<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
REGISTRATION NO. 333-70123
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
PRE-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
GREAT PLAINS SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MINNESOTA 45-0374871
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
1701 S.W. 38TH STREET
FARGO, NORTH DAKOTA 58103
(701) 281-0550
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DOUGLAS J. BURGUM
GREAT PLAINS SOFTWARE, INC.
1701 S.W. 38TH STREET
FARGO, NORTH DAKOTA 58103
(701) 281-0550
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JAY L. SWANSON DOUGLAS R. HERMAN MARK G. BORDEN
TIMOTHY S. HEARN Great Plains Software, Inc. JEFFREY A. STEIN
Dorsey & Whitney LLP 1701 S.W. 38th Street Hale and Dorr LLP
Pillsbury Center South Fargo, North Dakota 58103 60 State Street
220 South Sixth Street (701) 281-0550 Boston, Massachusetts 02109
Minneapolis, Minnesota 55402-1498 (617) 526-6000
(612) 340-2600
</TABLE>
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION. DATED FEBRUARY 26, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
2,000,000 Shares
[LOGO]
Common Stock
-------------
Great Plains Software, Inc. is offering 1,035,000 of the shares to be sold
in the offering. Several shareholders of Great Plains identified in the table on
page 42 of this prospectus are offering 965,000 of the shares to be sold in the
offering. Great Plains will not receive any of the proceeds from the shares sold
by these shareholders. Great Plains' common stock is traded on the Nasdaq
National Market under the symbol "GPSI". On February 4, 1999, the last reported
sale price for the common stock on the Nasdaq National Market was $48.688 per
share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
--------------- ---------------
<S> <C> <C>
Initial public offering price........................ $ $
Underwriting discount................................ $ $
Proceeds, before expenses, to Great Plains........... $ $
Proceeds, before expenses, to selling shareholders... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 300,000 shares from Great Plains at the public offering price less
the underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
------------------
Prospectus dated , 1999.
<PAGE>
[INSIDE FRONT COVER]
Great Plains Mission
To improve the life
and business success of
Partners and Customers.
<PAGE>
[INSIDE FRONT COVER GATEFOLD]
FOR SOME, WHERE LAND MEETS SKY IS THE END.
FOR US, IT'S THE BEGINNING.
[Photo of a road extending to the horizon surrounded by fields of grain at
sunset]
At Great Plains, we took our name from the land and our philosophy from the
view. Because there, on the horizon, we see opportunity.
That spirit of progress and possibility is part of our world. And it's how
we work with growing companies worldwide. Our business management solutions
include financials, distribution, manufacturing, human resources, payroll,
service management, electronic business and enterprise reporting.
We encourage you to learn how we help businesses discover their horizons. As
well as the opportunities beyond them.
[Great Plains'
Sun/Wheat Logo]
--------------------------------------
SEE FARTHER
- -C-1999 Great Plains Software, Inc.
All rights reserved.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
GREAT PLAINS SOFTWARE, INC.
Great Plains is a leading provider of business management software solutions
to Midmarket businesses (i.e., businesses with $1 million to $250 million in
revenues and 10 to 2,500 employees). Our award-winning products and services
automate essential business processes and enhance the strategic value of
business information. Our solutions are sold and implemented by a network of
independent organizations throughout the world -- our "Partners."
Over 17,000 customers worldwide have licensed our Dynamics C/S+ and Dynamics
solutions. Dynamics C/S+ is designed for larger businesses in the Midmarket.
Dynamics is designed for smaller businesses in the Midmarket. These products
manage information flows involving the following business processes:
- Financial
- Enterprise Reporting
- Distribution
- Payroll
- Human Resources
- Manufacturing
- Service Management
- Electronic Commerce
Dynamics C/S+ and Dynamics, based on our Dynamics platform, are cost
effective, scalable, and easy to implement and use. Our platform's innovative
design and architecture allow customers to solve business problems through:
- Rapid system customization
- Extensive end-user personalization
- Seamless integration to existing systems
- Strategic use of industry-standard technologies
- Real-time electronic commerce
Our distribution network of independent Partners consists of value added
resellers, systems integrators, independent software vendors, national, regional
and local accounting firms, and specialized software consultants. Through our
Partner network, we provide customers with trained solution professionals who
are available locally to implement and customize our solutions as well as
provide ongoing service.
In addition to product excellence and channel expertise, we believe
high-quality service and support are essential elements of any complete business
management solution. We strive to deliver timely, reliable and innovative
service to our customers and Partners. Our culture attracts outstanding team
members and allows us to continually deliver on our mission statement:
"TO IMPROVE THE LIFE AND BUSINESS SUCCESS OF PARTNERS AND CUSTOMERS."
Great Plains currently employs 877 team members at 11 locations worldwide.
We have received numerous awards and recognition for organizational excellence,
financial performance, management practices, products and customer service.
Since our first release of Dynamics in 1993 and Dynamics C/S+ in 1994, our
products have received more than 15 awards worldwide for their features and
functionality. Recent awards and recognition received by us and our products
include:
- Fortune Magazine "100 Best Companies to Work For in America" (1997 and
1998)
- Association of Support Professionals and Softletter's "Best Overall
Support Site of 1998"
3
<PAGE>
- Arthur Andersen Global Best Practices Awards for "Exceeding Customer
Expectations" (1998)
- Arthur Andersen Global Best Practices Awards for "Motivating and Retaining
Employees" (1998)
- Forbes Magazine "200 Best Small Companies in America" (1998)
- Business Week Magazine "Hot 100 Small Companies" (1998)
- Visual Basic Programmers Journal "Readers Choice Award" (1997)
- Microsoft BackOffice Challenge "Best Functionality" (1997)
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Great Plains............... 1,035,000 shares
Common stock offered by the selling shareholders... 965,000 shares
Common stock to be outstanding after the
offering......................................... 14,948,326 shares
Use of proceeds.................................... For general corporate purposes,
including working capital, product
development, capital expenditures and
possible acquisitions. See "Use of
Proceeds."
Nasdaq National Market symbol...................... "GPSI"
</TABLE>
The number of shares that will be outstanding after the offering is based on
the number outstanding as of January 15, 1999. It excludes (a) 1,104,418 shares
of common stock issuable upon exercise of stock options outstanding as of
January 15, 1999, with a weighted average exercise price of $16.51 per share, of
which options to purchase 310,690 shares were then exercisable, and (b) 891,812
shares reserved for issuance under our stock incentive plan, outside directors'
stock option plan and employee stock purchase plan as of January 15, 1999. See
"Capitalization."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related Notes
included elsewhere in this prospectus.
The adjusted balance sheet data below reflects the sale of 1,035,000 new
shares of common stock offered by Great Plains as part of this offering at an
assumed offering price of $48.688 per share after deducting the estimated
underwriting discount and offering expenses payable by Great Plains. For
information regarding how we determined the number of shares used to compute net
income per share, see Note 1 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------ ------------------------
1996 1997 1998 1997 1998
---------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues..................... $ 42,271 $ 57,120 $ 85,659 $ 36,819 $ 58,936
Operating income................... 3,262 5,293 4,376 4,317 7,057
Income tax provision
(benefit)(1)..................... (4,099) 2,207 3,203 2,448 3,361
Net income(1)...................... 7,461 3,644 4,447 3,672 5,044
Basic net income per share(2)...... $ 0.58 $ (1.78) $ 0.33 $ 0.28 $ 0.37
Diluted net income per share....... $ 0.76 $ 0.36 $ 0.32 $ 0.27 $ 0.35
Shares used in computing income
per common share:
Basic............................ 7,352,820 7,629,460 13,381,414 13,093,015 13,797,818
Diluted.......................... 9,764,924 10,003,349 14,089,092 13,820,984 14,455,749
</TABLE>
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments............................. $ 70,889 $ 118,371
Total assets....................................................... 111,588 159,070
Working capital.................................................... 54,733 102,215
Deferred revenues.................................................. 20,337 20,337
Total stockholders' equity......................................... 76,430 123,912
</TABLE>
- ------------------------
(1) Net income for the year ended May 31, 1996 includes an income tax benefit of
$4.1 million or $0.42 per diluted share primarily related to the reversal of
a valuation allowance. See Note 10 of Notes to Consolidated Financial
Statements.
(2) For the fiscal years ending May 31, 1996 and 1997, basic net income per
share is lower than the diluted net income per share due to the fact that
net income available to common shareholders for the basic calculation is
reduced by the increase in carrying value of the mandatorily redeemable
preferred stock. See "Earnings Per Share" in Note 1 of Notes to Consolidated
Financial Statements.
5
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK.
WE MAY BE UNABLE TO MARKET AND SELL OUR PRODUCTS IF WE ARE UNABLE TO MAINTAIN A
STRONG PARTNER NETWORK
We do not maintain a direct sales force; rather, we rely exclusively on our
Partner network to sell our solutions. We cannot assure you that our Partners
will aggressively market our products and services or will maintain their
relationship with us. Our failure to maintain these relationships and to develop
new Partner relationships in the future could have a material adverse effect on
our business.
Our ability to achieve significant future revenue growth will depend in
large part on adding new Partners, leveraging our relationships with existing
Partners and our Partners' ability to implement their growth plans. We cannot
assure you that either we or our Partners will be able to achieve these goals.
Our inability or our Partners' inability to do so could have a material adverse
effect on our business, results of operations and financial condition.
DEMAND FOR OUR PRODUCTS MAY DECREASE IF WE ARE UNABLE TO ANTICIPATE AND ADAPT TO
RAPIDLY CHANGING TECHNOLOGY
Our markets are characterized by rapidly changing technologies, evolving
industry standards, frequent new product and service introductions, and changing
customer and Partner demands. Our future success will depend on our ability to
adapt to these rapidly changing technologies, to enhance our existing solutions,
and to introduce new solutions to address our customers' and Partners' changing
demands. We may experience difficulties that could delay or prevent the
successful design, development, introduction or marketing of new solutions. In
addition, these new solutions and enhancements must meet the requirements of our
current and prospective customers and must achieve significant market
acceptance.
DEMAND FOR OUR PRODUCTS MAY DECREASE IF MIDMARKET BUSINESSES FAIL TO ADOPT
MICROSOFT TECHNOLOGIES OR OUR PRODUCTS BECOME INCOMPATIBLE WITH NEW
DEVELOPMENTS IN THESE TECHNOLOGIES
Our software products are designed for Microsoft technologies, including
Windows NT and SQL Server. In addition, our products utilize other Microsoft
technologies, including Visual Basic for Applications and Site Server. Although
we believe that Microsoft technologies will continue to be widely utilized by
Midmarket businesses, we cannot assure you that Midmarket businesses will adopt
these technologies as anticipated or will not in the future migrate to other
computing platforms or technologies that we do not currently support. Moreover,
our strategy requires that our products and technologies continue to be
compatible with new developments in Microsoft's technologies.
OUR MANAGEMENT AND INTERNAL SYSTEMS MAY BE INADEQUATE TO HANDLE POTENTIAL GROWTH
OF OUR SALES AND WORKFORCE
Our growth has resulted in increased responsibilities placed upon our
management and has placed added pressures on our internal systems. Continued
growth will require us to implement additional systems and controls and to
expand, train and manage a larger workforce. We cannot assure you that the
systems and management skills currently in place will be adequate if we continue
to grow. In addition, from time to time we may acquire businesses, products,
services and
6
<PAGE>
technologies that are complementary to ours, or that allow us to enter into new
markets. Such acquisitions would place additional demands upon our management.
DEMAND FOR OUR PRODUCTS MAY DECREASE IF WE ARE UNABLE TO COMPETE SUCCESSFULLY IN
THE MIDMARKET BUSINESS SOFTWARE MARKET
The market for business management solutions is highly competitive. We
expect this competition to intensify, particularly in the Midmarket. Many of our
competitors have greater financial, marketing and technical resources than we
do. We cannot assure you that we will be able to compete successfully against
these companies. See "Business -- Competition."
SOFTWARE THAT WE LICENSE FROM OTHER COMPANIES FOR RESALE MAY BECOME UNAVAILABLE
OR
OUTDATED
Some of our products utilize software licensed to us by independent,
third-party software developers. For example, we rely on third parties for our
primary reporting tool, for our Integration Manager, and for our Service
Management Series. Although we believe that there are alternatives for most of
these products, any significant interruption in the supply of such third-party
software could have a material adverse impact on our sales unless and until we
can replace the functionality provided by key third-party products. In addition,
we depend on these third parties to enhance their current products, to develop
new products on a timely and cost-effective basis, and to respond to emerging
industry standards and rapid technological change. We cannot assure you that we
would be able to replace the functionality provided by third-party software if
that software becomes obsolete or incompatible with future versions of our
products, or otherwise is not adequately maintained or updated. Any failure of
key third-party solutions could have a material adverse effect on our business,
results of operations and financial condition.
WE MAY BE UNABLE TO IDENTIFY OR COMPLETE SUITABLE ACQUISITIONS AND INVESTMENTS,
AND ANY ACQUISITIONS AND INVESTMENTS WE DO COMPLETE MAY CREATE BUSINESS
DIFFICULTIES OR DILUTE OUR SHAREHOLDERS
We may acquire or make investments in complementary businesses, products,
services or technologies. We cannot assure you that we will be able to identify
suitable acquisitions or investment candidates. Even if we identify suitable
candidates, we cannot assure you that we will be able to make such acquisitions
or investments on commercially acceptable terms. If we acquire a company, we may
have difficulty assimilating its personnel and operations into our operations.
In addition, its key personnel may decide not to work for us. We may also have
difficulty in assimilating acquired businesses, products, services and
technologies into our operations. These difficulties could disrupt our ongoing
business, distract our management and workforce, increase our expenses and
adversely affect our results of operations. Furthermore, we may incur
significant debt or be required to issue equity securities to pay for future
acquisitions or investments. The issuance of equity securities could be dilutive
to our shareholders.
OUR EARNINGS MAY BE AFFECTED BY POTENTIAL CHANGES IN ACCOUNTING PROFESSION
PRACTICES
Recently, the SEC has been critical of the U.S. accounting practice of
writing off in-process research and development costs incurred in connection
with acquisitions. We are aware that the SEC and the U.S. accounting profession
are in dialog regarding retroactive application of recent SEC guidelines on this
subject. We cannot predict the outcome of that dialog. However, if the new SEC
guidelines were applied, it could cause a reduction of in-process research and
development write-offs taken in connection with two acquisitions in fiscal 1998,
and a corresponding increase in the amount of goodwill associated with each
acquisition, which would produce increased amortization expense against income
in future periods.
7
<PAGE>
ANTICIPATED FLUCTUATIONS IN OUR QUARTERLY REVENUE AND OPERATING RESULTS MAY
RESULT IN REDUCED PROFITABILITY AND LEAD TO REDUCED PRICES FOR OUR STOCK
Our quarterly revenue and operating results have varied in the past and can
be expected to vary in the future. As a result, we cannot assure you that we
will be able to maintain profitability on an annual or quarterly basis. It is
possible that in some future quarters our operating results will fall below our
expectations or those of market analysts and investors. In that event, the price
of our common stock would likely decrease.
Most of our quarterly revenue results from orders booked in that quarter. We
establish expenditure levels based on our expectation for future revenue. If
revenue levels are below expectation, expenses could be disproportionately high.
In addition, our business has experienced and may continue to experience
seasonality. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Selected Quarterly Operating Results."
THE EXPECTED CONTINUING DECLINE IN SALES OF OUR DOS- AND MACINTOSH-BASED PRODUCT
COULD NEGATIVELY AFFECT OUR BUSINESS
We have shifted our product focus from a DOS- and Macintosh-based product,
Great Plains Accounting, to our Dynamics C/S+ and Dynamics products which are
based on Windows NT and Microsoft SQL Server technologies. As a result of this
shift and the decrease in general market demand for DOS- and Macintosh-based
solutions, our revenues from our Great Plains Accounting product have declined
and are expected to decline in the future. We cannot assure you that the decline
in revenues from sales of Great Plains Accounting will not have a material
adverse effect on the results of our operations and our financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WE MAY FACE INCREASED COMPETITION AND DOWNWARD PRICE PRESSURE IF WE ARE UNABLE
TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of trade secret, copyright and trademark laws,
nondisclosure agreements and other contractual provisions to protect our
intellectual property rights. We cannot assure you that these protections will
be adequate to prevent our competitors from copying or reverse-engineering our
products, or that our competitors will not independently develop technologies
that are substantially equivalent or superior to ours. We make source code
available to certain of our Partners and customers. This availability may
increase the likelihood of misappropriation or other misuse of our intellectual
property.
We have no patents. Existing copyright and trademark laws afford only
limited protection for our intellectual property rights and will not protect
such rights if competitors independently develop similar products. While we
license the Dynamics C/S+ product under signed license agreements, Dynamics and
Great Plains Accounting are licensed under "shrink wrap" licenses not signed by
the licensees. These non-negotiable license agreements found printed on the
software packaging may be unenforceable under the laws of certain jurisdictions.
In addition, the laws of certain countries where we sell products do not protect
our products and intellectual property rights to the same extent as the laws of
the United States.
WE MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS WHICH WOULD BE COSTLY TO
RESOLVE
Although we have never been the subject of a material intellectual property
dispute, we cannot assure you that a third party will not assert that our
technology violates its intellectual property rights. As the number of software
products in our target markets increases and the functionality of these products
further overlap, we believe that all software developers may become increasingly
subject to infringement claims. Any infringement claims, whether with or without
merit, can be time
8
<PAGE>
consuming and expensive to defend. We cannot assure you that third parties will
not assert infringement claims against us in the future with respect to our
current or future products or that any infringement claim assertions will not
require us to enter into royalty arrangements that could be costly.
DIFFICULTIES PRESENTED BY INTERNATIONAL ECONOMIC, POLITICAL, LEGAL, ACCOUNTING
AND BUSINESS FACTORS COULD NEGATIVELY AFFECT OUR BUSINESS IN INTERNATIONAL
MARKETS
We have operations in a number of international markets. We intend to
continue to expand our international operations and our international sales and
marketing efforts. Our international business is subject to many risks,
including:
- local economic and market conditions
- political and economic instability
- difficulties in enforcing intellectual property and contract rights
- difficulties in tailoring our products to fit local accounting principles,
rules, regulations, language, tax codes and customs
- fluctuations in currency exchange rates
- difficulties and costs of staffing and managing foreign operations
- the need for compliance with a wide variety of foreign and United States
export regulations
These risks may materially and adversely affect our business, results of
operations or financial condition.
OUR PRODUCTS, SYSTEMS AND SALES MAY BE SUBJECT TO YEAR 2000 PROBLEMS
Our current products are Year 2000 compliant. Nevertheless, our business
could be adversely affected by Year 2000 problems. For example, Midmarket
businesses may lack sufficient resources to acquire new systems such as ours
because they may be diverting resources to assess and fix internal systems that
may not be Year 2000 compliant.
We have reviewed our own information technology and other technology systems
to assess and remediate any Year 2000 problems. While the amount of remediation
work required to address Year 2000 problems is not expected to be extensive and
while we have received assurances from our major suppliers that they are
addressing the Year 2000 issue, we cannot assure you that our internal systems
will function properly in the Year 2000. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000."
CONCENTRATION OF OWNERSHIP MAY GIVE SOME SHAREHOLDERS SUBSTANTIAL INFLUENCE AND
MAY PREVENT OR DELAY A CHANGE IN CONTROL
We anticipate that the executive officers and directors will, in the
aggregate, beneficially own approximately 33.1 percent of our outstanding common
stock following the completion of this offering. See "Principal and Selling
Shareholders." These shareholders may be able to exercise substantial influence
over all matters requiring shareholder approval, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of Great Plains.
9
<PAGE>
OUR CHARTER DOCUMENTS AND MINNESOTA LAW MAY DISCOURAGE AN ACQUISITION OF GREAT
PLAINS
Provisions of our articles of incorporation, by-laws and Minnesota law could
make it more difficult for a third-party to acquire us, even if doing so would
be beneficial to our shareholders.
