particular business problem. The license fee for
such a solution could range from $7,000 for a single module to in excess of
$7,000,000 for a multi-module, multiple-user solution incorporating the full
range of Company products.
Customers frequently require services beyond those provided by the Company's
standard arrangements. To meet those customers' needs, the Company established
a separate professional services division which provides specialized business
and software implementation consulting, custom programming, on-site
installation, system-to-system interfacing and extensive training. These
services, frequently referred to as systems integration services, are provided
for an additional fee normally under a separate contract, based upon time and
materials utilized.
F. SALES & MARKETING
Typically, the Company's customers are medium-sized companies or divisions
of larger companies with substantial data processing budgets. No single
customer accounted for more than ten percent of the Company's revenues in
fiscal 1998.
First-time customers may license a single module or a system composed of
several modules. These customers often license other modules to expand the
range of software available to them, and may also license additional modules
or systems similar to those already licensed for use at additional locations.
The Company sells its products directly to the end-user through its sales
and presales staff of approximately 119 persons located in six (6) areas
worldwide: Mid U.S. (28), Northeast U.S. (22), Southern U.S. (41), Western
U.S. (9), Europe (17), and Canada (2). The presales staff provides
consultation, advice and assistance to the sales executives and the customer
in selecting an appropriate configuration of application software modules to
address the user's needs. The Company obtains sales leads from its advertising
in trade publications, participation in computer industry trade shows and
exhibitions, Company-conducted seminars and telemarketing activities, and
referrals from existing customers.
In 1998, the Company continued its program, begun in fiscal 1988, to develop
a network of sales agents to support its sales internationally. These agents,
along with a designated Company employed country manager, are establishing a
national presence for the Company in targeted countries throughout Latin
America, Europe and the Middle East.
The price for the Company's products typically is determined based upon the
number of modules licensed and the number of servers, users and sites for
which the solution is designed. During fiscal year ended April 30, 1998,
license fees generally ranged from $50,000 to $1.5 million.
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G. LICENSES
The Company, like many business application software firms, typically enters
into license agreements that grant non-exclusive rights to use its products.
The Company's standard license agreements contain provisions designed to
prevent disclosure and unauthorized use of the Company's software. These
agreements warrant that the Company's products will function in accordance
with the specifications set forth in its product documentation. These licenses
are generally granted for a term of ninety-nine years and provide that, for a
one-time fee, the customer may use the software to process its data at a
single facility for a specified division or divisions. A significant portion
of the license fee is generally payable upon the delivery of product
documentation, with the balance due upon installation.
H. INSTALLATION, MAINTENANCE AND SUPPORT
As additional services to its customers, the Company provides implementation
services and customized support. Implementation services and customized
support include installation of the Company's software, project planning and
management, and training of the customer's user and systems personnel on the
use of the software system. The customer receives documentation manuals or
imbedded help software, which describe the system's features and its method of
operation. The user is normally entitled to telephone support and maintenance
for a period of at least six months at no additional charge. The Company's
software products are continually enhanced and improved to accommodate
technological changes and other factors, which may affect the customer's
information requirements. To receive maintenance, which includes enhancements,
from the Company after the initial period, customers pay fees, which are based
on the then-current price of the product.
As a part of its support service, the Company provides experienced
application and data processing personnel to answer telephone inquiries on a
24-hours-a-day, seven days-a-week basis, and furnishes consulting support in
implementing and maintaining the systems. In addition, training courses and
documentation materials are available to train customers' personnel and to
update them on new system features.
The Company markets its professional and data processing resources on a
network management basis. Network management is the provision of data
processing services, normally under long-term contract, by outside providers.
The Company believes network management continues to represents a growth
opportunity by providing a basis for predictable long-term recurring revenues.
To complement customer support, the Company and its product users actively
participate in its User Group Association. Established in 1980, the User Group
exchanges ideas and techniques for use of the Company's products and provides
a forum for customers' suggestions for product development and enhancement.
User Group meetings include guest speakers who are recognized authorities in
their areas of expertise.
I. RESEARCH AND DEVELOPMENT
American Software is committed to the development and acquisition of new
products and to the continued enhancement of its existing products. During
fiscal 1998, 1997, and 1996, the Company expensed approximately $12,112,000,
$7,343,000 and $4,725,000, respectively, for research and development. In
addition, the Company capitalized $8,827,000, $9,898,000, and $12,750,000 in
software development costs during fiscal years 1998, 1997, and 1996,
respectively, in accordance with the Statement of Financial Accounting
Standards No. 86. The Company's new internal product development and
enhancements of existing products include two categories: research and
development expenditures and additions to capitalized computer software
development costs. These combined categories totaled $20,939,000, $17,241,000,
and $17,475,000 in fiscal years 1998, 1997 and 1996, respectively, and
represented 62%, 57%, and 70%, respectively, of total license fee revenues in
those years.
The Company believes that its client/server solutions, which utilize the
latest technologies, will be important for its long-term growth. The Company
employs approximately 351 persons in research, development and enhancement
activities.
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J. COMPETITION
The computer application software industry is highly competitive. In the
application software market, the Company competes directly with a number of
firms, including computer manufacturers, large diversified computer service
companies and independent suppliers of software products. Approximately six
firms that market mainframe application software products and thirty firms
that market midrange and client/server application software products are
significant competitors for one or more of the Company's products. A number of
these competitors have financial, marketing, management and technical
resources substantially greater than those of the Company.
The Company's primary market for its software is finished goods distributors
and manufacturers, industrial manufacturers, utilities, public transportation
and health care providers on IBM mainframe, AS/400, RS/6000, HP 9000, and
additional UNIX platforms, as well as Intel-based servers and clients that
operate Windows 3.1, Windows 95, Windows NT and OS/2.
The Company believes that purchasers of software products are principally
concerned with the range of product modules available, ease of integration,
variety of features, performance, simplicity of use, documentation, technical
support and training. The Company further believes that its software products
and services are competitive in these areas. Price considerations are a key
factor and the Company believes its pricing is competitive. The Company
believes the market trend to open systems, allowing software to operate across
hardware platforms, will increase the number of competitors and intensity of
competition. Management believes that it is necessary for the Company to
expend significant development monies annually to remain competitive in the
marketplace.
K. TRADEMARKS AND COPYRIGHTS
The Company seeks to protect its proprietary interest in software products
and trade secrets. It maintains non-disclosure and confidentiality agreements
and other contractual arrangements with customers, consultants, employees, and
others. While the strict enforceability of such agreements cannot be assured,
the Company believes that they provide a deterrent to the use of information
which may be proprietary to the Company, and in the event of any breach of
such agreements, the Company intends to take appropriate legal action. It also
copyrights its programs and software documentation related to these programs.
In addition, certain trademarks of the Company have been registered, and
others have registration applications pending. Management believes that the
competitive position of the Company depends primarily on the technical
competence and creative ability of its personnel and that its business is not
materially dependent on copyright protection or trademarks.
L. EMPLOYEES
At April 30, 1998, the Company had 701 full-time employees, including 370 in
product development and technical support, 144 in customer support and
professional services, 153 in marketing, sales and sales support, and 34
persons in accounting and administration. The Company believes that its
continued success will depend in part on its ability to continue to attract
and retain highly skilled technical, marketing and management personnel, who
are in great demand.
The Company has never had a work stoppage and no employees are represented
under collective bargaining arrangements. The Company considers its employee
relations to be excellent.
M. RISK FACTORS
The Company operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The following section lists some,
but not all, of the risks and uncertainties, which may have a material adverse
effect on the Company's business, operating results or financial condition.
This section should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of
11
<PAGE>
Operations" the audited Consolidated Financial Statements and Notes thereto
for the three years ended April 30, 1998, 1997 and 1996.
In addition to the "Forward Looking Statements" section contained elsewhere
in this Report, the following factors should be considered carefully in
evaluating the business, financial condition and prospects of the Company.
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
quarterly operating results have varied in the past and might vary
significantly in the future because of factors such as business conditions or
the general economy, the timely availability and acceptance of the Company's
products, technological change, the effect of competitive products and
pricing, changes in Company strategy, the mix of direct and indirect sales,
changes in operating expenses, personnel changes and foreign currency exchange
rate fluctuations. The Company typically ships software products shortly after
license agreements are signed, and, therefore, does not maintain any material
contract backlog. Furthermore, the Company has typically recognized a
substantial portion of its revenues in the last month of a quarter. As a
result, software products revenues in any quarter are substantially dependent
on orders booked and shipped in that quarter, and the Company cannot predict
software products revenues for any future quarter with any significant degree
of certainty.
The Company's software products revenues are also difficult to forecast
because the market for business application software products is rapidly
evolving, and the Company's sales cycles vary substantially from customer to
customer. Because the licensing of the Company's products generally involves a
significant capital expenditure by the customer, the Company's sales process
is subject to the delays and lengthy approval processes that are typically
involved in such expenditures. In addition, the Company expects that sales
derived through indirect channels, the timing of which is harder to predict
than for direct sales because there is less direct contact with the
prospective customer, will increase as a percentage of total revenues. For
these and other reasons, the sales cycle associated with the licensing of the
Company's products varies substantially from customer to customer and
typically lasts between four and six months, during which time the Company
might devote significant time and resources to a prospective customer,
including costs associated with multiple site visits, product demonstrations
and feasibility studies, and might experience a number of significant delays,
over which the Company has no control.
The Company determines its expense levels based, at least in part, on its
expectations as to future revenues. If revenues in a period are below
expectations, operating results are likely to be adversely affected. Net
income might be disproportionately affected by a reduction in revenues because
a proportionately smaller amount of the Company's expenses varies directly
with revenues. As a result of the foregoing factors, it is possible that in
some quarters the Company's operating results will be below the published
expectations of financial research analysts. In that event, the price of the
Company's common stock would likely be materially adversely affected. If this
were to occur, the business, operating results and financial condition of the
Company could be materially adversely affected.
Expansion of Indirect Channels. The Company is building and maintaining
strong working relationships with consulting firms that the Company believes
can play important roles in marketing the Company's products. The Company is
currently investing, and intends to continue to invest, significant resources
to develop these relationships, which could adversely affect the Company's
operating margins. There can be no assurance that the Company will be able to
attract organizations that will be able to market the Company's products
effectively or that will be qualified to provide timely and cost-effective
customer support and service. In addition, the Company's arrangements with
these organizations are not exclusive and, in many cases, may be terminated by
either party without cause, and many of these organizations are also involved
with competing products. Therefore, there can be no assurance that any
organization will continue its involvement with the Company and its products,
and the loss of important organizations could materially adversely affect the
Company's results of operations. In addition, if the Company is successful in
selling products as a result of these relationships, any material increase in
the Company's indirect sales as a percentage of total revenues would be likely
to adversely
12
<PAGE>
affect the Company's average selling prices and gross margins because of the
lower unit prices that the Company receives when selling through indirect
channels.
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
other leading software 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 Logility's Demand Chain Voyager and Supply Chain
Voyager modules, that must comply with rapidly changing Internet standards.
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 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 computing environments and the
broad functionality and performance demanded by customers, 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 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.
International Operations. The Company derived approximately 9%, 10%, and 14%
of its total revenues from international sales in the fiscal years ended April
30, 1998, 1997 and 1996, respectively. The Company believes that continued
growth and profitability will require increased 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.
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
13
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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 if
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
operation and financial condition.
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.
Year 2000 Compliance. Both the Company's internal operations and product use
a significant number of computer software programs and operating systems.
Given the information known at this time, the Company's systems and products,
coupled with the Company's ongoing efforts to maintain systems and products as
necessary, the Company does not anticipate that the "Year 2000 issue" or
related costs will have a material adverse effect on the Company's business
results of operations or financial condition; however circumstances could
change, most particularly as a result of the necessary system interfaces
between the Company's products and other systems utilized by the Company's
customers.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in an approximately 100,000
square foot office building owned by the Company at 470 East Paces Ferry Road,
N.E., Atlanta, Georgia.
The Company also leases a two-story, 17,500 square foot building at 443 East
Paces Ferry Road, N.E. Atlanta, Georgia, which is used primarily for financial
administration. This building is owned by a limited partnership of which
Thomas L. Newberry and James C. Edenfield, the principal shareholders of the
Company, are the sole partners. The term of the lease expired December 31,
1996, and has been continued on a month-to-month basis at a base rental of
$17.00 per square foot, pending negotiation of a new lease.
The Company owns a four-story 42,000 square foot building at 3110 Maple
Drive, N.E, a one-story 1,400 square foot building at 3116 Maple Drive, a one-
story 14,000 square foot building at 3120 Maple Drive, and a two-story 10,000
square foot building at 480 East Paces Ferry Road, each of which is located
near the Company's headquarters. The Company also leases a one-story 4,000
square foot building at 490 East Paces Ferry to a restaurant.
The Company has entered into leases for sales offices located in various
cities in the U. S. and overseas. Normally, these leases are for terms of less
than five years and average 3,000 square feet of leasable space.
The Company owns a variety of electronic and computer equipment, including
four mid-sized computers, consisting of one IBM 9121 210, one IBM 9121 621,
one 3090-600E, five IBM AS/400s and leases one
14
<PAGE>
IBM 9672-R24, one IBM 2003-205, one IBM 3090-400J, and one IBM 962 R31 all of
which are used for program development and testing, network management and
product demonstrations.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings are required to be disclosed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of the Company's recently completed fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NASDAQ SYMBOL
The Company's Class A Common Shares are listed on the NASDAQ Stock Market--
National Market under the symbol AMSWA. There were 9,100 shareholders of
record of the Company's Class A Common Shares, some of whom are holders in
nominee name for the benefit of different shareholders, and two shareholders
of the Company's Class B Common Shares as of July 10, 1998.
MARKET PRICE INFORMATION
The table below presents the high and low sales prices for American
Software, Inc. common stock as reported by NASDAQ, for the Company's last two
fiscal years (1997 and 1998).
<TABLE>
<CAPTION>
HIGH LOW
--------- ------
<S> <C> <C>
FISCAL YEAR 1998
First Quarter........................................... $ 8 1/2 $6 1/8
Second Quarter.......................................... 15 1/8 8 3/4
Third Quarter........................................... 12 3/4 8 1/2
Fourth Quarter.......................................... 10 5/8 7 1/8
<CAPTION>
HIGH LOW
--------- ------
<S> <C> <C>
FISCAL YEAR 1997
First Quarter........................................... $ 5 5/8 $3 3/4
Second Quarter.......................................... 7 1/8 4
Third Quarter........................................... 7 13/16 4 5/8
Fourth Quarter.......................................... 7 13/16 5 3/8
</TABLE>
The closing price on July 10, 1998 was 6 7/8.
No dividends were paid on the Company's common stock during the past two
fiscal years. The payment of future cash dividends will be at the sole
discretion of the Board of Directors and will depend upon the Company's
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by the Board of Directors.
15
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FOR YEAR ENDED APRIL 30:
Revenues........................ $107,472 $84,711 $77,557 $ 79,462 $ 94,222
Total costs and expenses........ 98,820 83,030 92,886* 93,049 108,328
-------- ------- ------- -------- --------
Operating earnings (loss)..... 8,652 1,681 (15,329) (13,587) (14,106)
Other income.................... 3,791 1,744 2,569 2,245 2,428
-------- ------- ------- -------- --------
Earnings (loss) before income
taxes........................ 12,443 3,425 (12,760) (11,342) (11,678)
Income tax expense (benefit).... 4,648 1,093 (3,011) (4,653) (5,090)
-------- ------- ------- -------- --------
Net earnings (loss)........... $ 7,795 $ 2,332 $(9,749) $ (6,689) $ (6,588)
======== ======= ======= ======== ========
Net earnings (loss) per common
and common equivalent share--
diluted........................ $ .32 $ .10 $ (.44) $ (.30) $ (.30)
Cash dividends per share........ $ -- $ -- $ -- $ .16 $ .32
Cash dividends paid............. $ -- $ -- $ -- $ 3,570 $ 7,148
AS OF APRIL 30:
Working capital................. $ 62,990 $21,492 $21,511 $ 36,407 $ 46,328
Total assets.................... $142,656 $99,509 $90,782 $107,792 $117,641
Long-term debt.................. $ -- $ -- $ -- $ -- $ --
Shareholders' equity............ $100,537 $67,152 $64,255 $ 74,037 $ 84,268
</TABLE>
- --------
* The 1996 total costs and expenses includes fourth quarter write-downs of
$6.1 million to net realizable value for certain capitalized computer
software development costs and purchased computer software costs and $2.7
million to the provision for doubtful accounts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
American Software Inc. ("American Software" or the "Company") develops,
markets, and supports enterprise resource planning ("ERP") and integrated
supply chain management solutions. The product line encompasses integrated
business applications such as demand forecasting, logistics planning,
warehouse management, order management, financials, manufacturing, and
transportation solutions. The Company offers professional services to its
customers in support of its products and third party products. These services
include training, system implementation, consulting, custom programming,
network management, millennium conversion, and telephonic support services.
The Company's revenues are derived primarily from three sources: software
licenses, services and maintenance. Software licenses generally are based upon
the number of modules, servers, users and/or sites licensed. License fee
revenues are recognized at the time of product delivery, provided no
significant future obligation exists and collection is deemed probable.
Services revenues consist primarily of fees from software implementation,
training, consulting and customization services and are recognized as the
services are rendered. 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.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain revenue and expense items as a
percentage of total revenues for the three years ended April 30, 1998 and the
percentage increases and decreases in those items for the years ended April
30, 1998 and 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF PCT. CHANGE
TOTAL REVENUES IN DOLLARS
---------------- -------------------------
1998 1997 1996 1998 VS 1997 1997 VS 1996
---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees....................... 31% 36% 31% 11% 25%
Services........................... 47 38 40 54 6
Maintenance........................ 22 26 29 8 (3)
--- --- --- --- ----
Total revenues................... 100 100 100 27 9
--- --- --- --- ----
Cost of revenues:
License fees....................... 8 8 22 21 (60)
Services........................... 31 32 33 22 8
Maintenance........................ 7 10 10 (4) (2)
--- --- --- --- ----
Total cost of revenues........... 46 50 65 17 (16)
--- --- --- --- ----
Gross margin......................... 54 50 35 37 57
--- --- --- --- ----
Operating expenses:
Research and development........... 19 20 23 21 (1)
Less: capitalized development...... nm nm nm nm nm
Sales and marketing................ 24 25 26 25 2
General and administrative......... 11 15 22 (9) (26)
--- --- --- --- ----
Total operating expenses......... 46 48 55 21 (4)
--- --- --- --- ----
Operating income (loss).......... 8 2 (20) 415 (111)
Other income, net.................. 4 2 3 117 (32)
--- --- --- --- ----
Income (loss) before income tax-
es.............................. 12 4 (17) 263 (127)
Income taxes....................... nm nm nm nm nm
--- --- --- --- ----
Net income (loss)................ 7% 3% (13)% 234% (124)%
=== === === === ====
</TABLE>
- --------
nm--not meaningful
REVENUES:
The Company's total revenues increased 27% to $107.4 million in the fiscal
year ended April 30, 1998 from the prior year and 9% to $84.7 million in the
fiscal year ended April 30, 1997. In 1998, this increase was primarily due to
a significant increase in implementation and training services as well as a
rise in product sales. The increase in Logility Planning products license fees
resulted in the 1997 increased revenues. International revenues represented
approximately 9% of total revenues in the year ended April 30, 1998 compared
to 10% in 1997.
Software Licenses. The Company's license fee revenues increased 11% in the
fiscal year ended April 30, 1998 to $33.5 million compared to $30.1 million in
the fiscal year ended April 30, 1997 and increased 25% from the fiscal year
ended April 30, 1997 compared to the prior year. This increase was primarily
due to increased licenses fees sales for the Logility Planning Solutions
software which increased 63% in the fiscal year ended April 30, 1998 to $20.1
million compared to $12.4 million in the prior fiscal year. Logility Planning
Solutions software has been the principal factor in American Software's
license fee growth, constituting approximately 60%, 41% and 44% of license fee
revenues in 1998, 1997 and 1996 respectively. License fees from Enterprise
Solutions decreased 24% from fiscal year 1997 to fiscal year 1998 primarily
due to lower mainframe platform sales.
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<PAGE>
Services. Services revenues, which are primarily consulting, custom
programming, and network management services, increased 54% to $50.1 million
in fiscal year 1998 from $32.6 million in fiscal year 1997. This increase was
primarily due to increased consulting related to implementation and
customization of new customer's software products and services related to
"Year 2000" system compliance. Service revenues increased 6% from 1996 to 1997
due to increase network management revenue, which increased 26% to $13.0
million in 1997. Services revenues constituted 47% and 38% of total revenues
in fiscal year ended April 30, 1998 and fiscal year ended April 30, 1997.
Service revenues as a percentage of total revenues have fluctuated, and are
expected to continue to fluctuate on a period-to-period basis based upon the
demand for implementation, consulting and training services.
Maintenance. Maintenance revenues, which consist of product support
activities and on-going product enhancements provided to customers who license
the Company's products and purchase maintenance agreements increased 8% to
$23.8 million in fiscal year ended April 30, 1998 compared to $22.0 million in
fiscal year 1997. Maintenance revenues decreased 3% in fiscal year ended April
30, 1997 compared to the prior year due to lower license fees in prior years.
Maintenance revenues constituted 22% and 26% of total revenues in fiscal year
ended April 30, 1998 and fiscal year ended April 30, 1997 and generally follow
license fee revenues which serve as the source of new maintenance customers.
GROSS MARGIN:
Total gross margin in 1998 was 54% compared to 50% a year ago. This increase
was largely due to the expanded margin from implementation and training
services revenues, which grew to 33% from 16% a year ago in the same period.
The expanded margin was attributable to the improved utilization of consulting
resources and increased billing rates, resulting in a higher incremental gross
margin. The gross margin on maintenance revenues increased to 68% compared to
64% a year ago as a result of improved customer service software and
processes. The gross margin on license fees revenues decreased to 76% compared
to 78% in 1997 due to an increase in software amortization costs related to
the release of several products during fiscal 1998. The gross margin increased
from 35% in fiscal year 1996 to 50% in fiscal year 1997 due primarily to
increased license fee margin in 1997 compared to 1996 which contained the
write-off of $6.1 million in capitalized software costs in the fourth quarter
of 1996.
The cost of revenues for license fees will substantially increase commencing
in the first quarter for the year ending April 30, 1999 due to increased
amortization expense from certain capitalized computer software projects that
became generally available in April 1998. The Company will monitor the market
acceptance of these newly released products.
OPERATING EXPENSES:
Research And Development. Gross product development costs include all non-
capitalized and capitalized software development costs. A breakdown of the
research and development costs is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------
APRIL 30, PERCENT APRIL 30, PERCENT APRIL 30,
1998 CHANGE 1997 CHANGE 1996
--------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Gross product development costs.. $20,939 21% $17,241 (1%) $ 17,475
Percentage of total revenues... 20% 20% 23%
Less: capitalized development.... (8,827) (11%) (9,898) (22%) (12,750)
Percentage of gross prod. dev.
costs......................... 42% 57% 73%
------- ------- --------
Product development expenses..... $12,112 65% $ 7,343 55% $ 4,725
Percentage of total revenues... 11% 9% 6%
</TABLE>
Gross product development costs increased 21% in 1998 compared to a year ago
as a result of the Company's continued investment in new product development.
Capitalized development decreased by 11% from
18
<PAGE>
a year ago, while the rate of capitalized development decreased to 42% from
57% a year ago due to the completion of products during the current year
resulted in the Company personnel spending more time on the design phase of
projects which are currently expensed. Product development expenses as a
percentage of total revenues, increased to 11% compared to 9% one year ago and
the Company's net product development expenses increased 65% as the Company
continued its investment in new product development.
Sales And Marketing. Sales and Marketing expenses increased 25% from a year
ago as a result of increased license fees and an increased sales force. Sales
& Marketing expenses increased 2% from fiscal year 1996 to fiscal year 1997.
As a percentage of total revenues, sales and marketing expenses remained
materially equivalent at 24% for 1998 when compared to 25% for 1997 and 26%
for 1996.
General & Administrative. General & Administrative expenses decreased 9% in
1998 to approximately $11.5 million from a year ago primarily due to the
closure of a sales office in Singapore in May 1997 and elimination of rented
space at the Company's Atlanta offices in March 1997. General & Administrative
expenses decreased 26% in 1997 to approximately $12.7 million from the prior
year due to a write-off of $2.7 million of accounts receivable directly to the
provision for doubtful accounts in the fourth quarter of 1996. Provision for
doubtful accounts for 1998 decreased to $0.2 million from $0.7 million in
1997.
Other Income. Other income is comprised predominantly of interest income,
gains and losses from sales of investments, changes in the market value of
investments, and minority interest in subsidiary earnings. Other income
increased 117% to $3.8 million in 1998 compared to one year ago due primarily
to the addition of approximately $33.2 million to the Company's cash and
investment portfolio from funds received from the initial public offering of
Logility. Other Income decreased from $2.6 million in 1996 to $1.7 million in
1997 due to lower return on investments during the year.
Income Taxes. The effective income tax rate in 1998 was 37% of pretax income
compared to 32% in 1997. This increase was due to the fact that the Company
experienced a net loss in the quarter ended July 31, 1996 and did not record a
deferred tax asset for the net operating loss carryforward. The effective tax
rate was therefore lowered in subsequent quarters of fiscal 1997 as the
Company was profitable. The income tax expense in 1997 was 32% of pretax
income compared to an income tax benefit of 24% of pretax loss in 1996.
OPERATING PATTERN
The Company experiences an irregular pattern of quarterly operating results,
caused primarily by fluctuations in both the number and size of software
license contracts received and delivered from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of approximately $8.8
million in the year ended April 30, 1998, compared to approximately $13.1
million in the same period of the prior year. With the Company's adoption of
SFAS 115 on May 1, 1994, its investments including money market funds are
accounted for as a trading portfolio. The activities of that portfolio are
included in operating activities in the consolidated statements of cash flows.
The cash provided by operations during the year ended April 30, 1998, was
primarily attributable to net income of $7.8 million, non-cash depreciation
and amortization expense of $10.1 million, proceeds from the sale of trading
securities of $6.5 million, an increase in deferred revenues of $3.6 million,
deferred income taxes of $4.3 million and proceeds from the maturities of
trading securities of $2.3 million. This was partially offset by an increase
in accounts receivable of $5.9 million, a net increase in money market funds
of $8.2 million, net gain on investments of $4.9 million, a decrease in
accounts payable of $3.6 million and purchases of trading securities of $3.3
million. The cash provided by operations during the prior year was primarily
attributable to net income of $2.3 million, non-cash depreciation and
amortization expense of $8.1 million, proceeds from
19
<PAGE>
maturities of trading securities of $4.4 million, and proceeds from sale of
trading securities of $2.6 million, an increase in deferred revenues of $2.2
million, an increase in accounts payable of $2.3 million, and deferred income
taxes of $1.1 million. This was partially offset by an increase in accounts
receivable of $6.4 million, a net increase in money market funds of $2.8
million and net gain on investments of $0.6 million.
Cash used in investing activities was approximately $41.8 million and $12.2
million for the years ended April 30, 1998 and 1997, respectively. The
majority of the cash was used for investments, computer software development
costs and property and equipment.
Cash provided by financing activities for the year ended April 30, 1998 was
approximately $31.7 million. The increase from prior year was due primarily to
the net proceeds received from the issuance of common stock by Logility Inc.,
a subsidiary of the Company, from the sale of 16.3% of its stock in an initial
public offering, the initial closing of which took place on October 10, 1997.
Also, an additional 2% of the Company's common stock was sold as part of the
underwriters' overallotment on November 6, 1997.
Cash provided by financing activities was $546,408 in 1997, and cash used in
financing activities was $57,000 in 1996, and $3.7 million in 1995. The
reduction in cash used for financing activities in fiscal 1996 as compared to
fiscal 1995 was due to the suspension of the Company's quarterly dividends
after payment of two quarterly dividends in fiscal 1995.
Days Sales Outstanding in accounts receivable were 93 days as of April 30,
1998 and April 30, 1997. The Company's current ratio was 3.2 to 1 and cash and
investments totaled 42% of total assets at April 30, 1998 compared to 1.7 to 1
and cash and investments totaled 25% of total assets at April 30, 1997. The
Company expects existing cash and investments, combined with cash generated
from operations, to be sufficient to meet its operational needs in 1999. The
Company may seek additional sources of capital to meet its growth objectives
in the future. 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.
On December 18, 1997, American Software Inc.'s Board of Directors approved a
resolution authorizing the Company to repurchase up to 1.5 million shares of
the Company's Class A common stock. This repurchase will be through open
market purchases at prevailing market prices. The timing of any repurchases
will depend on market conditions, the market price of the Company's common
stock and management's assessment of the Company's liquidity and cash flow
needs. Since this resolution, the Company has repurchased 98,900 shares of
common stock at a cost of approximately $794,953 as of April 30, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
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 are 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 ended 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,
20
<PAGE>
1997 with the first disclosure required in the annual financial statement
thereafter. The Company will evaluate the need for such disclosures at that
time.
In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2"). SOP 97-
2 is effective for financial statements for fiscal years beginning after
December 15, 1997 (commencing May 1, 1998 for the Company). The Company does
not expect that adoption of SOP 97-2 will significantly affect its results of
operations.
FORWARD-LOOKING STATEMENTS
It should be noted that this discussion contains forward-looking statements,
which are subject to substantial risks and uncertainties. There are a number
of factors, which could cause actual results to differ materially from those
anticipated by statements made herein. The timing of releases of the Company's
software products can be affected by client needs, marketplace demands and
technological advances. Development plans frequently change, and it is
difficult to predict with accuracy the release dates for products in
development. In addition, other factors include changes in general economic
conditions, the growth rate of the market for the Company's products and
services, the timely availability and market acceptance of these products and
services, the effect of competitive products and pricing, and the irregular
pattern of revenues, as well as a number of other risk factors which could
affect the future performance of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets as of April 30, 1998 and 1997................ 22
Consolidated Statements of Operations for the Years ended April 30, 1998,
1997 and 1996........................................................... 24
Consolidated Statements of Shareholders' Equity for the Years ended April
30, 1998, 1997 and 1996................................................. 25
Consolidated Statements of Cash Flows for the Years ended April 30, 1998,
1997 and 1996........................................................... 26
Notes to the Consolidated Financial Statements........................... 27
Independent Auditors' Report............................................. 38
</TABLE>
21
<PAGE>
AMERICAN SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
APRIL 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,161 $ 3,442
Investments (note 2)....................................... 58,062 20,964
Trade accounts receivable, less allowance for doubtful
accounts of $1,222 in 1998 and $1,182 in 1997:
Billed................................................... 20,309 15,919
Unbilled................................................. 7,091 5,569
Deferred income taxes (note 3)............................. 823 1,995
Refundable income taxes.................................... 1,117 1,060
Prepaid expenses and other current assets.................. 2,577 1,766
-------- -------
Total current assets................................... 92,140 50,715
-------- -------
Property and equipment, at cost:
Buildings and leasehold improvements....................... 20,089 20,107
Computer equipment......................................... 19,107 16,992
Office furniture and equipment............................. 4,632 4,548
-------- -------
43,828 41,647
Less accumulated depreciation and amortization............... 26,639 24,244
-------- -------
Net property and equipment............................. 17,189 17,403
-------- -------
Capitalized computer software development costs, less
Accumulated amortization of $38,544 in 1998 and $31,838 in
1997........................................................ 30,338 28,171
Purchased computer software costs, less accumulated
Amortization of $5,384 in 1998 and $4,833 in 1997........... 888 846
-------- -------
Total computer software costs.......................... 31,226 29,017
-------- -------
Other assets, net............................................ 2,101 2,374
-------- -------
$142,656 $99,509
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
AMERICAN SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
APRIL 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 2,972 $ 5,221
Accrued compensation and related costs...................... 3,798 5,077
Accrued royalties........................................... 574 839
Other current liabilities................................... 4,523 4,368
Deferred revenue............................................ 17,283 13,718
-------- -------
Total current liabilities................................. 29,150 29,223
Deferred income taxes (note 3)................................ 6,260 3,134
-------- -------
Total liabilities......................................... 35,410 32,357
-------- -------
Minority interest............................................. 6,709 --
Shareholders' equity (note 5):
Common stock:
Class A, $.10 par value. Authorized 50,000,000 shares;
issued 19,369,756 shares in 1998 and 18,972,926 shares in
1997..................................................... 1,937 1,897
Class B, $.10 par value. Authorized 10,000,000 shares;
issued and outstanding 4,798,289 shares in 1998 and
4,815,289 shares in 1997; convertible into Class A shares
on a one-for-one basis................................... 480 482
Additional paid-in capital.................................. 57,656 31,317
Retained earnings........................................... 53,225 45,430
-------- -------
113,298 79,126
Less Class A treasury stock, 1,428,427 shares in 1998 and
1,330,251 shares in 1997, at cost.......................... 12,761 11,974
-------- -------
Total shareholders' equity................................ 100,537 67,152
-------- -------
Commitments and contingencies (notes 4, 7, and 8)...........