MANAGEMENT COULD SPEND OR INVEST THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH THE SHAREHOLDERS MAY NOT AGREE
Our management can spend or invest the proceeds from this offering in ways
with which the shareholders may not agree. See "Use of Proceeds."
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT GREAT PLAINS AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISK AND UNCERTAINTIES. GREAT
PLAINS' ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS PROSPECTUS. GREAT PLAINS
UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR
ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN
THE FUTURE.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock began trading on the Nasdaq National Market under the
symbol GPSI on June 20, 1997. Prior to such date, there was no established
public trading market for our common stock.
The following table lists, for the periods indicated, the high and low
closing sale prices of our common stock, as quoted on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
First Quarter Fiscal 1998
(from June 20, 1997 through August 31, 1997)................. $ 35.000 $ 23.750
Second Quarter Fiscal 1998..................................... 29.250 21.500
Third Quarter Fiscal 1998...................................... 33.625 20.500
Fourth Quarter Fiscal 1998..................................... 39.250 29.500
First Quarter Fiscal 1999...................................... 39.500 31.625
Second Quarter Fiscal 1999..................................... 48.250 30.125
Third Quarter Fiscal 1999 (through February 4, 1999)........... 49.000 39.562
</TABLE>
On February 4, 1999, the closing sale price per share of our common stock as
quoted on the Nasdaq National Market was $48.688. On February 4, 1999, there
were approximately 250 holders of record of our common stock, representing a
substantially larger number of shareholder accounts.
USE OF PROCEEDS
The net proceeds to Great Plains from the sale of the 1,035,000 shares of
common stock offered by Great Plains pursuant to this offering are estimated to
be approximately $47.5 million ($61.4 million if the underwriters'
over-allotment option is exercised in full) at an assumed public offering price
of $48.688 per share and after deducting the estimated underwriting discount and
offering expenses payable by Great Plains.
We expect to use the net proceeds from this offering for general corporate
purposes, including product development and the funding of working capital and
growth. In addition, we may acquire businesses, products and technologies that
are complementary to ours, and a portion of the net proceeds may be used for
these acquisitions. While we engage from time to time in discussions with
respect to potential acquisitions, we have no definitive agreements with respect
to any material acquisitions as of the date of this prospectus. We cannot assure
you that any acquisitions will be made.
Pending these uses, we intend to invest the net proceeds from this offering
in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings to fund the development and growth of
our business.
11
<PAGE>
CORPORATE INFORMATION
Great Plains was founded in 1981 and was incorporated in 1983. References in
this prospectus to "Great Plains," "we," "our" and "us" refer to Great Plains
Software, Inc., a Minnesota corporation, and its subsidiaries. Our principal
executive offices are located at 1701 S.W. 38th Street, Fargo, North Dakota
58103. Our telephone number is (701) 281-0550.
Great Plains Software-Registered Trademark-, Dynamics C/S+-Registered
Trademark-, Great Plains Dynamics-Registered Trademark- and Dexterity-Registered
Trademark- are registered trademarks of Great Plains in the United States and
other countries. Great Plains Accounting, Great Plains' sun/wheat logo,
DynamicTools, Dynamics Continuum, Stampede, the trademarks for our Internet
applications and various other word and logo marks are trademarks of Great
Plains and are the subject of pending trademark and service mark applications in
the United States and other countries. This prospectus also includes names,
trademarks, service marks and registered trademarks and service marks of other
companies.
CAPITALIZATION
The following table summarizes our capitalization as of November 30, 1998
and as adjusted to give effect to our receipt of the estimated net proceeds from
the sale of 1,035,000 shares of our common stock offered by this prospectus at
an assumed public offering price of $48.688 per share. See "Use of Proceeds."
You should read this information in conjunction with our Consolidated Financial
Statements and the related Notes that appear in this prospectus beginning on
page F-1.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value, 30,000,000 shares authorized,
none outstanding.............................................. -- --
Common stock, $.01 par value, 100,000,000 shares authorized;
13,842,713 shares issued and outstanding; and 14,877,713
shares issued and outstanding, as adjusted.................... $ 138 $ 149
Additional paid-in capital...................................... 69,514 116,985
Accumulated translation adjustment.............................. 1 1
Retained earnings............................................... 6,777 6,777
--------- ------------
Total stockholders' equity.................................... 76,430 123,912
--------- ------------
Total capitalization...................................... $ 76,430 $ 123,912
--------- ------------
--------- ------------
</TABLE>
The number of shares issued and outstanding excludes (a) 37,396 shares of
common stock issued pursuant to the exercise of options between December 1, 1998
and January 15, 1999 with a weighted average exercise price of $6.24 per share,
(b) 33,217 shares of common stock issued at $33.47 per share pursuant to the
employee stock purchase plan, (c) 1,104,418 shares of common stock issuable
pursuant to the exercise of options outstanding at January 15, 1999 at a
weighted average exercise price of $16.51 per share, of which options to
purchase 310,690 shares were then exercisable, and (d) 891,812 shares of common
stock reserved for issuance under our 1997 stock incentive plan, outside
directors' stock option plan and employee stock purchase plan as of January 15,
1999.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related Notes
included elsewhere in this prospectus. The selected consolidated statement of
income data shown below for the years ended May 31, 1996, 1997 and 1998 and the
consolidated balance sheet data at May 31, 1997 and 1998 are derived from, and
are qualified by reference to, the audited financial statements included
elsewhere in this prospectus and should be read in conjunction with those
consolidated financial statements and related notes. The selected consolidated
statement of income data presented below for the years ended May 31, 1994 and
1995 and the consolidated balance sheet data at May 31, 1994, 1995 and 1996 are
derived from audited financial statements not included elsewhere in this
prospectus. The selected consolidated financial data as of and for the six
months ended November 30, 1997 and 1998 has been derived from unaudited
financial statements of Great Plains which, in the opinion of management,
include all adjustments, consisting solely of normal recurring adjustments,
necessary for a fair presentation of the financial information shown in these
statements. The results for the six months ended November 30, 1998 are not
necessarily indicative of the results to be expected for the full year or for
any future period. For an explanation of the determination of the number of
shares used in computing net income per share, see Note 1 of Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
---------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
License............................... $ 19,165 $ 25,050 $ 27,078 $ 35,919 $ 52,949 $ 22,617 $ 34,555
Service............................... 9,949 12,847 15,193 21,201 32,710 14,202 24,381
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues...................... 29,114 37,897 42,271 57,120 85,659 36,819 58,936
Cost of revenues:
License............................... 4,997 4,439 4,913 6,362 11,220 4,589 8,653
Service............................... 5,479 5,622 5,980 8,260 11,118 4,762 7,724
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenues.............. 10,476 10,061 10,893 14,622 22,338 9,351 16,377
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit........................ 18,638 27,836 31,378 42,498 63,321 27,468 42,559
Operating expenses:
Sales and marketing................... 14,331 14,013 14,477 21,935 31,636 13,908 21,273
Research and development.............. 10,676 9,308 8,876 9,678 12,586 5,687 9,375
General and administrative............ 3,607 3,886 4,763 5,592 7,587 3,556 4,854
Acquired in-process research and
development......................... -- -- -- -- 7,136 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses............ 28,614 27,207 28,116 37,205 58,945 23,151 35,502
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)................. (9,976) 629 3,262 5,293 4,376 4,317 7,057
Total other income (expense), net....... (381) (260) 100 558 3,274 1,803 1,348
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes... (10,357) 369 3,362 5,851 7,650 6,120 8,405
Income tax provision (benefit)(1)....... (27) 45 (4,099) 2,207 3,203 2,448 3,361
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative
effect of change in accounting
principle......................... (10,330) 324 7,461 3,644 4,447 3,672 5,044
Cumulative effect of a change in
accounting principle.................. -- (200) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....................... $ (10,330) $ 124 $ 7,461 $ 3,644 $ 4,447 $ 3,672 $ 5,044
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Basic net income per share(2)........... $ (1.52) $ 0.00 $ 0.58 $ (1.78) $ 0.33 $ 0.28 $ 0.37
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Diluted net income per share............ $ (1.52) $ 0.01 $ 0.76 $ 0.36 $ 0.32 $ 0.27 $ 0.35
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Number of shares for computing net
income per share:
Basic................................. 6,776,906 7,158,950 7,352,820 7,629,460 13,381,414 13,093,015 13,797,818
Diluted............................... 6,776,906 9,164,980 9,764,924 10,003,349 14,089,092 13,820,984 14,455,749
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
MAY 31,
----------------------------------------------------- NOVEMBER 30,
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Assets:
Cash, cash equivalents and investments...... $ 119 $ 2,892 $ 8,256 $ 16,243 $ 66,918 $ 70,889
Total assets................................ 8,845 15,327 24,361 33,214 102,845 111,588
Working capital............................... (15,400) (4,992) 1,012 6,658 50,824 54,733
Liabilities and stockholders' equity:
Deferred revenues........................... 6,897 8,027 9,018 10,448 15,133 20,337
Long-term debt and capital lease
obligations, less current portion......... 1,281 750 20 -- -- --
Mandatorily redeemable convertible preferred
stock..................................... -- 8,300 11,502 28,698 -- --
Total stockholders' equity.................. (11,303) (9,066) (4,812) (16,277) 69,671 76,430
</TABLE>
- ------------------------------
(1) Net income for the year ended May 31, 1996 includes an income tax benefit of
$4.1 million or $0.42 per diluted share primarily related to the reversal of
a valuation allowance. The reversal reflects the recognition of net
operating loss carryforwards and other deferred tax assets and was a result
of management's analysis of Great Plains' current levels of earnings and
future outlook, which increased the likelihood of Great Plains realizing its
deferred tax assets. For subsequent periods, Great Plains has provided for
income taxes utilizing federal and state statutory income tax rates. See
Note 10 of Notes to Consolidated Financial Statements.
(2) For the fiscal years ending May 31, 1995, 1996 and 1997, basic net income
per share is lower than the diluted net income per share due to the fact
that net income available to common stockholders for the basic calculation
is reduced by the increase in carrying value of the mandatorily redeemable
preferred stock. This increase in carrying value has a greater impact on the
basic calculation than does the inclusion of the preferred shares in the
diluted calculation. The mandatorily redeemable preferred stock was
converted into shares of common stock in June 1997 in connection with Great
Plains' initial public offering. See "Earnings Per Share" in Note 1 of Notes
to Consolidated Financial Statements.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Great Plains should be read in conjunction with Great Plains'
Consolidated Financial Statements and related Notes, and the other financial
information included elsewhere in this prospectus.
OVERVIEW
Great Plains is a leading provider of business management software solutions
to the Midmarket. Great Plains' award-winning products and services automate
essential business processes and enhance the strategic value of business
information. Great Plains' solutions are sold and implemented by a network of
independent Partners throughout the world.
Great Plains has been a leading provider of business software solutions
since 1982 when it began selling its "heritage product," Great Plains
Accounting. Great Plains Accounting is currently available for DOS- and
Macintosh-based systems for both single users and "local area networks" in which
a collection of computers and other devices are physically connected by wires to
enable sharing of data. In the late 1980s, Great Plains anticipated the market
shift towards Windows and "client/server" business management solutions. Client
server solutions allow personal computers, often called client computers, to
exchange data with more powerful computers, called servers, shared by multiple
users.
In February 1993, Great Plains released Dynamics, its client/server product
for smaller businesses in the Midmarket. In July 1994, Great Plains released its
other client/server product, Dynamics C/S+. Dynamics C/S+ is Great Plains'
enterprise-wide solution for the larger businesses in the Midmarket and is
optimized for Windows NT and Microsoft SQL Server. Great Plains recently
expanded its enterprise-wide product offering with two acquisitions that were
completed in the fourth quarter of fiscal 1998. These acquisitions provided
manufacturing, human resources and enterprise reporting solutions, which were in
various stages of development.
Great Plains made significant investments in research and development in the
early 1990s to launch its client/server products. In addition, Great Plains has
made a significant investment in building an experienced and knowledgeable
network of independent Partners to market, implement and support its Dynamics
C/S+ and Dynamics products. Since the release of the client/server products,
Great Plains' principal source of revenues has shifted from the heritage product
to the client/server products. Client/server products accounted for 61.4%,
77.4%, 87.3% and 92.9% of Great Plains' total revenue for fiscal 1996, 1997 and
1998 and the six months ended November 30, 1998, respectively.
Great Plains' revenues are derived from two principal sources: software
license fees and fees for maintenance, technical support, training and
consulting services. As required, Great Plains recognizes revenue in accordance
with Statement of Position 97-2, Software Revenue Recognition, which Great
Plains adopted beginning June 1, 1998. Statement of Position 97-2 generally
requires revenue earned on software products, upgrades or enhancements, rights
to exchange or return software, postcontract customer support, or services,
including elements deliverable only on a when-and-if-available basis, to be
allocated to the various elements of such sale based on vendor-specific
objective evidence of fair market values. If this evidence does not exist,
revenue from the sale would be deferred until sufficient evidence exists, or
until all elements have satisfied the requirements for revenue recognition.
Prior to its adoption of Statement of Position 97-2, Great Plains recognized
revenue in accordance with Statement of Position 91-1, Software Revenue
Recognition. This adoption did not have a material effect on the timing of Great
Plains' revenue recognition or cause changes to its revenue recognition
policies. See Note 1 of Notes to Consolidated Financial Statements.
15
<PAGE>
License fee revenues are generally recognized upon shipment of the related
software product. Fees for Great Plains' maintenance and support plans are
recorded as deferred revenue when billed to the customer and recognized ratably
over the term of the maintenance and support agreement, which is typically one
year. Fees for Great Plains' training and consulting services are recognized at
the time the services are performed.
Dynamics C/S+ and Dynamics customers are required to purchase a one-year
maintenance plan at the time the product is acquired. A majority of these
customers renew the maintenance plan after the initial term. Under the
maintenance plan, Great Plains provides these customers with product upgrades in
addition to on-line assistance and information. The maintenance program for
Great Plains' heritage product provides customers with product "updates," which
are less significant releases of the heritage product; however, heritage product
upgrades are not included in the heritage maintenance program. Heritage
customers can purchase product upgrades as they are released.
Great Plains currently sells products outside the United States through
subsidiaries located in Canada, the United Kingdom, Scandinavia, South Africa,
Singapore and Australia, as well as through international distribution Partners
located in Germany, Poland, the Czech Republic, the Benelux Countries, Portugal,
Colombia, and the Middle East. Great Plains' client/server products are
available in 9 languages. Great Plains' products have been licensed in
approximately 95 countries.
From time to time, Great Plains engages in discussions with respect to
potential acquisitions. Great Plains has no definitive agreements with respect
to any material acquisitions as of the date of this prospectus. Recently, Great
Plains entered into a non-binding letter of intent to acquire a provider of
business software. If this transaction closes, the acquisition cost is expected
to be less than $5 million, payable in stock. Great Plains may not be able to
complete this acquisition or any other acquisition.
For a discussion of recently issued accounting standards that may impact
Great Plains' future financial results, see Note 1 of Notes to Consolidated
Financial Statements.
16
<PAGE>
RESULTS OF OPERATIONS
The following table indicates the percentage of total revenues represented
by certain items reflected in Great Plains' consolidated statement of income.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License.................................... 64.1% 62.9% 61.8% 61.4% 58.6%
Service.................................... 35.9 37.1 38.2 38.6 41.4
--------- --------- --------- --------- ---------
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License.................................... 11.6 11.1 13.1 12.5 14.7
Service.................................... 14.2 14.5 13.0 12.9 13.1
--------- --------- --------- --------- ---------
Total cost of revenues................... 25.8 25.6 26.1 25.4 27.8
--------- --------- --------- --------- ---------
Gross profit............................. 74.2 74.4 73.9 74.6 72.2
Operating expenses:
Sales and marketing........................ 34.2 38.4 36.9 37.8 36.1
Research and development................... 21.0 16.9 14.7 15.4 15.9
General and administrative................. 11.3 9.8 8.9 9.7 8.2
Acquired in-process research and
development.............................. -- -- 8.3 -- --
--------- --------- --------- --------- ---------
Total operating expenses................. 66.5 65.1 68.8 62.9 60.2
--------- --------- --------- --------- ---------
Operating income............................. 7.7 9.3 5.1 11.7 12.0
Other income, net............................ 0.2 1.0 3.8 4.9 2.3
--------- --------- --------- --------- ---------
Income before income taxes................... 7.9 10.3 8.9 16.6 14.3
Income tax provision (benefit)............... (9.7) 3.9 3.7 6.6 5.7
--------- --------- --------- --------- ---------
Net income................................... 17.6% 6.4% 5.2% 10.0% 8.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
REVENUES
REVENUES. Revenues increased from $42.3 million in fiscal 1996 to $57.1
million in fiscal 1997 and to $85.7 million in fiscal 1998, representing
increases of 35.1% and 50.0%, respectively. Revenues increased from $36.8
million for the six months ended November 30, 1997 to $58.9 million for the six
months ended November 30, 1998, representing an increase of 60.1%. These
increases in revenues were primarily due to increased demand for Great Plains'
client/server products and related services.
The following table indicates client/server and heritage product revenues,
each as a percentage of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------- ------------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Client/server product revenues................. 61.4% 77.4% 87.3% 86.9% 92.9%
Heritage product revenues...................... 38.6 22.6 12.7 13.1 7.1
</TABLE>
17
<PAGE>
Client/server product revenues, including license and service fees,
increased from $25.9 million in fiscal 1996 to $44.2 million in fiscal 1997 and
to $74.8 million in fiscal 1998, representing increases of 70.5% and 69.1%,
respectively. Client/server product revenues increased from $32.0 million for
the six months ended November 30, 1997 to $54.8 million for the six months ended
November 30, 1998, representing an increase of 71.1%.
The increase in client/server product revenues was offset, in part, by a
decrease in revenues from Great Plains' heritage product. Heritage product
revenues decreased from $16.4 million in fiscal 1996 to $12.9 million in fiscal
1997 and to $10.9 million in fiscal 1998, representing decreases of 21.1% and
15.6%, respectively. Heritage product revenues decreased from $4.8 million for
the six months ended November 30, 1997 to $4.1 million for the six months ended
November 30, 1998, representing a decrease of 13.3%. The decrease in heritage
product revenues was primarily due to a decrease in demand for DOS- and
Macintosh-based financial management software, which reflects the broader market
trend toward Windows and client/server computing. In addition, for the six
months ended November 30, 1998, the decrease can also be attributed to the
expected decline in the number of customers purchasing Great Plains' Version 9
heritage upgrade, which was initially released in February 1997. Great Plains
anticipates that heritage product revenues will decrease in future periods.
Great Plains' international revenues increased from $4.4 million in fiscal
1996 to $8.6 million in fiscal 1997 and to $13.4 million in fiscal 1998,
representing 10.4%, 15.0% and 15.6% of total revenues, respectively. In
addition, international revenues increased from $5.4 million for the six months
ended November 30, 1997 to $10.0 million for the six months ended November 30,
1998, representing 14.7% and 16.9% of total revenues, respectively. The increase
in fiscal 1997 resulted primarily from growth in Great Plains' subsidiary
operation in the United Kingdom and from increased sales to existing
international distribution Partners. The increases in fiscal 1998 and for the
six months ended November 30, 1998 resulted primarily from the addition of new
international subsidiaries in Singapore, South Africa and Scandinavia and growth
of subsidiary operations in existing international markets.
LICENSE. Total license fee revenues increased from $27.1 million in fiscal
1996 to $35.9 million in fiscal 1997 and to $53.0 million in fiscal 1998,
representing increases of 32.7% and 47.4%, respectively. Total license fee
revenues increased from $22.6 million for the six months ended November 30, 1997
to $34.5 million for the six months ended November 30, 1998, representing an
increase of 52.8%. These increases in total license fee revenues are largely
attributable to increased sales of Great Plains' client/server products. Great
Plains added to its client/server product offerings with the release of a
Microsoft SQL Server edition of Dynamics C/S+ in April 1996 and the release of
additional functionality and applications for the SQL Server edition in November
1996. In September 1997, Great Plains added to its client/server product
offerings with the release of a service management solution licensed from a
third party. In addition, Great Plains broadened its client/server solutions
with the addition of manufacturing, human resources and enterprise reporting
solutions through acquisitions completed in Great Plains' fourth quarter of
fiscal 1998. These acquisitions did not have a material impact on revenue in
fiscal 1998 but contributed to the increase in license fee revenue for the six
months ended November 30, 1998. Moreover, since the release of Great Plains'
client/server products, Great Plains has increased its sales, marketing and
service capacity and increased the number of Partners representing its
client/server products. These factors have led to an increase in the number of
client/server software licenses and an increase in the average revenues derived
from individual client/server licenses.