$142,656 $99,509
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 6):
License fees............................ $ 33,548 $ 30,106 $ 24,067
Services................................ 50,090 32,595 30,682
Maintenance............................. 23,834 22,010 22,808
---------- ---------- ----------
Total revenues........................ 107,472 84,711 77,557
---------- ---------- ----------
Cost of revenues:
License fees............................ 8,182 6,754 16,936
Services................................ 33,439 27,410 25,367
Maintenance............................. 7,642 7,972 8,139
---------- ---------- ----------
Total cost of revenues................ 49,263 42,136 50,442
---------- ---------- ----------
Research and development costs............ 20,939 17,241 17,475
Less capitalizable software............... (8,827) (9,898) (12,750)
Marketing and sales expense............... 25,915 20,811 20,447
General and administrative expenses....... 11,354 12,019 14,089
Provision for doubtful accounts........... 176 721 3,183
---------- ---------- ----------
Operating earnings (loss)............. 8,652 1,681 (15,329)
Other income (expense):
Interest income......................... 2,001 989 1,672
Minority interest....................... (488) -- --
Other, net.............................. 2,278 755 897
---------- ---------- ----------
Earnings (loss) before income taxes... 12,443 3,425 (12,760)
Income tax expense (benefit)--(note 3).... 4,648 1,093 (3,011)
---------- ---------- ----------
Net earnings (loss)....................... $ 7,795 $ 2,332 $ (9,749)
========== ========== ==========
Net earnings (loss) per common share:
Basic................................... $ .34 $ .10 $ (.44)
========== ========== ==========
Diluted................................. $ .32 $ .10 $ (.44)
========== ========== ==========
Shares used in the calculation of net
earnings (loss) per common share:
Basic................................... 22,667,283 22,353,192 22,261,782
========== ========== ==========
Diluted................................. 24,414,515 23,525,532 22,261,782
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
---------------------- -------------------- PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
---------- ----------- --------- --------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30,
1995................... 18,729,871 $ 1,872,988 4,840,489 $ 484,049 $30,656,333 $52,846,986 $(11,823,544) $74,036,812
Proceeds from stock
options exercised at
$2.75 to $4.56 per
share and other stock
option transactions.... 35,612 3,562 -- -- 95,308 -- -- 98,870
Conversion of Class B
shares into Class A
shares................. 3,600 360 (3,600) (360) -- -- -- --
Grants of compensatory
stock options.......... -- -- -- -- 24,563 -- -- 24,563
Repurchase of 25,000
Class A shares......... -- -- -- -- -- -- (160,000) (160,000)
Issuance of 824 Class A
shares under the
Dividend Reinvestment
and Stock Purchase
Plan................... -- -- -- -- -- -- 4,490 4,490
Net loss................ -- -- -- -- -- (9,749,337) -- (9,749,337)
---------- ----------- --------- --------- ----------- ----------- ------------ ------------
Balance at April 30,
1996................... 18,769,083 1,876,910 4,836,889 483,689 30,776,204 43,097,649 (11,979,054) 64,255,398
Proceeds from stock
options exercised at
$2.75 to $5.50 per
share and other stock
option transactions.... 182,243 18,224 -- -- 522,906 -- -- 541,130
Conversion of Class B
shares into Class A
shares................. 21,600 2,160 (21,600) (2,160) -- -- -- --
Grants of compensatory
stock options.......... -- -- -- -- 18,084 -- -- 18,084
Issuance of 868 Class A
shares under Dividend
Reinvestment and Stock
Purchase Plan.......... -- -- -- -- -- -- 5,278 5,278
Net income.............. -- -- -- -- -- 2,331,857 -- 2,331,857
---------- ----------- --------- --------- ----------- ----------- ------------ ------------
Balance at April 30,
1997................... 18,972,926 1,897,294 4,815,289 481,529 31,317,194 45,429,506 (11,973,776) 67,151,747
Proceeds from issuance
of Logility, Inc.
subsidiary common
stock.................. -- -- -- -- 33,152,201 -- -- 33,152,201
Minority interest
resulting from issuance
of subsidiary common
stock.................. -- -- -- -- (6,969,866) -- -- (6,969,866)
Proceeds from stock
options exercised at
$2.75 to $7.13 per
share and other stock
option transactions.... 379,830 37,983 -- -- 1,160,004 -- -- 1,197,987
Conversion of Class B
shares into Class A
shares................. 17,000 1,700 (17,000) (1,700) -- -- -- --
Grants of compensatory
stock options.......... -- -- -- -- 11,586 -- -- 11,586
Repurchase of 98,900
Class A shares......... -- -- -- -- -- -- (794,953) (794,953)
Repurchase of 205,300
Logility, Inc. common
shares................. -- -- -- -- (1,882,149) -- -- (1,882,149)
Decrease in Minority
interest in Subsidiary,
resulting from Purchase
of treasury stock by
Subsidiary............. -- -- -- 866,836 -- 866,836
Issuance of 724 Class A
shares under Dividend
Reinvestment and Stock
Purchase Plan.......... -- -- -- -- -- -- 8,000 8,000
Net income.............. -- -- -- -- -- 7,795,281 -- 7,795,281
---------- ----------- --------- --------- ----------- ----------- ------------ ------------
Balance at April 30,
1998................... 19,369,756 $ 1,936,977 4,798,289 $ 479,829 $57,655,806 $53,224,787 $(12,760,729) $100,536,670
========== =========== ========= ========= =========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
AMERICAN SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................... $ 7,795 2,332 (9,749)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 10,072 8,113 12,151
Net loss (gain) on investments................ (4,916) (635) (873)
Loss on disposal of property.................. 258 -- 19
Minority interest in net earnings of subsidi-
ary.......................................... 488 -- --
Equity in loss of investee.................... -- 575 178
Capitalized software impairment charge........ -- -- 6,158
Grants of compensatory stock options.......... 12 18 25
Deferred income taxes......................... 4,298 1,093 (6,074)
Changes in operating assets and liabilities:
Net (increase) decrease in money market
funds........................................ (8,168) (2,810) 4,726
Purchases of trading securities............... (3,267) (242) (10,153)
Proceeds from sale of trading securities...... 6,478 2,567 1,833
Proceeds from maturities of trading securi-
ties......................................... 2,334 4,363 11,536
Accounts receivable........................... (5,912) (6,429) 1,358
Prepaid expenses and other current assets..... (581) (466) (1,142)
Accounts payable and other liabilities........ (3,638) 2,338 222
Income taxes.................................. -- 93 7,484
Deferred revenue.............................. 3,565 2,211 (1,245)
-------- -------- --------
Net cash provided by operating activities..... 8,818 13,121 16,454
======== ======== ========
Cash flows from investing activities:
Capitalized software development costs........ (8,873) (9,898) (12,750)
Purchased software............................ (593) -- --
Purchase of Intellimedia Commerce, Inc........ (115) -- (850)
Purchases of property and equipment........... (2,640) (2,275) (2,078)
Purchases of investments, net................. (29,559) -- --
-------- -------- --------
Net cash used in investing activities......... (41,780) (12,173) (15,678)
======== ======== ========
Cash flows from financing activities:
Proceeds from issuance of Logility, Inc. Subsid-
iary common stock.............................. 33,152
Repurchases of common stock..................... (787) -- (160)
Repurchases of common stock by subsidiary..... (1,882) -- --
Proceeds from Dividend Reinvestment Plan...... -- 6 4
Proceeds from exercise of stock options....... 1,198 541 99
-------- -------- --------
Net cash provided by (used in) financing ac-
tivities..................................... 31,681 547 (57)
-------- -------- --------
Net change in cash and cash equivalents......... (1,281) 1,495 719
Cash and cash equivalents at beginning of year.. 3,442 1,947 1,228
-------- -------- --------
Cash and cash equivalents at end of year........ $ 2,161 3,442 1,947
======== ======== ========
Supplemental disclosure of cash paid (received)
during the year for income taxes............... $ 161 238 (4,369)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998, 1997, AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of American
Software, Inc. its wholly owned subsidiaries and its majority-owned
subsidiaries (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company is engaged in the development, marketing, and support activities
of a broad range of computer business applications software. The Company's
operations are principally in the computer software industry with a network
management services business.
(b) Revenue Recognition
License fees in connection with license agreements for standard proprietary
and tailored software are recognized upon delivery of the software provided
collection is considered probable and no significant obligations remain
outstanding. The percentage-of-completion method of accounting is utilized to
recognize revenue on products under development for fixed amounts. Progress
under the percentage-of-completion method is measured based on management's
best estimate of the cost of work completed in relation to the total cost of
work to be performed under the contract. Any estimated losses on products
under development for fixed amounts are immediately recognized in the
consolidated financial statements.
Revenue related to professional services, including network management and
education, is recognized as the related services are performed.
Maintenance revenue is recognized ratably over the term of the maintenance
agreements. Deferred revenue represents advance payments to the Company by
customers for services and products.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
(d) Investments
Investments at April 30, 1998 and April 30, 1997, consist of money market
funds, debt securities, and marketable equity securities. The Company accounts
for its investments under the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). Pursuant to the provisions of SFAS 115, the Company has
classified its investment portfolio as "trading" and "held-to-maturity" in
1998 and "trading" in 1997. "Trading" securities are bought and held
principally for the purpose of selling them in the near term and are recorded
at fair value. Unrealized gains and losses on trading securities are included
in the determination of net earnings. "Held-to-maturity" investments are
recorded at amortized cost. No adjustment is made for unrealized gains and
losses on held-to-maturity investments.
(e) Property and Equipment
Property and equipment are recorded at cost. Depreciation of buildings,
computer equipment, and office furniture and equipment is calculated using the
straight-line method based upon estimated useful lives of 30
27
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
years, three to five years, and five years, respectively. Leasehold
improvements are amortized using the straight-line method over the estimated
useful lives of the assets or the lease term, whichever is shorter.
(f) Capitalized Computer Software Development Costs
The Company capitalizes computer software development costs by project,
commencing when technological feasibility for the respective product is
established and concluding when the product is ready for general release to
customers. The Company makes an ongoing assessment of the recoverability of
its capitalized software projects by comparing the amount capitalized for each
product to the estimated net realizable value (NRV) of the product. If the NRV
is less than the amount capitalized, a write-down to NRV is recorded. The
Company capitalized computer software development costs totaling approximately
$8.8 million, $9.9 million, and $12.8 million in 1998, 1997, and 1996,
respectively. The Company expensed approximately $3.6 million in 1996 as these
amounts were deemed unrealizable based on future revenue projections.
Capitalized computer software development costs are being amortized using the
straight-line method over an estimated useful life of three years.
Amortization expense was approximately $6.7 million, $4.7 million, and $7.1
million in 1998, 1997, and 1996, respectively.
The total of research and development costs and additions to capitalized
computer software development costs were approximately $20.9 million, $17.2
million, and $17.5 million in years 1998, 1997, and 1996, respectively. The
Company incurred research and development costs totaling approximately $12.1
million, $7.3 million, and $4.7 million, which were expensed in 1998, 1997,
and 1996, respectively.
(g) 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 a period of three to five years.
Amortization expense was approximately $560,000, $734,000, and $2.4 million in
1998, 1997, and 1996, respectively. The Company expensed $2.6 million in 1996
as this amount was deemed unrealizable based on future revenue projections.
(h) Income Taxes
The Company accounts for income taxes using the asset and liability method
of Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, ("SFAS No. 109"). 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 carry forward. 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.
(i) Net Earnings (Loss) Per Common Share
On January 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"), which prescribes the
calculation methodology and financial reporting requirements for basic and
diluted earnings per share. Basic earnings (loss) per common share available
to common shareholders are based on the weighted-average number of Class A and
B common shares outstanding, since the Company considers the two classes of
common stock as one class for the purposes of the per share computation.
Diluted earnings (loss) per common share available to common shareholders are
based on the weighted-average number of common shares outstanding and dilutive
potential common shares, such as dilutive
28
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stock options. All prior period net earnings (loss) data presented in these
consolidated financial statements have been restated to conform to the
provisions of SFAS 128.
(j) 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 as of the date of the consolidated financial
statements and revenues and expenses for reporting periods to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
(k) Impairment of Long-Lived Assets
On April 1, 1996, 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 cost to sell. The Company's adoption of SFAS No. 121 did not have
an impact on its consolidated financial statements.
(l) Stock Compensation Plans
Prior to May 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board APB Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense would generally be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. On May 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"),
which permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures under
the provisions of SFAS No. 123.
(m) Sales of Subsidiary Stock
The Company has elected to record gains and losses from sales of subsidiary
stock as a component of equity.
(n) Reclassifications
Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform to the presentation adopted in 1998.
29
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------
TRADING 1998 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C>
Money market funds............................................ $12,305 4,137
Debt securities:
U.S. Treasury securities.................................... 500 1,096
Tax-exempt state and municipal bonds........................ 8,027 9,982
------- ------
Total debt securities..................................... 8,527 11,078
------- ------
Equity securities............................................. 7,671 5,749
------- ------
$28,503 20,964
======= ======
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1998
-----------------------------------------
HELD-TO-MATURITY CARRYING VALUE FAIR VALUE UNREALIZED GAIN
---------------- -------------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Certificate of deposit............ $ 500 500 --
Asset-backed note................. 1,500 1,500 --
Commercial paper.................. 11,182 11,229 47
Corporate bonds................... 16,377 16,520 143
------- ------ ---
$29,559 29,749 190
======= ====== ===
</TABLE>
The total carrying value of all investments on a consolidated basis was
$58,602 and $20,964 at April 30, 1998 and 1997, respectively.
In 1998 and 1997, the Company's investment portfolio of trading securities
experienced net unrealized holding gains of approximately $2,244,000 and
$635,000 respectively, which have been included in other income, net in the
1998 and 1997 consolidated statements of operations.
At April 30, 1998, 98% of the tax-exempt state and municipal bonds related
to state and municipal governments and authorities in Georgia.
30
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------
1998 1997 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $ 150 $ -- $(5,429)
State............................................... 200 -- (768)
------ ------ -------
350 -- (6,197)
------ ------ -------
Deferred:
Federal............................................. 3,838 949 2,993
State............................................... 460 144 193
------ ------ -------
4,298 1,093 3,186
------ ------ -------
$4,648 $1,093 $(3,011)
====== ====== =======
</TABLE>
The Company's effective income tax rate of 37%, 32%, and 24% for the years
ended April 30, 1998, 1997, and 1996, respectively, differs from the
"expected" income tax expense (benefit) for those years calculated by applying
the Federal statutory rate of 34% to earnings (loss) before income taxes as
follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------
1998 1997 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit)... $4,231 $1,164 $(4,338)
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax ef-
fect............................................ 504 96 (380)
Foreign taxes paid............................... -- 182 51
Foreign tax credits.............................. -- (182) --
Tax-exempt interest income....................... (250) (280) (203)
Change in the beginning-of-the year balance of
the valuation allowance for deferred tax assets
allocated to income tax benefit................. -- -- 1,980
Gain on investments not recognized for tax pur-
poses........................................... 163 113 (121)
------ ------ -------
$4,648 $1,093 $(3,011)
====== ====== =======
</TABLE>
The significant components of deferred income tax expense attributable to
earnings (loss) before income taxes for the years ended April 30, 1998, 1997,
and 1996 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax expense............................... $ 4,298 $ 1,093 $ 1,206
Increase in beginning-of-the year balance of the
Valuation allowance for deferred tax assets....... -- -- 1,980
------- ------- -------
$ 4,298 $ 1,093 $ 3,186
======= ======= =======
</TABLE>
31
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
1998 and 1997, are presented as follows:
<TABLE>
<CAPTION>
APRIL 30,
------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Expenses, due to accrual for financial reporting pur-
poses............................................... $ 1,776 $ 1,719
Accounts receivable, due to allowance for doubtful
accounts............................................ 463 448
Compensation expense related to grants of nonquali-
fied Stock options.................................. 189 189
Net operating loss carryforwards..................... 5,296 8,083
Foreign tax credit carryforwards..................... 1,791 1,791
Other................................................ 328 236
-------- --------
Total gross deferred tax assets.................... 9,843 12,466
Less valuation allowance............................. (1,980) (1,980)
-------- --------
Net deferred tax assets............................ 7,863 10,486
-------- --------
Deferred tax liabilities:
Capitalized computer software development costs...... (11,505) (10,699)
Property and equipment, primarily due to differences
In depreciation..................................... (379) (349)
Gain on investments not recognized for tax purposes.. (1,416) (577)
-------- --------
Total gross deferred tax liabilities............... (13,300) (11,625)
-------- --------
Net deferred tax liability......................... $ (5,437) $ (1,139)
======== ========
</TABLE>
Refundable income taxes arose primarily from the 1995 taxable losses that
were carried back to earlier profitable years to recover income taxes
previously paid.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon reversal of deferred tax liabilities, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at April 30, 1998 and
1997.
At April 30, 1998, the Company has net operating loss carry forwards for
federal income tax purposes of approximately $14.0 million which are available
to offset future federal taxable income, if any, through 2012. In addition,
the Company has foreign tax credit carry forwards for federal income tax
purposes of approximately $1.8 million which are available to offset future
federal income taxes pursuant to the income tax laws. Such credits expire in
varying amounts through 2002.
(4) ACQUISITIONS
In January 1996, the Company acquired a 60% interest in Intellimedia
Commerce, Inc., a company which builds and maintains systems for commerce on
the Internet, for $850,000. In April 1998, the Company acquired an additional
3% interest in Intellimedia for $115,000. The acquisition has been accounted
for as a purchase and, accordingly, the results of operations have been
included since the date of acquisition. The related minority interest is not
significant. The goodwill and capitalized computer software development costs
are each being amortized over five-year periods.
32
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In March 1995, the Company acquired a 30% interest in TXbase Systems, Inc.,
a client/server-based software company, for approximately $827,000. This
investment was accounted for under the equity method. The excess investment
over the underlying equity in net assets was amortized using the straight-line
method over a period of five years. In January 1997, the Company wrote off the
remaining balance of this investment.
In July 1993, the Company purchased from Coda Corporation the proprietary
rights to certain computer software for $3.3 million. In 1996, the Company
wrote off the remaining unamortized balance.
(5) SHAREHOLDERS' EQUITY
Certain Class A and Class B Common Stock Rights
Except for the election or removal of Directors and class votes as required
by law or the Articles of Incorporation, holders of both classes of common
stock vote as a single class on all matters with each share of Class A common
stock entitled to cast one-tenth vote per share and each share of Class B
common stock entitled to cast one vote per share. Neither has cumulative
voting rights. Holders of Class A common stock, as a class, are entitled to
elect 25% of the Board of Directors (rounded up to the nearest whole number of
Directors) if the number of outstanding shares of Class A common stock is at
least 10% of the number of outstanding shares of both classes of common stock.
No cash or property dividend may be paid to holders of shares of Class B
common stock during any fiscal year of the Company unless a dividend of $.05
per share has been paid in such year on each outstanding share of Class A
common stock. This $.05 per share annual dividend preference is noncumulative.
Dividends per share of Class B common stock during any fiscal year may not
exceed dividends paid per share of Class A common stock during each year. Each
share of Class B common stock is convertible at any time into one share of
Class A common stock at the option of the shareholder. Class A and B shares
are considered as one class for purpose of the earnings (loss) per share
computation.
Stock Option Plans
In fiscal 1992, the Company discontinued issuing options under its Incentive
Stock Option Plan and its Nonqualified Stock Option Plan. There were 48,363
options outstanding under these plans at April 30, 1998. These plans were
replaced with the 1991 Employee Stock Option Plan ("1991 Plan") and the
Director and Officer Stock Option Plan ("D and O Plan"). Under the 1991 Plan,
the Board of Directors is authorized to grant key employees options to
purchase up to 2.7 million shares of Class A common stock, plus any shares
granted under the terminated plans that terminate or expire without being
wholly exercised.
These options vest in four equal annual installments commencing one year
from the effective date of grant. All options must be exercised within ten
years of the effective date of grant, but will expire sooner if the optionee's
employment terminates. Under the D and O Plan, the Board of Directors is
authorized to grant directors and officers options to purchase up to 1.0
million shares of Class A common stock. These options typically are
exercisable based upon the terms of such options up to 10 years after the date
of grant, but will expire sooner if the optionee's employment terminates.
Additionally, both the 1991 Plan and D and O Plan can issue either incentive
stock options or nonqualified stock options. Both the 1991 Plan and D and O
Plan will terminate on May 13, 2001.
Incentive and nonqualified options exercisable at April 30, 1998 are
1,109,153 and 238,541 shares, respectively. Options available for grant at
April 30, 1998, for the 1991 Plan and D and O Plan, are 71,433 and 476,313
shares, respectively.
Effective August 7, 1997, Logility Inc., a subsidiary of the Company,
adopted the Logility, Inc. 1997 Stock Plan ("Subsidiary Stock Plan"). The
Subsidiary Stock Plan provides for grants of incentive stock options and
33
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
nonqualified stock options to certain key employees and directors of Logility,
Inc. The Subsidiary 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 Subsidiary
Stock Plan. The options and SARs generally vest over a four-year period. The
terms of the options generally are for ten years, and the terms of the SARs
generally are for five years.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with SFAS No. 123,
the Company's net earnings (loss) and diluted earnings (loss) per share would
have been reduced to the pro forma amounts indicated below: (including amount
for Subsidiary Stock Plan)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-----------------------
1998 1997 1996
------- ---------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net earnings (loss):
As reported....................................... $ 7,795 2,332 (9,749)
Pro forma......................................... 4,721 1,040 (10,458)
Diluted earnings (loss) per share:
As reported....................................... .32 .10 (.44)
Pro forma......................................... .19 .04 (.47)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Dividend yield.................................... 0% 0% 0%
Expected volatility............................... 62.1% 211.9% 211.9%
Risk-free interest rate........................... 5.6% 6.1% 6.1%
Expected life..................................... 8 years 8 years 8 years
</TABLE>
Pro forma net earnings (loss) reflects only options granted in 1998, 1997,
and 1996. Therefore, the full effect of calculating compensation cost for
stock options under SFAS 123 is not reflected in the pro forma net earnings
(loss) and related per share amounts presented above because compensation cost
is reflected over the vesting period of the options and compensation cost for
options granted prior to May 1, 1995 is not considered.
A summary of the status of the Company's stock option plans as of April 30,
1998, 1997, and 1996, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
FIXED OPTIONS SHARES AVERAGE PRICE SHARES AVERAGE PRICE SHARES AVERAGE PRICE
- ------------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 2,990,234 $3.75 2,611,818 $3.27 2,213,050 $ 2.95
Granted................. 1,079,325 7.34 856,960 5.12 776,330 4.14
Exercised............... (379,830) 4.91 (182,243) 6.12 (35,612) 4.98
Forfeited/canceled...... (406,525) 3.18 (296,301) 3.62 (341,950) 3.06
---------- ---------- ----------
Outstanding at April 30,
1998................... 3,283,204 4.84 2,990,234 3.75 2,611,818 3.27
========== ========== ==========
Options exercisable at
year-end............... 1,347,694 1,001,956 583,902
Weighted-average fair
value of Options
granted during the
year................... $ 5.56 $ 5.09 $ 4.23
</TABLE>
34
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Subsidiary's Stock Plan as of April 30, 1998,
and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
1998
-----------------------
WEIGHTED-
FIXED OPTIONS SHARES AVERAGE PRICE
------------- -------- -------------
<S> <C> <C>
Outstanding at April 30, 1997...................... -- $ --
Granted............................................ 267,890 12.97
-------- ------
Exercised.......................................... -- --
Forfeited/canceled................................. (5,820) 13.67
-------- ------
Outstanding at April 30, 1998...................... 262,070 12.96
-------- ------
Options exercisable at April 30, 1998.............. 16,000 13.22
-------- ------
Weighted-average fair value of Options granted
during the year................................... $10.74
------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at April 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT APRIL 30, 1998 CONTRACTUAL LIFE PRICE AT APRIL 30, 1998 PRICE
--------------- ----------------- ---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.22-
6.00 2,186,529 6.8 $ 3.53 1,254,707 $ 3.31
6.01-
10.00 1,059,575 9.2 7.29 55,887 7.39
10.01-
16.88 37,100 5.1 11.92 37,100 11.92
--------- ------ --------- ------
3,283,204 7.6 $ 4.84 1,347,694 $ 3.72
========= ====== ========= ======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at April 30, 1998 under the Subsidiary Stock Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT APRIL 30, 1998 CONTRACTUAL LIFE PRICE AT APRIL 30, 1998 PRICE
--------------- ----------------- ---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$ 8.00-
12.00 107,985 9.1 $10.73 8,000 $11.31
12.01-
19.01 154,085 9.1 14.52 8,000 15.31
------- ------ ------
262,070 9.1 $12.96 16,000 $13.22
======= === ====== ====== ======
</TABLE>
Dividend reinvestment and Stock Purchase Plan
In 1995, the Company adopted a Dividend Reinvestment and Stock Purchase Plan
retroactive to February 25, 1994. Under the Plan, 500,000 shares of the
Company's Class A common stock were reserved for the use of the Dividend
Reinvestment Plan. The shares are to be utilized from treasury stock to the
extent available, with any additional shares to be utilized from authorized
but unissued shares of Class A common stock. In 1998 and 1997, 724 and 868
shares, respectively, were issued pursuant to this plan.
35
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INTERNATIONAL REVENUES
International revenues approximated $10.1 million or 9%, $8.3 million or
10%, and $10.6 million or 14% of consolidated revenues for the years ended
April 30, 1998, 1997, and 1996, respectively, and were primarily from
customers in Canada, Europe, Australia, and Asia.
(7) COMMITMENTS
Leases
The Company leases an office facility from a partnership controlled by the
two Class B shareholders, under an operating lease that by its term expired
December 31, 1996. An extention of that lease, on a month-to-month basis, has
been approved by the Board of Directors for the balance of the calendar year
1998 and for the subsequent years, pending negotiation of a new long-term
lease. Amounts expensed under this lease for the years ended April 30, 1998,
1997, and 1996 approximated $300,000, $274,000, and $301,000, respectively.
The Company leases other office facilities, certain office equipment, and
computer equipment under various operating leases expiring through 2002.
Rental expense for these operating leases approximated $4.8 million, $3.6
million, and $5.5 million for the years ended April 30, 1998, 1997, and 1996,
respectively.
Approximate aggregate minimum annual rentals under all long-term,
noncancellable, operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING APRIL 30, (IN THOUSANDS)
---------------------- --------------
<S> <C>
1999........................................................ $3,705
2000........................................................ 1,335
2001........................................................ 227
------
$5,267
======
</TABLE>
401(k) Profit Sharing Plan
The Company has a profit sharing plan covering all employees with at least
12 months of service. The Company's contribution to the plan is determined by
the Board of Directors, and is limited to a maximum of fifteen percent (15%)
of the compensation (as defined) of the participating employees during the
Company's fiscal year, and is payable only out of the annual net earnings or
accumulated earnings of the Company. Participants in the plan are entitled,
but not required, to contribute a maximum of 15% of their annual compensation
to the plan. The Company did not make contributions for 1998, 1997, or 1996.
(8) 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 affect on the financial position or
results of operations of the Company.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, excluding investments, consisted of
cash; trade accounts receivable and unbilled accounts receivable; refundable
income taxes; accounts payable; accrued compensation and related costs;
accrued royalties; other current liabilities; and deferred revenue. These
aforementioned financial instruments carrying amounts approximate fair value
because of the short maturity of those instruments. For the Company's
investments classified as "trading," the carrying value represents fair value.
See note 2 for the fair value of the Company's investments classified as
"held-to-maturity."
36
<PAGE>
AMERICAN SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) SALE OF COMMON STOCK OF SUBSIDIARY
In October 1997, Logility, Inc., a wholly owned subsidiary of the Company,
sold 2,200,000 shares of its unissued common stock in an initial public
offering. Proceeds from the offering were $31.9 million, less underwriters'
commissions, and other expenses of approximately $3.1 million. In November
1997, Logility, Inc. sold 330,000 shares of common stock as part of the
underwriters' overallotment from the initial public offering for $4.8 million
less issuance costs of approximately $400,000. As a result of the offering,
the Company's ownership percentage of Logility, Inc. was reduced to 82%.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Software, Inc.:
We have audited the accompanying consolidated balance sheets of American
Software, Inc. and subsidiaries as of April 30, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the years in the three-year period ended April 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
presents fairly, in all material respects, the financial position of American
Software, Inc. and subsidiaries as of April 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-
year period ended April 30, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
June 19, 1998
38
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James C. Edenfield...... 63 President, Chief Executive Officer, Treasurer and Director;
Director of Logility, Inc.
Thomas L. Newberry...... 65 Chairman of the Board of Directors
David H. Gambrell....... 68 Director
Thomas R. Williams...... 69 Director
J. Michael Edenfield.... 40 Executive Vice President, President and Director of Logility, Inc.
Paul Di Bono, Jr. ...... 59 Senior Vice President, General Manager--Intelliprise Division
Vincent C. Klinges...... 35 Vice President--Finance
James R. McGuone........ 51 Secretary
</TABLE>
All directors hold office until the next annual meeting of the shareholders
of the Company. Executive officers of the Company are elected annually and
serve at the pleasure of the Board of Directors.
Mr. James C. Edenfield is a co-founder of the Company and has served as
Chief Executive Officer since November, 1989, and as Co-Chief Executive
Officer for more than five years prior to that time. He has been a Director
since 1971. Prior to founding the Company, Mr. Edenfield held several
executive positions 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. Mr
Edenfield also serves as director of Logility, Inc., a majority owned
subsidiary of the Company.
Dr. Newberry is a co-founder of the Company and has served as its Chairman
of the Board since November 1989, and was Co-Chief Executive Officer prior to
that for more than five years. He has been a Director since 1971. Prior to
founding the Company, he held executive positions with several companies
engaged in computer systems analysis and software development and sales
including Management Science America, Inc., where he was also a director. Dr.
Newberry holds Bachelor, Master of Science, and Ph.D. degrees in Industrial
Engineering from the Georgia Institute of Technology.
Mr. Gambrell has served as a Director of the Company since January, 1983. He
has been a practicing attorney since 1952, and is a partner with the law firm
of Gambrell & Stolz, L.L.P., counsel to the Company. He served as a member of
the United States Senate from the State of Georgia in 1971 and 1972. Mr.
Gambrell holds a Bachelor of Science degree from Davidson University and a
J.D. degree from the Harvard Law School.
Mr. Williams has served as a Director of the Company since April, 1989. He
is currently the President of the Wales Group, Inc., a closely-held
corporation engaged in investments and venture capital, and has held such
position since 1987. He is a Former Chairman of the Board of First Wachovia
Corporation, First National Bank of Atlanta and First Atlanta Corporation. He
holds a Bachelor of Science degree in Industrial Engineering from the Georgia
Institute of Technology and a Master of Science degree in Industrial
Management from the Massachusetts Institute of Technology. Mr. Williams is a
director of BellSouth Corporation; Georgia Power Company; National Life
Insurance Company of Vermont; ConAgra, Inc.; and AppleSouth, Inc. He is also a
trustee of The Fidelity Group of Mutual Funds.
39
<PAGE>
Mr. J. Michael Edenfield has served as Executive Vice President since June,
1994. In January, 1997, Mr. Edenfield was elected to President of Logility,
Inc, a majority owned subsidiary of the Company. Mr Edenfield also serves as
director of Logility, Inc. From June 1994 to October 1997, he served as Chief
Operating Officer of the Company. Prior to holding that position, he served as
Senior Vice President of North American Sales and Marketing of American
Software USA, Inc. from July, 1993 to June, 1994, as Senior Vice President of
North American Sales from August, 1992 to July, 1993, as Group Vice President
from May, 1991 to August, 1992 and as 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, Chief Executive Officer of the Company.
Mr. Di Bono joined the Company in January 1982 and in July 1993 was elected
Senior Vice President and General Manager for the Enterprise Division
(formerly known as the Midrange Division). Prior to that time, he served as
Vice President for Marketing since December, 1985. Mr. Di Bono holds a B.S.
degree in industrial psychology/business administration from Iowa State
University.
Mr. Klinges joined the Company in February, 1998 as Vice President of
Finance. From July 1995 to February 1998, Mr Klinges was employed by Indus
International, Inc. (formerly known as TSW International, Inc.), as
Controller. From November 1986 to July 1995, Mr. Klinges held various
positions with Dun & Bradstreet, Inc. including as Controller of Sales
Technologies, a software division of Dun & Bradstreet Inc. Mr. Klinges holds a
Bachelor of Business Administration from St. Bonaventure University.
Mr. McGuone was elected the Secretary of the Company in May, 1988. He has
been a practicing attorney since 1972, and is a partner with the law firm of
Gambrell & Stolz, L.L.P., counsel to the Company. Mr. McGuone holds a B.A.
degree from Pennsylvania State University and a J.D. degree from Fordham
University School of Law.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of
the Securities Exchange Act of 1934 (the "Exchange Act") requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and holders of more than 10% of the
Common Stock are required by regulations promulgated by the Commission
pursuant to the Exchange Act to furnish the Company with copies of all Section
16(a) forms they file. The Company assists officers and directors in complying
with the reporting requirements of Section 16(a) of the Exchange Act.
Based upon review of filings made under Section 16(a) of the Exchange Act,
not all of the reports required to be filed during fiscal 1998 were filed on a
timely basis. The Company is aware of the following reports that were filed
with the Commission by officers or directors of the Company after their
respective due dates: Vincent Klinges (initial statement of beneficial
ownership of securities, required to be filed following his election as Chief
Accounting Officers and Acting Chief Financial Officer of the Company), and
Thomas L. Newberry (three reports: two reporting gifts of stock and one annual
statement of beneficial ownership). To the knowledge of the Company, all such
reports have been filed at this time. Based upon its review of copies of
filing received by it, the Company believes that since May 1, 1997 all other
Section 16(a) filing requirements applicable to its directors, officers and
greater than 10% beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
This information is set forth under the caption "Certain Information
Regarding Executive Officers and Directors" in the Company's 1998 Proxy
Statement (the "Proxy Statement"), which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is set forth under the caption "Voting Securities--Security
Ownership" in the Proxy Statement, which information is incorporated herein by
reference.
40
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH LOGILITY, INC. AND CERTAIN TRANSACTIONS
On October 10, 1997, the Company completed an initial public offering of
2,200,000 shares of common stock in its subsidiary, Logility, Inc.
("Logility"). Prior to that time, Logility was a wholly owned subsidiary of
the Company, operating as the supply chain planning software group, warehouse
management software group and transportation management group. In anticipation
of such offering, the Company and Logility entered into a number of agreements
for the purpose of defining certain relationships between the parties (the
"Intercompany Agreements"). The more significant of the Intercompany
Agreements are summarized below. As a result of the Company's ownership
interest in Logility, the terms of such agreements were not the result of
arms-length negotiation.
SERVICES AGREEMENT
The Company and Logility have entered into a Services Agreement (the
"Services Agreement") with respect to certain services to be provided by the
Company (or subsidiaries of the Company) to Logility. The Services Agreement
provides that such services are provided in exchange for fees which management
of the Company believes would not exceed fees that would be paid if such
services were provided by independent third parties. The services initially
provided by the Company to Logility under the Services Agreement include,
among other things, certain accounting, audit, cash management, corporate
development, employee benefit plan administration, human resources and
compensation, general and administration services, and risk management and tax
services. In addition to these services, the Company has agreed to allow
eligible employees of Logility to participate in certain of the Company's
employee benefit plans. Logility has agreed to reimburse the Company for 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 Logility's
employees in any of the Company'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 Logility elects not to renew its term by giving proper notice.
Logility will indemnify the Company against any damages that the Company may
incur in connection with its performance of services under the Services
Agreement (other than those arising from the Company's gross negligence or
willful misconduct), and the Company will indemnify Logility against any
damages arising out of the Company's gross negligence or willful misconduct in
connection with its rendering of services under the Services Agreement.
FACILITIES AGREEMENT
The Company and Logility have entered into a Facilities Agreement (the
"Facilities Agreement"), which provides that Logility may occupy space located
in certain facilities owned or leased by the Company (or subsidiaries of the
Company).
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 Logility elects not to renew its term. The Facilities Agreement may
be terminated by Logility for any reason with respect to any particular
facility upon thirty days' written notice. Logility's lease of space at any
facility under the Facilities Agreement is limited by the term of the
underlying lease between the Company and a landlord with respect to any
facility leased by the Company and by the disposition by the Company of any
facility owned by the Company.
TAX SHARING AGREEMENT
Logility is included in the Company's federal consolidated income tax group,
and Logility's federal income tax liability will be included in the
consolidated federal income tax liability of the Company and its subsidiaries.
41
<PAGE>
Logility and the Company have entered into a Tax Sharing Agreement (the "Tax
Sharing Agreement") pursuant to which the Company and Logility will make
payments between them such that the amount of taxes to be paid by Logility,
subject to certain adjustments, will be determined as though Logility were to
file separate federal, state, and local income tax returns, rather than as a
consolidated subsidiary of the Company. Pursuant to the Tax Sharing Agreement,
under certain circumstances, Logility will be reimbursed for tax attributes
that it generates after deconsolidation of Logility from the consolidated tax
group of the Company, such as net operating losses and loss carryforwards.
Such reimbursement, if any, will be made for utilization of Logility's losses
only after such losses are utilized by the Company. For that purpose, all
losses of the Company and its consolidated income tax group will be deemed
utilized in the order in which they are recognized. Logility will pay the
Company 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 the Company with respect to tax
related services.
TECHNOLOGY LICENSE AGREEMENT
The Company and Logility have entered into a Technology License Agreement
(the "Technology License Agreement") pursuant to which Logility has granted
the Company 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 the
Company. Pursuant to the Technology License Agreement, the Company and
Logility are required to disclose to one another any and all enhancements and
improvements which they may 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 Logility may terminate the Technology License Agreement for cause,
and the Company may terminate the Technology License Agreement at any time
upon sixty (60) days' prior written notice to Logility. Upon termination of
the Technology License Agreement, all rights to Logility Value Chain Solutions
products licensed by Logility to the Company revert to Logility, while all
rights to enhancements and improvements made by the Company to Logility Value
Chain Solutions products revert to the Company.
MARKETING LICENSE AGREEMENT
American Software USA, Inc. ("USA"), a wholly-owned subsidiary of the
Company and Logility, have entered into a Marketing License Agreement (the
"Marketing License Agreement") pursuant to which USA has agreed to act as a
non-exclusive marketing representative of Logility 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 Logility under
license agreements for the Logility Value Chain Solutions product line with
certain end-users who are also licensees of software products of the Company
which are secured and forwarded to Logility by USA and accepted by Logility.
The Marketing License Agreement has a five-year term, although Logility may
terminate the Marketing License Agreement for cause, and either party may
terminate the Marketing License Agreement at any time upon twelve (12) months'
prior written notice to the other party.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)Documents filed as part of this report.
1. Financial statements; All financial statements of the Company as
described in Item 8 of this report on Form 10-K.
2.Financial statement schedule included in Part IV of this Form:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors...................................... 45
Schedule II--Consolidated Valuation Accounts--for the three years
ended April 30, 1998............................................... 46
</TABLE>
All other financial statements and schedules not listed above are omitted as
the required information is not applicable or the information is presented in
the financial statements or related notes.
3.EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<C> <S>
3.1 The Company's Amended and Restated Articles of Incorporation, and
amendments thereto, included as Exhibit 3.1 to the Company's Form 10-Q
for the quarter ended October 31, 1990, and incorporated herein by this
reference.
3.2 The Company's Amended and Restated By-Laws dated November 13, 1989,
included as Exhibit 3.1 to the Form 10-Q for the quarter ended January
31, 1990, and incorporated herein by this reference.
10.1 Amended and Restated 1991 Employee Stock Option Plan dated August 26,
1997 included as Exhibit 10.1 to the Form 10-Q for the quarter ended July
31, 1997, and incorporated herein by this reference.
10.2 Amended and Restated Directors and Officers Stock Option Plan effective
October 1, 1997, included as Exhibit 10.1 to the Form 10-Q for the
quarter ended October 31, 1997, and incorporated herein by this
reference.
10.3 Stock Option Agreement between the Company and James C. Edenfield dated
May 15, 1990, included as Exhibit 10.5 to the Company's Form 10-K for the
fiscal year ended April 30, 1990 and incorporated herein by this
reference.
10.4 Stock Option Agreement between the Company and James C. Edenfield dated
January 30, 1995, included as Exhibit 10.4 to the Form 10-K for the
fiscal year ended April 30, 1995, and incorporated herein by this
reference.
10.5 Stock Option Agreement between the Company and James C. Edenfield dated
May 1, 1997.
10.6 American Software, Inc. 401(k)/Profit Sharing Plan and Trust Agreement
included as Exhibits 4.1 and 4.2, respectively, to the Registrant's
Registration Statement No. 33-55214 on Form S-8 and incorporated herein
by this reference.
10.7 Lease Agreement dated December 15, 1981, between Company and Newfield
Associates, included as Exhibit 10.6 to the Company's Registration
Statement Number 2-81444 on Form S-1 (the "1983 Registration Statement")
and incorporated herein by this reference.
</TABLE>
43
<PAGE>
<TABLE>
<C> <S>
10.8 Amendment dated January 14, 1983, to Lease Agreement between the Company
and Newfield Associates, included as Exhibit 10.7 to the 1983
Registration Statement and incorporated herein by this reference.
10.9 Subsidiary Formation Agreement entered into among the Company, Logility,
Inc., and certain subsidiaries of the Company, as amended, dated January
23, 1997.
10.10 Services Agreement between the Company and Logility, Inc., dated August
1, 1997.
10.11 Facilities Agreement between the Company and Logility, Inc., dated
August 1, 1997.
10.12 Tax Sharing Agreement between the Company and Logility, Inc., dated
January 23, 1997.
10.13 Stock Option Agreement between the Company and Logility, Inc., dated
August 1, 1997.
10.14 Technology License Agreement between the Company and Logility, Inc., as
amended, dated August 1, 1997.
10.15 Marketing License Agreement between USA and Logility, Inc., as amended,
dated August 1, 1997.
11.1 Statement re: Computation of Per Share Earnings (Loss).
21.1 List of Subsidiaries.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
</TABLE>
(b)Reports on Form 8-K
The Company did not file a report on Form 8-K during the fourth quarter of
the recently completed fiscal year.
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American Software, Inc.:
Under date of June 19, 1998, we reported on the consolidated balance sheets
of American Software, Inc. and subsidiaries as of April 30, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended April 30,
1998, which are included in the April 30, 1998, annual report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule included in the Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
June 19, 1998
45
<PAGE>
SCHEDULE II
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION ACCOUNTS
YEARS ENDED APRIL 30, 1998, 1997, AND 1996
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AND AT END
YEAR ENDED OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
April 30, 1996................. $1,906,284 $2,371,306 $3,077,590 $1,200,000
April 30, 1997................. 1,200,000 720,935 739,164 1,181,771
April 30, 1998................. 1,181,771 176,000 135,771 1,222,000
</TABLE>
- --------
(1) Write-offs of accounts receivable.
DEFERRED INCOME TAX VALUATION ALLOWANCE
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AND AT END
YEAR ENDED OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
April 30, 1996..................... -- 1,980,209 -- 1,980,209
April 30, 1997..................... 1,980,209 -- -- 1,980,209
April 30, 1998..................... 1,980,209 -- -- 1,980,209
</TABLE>
46
<PAGE>
EXHIBIT 10.5
SERVICES AGREEMENT
THIS SERVICES AGREEMENT is made and entered into as of the 1st day of
August, 1997, by and between AMERICAN SOFTWARE, INC., a Georgia corporation
("ASI"), and LOGILITY, INC., a Georgia corporation ("Logility").
WITNESSETH:
WHEREAS, Logility and certain ASI Entities (as defined below) have entered
into that certain Subsidiary Formation Agreement, dated of even date herewith,
pursuant to which those ASI Entities have agreed to transfer and assign to
Logility, and Logility has agreed to acquire and assume from those ASI Entities,
certain tangible and intangible property and assets of those ASI Entities
relating to the Business of Logility (as such term is defined in the Subsidiary
Formation Agreement);
WHEREAS, the ASI Entities have the resources, staff, and expertise to
support Logility in the Business of Logility until such time as Logility has the
internal staff and expertise necessary to operate independently; and
WHEREAS, on the terms and subject to the conditions set forth herein,
Logility desires to retain the ASI Entities as independent contractors to
provide, directly or indirectly, certain administrative, financial, management,
and other services to Logility and the Logility Subsidiaries (as defined below);
and
WHEREAS, on the terms and subject to the conditions set forth herein, ASI
desires to provide, directly or indirectly, such services to Logility and its
Subsidiaries.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ASI and Logility, for themselves,
and their respective successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms will have
-----------
the following meanings:
(a) "Actions" has the meaning ascribed thereto in Section 4.04.
(b) "Agreement" means this Services Agreement as it may be amended and
supplemented from time to time in accordance with the terms hereof.
(c) "ASI" has the meaning ascribed thereto in the preamble hereto.
<PAGE>
(d) "ASI Entities" means ASI and its Subsidiaries (excluding the Logility
Entities, unless otherwise required by the context), and an "ASI Entity" shall
mean any of the ASI Entities.
(e) "ASI Indemnified Person" has the meaning ascribed thereto in Section
4.03.
(f) "ASI Plans" has the meaning ascribed thereto in Section 3.05.
(g) "Benefit Billing" has the meaning ascribed thereto in Section 3.01.
(h) "Benefits Services" has the meaning ascribed thereto in Section 3.05.
(i) "Closing Date" means the date of the closing of the initial sale of
Common Stock in the Initial Public Offering.
(j) "Common Stock" means the issued and outstanding shares of Common Stock,
having no par value, of Logility, and any other class of Logility capital stock
representing the right to vote generally for the election of directors.
(k) "Confidential Information" has the meaning ascribed thereto in Section
7.08.
(l) "Cost Plus Billing" has the meaning ascribed thereto in Section 3.01.
(m) "Customary Billing" has the meaning ascribed thereto in Section 3.01.
(n) "Employee Welfare Plans" has the meaning ascribed thereto in Section
4.02.
(o) "ERISA" means the Employee Retirement Income Security Act of 1974 and
the regulations promulgated and rulings issued thereunder, as amended from time
to time.
(p) "Initial Public Offering" means the issuance of shares of Common Stock
to the public in an offering registered under the Securities Act of 1933, as
amended.
(q) "Logility" has the meaning ascribed thereto in the preamble hereto.
(r) "Logility Entities" means Logility and its Subsidiaries (if and when
any), and a "Logility Entity" shall mean any of the Logility Entities.
(s) "Logility Indemnified Person" has the meaning ascribed thereto in
Section 4.05.
(t) "Pass-Through Billing" has the meaning ascribed thereto in Section
3.01.
(u) "Payment Date" has the meaning ascribed thereto in Section 3.06(b).
2
<PAGE>
(v) "Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government (and
any department or agency thereof), or other entity.
(w) "Schedule I" means the first schedule attached hereto which lists the
Services (other than Services relating to certain commercial services and to
employee plan and benefit matters) to be provided by ASI to Logility and sets
forth the related billing methodology.
(x) "Schedule II" means the second schedule attached hereto which describes
certain commercial services that may be provided by ASI to Logility and sets
forth the related billing methodology.
(y) "Schedule III" means the third schedule attached hereto which lists the
Services relating to employee plans and benefit arrangements to be provided by
ASI to Logility and sets forth the related billing methodology.
(z) "Schedules" has the meaning ascribed thereto in Section 3.01.
(aa) "Service Costs" has the meaning ascribed thereto in Section 3.01.
(bb) "Services" has the meaning ascribed thereto in Section 2.01.
(cc) "Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture, or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled directly or indirectly by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof. Subsidiary, when used
with respect to ASI or Logility, shall also include any other entity affiliated
with ASI and Logility, as the case may be, that ASI and Logility may hereafter
agree in writing shall be treated as a "Subsidiary" for the purposes of this
Agreement.
1.02. Internal References. Unless the context indicates otherwise, references
-------------------
to Articles, Sections, and paragraphs shall refer to the corresponding
articles, sections, and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SERVICES
Section 2.01. Purchase and Sale of Services.
-----------------------------
(a) On the terms and subject to the conditions of this Agreement and in
consideration of the Service Costs, ASI agrees to provide to Logility, or to
procure for the provision to Logility, and Logility agrees to purchase from ASI,
the services described in Schedules I, II, and III (the "Services"). Unless
otherwise specifically agreed by ASI and Logility, the Services to be provided
3
<PAGE>
or procured by ASI hereunder shall be substantially similar in scope, quality,
and nature to those provided to, or procured on behalf of, Logility prior to the
Closing Date.
(b) It is understood that (i) the Services to be provided to Logility under
this Agreement will, at Logility's request, be provided to Subsidiaries of
Logility, and (ii) ASI may satisfy its obligation to provide or procure Services
hereunder by causing one or more of its Subsidiaries to provide or procure such
Services. With respect to Services provided to, or procured on behalf of, any
Subsidiary of Logility, Logility agrees to pay on behalf of such Subsidiary all
amounts payable by or in respect of such Services.
Section 2.02. Additional Services. In addition to the Services to be provided
-------------------
or procured by ASI pursuant to Section 2.01, ASI from time to time may provide
additional services (including services not provided by ASI to Logility prior to
the Closing Date) to Logility; provided that the scope of any such services, as
well as the term, costs, and other terms and conditions applicable to such
services, shall be as mutually agreed in writing by ASI and Logility. Upon such
agreement, all such services shall be included in the term "Services" for
purposes of this Agreement.
ARTICLE III
SERVICE COSTS; OTHER CHARGES
Section 3.01. Service Costs Generally.
-----------------------
(a) Schedules I, II, and III hereto (collectively, the "Schedules")
indicate, with respect to each Service listed therein, whether the costs to be
charged to Logility for such Service or program are determined by (i) the
customary billing method ("Customary Billing"), (ii) the pass-through billing
method ("Pass-Through Billing"), (iii) the cost-plus-fixed-fee billing method
("Cost Plus Billing"), or (iv) a calculation of certain costs relating to
employee benefit plans and benefit arrangements ("Benefit Billing"). The
Customary Billing, Pass-Through Billing, Cost Plus Billing, and Benefit Billing
methods applicable to the Services provided to Logility are collectively
referred to herein as the "Service Costs". Logility agrees to pay to ASI in the
manner set forth in Section 3.06 the Service Costs applicable to each of the
Services provided by ASI.
(b) As provided herein, ASI shall permit eligible Logility employees to
participate in certain of the ASI Plans. In addition to reimbursing ASI for the
Services as set forth herein, Logility shall reimburse ASI for ASI's costs
(including any contributions and premium costs and including certain third-party
expenses and allocations of certain ASI personnel expenses), subject to Section
3.05 hereof, relating to participation by Logility employees in the ASI Plans.
It is the express intent of the parties that Service Costs relating to the
administration of Logility employee plans and the performance of related
Services will not exceed reasonable compensation for such Services as defined in
29 CFR (S) 2550.408c-2.
4
<PAGE>
Section 3.02. Customary Billing. The costs of Services determined by the
-----------------
Customary Billing method shall be comparable to the costs for comparable
services charged from time to time to other businesses and Subsidiaries operated
by an ASI Entity.
Section 3.03. Pass-Through Billing. The costs of Services determined by the
--------------------
Pass-Through Billing method shall be equal to the third-party costs and expenses
incurred by any ASI Entity on behalf of any Logility Entity. If an ASI Entity
incurs costs or expenses on behalf of any Logility Entity as well as other
businesses operated by such ASI Entity, the ASI Entity will allocate any such
costs or expenses in good faith between the various businesses on behalf of
which such costs or expenses were incurred as such ASI Entity shall determine in
the exercise of its reasonable judgment. ASI shall apply usual and customary
accounting conventions in making such allocations, and ASI or its agents shall
keep and maintain such books and records as may be reasonably necessary to make
such allocations. ASI shall make copies of such books and records available to
Logility upon request and with reasonable notice.
Section 3.04. Cost Plus Billing. The costs of Services determined by the Cost
-----------------
Plus Billing method, as set forth on Schedule II, shall be equal to the costs
and expenses incurred by any ASI Entity on behalf of any Logility Entity, plus a
fixed percentage of such costs and expenses to be negotiated by the parties in
good faith. If an ASI Entity incurs costs or expenses on behalf of any Logility
Entity as well as other businesses operated by such ASI Entity, the ASI Entity
will allocate any such costs or expenses in good faith between the various
businesses on behalf of which such costs or expenses were incurred as the ASI
Entity shall determine in the exercise of its reasonable judgment. ASI shall
apply usual and customary accounting conventions in making such allocations, and
ASI or its agents shall keep and maintain such books and records as may be
reasonably necessary to make such allocations. ASI shall make copies of such
books and records available to Logility upon request and with reasonable notice.
Section 3.05. Benefit Billing.
---------------
(a) Prior to the Closing Date, certain employees of Logility participated
in certain benefit plans sponsored by ASI. On and after the Closing Date,
Logility employees shall continue to be eligible to participate in certain ASI
Plans, as specified by ASI prior to the Closing Date ("ASI Plans"), subject to
the terms of the governing plan documents as interpreted by the appropriate plan
fiduciaries. On and after the Closing Date, subject to regulatory requirements
and the provisions of Section 4.01 hereof, ASI will continue to provide Benefits
Services to and in respect of Logility employees with reference to such ASI
Plans as it administered them prior to the Closing Date.
(b) The costs payable by Logility for Services relating to employee plans
and benefit arrangements ("Benefits Services") may be charged on the basis of
Customary Billing, Pass-Through Billing, or Benefit Billing. In addition, the
costs associated with certain plans and programs identified in Schedule III will
be paid principally through employee payroll deductions for such plans and
programs. Benefit Services consist of those categories of Services which are
more fully described on Schedule III attached hereto.
5
<PAGE>
EXHIBIT 10.9
SUBSIDIARY FORMATION AGREEMENT
------------------------------
This Subsidiary Formation Agreement (the "Agreement") is made and entered
into as of the 23rd day of January, 1997 by and among AMERICAN SOFTWARE, INC., a
Georgia corporation ("ASI"), AMERICAN SOFTWARE USA, INC., a Georgia corporation
("USA"), AMERICAN SOFTWARE (UK) LTD., an entity existing under the laws of the
United Kingdom ("UK"), AMERICAN SOFTWARE FRANCE S.A., an entity existing under
the laws of France ("France"), AMERICAN SOFTWARE ASIA PACIFIC PTE. LTD., an
entity existing under the laws of Singapore ("Singapore"), AMERICAN SOFTWARE
(JAPAN) KK, an entity existing under the laws of Japan ("Japan"), and AMERICAN
SOFTWARE (AUSTRALIA) PTY. LTD., an entity existing under the laws of Australia
("Australia") (ASI, USA, UK, France, Singapore, Japan, and Australia are
sometimes collectively referred to herein as the "ASI Entities"), and LOGILITY,
INC., a Georgia corporation ("Logility").
WHEREAS, USA, UK, France, Singapore, Japan, and Australia are direct and
indirect subsidiaries of ASI; and
WHEREAS, the ASI Entities desire to transfer and assign to Logility, and
Logility desires to acquire and assume, certain assets and liabilities of the
ASI Entities relating to the business and operations of the Supply Chain
Planning products divisions ("SCP") of the ASI Entities.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in the Agreement, the following terms shall have
-----------
the following meanings:
a. "Assumed Liabilities" shall have the meaning ascribed to such term in
Section 3 below.
b. "Business of Logility" shall mean the business and operations of the
SCP divisions of the ASI Entities, as currently conducted and proposed to be
conducted, and all activities associated therewith.
c. "Effective Date" shall mean January 23, 1997.
d. "Intellectual Property" shall mean all (i) patents, patent
applications, patent disclosures and all related continuation, continuation-in-
part, reissue, re-examination, utility, model, certificate of invention and
design patents, patent applications, registrations, and applications for
registration; (ii) trademarks, service marks, trade dress, logos, trade names,
service names, and corporate names, and all registrations and applications for
registration thereof; (iii) copyrights and
<PAGE>
registrations and applications for registration thereof; (iv) mask works and
registrations and applications for registration of the foregoing; (v) computer
software, data and documentation; (vi) trade secrets and confidential business
information, whether patentable or nonpatentable and whether or not reduced to
practice, know-how, manufacturing and product processes and techniques, research
and development information, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans, and
customer and supplier lists and information; (vii) other proprietary rights
relating to all of the foregoing (including without limitation associated
goodwill and remedies against infringements thereof and rights of protection of
an interest therein under the laws of all jurisdictions); and (viii) copies and
tangible embodiments of all of the foregoing.
e. "Logility Assets" shall mean all of the assets used or useful in and to
the Business of Logility, including without limitation, all (i) Intellectual
Property; (ii) to the extent transferable, licenses, franchises, permits,
approvals, and other similar authorizations; (iii) books, records, files and
papers, whether in hard copy or computer format, including, without limitation,
research and development information, materials and analyses prepared by
consultants and other third parties, engineering information, sales and
promotional literature, manuals and data, sales and purchase correspondence,
lists of present and former suppliers, lists of present and former customers,
personnel and employment records, and any tax-related information; (iv)
goodwill; (v) claims and choses in action; (vi) accounts, prepaid expenses,
notes, and other receivables; (vii) security deposits; (viii) raw materials,
parts, work-in-process, finished goods, supplies, and other inventories; (ix) to
the extent transferable, all contracts, agreements, leases, licenses,
commitments, sales and purchase orders, and other instruments (collectively,
"Contracts") set forth on Schedule I attached hereto; (x) rights, claims,
----------
credits, causes of action, and rights of set-off against third parties; and (xi)
equipment, machinery, improvements, furniture, and fixed assets set forth on
Schedule II attached hereto. Notwithstanding anything to the contrary contained
- -----------
in this Agreement, the Logility Assets shall not include any net operating loss,
net capital loss, investment tax credit, foreign tax credit, charitable
deduction, or any other deduction, credit, or tax attribute which could reduce
taxes (including, without limitation, deductions and credits related to
alternative minimum taxes) attributable to the Business of Logility from a tax
period (or portion thereof) ending on or before the closing date of the issuance
by Logility of shares of its Common Stock to the public in an initial public
offering registered under the Securities Act of 1933, as amended.
f. "SCP Division" means those product divisions of the ASI Entities which
are engaged in the development and distribution of the software products set
forth in Exhibit A attached hereto, including services, maintenance, and support
---------
related thereto.
2. Transfer of Logility Assets to Logility. In consideration for the
---------------------------------------
issuance to ASI of One Thousand (1,000) fully paid, non-assessable shares of
common stock of Logility, having no par value, the ASI Entities shall assign,
transfer, convey, and deliver to Logility, in the form of a capital
contribution, the Logility Assets, subject to the Assumed Liabilities which are
to be assumed by Logility as set forth in Section 3 below.
2
<PAGE>
3. Assumption of Assumed Liabilities by Logility. In further consideration
---------------------------------------------
for the conveyance of the Logility Assets, Logility shall assume and agree to
pay, perform, and discharge (a) all debts, obligations, contracts, and
liabilities of the ASI Entities related to the Logility Assets under the
Contracts; (b) all debts, obligations, contracts, and liabilities related to the
Business of Logility under all contracts, agreements, leases, licenses,
commitments, sales and purchase orders, and other instruments entered into
between an ASI Entity and an end-user between the Effective Date and August 1,
1997, together with such other contracts, agreements, leases, licenses,
commitments, sales and purchase orders, and other instruments relating to the
Business of Logility, as may be agreed upon from time to time by the parties;
and (c) all costs and expenses incurred for and on behalf of Logility related to
the formation and organization of Logility. All such liabilities shall
hereinafter collectively be referred to as the "Assumed Liabilities."
4. Instruments of Conveyance and Transfer. Concurrently with the execution
--------------------------------------
of this Agreement and effective as of the Effective Date, (i) the parties hereto
have entered into (a) a Technology License Agreement in the form of Exhibit B
---------
attached hereto; and (b) a Marketing License Agreement in the form of Exhibit C
---------
attached hereto; (ii) the ASI Entities have executed and delivered to Logility a
Bill of Sale in the form of Exhibit D attached hereto; and (iii) Logility has
---------
delivered to ASI a certificate representing One Thousand (1,000) shares of
common stock of Logility and such other documents and undertakings as may be
necessary to reflect the obligation of Logility to reimburse the ASI Entities
for certain expenses as specified in Section 3. Additionally, the parties
hereto shall take such other actions and execute and deliver such other
documents and instruments, including, without limitation, bills of sale,
endorsements, consents, assignments, and other good and sufficient instruments
of conveyance and assignment, as shall be reasonably necessary to vest in
Logility good and marketable title to the Logility Assets and put Logility in
actual possession and operating control of the Business of Logility.
5. Representations of the ASI Entities. The ASI Entities hereby represent
-----------------------------------
and warrant to Logility as of the Effective Date that:
5.1 Corporate Existence and Power. Each of the ASI Entities is a
-----------------------------
corporation or other limited liability entity duly organized, validly existing,
and in good standing under the laws of its respective jurisdiction of
incorporation.