The increase in client/server product license fee revenues was offset, in
part, by a decrease in heritage product license fee revenues. The decrease in
heritage product license fees is primarily a result of decreased demand for DOS-
and Macintosh-based financial management software. In addition, Great Plains has
historically released significant upgrades of its heritage product approximately
every two years, which had a positive impact on heritage product license fee
18
<PAGE>
revenues in the quarters following release. Significant upgrades of the heritage
product were released in February 1997 and December 1997, which Great Plains
marketed principally to Great Plains' installed base of heritage product
customers. Notwithstanding the positive impact on revenues these upgrades had in
fiscal 1997 and fiscal 1998, overall heritage product license fee revenues
declined in fiscal 1997, fiscal 1998 and in the six months ended November 30,
1998. Great Plains anticipates that heritage product license fee revenues will
decrease in future periods.
SERVICE. Service revenues increased from $15.2 million in fiscal 1996 to
$21.2 million in fiscal 1997 and to $32.7 million in fiscal 1998, representing
increases of 39.5% and 54.3%, respectively. In addition, service revenues
increased from $14.2 million for the six months ended November 30, 1997 to $24.4
million for the six months ended November 30, 1998, representing an increase of
71.7%. Service revenues as a percentage of total revenues were 35.9%, 37.1% and
38.2% for fiscal 1996, 1997 and 1998, respectively. Similarly, service revenues
as a percentage of total revenues were 38.6% and 41.4% for the six months ended
November 30, 1997 and November 30, 1998, respectively. These increases in
service revenues were largely a result of the service revenues associated with
new client/server licenses as well as renewals of existing maintenance and
support contracts from the growing installed base of client/server customers.
COSTS AND EXPENSES
COST OF LICENSE FEES. Cost of license fees consists primarily of the costs
of product manuals, media, shipping and royalties paid to third parties. Cost of
license fees increased from $4.9 million in fiscal 1996 to $6.4 million in
fiscal 1997 and to $11.2 million in fiscal 1998, representing 18.1%, 17.7% and
21.2% of total license fee revenues in fiscal 1996, 1997 and 1998, respectively.
In addition, cost of license fees increased from $4.6 million for the six months
ended November 30, 1997 to $8.7 million for the six months ended November 30,
1998, representing 20.3% and 25.0% of total license fee revenues for such
periods, respectively. The increase in cost of license fees is primarily
attributable to the overall growth in license fee revenues and an increase in
the sale of products for which Great Plains is obligated to pay royalties to
third party vendors. Great Plains anticipates that cost of license fees will
increase in dollar amount as license fee revenues increase. Cost of license fees
as a percentage of total license fee revenues may increase if Great Plains
enters into additional royalty arrangements or if the sale of products which
carry a royalty obligation increase as a percentage of total license fee
revenues.
COST OF SERVICES. Cost of services consists of the costs of providing
telephone support, training and consulting services to customers and Partners.
Cost of services increased from $6.0 million in fiscal 1996 to $8.3 million in
fiscal 1997 and to $11.1 million in fiscal 1998, representing 39.4%, 39.0% and
34.0% of total service revenues, respectively. In addition, cost of services
increased from $4.8 million for the six months ended November 30, 1997 to $7.7
million for the six months ended November 30, 1998, representing 33.5% and 31.7%
of total service revenues, respectively. The increase in cost of services is
primarily due to the expansion of Great Plains' customer and Partner service
resources. Cost of services as a percentage of service revenues has decreased as
a result of improved efficiency in operations and continued strong customer
enrollment in maintenance plans and support contracts. Great Plains anticipates
that cost of services will increase in dollar amount as service revenues
increase, but will remain relatively constant as a percentage of service
revenues.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and travel and promotional expenses. Sales and marketing
expenses have increased from $14.5 million in fiscal 1996 to $21.9 million in
fiscal 1997 and $31.6 million in fiscal 1998, representing 34.2%, 38.4% and
36.9% of total revenues, respectively. Sales and marketing expenses increased
from $13.9 million for the six months ended November 30, 1997 to $21.3 million
for the six months ended November 30, 1998, representing 37.8% and 36.1% of
total
19
<PAGE>
revenues, respectively. Since the beginning of fiscal 1997, Great Plains has
increased spending on sales and marketing to promote the Microsoft SQL Server
edition of its Dynamics C/S+ product. The increase in sales and marketing
expenses and sales and marketing expenses as a percentage of total revenues
reflects the hiring of additional sales and marketing personnel, expanded
promotional activities and increased commissions relating to the increase in
client/server product revenues. In addition, Great Plains has increased sales
and marketing expenses related to the operation of its international
subsidiaries in the United Kingdom, Australia, Singapore, South Africa and
Scandinavia. The decrease in sales and marketing expenses as a percentage of
total revenues in fiscal 1998 and for the six months ended November 30, 1998
reflects an increase in sales and marketing productivity and a corresponding
increase in revenues derived from Great Plains' client/ server products. Great
Plains anticipates that sales and marketing expenses will increase in dollar
amount as total revenues increase; however, Great Plains does not anticipate
significant changes in sales and marketing expenses as a percentage of total
revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation of development personnel and depreciation of
equipment. Great Plains has made significant investments in research and
development with total expenses increasing from $8.9 million in fiscal 1996 to
$9.7 million in fiscal 1997 and $12.6 million in fiscal 1998, representing
21.0%, 16.9%, and 14.7% of total revenues, respectively. Research and
development expenses were $5.7 million for the six months ended November 30,
1997 and $9.4 million for the six months ended November 30, 1998, representing
15.4% and 15.9% of total revenues, respectively. Research and development
expenses in fiscal 1996 and fiscal 1997 were primarily related to Great Plains'
efforts to release additional applications for its client/server products and
the Microsoft SQL Server edition of Dynamics C/S+. In fiscal 1998, Great Plains'
development efforts were primarily focused on the delivery of substantial new
versions of its client/server products and the release of an electronic commerce
solution. For the six months ended November 30, 1998, increases in Great Plains'
research and development expenses can, in part, be attributed to additional
development resources added as a result of two acquisitions in the fourth
quarter of fiscal 1998. These two acquisitions added product development
resources in the solution areas of manufacturing, human resources, and
consolidations and budgeting. Research and development expenses decreased as a
percentage of total revenues in fiscal 1997 and fiscal 1998 due to efficiencies
gained through greater experience levels among development personnel, greater
automation in Great Plains' development testing processes and an increased focus
on Microsoft technologies. Research and development expenses increased as a
percentage of total revenues in the first half of fiscal 1999 primarily due to
additional research and development resources added with the acquisitions in the
fourth quarter of fiscal 1998. Great Plains anticipates that it will continue to
devote substantial resources to its research and development efforts and that
research and development expenses will increase in dollar amount in future
periods and may increase as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive, financial, human resource and information
services personnel as well as outside professional fees. General and
administrative expenses increased from $4.8 million in fiscal 1996 to $5.6
million in fiscal 1997 and to $7.6 million in fiscal 1998, representing 11.3%,
9.8% and 8.9% of total revenues, respectively. General and administrative
expenses increased from $3.6 million for the six months ended November 30, 1997
to $4.9 million for the six months ended November 30, 1998, representing 9.7%
and 8.2% of total revenues, respectively. These increases in dollar amounts were
primarily due to increased staffing and related expenses necessary to manage and
support the expansion of Great Plains' operations. In addition, Great Plains'
general and administrative expenses increased in fiscal 1998 due to increased
expenses as a result of being a publicly held company. Great Plains believes
that its general and administrative expenses will increase in dollar amount in
the future to support the expansion of its operations.
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ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Great Plains completed two
acquisitions in the fourth quarter of fiscal 1998, both of which were accounted
for using the purchase method of accounting. The first acquisition provided a
manufacturing series and a human resources management system while the second
acquisition provided a multinational enterprise reporting solution. The purchase
price for these acquisitions was $7.5 million for the manufacturing and human
resource applications and $4.4 million for the enterprise reporting solution.
Valuations of the intangible assets acquired were determined by an
independent third party appraisal company and consisted of in-process research
and development, current technology, and assembled workforce. The following
table shows the amount related to in-process research and development, as
determined by the independent third party appraisal company, that was charged
against income in fiscal 1998 because the underlying research and development
projects had not yet reached technological feasibility and had no alternative
future uses:
<TABLE>
<CAPTION>
IN-PROCESS RESEARCH
AND DEVELOPMENT
---------------------
(IN THOUSANDS)
<S> <C>
Manufacturing........................................ $ 3,211
Human resources...................................... 2,245
Enterprise reporting................................. 1,680
-------
$ 7,136
</TABLE>
Great Plains is using the acquired in-process research and development to
complete new products in the areas of manufacturing, human resources, and
enterprise reporting, which will become part of Great Plains' product lines over
the next several years. Great Plains anticipates the initial products developed
from the acquired in-process research and development to be released in the
period of fiscal 1999 to fiscal 2001. Great Plains expects that all the acquired
in-process research and development will reach technological feasibility, but
there can be no assurance that the commercial viability of these products will
actually be achieved. If commercial viability is not achieved, Great Plains
would look to other alternatives to provide these solutions.
The nature of the efforts required to complete development of the acquired
in-process research and development into commercially viable products
principally relates to the completion of all designing, prototyping,
verification and testing activities necessary to establish that the products can
be produced to meet design specifications, including functions, features, and
technical performance requirements. The estimated costs to be incurred to
complete the purchased in-process technology into commercially viable products
are as follows:
<TABLE>
<CAPTION>
HUMAN ENTERPRISE
MANUFACTURING RESOURCES REPORTING
--------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Fiscal 1999........................ $ 1,875 $ 750 $ 720
Fiscal 2000........................ 1,958 840 765
Fiscal 2001........................ 2,220 810 630
Fiscal 2002........................ 1,688 540 375
Fiscal 2003........................ 825 450 225
------- ------------- -----------
Total.............................. $ 8,566 $ 3,390 $ 2,715
</TABLE>
The value assigned to purchased in-process research and development was
determined by an independent third party appraiser, which projected cash flows
related to future products expected to be derived once technological feasibility
is achieved, including costs to complete the development
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of technology and the future revenues and costs which are expected to result
from commercialization of the products. Cash flows recognized the contribution
of core technology and other supporting assets and were discounted back to their
present value at a rate of 35%. The resulting net cash flows from such projects
are based on estimates made by Great Plains' management of revenues, cost of
sales, research and development costs, selling, general and administrative
costs, and income taxes resulting from such projects. These management estimates
are based on expected trends in technology and the nature and expected timing of
completion of acquired in-process research and development. Nothing has come to
management's attention which would lead management to believe substantial
changes need to be made to the underlying assumptions.
Great Plains did not have any write-off of acquired in-process research and
development in fiscal 1997 or fiscal 1996.
See Note 2 of Notes to Consolidated Financial Statements.
OTHER INCOME, NET
Other income, net consists primarily of earnings from investments and gains
or losses from disposal of fixed assets, net of any interest expense. Other
income, net increased from $0.1 million in fiscal 1996 to $0.6 million in fiscal
1997 and to $3.3 million in fiscal 1998. Other income, net decreased from $1.8
million for the six months ended November 30, 1997 to $1.3 million for the six
months ended November 30, 1998. The increase in other income, net in fiscal 1997
can be attributed to additional cash resulting from Great Plains' increased
profitability. The increase in other income, net in fiscal 1998 was primarily a
result of increased investment earnings due to increased investments as a result
of the more than $50 million received from Great Plains' initial public offering
of common stock in June 1997. The increase in fiscal 1998 can also be
attributed, in part, to additional cash resulting from Great Plains' increased
profitability. The decrease in other income, net for the six months ended
November 30, 1998 was, in part, a result of a one-time gain recognized from the
sale of Great Plains' Profit accounting software product in the six months ended
November 30, 1997. In addition, Great Plains recognized lower investment
earnings in the six months ended November 30, 1998 due to a lower cash position
at the start of the period and a lower interest rate for a portion of the
period.
PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes was $(4.1) million, $2.2 million, and
$3.2 million in fiscal 1996, 1997 and 1998, respectively. For the six months
ended November 30, 1997 and November 30, 1998, Great Plains' provision for
income taxes was $2.5 million and $3.4 million, respectively. Prior to May 1996,
Great Plains determined that the realization of the net operating loss
carryforward and other deferred tax assets did not meet the recognition criteria
under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," and, accordingly, a valuation allowance was established to
reserve the net operating loss carryforward and other deferred tax assets. For
fiscal 1996, Great Plains recorded a $4.1 million tax benefit primarily related
to the reversal of the valuation allowance. This reversal was based on
management's analysis of current levels of earnings and its future outlook,
which increased the likelihood of Great Plains realizing its deferred tax
assets; thus the valuation allowance was no longer deemed necessary. In fiscal
1997, Great Plains recorded an income tax provision of 38%, consistent with
federal and state statutory income tax rates. In fiscal 1998 and for the six
months ended November 30, 1998, the provision for income taxes was 42% and 40%,
respectively, of income before income taxes, which represents an increase from
the fiscal 1997 annual effective income tax rate of 38% as a result of full
state statutory tax rates. Great Plains expects that the income tax provision
will continue to reflect the statutory tax rates. See Note 10 of Notes to
Consolidated Financial Statements.
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<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table shows certain unaudited consolidated financial
information for each of the four quarters in Great Plains' fiscal year ended May
31, 1998 and for the first two quarters in Great Plains' fiscal year ending May
31, 1999. In management's opinion, this unaudited quarterly information has been
prepared on the same basis as the audited consolidated financial statements and
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information for the quarters presented,
when read in conjunction with the audited consolidated financial statements and
related notes included elsewhere in this prospectus. Great Plains believes that
quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30,
1997 1997 1998 1998 1998 1998
----------- -------------- ------------ --------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License................... $ 10,335 $ 12,282 $ 13,816 $ 16,516 $ 16,114 $ 18,441
Service................... 6,439 7,763 8,791 9,716 11,015 13,366
----------- -------------- ------------ --------- ----------- --------------
Total revenues.......... 16,774 20,045 22,607 26,232 27,129 31,807
Cost of revenues:
License................... 1,935 2,654 3,266 3,364 3,996 4,657
Service................... 2,251 2,511 2,723 3,635 3,576 4,148
----------- -------------- ------------ --------- ----------- --------------
Total cost of
revenues.............. 4,186 5,165 5,989 6,999 7,572 8,805
----------- -------------- ------------ --------- ----------- --------------
Gross profit............ 12,588 14,880 16,618 19,233 19,557 23,002
Operating expenses:
Sales and marketing....... 6,199 7,709 8,416 9,311 9,533 11,740
Research and
development............. 2,676 3,011 3,030 3,868 4,517 4,858
General and
administrative.......... 1,894 1,662 2,086 1,946 2,518 2,336
Acquired in-process
research and
development............. -- -- -- 7,136 -- --
----------- -------------- ------------ --------- ----------- --------------
Total operating
expenses.............. 10,769 12,382 13,532 22,261 16,568 18,934
----------- -------------- ------------ --------- ----------- --------------
Operating income (loss)..... 1,819 2,498 3,086 (3,028) 2,989 4,068
Other income, net........... 736 1,067 878 593 649 699
----------- -------------- ------------ --------- ----------- --------------
Income (loss) before
income taxes.......... 2,555 3,565 3,964 (2,435) 3,638 4,767
Income tax provision
(benefit)................. 1,022 1,426 1,587 (832) 1,454 1,907
----------- -------------- ------------ --------- ----------- --------------
Net income (loss)........... $ 1,533 $ 2,139 $ 2,377 $ (1,603) $ 2,184 $ 2,860
----------- -------------- ------------ --------- ----------- --------------
----------- -------------- ------------ --------- ----------- --------------
</TABLE>
Great Plains' quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. These fluctuations may result in volatility in the price
of Great Plains' common stock. Great Plains establishes expenditure levels
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based on its expectations as to future revenue, and, if revenue levels are below
expectations, expenses can be disproportionately high. As a result, a drop in
near term demand for Great Plains' products could significantly affect both
revenues and profits in any quarter. In the future, Great Plains' operating
results may fluctuate for this reason or as a result of a number of other
factors, including increased expenses, timing of product releases, increased
competition, variations in the mix of sales, announcements of new products by
Great Plains' or its competitors and capital spending patterns of Great Plains'
customers.
Great Plains has experienced and may continue to experience seasonality. In
recent years, due to a number of factors, including the timing of product
releases and sales incentive programs, Great Plains has recognized a greater
percentage of its revenue and operating income in its fourth fiscal quarter than
in any of the first three quarters. Moreover, due to fiscal year-end sales
incentive programs, Great Plains has historically recognized less license fee
revenue and operating income in its first fiscal quarter than in the other
quarters.
As a result of these factors, there can be no assurance that Great Plains
will be able to maintain profitability on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
Great Plains has historically funded operations primarily through cash
provided by operations and the sale of equity securities. Currently, Great
Plains meets its working capital needs and capital equipment needs with cash
provided by operations.
Cash provided by operating activities increased from $8.3 million in fiscal
1996 to $10.3 million in fiscal 1997 and to $17.6 million for fiscal 1998. Cash
provided by operating activities increased from $5.0 million for the six months
ended November 30, 1997 to $7.7 million for the six months ended November 30,
1998. The increase in cash from operations for fiscal 1998 was due primarily to
cash provided by the following: improved profitability of Great Plains'
operations, the $7.1 million noncash charge for acquired in-process research and
development, an increase in accounts payable and accrued expenses of $4.4
million, an increase in deferred revenues of $3.9 million, and an increase in
income taxes payable of $3.8 million. Cash from operations was reduced primarily
by a $5.2 million increase in deferred tax assets and a $2.6 million increase in
accounts receivable. The increase in cash from operations for the six months
ended November 30, 1998 relative to the six months ended November 30, 1997 was
due primarily to improved profitability of Great Plains' operations and an
increase in deferred revenues of $5.2 million offset by a $3.3 million reduction
in income taxes payable.
Great Plains' investing activities used cash of $2.1 million, $7.1 million
and $63.8 million in fiscal 1996, 1997 and 1998, respectively. For the six
months ended November 30, 1997 and November 30, 1998, cash used for investing
activities was $54.8 million and $4.7 million, respectively. In fiscal 1996 and
fiscal 1997, the principal use of cash in investing activities was for capital
expenditures related to the acquisition of computer equipment and furniture
required to support expansion of Great Plains' operations. Fiscal 1997 also
included the purchase of $4.9 million of investments. The principal use of cash
in investing activities in fiscal 1998 was approximately $50 million for the
purchase of investments following Great Plains' initial public offering of
common stock. Investing activities in fiscal 1998 also included cash used of
approximately $11.9 million for two acquisitions completed in Great Plains'
fourth quarter. In addition, investing activities for fiscal 1998 included
increased capital expenditures related to the acquisition of computer equipment
and furniture required to support expansion of Great Plains' operations and
investments for minority interest positions in certain international operations.
The primary use of cash for investing activities for the six months ended
November 30, 1998 was for capital expenditures related to the acquisition of
computer equipment and furniture required to
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<PAGE>
support expansion of Great Plains' operations. In addition, cash used for
investing activities for the six months ended November 30, 1998 included
additional investment in minority interest positions in certain international
operations.
Great Plains' financing activities provided (used) cash of $(0.8) million,
$0.7 million and $52.2 million during fiscal 1996, 1997 and 1998 respectively.