5.2 Corporate Authorizations. The execution, delivery and performance of
------------------------
this Agreement by each of the ASI Entities and the consummation of the
transactions contemplated hereby by each of the ASI Entities are within its
respective corporate powers and have been duly authorized by all necessary
corporate action of the part of each of the ASI Entities. This Agreement
constitutes the valid and binding agreement of each of the ASI Entities,
enforceable against each of the ASI Entities in accordance with its terms.
5.3 Title to the Logility Assets. Each ASI Entity has and is transferring
----------------------------
to Logility good and marketable title to all of the Logility Assets to be
transferred by it under this Agreement,
3
<PAGE>
free and clear of all mortgages, liens, pledges, security interests, charges,
claims, restrictions, and other encumbrances or defects of title of any nature.
5.4 Intellectual Property Rights. The Intellectual Property constitutes
----------------------------
all rights and technology necessary to conduct the Business of Logility.
6. Employees. Logility will offer employment to such employees of the ASI
---------
Entities as the officers of the ASI Entities and Logility deem appropriate. The
compensation levels, benefit programs, and terms and conditions of employment
offered to such employees shall be determined by Logility in accordance with
Logility's plans for the operation of the Business of Logility. Logility shall
adopt and provide for its employees such insurance plans, benefit plans,
vacation and severance policies, and other benefits as are appropriate, in
Logility's judgment, and shall not be required to adopt or assume any of the
plans, policies, or agreements of any of the ASI Entities other than those which
Logility elects to assume.
7. Consent of Third Parties. This Agreement shall not constitute an
------------------------
agreement to assign to Logility any interest in any instrument, contract, lease,
permit, or other agreement or arrangement or any claim, right, or benefit
arising thereunder or resulting therefrom, if an assignment or agreement to
assign without the consent of a third party would constitute a breach or a
violation thereof or affect adversely the rights of any of the ASI Entities or
Logility thereunder. If a consent of a third party that is required in order to
assign any such interest is not obtained prior to the Closing Date, or if an
attempted assignment would be ineffective or would adversely affect the ability
of any of the ASI Entities to convey its interest to Logility, the ASI Entities
will cooperate with Logility in any lawful and reasonable arrangement to provide
that Logility shall receive the interest and economic benefit of the ASI
Entities in the benefits under any such instrument, contract, lease, permit, or
other agreement or arrangement, including performance by the ASI Entities as
agents, except where prohibited by law; and any transfer or assignment to
Logility or by any of the ASI Entities of any interest under any such
instrument, contract, lease, permit, or other agreement or arrangement that
requires the consent of a third party shall be made subject to such consent or
approval being obtained.
8. Indemnification. Logility hereby agrees to indemnify the ASI Entities
---------------
from and against any and all claims, demands, or actions arising out of any of
the Assumed Liabilities, unless any such claim, demand, or action arose out of
the negligent or willful act of any ASI Entity or any breach of an ASI Entity's
obligations hereunder or under any Assumed Liability.
.
9. Further Assurances. From time to time, upon request by either party and
------------------
without further consideration, the parties shall execute and deliver such
further instruments and take such further actions as may be reasonably required
in order to carry out the purposes and intents of this Agreement.
4
<PAGE>
WHEREFORE, the parties hereto have caused this Agreement to be executed and
delivered as of the date first above written.
ASI ENTITIES:
BY: /s/ James C. Edenfield
--------------------------------
JAMES C. EDENFIELD, PRESIDENT OF AMERICAN
SOFTWARE, INC., PRESIDENT OF AMERICAN
SOFTWARE USA, INC., DIRECTOR OF AMERICAN
SOFTWARE (UK), LTD., DIRECTOR OF AMERICAN
SOFTWARE FRANCE S.A., DIRECTOR OF
AMERICAN SOFTWARE ASIA PACIFIC PTE. LTD.,
DIRECTOR OF AMERICAN SOFTWARE (JAPAN) KK,
DIRECTOR OF AMERICAN SOFTWARE (AUSTRALIA)
PTY. LTD.
LOGILITY, INC.
BY: /s/ J. Michael Edenfield
---------------------------------
J. MICHAEL EDENFIELD, PRESIDENT
5
<PAGE>
EXHIBIT A
---------
All ASI's Supply Chain Planning client server modules, including, but
not limited to:
. Demand Planning
. Inventory Planning
. Event Planning
. Replenishment Planning
. Manufacturing Planning
. Demand Chain Voyager
. Supply Chain Voyager
6
<PAGE>
EXHIBIT D
---------
STATE OF GEORGIA
COUNTY OF FULTON
BILL OF SALE
------------
KNOW ALL MEN BY THESE PRESENTS:
FOR AND IN CONSIDERATION of Ten and No/100 Dollars ($10.00) and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned AMERICAN SOFTWARE, INC., a Georgia corporation,
AMERICAN SOFTWARE USA, INC., a Georgia corporation, AMERICAN SOFTWARE (UK) LTD.,
an entity existing under the laws of the United Kingdom, AMERICAN SOFTWARE
FRANCE S.A., an entity existing under the laws of France, AMERICAN SOFTWARE ASIA
PACIFIC PTE. LTD., an entity existing under the laws of Singapore, AMERICAN
SOFTWARE (JAPAN) KK, an entity existing under the laws of Japan, and AMERICAN
SOFTWARE (AUSTRALIA) PTY. LTD., an entity existing under the laws of Australia
(collectively, "Sellers"), hereby do sell, transfer, assign, bargain, convey and
deliver unto LOGILITY, INC., a Georgia corporation ("Buyer"), its successors and
assigns, all of Sellers' right, title and interest in and to all of the
"Logility Assets", as such term is defined in that certain Subsidiary Formation
Agreement between Sellers and Buyer, dated January 23, 1997 (the "Subsidiary
Formation Agreement"), the terms and provisions of which are incorporated herein
by reference.
Sellers, on behalf of their successors, successors-in-title and assigns,
represent, warrant and agree that they are the true, lawful and sole owners of
the Logility Assets hereby sold, transferred, assigned, bargained, conveyed and
delivered, subject to no security interests, liens, restrictions, encumbrances,
leases, easements or claims or rights of any third parties whatsoever; that they
have the full, complete and lawful right, power and authority to execute this
Bill of Sale and to so contribute, transfer, assign, bargain, convey and deliver
the Logility Assets; that the right, title and interest in the Logility Assets
hereby sold, transferred, assigned, bargained, conveyed and delivered constitute
good and marketable title to the Logility Assets, free and clear of all security
interests, liens, restrictions, encumbrances, leases, easements and claims or
rights of third parties of every kind and nature whatsoever; and that no other
person, firm, corporation or entity of any kind has any claim to or interest in
the Logility Assets.
TO HAVE AND TO HOLD the Logility Assets unto the Buyer, its successors,
successors-in-title and assigns to their use and benefit forever.
7
<PAGE>
Sellers will from time to time and at all reasonable times hereafter, upon
every request of the Buyer, do, execute, acknowledge and deliver or cause to be
done, executed, acknowledged and delivered all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required by Buyer in order to more effectively carry out the intent of this Bill
of Sale and to transfer the Logility Assets to Buyer.
Notwithstanding any other language contained in this Bill of Sale, the
representations, warranties and covenants of Sellers contained in the Subsidiary
Formation Agreement, relating to the Logility Assets, are incorporated herein by
reference. If there is any conflict as to the terms of this Bill of Sale and
the Subsidiary Agreement, the terms of the Subsidiary Agreement shall prevail.
IN WITNESS WHEREOF, Sellers have caused this Bill of Sale to be executed by
their duly authorized officers this 23rd day of January, 1997.
ASI ENTITIES:
------------
BY: /s/
--------------------------------------------------
JAMES C. EDENFIELD, PRESIDENT OF AMERICAN SOFTWARE,
INC., PRESIDENT OF AMERICAN SOFTWARE USA, INC.,
DIRECTOR OF AMERICAN SOFTWARE (UK), LTD., DIRECTOR OF
AMERICAN SOFTWARE FRANCE S.A., DIRECTOR OF AMERICAN
SOFTWARE ASIA PACIFIC PTE. LTD., DIRECTOR OF AMERICAN
SOFTWARE (JAPAN) KK, DIRECTOR OF AMERICAN SOFTWARE
(AUSTRALIA) PTY. LTD.
8
<PAGE>
AMENDMENT TO
SUBSIDIARY FORMATION AGREEMENT
------------------------------
This Amendment to Subsidiary Formation Agreement (the "Amendment") is
made and entered into as of the 1st day of August, 1997 (the "WarehousePRO
Effective Date") by and among AMERICAN SOFTWARE, INC., a Georgia corporation
("ASI"), AMERICAN SOFTWARE USA, INC., a Georgia corporation ("USA"), AMERICAN
SOFTWARE (UK) LTD., an entity existing under the laws of the United Kingdom
("UK"), AMERICAN SOFTWARE FRANCE S.A., an entity existing under the laws of
France ("France"), AMERICAN SOFTWARE ASIA PACIFIC PTE. LTD., an entity existing
under the laws of Singapore ("Singapore"), AMERICAN SOFTWARE (JAPAN) KK, an
entity existing under the laws of Japan ("Japan"), and AMERICAN SOFTWARE
(AUSTRALIA) PTY. LTD., an entity existing under the laws of Australia
("Australia") (ASI, USA, UK, France, Singapore, Japan, and Australia are
collectively referred to herein as the "ASI Entities"), and LOGILITY, INC., a
Georgia corporation ("Logility").
WHEREAS, the ASI Entities and Logility have made and entered into that
certain Subsidiary Formation Agreement (the "Agreement"), dated as of January
23, 1997, whereby the ASI Entities have transferred and assigned to Logility,
and Logility has acquired and assumed, certain assets and liabilities of the ASI
Entities relating to the Business of Logility (as such term is defined in the
Agreement); and
WHEREAS, ASI Entities now desire to transfer and assign to Logility, and
Logility desires to acquire and assume, as of the WarehousePRO Effective Date,
certain assets and liabilities of the ASI Entities relating to the WarehousePRO
warehouse management software system ("WarehousePRO System"), and the ASI
Entities and Logility desire to amend the Agreement to provide that the Business
of Logility, and certain rights and obligations of the parties with regard
thereto, shall expressly include the WarehousePRO System.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree to amend the Agreement,
effective as of the WarehousePRO Effective Date as follows:
1. The term "Business of Logility", as set forth in Paragraph 1(b) of the
Agreement, is hereby amended to include the business and operations of the ASI
Entities, as currently conducted and proposed to be conducted, in connection
with the WarehousePRO System, and all activities associated therewith.
2. The term "Logility Assets", as set forth in Paragraph 1(e) of the
Agreement, shall include all of the assets used or useful in and to the
WarehousePRO System, including without limitation, all (i) Intellectual
Property; (ii) to the extent transferable, licenses, franchises, permits,
approvals, and other similar authorizations; (iii) books, records, files and
papers, whether in hard
9
<PAGE>
copy or computer format, including, without limitation, research and development
information, materials and analyses prepared by consultants and other third
parties, engineering information, sales and promotional literature, manuals and
data, sales and purchase correspondence, lists of present and former suppliers,
lists of present and former customers, personnel and employment records, and any
tax-related information; (iv) goodwill; (v) claims and choses in action; (vi)
accounts, prepaid expenses, notes, and other receivables; (vii) security
deposits; (viii) raw materials, parts, work-in-process, finished goods,
supplies, and other inventories; (ix) to the extent transferable, all contracts,
agreements, leases, licenses, commitments, sales and purchase orders, and other
instruments (collectively, "Contracts") set forth on Schedule I-A attached
------------
hereto; (x) rights, claims, credits, causes of action, and rights of set-off
against third parties; and (xi) equipment, machinery, improvements, furniture,
and fixed assets set forth on Schedule II-A attached hereto.
-------------
3. Transfer of WarehousePRO System to Logility. The ASI Entities hereby
-------------------------------------------
assign, transfer, convey, and deliver to Logility the WarehousePRO System. In
consideration for the conveyance of the WarehousePRO System, Logility shall
assume and agree to pay, perform, and discharge all debts, obligations,
contracts, and liabilities of the ASI Entities under the Contracts related to
the WarehousePRO System as of the WarehousePRO Effective Date, together with
such other contracts, agreements, leases, licenses, commitments, sales and
purchase orders, and other instruments relating to the Business of Logility, as
such term is amended hereby, as may be agreed upon from time to time by the
parties. All such liabilities shall hereinafter be included in the term
"Assumed Liabilities", as defined in Paragraph 3 of the Agreement.
4. Instruments of Conveyance and Transfer. Concurrently with the
--------------------------------------
execution of this Agreement, the ASI Entities have executed and delivered to
Logility a Bill of Sale in the form of Exhibit A-1 attached hereto.
-----------
Additionally, the parties hereto shall take such other actions and execute and
deliver such other documents and instruments, including, without limitation,
bills of sale, endorsements, consents, assignments, and other good and
sufficient instruments of conveyance and assignment, as shall be reasonably
necessary to vest in Logility good and marketable title to the WarehousePRO
System and put Logility in actual possession and operating control of the
Business of Logility, as such term is amended hereby.
5. Representations of the ASI Entities. The ASI Entities hereby affirm
-----------------------------------
that all representations and warranties made to Logility in the Agreement are
true as of the WarehousePRO Effective Date with regard to the WarehousePRO
System.
6. Consent of Third Parties. This Agreement shall not constitute an
------------------------
agreement to assign to Logility any interest in any instrument, contract, lease,
permit, or other agreement or arrangement or any claim, right, or benefit
arising thereunder or resulting therefrom, if an assignment or agreement to
assign without the consent of a third party would constitute a breach or a
violation thereof or affect adversely the rights of any of the ASI Entities or
Logility thereunder. If an attempted assignment would be ineffective or would
adversely affect the ability of any of the ASI Entities to convey its interest
to Logility, the ASI Entities will cooperate with Logility in any lawful and
reasonable arrangement to provide that Logility shall receive the interest and
economic benefit
10
<PAGE>
of the ASI Entities in the benefits under any such instrument, contract, lease,
permit, or other agreement or arrangement, including performance by the ASI
Entities as agents, except where prohibited by law; and any transfer or
assignment to Logility or by any of the ASI Entities of any interest under any
such instrument, contract, lease, permit, or other agreement or arrangement that
requires the consent of a third party shall be made subject to such consent or
approval being obtained.
7. Further Assurances. From time to time, upon request by either party and
------------------
without further consideration, the parties shall execute and deliver such
further instruments and take such further actions as may be reasonably required
in order to carry out the purposes and intents of this Agreement.
8. Indemnification. Logility hereby agrees to indemnify the ASI Entities
---------------
from and against any and all claims, demands, or actions arising out of any of
the Assumed Liabilities, as such term is amended hereby, unless any such claim,
demand, or action arose out of the negligent or willful act of any ASI Entity or
any breach of an ASI Entity's obligations hereunder or under any Assumed
Liability, as such term is amended hereby.
9. Ratification of Agreement; Past Acts. Except as expressly modified by
------------------------------------
this Amendment, the terms and conditions of the Agreement are hereby ratified
and affirmed. Additionally, Logility hereby ratifies and affirms any actions
taken by Logility with regard to the WarehousePRO System prior to the
WarehousePRO Effective Date as if such actions were taken as of the WarehousePRO
Effective Date.
WHEREFORE, the parties hereto have caused this Amendment to be executed and
delivered as of the date first above written.
ASI ENTITIES:
BY: /s/ James C. Edenfield
------------------------------------------
JAMES C. EDENFIELD, PRESIDENT OF AMERICAN
SOFTWARE, INC., PRESIDENT OF AMERICAN SOFTWARE
USA, INC., DIRECTOR OF AMERICAN SOFTWARE (UK),
LTD., DIRECTOR OF AMERICAN SOFTWARE FRANCE S.A.,
DIRECTOR OF AMERICAN SOFTWARE ASIA PACIFIC PTE.
LTD., DIRECTOR OF AMERICAN SOFTWARE (JAPAN) KK,
DIRECTOR OF AMERICAN SOFTWARE (AUSTRALIA) PTY.
LTD.
LOGILITY, INC.
BY: /s/ J. Michael Edenfield
------------------------------------------
J. MICHAEL EDENFIELD, PRESIDENT
11
<PAGE>
EXHIBIT A-1
STATE OF GEORGIA
COUNTY OF FULTON
BILL OF SALE
------------
KNOW ALL MEN BY THESE PRESENTS:
FOR AND IN CONSIDERATION of Ten and No/100 Dollars ($10.00) and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned AMERICAN SOFTWARE, INC., a Georgia corporation,
AMERICAN SOFTWARE USA, INC., a Georgia corporation, AMERICAN SOFTWARE (UK) LTD.,
an entity existing under the laws of the United Kingdom, AMERICAN SOFTWARE
FRANCE S.A., an entity existing under the laws of France, AMERICAN SOFTWARE ASIA
PACIFIC PTE. LTD., an entity existing under the laws of Singapore, AMERICAN
SOFTWARE (JAPAN) KK, an entity existing under the laws of Japan, and AMERICAN
SOFTWARE (AUSTRALIA) PTY. LTD., an entity existing under the laws of Australia
(collectively, "Sellers"), hereby do sell, transfer, assign, bargain, convey and
deliver unto LOGILITY, INC., a Georgia corporation ("Buyer"), its successors and
assigns, all of Sellers' right, title and interest in and to all of the
"Logility Assets", as such term is defined in that certain Subsidiary Formation
Agreement between Sellers and Buyer, dated January 23, 1997, as amended by that
certain Amendment to Subsidiary Formation Agreement, dated of even date herewith
(the "Subsidiary Formation Agreement"), the terms and provisions of which are
incorporated herein by reference.
Sellers, on behalf of their successors, successors-in-title and assigns,
represent, warrant and agree that they are the true, lawful and sole owners of
the Logility Assets hereby sold, transferred, assigned, bargained, conveyed and
delivered, subject to no security interests, liens, restrictions, encumbrances,
leases, easements or claims or rights of any third parties whatsoever; that they
have the full, complete and lawful right, power and authority to execute this
Bill of Sale and to so contribute, transfer, assign, bargain, convey and deliver
the Logility Assets; that the right, title and interest in the Logility Assets
hereby sold, transferred, assigned, bargained, conveyed and delivered constitute
good and marketable title to the Logility Assets, free and clear of all security
interests, liens, restrictions, encumbrances, leases, easements and claims or
rights of third parties of every kind and nature whatsoever; and that no other
person, firm, corporation or entity of any kind has any claim to or interest in
the Logility Assets.
TO HAVE AND TO HOLD the Logility Assets unto the Buyer, its successors,
successors-in-title and assigns to their use and benefit forever.
Sellers will from time to time and at all reasonable times hereafter, upon
every request of the Buyer, do, execute, acknowledge and deliver or cause to be
done, executed, acknowledged and delivered all such further acts, deeds,
12
<PAGE>
assignments, transfers, conveyances, powers of attorney and assurances as may be
required by Buyer in order to more effectively carry out the intent of this Bill
of Sale and to transfer the Logility Assets to Buyer.
Notwithstanding any other language contained in this Bill of Sale, the
representations, warranties and covenants of Sellers contained in the Subsidiary
Formation Agreement, relating to the Logility Assets, are incorporated herein by
reference. If there is any conflict as to the terms of this Bill of Sale and
the Subsidiary Agreement, the terms of the Subsidiary Agreement shall prevail.
IN WITNESS WHEREOF, Sellers have caused this Bill of Sale to be executed by
their duly authorized officers this 1st day of August, 1997.
ASI ENTITIES:
------------
BY: /S/
-----------------------------
JAMES C. EDENFIELD, PRESIDENT OF AMERICAN
SOFTWARE, INC., PRESIDENT OF AMERICAN
SOFTWARE USA, INC., DIRECTOR OF AMERICAN
SOFTWARE (UK), LTD., DIRECTOR OF AMERICAN
SOFTWARE FRANCE S.A., DIRECTOR OF AMERICAN
SOFTWARE ASIA PACIFIC PTE. LTD, DIRECTOR
OF AMERICAN SOFTWARE (JAPAN) KK, DIRECTOR
OF AMERICAN SOFTWARE (AUSTRALIA) PTY. LTD.
13
<PAGE>
EXHIBIT 10.10
SERVICES AGREEMENT
THIS SERVICES AGREEMENT is made and entered into as of the 1st day of
August, 1997, by and between AMERICAN SOFTWARE, INC., a Georgia corporation
("ASI"), and LOGILITY, INC., a Georgia corporation ("Logility").
WITNESSETH:
WHEREAS, Logility and certain ASI Entities (as defined below) have entered
into that certain Subsidiary Formation Agreement, dated of even date herewith,
pursuant to which those ASI Entities have agreed to transfer and assign to
Logility, and Logility has agreed to acquire and assume from those ASI Entities,
certain tangible and intangible property and assets of those ASI Entities
relating to the Business of Logility (as such term is defined in the Subsidiary
Formation Agreement);
WHEREAS, the ASI Entities have the resources, staff, and expertise to
support Logility in the Business of Logility until such time as Logility has the
internal staff and expertise necessary to operate independently; and
WHEREAS, on the terms and subject to the conditions set forth herein,
Logility desires to retain the ASI Entities as independent contractors to
provide, directly or indirectly, certain administrative, financial, management,
and other services to Logility and the Logility Subsidiaries (as defined below);
and
WHEREAS, on the terms and subject to the conditions set forth herein, ASI
desires to provide, directly or indirectly, such services to Logility and its
Subsidiaries.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ASI and Logility, for themselves,
and their respective successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms will have
-----------
the following meanings:
(a) "Actions" has the meaning ascribed thereto in Section 4.04.
(b) "Agreement" means this Services Agreement as it may be amended and
supplemented from time to time in accordance with the terms hereof.
(c) "ASI" has the meaning ascribed thereto in the preamble hereto.
<PAGE>
(d) "ASI Entities" means ASI and its Subsidiaries (excluding the Logility
Entities, unless otherwise required by the context), and an "ASI Entity" shall
mean any of the ASI Entities.
(e) "ASI Indemnified Person" has the meaning ascribed thereto in Section
4.03.
(f) "ASI Plans" has the meaning ascribed thereto in Section 3.05.
(g) "Benefit Billing" has the meaning ascribed thereto in Section 3.01.
(h) "Benefits Services" has the meaning ascribed thereto in Section 3.05.
(i) "Closing Date" means the date of the closing of the initial sale of
Common Stock in the Initial Public Offering.
(j) "Common Stock" means the issued and outstanding shares of Common Stock,
having no par value, of Logility, and any other class of Logility capital stock
representing the right to vote generally for the election of directors.
(k) "Confidential Information" has the meaning ascribed thereto in Section
7.08.
(l) "Cost Plus Billing" has the meaning ascribed thereto in Section 3.01.
(m) "Customary Billing" has the meaning ascribed thereto in Section 3.01.
(n) "Employee Welfare Plans" has the meaning ascribed thereto in Section
4.02.
(o) "ERISA" means the Employee Retirement Income Security Act of 1974 and
the regulations promulgated and rulings issued thereunder, as amended from time
to time.
(p) "Initial Public Offering" means the issuance of shares of Common Stock
to the public in an offering registered under the Securities Act of 1933, as
amended.
(q) "Logility" has the meaning ascribed thereto in the preamble hereto.
(r) "Logility Entities" means Logility and its Subsidiaries (if and when
any), and a "Logility Entity" shall mean any of the Logility Entities.
(s) "Logility Indemnified Person" has the meaning ascribed thereto in
Section 4.05.
(t) "Pass-Through Billing" has the meaning ascribed thereto in Section
3.01.
(u) "Payment Date" has the meaning ascribed thereto in Section 3.06(b).
2
<PAGE>
(v) "Person" means any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization, government (and
any department or agency thereof), or other entity.
(w) "Schedule I" means the first schedule attached hereto which lists the
Services (other than Services relating to certain commercial services and to
employee plan and benefit matters) to be provided by ASI to Logility and sets
forth the related billing methodology.
(x) "Schedule II" means the second schedule attached hereto which describes
certain commercial services that may be provided by ASI to Logility and sets
forth the related billing methodology.
(y) "Schedule III" means the third schedule attached hereto which lists the
Services relating to employee plans and benefit arrangements to be provided by
ASI to Logility and sets forth the related billing methodology.
(z) "Schedules" has the meaning ascribed thereto in Section 3.01.
(aa) "Service Costs" has the meaning ascribed thereto in Section 3.01.
(bb) "Services" has the meaning ascribed thereto in Section 2.01.
(cc) "Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture, or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled directly or indirectly by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof. Subsidiary, when used
with respect to ASI or Logility, shall also include any other entity affiliated
with ASI and Logility, as the case may be, that ASI and Logility may hereafter
agree in writing shall be treated as a "Subsidiary" for the purposes of this
Agreement.
1.02. Internal References. Unless the context indicates otherwise, references
-------------------
to Articles, Sections, and paragraphs shall refer to the corresponding
articles, sections, and paragraphs in this Agreement, and references to the
parties shall mean the parties to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SERVICES
Section 2.01. Purchase and Sale of Services.
-----------------------------
(a) On the terms and subject to the conditions of this Agreement and in
consideration of the Service Costs, ASI agrees to provide to Logility, or to
procure for the provision to Logility, and Logility agrees to purchase from ASI,
the services described in Schedules I, II, and III (the "Services"). Unless
otherwise specifically agreed by ASI and Logility, the Services to be provided
3
<PAGE>
or procured by ASI hereunder shall be substantially similar in scope, quality,
and nature to those provided to, or procured on behalf of, Logility prior to the
Closing Date.
(b) It is understood that (i) the Services to be provided to Logility under
this Agreement will, at Logility's request, be provided to Subsidiaries of
Logility, and (ii) ASI may satisfy its obligation to provide or procure Services
hereunder by causing one or more of its Subsidiaries to provide or procure such
Services. With respect to Services provided to, or procured on behalf of, any
Subsidiary of Logility, Logility agrees to pay on behalf of such Subsidiary all
amounts payable by or in respect of such Services.
Section 2.02. Additional Services. In addition to the Services to be provided
-------------------
or procured by ASI pursuant to Section 2.01, ASI from time to time may provide
additional services (including services not provided by ASI to Logility prior to
the Closing Date) to Logility; provided that the scope of any such services, as
well as the term, costs, and other terms and conditions applicable to such
services, shall be as mutually agreed in writing by ASI and Logility. Upon such
agreement, all such services shall be included in the term "Services" for
purposes of this Agreement.
ARTICLE III
SERVICE COSTS; OTHER CHARGES
Section 3.01. Service Costs Generally.
-----------------------
(a) Schedules I, II, and III hereto (collectively, the "Schedules")
indicate, with respect to each Service listed therein, whether the costs to be
charged to Logility for such Service or program are determined by (i) the
customary billing method ("Customary Billing"), (ii) the pass-through billing
method ("Pass-Through Billing"), (iii) the cost-plus-fixed-fee billing method
("Cost Plus Billing"), or (iv) a calculation of certain costs relating to
employee benefit plans and benefit arrangements ("Benefit Billing"). The
Customary Billing, Pass-Through Billing, Cost Plus Billing, and Benefit Billing
methods applicable to the Services provided to Logility are collectively
referred to herein as the "Service Costs". Logility agrees to pay to ASI in the
manner set forth in Section 3.06 the Service Costs applicable to each of the
Services provided by ASI.
(b) As provided herein, ASI shall permit eligible Logility employees to
participate in certain of the ASI Plans. In addition to reimbursing ASI for the
Services as set forth herein, Logility shall reimburse ASI for ASI's costs
(including any contributions and premium costs and including certain third-party
expenses and allocations of certain ASI personnel expenses), subject to Section
3.05 hereof, relating to participation by Logility employees in the ASI Plans.
It is the express intent of the parties that Service Costs relating to the
administration of Logility employee plans and the performance of related
Services will not exceed reasonable compensation for such Services as defined in
29 CFR (S) 2550.408c-2.
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Section 3.02. Customary Billing. The costs of Services determined by the
-----------------
Customary Billing method shall be comparable to the costs for comparable
services charged from time to time to other businesses and Subsidiaries operated
by an ASI Entity.
Section 3.03. Pass-Through Billing. The costs of Services determined by the
--------------------
Pass-Through Billing method shall be equal to the third-party costs and expenses
incurred by any ASI Entity on behalf of any Logility Entity. If an ASI Entity
incurs costs or expenses on behalf of any Logility Entity as well as other
businesses operated by such ASI Entity, the ASI Entity will allocate any such
costs or expenses in good faith between the various businesses on behalf of
which such costs or expenses were incurred as such ASI Entity shall determine in
the exercise of its reasonable judgment. ASI shall apply usual and customary
accounting conventions in making such allocations, and ASI or its agents shall
keep and maintain such books and records as may be reasonably necessary to make
such allocations. ASI shall make copies of such books and records available to
Logility upon request and with reasonable notice.
Section 3.04. Cost Plus Billing. The costs of Services determined by the Cost
-----------------
Plus Billing method, as set forth on Schedule II, shall be equal to the costs
and expenses incurred by any ASI Entity on behalf of any Logility Entity, plus a
fixed percentage of such costs and expenses to be negotiated by the parties in
good faith. If an ASI Entity incurs costs or expenses on behalf of any Logility
Entity as well as other businesses operated by such ASI Entity, the ASI Entity
will allocate any such costs or expenses in good faith between the various
businesses on behalf of which such costs or expenses were incurred as the ASI
Entity shall determine in the exercise of its reasonable judgment. ASI shall
apply usual and customary accounting conventions in making such allocations, and
ASI or its agents shall keep and maintain such books and records as may be
reasonably necessary to make such allocations. ASI shall make copies of such
books and records available to Logility upon request and with reasonable notice.
Section 3.05. Benefit Billing.
---------------
(a) Prior to the Closing Date, certain employees of Logility participated
in certain benefit plans sponsored by ASI. On and after the Closing Date,
Logility employees shall continue to be eligible to participate in certain ASI
Plans, as specified by ASI prior to the Closing Date ("ASI Plans"), subject to
the terms of the governing plan documents as interpreted by the appropriate plan
fiduciaries. On and after the Closing Date, subject to regulatory requirements
and the provisions of Section 4.01 hereof, ASI will continue to provide Benefits
Services to and in respect of Logility employees with reference to such ASI
Plans as it administered them prior to the Closing Date.
(b) The costs payable by Logility for Services relating to employee plans
and benefit arrangements ("Benefits Services") may be charged on the basis of
Customary Billing, Pass-Through Billing, or Benefit Billing. In addition, the
costs associated with certain plans and programs identified in Schedule III will
be paid principally through employee payroll deductions for such plans and
programs. Benefit Services consist of those categories of Services which are
more fully described on Schedule III attached hereto.
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(c) Each party to this Agreement may request changes in the applicable
terms of, or services relating to, ASI Plans. approval of which shall not be
unreasonably withheld; provided, however, that approval of changes in the terms
of any ASI Plans shall be in the sole discretion of ASI.
(d) ASI and Logility agree to cooperate fully with each other in the
administration and coordination of regulatory and administrative requirements
associated with ASI Plans. Such coordination, upon request, will include,
without limitation, the following: sharing payroll data for determination of
highly compensated employees, providing census information (including accrued
benefits) for purposes of running discrimination tests, providing actuarial
reports for purposes of determining the funded status of any plan, review and
coordination of insurance and other independent third party contracts, and
providing for review of all summary plan descriptions, requests for
determination letters, insurance contracts, Forms 5500, financial statement
disclosures and plan documents.
Section 3.06. Invoicing and Settlement of Costs.
---------------------------------
(a) ASI will invoice Logility for the Service Costs on a monthly basis, in
arrears, either directly or through an intracompany billing system, in a manner
substantially consistent with the billing practices used in connection with
services provided to the Logility Entities prior to the Closing Date (except as
otherwise agreed). In connection with the invoicing described in this Section
3.06(a), ASI will provide to Logility the same billing data and level of detail
as it customarily provides to other businesses and Subsidiaries operated by ASI
and such other data as may be reasonably requested by Logility.
(b) Logility agrees to pay within thirty (30) days after each date on which
ASI invoices Logility for the Service Costs (each, a "Payment Date"), at ASI's
option upon reasonable notice to Logility, through ASI's intracompany billing
system, cash management systems, or, if requested by ASI, by wire transfer of
immediately available funds payable to the order of ASI, and in any event
without set off, defense, or demand, all amounts invoiced by ASI pursuant to
paragraph (a) above during the preceding calendar month (or since the Closing
Date. in the case of the first Payment Date). If Logility fails to pay any
monthly payment within thirty (30) days of the relevant Payment Date, Logility
shall be obligated to pay, in addition to the amount due on such Payment Date,
simple interest on such amount at a rate of one percent (1%) per month.
(c) Except as otherwise provided in the Schedules or agreed in writing by
the parties, Logility shall take such action as is necessary to establish bank
accounts (to be funded by Logility) or to otherwise fund all wage and salary
payments to Logility employees and to fund all medical, retirement, and other
benefit claims payable to or on behalf of Logility employees and their
dependents to the extent not covered by third party insurance. Payroll services
and benefit claims processing activities performed by ASI or ASI's
subcontractors shall be coordinated to facilitate payments. Following prior
written notice of not less than fifteen (15) business days, ASI shall be
relieved of any obligation to deliver benefit and payroll services under this
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Agreement to the extent that such bank accounts or other funding arrangements
are not established at the time drafts are presented for payment, or at any time
when there are insufficient funds in the relevant account or such other
arrangements fail to satisfy a properly presented claim.
Section 3.07. Amended Schedules. ASI may, from time to time, prepare and
-----------------
deliver to Logility revised versions of any or all Schedules, setting forth with
respect to the Services described in such Schedules, any proposed changes in
billing methodology and, to the extent available, the Service Costs estimated to
be payable for such Services pursuant to such revised Schedules. Except as
otherwise provided in Article V, or as Logility and ASI may otherwise agree, and
except as specifically described in this Agreement (including the Schedules),
ASI may not change the method of allocating and charging the Service Cost of any
Service provided to Logility unless Logility is notified in writing not less
than ninety (90) days in advance of implementing such revised method.
ARTICLE IV
THE SERVICES
Section 4.01. Standard of Care. Except as otherwise agreed with Logility or as
----------------
described in this Agreement, and provided that ASI is not restricted by contract
with third parties or by applicable law, ASI agrees that the nature, quality,
and standard of care applicable to the delivery of the Services hereunder will
be substantially the same as that of the Services which ASI provides from time
to time throughout its businesses; provided that in no event shall such standard
of care be less than the standard of care that ASI has customarily provided to
Logility with respect to the relevant Service prior to the Closing Date. ASI
shall use its reasonable efforts to ensure that the nature and quality of
Services provided to Logility employees, either by ASI directly or through
administrators under contract, shall be undifferentiated as compared with the
same services provided to or on behalf of ASI employees under ASI Plans.
Section 4.02. Delegation. Subject to Section 4.01 above, Logility hereby
----------
delegates to ASI final, binding, and exclusive authority, responsibility, and
discretion to interpret and construe the provisions of employee welfare benefit
plans in which Logility has elected to participate and which are administered by
ASI under this Agreement (collectively, the "Employee Welfare Plans"). ASI may
further delegate such authority to plan administrators to:
(i)provide administrative and other services;
(ii)reach factually supported conclusions consistent with the terms of the
Employee Welfare Plans;
(iii)make a full and fair review of each claim, denial, and decision
related to the provision of benefits provided or arranged for under the Employee
Welfare Plans, pursuant to the requirements of ERISA, if within sixty (60) days
after receipt of the notice of denial, a claimant requests in writing a review
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for reconsideration of such decisions. The administrator shall notify the
claimant in writing of its decision on review. Such notice shall satisfy all
ERISA requirements relating thereto; and
(iv)notify the claimant in writing of its decision on review.
Section 4.03. Limitation of Liability. Logility agrees that none of the ASI
-----------------------
Entities and their respective directors, officers, agents, and employees (each,
an "ASI Indemnified Person") shall have any liability, whether direct or
indirect, in contract or tort or otherwise, to any Logility Entity for or in
connection with the Services rendered or to be rendered by any ASI Indemnified
Person pursuant to this Agreement, the transactions contemplated hereby, or any
ASI Indemnified Person's actions or inactions in connection with any such
Services or transactions, except for damages which have resulted from such ASI
Indemnified Person's gross negligence or willful misconduct in connection with
any such Services, actions, or inactions.
Section 4.04. Indemnification of ASI Indemnified Persons by Logility. Logility
------------------------------------------------------
agrees to indemnify and hold harmless each ASI Indemnified Person from and
against any damages, and to reimburse each ASI Indemnified Person for all
reasonable expenses as they are incurred in investigating, preparing, pursuing,
or defending any claim, action, proceeding, or investigation, whether or not in
connection with pending or threatened litigation and whether or not any ASI
Indemnified Person is a party (collectively, "Actions"), arising out of or in
connection with Services rendered or to be rendered by any ASI Indemnified
Person pursuant to this Agreement, the transactions contemplated hereby, or any
ASI Indemnified Person's actions or inactions in connection with any such
Services or transactions; provided that Logility will not be responsible for any
damages of any ASI Indemnified Person that have resulted from such ASI
Indemnified Person's gross negligence or willful misconduct in connection with
any of the Services, actions, or inactions referred to above.
Section 4.05. Indemnification of Logility Indemnified Persons by ASI. ASI
------------------------------------------------------
agrees to indemnify and hold harmless each Logility Entity and its respective
directors, officers, agents, and employees (each, a "Logility Indemnified
Person") from and against any damages, and will reimburse each Logility
Indemnified Person for all reasonable expenses as they are incurred in
investigating, preparing, pursuing, or defending any Action, arising out of the
gross negligence or willful misconduct of any ASI Indemnified Person in
connection with the Services rendered or to be rendered pursuant to this
Agreement.
Section 4.06. Further Indemnification. To the extent that any other Person has
-----------------------
agreed to indemnify any ASI Indemnified Person or to hold an ASI Indemnified
Person harmless and such Person provides services to ASI or any affiliate of ASI
relating directly or indirectly to any employee plan or benefit arrangement for
which Benefit Services are provided under this Agreement, ASI will exercise
reasonable efforts to (i) make such agreement applicable to any Logility
Indemnified Person so that each Logility Indemnified Person is held harmless or
indemnified to the same extent as any ASI Indemnified Person, or (ii) otherwise
make available to each Logility Indemnified Person the benefits of such
agreement.
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Section 4.07. Reports. ASI shall provide or shall cause to be provided to
-------
Logility with data or reports requested by Logility relating to (i) benefits
paid to or on behalf of Logility employees under ASI Plans, including but not
limited to financial statements, claims history, and census information, and
(ii) other information relating to the Services that is required to satisfy any
reporting or disclosure requirement of ERISA or the Code. ASI will provide such
information within a reasonable period of time after it is requested. The costs
for reports which are substantially similar to reports prepared by ASI or on
behalf of ASI generally for its businesses shall be billed as part of the
Benefit Costs. The cost for additional reports shall be billed as incremental
costs in accordance with Section 3.06.
ARTICLE V
ADDITIONAL AGREEMENT
Section 5.01. Notice. Unless otherwise agreed in writing by the parties,
------
Logility agrees to provide ASI with at least sixty (60) days prior written
notice of any material change in the eligible Logility employees and retirees
covered by ASI Plans, and any change in the scope of Services to be provided by
ASI with respect thereto. Notwithstanding the preceding sentence, if Logility
provides ASI with less than sixty (60) days notice of any such change and ASI is
nonetheless able, with reasonable efforts, to effectuate such change with such
shorter notice, than ASI shall implement the requested change.
ARTICLE VI
TERM AND TERMINATION
Section 6.01. Term. Except as otherwise provided in this Article VI or in
----
Section 7.05, or as otherwise agreed in writing by the parties, this Agreement
shall have an initial term of three years from the Closing Date, and will be
renewed automatically thereafter for successive one-year terms unless either
Logility or ASI elects not to renew this Agreement upon not less than one
hundred and eighty (180) days' written notice.
Section 6.02. Termination.
-----------
(a) Logility may from time to time terminate this Agreement with respect to
one or more of the Services upon giving at least sixty (60) days' prior notice
to ASI.
(b) ASI may from time to time terminate this Agreement with respect to one
or more of the Services upon giving at least one hundred twenty (120) days'
prior notice to Logility.
(c) This Agreement will be subject to termination by either Logility or ASI
upon ninety (90) days' written notice if ASI ceases to own shares of Common
Stock representing more than fifty (50%) of the voting power of the Common Stock
of Logility.
(d) Notwithstanding anything to the contrary in this Section 6.02, ASI may,
at its option, immediately terminate this Agreement as it relates to any given
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Service if ASI would otherwise not be required to provide such Service with
respect to any employee benefit plan or program that is substantially similar to
a corresponding plan or program of ASI (as such plans and programs of ASI exist
from time to time) or if the method of delivering such Service would no longer
be substantially similar to the manner in which such Service was delivered to
the Logility Entities, as such delivery may change from time to time. ASI shall
give Logility as much advance notice as is reasonably possible in connection
with any planned early termination of a Service with respect to any employee
benefit plan or program.
(e) Notwithstanding anything to the contrary in this Schedule 6.02, ASI may
terminate any affected Service at any time if Logility shall have failed to
perform any of its material obligations under this Agreement relating to any
such Service, ASI has notified Logility in writing of such failure, and such
failure shall have continued for a period of sixty (60) days after receipt of
Logility of notice of such failure.
(f) Notwithstanding anything to the contrary in this Section 6.02, Logility
may terminate any affected Service at any time if ASI shall have failed to
perform any of its material obligations under this Agreement relating to any
such Service, Logility has notified ASI in writing of such failure, and such
failure shall have continued for a period of sixty (60) days after receipt by
ASI of notice of such failure.
(g) Notwithstanding anything to the contrary in this Section 6.02, either
ASI or Logility may terminate coverage of Logility under ASI's umbrella
liability, property, casualty or fiduciary insurance policies (as more fully
described in Schedule I) at any time on ninety (90) days written notice prior to
the anniversary day of the policy; provided that a replacement policy,
acceptable to ASI, is entered into by Logility.
Section 6.03. Effect of Termination.
---------------------
(a) Other than as required by law, upon termination of any Service pursuant
to Section 6.02, and upon expiration of the term of this Agreement, without
renewal, in accordance with Section 6.01, ASI will have no further obligation to
provide the terminated Service (or any Service, in the case of termination of
this Agreement), and Logility will have no obligation to pay any fees relating
to such Services or make any other payments hereunder; provided that
notwithstanding such termination, (i) Logility shall remain liable to ASI for
fees owed and payable in respect of Services provided prior to the effective
date of the termination; (ii) ASI shall continue to charge Logility for
administrative and program costs relating to benefits paid after but incurred
prior to the termination of any Service and other services required to be
provided after the termination of such Service and Logility shall be obligated
to pay such expenses in accordance with the terms of this Agreement, and (iii)
the provisions of Articles IV, V, VI and VII shall survive any such termination.
All program and administrative costs attributable to Logility employees for ASI
Plans that relate to any period after the effective date of any such termination
shall be for the account of Logility.
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(b) Following termination of this Agreement with respect to any Service,
ASI and Logility agree to cooperate in providing for an orderly transition of
such Service to Logility or to a successor service provider. Without limiting
the foregoing, ASI agrees to (i) provide, within ninety (90) days of the
termination, copies in a format designated by ASI of all records relating
directly or indirectly to benefit determinations of Logility employees,
including but not limited to compensation and service records, correspondence,
plan interpretive policies, plan procedures, administration guidelines, minutes,
or any data or records required to be maintained by law, and (ii) work with
Logility in developing a transition schedule.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Other Agreements. In addition to the services described herein,
----------------
ASI is providing Logility with certain additional services pursuant to a
Facilities Agreement and a Tax Sharing Agreement.
Section 7.02. Future Litigation and Other Proceedings. In the event that a
---------------------------------------
Logility Entity (or any of its officers or directors) or an ASI Entity (or any
of its officers or directors) at any time after the date hereof initiates or
becomes subject to any litigation or other proceedings before any governmental
authority or arbitration panel with respect to which the parties have no prior
agreements (as to indemnification or otherwise), the party (and its officers and
directors) that has not initiated and is not subject to such litigation or other
proceedings shall comply, at the other party's expense, with any reasonable
requests by the other party for assistance in connection with such litigation or
other proceedings (including by way of provision of information and making
available of employees as witnesses). In the event that a Logility Entity (or
any of its officers or directors) and an ASI Entity (or any of its officers and
directors) at any time after the date hereof initiate or become subject to any
litigation or other proceedings before any governmental authority or arbitration
panel with respect to which the parties have no prior agreements (as to
indemnification or otherwise), each party (and its officers and directors)
shall, at its own expense, coordinate its strategies and actions with respect to
such litigation or other proceedings to the extent such coordination would not
be detrimental to its respective interests and shall comply, at the expense of
the requesting party, with any reasonable requests of the other party for
assistance in connection therewith (including by way of provision of information
and making available of employees as witnesses).
Section 7.03. No Agency. Nothing in this Agreement shall constitute or be
---------
deemed to constitute a partnership or joint venture between the parties hereto
or, except to the extent provided in Section 4.02, constitute or be deemed to
constitute any party as the agent or employee of the other party for any purpose
whatsoever and neither party shall have authority or power to bind the other or
to contract in the name of, or create a liability against, the other in any way
or for any purpose.
Section 7.04. Subcontractors. ASI may hire or engage one or more
--------------
subcontractors to perform all or any of its obligations under this Agreement,
11
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provided that, subject to Section 4.03, ASI will in all cases remain primarily
responsible for all obligations undertaken by it in this Agreement with respect
to the scope, quality and nature of the Services provided to Logility.
Section 7.05. Force Majeure.
-------------
(a) For purposes of this Section, "force majeure" means an event beyond the
control of either party, which by its nature could not have been foreseen by
such party, or, if it could have been foreseen, was unavoidable, and includes
without limitation, acts of God, storms, floods, riots, fires, sabotage, civil
commotion or civil unrest, interference by civil or military authorities, acts
of war (declared or undeclared) and failure of energy sources.
(b) Neither party shall be under any liability for failure to fulfill any
obligation under this Agreement, so long as and to the extent to which the
fulfillment of such obligation is prevented, frustrated, hindered, or delayed as
a consequence of circumstances of force majeure, provided always that such party
shall have exercised all due diligence to minimize to the greatest extent
possible the effect of force majeure on its obligations hereunder.
(c) Promptly on becoming aware of force majeure causing a delay in
performance or preventing performance of any obligations imposed by this
Agreement (and termination of such delay), the party affected shall give written
notice to the other party giving details of the same, including particulars of
the actual and, if applicable, any estimated continuing effects of such force
majeure on the obligations of the party whose performance is prevented or
delayed. If such notice shall have been duly given, and actual delay resulting
from such force majeure shall be deemed not to be a breach of this Agreement,
and the period for performance of the obligation to which it relates shall be
extended accordingly, provided that if force majeure results in the performance
of a party being delayed by more than sixty (60) days, the other party shall
have the right to terminate this Agreement with respect to any Service effected
by such delay forthwith by written notice.
Section 7.06. Entire Agreement. This Agreement (including the Schedules
----------------
constituting a part of this Agreement) and any other writing signed by the
parties that specifically references this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 7.07. Information. Subject to applicable law and privileges, each
-----------
party hereto covenants and agrees to provide the other party with all
information regarding itself and transactions under this Agreement that the
other party reasonably believes are required to comply with all applicable
federal, state, county and local laws, ordinances, regulations and codes,
including, but not limited to, securities laws and regulations.
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Section 7.08. Confidential Information. Logility and ASI hereby covenant and
------------------------
agree to hold in trust and confidence all Confidential Information relating to
the other party. "Confidential Information" shall mean all information disclosed
or obtained by either party to the other as a result of the relationship between
the parties existing by virtue of this or any other agreement of the parties,
whether orally, visually, in writing or in any other tangible form, and
includes, but is not limited to, economic and business data, business plans, and
the like, but shall not include (i) information which becomes generally
available other than by release in violation of the provisions of this Section
7.08, (ii) information which becomes available on a nonconfidential basis to a
party from a source other than the other party to this Agreement provided the
party in question reasonably believes that such source is not or was not bound
to hold such information confidential, (iii) information acquired or developed
independently by a party without violating this Section 7.08 or any other
confidentiality agreement with the other party and (iv) information that any
party hereto reasonably believes it is required to disclose by law, provided
that it first notifies the other party hereto of such requirement and allows
such party a reasonable opportunity to seek a protective order or other
appropriate remedy to prevent such disclosure. Without prejudice to the rights
and remedies of either party to this Agreement, a party disclosing any
Confidential Information to the other party in accordance with the provisions of
this Agreement shall be entitled to equitable relief by way of an injunction if
the other party hereto breaches or threatens to breach any provision of this
Section 7.08.
Section 7.09. Notices. Any notice, instruction, direction or demand under the
-------
terms of this Agreement required to be in writing will be duly given upon
delivery, if delivered by hand, facsimile transmission, intercompany mail, or
mail, to the following addresses:
(a) If to Logility, to:
Logility, Inc.
470 East Paces Ferry Road
Atlanta, Georgia 30305
Attention: Chief Financial Officer
Fax: 404/264-5394
(b) If to ASI, to:
American Software, Inc.
470 East Paces Ferry Road
Atlanta, Georgia 30305
Attention: Controller
Fax: 404/264-5813
or to such other addresses or facsimile numbers as may be specified by like
notice to the other parties.
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Section 7.10. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of Georgia.
Section 7.11. Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if
not containing the particular invalid or unenforceable provision, and the rights
and obligations of each party shall be construed and unforced accordingly.
Section 7.12. Amendment. This Agreement may only be amended by a written
---------
agreement executed by both parties hereto.
Section 7.13. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one agreement.
Section 7.14. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. The foregoing notwithstanding, and except as provided in
Section 7.04, neither party may assign its rights or obligations under this
Agreement without the prior written consent of the other party.
Section 7.15. Dispute Resolution. In the event that any dispute arises between
------------------
Logility and ASI in connection with this Agreement, the representatives of each
party responsible for the subject matter of such dispute shall use good faith
efforts to resolve such dispute promptly. In the event that such dispute cannot
be resolved by the parties' representatives, the matter shall be submitted to
the parties' respective Chief Executive Officers ("CEOs") for resolution. In the
event that the CEOs cannot reach resolution of the issue (an "Unresolved
Dispute"), then the Unresolved Dispute shall be settled at the election of
either party, by final and binding independent arbitration. All arbitrations
pursuant to this Agreement shall be conducted before the American Arbitration
Association ("AAA") in Atlanta, Georgia, U.S.A., and shall be carried out in
accordance with the Commercial Arbitration Rules of the AAA then in effect (the
"Rules") and the provisions of this Agreement. Logility and ASI shall each
select one arbitrator and a third arbitrator will be selected unanimously by the
arbitrators selected by Logility and ASI. If the two arbitrators selected by
Logility and ASI are unable to select the third arbitrator within ten (10) days
of the appointment of the two arbitrators, the parties consent to the selection
of the third arbitrator by the AAA administrator. The award of the arbitrators
may be enforced by any court having jurisdiction over the parties.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their duly authorized representatives as of the date and year first above
written.
AMERICAN SOFTWARE, INC.
BY: /s/ James C. Edenfield
----------------------------------------
NAME: JAMES C. EDENFIELD
TITLE: PRESIDENT
LOGILITY, INC.
BY: /s/ J. Michael Edenfield
----------------------------------------
NAME: J. MICHAEL EDENFIELD
TITLE: PRESIDENT
15
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Services Agreement - Schedule I
General Corporate Services
SERVICE
PART I -- CORPORATE AND SHARED SERVICES.
A. The "Customary Billing" methodology, based on ASI's internal apportionment
formulas, shall be used for each of the following services:
- Travel administration;
- Property administration;
- Office of the Chief Information Officer;
- Transaction processing and accounting;
- Money and banking and other treasury services;
- Corporate Controller's Headquarters (financial planning and analysis);
- Human resource services--baseline, corporate, shared, and transition
services;
- Company-wide and executive training, development, and administration;
- Corporate general and administrative purchasing and "core group"
purchasing;
- Environmental health and safety;
- Trade (import/export and shipping services);
- Corporate security;
- Credit and collection; and
- Insurance Policies (including liability, property, and casualty).
A. The "Pass-Through" methodology, based on ASI's internal apportionment
formulas, shall be used for each of the following services, unless and until
such third-party costs may be billed directly to Logility:
- Tax return preparation
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PART II -- COMPUTING AND COMMUNICATIONS SERVICES. The Customary Billing
methodology, based on actual usage, shall be used for each of the following
services:
- Global data processing;
- Voice/data transmission services;
- Timesharing (computer resources);
- Personal computer and work station (maintenance and repair services);
- Contract administration; and
- Global telecommunications and network services.
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Services Agreement - Schedule II
Professional Services
Professional services to be provided under this Agreement shall include any
professional or other commercial services that ASI provides from time to time to
third parties on a fee basis, in each case as requested by Logility to be
provided by ASI, unless ASI determines in its reasonable discretion that the
provision of such requested services would not be economic or would be otherwise
unfeasible. All such services shall be provided in accordance with the Cost
Plus Billing method, with the percentage of costs and expenses to be negotiated
by the parties in good faith.
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Services Agreement - Schedule III
Benefits Services
SERVICE BILLING
METHODOLOGY
The Customary Billing methodology, based on
apportioned customary ASI "Fringe Rate"
allocations, (except as noted) shall be used for
each of the following services:
MEDICAL/DENTAL PROGRAMS
Benefits/Claims
- Claims costs for Logility Employees Customary Billing
participating in ASI Plans and programs
Administration
- Administration of Logility plans and programs: Customary Billing
- maintenance of eligibility files upon Logility's
notification of status changes
- claim adjudication under the terms of applicable plans
- maintenance of toll-free telephone lines for inquiries, etc.
- support services (internal and external, including COBRA)
Participant Contributions
- Participant contributions for deductions above Payroll Deduction
plans or direct bill to employees/retirees
OTHER BENEFIT PLANS
Life Insurance (including Accidental Customary Billing
Death and Dismemberment)
Savings/Retirement Plans
- Company match/retirement contribution Customary Billing
- Participant Contributions Payroll Deduction
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Long-Term Disability Plans
- Employer contributions Customary Billing
- Employee contributions Payroll Deduction
Other Benefit Support Services
- Audit, legal, actuarial fees and related Customary Billing
recoveries
- Payroll support of benefits administration Customary Billing
(insurance. savings, other benefit plans
and statutory requirements)
Payroll Services Customary Billing
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EXHIBIT 10.11
FACILITIES AGREEMENT
THIS FACILITIES AGREEMENT (this "Agreement"), dated as of the 1st day of
August, 1997 (the "Effective Date"), is made and entered into by and between
AMERICAN SOFTWARE, INC., a Georgia corporation ("ASI"), and LOGILITY, INC., a
Georgia corporation ("Logility"). The terms "Logility" and "ASI" shall include
any subsidiary of Logility and ASI, respectively.
W I T N E S S E T H :
WHEREAS, ASI and Logility have entered into that certain Subsidiary
Formation Agreement, dated of even date herewith, pursuant to which ASI has
agreed to sell to Logility, and Logility has agreed to purchase from ASI,
certain tangible and intangible property and assets of ASI relating to the
business and operations of the Supply Chain Planning products division of ASI;
WHEREAS, ASI desires to provide to Logility, and Logility desires to
accept, the right to use, in some cases in common with ASI, certain office
facilities owned or leased, as applicable, by ASI as identified on Schedule I
hereto (the "Facilities", and together with the non-exclusive right to use
walkways, parking areas, and other common areas appurtenant to the Facilities,
the "Premises") on the terms and conditions set forth in this Agreement; and
WHEREAS, the parties understand that certain of the Facilities are
currently, and will continue to be, occupied and used by ASI for the conduct of
ASI's business and that the joint use of the Facilities as contemplated by this
Agreement will require mutual cooperation and accommodation by ASI and Logility.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein contained, the sufficiency of which is hereby acknowledged,
ASI and Logility agree as follows:
1. Premises and Term.
-----------------
1.1. Subject to all of the terms and conditions hereof, ASI hereby
provides to Logility, and Logility hereby accepts from ASI, (i) the exclusive
right to use each of the Premises identified in Schedule I as exclusive to
Logility, and (ii) the non-exclusive right to use in common with ASI each of the
Premises identified in Schedule I as non-exclusive. In addition to the Premises
identified in Schedule I, ASI may from time to time, provide Logility the right
to use additional office facilities; provided, that the use of such facilities,
as well as the other terms and conditions applicable to Logility's use thereof,
shall be as mutually agreed in writing by ASI and Logility. Upon such
agreement, all such office facilities shall be included in the term "Premises"
for purposes of this Agreement.
<PAGE>
1.2. The term of this Agreement (the "Initial Term") shall be for a period
of two years commencing on the Effective Date, and ending on midnight of the
date immediately preceding the second anniversary of the Effective Date (the
"Expiration Date"), unless sooner terminated as hereinafter provided; provided,
however, notwithstanding anything to the contrary in this Section 1, this
Agreement may be terminated prior to the Expiration Date, as may be hereinafter
extended, in accordance with Section 8 below.
1.3. Unless this Agreement has been sooner terminated pursuant to Section
8 below, and provided Logility is not then in default under the terms of this
Agreement, the Initial Term shall be automatically extended for additional
successive period(s) of one year each (each such period, a "Renewal Term" and,
together with the Initial Term, the "Term"), beginning on the date immediately
following the Expiration Date of the Initial Term or Renewal Term then in
effect, upon the same terms, conditions, covenants and provisions as are
provided in this Agreement.
2. Right to Use the Premises.
-------------------------
2.1. As of the Effective Date, Logility's right to use the Premises shall
constitute:
(i) with regard to those Premises identified in Schedule I as exclusive to
Logility, an exclusive right to use each entire Premises as it may exist from
time to time; and
(ii) with regard to those Premises identified in Schedule I as non-exclusive, a
non-exclusive right to use, in common with ASI, each entire Premises as it may
exist from time to time, other those areas identified from time to time by
agreement of ASI and Logility to be restricted for the exclusive use of one of
the parties hereto. The foregoing notwithstanding, upon request by either
party, ASI and Logility shall negotiate in good faith a reconfiguration of any
given Premises in order to restrict access to portions of such Premises for
either party's exclusive use, including, without limitation, building partitions
and establishing separate access, in accordance with Section 4 below. If the
parties are unable to agree upon a mutually satisfactory reconfiguration of a
given Premises, then Logility shall promptly vacate such Premises, and Schedule
I hereto shall be amended to delete the affected Premises from the terms of this
Agreement.
2.2. Notwithstanding anything to the contrary contained this Agreement,
ASI shall in any event be entitled to enter upon any part of any Premises
(including, without limitation, Premises identified as exclusive to Logility or
areas in non-exclusive Premises restricted for the exclusive use of Logility
pursuant to Section 2.1(ii)), at any time and from time to time, without the
prior consent of Logility, (i) as necessary or appropriate for the performance
of ASI's obligations under this Agreement or any underlying lease, (ii) for
purposes of inspecting the Premises for compliance with Logility's obligations
under this Agreement, (iii) to show any Premises to a prospective purchaser or
mortgagor, (iv) to make alterations, additions, repairs, or improvements to any
Premises pursuant to Section 4.3, or (v) in case of an emergency.
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3. Payment for Premises.
--------------------
3.1. Logility shall make monthly payments to ASI for each Premises as
follows:
(i) with regard to the office facilities utilized exclusively by Logility
(each, an "Atlanta Premises") in the buildings identified in Schedule II hereto
(each, an "Atlanta Facility"), Logility shall pay to ASI (I) base rent based on
an annual rate of $17.00 per rentable square foot of each Atlanta Premises, plus
(II) Logility's Percentage Share of the increase in Operating Costs with respect
to each Atlanta Facility in which an Atlanta Premises is located during each
fiscal year of ASI throughout the Term above the Operating Costs with respect to
such Atlanta Facility during the 1997 fiscal year of ASI; and
(ii) with regard to each Premises other than the Atlanta Premises, Logility
shall pay to ASI an amount equal to Logility's Percentage Share of the Operating
Costs with respect to the Facility at which such Premises is located during each
fiscal year of ASI throughout the Term. In the event additional Premises are
provided by ASI to Logility pursuant to Section 1.1, then, except as provided in
item (i) above or unless otherwise expressly agreed by the parties, Logility's
monthly payments to ASI for such occupancy shall be determined in accordance
with this item (ii).
3.2 Payments to be made to ASI under Section 3.1 shall be made, in
arrears, and without offset, demand, or defense, on or before the fifth (5th)
day of each month throughout the Term with respect to each Premises, and each
such payment shall be delivered to the location designated by ASI from time to
time for each Premises (or if no location is so designated, to the address for
notices in this Agreement) and in the local currency of the country in which
such Premises is located. In the event any payment due to ASI under this
Agreement is not received by ASI within five (5) days of the date when due,
Logility shall make an additional payment to ASI equal to five percent (5%) of
said overdue payment at the time of and in addition to the payment as a late
payment charge. If the first or last month of the Term is a partial month, the
monthly charge shall be prorated based upon the actual number of days in such
partial month.
3.3 For purposes of this Section 3, the following terms shall have the
meanings herein specified:
(i) "Operating Costs" means any and all costs, expenses, and disbursements of
every kind and character which ASI shall incur, pay, or become obligated to pay
in connection with the ownership (or lease, as appropriate), management,
operation, maintenance, or occupancy of a Facility (including, but not limited
to, depreciation of such Facility if such Facility is owned by ASI), the intent
being that this Agreement shall create a "net, net, net" lease for each
Premises.
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(ii) "Logility's Percentage Share" means:
(A) with regard to each Atlanta Premises, the quotient (expressed as a
percentage) obtained by dividing the rentable square feet of such Atlanta
Premises by the rentable square feet of the Atlanta Facility in which such
Atlanta Premises is located, and multiplying such quotient by 100. In the
event, Logility's Percentage Share is changed during a fiscal year of ASI by
reason of a change in the rentable square feet of an Atlanta Premises (by
agreement of ASI and Logility) or the rentable square feet of an Atlanta
Facility, Logility's Percentage Share shall thereafter mean the result obtained
by using the revised net rentable square feet in the foregoing formula, and
Logility's Percentage Share shall be determined on the basis of the number of
days during such fiscal year at each percentage share and shall take effect
immediately upon written notice thereof from ASI to Logility; and
(B) with regard to each Premises other than an Atlanta Premises, the
quotient (expressed as a percentage) obtained by dividing the number of Logility
employees based at such Premises by the sum of all ASI employees and Logility
employees based at such Premises. In the event, Logility's Percentage Share is
changed during a fiscal year of ASI by reason of a change in the number of
Logility employees based at a Premises or a change in the number of ASI
employees based at such Premises (in each event determined as of the last day of
each fiscal quarter of ASI throughout the Term), Logility's Percentage Share
shall thereafter mean the result obtained by using the revised net number of
Logility employees based at such Premises in the foregoing formula, and
Logility's Percentage Share shall be determined on the basis of the number of
days during such fiscal year at each percentage share and shall take effect
immediately upon written notice thereof from ASI to Logility.