For the six months ended November 30, 1997 and November 30, 1998, Great Plains'
financing activities provided cash of $50.5 million and $1.4 million,
respectively. For fiscal 1996, financing activities used cash primarily for
payments on capital lease obligations and notes payable. For fiscal 1997, cash
of $0.7 million was provided from financing activities which consisted primarily
of proceeds received from the exercise of stock options offset in part by
payments on capital lease obligations and notes payable. For fiscal 1998, cash
of $52.2 million was provided from financing activities primarily from $50.2
million from the sale of Great Plains' common stock in an initial public
offering and proceeds received from the exercise of stock options. For the six
months ended November 30, 1998, cash provided by financing activities consisted
of proceeds received from the exercise of stock options.
Great Plains' sources of liquidity at November 30, 1998 consisted
principally of cash, cash equivalents and investments of $70.9 million. Great
Plains also has a $10.0 million revolving line of credit with a bank. The line
of credit expires in November 1999 and borrowings made under the line of credit
are subject to certain covenants. No amounts are currently outstanding under the
line of credit. See Note 8 of Notes to Consolidated Financial Statements.
Great Plains believes that cash generated from operations, its existing
cash, cash equivalents and investments, and cash generated from this offering
will be sufficient to fund operations for the foreseeable future.
YEAR 2000
Many currently installed computer systems and software are coded to accept
only two-digit entries in the date code fields. These date code fields will need
to accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations (including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities). As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not known.
If Year 2000 problems are not corrected in a timely manner, they could affect
Great Plains and the U.S. and world economy generally.
All of Great Plains' current products are Year 2000 compliant. Great Plains'
client/server products have been Year 2000 compliant since their initial
introduction, as are Versions 8 and 9 of the heritage product. Great Plains is
currently offering its heritage product customers a free Year 2000 compliant
upgrade for prior versions of the heritage product. Even though Great Plains'
current products are Year 2000 compliant, there can be no assurance that
Midmarket businesses will have sufficient resources available for the
acquisition of new systems from Great Plains because they may be diverting
resources to assess and fix internal systems that may not be Year 2000
compliant.
Great Plains has formed a project team (consisting of representatives from
its information technology, finance, manufacturing, product development, sales,
marketing and legal departments) to address other internal and external Year
2000 issues. Great Plains' internal financial, manufacturing and other computer
systems are being reviewed to assess and remediate Year 2000 problems. Great
Plains' assessment of internal systems includes its information technology as
well as other systems (which systems contain embedded technology in
manufacturing or process
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<PAGE>
control equipment containing microprocessors or other similar circuitry). Great
Plains' Year 2000 compliance program includes the following phases:
- identifying systems that need to be modified or replaced;
- carrying out remediation work to modify existing systems or convert to
new systems; and
- conducting validation testing of systems and applications to ensure
compliance. Great Plains is currently completing the second phase of this
program.
The amount of remediation work required to address Year 2000 problems is not
expected to be extensive. Great Plains has replaced certain of its financial and
operational systems in the last several years, and management believes that the
new equipment and software substantially addresses Year 2000 issues. However,
Great Plains will be required to modify some of its existing hardware and
software in order for its computer systems to function properly in the year 2000
and thereafter. Great Plains estimates that it will complete its Year 2000
compliance program for all of its significant internal systems no later than May
1, 1999.
In addition, Great Plains has received assurances from its major suppliers
that they are addressing the Year 2000 issue and that products purchased by
Great Plains from such suppliers will function properly in the year 2000.
However, it is impossible to fully assess the potential consequences in the
event service interruptions from suppliers occur or in the event that there are
disruptions in such infrastructure areas as utilities, communications,
transportation, banking or government. Great Plains is currently assessing the
Year 2000 readiness of its Partners.
The total estimated cost for resolving Great Plains' Year 2000 issues is
$100,000, of which approximately $65,000 has been spent through November 30,
1998. The total cost estimate includes the cost of replacing of non-compliant
systems as a remediation cost in cases where Great Plains has accelerated plans
to replace such systems. Estimates of Year 2000 costs are based on numerous
assumptions, and there can be no assurance that the estimates are correct or
that actual costs will not be materially greater than anticipated.
Based on its assessments to date, Great Plains believes it will not
experience any material disruption as a result of Year 2000 problems in internal
manufacturing processes, information processing or interface with major
customers, or with processing orders and billing. However, if certain critical
third-party providers, such as those providers supplying electricity, water or
telephone service, experience difficulties resulting in disruption of service to
Great Plains, a shutdown of Great Plains' operations at individual facilities
could occur for the duration of the disruption. Great Plains has not yet
developed a contingency plan to provide for continuity of processing in the
event of various problem scenarios, but it will assess the need to develop such
a plan based on the outcome of its validation phase of its Year 2000 compliance
program and the results of surveying its major suppliers and customers. Assuming
no major disruption in service from utility companies or other critical
third-party providers, Great Plains believes that it will be able to manage its
total Year 2000 transition without any material effect on Great Plains' results
of operations or financial condition.
26
<PAGE>
BUSINESS
Great Plains is a leading provider of business management solutions to the
Midmarket. Our award-winning products and services automate essential business
processes and enhance the strategic value of business information. Our solutions
are sold and implemented by a network of independent Partners throughout the
world.
INDUSTRY BACKGROUND
Throughout the 1990s, businesses of all sizes have increasingly deployed
client/server business applications to improve their competitive position.
Client/server business applications enable greater access to information and
allow for more efficiency in a company's operations than do traditional
mainframe, minicomputer or stand-alone personal computer solutions. Greater
access to business information allows for better and faster decision making and
higher levels of customer service. More efficient operations result in lower
costs, higher employee satisfaction, and expanded growth opportunities.
Businesses employing client/server business solutions can generally be
grouped into two market segments: (1) the "Midmarket," which generally consists
of businesses with $1 million to $250 million in revenues and 10 to 2,500
employees and (2) the "Enterprise Market," which generally consists of
businesses with revenues in excess of $250 million and more than 2,500
employees.
Businesses in the Enterprise Market were the first to adopt client/server
architecture as the standard for new implementations of enterprise-wide business
management solutions. More recently, businesses in the Midmarket also began to
demand fully integrated enterprise-wide business management solutions based on
client/server technology. However, client/server solutions designed for the
Enterprise Market are often too complex and generally require too much time and
money for Midmarket companies to implement. Furthermore, implementation of
traditional Enterprise Market solutions often require significant business
process re-engineering that is unduly burdensome for Midmarket businesses.
MIDMARKET BUSINESS MANAGEMENT SYSTEM NEEDS
Midmarket businesses have a number of key business requirements that are
different from those of Enterprise Market businesses. We believe that Midmarket
businesses require a client/server enterprise-wide business solution that is
cost effective, scalable, and easy to implement and use. Our Dynamics platform's
innovative design and architecture allow customers to solve business problems
through:
- Rapid system customization
- Extensive end-user personalization
- Seamless integration to existing systems
- Strategic use of industry-standard technologies
- Real-time electronic commerce
Midmarket businesses generally have fewer information technology resources
than Enterprise Market businesses. As a result, Midmarket businesses require
cost-effective software solutions from vendors that can provide a substantial
amount of assistance during the software system selection and implementation
process, as well as ongoing local support and service. Midmarket businesses also
require systems that can be rapidly implemented and are easy to learn, use and
modify. In light of these requirements, many Midmarket businesses are
standardizing on Microsoft technologies, most notably Windows NT and SQL Server
as well as other Microsoft BackOffice
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<PAGE>
components. As a result, Midmarket businesses are demanding business solutions
that are native to Windows and optimized for Windows NT and Microsoft SQL
Server.
Many Midmarket businesses experience rapid growth and have evolving business
models. These businesses require business solutions that can be customized
quickly and cost-effectively to accommodate the constantly changing nature of
their business systems and procedures. We believe that client/server business
solutions must allow Midmarket businesses to easily modify windows and reports,
to integrate third-party solutions and to quickly write and seamlessly integrate
custom applications.
Midmarket companies are increasingly seeking Internet and electronic
commerce technologies that can extend the availability of information to
employees across the enterprise and allow them to effectively conduct business
over the Internet.
GREAT PLAINS STRATEGY
Our general strategy is to extend our position as a leading Midmarket
provider of business management solutions. To meet the needs of businesses in
the Midmarket, we have deployed the following specific strategies:
DELIVER FULLY INTEGRATED ENTERPRISE-WIDE BUSINESS MANAGEMENT
SOLUTION. Businesses in the upper-tier of the Midmarket are increasingly
demanding a fully integrated enterprise-wide business management solution. In
addition, Midmarket customers are looking for solutions that allow them to
leverage the Internet and electronic commerce trends for future business growth.
Great Plains, through its own internal development efforts and recent strategic
product acquisitions, provides a fully integrated enterprise-wide solution whose
components share the same platform, architecture and user interface. This
enterprise-wide solution consists of financial, enterprise reporting,
distribution, payroll and human resources, manufacturing, service management and
electronic commerce solutions. In addition, independent software vendors offer
more than 200 vertical and horizontal applications that further extend our
solutions.
EXTEND TECHNOLOGY LEADERSHIP. We have built a strong record of technical
leadership and continue to invest in developing new technologies and products.
Dynamics C/S+ and Dynamics provide award-winning functionality including
navigation, customization, information access, scalability and integration. With
Release 5.0, the power and functionality of Dynamics C/S+ and Dynamics are
further enhanced with new modules including Bill of Materials, the latest in
information access and navigation, additional intercompany processing
capabilities and more than 100 feature enhancements to improve ease of
installation, implementation and overall business management capabilities.
Furthermore, we use innovations in Microsoft technologies to continually improve
our products. Dynamics C/S+ and Dynamics were among the first business
management solutions in the Midmarket to support Windows 98 and among the first
to receive Microsoft Windows 95 (Dynamics C/S+ and Dynamics) and Microsoft
BackOffice (Dynamics C/S+) logo compliance (recognition from Microsoft that our
Dynamics C/S+ and Dynamics products meet the development criteria for Windows 95
as well as Microsoft BackOffice technologies, including Windows NT and Microsoft
SQL Server). In addition, we believe Dynamics C/S+ was one of the first
enterprise-wide business management solutions to fully integrate and leverage
Microsoft Site Server, Commerce Edition, enabling Midmarket businesses to
integrate their web storefront with financial and distribution applications. Our
Dynamics C/S+ and Dynamics products have received more than 15 industry awards,
including "Best Functionality" in the Microsoft BackOffice Challenge, an
Editors' Choice Award from PC Magazine and a Reviewers' Choice Award from
Personal Computing Magazine in the United Kingdom. We believe that our product
architecture is well-suited for ongoing integration of new technologies. We
maintain a research team dedicated to assessing
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<PAGE>
new and emerging technologies. In addition, we intend to maintain our leadership
in providing customization capabilities that are essential to businesses in the
Midmarket.
EXPAND AND STRENGTHEN PARTNER NETWORK. We believe that our Partner network has
been able to penetrate the Midmarket by providing high-quality, cost-effective
marketing and pre-sales, sales, and local service and consulting. Through our
channel development and recruiting efforts, as well as our training,
certification and performance recognition programs, we continue to strengthen
this network. We offer extensive programs that provide Partners training,
service and support to help them develop and expand their businesses, including
a program that assists Partners in recruiting additional personnel. We also have
programs to provide product and curricula offerings to colleges and universities
designed to increase the number of graduates familiar with our products. We host
a number of business and technology conferences each year, including "Stampede,"
an annual Partner conference in Fargo. In 1998, 1,365 participants attended
Stampede.
CONTINUE AWARD-WINNING SERVICE AND SUPPORT. We believe that high-quality
service and technical support are essential elements of a complete
enterprise-wide business solution and are vital to maintaining customer and
Partner satisfaction. We have received numerous industry awards for our customer
and Partner service and continue to invest in our support infrastructure. For
example, we expanded our Internet-based technical support to customers and
Partners and, in fiscal 1998, received industry recognition and awards for these
offerings. We believe that our initiatives will further increase the timeliness
and effectiveness of our service and technical support. In addition to offering
award-winning support on our Dynamics C/S+ and Dynamics products, we intend to
continue to support customers who use our DOS-based product, Great Plains
Accounting.
EXPAND GLOBAL PRODUCT OFFERING AND INFRASTRUCTURE. We currently sell our
products in the United States and through subsidiaries located in Canada, the
United Kingdom, Scandinavia, South Africa, Singapore and Australia. In addition,
we sell our products through international distribution Partners in Germany,
Poland, the Czech Republic, the Benelux Countries, Portugal, Colombia and the
Middle East. Our Dynamics C/S+ and Dynamics solutions have been sold in
approximately 92 countries. We intend to expand our global infrastructure by
expanding our existing subsidiary and international Partner operations, entering
new markets, and extending the global functionality of our Dynamics C/ S+ and
Dynamics products.
COMMITMENT TO PARTNERS, CUSTOMERS, AND EMPLOYEES. We are deeply committed to
developing and sustaining long-term relationships with our Partners, customers,
and employees. The Great Plains Mission Statement: TO IMPROVE THE LIFE AND
BUSINESS SUCCESS OF PARTNERS AND CUSTOMERS, expresses this commitment. Great
Plains has been recognized throughout the industry for its high levels of
customer and Partner service and its commitment to its employees. In December
1997 and again in December 1998, Great Plains was named to the FORTUNE list of
the "100 Best Companies to Work For in America." Most recently, we received two
1998 Global Best Practices Awards-SM- from Arthur Andersen in the categories of
"Motivating and Retaining Employees" and "Exceeding Customer Expectations."
These relationships allow us to achieve overall cost savings through a low
employee turnover rate and high rate of employee job satisfaction.
GREAT PLAINS TECHNOLOGY
Our Dynamics platform leverages key Microsoft technologies and provides the
following:
NATIVE WINDOWS AND WINDOWS NT IMPLEMENTATION. Our Dynamics platform is designed
to take full advantage of Microsoft Windows and Windows NT capabilities. Our
design philosophy has resulted in products that are easier to use and more
intuitive because they adhere closely to the same interface standards as Windows
desktop applications. Moreover, as native Windows
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<PAGE>
applications, Dynamics C/S+ and Dynamics require less memory and enable more
efficient multi-tasking than screen-scraper products.
STANDARDS-BASED C++ DEVELOPMENT ARCHITECTURE. The development architecture of
our Dynamics platform is standards-based C++. This robust and flexible
development environment has enabled us to build our products to leverage
important technology advancements including 32-bit technologies, Windows NT,
Microsoft SQL Server, and Visual Basic for Applications. Most recently, we have
leveraged and embedded Visual Basic for Applications into our Dynamics platform,
allowing our customers and Partners to customize their solutions with a familiar
tool. The use of standards-based C++ as our development architecture provides us
flexibility in continuing to deliver solutions on the latest technologies and
platforms.
MICROSOFT SQL SERVER OPTIMIZATION. Dynamics C/S+ is optimized for the latest
releases of Microsoft SQL Server and includes stored procedures to enhance
distributed processing, overall performance and data integrity. Our
implementation of Microsoft SQL Server and Windows NT also enhances data
accessibility and system scalability.
INTEGRATION WITH MICROSOFT SITE SERVER, COMMERCE EDITION. We believe that
businesses that sell products or services, or takes orders via phone or fax
today, will increasingly seek to develop electronic commerce capabilities in the
very near future to ensure their ongoing success. We believe Dynamics C/S+ was
one of the first Midmarket business management solutions to fully integrate with
Microsoft's Site Server, Commerce Edition, enabling businesses to integrate
their web storefront with their financial and distribution applications. This
integration is key to our customers' ability to conduct business over the
Internet, providing new revenue opportunities and new markets, while also
increasing order processing efficiency.
COMPONENT-BASED ARCHITECTURE. The business rules, or financial logic, of our
products have been designed and developed into "logic components." This
component-based architecture or "object orientation" of our products allows us
to use software code multiple times within a product and from product to
product, increasing the speed with which new applications and product extensions
can be developed. The architecture of our products also allows our applications
and third-party applications to share a common user interface creating a
seamless and easy to use environment for customers. Moreover, we make components
available to solution developer Partners, which facilitates their ability to
integrate companion products into our Dynamics platform.
COMPREHENSIVE COMPANION PRODUCT OFFERING. Because of its flexibility,
comprehensive development environment and standards-based architecture, the
Dynamics platform has attracted more than 200 independent solution developers.
These developers have built hundreds of vertical market products for the
Dynamics platform, in industries such as construction, financial services,
healthcare, legal and retail.
GREAT PLAINS SOLUTIONS
Our offering for larger Midmarket businesses, Dynamics C/S+, is a fully
integrated enterprise-wide business management solution consisting of financial,
enterprise reporting, distribution, payroll and human resources management,
manufacturing, service management, and electronic commerce solutions. Dynamics
C/S+ also delivers electronic commerce and Internet self-service solutions to
customers to help reduce costs, provide new revenue opportunities and increase
organizational efficiency. Our solution for smaller Midmarket businesses,
Dynamics, is a broad business management solution consisting of financial,
distribution, payroll and human resources solutions. Dynamics C/S+ and Dynamics
also provide reporting, customization, integration and development tools. In
addition, we offer a DOS- and Macintosh-based product, Great Plains Accounting.
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The following table provides selected information relating to the Dynamics
C/S+ and Dynamics product lines:
<TABLE>
<CAPTION>
DYNAMICS C/S+ DYNAMICS
--------------------------------- ---------------------------------
<S> <C> <C>
INITIAL RELEASE
DATE July 1994 February 1993
CURRENT VERSION/
RELEASE DATE Release 5.0/September 1998 Release 5.0/September 1998
REVENUE OF TARGET
CUSTOMERS: $10 to $250 million $1 to $10 million
DATABASE Microsoft SQL Server Btrieve from Pervasive Software
TYPICAL SYSTEM
PRICE RANGE $20,000 to $75,000 $5,000 to $20,000
SOLUTION Financial, Enterprise Reporting, Financial, Distribution, Payroll,
Distribution, Payroll, Human and Human Resources
Resources, Manufacturing,
Service Management, and
Electronic Commerce
</TABLE>
The Dynamics C/S+ typical system price range is based on systems with six to
20 users and three to six modules. A Dynamics C/S+ system that includes our
manufacturing solution typically costs more than $75,000. The Dynamics typical
system price range is based on systems with one to seven users and four to six
modules. The system price is the price paid by the customer to a Partner and
does not represent sale proceeds to Great Plains.
DYNAMICS C/S+
Currently in Release 5.0, Dynamics C/S+ is our enterprise-wide solution for
Midmarket businesses that have high volume processing requirements, complex
enterprise-wide business management needs and formal information technology
departments. Dynamics C/S+ was one of the first enterprise-wide solutions to
receive Microsoft Windows 95 and BackOffice logo compliance. In addition, we
believe Dynamics C/S+ was one of the first enterprise-wide solutions to fully
integrate with Microsoft Site Server, Commerce Edition. The Dynamics C/S+
solution consists of the following series of modules:
FINANCIAL. The Dynamics C/S+ Financial Series consists of General Ledger,
Fixed Assets, Accounts Receivable, and Accounts Payable. The Financial Series
is designed to meet the needs of businesses requiring a solution that removes
the complexity of comprehensive financial analysis, multicurrency management,
euro currency and intercompany processing requirements. The Financial Series
shares the same platform, architecture and user interface as all Dynamics
C/S+ solution components and is designed to meet the needs of businesses
across all industries.
ENTERPRISE REPORTING. The Enterprise Reporting Series is designed for
sophisticated group reporting and consolidation needs, and includes advanced
multi-dimensional consolidation and eliminations with complete multicurrency
capabilities. Enterprise Reporting couples solid information control with a
high degree of flexibility to mold the reporting processes around evolving
business practices.
DISTRIBUTION. The Dynamics C/S+ Distribution Series consists of Inventory,
Bill of Materials, Sales Order Processing and Purchase Order Processing and
an Internet self-service
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application, Dynamics.Requisition, that allows customers to automate the
purchase requisition and approval process. The Distribution Series is
designed to meet the needs of wholesale distribution and manufacturing
businesses in the Midmarket and is integrated with the Dynamics C/S+
Manufacturing and Financial Series. In addition, the Distribution Series is a
key component in our two electronic commerce solutions, Dynamics.Commerce and
Dynamics.Order.