4. Use.
---
4.1. Logility specifically agrees that its right to use each of the
Premises is limited to each of the Premises in its existing condition "as-is"
and "where-is" and acknowledges that, in entering into this Agreement, Logility
does not rely on, and ASI does not make, any express or implied representations
or warranties as to any matters including, without limitation, any
characteristics of any of the Premises, the suitability of any of the Premises
for Logility's intended use, or the compliance or noncompliance of the Premises
or any use thereof with any Applicable Laws or underlying leases. As used in
this Agreement, the term "Applicable Laws" means all applicable laws, codes,
ordinances, rules, and regulations of all foreign, federal, state, county,
municipal, or other governmental authorities or instrumentalities. Logility has
inspected each Premises and has found it to be in satisfactory condition.
4.2. Logility shall not make any alterations or improvements to any of the
Premises whatsoever, including without limitation, placing any sign or
identification of any kind whatsoever in or on any of the Premises, without the
prior written consent of ASI, which consent shall not be unreasonably withheld;
provided, however, ASI may withhold its consent in its sole discretion to any
4
<PAGE>
alteration or improvement which is structural in nature or inconsistent with the
existing interior decor of a Premises. Failure of ASI's landlord to consent to
or approve an alteration or improvement, where required by an underlying lease,
shall be reasonable grounds for ASI to withhold consent under this Section.
4.3. ASI reserves the right, at any time, and from time to time, to make
alterations or improvements to, or to decrease the size or area of all or any
part of, any Premises identified in Schedule I as non-exclusive, provided that
any such alteration or improvement shall not materially and adversely affect
Logility's use of such Premises and provided any alteration or improvement to
any Premises which would materially affect Logility's use of such Premises shall
not be made without reasonable notice to Logility.
4.4. Logility shall use each of the Premises only for general office and
related incidental purposes for which it has historically been used by the
Logility division of ASI and for no other use or purpose whatsoever. In no
event shall Logility use or permit the use of any of the Premises for any
purpose or use that is (i) inconsistent with or interferes in any way with the
conduct of other business operations in any of the Premises, or (ii) in
violation of any provision of an underlying lease.
4.5. Logility shall be responsible for and shall supervise and control
all of its officers, agents, employees, licensees, contractors, customers, and
other invitees (collectively, "Personnel") so as to assure compliance with all
of the terms and conditions of this Agreement. Logility shall comply with all
present and future security measures implemented by ASI (or the Landlord of any
Premises leased by ASI) in each of the Premises, including, without limitation,
prohibitions on access to certain areas in Premises to competitors of ASI.
Without limitation of the foregoing, Logility shall ensure that (i) no Personnel
enter areas within any Premises restricted for the exclusive use by ASI, except
with prior written consent from an authorized representative of ASI, (ii) all
Personnel comply with all Applicable Laws and each underlying lease, and (iii)
no Personnel conduct any illegal activities or activities resulting in any
nuisance or which may constitute harassment of any kind. All Personnel shall be
clearly identified as affiliated with Logility and, if requested, Logility shall
require each person to comply with any applicable dress code and wear
appropriate name badges or other easily visible identification approved by ASI
at all times while on any of the Premises.
5. Maintenance; Compliance with Laws, Rules and Regulations; Hazardous
-------------------------------------------------------------------
Materials.
- ---------
5.1. Logility shall not permit or suffer any material injury, waste, or
nuisance in or to any of the Premises, and Logility shall be responsible for
maintaining in a clean, safe, and sanitary condition each of the Premises
identified in Schedule I as exclusive to Logility. Logility shall not make any
repairs to any of the Premises, without the prior written consent of ASI, which
consent may be withheld in ASI's sole discretion. If ASI determines that it is
necessary to repair any damage attributable to Logility or its Personnel,
Logility shall reimburse ASI for the cost of all such repairs within thirty (30)
days of receipt by Logility of an invoice therefor from ASI.
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<PAGE>
5.2. Logility, at Logility's sole cost and expense, shall comply in all
material respects with all Applicable Laws relating to Logility's use of each of
the Premises; provided that if structural or capital improvements are required
at any Premises in order to comply with any Applicable Law, either ASI or
Logility may terminate this Agreement with respect to any such Premises.
Notwithstanding the foregoing, Logility shall not make any physical change to
any Premises in order to comply with an Applicable Law without the prior written
consent of ASI, which consent may be withheld in ASI's sole discretion. If ASI
consents to any changes, at ASI's election (but not obligation), ASI may make
such changes, in which event Logility shall, within thirty (30) days of receipt
by Logility of an invoice therefor from ASI, reimburse ASI for all actual costs
and expenses incurred by ASI in making such changes. Failure of ASI's landlord
to consent to or approve any physical change to a Premises, where required by an
underlying lease, shall be reasonable grounds for ASI to withhold consent under
this Section.
5.3. Logility shall comply with the requirements of ASI's property,
liability, and workers compensation insurance carriers and all rules and
regulations of the Premises as are established from time to time by ASI (or
ASI's landlord if the Premises is leased by ASI), including, without limitation,
all security procedures and requirements for each Premises.
5.4. This Agreement is expressly subordinate to, and subject to the terms
of, any underlying lease for any of the Premises, and, accordingly, Logility
shall comply with all provisions of any underlying lease for any of the Premises
that are leased by ASI. Either party may request that the other party enter into
a specific sublease or similar arrangement with respect to any Premises and,
subject to the consent of the primary landlord for any leased Premises, the
parties shall negotiate in good faith such a sublease or other arrangement on
terms customary for the location of the Premises and consistent with the terms
of this Agreement. At the request of ASI, Logility shall use diligent efforts
to satisfy the requirements of any underlying lease with respect to Logility's
use of any Premises, including, but not limited to, executing and delivering
such documents and taking such other actions as reasonably may be required by
the landlord under the terms of any underlying lease (including terminating this
Agreement with respect to the Premises and vacating the Premises, provided that
ASI and Logility will cooperate in good faith to vacate in a manner so as to
minimize any disruption of Logility's business and any cost to Logility) or to
prevent or cure a default under any underlying lease, as well as any other
actions reasonably requested by ASI with respect thereto. With respect to each
Premises which is subject to an underlying lease, this Agreement is expressly
made contingent upon consent by the landlord of such Premises, if required by
the terms of the underlying lease, to the use and occupancy by Logility of such
Premises in accordance with the terms of this Agreement; provided, however, that
a landlord's refusal to consent to this Agreement with regard to a particular
Premises shall in no event affect Logility's or ASI's obligations hereunder with
regard to any other Premises, although Schedule I hereto shall be amended to
delete the affected Premises from the terms of this Agreement.
5.5. Logility shall not cause or permit any Hazardous Material to be used,
stored, discharged, released, or disposed of in, from, under, or about any of
the Premises in violation of any Applicable Law. As used herein, the term
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"Hazardous Material" means any substance or material which has been determined
by any applicable foreign, federal, state, county, municipal, or other
governmental authority to be capable of posing a risk of injury to health or
safety or damage to the environment. Logility shall not undertake any hazardous
or other activity at any of the Premises which could result in an increase in
ASI's or any landlord's insurance premiums.
6. Insurance; Condemnation.
-----------------------
6.1. At all times during Logility's use of any of the Premises under this
Agreement, Logility shall procure at its cost and expense and keep in effect
comprehensive general liability insurance, including contractual liability with
a combined single limit of liability of not less than one million dollars
($1,000,000), or such greater amount as may be required under any underlying
lease, in accordance with the following requirements:
6.1.1. Such coverage shall be in a commercial or comprehensive general
liability form with at least the following coverages: (i) including employees as
additional insureds, and (ii) providing for blanket contractual coverage, broad
form property damage coverage and products and completed operations coverage.
Such coverage may be provided by a combination of primary and umbrella liability
coverage.
6.1.2. Such insurance shall be issued by financially reputable insurance
companies reasonably acceptable to ASI, shall name ASI and any landlord under
any underlying lease as additional insureds, shall include contractual liability
coverage insuring the liability assumed hereunder by Logility, shall provide
that it is primary insurance and not excess over or contributory with any other
valid, existing, and applicable insurance covering the same loss carried by ASI
or any other party, shall provide for severability of interests, shall further
provide that an act or omission of one of the named insureds which would void or
otherwise reduce coverage shall not reduce or void the coverage as to any
insured, shall afford coverage for all claims based on acts, omissions, injury,
or damage which occurred or arose (or the onset of which occurred or arose) in
whole or in part during the policy period, and shall provide that ASI and any
landlord under an underlying lease will receive at least thirty (30) days'
written notice from the insurer prior to any cancellation or change of coverage.
6.2. Logility shall maintain Workers Compensation Insurance in the amounts
and coverages required under workers compensation, disability, and similar
employee benefit laws applicable to the state or country where each of the
Premises is located and Employer's Liability Insurance, with limits customary to
the state or country where each of the Premises is located.
6.3. Logility shall maintain automobile liability insurance in the amounts
and coverages required by the state or country where each of the Premises is
located, with limits customary to the state or country where each of the
Premises is located, for bodily injury and property damage combined. Coverage
shall include owned (if any), leased (if any), and non-owned, hired automobiles.
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6.4. Logility shall bear all risk to its property at each of the Premises
and may maintain at its sole expense such fire and other property insurance on
the property of Logility in each Premises as it deems desirable for its
protection. If any of the Premises shall be damaged or destroyed by fire or any
other casualty howsoever caused or by any other cause whatsoever, Logility
agrees to give prompt notice thereof to ASI. ASI shall have no obligation to
Logility whatsoever to repair any damage done to any of the Premises or replace
any property of Logility located therein. If a casualty occurs such that the
underlying lease with respect to any Premises is terminated by ASI or the
landlord, or ASI otherwise elects to cease using any of the Premises as a result
of the casualty, the provisions of Section 8.1 below shall apply, and this
Agreement shall terminate with respect to such Premises. If a casualty occurs
such that Logility's use of a Premises is materially adversely affected and the
damage is not repaired within ninety (90) days, Logility shall have the right to
terminate this Agreement with respect to such Premises by written notice to ASI
within thirty (30) days thereafter. If a casualty occurs that results in a
permanent damage or destruction to the Premises which does not rise to the level
described in the preceding sentence, the amount payable by Logility under
Section 3 shall be proportionately reduced for that portion of the Premises
damaged or destroyed.
6.5. If all or any part of any of the Premises or any material portion of
any Premises shall be taken as a result of the exercise of the power of eminent
domain or any transfer in lieu thereof, this Agreement shall terminate as to the
property so taken as of the date of taking, and, in the case of a partial
taking, either ASI or Logility shall have the right to terminate this Agreement
with respect to such Premises by written notice to the other within thirty (30)
days after such date.
6.5.1. In the event of any taking, ASI (subject to the rights of the
landlord under any underlying lease) shall be entitled to any and all
compensation, damages, income, rent, awards, and interest whatsoever which may
be paid or made in connection therewith, and Logility shall have no claim
against ASI for the value of any unexpired term of this Agreement or otherwise;
provided that ASI shall have no claim to any portion of the award that is
specifically allocable to Logility's personal property, relocation expenses, or
the interruption of or damage to Logility's business.
6.5.2. In the event of a partial taking that does not result in a
termination of this Agreement, the amount payable by Logility under Section 3
shall be proportionately reduced for that portion of the Premises taken.
7. Utilities and Services. During the use by Logility of any Premises in
----------------------
accordance with this Agreement; (a) if ASI owns the Premises, subject to force
majeure (including any cause beyond ASI's commercially reasonable control), ASI
shall furnish to Logility such services and utilities as are furnished currently
at each such Premises, each in such amounts, on average, as have been
customarily furnished to equivalent space in the respective Premises; and (b) if
ASI leases the Premises, ASI shall use reasonable efforts to cause the landlord
of such leased Premises to furnish to or for the benefit of the Premises the
services and utilities that the landlord is obligated to provide under the
underlying lease, it being understood and agreed that under no circumstances
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shall ASI be required to make any improvements to the respective Premises or the
systems located therein or provide any greater services to the applicable
Premises than the greater of such services as (i) are currently furnished or
(ii) ASI reasonably determines from time to time to be necessary or appropriate
for the conduct of ASI's business in the respective Premises.
8. Termination.
-----------
8.1. Notwithstanding anything in this Agreement to the contrary, the Term
shall in any event terminate with respect to any given Premises (without
affecting the parties' rights and obligations with regard to any other Premises)
on the date of (i) the expiration or termination for any reason of the
underlying lease for such Premises, if such Premises is leased by ASI, or (ii)
the sale, abandonment, or vacation of any such Premises, if such Premises is
owned by ASI. ASI shall give Logility as much advance notice as is reasonably
practicable in connection with any planned early termination of the underlying
lease of any of the leased Premises or the sale, abandonment, or vacation by ASI
of any of the owned Premises. Logility agrees to take all reasonable actions to
accommodate ASI's real estate objectives, including, without limitation,
promptly vacating the Premises where ASI plans to terminate the underlying lease
or operations at a particular Premises. In the event of any such termination of
this Agreement by ASI with respect to any such Premises, (i) Logility's
obligations to make payments to ASI pursuant to Section 3 hereof with respect to
such Premises shall cease as of the effective date of termination, and (ii)
Schedule I hereto shall be amended to delete the affected Premises from the
terms of this Agreement.
8.2. Either party shall have the right to terminate this Agreement with
respect to any given Premises (without affecting the parties' rights and
obligations with regard to any other Premises) for any reason before the end of
the Term, such termination to be effective ninety (90) days after written notice
of termination from the terminating party to the other party. In the event of
any such termination of this Agreement by Logility with respect to any such
Premises, Logility's obligations to make payments to ASI pursuant to Section 3
hereof with respect to such Premises shall cease as the last day of the month in
which the effective date of termination shall occur. In the event of any such
termination of this Agreement by ASI with respect to any such Premises,
Logility's obligations to make payments to ASI pursuant to Section 3 hereof with
respect to such Premises shall cease as of the effective date of termination.
In either event, Schedule I hereto shall be amended to delete the affected
Premises from the terms of this Agreement.
8.3. This Agreement will be subject to early termination by either
Logility or ASI upon one hundred eighty (180) days written notice if ASI ceases
to own shares of Common Stock representing more than 50% of the combined voting
power of the capital stock of Logility.
8.4. If either Logility or ASI shall default in the performance or
observance of any material term, covenant, condition, or agreement contained in
this Agreement, and such condition continues for more than thirty (30) days
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after written notice thereof to the defaulting party (unless a shorter cure
period is provided elsewhere in this Agreement), the other party may terminate
this Agreement immediately upon notice to the defaulting party; provided,
however, if such default by its nature cannot be cured within thirty (30) days,
then the defaulting party shall have such greater period of time to cure such
default as is reasonably necessary, so long as the cure is commenced within the
thirty (30) day period and is thereafter diligently prosecuted to completion.
In no event, however, shall any cure period provided under this Section 8.4
exceed whatever cure period may exist under the underlying lease for ASI to
prevent or cure a default. Upon such termination, Logility shall immediately
vacate and surrender the affected Premises to ASI in accordance with Section
8.6. In addition to the rights of termination under this Section 8.4, ASI shall
be entitled to exercise all other rights and remedies under this Agreement and
under Applicable Laws (which shall he cumulative and not exclusive),
specifically including, without limitation, the right to summary dispossession
of Logility.
8.5. ASI shall be entitled to perform any obligation of Logility under
this Agreement, the performance of which is not commenced within five (5)
business days after notice from ASI or which obligation is not thereafter
diligently prosecuted to completion, and in such event Logility shall reimburse
ASI for all actual costs and expenses incurred by ASI in performing such
obligation.
8.6. Upon the expiration or termination of this Agreement for whatever
reason with respect to any of the Premises, Logility shall surrender to ASI the
applicable Premises, together with all keys for such Premises, in good order and
repair, reasonable wear and tear associated with normal office use excepted, in
broom-clean condition, free and clear of all occupancies, liens, and
encumbrances, and Logility shall remove all of its personal property therefrom.
8.6.1. Any items of Logility's personal property remaining on any Premises
after the expiration or sooner termination of this Agreement with respect to
such Premises, may, at the option of ASI, be deemed abandoned, and, in such
case, may either be retained by ASI as its property or disposed of, without
accountability, at Logility's expense in such manner as ASI may see fit.
8.6.2. Logility shall not hold over beyond the expiration or sooner
termination of this Agreement with respect to any Premises without the express
written consent of ASI.
8.7. The failure of either party hereto to insist on any one or more
circumstances upon the strict performance of any term, covenant, condition, or
agreement under this Agreement, or to exercise any right herein contained, shall
not be construed as a waiver or relinquishment in the future of such term,
covenant, condition, agreement, or right, but the same shall remain in full
force and effect unless the contrary is expressed in writing by the party
waiving or relinquishing same. No payment by Logility or acceptance by ASI of a
lesser amount than shall be due by Logility to ASI hereunder shall be deemed to
be anything but payment on account, and the acceptance by ASI of such lesser
amount, whether by check with an endorsement or statement thereon, or by an
accompanying letter stating that said lesser amount is payment in full, shall
not be deemed an accord and satisfaction, and ASI may accept such payments
10
<PAGE>
without prejudice to ASI's rights to recover the balance due or pursue any of
ASI's other remedies hereunder.
8.8 Logility's obligations under this Section 8 shall survive the
expiration or termination of this Agreement.
9. Release; Indemnity.
------------------
9.1. Logility acknowledges and agrees that, anything set forth in this
Agreement to the contrary notwithstanding, ASI shall not be responsible for or
liable to Logility, and Logility hereby waives and releases, to the fullest
extent permitted by Applicable Laws, all claims against ASI for any injury,
loss, or damage to any person or property in or about the Premises by or from
any cause whatsoever including, without limitation, acts or omissions of persons
using adjoining premises or any part of the Premises or areas in the vicinity of
the Premises; theft; burst, stopped, or leaking water, gas, sewer or steam
pipes; or interruption or failure of utility or other services for, or existence
of, gas, fire, oil, or electricity in, on or about the Premises. Further
notwithstanding anything to the contrary set forth in this Agreement, in no
event shall ASI be liable for any consequential damages, including without
limitation, lost profits, lost opportunity or interference with Logility's
business, arising out of a breach of this Agreement.
9.2. Logility agrees to indemnify, protect, and defend ASI against and
save and hold ASI harmless from, any and all losses, costs, liabilities, claims,
damages, and expenses, including, without limitation, reasonable attorneys' fees
and expenses, incurred in connection with any injury, loss, or damage to any
person or property arising from the use or occupancy or manner of use or
occupancy of any of the Premises by, or any breach of an underlying lease for
any leased Premises, arising out of the act or omission of, Logility or
Logility's Personnel. This Section 9.2 shall survive expiration or sooner
termination of this Agreement.
10. Miscellaneous.
-------------
10.1. For purposes of this Agreement, the term "subsidiary" means any
corporation, association, partnership, joint venture, or other business entity
of which more than 50% of the voting capital stock or other voting ownership
interests is owned or controlled directly or indirectly by Logility or ASI, as
the case may be, or by one or more of the subsidiaries of Logility or ASI, as
the case may be, or by a combination thereof. A subsidiary, when used with
respect to ASI or Logility, shall also include any other entity affiliated with
ASI or Logility, as the case may be, that ASI and Logility may hereafter agree
in writing shall be treated as a "subsidiary" for purposes of this Agreement.
10.2. This Agreement may not be amended except by an instrument in
writing, executed by ASI and Logility.
10.3. Logility's rights under this Agreement are personal to Logility, and
Logility shall not assign, sublet, or otherwise transfer any right or interest
11
<PAGE>
under this Agreement to any other party. Subject to the foregoing, this
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of, and be enforceable by, the parties hereto and their respective
heirs, administrators, executors, successors, and permitted assigns.
10.4. This Agreement constitutes the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, understandings or representations pertaining to
the subject matter hereof.
10.5. Whenever this Agreement requires or permits consent, notice, or
agreement by or on behalf of any party hereto, such consent, notice, or
agreement shall be given in writing. Any consent, notice, or agreement
hereunder by either party shall be given in writing and shall be sufficient in
all respects if (i) delivered personally, (ii) mailed by registered or certified
mail, return receipt requested and postage prepaid, (iii) sent via a nationally
recognized overnight courier service, or (iv) sent via facsimile confined in
writing to the recipient in each case to the other party at its address set
forth below or at such other address designated by notice in the manner provided
in this subparagraph. Such notice shall be deemed to have been received upon
the date of actual delivery if personally delivered or, in the case of mailing,
five (5) business days after deposit in the mail, or, in the case of overnight
courier, one business day after delivered to such courier, or, in the case of
facsimile transmission, when confirmed by the facsimile machine report.
(a) If to ASI to:
American Software, Inc.
470 East Paces Ferry Road
Atlanta, Georgia 30305
Attention: Controller
Fax: 404/264-5813
(b) If to Logility, to:
Logility, Inc.
470 East Paces Ferry Road
Atlanta, Georgia 30305
Attention: Chief Financial Officer
Fax: 404/264-5394
10.6. This Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Georgia, without regard for the
conflict of laws provisions thereof
10.7. If a jurisdiction outside the United States in which a Premises is
located requires that this Agreement be registered or filed with any
governmental office in order for this Agreement to be enforceable by or against
either party in that jurisdiction, the parties shall cooperate with such filing
or registration, provided that the registration or filing will not give rise to
a default under an underlying lease or unreasonably increase the likelihood of
12
<PAGE>
an exercise of remedies for default under an underlying lease or create a cloud
on title to any Premises.
10.8 In the event that any dispute arises between Logility and ASI in
connection with this Agreement, the representatives of each party responsible
for the subject matter of such dispute shall use good faith efforts to resolve
such dispute promptly. In the event that such dispute cannot be resolved by the
parties' representatives, the matter shall be submitted to the parties'
respective Chief Executive Officers ("CEOs") for resolution. In the event that
the CEOs cannot reach resolution of the issue (an "Unresolved Dispute"), then
the Unresolved Dispute shall be settled at the election of either party, by
final and binding independent arbitration. All arbitrations pursuant to this
Agreement shall be conducted before the American Arbitration Association ("AAA")
in Atlanta, Georgia, U.S.A., and shall be carried out in accordance with the
Commercial Arbitration Rules of the AAA then in effect (the "Rules") and the
provisions of this Agreement. Logility and ASI shall each select one arbitrator
and a third arbitrator will be selected unanimously by the arbitrators selected
by Logility and ASI. If the two arbitrators selected by Logility and ASI are
unable to select the third arbitrator within ten (10) days of the appointment of
the two arbitrators, the parties consent to the selection of the third
arbitrator by the AAA administrator. The award of the arbitrators may be
enforced by any court having jurisdiction over the parties.
IN WITNESS WHEREOF, this Facilities Agreement has been duly executed and
delivered by the duly authorized officers of ASI and Logility as of the date and
year first above written.
AMERICAN SOFTWARE, INC. LOGILITY, INC.
By: /s/ James C. Edenfield By: /s/ J. Michael Edenfield
----------------------------- -------------------------------
Name: James C. Edenfield Name: J. Michael Edenfield
Title: President Title: President
13
<PAGE>
SCHEDULE I
----------
PREMISES AT WHICH LOGILITY IS ENTITLED TO EXCLUSIVE USE:
5820 Stoneridge Mall Road
Pleasanton, CA 94588
150 Fayetteville Street, Suite 1700
Raleigh, NC 27601
100 West Big Beaver
Troy, MI 48084
25 Corporate Drive
500 Burlington Centre
Burlington, Mass
PREMISES AT WHICH LOGILITY IS ENTITLED TO NON-EXCLUSIVE USE:
470 East Paces Ferry Road
Atlanta, GA 30305
7500 Flying Cloud
Eden Prairie, Minn
5605 North MacArthur Boulevard, Suite 850
Irving, Texas 75038
5000 Birch Street, Suite 5600
Newport Beach, CA 92660
6133 North River Road, Suite 680
Rosemont, ILL
St. George's Business Centre
Brooklands Road
1st Floor, Unit C
Weybridge Surrey, England
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<PAGE>
SCHEDULE II
-----------
[ATLANTA FACILITIES]
470 East Paces Ferry Road
Atlanta, GA 30305
443 East Paces Ferry Road
Atlanta, GA 30305
480 East Paces Ferry Road
Atlanta, GA 30305
3110 Maple Drive
Atlanta, GA 30305
3116 Maple Drive
Atlanta, Georgia 30305
3120 Maple Drive
Atlanta, GA 30305
15
<PAGE>
EXHIBIT 10.12
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT ("Agreement") is made and entered into as of the
23rd day of January, 1997 by and between AMERICAN SOFTWARE, INC., a Georgia
corporation ("ASI"), and LOGILITY, INC., a Georgia corporation ("Logility").
WITNESSETH:
WHEREAS, ASI is the common parent corporation of an affiliated group of
corporations within the meaning of Section 1504(a) of the Code (as hereinafter
defined);
WHEREAS, ASI beneficially owns all of the issued and outstanding Common
Stock of Logility, and Logility is a member of ASI's consolidated group for
federal income tax purposes;
WHEREAS, the parties are contemplating the possibility that Logility will
issue shares of its Common Stock to the public in an initial public offering
registered under the Securities Act of 1933, as amended;
WHEREAS, the ASI Group (as hereinafter defined) has filed and intends to
file consolidated federal income tax returns as permitted by Section 1501 of the
Code, and Logility and certain members of the ASI Sub-Group (as hereinafter
defined) have filed and intend to file returns relating to Combined State Taxes
(as hereinafter defined);
WHEREAS, Logility desires to engage ASI to provide certain services, and
ASI desires to provide certain services, relating to federal, state, local, and
foreign taxes; and
WHEREAS, ASI and Logility desire to agree upon a method for determining the
financial consequences to each party and their subsidiaries resulting from the
filing of consolidated federal income tax returns and the filing of returns
relating to Combined State Taxes.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ASI and Logility, for themselves,
and their respective successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the terms set forth
-----------
below shall have the following meanings, in addition to the terms defined
elsewhere in this Agreement:
<PAGE>
(a) "ASI Group" shall mean, at any time, ASI and each direct and indirect
corporate subsidiary eligible to join with ASI in the filing of a consolidated
federal income tax return.
(b) "ASI Sub-Group" shall mean, at any time, ASI and each of its direct and
indirect corporate subsidiaries other than those subsidiaries that are members
of the Logility Group.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(d) "Combined State Tax" shall mean, with respect to each state or local
taxing jurisdiction, any income, franchise, or similar tax payable to such state
or local taxing jurisdiction in which a member of the Logility Group files tax
returns with a member of the ASI Sub-Group, on a consolidated, combined, or
unitary basis for purposes of such income of franchise tax.
(e) "Deconsolidation" shall mean any event pursuant to which Logility
ceases to be a subsidiary corporation includible in a consolidated tax return of
the ASI Group for Federal Tax purposes.
(f) "Effective Date" has the meaning ascribed to it in Section 4.9.
(g) "Federal Tax" shall mean any tax imposed under Subtitle A of the Code.
(h) "Final Determination" shall mean (i) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to taxes other than
Federal Taxes, any final determination of liability in respect of a tax that,
under applicable law, is not subject to further appeal, review, or modification
through proceedings or otherwise, (ii) any final disposition of a tax issue by
reason of the expiration of a statute of limitations, or (iii) the payment of
tax by ASI with respect to any item disallowed or adjusted by any taxing
authority where ASI determines in good faith that no action should be taken to
recoup such payment.
(i) "Initial Public Offering" shall mean the issuance by Logility of shares
of its Common Stock to the public in an initial public offering registered under
the Securities Act of 1933, as amended.
(j) "Logility Combined State Tax Liability" shall mean, with respect to any
taxable year and any jurisdiction, an amount of Combined State Taxes determined
in accordance with the principles set forth in the definition of Logility
Federal Tax Liability; provided, however, that the total amount of the Logility
Combined State Tax Liability shall also include, to the extent not included
after application of the principles set forth in the definition of Logility
Federal Tax Liability, any actual income, franchise, or similar state or local
tax liability (a "State Liability") owed in a jurisdiction (a "Combined
Jurisdiction") in which a member of the Logility Group files tax returns with a
member of the ASI Sub-Group, on a consolidated, combined, or unitary basis, to
the
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<PAGE>
extent the Combined State Tax liability exceeds the amount of such liability
that would have been owed had no member of the Logility Group been included in
such returns.
(k) "Logility Federal Tax Liability" shall mean, with respect to any
taxable year, the sum of the Logility Group's Federal Tax liability and any
interest, penalties and other additions to such taxes for such taxable year,
computed as if the Logility Group were not and never were part of the ASI Group,
but rather were a separate affiliated group of corporations filing a
consolidated federal income tax return pursuant to Section 1501 of the Code;
provided, however, that transactions with members of the ASI Sub-Group shall be
reflected according to the provisions of the consolidated return regulations
promulgated under the Code governing intercompany transactions, and that
Deconsolidation will trigger any deferred amounts, excess loss accounts, or
similar items. Such computation shall be made (A) without regard to the income,
deductions (including net operating loss and capital loss deductions), and
credits in any year of any member of the ASI Group that is not a member of the
Logility Group, (B) by taking account of all Tax Assets of the Logility Group
other than any Tax Asset that produces a Tax Savings to ASI in accordance with
Section 2.1(c)(iii), (C) as though the highest rate of tax specified in
subsection (b) of Section 11 of the Code (for any other similar rates applicable
to specific types of income) were the only rate set forth in that subsection,
and with other similar adjustments as described in Section 1561 of the Code, (D)
reflecting the positions, elections, and accounting methods used by ASI in
preparing the consolidated federal income tax return for the ASI Group, and (E)
by not permitting the Logility Group any compensation deductions arising in
respect of the issuance by ASI of ASI stock to any employee of the Logility
Group.
(l) "Logility Group" shall mean, at any time, Logility and any direct or
indirect corporate subsidiaries of Logility that would be eligible to join with
Logility, with respect to Federal Taxes, in the filing of a consolidated federal
income tax return and, with respect to Combined State Taxes, in the filing of a
consolidated, combined, or unitary income or franchise tax return if Logility
were not consolidated, combined, or filing on a unitary basis with any member of
the ASI Sub-Group.
(m) "Post-Deconsolidation Tax Period" means (i) any tax period, or portion
thereof, beginning and ending after the date of Deconsolidation, and (ii) with
respect to a tax period that begins before and ends after the date of
Deconsolidation, such portion of the tax period that commences on the day
immediately after the date of Deconsolidation.
(n) "Pre-Deconsolidation Tax Period" means (i) any tax period, or portion
thereof, beginning and ending before or on the date of Deconsolidation, and (ii)
with respect to a period that begins before and ends after the date of
Deconsolidation, such portion of the tax period ending on and including the date
of Deconsolidation.
(o) "Tax Asset" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction, or any other deduction,
credit, or tax attribute which could reduce taxes (including, without
limitation, deductions and credits related to alternative minimum taxes);
provided, however, the term "Tax Asset" shall not include any loss, deduction,
credit or other
3
<PAGE>
tax attribute related to the Business of Logility (as such term is defined in
that certain Subsidiary Formation Agreement between certain members of the ASI
Group and Logility, dated of even date herewith), from a tax period (or portion
thereof) ending on or before the closing date of the Initial Public Offering.
(p) "Tax Savings" means the actual amount of reduction in taxes payable
(including refunds actually received) to a taxing authority with respect to the
then current tax period as a result of a Tax Asset as compared to the taxes that
would have been payable to a taxing authority for that tax period in the absence
of such Tax Asset; provided, however, Tax Savings shall not include any
reduction in alternative minimum tax.
1.2 Internal References. Unless the context indicates otherwise,
-------------------
references to Articles, Sections, and paragraphs shall refer to the
corresponding articles, sections, and paragraphs in this Agreement and
references to the parties shall mean the parties to this Agreement.
ARTICLE II
TAX SHARING
2.1 Tax Sharing.
-----------
(a) General. For each taxable year of the ASI Group during which income,
-------
loss, or credit against tax of the Logility Group is includible in the
consolidated Federal Tax return of the ASI Group, Logility shall pay to ASI an
amount equal to the Logility Federal Tax Liability, and for each taxable period
during which income, loss, or credit against tax of any member of the Logility
Group is includible in a return relating to a Combined State Tax, Logility shall
pay to ASI an amount equal to the Logility Combined State Tax Liability for such
taxable period, each as shown on the Pro Forma Returns (as defined in paragraph
(c) below).
(b) Estimated Payments. For each taxable period, ASI may determine the
------------------
amount of the estimated tax installment of the Logility Federal Tax Liability
(corresponding to ASI's estimated Federal Tax installment), as determined under
the principles of Section 2.1(a). If ASI makes such a determination, Logility
shall, within ten (10) business days of the statutorily mandated payment date,
pay to ASI the amount so determined. For each taxable period, ASI may determine
under provisions of applicable law the amount of the estimated tax installment
of the Logility Combined State Tax Liability (corresponding to the relevant
estimated Combined State Tax installment), as determined under the principles of
Section 2.1(a). If ASI makes such a determination, Logility shall, within ten
(10) business days of the statutorily mandated payment date, pay to ASI the
amount so determined.
(c) Payment of Taxes at Year-End.
----------------------------
(i) Within thirty (30) days after the date the ASI Group's consolidated
Federal Tax return is filed, ASI shall make available to Logility a pro forma
Federal Tax return (a "Pro Forma Federal Return") of the Logility Group
4
<PAGE>
reflecting the Logility Federal Tax Liability. Within thirty (30) days after the
date the last Combined State Tax return is filed for the fiscal year to which
such returns relate, ASI shall make available to Logility the relevant pro forma
Combined State Tax Returns (each a "Pro Forma Combined State Return" and
together with the Pro Forma Federal Returns, the "Pro Forma Returns") of the
Logility Group reflecting the relevant Logility Combined State Tax Liability.
The Pro Forma Returns shall be prepared in good faith in a manner generally
consistent with past practice.
(ii) Within ten (10) business days of the statutorily mandated payment
date, Logility shall pay to ASI, or ASI shall pay to Logility, as appropriate,
an amount equal to the difference, if any, between the Logility Federal Tax
Liability reflected on the Pro Forma Federal Return for such year and the
aggregate amount of the estimated installments of the Logility Federal Tax
Liability for such year made pursuant to Section 2.1(b). Within ten (10)
business days of the statutorily mandated payment date, Logility shall pay to
ASI, or ASI shall pay to Logility, as appropriate, an amount equal to the
difference, if any, between the Logility Combined State Tax Liability reflected
on the relevant Pro Forma Combined State Tax Return and the aggregate amount of
the estimated installments paid with respect to the corresponding Logility
Combined State Tax Liability pursuant to Section 2.1(b).
(iii) If, under applicable law and consistent with this Agreement, the ASI
Sub-Group avails itself of a Tax Asset of the Logility Group, ASI shall pay to
Logility an amount equal to the Tax Saving attributable to such Tax Asset, if
and when realized by ASI. The parties agree that all net operating losses and
net capital losses of the ASI Group shall be taken into account by ASI in the
order in which such net operating losses and net capital losses have arisen; all
other Tax Assets of the Logility Group shall be taken into account by ASI in the
above-described manner, subject, however, to the ordering rules then in effect
under the Code.
(iv) In the event that ASI makes a cash deposit with a taxing authority in
order to stop the running of interest or makes a payment of tax and
correspondingly takes action to recoup such payment (such as suing for a
refund), Logility shall pay to ASI an amount equal to Logility's share of the
amount so deposited or paid (calculated in a manner consistent with the
determinations provided in this Article 2). Upon receipt by ASI of a refund of
any amounts paid by it in respect of which Logility shall have advanced an
amount hereunder, ASI shall pay to Logility the amount of such refund, together
with any interest received by it on such refund. If and to the extent that any
claim for refund or contest based thereupon shall be unsuccessful, the payment
by Logility under this Section 2.1(c)(iv) may be credited by ASI toward any of
Logility's obligations under this Section 2.1.
(d) Treatment of Adjustments. If any adjustment is made in a Federal Tax
------------------------
return of the ASI Group or in a return relating to a Combined State Tax Return
of the ASI Group, after the filing thereof, in which income or loss of the
Logility Group (or any member thereof) is included, then at the time of a Final
Determination of the adjustment Logility shall pay to ASI, or ASI shall pay to
Logility, as the case may be, the difference between all payments actually made
under Section 2.1 with respect to the taxable year or period covered by such tax
return and all payments that would have been made under Section 2.1 taking such
adjustment into account together
5
<PAGE>
with any penalties actually paid and interest for each day until the date of
Final Determination calculated at the rate determined, in the case of a payment
by Logility, under Section 6621(a)(2) of the Code and, in the case of a payment
by ASI, under Section 6621(a)(1) of the Code.
(e) Preparation of Returns and Contests. So long as the ASI Group elects
-----------------------------------
to file (i) consolidated Federal Tax returns as permitted by Section 1501 of the
Code or (ii) any Combined State Tax return as permitted by applicable state law,
Logility shall consent to the filing of such returns by ASI. ASI shall prepare
and file such returns and any other returns, documents, or statements required
to be filed with the Internal Revenue Service with respect to the determination
of the Federal Tax liability of the ASI Group and with the appropriate taxing
authorities with respect to the determination of a Combined State Tax liability.
With respect to such return preparation, ASI shall act in good faith with regard
to all members included in an applicable return. ASI shall have the right with
respect to any consolidated Federal Tax return or return relating to a Combined
State Tax that it has filed or will file to determine in good faith (i) the
manner in which such returns, documents or statements shall be prepared and
filed, including, without limitation, the manner in which any item of income,
gain, loss, deduction or credit shall be reported, (ii) whether any extensions
should be requested, and (iii) the elections that will be made by any member of
the ASI Group. In addition, ASI shall have the right, in good faith, to (i)
contest, compromise, or settle any adjustment or deficiency proposed, or as a
result of any audit of any Federal Tax return or return relating to a Combined
State Tax, (ii) file, prosecute, compromise or settle any claim for refund, and
(iii) determine whether any refunds shall be received by way of refund or
credited against tax liabilities. In addition, ASI shall prepare and file
ruling requests, and take all other actions on behalf of any member of the ASI
Group that it deems appropriate in providing tax services to the members of the
ASI Group. ASI shall, to the extent such information is available, advise
Logility of any significant Logility tax issue being contested by the federal,
state, local or other relevant taxing authorities, and shall keep Logility
informed with respect to any contest, compromise or settlement thereof.
(f) Foreign Tax Returns. Logility shall not be required to consent to the
-------------------
filing of any foreign tax return to be filed on a combined, consolidated, or
unitary basis with the ASI Sub-Group unless and until this Agreement is modified
to take into account the allocation of such foreign tax liability between the
ASI Sub-Group and the Logility Group. The allocation of such foreign tax
liability shall be in accordance with the principles set forth in this
Agreement.
2.2 Reimbursement for Certain Services. ASI shall provide services in
----------------------------------
connection with this Agreement, including, but not limited to, (i) those
services relating to the preparation of returns (including Pro Forma Returns)
described in paragraph 2.1(b) above, and (ii) services relating to the other
activities described in paragraph 2.1(e) above. As compensation for these
services, Logility shall pay ASI a fee calculated on a basis such that ASI is
reimbursed for all direct and indirect costs and expenses incurred with respect
to Logility's share of the overall costs and expenses incurred by ASI with
respect to tax-related services. ASI shall calculate and invoice Logility for
the fee payable, and Logility will pay the invoiced amount in a manner
consistent with the invoice and payment
6
<PAGE>
procedures provided for in that certain Services Agreement, between ASI, certain
members of the ASI Sub-Group, and Logility, dated of even date herewith.
2.3 Additional Services. ASI will provide the tax services described in
-------------------
this Article II with respect to all of the state, local and foreign taxes of
any members of the Logility Group that do not relate to consolidated Federal
Taxes or Combined State Taxes. ASI will provide these services in a manner
consistent with the principles contained in Article II and will be compensated
in the same manner as described in Section 2.2.
ARTICLE III
POST-DECONSOLIDATION
3.1. Additional Rights and Liabilities Post-Deconsolidation.
------------------------------------------------------
(a) Restrictions on Changes. Logility covenants that on or after a
-----------------------
Deconsolidation it will not, nor will it cause or permit any member of the
Logility Group to make or change any tax election, change any accounting method,
amend any tax return or take any tax position on any tax return, take any other
action, omit to take any action, or enter into any transaction that results in
any in tax liability or reduction of any Tax Asset of the ASI Group or any
member thereof (immediately after the Deconsolidation) in respect of any Pre-
Deconsolidation Tax Period, without first obtaining the written consent of an
authorized representative of ASI.
(b) Option to Reattribute Assets and Allocate Items. In the event of a
-----------------------------------------------
Deconsolidation, ASI may, at its option, elect, and Logility shall join ASI in
electing (if necessary), (i) to reattribute to itself certain Tax Assets of the
Logility Group pursuant to Treasury Regulations Section 1.1502-20(g) and, if ASI
makes such election, Logility shall comply with the requirements of Treasury
Regulations Section 1.1502-20(g)(5)), and (ii) to ratably allocate items (other
than extraordinary items) of the Logility Group in accordance with relevant
provisions of the Treasury Regulations Section 1.1502-76.
(c) Payment of Tax Savings. ASI agrees to pay to Logility the Tax Savings
----------------------
received by the ASI Group from the use in any Post-Deconsolidation Tax Period of
a carryover of any Tax Asset of the Logility Group from a Pre-Deconsolidation
Tax Period, if and when such Tax Savings are realized. The parties agree that
all net operating losses and net capital losses of the ASI Group shall be taken
into account by ASI in the order in which such net operating losses and net
capital losses have arisen; all other Tax Assets of the Logility Group shall be
taken into account by ASI in the above-described manner, subject, however, to
the ordering rules then in effect under the Code.
(d) Effect of Final Determination. Any amounts owed by ASI to Logility
-----------------------------
pursuant to Section 3.1(c) shall be paid within 90 days of the filing of the
applicable tax return for the taxable year in which such Tax Savings are
realized. If, subsequent to the payment by ASI to Logility of any such amount,
there shall be (i) a Final Determination which results in a disallowance or a
reduction of any Tax Asset of Logility or (ii) a reduction in the amount of the
Tax Savings realized by the ASI
7
<PAGE>
Group as a result of any other Tax Asset of ASI that arises in a Post-
Deconsolidation Tax Period, Logility shall repay to ASI, within 90 days of such
event described in (i) or (ii) (an "Event" or, collectively, the "Events") any
amount which would not have been payable to Logility pursuant to this Section
3.1 had the amount of the Tax Savings calculated in Section 3.1(c) been
determined in light of the Events. Logility shall hold ASI harmless for any
penalty or interest payable by any member of the ASI Group, as a result of any
Event. Any such amount shall be paid by Logility to ASI within 90 days of the
payment by ASI or any member of the ASI Group of any such interest or penalty.
Nothing in this Agreement shall require ASI to file a claim for refund of
Federal Taxes or Combined State Taxes which ASI, in its sole discretion,
determines lacks substantial authority, as defined in the Code and the
regulations thereunder.
ARTICLE IV
MISCELLANEOUS
4.1. Limitation of Liability. Neither ASI nor Logility shall be liable to
-----------------------
the other for any special, indirect, incidental, or consequential damages of the
other arising in connection with this Agreement; provided, however, that in the
event that (i) the Internal Revenue Service (or other competent taxing
authority) asserts a tax liability directly against Logility or any member of
the Logility Group, pursuant to its authority under Treasury Regulation Section
1.1502-6 (or other similar provision of foreign, state, or local law), (ii)
Logility has made all payments and performed all of its obligations otherwise
required of it under this Agreement with respect to such liability or otherwise,
and (iii) ASI was given the opportunity to consent, settle, or compromise such
liability pursuant to Section 2.1(e) of this Agreement, ASI shall indemnify
Logility for actual payments made after a Final Determination with respect to
such liability to the extent that such payments exceed Logility's share of such
liability (calculated in a manner that avoids double-counting under this
Agreement), which share shall be determined in accordance with Article II of
this Agreement.
4.2. Subsidiaries.
------------
(a) Performance. ASI agrees and acknowledges that ASI shall be responsible
-----------
for the performance of the obligations of each member of the ASI Sub-Group
hereunder applicable to such subsidiary. Logility agrees and acknowledges that
Logility shall be responsible for the performance by each member of the Logility
Group of the obligations hereunder applicable to such member.
(b) Application to Present and Future Subsidiaries. This Agreement is
----------------------------------------------
being entered into by ASI and Logility on behalf of themselves and each member
of the ASI Sub-Group and the Logility Group, respectively. This Agreement shall
constitute a direct obligation of each such member and shall be deemed to have
been readopted and affirmed on behalf of any corporation which becomes a member
of the ASI Sub-Group or the Logility Group in the future. ASI shall cause each
member of the ASI Group, and Logility shall cause each member of the Logility
Group, to comply fully with the terms of this Agreement. Each party shall, upon
8
<PAGE>
the written request of the other, cause any of their respective group members to
execute and deliver a counterpart of this Agreement.
4.3. Cooperation. ASI and Logility shall cooperate fully in the
-----------
implementation of this Agreement, including but not limited to, providing
promptly to the requesting party such assistance and documentation as may be
reasonably requested by such party in connection with any of the activities
described in Article II or Article III. In addition, ASI and Logility shall
retain all relevant tax records for relevant open periods in accordance with
past practice.
4.4. Agent. Each member of the Logility Group hereby irrevocably appoints
-----
ASI as its agent and attorney-in-fact to take any action as ASI may deem
necessary or appropriate to effect Section 2.1 including, without limitation,
those actions specified in Treasury Regulation Section 1.1502-77(a).
4.5. Amendments. This Agreement may not be amended or terminated orally,
----------
but only by a writing duly executed by or on behalf of the parties hereto. Any
such amendment shall be validly and sufficiently authorized for purposes of this
Agreement if it is signed on behalf of ASI and Logility by any of their
respective presidents or vice presidents.
4.6. Term. Subject to Article III, and unless sooner terminated by
----
written agreement of the parties hereto, this Agreement shall expire upon the
date of Deconsolidation with respect to all Post-Deconsolidation periods;
provided, however, that all rights and obligations arising hereunder with
respect to a Pre-Deconsolidation Tax Period shall survive until they are fully
effectuated or performed and, provided, further, that notwithstanding anything
in this Agreement to the contrary, all rights and obligations arising hereunder
with respect to a Post-Deconsolidation Tax Period shall remain in effect and its
provisions shall survive for the full period of all applicable statutes of
limitation (giving effect to any extension, waiver, or mitigation thereof).
4.7. Resolution of Disputes. Any disputes between the parties concerning
----------------------
the calculation of amounts, allocation, or attribution of costs, or any Tax
Asset or Tax Savings, or similar accounting matters shall be resolved in
accordance with ASI's interpretation of this Agreement, unless Logility shall
provide ASI with an opinion of a nationally recognized public accounting firm to
the effect that such interpretation is unreasonable. If such opinion takes the
position that ASI's interpretation of this Agreement is unreasonable, and the
parties, conferring in good faith, cannot thereafter successfully resolve such
dispute in a timely manner, then either party may submit the matter to binding
arbitration in accordance with the Rules of Commercial Arbitration of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur in Atlanta, Georgia, unless the otherwise agreed by the
parties. The arbitrator(s) may, in such proceeding, award attorney's fees and
costs to the prevailing party.
4.8. Interest. Interest required to be paid by ASI to Logility or by
--------
Logility to ASI, as the case may be, under this Agreement shall unless otherwise
9
<PAGE>
specified, be computed at the rate and in the manner provided in the Code (or
comparable foreign, state, or local law) for interest on overpayments and
underpayments respectively, of federal, state, local, or foreign tax (as the
case may be) for the relevant period. Any payments required pursuant to this
Agreement which are not made within the time period specified in this Agreement
shall bear interest at the rate specified above for underpayments of federal
income tax plus three percent (3%).
4.9. Effective Date. This Agreement shall be effective as of January 23,
--------------
1997 (the "Effective Date"), shall govern all open taxable periods, and shall
supersede all prior agreements as to the allocation of federal income tax
liability between the parties to this Agreement for all such open taxable years
and for all subsequent taxable years.
4.10. Severability. If any provision of this Agreement or the application
------------
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid, illegal, or unenforceable to any
extent, the remainder of this Agreement or such provision or the application of
such provision to such party or circumstances, other than those to which it is
so determined to be invalid, illegal, or unenforceable, shall remain in full
force and effect to the fullest extent permitted by law and shall not be
affected thereby, unless such a construction would be unreasonable.
4.11. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be deemed duly given upon actual receipt,
and shall be delivered (a) in person, (b) by registered or certified mail,
postage prepaid, return receipt requested, or (c) by facsimile or other
generally accepted means of electronic transmission (provided that a copy of any
notice delivered pursuant to this clause (c) shall also be sent pursuant to
clause (a) or (b)), addressed as follows:
(a) If to ASI to:
American Software, Inc.
470 East Paces Ferry Road
Atlanta, Georgia 30305
Attention: Controller
Fax: 404/264-5813
(b) If to Logility, to:
Logility, Inc.
470 East Paces Ferry Road
Atlanta, Georgia 30305
Attention: Chief Financial Officer
Fax: 404/264-5394
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
10
<PAGE>
4.12. Expenses. Unless otherwise expressly provided in this Agreement,
--------
each party shall bear any and all expenses that arise from its respective
obligations under this Agreement.
4.13. Further Assurances. ASI and Logility shall execute, acknowledge,
------------------
and deliver, or cause to be executed, acknowledged, and delivered, such
instruments and take such other actions as may be necessary or advisable to
carry out their obligations under this Agreement and under any exhibit,
document, or other instrument delivered pursuant hereto.
4.14. Entire Agreement. This Agreement constitutes the entire
----------------
understanding of the parties hereto with respect to the subject matter hereof.
4.15. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor, by merger, acquisition of assets, or otherwise, to any
of the parties hereto (including but not limited to any successor of ASI and
Logility succeeding to the tax attributes of such party under Section 381 of the
Code), to the same extent as if such successor had been an original party
hereto.
4.16. Authorization, etc. Each of the parties hereto hereby represents
------------------
and warrants that it has the power and authority to execute, deliver, and
perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of each such party, and that
the execution, delivery and performance of this Agreement by such party does not
contravene or conflict with any provision of law or of its charter or bylaws or
any agreement instrument or order binding on such party.
4.17. Section Captions. Section captions used in this Agreement are for
----------------
convenience and reference only and shall not affect the construction of this
Agreement.
4.18. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia.
4.19. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this agreement to
be executed by a duly authorized officer as of the date first above written.
AMERICAN SOFTWARE, INC. LOGILITY, INC.
By: /s/ James C. Edenfield By: /s/ J. Michael Edenfield
----------------------------- --------------------------------
Name: James C. Edenfield Name: J. Michael Edenfield
Title: President Title: President
11
<PAGE>
EXHIBIT 10.13
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made and entered into as
of the 7th day of August, 1997 by and between Logility, Inc., a Georgia
corporation (the "Company"), and American Software, Inc., a Georgia corporation
(the "Holder").
W I T N E S S E T H:
WHEREAS, the Company is a wholly-owned subsidiary of the Holder;
WHEREAS, upon the completion of an initial public offering of up to
_____________ shares of common stock, no par value ("Common Stock"), of the
Company (the "Initial Public Offering"), the Company will cease to be a wholly-
owned subsidiary of the Holder;
WHEREAS, pursuant to the Company's 1997 Stock Plan (the "Plan"), the
Company may from time to time grant to certain of its directors and employees
options to purchase shares of Common Stock from the Company; and
WHEREAS, notwithstanding the grant of such options by the Company, the
Holder desires to maintain sufficient equity ownership in the Company to allow
the Company to qualify as a member of the Holder's affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Holder, for
themselves, and their respective successors and assigns, hereby agree as
follows:
1. Grant of Option. The Company hereby grants to the Holder an option
---------------
(the "Option"), exercisable at any time or from time to time prior to the
Expiration Date (as defined below), to purchase from the Company such number of
shares of Common Stock (and/or preferred stock of the Company if any shall be
issued and outstanding), as the Holder may determine in its sole judgment to be
appropriate to ensure that the Holder may continue to include the Company, as
well as any subsidiaries of the Company that may hereafter be formed, in the
Holder's consolidated federal income tax returns (in accordance with Section
1504 of the Code), or any successor or additional section dealing with the
inclusion of any entity within an affiliated group for purposes of filing a
consolidated return, regardless of the circumstances which may give rise to such
determination by the Holder. The Option shall expire and cease to be
exercisable upon the earlier of (a) the tenth anniversary of the date hereof
(subject to extensions for one or more successive ten-year terms, at the
Holder's option, upon delivery by the Holder to the Company of a written
notice(s) to that effect), or (b) the date on which either (i) the Holder makes
a distribution to its shareholders of all or any portion of its shares of Common
Stock, or (ii) the Company, with the express written consent of the Holder,
issues or enters into an agreement to issue shares of Common Stock other than
pursuant to the Plan such that those shares, when issued and when combined with
the Common Stock authorized
<PAGE>
under the Plan and issued and outstanding shares of Common Stock not held by
Holder, exceed 20% of the issued and outstanding shares of Common Stock. The
date of such expiration is referred to herein as the "Expiration Date."
2. Purchase Price. The per-share purchase price for any shares
--------------
purchased pursuant to the Option shall be the average of the closing price, on
each of the five business days immediately preceding the date of payment of such
purchase price, for shares of Common Stock (or, to the extent applicable,
preferred stock of the Company) on the principal national securities exchange or
automated interdealer quotation system on which such shares are traded, such as
NASDAQ, as published in the Wall Street Journal, or if such sale prices are
-------------------
unavailable or such shares are not so traded, the purchase price for such shares
shall be their fair market value as determined in accordance with procedures
reasonably satisfactory to the Company and the Holder, which determination shall
be conclusive.
3. Exercise of Option; Closing. The Holder may, at any time or from time
---------------------------
to time prior to the Expiration Date, exercise the Option by delivering to the
Company a written notice (an "Exercise Notice") to such effect specifying the
number of shares of Common Stock and/or preferred stock of the Company that the
Holder has determined to purchase. Except to the extent that the parties may
otherwise agree, the closing of the purchase and sale of the shares specified in
any Exercise Notice shall occur at the principal executive offices of the
Company on the third business day following the date on which such Exercise
Notice is delivered to the Company, or such other day as agreed upon by the
Company and the Holder. At closing, the Holder shall deliver to the Company the
purchase price in immediately available funds, and the Company shall deliver to
the Holder one or more certificates representing the shares specified in the
Exercise Notice, registered in the name of the Holder, against delivery by the
Holder to the Company of the aggregate purchase price therefor. Notwithstanding
anything to the contrary herein contained, in the event that any shares of
Common Stock are issued upon the exercise of any option granted under the Plan
(the "Plan Option") and such issuance would otherwise prevent the Holder from
continuing to include the Company in the Holder's consolidated federal income
tax return, the Option shall automatically be deemed to have been exercised in
respect to a number of shares of Common Stock equal to four times the number of
shares of Common Stock issued upon the exercise of the Plan Option (unless the
Holder shall have theretofore notified the Company in writing that the Holder
shall have terminated the foregoing automatic exercise feature of the Option),
and the closing of the purchase and sale of the shares of Common Stock subject
to such automatic exercise of the Option (the "Automatic Exercise Shares") shall
occur (or shall be deemed to have occurred) concurrently with the issuance of
shares of Common Stock pursuant to the Plan Option. In the event that it shall
have been impractical to effect the deliveries contemplated by the second
preceding sentence at the time that the closing of the purchase and sale of the
Automatic Exercise Shares shall have been deemed to have occurred, such
deliveries shall be made as promptly as practicable thereafter; provided,
--------
however, that such Automatic Exercise Shares shall nonetheless be deemed to have
- -------
been issued to the Holder concurrently with the issuance of shares of Common
Stock pursuant to the Plan Option, and legal title to funds of the Holder (which
shall be held in trust by the Holder for the benefit of the Company pending the
delivery thereof to the Company) in an amount equal to the aggregate purchase
price for
2
<PAGE>
the Automatic Exercise Shares shall be deemed to have concurrently passed to the
Company in consideration of such issuance of the Automatic Exercise Shares.
4. Representations and Warranties; Corporate Action. The Company hereby
------------------------------------------------
represents and warrants to the Holder that all shares of Common Stock (or, to
the extent applicable, preferred stock) issued to the Holder upon any exercise
of the Option shall, upon issuance thereof as provided herein against payment of
the purchase price therefor as provided herein, be duly authorized, validly
issued, fully paid and nonassessable, and hereby undertakes (i) to cause any and
all corporate and other actions required in connection therewith to be taken in
a timely manner and (ii) not to take any action that would prevent the foregoing
representations and warranties from being true and correct.
5. Miscellaneous.
-------------
(a) Effectiveness. This Agreement shall become effective on the date on
-------------
which the purchase and sale of shares of Common Stock pursuant to the Initial
Public Offering first occurs.
(b) Entire Agreement; Amendment; Assignment. This Agreement constitutes
---------------------------------------
the entire agreement between the parties with respect to the subject matter
hereof and may not be amended except by an instrument signed by the parties
hereto. This Agreement may not be assigned by either party hereto to any other
person, except that the Holder may assign this Agreement to any of its
affiliates.
(c) Further Assurances. From time to time, upon request by either party and
------------------
without further consideration, the parties shall execute and deliver such
further instruments and take such further actions as may be reasonably required
in order to carry out the purposes and intents of this Agreement.
(d) Notices. All notices given in connection with this Agreement shall be
-------
in writing. Service of such notices shall be deemed complete (i) if hand
delivered, on the date of delivery, (ii) if by mail, on the fourth business day
following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, or (iii) if sent by Federal
Express or equivalent courier service, on the next business day. Such notices
shall be addressed to the parties at the following addresses or at such other
address for a party as shall be specified by like notice (except that notices of
change of address shall be effective upon receipt):
If to the Holder: American Software, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Attn: Controller
Facsimile No.: 404/264-5813
3
<PAGE>
If to the Company: Logility, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Attn: Chief Financial Officer
Facsimile No.: 404/264-5394
(e) Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Georgia, without giving effect to the
principles of conflict of laws of such State.
IN WITNESS WHEREOF, the Company and the Holder have caused this Agreement
to be executed and sealed on the date first above written.
LOGILITY, INC.
By: /s/ J. Michael Edenfield
--------------------------------------
Its: President
--------------------------------------
[CORPORATE SEAL]
AMERICAN SOFTWARE, INC.
By : /s/ James C. Edenfield
-------------------------------------
Its: President
-------------------------------------
[CORPORATE SEAL]
4
<PAGE>
EXHIBIT 10.14
TECHNOLOGY LICENSE AGREEMENT
LOGILITY, INC. - AMERICAN SOFTWARE, INC.
THIS TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is made as of August 1,
1997, by and between LOGILITY, INC., a Georgia corporation ("Logility") and
AMERICAN SOFTWARE, INC., a Georgia corporation, for itself and its Affiliate
companies (hereinafter collectively, "American Software").
WHEREAS, Logility is the owner of certain technology related to Logility's
Value Chain Planning and Execution Solutions software products, and American
Software desires a license to use such technology in order to maintain and
support end-users of such software products, and Logility is willing to grant
such a license to American Software, upon the terms and conditions set forth
herein.
NOW THEREFORE, in consideration of the foregoing premises, the mutual
covenants set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Logility and American
Software hereby agree as follows:
1. DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the following meanings:
"AFFILIATE" of a person shall mean a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by
or is under common control with such person. "Control" (and, with
correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession of the power to direct or cause the
direction of the management and policies of such person, whether through
the ownership of voting stock, by contract or otherwise. In the case of a
corporation, "control" shall mean, among other things, the direct or
indirect ownership of more than 50% of its outstanding voting stock. For
purposes of this Agreement, American Software shall not be deemed an
Affiliate of Logility, and Logility shall not be deemed an Affiliate of
American Software.
"END-USER" shall mean a Person that licenses or has licensed one or
more Products from American Software.
"IMPROVEMENTS" shall have the meaning ascribed to such term in Section
2.3 hereof.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust, limited
liability company or other entity.
<PAGE>
"PRODUCTS" shall mean, collectively, all Logility's Value Chain
Planning and Execution Solutions, including WarehousePRO, Transportation
Management, and Transportation Planning software products now or hereafter
owned by Logility.
"PROPRIETARY RIGHTS" shall mean all patent rights, copyrights, trade
secret rights, trademarks and similar rights.
"SOFTWARE TECHNOLOGY" shall mean all Technology used in connection
with the Products.
"TECHNOLOGY" shall mean public and nonpublic technical or other
information, inventions, trade secrets, know-how, processes, formulations,
concepts, ideas, data and testing results, experimental methods, and any
other written, printed or electronically stored materials.
"THIRD PARTY" shall mean any Person other than Logility, American
Software or an Affiliate of Logility or American Software.
2. GRANT OF LICENSES.
2.1. GRANT OF ROYALTY-FREE LICENSE. Subject to the terms and
conditions of this Agreement, Logility hereby grants to American Software a non-
exclusive, non-transferable (subject to Sections 2.2, 2.3 and 7.9) worldwide,
perpetual right and license under its Proprietary Rights to use, execute,
reproduce, display, modify and prepare Derivative Works of, the Products for the
limited purpose of maintaining and supporting End-Users of the Products. The
foregoing license shall be fully paid and royalty-free.
2.2. SUBLICENSE RIGHTS.
2.2.1. Subject to the terms and conditions of this Agreement,
American Software shall have the right to grant sublicenses of the rights
granted under Section 2.1 hereof to End-Users of the Products for the limited
purpose of maintaining and supporting such End-Users' use of the Products.
2.3 IMPROVEMENTS.
2.3.1 American Software and Logility shall each promptly
disclose to the other any and all enhancements and improvements which they make
or acquire in relation to the Products or, derivatives thereof ("Improvements");
provided, however, that the foregoing shall not require either party to disclose
to the other any Improvement which it makes specifically for a Third Party and
which such party is restricted from disclosing to the other party pursuant to
the terms of its agreement with the Third Party.