PAYROLL AND HUMAN RESOURCES. The Dynamics C/S+ Payroll and Human Resources
management solution consists of Payroll, Human Resources and Direct Deposit.
The Payroll and Human Resources solution is designed to meet the needs of
Midmarket businesses across all industries and is integrated with the
Dynamics C/S+ Financial Series. In addition, for Midmarket manufacturing
businesses, the Dynamics C/S+ Payroll and Human Resources solution integrates
with the Dynamics C/S+ Manufacturing Series, allowing more accurate cost
accounting for Midmarket discrete manufacturing firms.
MANUFACTURING. The Dynamics C/S+ Manufacturing Series consists of Bill of
Materials, Materials Requirements Planning, Capacity Requirements Planning,
Master Production Scheduling, Sales Forecasting, Sales Configuration, Job
Costing, Manufacturing Orders and Engineering Change Management. The
Manufacturing Series is designed to meet the needs of discrete manufacturing
businesses in the Midmarket and is integrated with the Dynamics C/S+
Financial Series, Distribution Series, and Payroll and Human Resources
solution. In addition, the Manufacturing Series shares the same platform,
architecture and user interface with all Dynamics C/S+ solution components.
SERVICE MANAGEMENT. The Dynamics C/S+ Service Management Series consists of
Service Call Management, Depot Management, Contract Administration,
Preventive Maintenance and Returns Management. In addition, the solution
consists of an Internet self-service application, Dynamics.Service Center,
that allows customers to schedule a service technician visit over the
Internet. The Service Management Series is designed for service businesses in
the Midmarket who deliver fee, contract, or warranty-based services either at
a customer's site or at a depot location. The Service Management Series is
integrated with the Dynamics C/S+ Financial Series and Distribution Series.
In addition, the Service Management Series can be utilized by Manufacturing
Series customers who service the products they manufacture. The Dynamics C/
S+ Service Management Series shares the same platform, architecture and user
interface with all Dynamics C/S+ solution components.
ELECTRONIC COMMERCE. The drive to a virtual economy is changing the way
businesses collaborate around the world. We believe that to survive and
thrive, businesses need to look past traditional geographic boundaries, sales
channels and business porcesses, and adopt a forward-looking approach to
business on the World Wide Web. Our two Dynamics C/S+ electronic commerce
solutions, Dynamics.Commerce and Dynamics.Order, help customers meet these
challenges. Dynamics.Commerce is fully integrated with Microsoft Site Server,
Commerce Edition and allows Midmarket businesses to integrate their web
storefront with their Dynamics C/S+ Financial Series and Distribution Series.
Dynamics.Commerce provides a fully-configurable solution for
consumer-to-business web-based order processing. We believe that businesses
using Dynamics.Commerce experience improved sales efficiency and reduced
order entry errors and achieve the ability to expand into new markets.
Dynamics.Order provides a business-to-business order processing solution for
Midmarket businesses who need a web page presence without an elaborate web
storefront.
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DYNAMICS
Currently in Release 5.0, Dynamics is our business management solution for
Midmarket businesses that need a Windows solution that is highly flexible,
feature-rich and cost-effective, but does not require information technology
personnel dedicated to database administration. Dynamics is designed for
industry standard technologies, including Microsoft Windows 98, Windows NT and
Visual Basic for Applications. Dynamics has received several industry awards and
was one of the first business applications to receive Windows 95 logo
compliance. The Dynamics solution consists of the following modules:
FINANCIAL. The Dynamics Financial Series consists of General Ledger,
Accounts Receivable, and Accounts Payable. The Dynamics Financial Series is
designed to meet the needs of smaller businesses in the Midmarket and is
fully integrated with all other components of the Dynamics solution.
DISTRIBUTION. The Distribution Series consists of Inventory, Sales Order
Processing, Purchase Order Processing and Bill of Materials. The Distribution
Series is designed to meet the distribution needs of wholesale distribution
and light manufacturing businesses in the Midmarket and is integrated with
the Dynamics Financial Series.
PAYROLL AND HUMAN RESOURCES. The Dynamics Payroll and Human Resources
solution consists of Payroll, Human Resources and Direct Deposit. The
Dynamics Payroll and Human Resources solution is designed to meet the needs
of smaller Midmarket businesses across all industries and is integrated with
the Dynamics Financial Series.
In addition to the Dynamics Financial Series, Distribution Series, and Payroll
and Human Resources solution, numerous independent software developers provide
vertical solutions on the same platform with the same architecture and interface
as the Dynamics solution, allowing Dynamics customers and Partners to deploy a
fully integrated business management solution.
DYNAMICS PLATFORM BUSINESS TOOLS
The Dynamics products are enhanced by reporting tools, consisting of the
Dynamics Report Writer, Crystal Reports, Dynamics.View and FRx, a financial
report writer. The Dynamics Report Writer and Crystal Reports enable our
Dynamics C/S+ and Dynamics customers and Partners to meet their specialized
reporting needs. Dynamics.View, an Intranet-based application, allows employees
across a customer's enterprise to gain secure access to business information via
a web browser. The financial report writer provided by FRx software delivers a
spreadsheet-like interface to deliver flexible financial report design. In
addition, for Dynamics C/S+ customers, we offer a Dynamics C/S+ edition of
Cognos PowerPlay, which includes specialized reporting templates for
sophisticated reporting and analysis.
DYNAMICTOOLS: CUSTOMIZATION AND INTEGRATION
Our series of customization and development tools, DynamicTools, allows
customers and Partners to customize and extend the functionality of Dynamics
C/S+ and Dynamics. Key tools in the DynamicTools series are Dexterity, Modifier
with Visual Basic for Applications, Integration Manager, Continuum for Visual
Basic, and Continuum for Excel. Dexterity enables customers and third party
developers to create applications that seamlessly integrate with, and have the
same look and feel as, our Dynamics platform. Modifier with Visual Basic for
Applications can be used to customize any Dynamics or Dynamics C/S+ window,
report, control or business logic component. We believe that Integration Manager
allows customers or Partners to quickly integrate Dynamics C/S+ or Dynamics with
any external system, such as spreadsheets, databases, payroll systems, fixed
asset systems, corporate mainframes or any other "traditional" system. Continuum
for Visual
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Basic facilitates integration between our Dynamics platform and Microsoft Visual
Basic applications through the use of wizards (on-line instruction guides) and
point-and-click operations. Continuum for Microsoft Excel facilitates
integration between our Dynamics platform and Microsoft Excel spreadsheets
through the use of wizards and point-and-click operations.
GREAT PLAINS ACCOUNTING
Our Great Plains Accounting product is available for DOS and Macintosh
operating systems in local area network and single user environments. Great
Plains Accounting includes a series of financial and distribution applications
that provide customers with a broad range of features and functions. The most
recent versions of Great Plains Accounting, Version 9 and Great Plains
Accounting for Windows, were released in February 1997 and December 1997,
respectively. Both releases were marketed primarily to existing Great Plains
Accounting customers. We are actively promoting the migration of our Great
Plains Accounting customers to our Dynamics platform. Revenues from our Great
Plains Accounting product have been declining, and we expect that these revenues
will continue to decline in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Revenues."
SALES AND MARKETING
SALES. We sell, implement and support our products exclusively through our
Partner network consisting of:
- value added resellers--professionals who sell and install business
hardware and software
- systems integrators--professionals who combine technological products from
various vendors to produce enhanced solutions
- independent software vendors--professionals who develop and market
complementary software products
- national, regional and local accounting firms
- specialized software consultants
Our Partners are independent organizations that perform some or all of the
following functions: sales and marketing; systems implementation and
integration; software development and customization; and ongoing consulting,
training, service and technical support. In many instances, a Partner's primary
source of income is derived from selling, implementing and supporting our
products.
We believe that our Partners have a significant influence over product choices
by customers and that our relationship with our Partners is an essential element
in our marketing, sales and implementation efforts. Through our Partner network,
we are able to provide customers with trained and knowledgeable solution
professionals who are available locally to implement our systems as well as
provide ongoing service and support. Many of our Partners customize our systems
to fit individual business needs and develop industry-specific software
applications that integrate with and extend the functionality of our products.
We actively recruit value added resellers through channel development groups.
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More importantly, we continue to assist our Partners in growing their businesses
through:
- Management strategy consulting
- Employee recruitment and placement
- Comprehensive training and support
- Cooperative marketing programs
- Annual professional conferences
We also have specialized strategies aimed at recruiting and supporting
independent software vendors and accounting firms. All Partners are required to
undergo training and certification procedures before being authorized to sell
and implement our products and must maintain certain standards and sales volumes
to retain this authorization.
We have subsidiaries located in Canada, the United Kingdom, Scandinavia, South
Africa, Singapore and Australia. In addition, we have established distribution
relationships with international Partners in Western and Eastern Europe, the
Middle East, and Latin America to further the international distribution of our
products. These international distribution Partners typically localize and
translate our products, locate and train qualified Partners, market our products
and provide ongoing customer service and technical support. International
Partners typically pay localization and translation costs for our software in
exchange for exclusive distribution rights, while we retain ownership of the
localized version of the software. Together with our international distributors,
we have developed localized language versions of our Dynamics C/S+ and Dynamics
products including Arabic, German, Polish, Portuguese, Russian and Spanish. In
addition, we have developed localized versions for the United Kingdom,
Australia, New Zealand, South Africa and French-speaking Canada. Our product
architecture is designed to facilitate the translation, localization and
maintenance of multilingual, multinational versions. Moreover, we offer a euro-
compatible product that we began shipping on a limited basis in December 1998.
Our international business may be affected by such factors as local economic and
market conditions, political and economic instability, difficulties in enforcing
intellectual property and contract rights, difficulties in tailoring our
products to fit local accounting principles, rules, regulations, language, tax
codes and customs, fluctuations in currency exchange rates, difficulties and
costs of staffing and managing foreign operations, and the need for compliance
with a wide variety of foreign and United States export regulations.
MARKETING. We are focused on building market awareness and acceptance of the
Great Plains name and products, as well as on generating qualified customer and
Partner leads. Customer leads are pursued by Partners with assistance from our
sales personnel. We have a comprehensive marketing strategy with several key
components: corporate and product image and awareness building, direct marketing
to both prospective and existing customers, a strong Web presence, broad-scale
events with strategic partners and local marketing with Partners. Our corporate
image strategy primarily includes national advertising in key financial,
business and technology publications as well as public relations activities. Our
direct marketing activities include ongoing direct mail efforts to existing and
prospective customers. For prospective customers, we offer seminars and
self-qualifying tools to assist them in selecting business management solutions.
Seminars are offered in conjunction with Partners in their local or
industry-specific markets. We increase product awareness by sponsoring
large-scale events and seminars for prospective customers with key industry
partners, such as Microsoft, Compaq, and IBM. Finally, our marketing strategy is
designed to take advantage of our Partner network by including cooperative
marketing programs designed for Partners' local markets.
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CUSTOMERS
Our Dynamics C/S+ and Dynamics products offer functionality and scalability
to suit a wide range of Midmarket businesses, from fast-growing entrepreneurial
businesses to divisions of large enterprises. Our products, implemented alone or
with an industry-specific third party application, have been licensed by
companies in a wide variety of industry types, such as:
<TABLE>
<CAPTION>
<S> <C> <C>
Advertising Healthcare Professional Sports
Broadcasting Hospitality Publishing
Computer Software Information Services Retail
Construction Insurance and Financial Services Service Management
Distribution Internet Software and Services Telecommunications
Education Manufacturing Transportation
</TABLE>
As of January 15, 1999, our Dynamics C/S+ and Dynamics products had been
licensed by more than 17,000 Midmarket businesses.
CUSTOMER AND PARTNER SERVICE
We believe that high-quality service and technical support is an important
component of a complete business management solution and is critical to the
long-term satisfaction of our customers and Partners. We have received numerous
awards for our Partner and customer service, including the 1996 Positive
Performer Grand National Award for excellence in customer service from Inc.
magazine and MCI Communications.
Great Plains was one of the first personal computer software providers to
introduce fee-based support plans and guaranteed telephone response times. We
also maintain profiles and detailed call histories on each of our customers and
Partners. These profiles enable our support personnel to respond more
effectively to service inquiries, allowing us to better forecast which customers
are likely to purchase new products or upgraded versions of existing products
and assisting us in developing new applications and features that accurately
address the needs of the marketplace.
We provide service and technical support through a service organization
consisting of 246 employees as of November 30, 1998. We provide a variety of
training, technical support and service programs for customers that supplement
the primary support provided by Partners. We offer video, teleconference and
classroom training as well as technical support through a toll-free number, our
Web site and on-site consultations. Telephone support calls are handled by
professional support personnel and have various guaranteed response times,
depending on the type of support plan purchased. Response times as short as 30
minutes are offered. In addition to our technical support programs, customers
are offered software maintenance programs for an annual fee. These programs
provide customers with product upgrades and on-line information and assistance
through our award-winning CustomerSource web site. We also offer comprehensive
training and product support to our Partners, including our PartnerSource web
site, to ensure that they provide the necessary levels of technical support and
assistance to customers. Finally, we offer our Partners a variety of consulting
resources for resale to customers, including strategic implementation planning,
project management and product customization.
RESEARCH AND DEVELOPMENT
Since its inception, Great Plains has made substantial investments in
research and development. During the fiscal years 1996, 1997, and 1998, software
development expenses were $8.9 million, $9.7 million and $12.6 million,
respectively. As of November 30, 1998, we had 245 employees engaged in research
and development.
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Our research and development efforts employ a standard development process
to guide software development through stages of product concept, market
requirements analysis, product definition, design specification, coding, testing
and release. These efforts are also focused on identifying, developing and
integrating leading technologies into our products to better meet customer
needs.
Our software products are designed for Microsoft technologies, including
Windows NT, Windows 98, and SQL Server. In addition, our products utilize other
Microsoft technologies, including Site Server and Visual Basic for Applications.
Accordingly, our strategy requires that our products and technology are
compatible with new developments in Microsoft's technology.
INTELLECTUAL PROPERTY RIGHTS AND LICENSES
We regard certain features of our internal operations, software and
documentation as our intellectual property. We rely on a combination of
contract, copyright, trademark and trade secret laws, a mandatory software
registration mechanism and other measures to protect our intellectual property.
We have no patents. We believe that, because of the rapid pace of technological
change in the computer software industry, trade secret and copyright protection
are less significant than factors such as the knowledge, ability and experience
of our employees, frequent product enhancements and the timeliness and quality
of support services. It is our policy to file for protection of our basic
trademarks and service marks in countries in which we sell our products either
directly or through our international Partners and in countries in which
protection is advisable. Despite these measures there can be no assurance that
we will be able to fully protect our intellectual property.
We provide products to customers on a "right-to-use" basis under
non-exclusive licenses, which generally are nontransferable and have a perpetual
term. We typically license our products solely for the customer's internal
operations.
COMPETITION
Our primary market consists of businesses in the Midmarket. Our current and
prospective competitors offer a variety of solutions for this market. We
experience significant competition and expect substantial additional competition
from established and emerging software companies. We compete on the basis of:
- product features, functionality, performance and price
- the capacity and capabilities of Partners
- the quality of customer and Partner service and technical support
- sales and marketing efforts
- new product and technology introductions
- company image and stability
We believe we compete effectively on each of these factors.
In the United States, Dynamics C/S+ (our product for larger Midmarket
businesses) competes with products from Platinum Software and other companies,
and Dynamics (our product for smaller Midmarket businesses) competes with
products from Solomon Software, Sage (State of the Art), Macola and other
companies. In Canada, we face competition from those companies and others
including Computer Associates International. Outside North America, we face a
number of competitors, several of which have significant market share in their
home markets. We also face competition from providers of industry-specific
applications as well as indirect competition from in-house, customer-developed
financial management applications.
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In the manufacturing market, we face a number of North American competitors,
including Symix, Fourth Shift, Platinum/Dataworks, QAD and J. D. Edwards.
Outside North America, we face these and other competitors, several of which
have extensive market share in their home markets.
In the human resources/payroll market, we face competition in North America
from Best Software, Opus Software, Ultimate Software, Spectrum Software and from
outsourced service providers such as ADP, Ceridian, PayChex and Powerpay.
In the field service and depot repair market, we face competition in North
America from Astea, Clarify and Vantive.
In addition, SAP, PeopleSoft, Baan, Oracle and J.D. Edwards, which generally
focus on companies with revenue above our target market, have announced
Midmarket strategies. Competition from these businesses will likely intensify in
the future.
FACILITIES
Our principal administrative, marketing, production and product development
facilities consist of an aggregate of approximately 86,000 square feet at three
locations in Fargo, North Dakota. In addition, we have research and development
offices in a suburb of Minneapolis, Minnesota, a suburb of Seattle, Washington,
and Watertown, South Dakota. We also have leased office space in each of our
subsidiary office locations. We occupy the Fargo and research and development
sites under lease agreements that expire at various times through August 2003.
Total rent expense during fiscal 1996, 1997, and 1998 was $871,000, $866,000 and
$1,054,000, respectively. We plan to move into a larger leased facility in
Fargo, North Dakota in the first quarter of fiscal 2000. After we move to our
new facility, our total annual rent expense is expected to be approximately $3
million.
PRODUCTION
The principal physical components of our software products are computer
media and manuals. We prepare master software disks, manuals and packaging
materials that are then duplicated by us and third party vendors. To date, we
have not experienced any material difficulties or delays in the manufacture and
assembly of our products or material returns due to product defects.
EMPLOYEES
As of November 30, 1998, Great Plains had a total of 877 full time
equivalent employees, including 539 full time equivalent employees in sales,
marketing, technical support and consulting services, 245 full time equivalent
employees in research and development and 93 full time equivalent employees in
administration. None of our employees are represented by a labor union.
Management believes that its relations with the employees are good.
LEGAL PROCEEDINGS
From time to time, we are involved in litigation arising out of operations
in the normal course of business. As of the date of this prospectus, we are not
a party to any legal proceedings the adverse outcome of which, individually or
in the aggregate, could reasonably be expected to have a material adverse effect
on our results of operations or financial position.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Great Plains, and their ages and
positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- ----------- --------------------------------------------------------
<S> <C> <C>
Chairman of the Board, President and Chief Executive
Douglas J. Burgum........... 42 Officer
Terri F. Zimmerman.......... 35 Chief Financial Officer and Executive Vice President
Steven K. Sydness........... 44 Executive Vice President
Jodi A. Uecker-Rust......... 37 Executive Vice President
Brian R. Carey.............. 41 Executive Vice President
Darren C. Laybourn.......... 47 Vice President, Global Development
Bradley J. Burgum........... 46 Director and Secretary
Frederick W. Burgum......... 52 Director
William V. Campbell......... 58 Director
Raymond F. Good............. 70 Director
J.A. Heidi Roizen........... 40 Director
Joseph S. Tibbetts, Jr...... 46 Director
</TABLE>
DOUGLAS J. BURGUM has served as President of Great Plains since March 1984,
Chief Executive Officer since September 1991 and Chairman of the Board since
January 1996. Mr. Burgum was an early investor in Great Plains, and he initially
served as Vice President and a director from March 1983 to March 1984. Before
joining Great Plains, Mr. Burgum was a management consultant in the Chicago
office of McKinsey & Company, Inc. Mr. Burgum holds a B.U.S. from North Dakota
State University and an M.B.A. from the Stanford University Graduate School of
Business.
TERRI F. ZIMMERMAN has served as an Executive Vice President since October
1998 and as Great Plains Chief Financial Officer since February 1997. She also
held the title of Group Vice President, Finance and Operations prior to her
appointment as Executive Vice President. She held the position of Vice President
of Finance and Operations from June 1995 to June 1996. Ms. Zimmerman joined
Great Plains as Director of Finance in September 1994. She was previously
employed by Deloitte & Touche LLP in Minneapolis as a Senior Manager. Ms.
Zimmerman holds a B.A. in Business Administration from the University of North
Dakota. Ms. Zimmerman is a Certified Public Accountant.