2
<PAGE>
2.3.2 Subject to the terms and conditions of this Agreement,
American Software hereby grants to Logility in respect of Improvements made by
American Software, and Logility hereby grants to American Software in respect of
Improvements made by Logility, a non-exclusive, non-transferable, fully paid,
worldwide, perpetual right and license under their respective Proprietary
Rights, to use, execute, reproduce, display, modify and prepare Derivative Works
of said Improvements.
2.3.3 Subject to the terms and conditions of this Agreement,
each party shall have the right to grant sublicenses of the rights granted to it
under Section 2.3.2 hereof to (i) its respective Affiliates, and (ii) End-Users
of Products incorporating the Improvements without prior permission of the other
party.
3. TERM AND TERMINATION.
3.1 TERM. This Agreement shall be effective as of the Effective
Date and shall continue in full force and effect indefinitely, unless terminated
earlier as provided in Section 3.2 hereof.
3.2 EARLY TERMINATION.
3.2.1 EARLY TERMINATION BY LOGILITY. Logility shall have the
right to terminate this Agreement upon written notice of termination to American
Software in the event that:
(a) At any time, American Software or its Affiliates fail to perform
or observe, or otherwise breach any of American Software's material obligations
under this Agreement, and such failure or breach continues unremedied for a
period of ninety (90) days after receipt by American Software of written notice
thereof from Logility or, in the event that such failure or breach is not
capable of cure within ninety (90) days, for such longer period of time as
American Software is vigorously pursuing such cure in good faith; or
(b) American Software shall either (i) seek the liquidation,
reorganization, dissolution or winding-up of itself or the composition or
readjustment of its debts, (ii) apply for or consent to the appointment of, or
the taking possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its assets, (iii) make a general assignment
for the benefit of its creditors, (iv) commence a voluntary case under the
bankruptcy code, (v) file a petition seeking to take advantage of any other law
relating to bankruptcy, reorganization, winding-up or composition or
readjustment of debts, or (vi) adopt any resolution of its board of directors or
stockholders for the purpose of effecting any of the foregoing.
3.2.2 EARLY TERMINATION BY AMERICAN SOFTWARE. American
Software shall have the right to terminate this Agreement, with or without
cause, at any time on sixty (60) days' prior written notice to Logility.
3
<PAGE>
3.3 EFFECTS OF TERMINATION.
3.3.1 If either party terminates this Agreement pursuant to
Section 3.2. hereof:
(a) all rights to the Technology, Products and Improvements
licensed by Logility to American Software hereunder shall revert solely to
Logility, and all rights to American Software's Improvements licensed by
American Software to Logility hereunder shall revert solely to American
Software;
(b) any sublicense by either party to End-Users previously
granted shall survive such termination;
(c) any sublicense of American Software's rights hereunder that
has been granted to an Affiliate may be terminated or maintained directly
between Logility and the Affiliate, as Logility shall elect in its sole
discretion; and
(d) each party's obligations, liabilities and indemnities
hereunder in respect of the Products previously sold by such party, its
Affiliates or permitted sublicensees shall survive termination.
4. CONFIDENTIALITY
4.1. American Software and Logility each agrees that all Technology,
Improvements and other technical, business, and financial information it obtains
from the other party ("Proprietary Information") is the confidential property of
the disclosing party. Except as expressly allowed herein, each party will hold
the Proprietary Information of the other party in confidence and shall not use
or disclose such Proprietary Information. However, the foregoing confidentiality
obligation shall not apply to information which the receiving party can
document:
(a) is or has become readily publicly available without
restriction through no fault of the receiving party or its employees or
agents;
(b) is received without restriction from a third party lawfully
in possession of such information and lawfully empowered to disclose such
information;
(c) was rightfully in the possession of the receiving party
without restriction prior to its disclosure by the other party; or
(d) was independently developed by employees or consultants of
the receiving party without access to the Proprietary Information of the
other party.
4
<PAGE>
4.2. American Software and Logility each agrees that there is no
adequate remedy at law for a breach of Section 4.1 above and that such a breach
would irreparably harm the other and that the other party is entitled to
equitable relief (including, without limitations, injunctions) with respect to
any such breach or potential breach, in addition to any other remedies.
5. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
5.1. Logility represents and warrants to American Software that it
has the full power and authority to enter into this Agreement and grant all
licenses granted to American Software hereunder in respect of the Software
Technology and the Products.
5.2. American Software represents and warrants to Logility that it
has full power and authority to enter into this Agreement and will carry on its
obligations hereunder promptly and in good faith.
5.3. American Software and Logility each warrants to the other that
it shall have adequate rights and authority to license to the other any and all
Improvements described in Section 2.3 that it makes or acquires.
5.4 EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS 5.1 AND 5.3 HEREOF,
LOGILITY MAKES NO WARRANTY WITH RESPECT TO ANY TECHNOLOGY, PRODUCT, SERVICE,
RIGHT OR OTHER SUBJECT MATTER OF THIS AGREEMENT, AND HEREBY DISCLAIMS WARRANTIES
OF MERCHANT-ABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH
RESPECT TO ANY AND ALL OF THE FOREGOING.
5.5. American Software and Logility shall each (the "Indemnifying
Party") indemnify the other (the "Indemnified Party") from awarded damages,
settlements, costs, (including but not limited to reasonable fees and
disbursements of counsel incurred by an Indemnified Party in any action or
proceeding between the Indemnified Party and the Indemnifying Party or between
an Indemnified Party and any third party or otherwise) and other out-of-pocket
expenses incurred in connection with a claim against the Indemnified Party based
on or relating to (i) any action or omission of the Indemnifying Party or its
agents or employees related to the obligations of the Indemnifying Party under
this Agreement, or (ii) any breach by the Indemnifying Party of its
representations and warranties hereunder; provided, however, that the foregoing
shall not apply (a) if the claim is found to be based upon the negligence,
recklessness or willful action or inaction of the Indemnified Party, or (b) if
the Indemnified Party fails to give the Indemnifying Party prompt notice of any
claim it receives and such failure materially prejudices the Indemnifying Party,
or (c) solely to the extent of the indemnification for reasonable legal fees and
disbursements of counsel of the Indemnified Party, unless the Indemnifying Party
is given the opportunity to control the defense of such action, or (d) unless
the Indemnifying Party is given the opportunity to approve any settlement, which
approval shall
5
<PAGE>
not be unreasonably withheld; and provided further that, except in the event of
a material conflict of interest, the Indemnifying Party shall not be liable for
separate attorney's fees of the Indemnified Party after assuming control of the
defense or settlement.
6. INCIDENTAL AND CONSEQUENTIAL DAMAGES. NEITHER PARTY WILL BE LIABLE
------------------------------------
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT.
7. GENERAL
7.1. In the event that any provision of this Agreement shall be
rendered invalid or otherwise unenforceable by any competent or judicial
government authority, such invalidity or unenforceability shall not effect the
validity or enforceability of any other provision of this Agreement, and the
invalid provision shall be deemed amended to the fullest extent allowable by
applicable law to effect the purposes of said provision.
7.2 Logility and American Software shall each be excused for any
failure or delay in performing any of their respective obligations under this
Agreement, if such delay or failure is caused by any act of God, accident,
explosion, fire, storm, riot, embargo, war, failure or delay of transportation,
shortage of or inability to obtain supplies, equipment, fuel or labor or any
other circumstance or event beyond the reasonable control of the party relying
upon such circumstance or event.
7.3. American Software and Logility each hereby agrees to comply with
all export laws and restrictions and regulations of the Department of Commerce
or other United States or foreign agency or authority, and not to knowingly
export, or allow the export or re-export of any Product, Technology or
Improvement, or any derivatives thereof in violation of any such restrictions,
laws or regulations, or, without all required licenses and authorizations, to
Afghanistan, the People's Republic of China or any Group Q, S, W, Y or Z country
specified in the then current Supplement No. I to Section 770 of the U.S. Export
Administration Regulations (or any successor supplement or regulations).
7.4. This Agreement and the Subsidiary Formation Agreement set forth
the entire agreement and understanding between the parties as to the subject
matter hereof and merges all prior understandings, discussions and negotiations
between them. Neither of the parties shall be bound by any conditions,
modifications, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided for herein
unless set forth in writing and signed by a proper and duly authorized
representative of each party to be bound thereby.
6
<PAGE>
7.5. All notices in connection with this Agreement shall be in
writing and shall be sent to the address given below or to such other address as
the parties may hereafter specify and shall be deemed given when received.
If to American Software: American Software, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Attention: Controller
If to Logility: Logility, Inc.
470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305
Attention: Chief Financial Officer
7.6. This Agreement shall be considered as having been entered into
in the State of Georgia and shall be construed and interpreted in accordance
with the laws of the State of Georgia.
7.7 Dispute Resolution.
7.7.1 In the event that any dispute arises between American
Software and Logility in connection with this Agreement, the representatives of
each party responsible for the subject matter of such dispute shall use good
faith efforts to resolve such dispute promptly. In the event that such dispute
cannot be resolved by the parties' representatives, the matter shall be
submitted to the parties' respective Chief Executive officers ("CEOs") for
resolution. In the event that the CEOs cannot reach resolution of the issue (an
"Unresolved Dispute"), then the matter shall be settled by binding arbitration
in accordance with the provisions of Section 7.7.2. hereof.
7.7.2 Any Unresolved Dispute, after the completion of the steps
set forth above, shall be settled at the election of either party, by final and
binding independent arbitration. All arbitrations pursuant to this Agreement
shall be conducted before the American Arbitration Association ("AAA") in
Atlanta, Georgia, U.S.A., and shall be carried out in accordance with the
Commercial Arbitration Rules of the AAA then in effect (the "Rules") and the
provisions of this Agreement. American Software and Logility shall each select
one arbitrator and a third arbitrator will be selected unanimously by the two
arbitrators selected by American Software and Logility. If the two arbitrators
selected by American Software and Logility are unable to select the third
arbitrator within ten (10) days of the appointment of the two arbitrators, the
parties consent to the selection of the third arbitrator by the AAA
administrator.
7.8 No waiver by either party, whether expressed or implied, of any
provision of this Agreement, or of any breach or default, shall constitute a
continuing waiver of such provision or of any other provision of this Agreement.
7
<PAGE>
7.9. This Agreement and the rights and obligations of the parties
under this Agreement may only be assigned or transferred with the prior written
consent of the other party, except with respect to assignments to an acquiror of
all or substantially all the assets, business or stock of a party.
7.10. Each of American Software and Logility hereby agrees to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and to do and cause to be done such further acts and things,
including, without limitation, the filing of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectively the provisions
and purposes of, or to better assure and confirm unto such other party, its
rights and remedies under this Agreement.
7.11 The terms and provisions of this Agreement shall inure to the
benefit of, and be binding upon, American Software, Logility and their
respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
AMERICAN SOFTWARE, INC.
By: /s/ James C. Edenfield
---------------------------------
Name: James C. Edenfield
Title: President
LOGILITY, INC.
By: /s/ J. Michael Edenfield
----------------------------------
Name: J. Michael Edenfield
Title: President
8
<PAGE>
EXHIBIT 10.15
MARKETING LICENSE AGREEMENT
LOGILITY, INC. - AMERICAN SOFTWARE USA, INC.
THIS MARKETING LICENSE AGREEMENT (this "Agreement") is entered into by and
between LOGILITY, INC., a Georgia corporation (hereinafter "Logility"), and
AMERICAN SOFTWARE USA, INC., a Georgia corporation, for itself and its affiliate
companies (hereinafter collectively referred to as "American Software"), and
shall be effective as of the 1st day of August, 1997 (the "Effective Date").
WITNESSETH:
WHEREAS, Logility is the owner of certain computer programs defined herein
as the "Products," which Products were previously owned by American Software;
and
WHEREAS, American Software is in the business of distributing and
supporting computer programs to its customers and prospects and has prior to the
date of this Agreement marketed and supported the Products; and
WHEREAS, American Software has special knowledge concerning the business
needs of its customers and prospects; and
WHEREAS, Logility wishes to appoint American Software as its non-exclusive
marketing representative for the Products and authorize American Software to
provide certain services relating to such marketing efforts; and
WHEREAS, American Software is willing to accept such appointment and to
undertake to provide such services under the terms of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. SCOPE. The Products covered by this Agreement are listed on Exhibit A
hereto and consist of computer programs and associated end-user documentation
offered generally to end-users by Logility under the terms and conditions of its
standard license agreement. Additional software applications may be added to the
list of Products with the mutual consent of the parties. Logility also offers
enhancement and error-correction services with respect to the Products under the
terms and conditions of said agreement. Logility reserves the right to change
such agreement at any time.
<PAGE>
2. APPOINTMENT OF AMERICAN SOFTWARE. Subject to the terms and conditions
hereof, Logility hereby designates and appoints American Software for the term
of this Agreement, as a non-exclusive representative for the solicitation of
license agreements relating to the Products from prospective end-users who are
also licensees of other software systems licensed by American Software. American
Software hereby accepts such designation and appointment. For purposes of this
Agreement the term "affiliate" shall mean any entity that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such other entity. In the case of a corporation,
control shall mean, among other things, the direct or indirect ownership of more
than fifty percent (50%) of its outstanding voting stock. The foregoing
notwithstanding, however, for the purpose of this Agreement, Logility shall not
be deemed to be an affiliate of American Software, and American Software shall
not be deemed an affiliate of Logility.
3. DUTIES OF AMERICAN SOFTWARE.
3.1 American Software agrees, for the term of this Agreement, that it
shall promote and market the Products to prospective end-users who are also
licensees of software systems licensed by American Software by:
1.Identifying prospects that may benefit from use of the Products in
conjunction with other systems licensed by American Software.
2.Contacting such prospects and conducting presentations of the Products.
3.Performing demonstrations of the Products to prospective end-users either
on the premises of such end-users or at American Software's facilities.
4.Negotiating and obtaining the prospects' execution of license agreements
and service agreements.
5.Forwarding executed license agreements and service agreements to Logility
for Logility's evaluation and acceptance.
6.Serving as a point of contact for necessary communications between end-
users and Logility with respect to the Products.
3.2 American Software shall prepare and submit to Logility monthly a
complete and accurate written report of its activities hereunder, including,
without limitation, the following:
2
<PAGE>
1. A description of all promotional and marketing activities undertaken
during the preceding month setting forth the identity and addresses of
prospective end-users.
2. A summary of the nature of contacts made with such end-users and
American Software's assessment of the results of such contacts.
3. A listing by identity and date of all license agreements executed by
prospective end-users and forwarded to Logility as a result of
American Software's activities.
4. DEMONSTRATION RIGHTS. Logility hereby grants to American Software a
nonexclusive, nontransferable license to use during the term of this Agreement a
reasonable number of "Demonstration Copies" of each Product for purposes of
demonstrating the Product to prospective end-users in connection with the
marketing activities. American Software shall use the Demonstration Copies for
making demonstrations to prospective end-users (1) on computer systems owned or
leased by American Software or (2) on the computer system of a prospective end-
user. In each case, American Software shall (1) control and limit the use of
Products for the specific purpose authorized; (2) accompany the prospective end-
user at all times that the Product is installed at the site of such prospective
end-user; and (3) upon completion of the demonstration, remove the Product from
such end-user's computer and cause the deletion of all portions of the Product
from computer files in which it resided. American Software acknowledges that the
Products, including any intellectual property rights pertaining thereto, are
owned by Logility and represent or contain valuable copyrights and trade secrets
of Logility. American Software shall not attempt to reverse-engineer or
decompile the machine-readable code in which the programs are delivered.
American Software shall protect the Products from unauthorized copying,
dissemination, or disclosure and from other unauthorized use.
5. LICENSE AGREEMENTS
5.1 American Software shall have the authority to solicit the signature of
end-users on Logility's standard form of license agreement, as such agreement
may be revised from time to time by Logility and furnished to American Software,
and such other license agreements as the American Software and Logility may
mutually agree. Additionally, upon request by an end-user, American Software
may solicit the signature of such end-user on American Software's standard form
of license agreement as such agreement may be revised from time to time by
American Software, provided, however, such license agreement if accepted by
Logility, shall be promptly assigned by American Software to Logility.
Notwithstanding anything to the contrary in this Agreement, American Software
shall not execute or accept on behalf of Logility any agreement solicited from
an end-user under this Section 5.1, and American Software shall inform all end-
users that any license agreement solicited under this Section 5.1 must be
3
<PAGE>
forwarded to Logility for consideration, acceptance, and execution by Logility
in order for such agreement to be binding on Logility.
5.2 Notwithstanding anything to the contrary contained in this Agreement,
American Software has and shall exercise no authority to (i) make any
alterations in Logility's standard form of license agreement; (ii) make
statements or representations concerning the Products that exceed or are
inconsistent with the marketing materials and technical specifications provided
to American Software by Logility; or (iii) bind Logility to any undertaking or
performance with respect to the Products.
6. ANCILLARY SERVICES
6.1 American Software may also provide to end-users appropriate ancillary
services in support of the Products. Such services include, without limitation,
the following:
1.Assistance with installation of the Products on end-users' computers.
2.Technical training of end-users' personnel.
3.Implementation and consulting support services to end-users with respect
to the functions and operation of the Products.
6.2 The terms, conditions, and charges for such ancillary services shall
be established by American Software directly with end-users. American Software
shall inform each end-user (1) that Logility's obligations are limited to those
contained in the license agreement, (2) that any services of American Software
are offered on American Software's own accounts, and (3) that American Software
is solely responsible for such ancillary services.
6.3 Upon the request by American Software, and subject to Section 6.2,
Logility may provide to American Software (or to an end-user on behalf of
American Software) the ancillary services described in Section 6.1 in support of
the Products. All such ancillary services shall be provided to American
Software (or to an end-user on behalf of American Software) at rates agreed upon
from time to time by American Software and Logility, provided such rates shall
in no event exceed Logility's published rate schedule, as in effect at the time
such services are rendered by Logility. The parties acknowledge and agree that
American Software, and not the end-user shall be responsible for payment to
Logility for services provided under this Section 6.3, provided that Logility
shall not be entitled to payment from American Software unless and until (and
only to the extent that) American Software receives payment for such services
from an end-user.
4
<PAGE>
7. UNDERTAKING OF LOGILITY. Logility shall
1.Promote the Products as it deems appropriate with international and local
advertising.
2.Provide to American Software's employees technical training with respect
to the Products. Logility shall provide such training at its own cost,
but American Software shall be responsible for travel and living expenses
incurred by its employees.
3.Provide reasonable quantities of marketing materials, including
descriptive brochures and promotional materials suitable for unrestricted
distribution.
4.Evaluate the qualifications of prospective end-users who have executed
license agreements and service agreements forwarded to Logility by
American Software. Logility reserves the right, in its discretion, to
reject license agreements and service agreements executed by prospective
end-users.
5.Perform all obligations of Logility under accepted license agreements,
including shipment or delivery to end-users of copies of the computer
programs, documentation, error-correction materials, and updates that
constitute the Products.
6.Invoice and collect amounts payable under each license agreement accepted
by Logility.
8. COMPENSATION
8.1 (A) American Software shall receive a commission equal to thirty
percent (30%) of the net license fee revenue actually collected by Logility
under license agreements for Products with users who are also licensees of
software products of American Software which are secured and forwarded to
Logility by American Software and accepted by Logility.
(B) Those affiliates of American Software USA, Inc., who are located
in the United Kingdom (American Software UK, Ltd.) and in France (American
Software (France) SA) shall receive a commission equal to fifty percent (50%) of
the net license fee revenue actually collected by Logility under license
agreements for Products which they have secured and which have been accepted by
Logility, provided that such affiliates also carry out the installation of the
5
<PAGE>
Products licensed and provide first-line support services during the warranty
period and any term of Product support services provided to such license
agreements.
The term "net license fee revenue" means the actual license fee revenue
received by Logility less royalties, commissions or similar payments due third
parties in connection with the licensing of Products. Payment of compensation to
American Software shall be made by Logility within thirty (30) days after
receipt of payment from end-user. Cash payment shall be accompanied by a
detailed accounting of the basis for such payment, identifying the source and
amount of applicable revenues received by Logility. "Net license fee revenue"
shall not include maintenance or service fees paid to Logility by end-users.
8.2 Amounts payable to American Software shall be subject to a charge-back
or credit in favor of Logility in the amount previously paid American Software
with respect to amounts that are refunded to end-users. American Software agrees
to cooperate with Logility and aid in the collection of accounts receivable
under license agreements forwarded to Logility by American Software.
8.3 American Software shall be responsible for its own expenses and costs
under this Agreement, and Logility shall have no obligation to reimburse
American Software for any expenses or costs incurred by American Software in the
performance of its duties hereunder.
9. TERM AND TERMINATION
9.1 The term of this Agreement shall commence upon the Effective Date and
shall continue for five (5) years thereafter unless sooner terminated in
accordance with the provisions hereof. This Agreement may be thereafter extended
only by written instrument executed by both parties.
9.2 Logility may terminate this Agreement upon written notice to American
Software in the event of the breach of any material obligation hereunder by
American Software that is not cured by American Software after receipt from
Logility of thirty (30) days' written notice calling attention to such breach
and demanding cure thereof. In the event of such termination for cause,
Logility's sole obligation to American Software shall be to pay compensation
accrued for net revenues collected on covered license agreements accepted by
Logility prior to the date of termination.
9.3 Either party may terminate this Agreement for such party's own
convenience and at such party's discretion upon twelve (12) months' prior
written notice to the other party.
6
<PAGE>
9.4 Upon termination of this Agreement for any reason, American Software
shall within thirty (30) days of such termination destroy or return to Logility
all Demonstration Copies of the Products, and all copies of related marketing
materials. American Software shall further provide to Logility copies of
American Software's prospect files.
10. INDEMNITIES
10.1 Logility hereby agrees to indemnify American Software from and against
any and all claims, demands, or actions arising out of any material breach by
Logility of any of the terms and conditions of any license agreement with an
end-user secured by American Software hereunder or any breach of Logility's
obligations hereunder.
10.2 American Software hereby agrees to indemnify Logility from and
against any and all claims, demands, or actions arising out of American
Software's activities or performance outside the express authorization provided
American Software under this Agreement or any breach of American Software's
obligations hereunder.
10.3 The indemnities contained in this Section 10 shall be conditioned
upon the indemnifying party's receiving (1) prompt written notice of any claims,
demands, or actions for which indemnity is sought; (2) cooperation in the
defense by the party seeking indemnity; and (3) control of the defense and/or
settlement of such claim, demand, or action as to which indemnity is sought.
11. LIMITATIONS OF LIABILITY. In no event shall either party hereto be
entitled to special, indirect, or consequential damages, including lost profits,
for breach of this Agreement. Remedies shall be limited to claims for amounts
due hereunder or for indemnification as provided for herein. However, the
foregoing limitation of remedies shall not apply to any action by Logility for
infringement by American Software; any action based on or with respect to
unauthorized publication, disclosure, or use of confidential information or
trade secrets of Logility; or any action based on Logility's rights in
copyrights, trademarks, or trade secrets or other proprietary rights in the
Products.
12. TRADEMARKS. Except for purposes of identification of Products, no
right, title, interest, or license in or to any trademark or service mark of
Logility is granted to American Software under this Agreement. American Software
may on its business cards, stationery and marketing materials state that
American Software is an authorized agent of Logility for the licensing of the
Products.
13. STATUS OF AMERICAN SOFTWARE'S PERSONNEL. The parties to this
Agreement are and shall remain independent contractors, and nothing herein shall
be construed to create a partnership, or joint venture, between Logility and
7
<PAGE>
American Software. American Software shall be responsible for the wages, hours,
and conditions of employment of American Software's personnel during the term of
and under this Agreement. Nothing herein shall be construed as implying that
employees of American Software are employees of Logility.
14. NOTICES. All notices, demands, or consents required or permitted
under this Agreement shall be in writing and shall be delivered personally or
sent by certified or registered mail to the appropriate party at the address set
forth below, or at such other address as shall be given by either party to the
other in writing:
Logility, Inc. American Software USA, Inc.
470 East Paces Ferry Road, N.E. 470 East Paces Ferry Road, N.E.
Atlanta, Georgia 30305 Atlanta, Georgia 30305
Attn: Chief Financial Officer Attn: Controller
15. CHOICE OF LAW. This Agreement shall be deemed to be made in the
State of Georgia and in all respects shall be interpreted, construed, and
governed by and in accordance with the laws of the State of Georgia.
16. WAIVER OF RIGHTS. The waiver by either party of any term or provision
of this Agreement shall not be deemed to constitute a continuing waiver thereof
nor of any further or additional rights such party may hold under this
Agreement.
17. NO ASSIGNMENT; ENFORCEABILITY. This Agreement is personal to American
Software and is not assignable without the prior written consent of Logility.
Any attempt to assign, transfer, or subcontract any of the rights, duties, or
obligations of this Agreement without such consent is void.
18. DISPUTE RESOLUTION
18.1 In the event that any dispute arises between Logility and American
Software in connection with this Agreement, the representatives of each party
responsible for the subject matter of such dispute shall use good faith efforts
to resolve such dispute promptly. In the event that such dispute cannot be
resolved by the parties' representatives, the matter shall be submitted to the
parties' respective Chief Executive Officers ("CEOs") for resolution. In the
event that the CEOs cannot reach resolution of the issue (an "Unresolved
Dispute"), then the matter shall be settled by binding arbitration in accordance
with the provisions of Section 18.2 hereof.
18.2 Any Unresolved Dispute, after the completion of the steps set forth
above, shall be settled at the election of either party, by final and binding
independent arbitration. All arbitrations pursuant to this Agreement shall be
8
<PAGE>
conducted before the American Arbitration Association ("AAA") in Atlanta,
Georgia, U.S.A., and shall be carried out in accordance with the Commercial
Arbitration Rules of the AAA then in effect (the "Rules") and the provisions of
this Agreement. Logility and American Software shall each select one arbitrator
and a third arbitrator will be selected unanimously by the arbitrators selected
by Logility and American Software. If the two arbitrators selected by Logility
and American Software are unable to select the third arbitrator within ten (10)
days of the appointment of the two arbitrators, the parties consent to the
selection of the third arbitrator by the AAA administrator. The award of the
arbitrators may be enforced by any court having jurisdiction over the parties.
19. EXPORT RESTRICTIONS
Logility and American Software each hereby agrees to comply with all export
laws and restrictions and regulations of the Department of Commerce or other
United States agency or authority, and not to knowingly export, or allow the
export or re-export of any Product, or any derivatives thereof, in violation of
any such restrictions, laws or regulations, or, without all required licenses
and authorizations, to Afghanistan, the People's Republic of China or any Group
Q, S, W, Y or Z country specified in the then current Supplement No. 1 to
Section 770 of the U.S. Export Administration Regulations (or any successor
supplement or regulations).
20. GENERAL
20.1 In the event that any provision of this Agreement shall be rendered
invalid or otherwise unenforceable by any competent judicial or government
authority, such invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement and the invalid
provision shall be deemed amended to the fullest extent allowable by applicable
law to effect the purposes of said provision.
20.2 Logility and American Software shall each be excused for any failure
or delay in performing any of their respective obligations under this Agreement,
if such delay or failure is caused by any act of God, any accident, explosion,
fire, storm, riot, embargo, war, any failure or delay of transportation,
shortage of or inability to obtain supplies, equipment, fuel or labor or any
other circumstance or event beyond the reasonable control of the party relying
upon such circumstance or event.
20.3 The parties agree that this Agreement is the complete and exclusive
statement thereof between the parties and that it supersedes and merges all
prior proposals and understandings and all other agreements, whether oral or
written, between the parties relating to the subject matter hereof. This
Agreement may not be modified or altered except by a written instrument duly
executed by the parties hereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as set forth below.
AMERICAN SOFTWARE USA, INC.
BY: /s/ James C. Edenfield
_______________________________
NAME: JAMES C. EDENFIELD
TITLE: PRESIDENT
LOGILITY, INC.
BY: /s/ J. Michael Edenfield
_______________________________
NAME: J. MICHAEL EDENFIELD
TITLE: PRESIDENT
10
<PAGE>
EXHIBIT A
The Products:
All Logility's Value Chain Planning and Execution Solutions products,
including, but not limited to:
. Demand Planning
. Inventory Planning
. Event Planning
. Replenishment Planning
. Manufacturing Planning
. Demand Chain Voyager
. Supply Chain Voyager
. Warehouse Management
. Transportation Management
. Transportation Planning
11
<PAGE>
EXHIBIT 11.1
AMERICAN SOFTWARE, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Common Shares
Weighted average common shares outstand-
ing
Class A Shares........................... 17,864,323 18,535,593 17,423,093
Class B Shares........................... 4,802,960 4,819,501 4,838,689
Totals:
Basic.................................. 22,667,283 23,353,192 22,261,782
Diluted................................ 24,414,515 23,525,532 22,261,782
Net earnings (loss)...................... $ 7,795,281 $ 2,331,854 $(9,749,337)
Net earnings (loss) per common share:
Basic.................................. $ .34 $ .10 $ (.44)
Diluted................................ $ .32 $ .10 $ (.44)
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
. American Software, Inc.
. American Software Research and Development Corporation
. American Software Foreign Sales Corporation
. ASI Properties, Inc.
. American Software USA, Inc.
. American Software UK., Ltd.
. American Software Thailand
. American Software Australia PTY
. American Software Japan
. American Software France
. American Software Asia Pacific
. AMEDIA, Inc.
. The Proven Method, Inc.
. Intellimedia Commerce, Inc.
. AMQUEST, Inc.
. Logility, Inc.
. New Generation Computing, Inc.
<PAGE>
EXHIBIT 23.1
The Board of Directors
American Software, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 333-14309 and 33-55214 on Form S-8 and No. 33-79640 on Form S-3) of
American Software, Inc. of our reports dated June 19, 1998, relating to the
consolidated balance sheets of American Software, Inc. and subsidiaries as of
April 30, 1998, and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended April 30, 1998, and related schedule, which reports
appear in the April 30, 1998, annual report on Form 10-K of American Software,
Inc.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
July 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1997
<PERIOD-START> MAY-01-1997 MAY-01-1996
<PERIOD-END> APR-30-1998 APR-30-1997
<CASH> 2,161 3,442
<SECURITIES> 58,062 20,964
<RECEIVABLES> 28,622 22,670
<ALLOWANCES> 1,222 1,182
<INVENTORY> 0 0
<CURRENT-ASSETS> 92,140 50,715
<PP&E> 43,828 41,647
<DEPRECIATION> 26,639 24,244
<TOTAL-ASSETS> 142,656 99,509
<CURRENT-LIABILITIES> 29,150 29,223
<BONDS> 0 0
0 0
0 0
<COMMON> 2,417 2,379
<OTHER-SE> 100,537 67,152
<TOTAL-LIABILITY-AND-EQUITY> 142,656 99,509
<SALES> 0 0
<TOTAL-REVENUES> 107,472 84,711
<CGS> 0 0
<TOTAL-COSTS> 49,263 42,136
<OTHER-EXPENSES> 49,557 40,894
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 12,443 3,425
<INCOME-TAX> 4,648 1,093
<INCOME-CONTINUING> 7,795 2,332
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,795 2,332
<EPS-PRIMARY> .34 .10
<EPS-DILUTED> .32 .10
</TABLE>