STEVE K. SYDNESS has served as an Executive Vice President since October
1998 and Vice President, International Operations since June 1997. Mr. Sydness
was Vice President, Dynamics since July 1996 and Vice President, Business
Development from June 1995 to June 1996, Vice President of Sales from June 1994
to June 1995 and Vice President of Strategic Planning June 1993 to June 1994.
Prior to joining Great Plains in January 1987, he was employed by Dr. Henry
Kissinger Associates and the management consulting firm McKinsey & Company, Inc.
in their New York and Tokyo offices. Mr. Sydness holds a B.A. from Principia
College and an M.B.A. from Harvard Business School.
BRIAN R. CAREY has served as an Executive Vice President since October 1998
and Vice President of Business Development since July 1996. Mr. Carey was Vice
President of Product Development from June 1995 to June 1996. He was General
Manager and later Vice President and General Manager of the Small Business
Systems Unit from August 1992 to June 1995. Mr. Carey joined Great Plains in
June 1989. Before such time, he was employed by First Interstate Bancorp, where
he was Senior Vice President and Manager of the Retail Banking Division.
Previously, Mr. Carey was employed by Xerox Corporation in Minneapolis as a
Sales Executive. He holds a B.S. in Marketing from Moorhead State University.
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JODI A. UECKER-RUST has served as an Executive Vice President since October
1998 and Vice President, Center for Organizational Excellence (CORE) and
Heritage Business since June 1996. Ms. Uecker-Rust served a Vice President of
Employee Services for Great Plains from August 1994 through May 1996 and as Vice
President of Operations and Customer Service from June 1993 through August 1994.
Ms. Uecker-Rust has been with Great Plains for over 13 years. Prior to 1984 she
was with Honeywell, Inc.
DARREN C. LAYBOURN has served as Vice President, Global Development since
July 1998. From June 1997 to July 1998, Mr. Laybourn served as General Manager,
Global Development and from June 1994 to June 1997 he was General Manager,
Dynamics Tools. Mr. Laybourn joined Great Plains in 1994 and prior to that time
was employed by The Boeing Company in Seattle, where he led development efforts
supporting manufacturing and corporate computing infrastructure. He holds a B.
S. in Computer Science and Mathematics from the University of Washington.
BRADLEY J. BURGUM has served as a director of Great Plains since 1984 and as
Secretary since January 1996. Mr. Burgum has practiced law in Casselton, North
Dakota for 21 years and is currently a shareholder and President of the Burgum &
Irby Law Firm, P.C. He has served on the Board of Directors for the Arthur
Companies, Inc., a privately-held diversified agribusiness corporation, since
1974. Mr. Burgum holds a B.S. in Business Economics from North Dakota State
University and a J.D. from the University of North Dakota School of Law. Mr.
Burgum is a Certified Public Accountant.
FREDERICK W. BURGUM has served as a director of Great Plains since 1988. Mr.
Burgum has been Chairman of the Board of the Arthur Companies, Inc. since 1984
and has served as its Chief Executive Officer since June 1992. He has served as
Senior Vice President and a director of the First State Bank of North Dakota
since 1972. Mr. Burgum is veteran of the United States Army and holds a B.Ph.
from the University of North Dakota.
WILLIAM V. CAMPBELL has served as a director of Great Plains since March
1997. Mr. Campbell is Chairman of the Board of Intuit, Inc., a publicly held
company based in Palo Alto, California. Mr. Campbell served as both President
and Chief Executive Officer of Intuit Inc. from April 1994 to June 1998. Prior
to joining Intuit Inc., Mr. Campbell was President and Chief Executive Officer
of GO Corporation, a pen-based computing software company, from January 1991 to
December 1993. He was the founder, President and Chief Executive Officer of
Claris Corporation, a software subsidiary of Apple Computer, Inc., from 1987 to
January 1991. Mr. Campbell has also held senior executive positions at Apple
Computer, Inc. and senior management positions at Kodak and J. Walter Thompson,
an advertising agency in New York. Mr. Campbell is also a director of Apple
Computer, Inc. and SanDisk, Inc. Mr. Campbell holds both a B.S. and a M.S. in
Economics from Columbia University. He is presently a director of the National
Football Foundation and Hall of Fame.
RAYMOND F. GOOD has served as a director of Great Plains since 1988. He is
an independent executive consultant. From 1986 to 1992, he was a partner of
Regis McKenna. Mr. Good has also served as Vice President of Marketing Strategy
for Control Data Corporation, President of Heinz USA, Chief Executive Officer of
The Pillsbury Consumer Group, and Chairman of the Board and Chief Executive
Officer of Munsingwear, Inc. Earlier in his career, he served as a management
consultant in the New York office of McKinsey & Company, Inc. Mr. Good is a
veteran of the United States Marine Corps. He holds a B.S. from the University
of Connecticut and an M.B.A. from Harvard Business School.
J.A. HEIDI ROIZEN has served as a director of Great Plains since February
1997. Ms. Roizen consults to a number of clients in the technology sector in the
areas of strategy, business development, partnering and marketing. Ms. Roizen is
also currently a director of Be, Inc., Preview Systems, and Softbook Press, and
is a board advisor to Personic Software, Inc., WhoWhere, Inc.
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<PAGE>
and the Software Forum. Ms. Roizen is also a member of the Stanford Board of
Trustees Nominating Committee. Ms. Roizen served as Vice President of World Wide
Developer Relations for Apple Computer from 1996 to 1997 and as Chief Executive
Officer of T/Maker Company from 1983 to 1996. Ms. Roizen is a past president of
the Software Publishers Association and has served as a Public Governor of the
Pacific Exchange. Ms. Roizen holds a B.A. in English from Stanford University
and an M.B.A. from the Stanford Graduate School of Business.
JOSEPH S. TIBBETTS, JR. has served as a director of Great Plains since
October 1996. He has served as Senior Vice President, Finance and Administration
and Chief Financial Officer of Lightbridge, Inc., a publicly-held company based
in Burlington, Massachusetts, since May 1998. He served as Vice President,
Finance and Administration, Chief Financial Officer and Treasurer of SeaChange
International, Inc., a publicly-held company based in Maynard, Massachusetts,
from June 1996 to March 1998. From November 1976 to June 1996, Mr. Tibbetts was
employed as a Certified Public Accountant by Price Waterhouse LLP. He became a
Partner of the firm in 1986 and the National Director of its Software Services
Group in 1991. Mr. Tibbetts holds a B.S. in Business Administration from the
University of New Hampshire and is a graduate of the Stanford Business School
Executive Program for Growing Companies.
Douglas J. Burgum and Bradley J. Burgum are brothers, and Frederick W.
Burgum is their cousin.
41
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table provides certain information regarding beneficial
ownership of Great Plains' common stock as of January 15, 1999 and as adjusted
to reflect the sale of the common stock offered by this prospectus by (i) each
shareholder known by Great Plains to be the owner of more than 5% of the
outstanding common stock, (ii) each executive officer of Great Plains, (iii)
each director of Great Plains, (iv) all directors and executive officers as a
group and (v) each selling shareholder. Beneficial ownership is determined in
accordance with rules of the Securities and Exchange Commission, and includes
generally voting power and/or investment power with respect to securities.
Shares of common stock subject to options currently exercisable or exercisable
within 60 days of January 15, 1999 are deemed outstanding for purposes of
computing the percentage beneficially owned by the person holding such options
but are not deemed outstanding for purposes of computing the percentage
beneficially owned by any other person. Except as otherwise noted, the persons
or entities named have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
---------------------- SHARES TO ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT BE SOLD NUMBER PERCENT
- ---------------------------------------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Frederick W. Burgum(1).................. 2,453,665 17.6% -- 2,453,665 16.4%
Douglas J. Burgum(2).................... 1,909,567 13.7 200,000 1,709,567 11.4
The Goldman Sachs Group, L.P.
and affiliated entities(3)............ 1,207,627 8.7 700,000 507,627 3.4
Pilgrim Baxter & Associates, Ltd.(4).... 1,038,000 7.5 -- 1,038,000 6.9
T. Rowe Price Associates, Inc.(4)....... 777,800 5.6 -- 777,800 5.2
Bradley J. Burgum(5).................... 543,325 3.9 25,000 518,325 3.5
Barbara K. Burgum....................... 408,585 2.9 40,000 368,585 2.5
Steven K. Sydness(6).................... 94,018 * -- 94,018 *
Jodi A. Uecker-Rust(7).................. 51,893 * -- 51,893 *
Terri F. Zimmerman(8)................... 50,670 * -- 50,670 *
Brian R. Carey.......................... 35,807 * -- 35,807 *
Darren C. Laybourn(9)................... 30,319 * -- 30,319 *
Raymond F. Good(10)..................... 24,000 * -- 24,000 *
J.A. Heidi Roizen(11)................... 15,000 * -- 15,000 *
William V. Campbell(12)................. 14,000 * -- 14,000 *
Joseph S. Tibbetts, Jr.(13)............. 11,750 * -- 11,750 *
All directors and executive officers
as a group (12 persons)(14)........... 5,234,014 37.1 225,000 5,009,014 33.1
</TABLE>
- ------------------------
* Less than one percent.
(1) Includes 9,000 shares issuable pursuant to options and shares held by
certain members of Frederick W. Burgum's household that are beneficially
owned by Mr. Burgum. His address is 1701 S.W. 38th Street, Fargo, North
Dakota 58103. Douglas J. Burgum, Bradley J. Burgum and Barbara K. Burgum
are siblings, and Frederick W. Burgum is their cousin.
(2) Includes 37,566 shares issuable pursuant to options and shares held by
certain members of Douglas J. Burgum's household that are beneficially
owned by Mr. Burgum. His address is 1701 S.W. 38th Street, Fargo, North
Dakota 58103.
42
<PAGE>
(3) Includes shares owned by certain investment partnerships, of which
affiliates of The Goldman Sachs Group, L.P. are the general partner,
managing general partner or investment manager, as follows (prior to the
offering of shares by this prospectus): GS Capital Partners, L.P.:
1,060,368 shares; Bridge Street Fund 1994 L.P.: 73,872 shares; and Stone
Street Fund 1994 L.P.: 71,387 shares, of which 615,661 shares, 42,891
shares and 41,448 shares, respectively, are offered to be sold in the
offering contemplated by this prospectus. The Goldman Sachs Group, L.P.
disclaims beneficial ownership of the shares owned by these investment
partnerships to the extent attributable to partnership interests therein
held by persons other than The Goldman Sachs Group, L.P. and its
affiliates. Each of these investment partnerships shares voting and
investment power with certain of its respective affiliates. The address of
The Goldman Sachs Group, L.P. is 85 Broad Street, New York, New York 10004.
Includes 2,000 shares issuable pursuant to Currently Exercisable Options
held for the benefit of The Goldman Sachs Group, L.P. in the name of
Sanjeev K. Mehra, a former Director of Great Plains and a Managing Director
in the Principal Investment Area of Goldman, Sachs & Co. Does not include
shares of common stock which may be deemed to be beneficially owned by
Goldman, Sachs & Co. as a result of ordinary course trading activities from
time to time or shares of common stock held in client accounts with respect
to which Goldman, Sachs & Co. or its employees have voting or investment
discretion, or both. Goldman, Sachs & Co. disclaims beneficial ownership of
the shares of common stock held in these client accounts. Also does not
include shares of common stock held by Greene Street 1998 Exchange Fund,
L.P. Goldman, Sachs & Co. is the investment manager, and an affiliate of
Goldman, Sachs & Co. is the general partner, of Greene Street 1998 Exchange
Fund, L.P. Goldman, Sachs & Co. disclaims beneficial ownership of the
shares of common stock held by Greene Street 1998 Exchange Fund, L.P.
except to the extent of its pecuniary interest therein.
(4) Based on oral representations made to Great Plains regarding shares
beneficially owned as of January 15, 1999.
(5) Includes 9,000 shares issuable pursuant to options and shares held by
certain members of Bradley J. Burgum's household that are beneficially
owned by Mr. Burgum.
(6) Includes 16,334 shares issuable pursuant to options and shares held by
certain members of Steven K. Sydness's household that are beneficially
owned by Mr. Sydness.
(7) Includes 8,666 shares issuable pursuant to options.
(8) Includes 37,998 shares issuable pursuant to options.
(9) Includes 12,166 shares issuable pursuant to options.
(10) Includes 9,000 shares issuable pursuant to options.
(11) Includes 14,000 shares issuable pursuant to options.
(12) Includes 14,000 shares issuable pursuant to options.
(13) Includes 11,750 shares issuable pursuant to options.
(14) Includes 179,480 shares issuable pursuant to options.
43
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
at the SEC's web site at HTTP://WWW.SEC.GOV.
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and later information filed with the SEC will
update and supercede this information. We incorporate by reference the documents
listed below and any future filings made with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until our offering is
completed.
a. Annual Report on Form 10-K for the year ended May 31, 1998, filed August
31, 1998, including certain information in Great Plains' Definitive Proxy
Statement in connection with Great Plains' 1998 Annual Meeting of
Shareholders;
b. Quarterly Report on Form 10-Q for the quarter ended August 31, 1998
filed October 15, 1998;
c. Quarterly Report on Form 10-Q for the quarter ended November 30, 1998,
filed January 5, 1999, as amended by Amendment No. 1 to Quarterly Report
on Form 10-Q/A filed February 5, 1999;
d. Current Report on Form 8-K filed May 5, 1998, as amended by Amendment
No. 1 to Current Report on Form 8-K/A filed July 2, 1998; and
e. The description of Great Plains' common stock contained in our
registration statement on Form 8-A filed June 13, 1997, including any
amendments or reports filed for the purpose of updating that description.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and telephone number:
Great Plains Software, Inc.
1701 S.W. 38th Street
Fargo, North Dakota 58103
(701) 281-0550
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of this prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for Great Plains by Dorsey & Whitney LLP, Minneapolis, Minnesota.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
44
<PAGE>
EXPERTS
The consolidated balance sheet and the related consolidated statements of
income, of stockholders' equity, and of cash flows of Great Plains at May 31,
1996, 1997 and 1998, and for each of the three years then ended included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in auditing and accounting.
The financial statements of ICONtrol, Inc. as of January 30, 1998 and
January 31, 1997 and for each of the three years in the period ended January 30,
1998 incorporated by reference in this prospectus have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report, and have been so
incorporated by reference in reliance upon the report of that firm given upon
their authority as experts in accounting and auditing.
45
<PAGE>
GREAT PLAINS SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of PricewaterhouseCoopers LLP...................................... F-2
Consolidated Balance Sheet as of May 31, 1997 and 1998 and as of November
30, 1998 (unaudited).................................................... F-3
Consolidated Statement of Income for the years ended May 31, 1996, 1997
and 1998 and for the six months ended November 30, 1997 and 1998
(unaudited)............................................................. F-4
Consolidated Statement of Stockholders' Equity for the years ended May 31,
1996, 1997 and 1998 and for the six months ended November 30, 1998
(unaudited)............................................................. F-5
Consolidated Statement of Cash Flows for the years ended May 31, 1996,
1997 and 1998 and for the six months ended November 30, 1997 and 1998
(unaudited)............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Great Plains Software, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of Great
Plains Software, Inc. and its subsidiaries at May 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 19, 1998
F-2
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31,
----------------- NOVEMBER
1997 1998 30, 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $12,101 $ 18,197 $ 22,563
Investments........................... 4,142 48,721 48,326
Accounts receivable, net.............. 5,452 8,790 9,927
Inventories........................... 567 542 854
Prepaid expenses and other assets..... 1,164 2,914 3,013
Deferred income tax assets............ 3,279 4,630 5,004
------- -------- -----------
Total current assets................ 26,705 83,794 89,687
Property and equipment, net............. 5,821 8,501 10,542
Goodwill and other intangibles, net..... 438 4,946 4,371
Deferred income tax assets.............. -- 3,318 3,318
Other assets............................ 250 2,286 3,670
------- -------- -----------
Total assets........................ $33,214 $102,845 $111,588
------- -------- -----------
------- -------- -----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................... $ 1,788 $ 4,135 $ 3,256
Accrued expenses...................... 4,698 6,941 8,897
Income tax payable.................... -- 3,257 --
Salaries and wages payable............ 510 836 1,064
Commissions payable................... 2,603 2,668 1,400
Deferred revenues..................... 10,448 15,133 20,337
------- -------- -----------
Total current liabilities........... 20,047 32,970 34,954
Deferred income tax liabilities......... 746 204 204
------- -------- -----------
Total liabilities................... 20,793 33,174 35,158
Commitments and contingencies (Note 9)
Mandatorily redeemable convertible
preferred stock: 10,000,000 authorized
preferred shares, Series B, 1,345,220
shares issued and outstanding at May
31, 1997.............................. 28,698 -- --
Stockholders' equity (deficit):
Convertible preferred stock:
30,000,000 authorized preferred
shares; Series A, par value $.01,
225,000 shares issued and
outstanding at May 31, 1997......... 199 -- --
Common stock, par value $.01 per
share: 100,000,000 shares
authorized, issued and outstanding
shares 8,080,335, 13,720,920,
13,842,713, respectively............ 81 137 138
Additional paid-in capital............ (13,843) 67,801 69,514
Accumulated translation adjustment.... -- -- 1
Retained earnings (deficit)........... (2,714) 1,733 6,777
------- -------- -----------
Total stockholders' equity
(deficit)......................... (16,277) 69,671 76,430
------- -------- -----------
Total liabilities and stockholders'
equity............................ $33,214 $102,845 $111,588
------- -------- -----------
------- -------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------------ ------------------------
1996 1997 1998 1997 1998
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
License......................... $ 27,078 $ 35,919 $ 52,949 $ 22,617 $ 34,555
Service......................... 15,193 21,201 32,710 14,202 24,381
---------- ----------- ----------- ----------- -----------
Total revenues................ 42,271 57,120 85,659 36,819 58,936
Cost of revenues:
License......................... 4,913 6,362 11,220 4,589 8,653
Service......................... 5,980 8,260 11,118 4,762 7,724
---------- ----------- ----------- ----------- -----------
Total cost of revenues........ 10,893 14,622 22,338 9,351 16,377
---------- ----------- ----------- ----------- -----------
Gross profit.................. 31,378 42,498 63,321 27,468 42,559
Operating expenses:
Sales and marketing............. 14,477 21,935 31,636 13,908 21,273
Research and development........ 8,876 9,678 12,586 5,687 9,375
General and administrative...... 4,763 5,592 7,587 3,556 4,854
Acquired in-process research and
development................... -- -- 7,136 -- --
---------- ----------- ----------- ----------- -----------
Total operating expenses...... 28,116 37,205 58,945 23,151 35,502
---------- ----------- ----------- ----------- -----------
Operating income.................. 3,262 5,293 4,376 4,317 7,057
Interest expense.................. (197) (98) (2) (2) (2)
Other income, net................. 297 656 3,276 1,805 1,350
---------- ----------- ----------- ----------- -----------
Income before income taxes.... 3,362 5,851 7,650 6,120 8,405
Income tax provision (benefit).... (4,099) 2,207 3,203 2,448 3,361
---------- ----------- ----------- ----------- -----------
Net income.................... $ 7,461 $ 3,644 $ 4,447 $ 3,672 $ 5,044
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Income (loss) per common share:
Basic........................... $ 0.58 $ (1.78) $ 0.33 $ 0.28 $ 0.37
Diluted......................... $ 0.76 $ 0.36 $ 0.32 $ 0.27 $ 0.35
Shares used in computing net
income (loss) per share:
Basic........................... 7,352,820 7,629,460 13,381,414 13,093,015 13,797,818
Diluted......................... 9,764,924 10,003,349 14,089,092 13,820,984 14,455,749
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SERIES A
PREFERRED COMMON STOCK ADDITIONAL ACCUMULATED RETAINED
---------------- ------------------ PAID-IN TRANSLATION EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) TOTAL
-------- ------ ---------- ------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance May 31, 1995.................... 225,000 $ 199 7,346,552 $ 74 $ 4,480 -- $(13,819) $ (9,066)
Exercise of stock options............. -- -- 32,013 -- 73 -- -- 73
Repurchase and retirement of common
stock............................... -- -- (18,800) -- (78) -- -- (78)
Increase in carrying value of
mandatorily redeemable preferred
stock............................... -- -- -- -- (3,202) -- -- (3,202)
Net income............................ -- -- -- -- -- -- 7,461 7,461
-------- ------ ---------- ------ ---------- --- -------- --------
Balance May 31, 1996.................... 225,000 199 7,359,765 74 1,273 -- (6,358 ) (4,812)
Exercise of stock options............. -- -- 732,447 7 1,544 -- -- 1,551
Repurchase and retirement of common
stock............................... -- -- (11,877) -- (54) -- -- (54)
Increase in carrying value of
mandatorily redeemable preferred
stock............................... -- -- -- -- (17,196) -- -- (17,196)
Tax benefit from stockholder
transaction......................... -- -- -- -- 590 -- -- 590
Net income............................ -- -- -- -- -- -- 3,644 3,644
-------- ------ ---------- ------ ---------- --- -------- --------
Balance May 31, 1997.................... 225,000 199 8,080,335 81 (13,843) -- (2,714 ) (16,277)
Sale of common stock, net............. -- -- 3,450,000 34 50,209 -- -- 50,243
Exercise of stock options............. -- -- 286,708 3 1,900 -- -- 1,903
Conversion of preferred stock to
common stock........................ (225,000) (199) 1,847,627 18 28,878 -- -- 28,697
Tax benefit from stockholder
transactions........................ -- -- -- -- 586 -- -- 586
Stock issued for business
combination......................... -- -- 56,250 1 71 -- -- 72
Net income............................ -- -- -- -- -- -- 4,447 4,447
-------- ------ ---------- ------ ---------- --- -------- --------
Balance May 31, 1998.................... -- -- 13,720,920 137 67,801 -- 1,733 69,671
Exercise of stock options
(unaudited)......................... -- -- 121,793 1 1,352 -- -- 1,353
Tax benefit from stockholder
transactions (unaudited)............ -- -- -- -- 361 -- -- 361
Translation adjustment (unaudited).... -- -- -- -- -- 1 -- --
Net income (unaudited)................ 5,044 5,044
-------- ------ ---------- ------ ---------- --- -------- --------
Balance November 30, 1998 (unaudited)... -- $ -- 13,842,713 $138 $ 69,514 $ 1 $ 6,777 $ 76,430
-------- ------ ---------- ------ ---------- --- -------- --------
-------- ------ ---------- ------ ---------- --- -------- --------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
GREAT PLAINS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
--------------------------------- --------------------------
1996 1997 1998 1997 1998
--------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income........................................... $ 7,461 $ 3,644 $ 4,447 $ 3,672 $ 5,044
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 1,921 2,155 2,863 1,295 2,280
Acquired in-process research and development....... -- -- 7,136 -- --
Deferred income tax expense........................ (4,150) 2,207 (5,211) 511 (374)
Changes in operating assets and liabilities
excluding effect of business combinations
Accounts receivable.............................. 526 (256) (2,603) (1,226) (1,137)
Inventories...................................... 342 (113) 25 (58) (312)
Prepaid expenses and other assets................ 335 (557) (1,601) (497) (99)
Accounts payable and accrued expenses............ 499 (141) 4,391 1,641 1,438
Income taxes payable............................. (45) -- 3,843 (65) (3,257)
Salaries, wages and commissions payable.......... 388 1,933 391 (1,900) (1,040)
Deferred revenue................................. 990 1,430 3,947 1,587 5,204
--------- --------- ----------- ------------ ------------
Net cash provided by operating activities...... 8,267 10,302 17,628 4,960 7,747
Cash flows from investing activities:
Purchases of property and equipment.................. (1,990) (2,778) (5,265) (2,591) (3,745)
Purchases of businesses.............................. (123) -- (11,870) -- --
Purchase of investments.............................. -- (4,892) (714,104) (639,581) (71,997)
Proceeds from investments............................ -- 750 669,525 589,295 72,392
Purchase of other assets............................. -- (188) (2,036) (1,953) (1,384)
--------- --------- ----------- ------------ ------------
Net cash used by investment activities......... (2,113) (7,108) (63,750) (54,830) (4,734)
Cash flows from financing activities:
Principal payments on notes payable and long term
debt............................................... (197) (599) -- -- --
Exercise of stock options............................ 73 1,551 1,903 230 1,352
Principal payments on capital lease obligations...... (588) (247) -- -- --
Repurchases of common stock.......................... (78) (54) -- -- --
Proceeds from issuance of common stock, net.......... -- -- 50,315 50,315 0
--------- --------- ----------- ------------ ------------
Net cash (used) provided by financing
activities................................... (790) 651 52,218 50,545 1,352
Effect of exchange rate changes on cash................ -- -- -- -- 1
Increase in cash....................................... 5,364 3,845 6,096 675 4,366
Cash and cash equivalents at beginning of period....... 2,892 8,256 12,101 12,101 18,197
--------- --------- ----------- ------------ ------------
Cash and cash equivalents at end of period............. $ 8,256 $ 12,101 $ 18,197 $ 12,776 $ 22,563
--------- --------- ----------- ------------ ------------
--------- --------- ----------- ------------ ------------
Schedule of noncash investing and financing activities:
Property and equipment acquired under capital lease
agreements......................................... 19 -- -- -- --
Interest paid........................................ 197 68 2 2 2
Tax benefit from stockholder transaction............. -- 590 586 250 361
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
1. BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS INFORMATION
Great Plains Software, Inc. (NASDAQ: GPSI) is a leading provider of business
management software solutions to Midmarket businesses. The Company's
award-winning products and services automate essential business processes and
enhance the strategic value of business information. The Company's solutions are
sold and implemented by a network of independent Partner organizations
throughout the world.
SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY AND FOREIGN CURRENCY TRANSLATIONS
The consolidated financial statements include the accounts of the Company
and its subsidiaries in the United Kingdom, Australia, Singapore, South Africa
and Scandinavia. All significant intercompany accounts and transactions have
been eliminated in consolidation. The functional currency of the subsidiaries
except for the Scandinavian subsidiary has been determined to be the U.S.
dollar. Therefore, all transaction gains and losses resulting from fluctuations
in currency exchange rates of these subsidiaries are included in operating
results. For the Scandinavian subsidiary, the functional currency is the local
currency.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, investments, short-term
receivables and payables for which their current carrying amounts approximate
fair market value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist primarily of cash, cash equivalents, investments and accounts
receivable. The Company grants credit to customers in the ordinary course of
business. No single customer or region represents a significant concentration of
credit risk. The Company invests its cash with high quality financial
institutions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments with
original maturities of three months or less and which are readily convertible to
cash.
F-7
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
1. BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Investments in debt securities that are not cash equivalents have been
designated as available for sale. Those securities, which consist of various
highly rated government securities and corporate commercial paper, are reported
at fair value, with net unrealized gains and losses included in equity. However,
as of May 31, 1998, investments were carried at cost because unrealized gains
were immaterial. The maturities of the debt securities range from 1999 to 2000.
INVENTORIES
Inventories consisting of media, training materials and packaging supplies
are stated at lower of cost or market, with cost determined on a first-in,
first-out ("FIFO") basis.
INCOME TAXES
Income taxes are accounted for under the liability method in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." Under the liability method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major improvements are
capitalized while maintenance and repairs are expensed currently. Depreciation
is computed using the straight-line method based on the estimated useful lives
of three to five years for computer equipment and five to ten years for
furniture, fixtures and equipment. Leasehold improvements are amortized over the
lesser of the terms of the related leases or estimated useful life. Purchased
computer software, which is used internally, is amortized over a period of three
to five years using the straight-line method. Amortization expense is included
with depreciation expense in the consolidated statement of cash flows.
INTANGIBLE ASSETS AND GOODWILL
Amortization of intangible assets and goodwill is recorded on a straight
line basis over their estimated useful lives ranging from four to seven years.
The recoverability of unamortized intangible assets and goodwill is assessed on
an ongoing basis by comparing anticipated undiscounted cash flows to net book
value.
REVENUE RECOGNITION AND DEFERRED REVENUE
Software license fees are recognized upon shipment less a reserve for
estimated future returns. Revenues from support and maintenance service
contracts are recorded as deferred revenue when billed and recognized ratably
over the contract period. Other service revenues such as training and consulting
services are recognized as the services are performed. The Company, in its
discretion, may allow customers to return products for a short period of time
following the sale. The Company provides an allowance for these anticipated
returns based upon its historical experience of returns for similar products.
These amounts are recorded as an offset to license revenues. Statement of
F-8
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
1. BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Position (SOP) 97-2, "Software Revenue Recognition," is effective in fiscal 1999
and was adopted by the Company on June 1, 1998. The adoption of SOP 97-2 did not
have a material effect on the timing of the Company's revenue recognition or
cause changes to its revenue recognition policies.
INTERNATIONAL REVENUES
International revenues represent 10.4%, 15.0% and 15.6% of total revenues
for the years ended May 31, 1996, 1997 and 1998, respectively. All international
revenues are denominated in US dollars. Total revenues by geographic region are
as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
North America.................................. $ 40,370 $ 53,477 $ 77,441
Europe......................................... 840 2,195 4,552
Asia and Australia............................. 462 645 2,096
Other.......................................... 599 803 1,570
--------- --------- ---------
$ 42,271 $ 57,120 $ 85,659
--------- --------- ---------
--------- --------- ---------
</TABLE>
ADVERTISING
The Company accrues, at the time of sale, an estimated liability for
qualified advertising expenses incurred by Partner organizations for which the
Company has agreed to reimburse such parties as part of a cooperative
advertising program. Other advertising costs are expensed as incurred.
Advertising expense was approximately $1,487,000, $1,990,000 and $3,731,000 for
the years ended May 31, 1996, 1997 and 1998, respectively.
RESEARCH AND DEVELOPMENT
Expenditures for software development costs and research are expensed as
incurred. Such costs are required to be expensed until the point that
technological feasibility is established. The period between achieving
technological feasibility and the general availability of such software has been
short. Consequently, costs otherwise capitalizable after technological
feasibility is achieved are generally expensed because they are insignificant to
both total assets and pre-tax results of operations.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 applies to entities with publicly held common stock or
potential common stock and is effective for financial statements issued for
periods ending after December 15, 1997. Under SAFS No. 128, the presentation of
primary earnings per share is replaced with a presentation of basic earnings per
share. SFAS No. 128 requires dual presentation of basic and diluted earnings per
share for entities
F-9
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
1. BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
with complex capital structures. Basic earnings per share includes no dilution
and is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
All earnings per share amounts for all periods have been presented, and where
necessary, restated to conform with the provisions of SFAS No. 128.
The following table sets forth the computation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31,
---------------------------------
1996 1997 1998
--------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE COMPUTATION:
Net income............................................ $ 7,461 $ 3,644 $ 4,447
Increase to carrying value of mandatorily redeemable
preferred stock..................................... (3,202) (17,196) --
--------- ---------- ----------
Net income available to common stockholders........... $ 4,259 $ (13,552) $ 4,447
--------- ---------- ----------
--------- ---------- ----------
Weighted average common shares........................ 7,352,820 7,629,460 13,381,414
--------- ---------- ----------
--------- ---------- ----------
Basic net income (loss) per share..................... $ 0.58 $ (1.78) $ 0.33
--------- ---------- ----------
--------- ---------- ----------
DILUTED EARNINGS PER SHARE COMPUTATION:
Net income............................................ $ 7,461 $ 3,644 $ 4,447
Shares calculation:
Weighted average number of common shares.............. 7,352,820 7,629,460 13,381,414
Weighted average of assumed conversion of mandatorily
redeemable preferred stock.......................... 1,847,627 1,847,627 --
Other common equivalents.............................. 564,477 526,262 707,678
--------- ---------- ----------
9,764,924 10,003,349 14,089,092
--------- ---------- ----------
--------- ---------- ----------
Diluted net income per share.......................... $ 0.76 $ 0.36 $ 0.32
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of November 30, 1998 and for each of
the six-month periods ended November 30, 1997 and 1998, including related
information set forth in the notes to financial statements, is unaudited. In the
opinion of management, this financial information reflects the adjustments
necessary for a fair presentation of the financial information for such periods.
These adjustments consist of normal, recurring items. The results of operations
for the six-month period ended November 30, 1998 should not necessarily be taken
as indicative of the results of operations that may be expected for the entire
year.
F-10
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
1. BUSINESS INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts in the financial statements have been
reclassified in order to conform with the current year's presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board also issued Statement
No. 131, "Disclosures about segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 establishes standards for
disclosures about operating segments, products and services, geographic areas
and major customers. Management believes the adoption of SFAS No. 131 will not
have a material effect on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company must adopt this standard no later than June 1,
2000. Management believes the adoption of SFAS No. 133 will not have a material
effect on the Company's financial statements.
2. BUSINESS COMBINATIONS
On April 20, 1998, the Company acquired certain assets and assumed certain
liabilities of ICONtrol, Inc., a software provider of manufacturing and human
resources solutions. The purchase price was paid in cash and totaled $7,536,000.
The acquisition was accounted for as a purchase and accordingly, the net
assets acquired were recorded at their estimated fair values at the effective
date of the acquisition. The following table presents the allocation of the
purchase price:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
-----------------------
<S> <C>
In-process research and development................. $ 5,456
Other intangibles................................... 1,935
Net assets.......................................... 145
</TABLE>
The $5,456,000 related to acquired in-process research and development, as
determined by an independent third party appraisal, was charged against income
in fiscal 1998 as the underlying research and development projects had not yet
reached technological feasibility. The Company's consolidated financial
statements include the results of ICONtrol since the date of acquisition.
F-11
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED)
The following table presents the consolidated results of operations on an
unaudited pro forma basis as if the acquisition of ICONtrol had taken place at
the beginning of each year:
<TABLE>
<CAPTION>
MAY 31,
--------------------------------
1997 1998
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE INFORMATION)
<S> <C> <C>
Net revenues............................... $ 59,405 $ 88,060
Net income................................. 138 7,367
Pro forma net income per share (diluted)... 0.01 0.53
Reported net income per share before
acquisition related charges.............. 0.36 0.63
</TABLE>
The one-time charge for acquired in-process research and development is not
reflected in the pro forma results presented above. The unaudited pro forma
results of operations are for comparative purposes only and do not necessarily
reflect the results that would have occurred had the acquisition occurred at the
beginning of the periods presented or the results which may occur in the future.
On May 1, 1998, the Company acquired certain assets and assumed certain
liabilities of Telenor Financial Systems, a software provider of sophisticated
multinational consolidations and budgeting solutions. The purchase price was
paid in cash and totaled $4,406,000. The acquisition was accounted for as a
purchase and accordingly, the net assets acquired were recorded at their
estimated fair values at the effective date of the acquisition. The following
table presents the allocation of the purchase price:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
-----------------------
<S> <C>
In-process research and development................. $ 1,680
Other intangibles................................... 990
Goodwill............................................ 1,681
Net assets.......................................... 55
</TABLE>
The $1,680,000 related to acquired in-process research and development, as
determined by an independent third party appraisal, was charged against income
in fiscal 1998 as the underlying research and development projects had not yet
reached technological feasibility. The Company's consolidated financial
statements include the results of Telenor Financial Systems from May 1, 1998.
The results of operations prior to May 1, 1998 were not material to the
consolidated financial statements; accordingly, pro forma financial disclosures
are not presented.
The application of purchase accounting to the acquisitions described above
was based on independent third-party appraisals using valuation techniques
commonly applied to attribute fair value to acquired assets. The appraisals
incorporated management's best estimates for future revenue and profitability
from products in the process of development at the time of acquisition. As is
the case with all projections of future events, actual results could differ.
Additionally, the SEC has challenged valuations incorporating in-process
research and development. If the assumptions or
F-12
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED)
valuation methods used were changed, the Company's financial statements would be
affected because allocations to in-process research and development which have
been expensed would be reallocated to intangible assets which require
amortization against income in future periods.
In September 1997, the Company received all of the outstanding capital stock
of its Singapore distributor in a transaction that was accounted for as a
pooling of interests. To affect the business combination, the Company issued
56,250 shares of the Company's common stock. Financial data for the periods
prior to the closing of this transaction has not been restated because neither
the net assets nor operating results were material to the Company's consolidated
financial statements. The Company's consolidated financial statements include
the results of the Singapore distributor since September 1, 1997.
3. ACCOUNTS RECEIVABLE
Accounts receivable, net of allowances, consist of the following:
<TABLE>
<CAPTION>
MAY 31,
------------------------
1997 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Gross accounts receivable......................... $ 8,059 $ 13,472
Less allowance for returns and doubtful
accounts........................................ (2,607) (4,682)
----------- -----------
$ 5,452 $ 8,790
----------- -----------
----------- -----------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
MAY 31,
------------------------
1997 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures............................ $ 1,702 $ 2,416
Computers and equipment........................... 12,564 15,685
Leasehold improvements............................ 369 369
Purchased software for internal use............... 1,444 1,675
----------- -----------
16,079 20,145
Less accumulated depreciation and amortization.... (10,258) (11,644)
----------- -----------
$ 5,821 $ 8,501
----------- -----------
----------- -----------
</TABLE>
Depreciation expense for the years ended May 31, 1996, 1997, 1998, was
$1,892,000, $2,038,000 and $2,676,000, respectively.
F-13
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
5. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of the following:
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1997 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Goodwill.......................................... $ 584 $ 2,354
Other intangibles................................. -- 2,925
------ -------------
584 5,279
Less accumulated amortization..................... (146) (333)
------ -------------
$ 438 $ 4,946
------ -------------
------ -------------
</TABLE>
Amortization expense for the years ended May 31, 1996, 1997, 1998 was
$29,000, $117,000 and $187,000, respectively.
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1997 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued vacation payable.......................... $ 1,058 $ 1,882
Coop advertising accrual.......................... 1,058 1,390
Other............................................. 2,582 3,669
------------- -------------
$ 4,698 $ 6,941
------------- -------------
------------- -------------
</TABLE>
7. OTHER INCOME, NET
Other income, net consists of the following:
<TABLE>
<CAPTION>
MAY 31,
-----------------------------------
1996 1997 1998
----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income.................................. $ 267 $ 540 $ 3,508
Other............................................ 30 116 (232)
----- ----- ---------
$ 297 $ 656 $ 3,276
----- ----- ---------
----- ----- ---------
</TABLE>
8. LINE OF CREDIT
The Company has a $10,000,000 revolving line of credit facility with a bank
that provides for interest at prime. Substantially all of the Company's assets
are pledged as collateral on the line of
F-14
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
8. LINE OF CREDIT (CONTINUED)
credit, which expires in November 1999 and is subject to certain covenants, all
of which had been complied with at May 31, 1998. There were no amounts
outstanding at May 31, 1997 or 1998.
9. COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS
Rental expense incurred for operating leases of office facilities and office
equipment was approximately $871,000 in 1996, $866,000 in 1997, and $1,054,000
in 1998. Future minimum rental payments as of May 31, 1998 for noncancelable
operating leases with initial or remaining terms in excess of one year are
payable as follows: fiscal 1999 -- $1,660,000, fiscal 2000 -- $2,623,000, fiscal
2001 -- $2,469,000, fiscal 2002 -- $2,197,000 and fiscal 2003 -- $2,187,000.
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of business. Management believes that none of this litigation will
have a materially adverse effect on the financial position or results of
operations or cash flows of the Company.
F-15
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
10. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1997 1998
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of financial
reporting..................................... $ 746 $ 204
------------- -------------
Total deferred tax liabilities.............. 746 204
------------- -------------
Deferred tax assets:
Current:
Accounts receivable allowances................ 909 1,925
Deferred revenue.............................. 617 507
Research and development credit............... 651 --
Alternative minimum tax credit................ 133 --
Accruals and other............................ 969 2,198
------------- -------------
Total current deferred income tax assets.... $ 3,279 $ 4,630
------------- -------------
Long-Term:
Net operating loss of foreign subsidiaries.... -- $ 606
Acquired in-process research and
development................................. -- 2,712
------------- -------------
Total long-term deferred income tax
assets.................................... -- 3,318
------------- -------------
Total net deferred income taxes................... $ 2,533 $ 7,744
------------- -------------
------------- -------------
</TABLE>
F-16
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
10. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
MAY 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current income taxes:
Federal................................... $ 595 $ 1,502 $ 6,954
State..................................... 48 38 1,460
Net operating loss carryforward........... (592) (950) --
--------- --------- ---------
51 590 8,414
Deferred income taxes:
Federal................................... $ 1,233 $ 1,471 $ (4,560)
State..................................... 109 146 (651)
--------- --------- ---------
1,342 1,617 (5,211)
Decrease in valuation allowance............. (5,492) -- --
--------- --------- ---------
$ (4,099) $ 2,207 $ 3,203
--------- --------- ---------
--------- --------- ---------
</TABLE>
The differences between the expected tax provision based on the federal
income tax statutory rate and the actual provision for the years presented are
summarized as follows:
<TABLE>
<CAPTION>
MAY 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Expected tax provision at statutory rate..... $ 1,143 $ 1,981 $ 2,678
State income taxes, net of federal tax
effect..................................... 111 175 575
Change in valuation allowance................ (5,492) -- --
Other........................................ 139 51 (50)
--------- --------- ---------
Total...................................... $ (4,099) $ 2,207 $ 3,203
--------- --------- ---------
--------- --------- ---------
</TABLE>
At the time of adoption of SFAS No.109, the Company had determined that the
realization of the net operating loss carryforward and other deferred tax assets
did not meet the recognition criteria under SFAS No. 109, and, accordingly, a
valuation allowance was established for the tax benefit of these items. The
valuation allowance was reversed during 1996 due primarily to the utilization of
a portion of the net operating loss carryforwards, and on the basis of an
analysis performed by management that considered all available evidence, both
positive and negative, as well as the weight and importance of such evidence. As
a result of this analysis, management believed it was more likely than not that
these tax benefits would be realized in the future, and, accordingly, reversed
the remaining valuation allowance in the fourth quarter of fiscal 1996.
F-17
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
11. INCENTIVE STOCK OPTION PLAN
At May 31, 1998, 2,066,667 shares of common stock had been reserved for
issuance or grant under the Employee Incentive Stock Option plan. The options
are granted to employees at 100% of the fair market value on the date of grant.
The fair market value, rate of exercisability and expiration dates of the
options granted are determined by the Board of Directors at the time of grant.
Options generally vest ratably over five years from date of grant and expire ten
years after grant. Options issued prior to fiscal 1998 vest ratably over five
years from date of grant and expire six years after grant.
The following summary of outstanding options and shares reserved under the
Plan is as follows:
<TABLE>
<CAPTION>
EXPIRATION WEIGHTED
DATE AVERAGE
OPTIONS OPTION PRICE (FISCAL EXERCISE PRICE
OUTSTANDING RANGE PER SHARE YEAR) PER SHARE
------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C>
Outstanding at May 31, 1995... 1,063,647 $ 1.96 to $ 4.16 1997 - 2001 $ 2.48
Granted..................... 619,333 5.20 to 6.41 5.42
Exercised................... (32,013) 1.96 to 2.57 2.30
Canceled/expired............ (321,320) 2.57 to 5.20 4.89
Outstanding at May 31, 1996... 1,329,647 $ 1.96 to $ 6.41 1997 - 2002 $ 3.27
Granted..................... 361,000 6.41 to 7.71 6.65
Exercised................... (732,447) 1.96 to 6.41 2.12
Canceled/expired............ (88,667) 4.16 to 6.41 5.36
Outstanding at May 31, 1997... 869,533 $ 2.42 to $ 7.71 1998 - 2003 $ 5.43
Granted..................... 370,110 16.00 to 37.25 19.46
Exercised................... (200,641) 2.42 to 6.41 4.06
Canceled/expired............ (42,087) 3.41 to 37.25 6.58
Outstanding at May 31, 1998... 996,915 $ 2.42 to $37.25 1999 - 2008 $ 10.85
</TABLE>
As of May 31, 1998 there were currently exercisable options outstanding
covering 188,571 shares, exercisable at prices ranging from $2.42 to $27.13 per
share.
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
As permitted by SFAS No. 123, the Company has elected to continue following the
guidance of APB 25 for measurement and recognition of stock-based transactions
with employees and adopt the disclosure only provisions of SFAS No. 123. As a
result, no compensation expense has been recognized for the awards made in the
form of stock options. If the Company had elected to recognize compensation
costs for stock-based compensation plans based on the fair value at the grant
dates for awards under those plans
F-18
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
11. INCENTIVE STOCK OPTION PLAN (CONTINUED)
consistent with the method prescribed by SFAS No. 123, net income and earnings
per share would have been changed to the pro forma amounts shown as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income:
As reported................................. $ 7,461 $ 3,644 $ 4,447
Pro forma................................... 7,397 3,508 2,826
Earnings per share (diluted):
As reported................................. $ 0.76 $ 0.36 $ 0.32
Pro forma................................... 0.76 0.35 0.20
</TABLE>
The fair value of the stock options used to compute pro forma net income and
earnings per share disclosures is the present value at grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Expected dividend level....................... 0 0 0
Expected stock price volatility............... 44.5% 53.8% 58.8%
Risk free interest rates...................... 6.5% 6.5% 6.0%
Expected life of options...................... 6 years 6 years 5-10 years
</TABLE>
The following table summarizes the status of the Company's stock options
outstanding as of May 31, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS STOCK OPTIONS
OUTSTANDING EXERCISABLE
--------------------------------- --------------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE PRICE EXERCISE PRICE
EXERCISE PRICE SHARES CONTRACTUAL LIFE PER SHARE SHARES PER SHARE
- ---------------- --------- ---------------- --------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
$ 2.42 to $ 3.41 25,736 0.6 years $ 2.61 21,736 $ 2.46
4.16 to 5.44 241,990 3.1 4.96 75,436 4.87
6.41 to 7.71 362,779 4.2 6.65 67,399 6.72
16.00 to 23.88 323,370 7.7 18.23 10,000 16.00
26.38 to 37.25 43,040 6.1 28.86 14,000 27.13
--------- ---------
996,915 188,571
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
12. COMPREHENSIVE INCOME
On June 1, 1998, the Company adopted SFAS No. 130, "Reporting of
Comprehensive Income." The standard requires the display and reporting of
comprehensive income, which includes all changes in stockholders' equity with
the exception of additional investments by stockholders or distributions to
stockholders. Comprehensive income for the Company includes net income and the
effects of translation which are charged or credited to the cumulative
translation adjustments account within stockholders' equity. Comprehensive
income for the years ended May 31, 1996, 1997 and 1998 and for the six months
ended November 30, 1997 and 1998 was as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
MAY 31, NOVEMBER 30,
------------------------------- --------------------
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income...................................... $ 7,461 $ 3,644 $ 4,447 $ 3,672 $ 5,044
Changes in cumulative translation adjustments... -- -- -- -- 1
--------- --------- --------- --------- ---------
Comprehensive income............................ $ 7,461 $ 3,644 $ 4,447 $ 3,672 $ 5,045
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
13. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution 401(k) Profit Sharing Plan
covering substantially all employees. The Company currently matches 25% of each
participant's contribution up to 8% of their annual salary and can make
discretionary profit sharing contributions to the plan. The Company's
contribution to this plan for the years ended May 31, 1996, 1997 and 1998, was
approximately $257,000, $310,000 and $389,000, respectively.
14. STOCKHOLDERS' EQUITY
The Board of Directors met on February 20, 1997, and took the following
actions in connection with the initial public offering of shares of the
Company's common stock: (a) authorized a four-for-three stock split of the
issued and outstanding common stock of the Company, in the form of a stock
dividend, to be effective immediately prior to the public offering (all
references to common stock amounts, shares, per share data and preferred stock
conversion rights included in the financial statements and these notes have been
adjusted to give retroactive effect to the stock split); (b) authorized an
increase in capital stock to 100,000,000 shares of $0.01 par value common stock
and 30,000,000 shares of $0.01 par value preferred stock to be both contingent
and effective upon stockholder approval and the first closing of the initial
public offering of common stock; (c) waived, subject to the closing of an
initial public offering, the Company's contractual rights to repurchase shares
of common stock from employees of the Company; and (d) authorized certain
incentive stock plans contingent and effective upon stockholder approval and
consummation of the initial public offering. These incentive plans include (i)
the 1997 Employee Stock Purchase Plan providing for the purchase of common stock
at a discounted price, (ii) the 1997 Stock Incentive Plan providing for the
grant of stock-based compensation to eligible persons and (iii) the Outside
F-20
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
14. STOCKHOLDERS' EQUITY (CONTINUED)
Directors' Stock Option Plan providing for the grant of nonqualified stock
options to nonemployee directors of the Company.
SERIES A CONVERTIBLE PREFERRED STOCK
In June 1994, the Company sold 225,000 shares of $.01 par value Series A
Convertible Preferred Stock (the "Series A Preferred Stock") at $1.00 per share
to an officer/director who may convert these shares into 54,000 shares of common
stock at any time after June 15, 1997, at a rate of .24 shares of common stock
for each share of Series A Preferred Stock. The Series A Preferred Stock were
converted to shares of common stock upon completion of the initial public
offering on June 19, 1997.
SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Also in June 1994, the Company entered into an agreement for the sale of
Series B Mandatorily Redeemable Convertible Preferred Stock (the "Series B
Preferred Stock") and warrants. On June 24, 1994, at the first closing, the
Company sold 888,576 of $.01 par value Series B Preferred Stock and contingent
warrants to purchase an additional 752,234 shares of Series B Preferred Stock
for an aggregate purchase price of $6,300,000. On September 22, 1994, the second
closing, the Company sold an additional 282,088 shares of Series B Preferred
Stock for an aggregate purchase price of $2,000,000.
During May 1995, the Company and the holders of the Series B Preferred Stock
agreed to reprice the previously issued shares of Series B Preferred Stock and
eliminate the warrants. The Company issued an additional 174,556 shares of
Series B Preferred Stock in return for the cancellation of the warrants. Thus,
the total Series B Preferred Stock sold in the three transactions was 1,345,220
shares at an average price of $6.17.
Holders of the Series B Preferred Stock converted their shares into
1,793,627 shares of common stock upon completion of the Company's initial public
offering on June 19, 1997. Prior to the conversion to common stock, the Company
carried this Series B Preferred Stock at fair value which management considered
to equal $21.33 and $8.55 per share at May 31, 1997 and 1996, respectively. The
increase in carrying value of Series B Preferred Stock is reflected as a
reduction to Additional Paid-in Capital.
F-21
<PAGE>
GREAT PLAINS SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(FOOTNOTE INFORMATION SUBSEQUENT TO MAY 31, 1998 IS UNAUDITED)
15. QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ----------- ----------- ---------
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Revenues
Fiscal 1998...................... $ 16,774 $ 20,045 $ 22,607 $ 26,232 $ 85,659
Fiscal 1997...................... 11,068 13,686 14,699 17,668 57,120
Gross Profit
Fiscal 1998...................... 12,588 14,880 16,618 19,233 63,321
Fiscal 1997...................... 8,262 10,124 10,817 13,296 42,498
Net income (loss)
Fiscal 1998...................... 1,533 2,139 2,377 (1,603) 4,447
Fiscal 1997...................... 551 650 794 1,648 3,644
Basic earnings (loss) per share
Fiscal 1998...................... 0.12 0.16 0.17 (0.12) 0.33
Fiscal 1997...................... 0.03 0.04 0.06 (1.80) (1.78)
Diluted earnings (loss) per share
Fiscal 1998...................... 0.11 0.15 0.17 (0.12) 0.32
Fiscal 1997...................... 0.06 0.07 0.08 0.16 0.36
</TABLE>
Quarterly and annual earnings per share are calculated independently based
on the weighted-average number of shares outstanding during the period.
F-22
<PAGE>
UNDERWRITING
Great Plains, the selling shareholders and the underwriters for the offering
named below, for whom Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Hambrecht & Quist LLC and Piper Jaffray Inc. are acting as
representatives, have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each underwriter has
severally agreed to purchase the number of shares indicated in the following
table:
<TABLE>
<CAPTION>
Underwriters Number of Shares
- --------------------------------------------------------- -----------------
<S> <C>
Goldman, Sachs & Co......................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......
Hambrecht & Quist LLC....................................
Piper Jaffray Inc........................................
-----------------
Total.................................................. 2,000,000
-----------------
-----------------
</TABLE>
------------------
Under the terms and conditions of the underwriting agreement, the
underwriters are committed to take and pay for all of the shares offered by this
prospectus, if any are taken.
If the underwriters sell more shares than the total number shown in the
table above, the underwriters have an option to buy up to an additional 300,000
shares from Great Plains to cover those sales. They may exercise that option for
30 days after the date of this prospectus. If any shares are purchased pursuant
to this option, the underwriters will severally purchase shares in approximately
the same proportion as shown in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by Great Plains and the selling
shareholders. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares.
Paid by Great Plains
<TABLE>
<CAPTION>
Full
No Exercise Exercise
----------- ------------
<S> <C> <C>
Per Share........................................ $ $
Total............................................ $ $
</TABLE>
Paid by the Selling Shareholders
<TABLE>
<CAPTION>
Full
No Exercise Exercise
----------- ------------
<S> <C> <C>
Per Share........................................ $ $
Total............................................ $ $
</TABLE>
Shares sold by the underwriters to the public will be offered at the public
offering price shown on the cover of this prospectus. Any shares sold by the
underwriters to securities dealers may be sold at a discount of up to $ per
share from the initial public offering price. Any of these securities dealers
may resell any shares purchased from the underwriters to certain other brokers
or dealers at a discount of up to $ per share from the initial public
offering price. If all the shares are not sold at the initial public offering
price, the representatives of the underwriters may change the offering price and
the other selling terms.
U-1
<PAGE>
Great Plains, its directors and executive officers and certain of its
shareholders (including all of the selling shareholders) have agreed with the
underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 90 days after the
date of this prospectus, except with the prior written consent of the
representatives of the underwriters. This agreement does not apply to any
existing employee benefit plans.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives of the underwriters have
purchased shares sold by or for the account of the underwriter in stabilizing or
short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934 during the business day prior to the pricing of
the offering before the commencement of offers or sales of the common stock.
Passive market makers must comply with applicable volume and price limitations
and must be so identified. In general, a passive market maker must display its
bid at a price not in excess of the highest independent bid of the common stock;
if all independent bids are lowered below the passive market makers' bid,
however, the passive market makers' bid must then be lowered when certain
purchase limits are exceeded.
Great Plains estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$390,000.
Certain of our shareholders are investment partnerships whose general
partner, managing general partner or investment manager is an affiliate of The
Goldman Sachs Group, L.P. See "Principal and Selling Shareholders." These
shareholders are entitled to certain rights with respect to the registration
under the Securities Act of 1933 of shares of common stock held by them. For
example, these shareholders have the right, subject to certain conditions and
limitations, to require Great Plains to file a registration statement covering
all or part of their shares of common stock and to include their shares of
common stock in any other proposed registration of Great Plains securities.
Generally, Great Plains is required to bear the expense of any of these types of
registrations.
Great Plains and the selling shareholders have agreed to indemnify the
several underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE>
[INSIDE BACK COVER]
ALL HORIZONS HOLD OPPORTUNITY.
EVEN THE ONES YOU CAN'T SEE.
[Photo of green forest scape]
A good midmarket business management software solution can help companies
with existing opportunities. A great solution can help create new ones.
Great Plains prepares businesses for the unseen horizons ahead. We help
growing companies take advantage of the emerging opportunities within electronic
commerce. Increase the efficiency and reduce the cost of knowledge management.
And raise customer service to new levels of quality.
We encourage you to learn how we help companies see farther. As well as take
them there.
[Great Plains'
Sun/Wheat Logo]
--------------------------------------
SEE FARTHER
- -C-1999 Great Plains Software, Inc.
All rights reserved.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person
is authorized to give any information or to represent anything not contained in
this prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the shares offered by
this prospectus, but only under circumstances and in jurisdictions where it is
lawful to do so. The information contained in this prospectus is current only as
of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Price Range of Common Stock............................................... 11
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 11
Corporate Information..................................................... 12
Capitalization............................................................ 12
Selected Consolidated Financial Data...................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 15
Business.................................................................. 27
Management................................................................ 39
Principal and Selling Shareholders........................................ 42
Where You Can Find More Information....................................... 44
Legal Matters............................................................. 44
Experts................................................................... 45
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
2,000,000 Shares
GREAT PLAINS
SOFTWARE, INC.
Common Stock
---------------------
[LOGO]
---------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(Except for this sentence, this page has been left blank intentionally.)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Except as set forth below the following fees and expenses will be paid by
Great Plains in connection with the issuance and distribution of the securities
registered hereby and do not include underwriting commissions and discounts. All
such expenses, except for the SEC registration, NASD filing and Nasdaq listing
fees, are estimated.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............................................................. $ 30,532
NASD filing fee.................................................................. $ 11,483
Nasdaq National Market listing fee............................................... $ 17,500
Legal fees and expenses.......................................................... $ 100,000
Accounting fees and expenses..................................................... $ 75,000
Transfer Agent's and Registrar's fees............................................ $ 10,000
Printing and engraving expenses.................................................. $ 100,000
Miscellaneous.................................................................... $ 55,485
-----------
Total.......................................................................... $ 400,000
-----------
-----------
</TABLE>
The selling shareholders, other than those shareholders which are investment
partnerships of which affiliates of The Goldman Sachs Group, L.P. are the
general partner, managing general partner or investment manager, will pay
$10,000 of the expenses shown above in the aggregate. The expenses of those
investment partnerships will be paid by Great Plains pursuant to a pre-existing
agreement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Statutes provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in certain
instances. A decision as to required indemnification is made by a disinterested
majority of the Board of Directors present at a meeting at which a disinterested
quorum is present, or by a designated committee of the Board, by special legal
counsel, by the shareholders or by a court.
Provisions regarding indemnification of officers and directors of Great
Plains to the extent permitted by Section 302A.521 are contained in Great
Plains' Bylaws.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement
5.1* Opinion of Dorsey & Whitney LLP
23.1* Consent of PricewaterhouseCoopers LLP
23.2* Consent of Deloitte & Touche LLP
23.3* Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1* Powers of Attorney
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules
SCHEDULE II -- SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) It will provide to the underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all if the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fargo, State of North Dakota, on February 26,
1999.
<TABLE>
<S> <C> <C>
GREAT PLAINS SOFTWARE, INC.
By: /s/ TERRI F. ZIMMERMAN
------------------------------------------
Terri F. Zimmerman
CHIEF FINANCIAL OFFICER
AND EXECUTIVE VICE PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement on Form S-3 has been signed by the following
persons in the capacities indicated on February 26, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------- --------------------------------------------------------
<S> <C>
DOUGLAS J. BURGUM* Chairman of the Board, President and Chief Executive
Officer
(principal executive officer)
/s/ TERRI F. ZIMMERMAN Chief Financial Officer and Executive Vice President
- --------------------------------- (principal financial officer and principal accounting
Terri F. Zimmerman officer)
BRADLEY J. BURGUM* Director
FREDERICK W. BURGUM* Director
WILLIAM V. CAMPBELL* Director
RAYMOND F. GOOD* Director
J. A. HEIDI ROIZEN* Director
JOSEPH S. TIBBETTS, JR.* Director
</TABLE>
*By:
/s/ TERRI F. ZIMMERMAN
----------------------------------
Terri F. Zimmerman
ATTORNEY-IN-FACT
II-3
<PAGE>
GREAT PLAINS SOFTWARE, INC.
SCHEDULE II -- SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES DEDUCTIONS END OF YEAR
--------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended May 31,
1996.............................. $ 255 $ 529 $ 117 $ 667
1997.............................. 667 408 84 991
1998.............................. 991 766 126 1,631
For Six months ended November 30,
1998 (unaudited).................. 1,631 515 639 1,507
Allowance for returns
Year ended May 31,
1996.............................. $ 1,096 $ 3,349 $ 3,232 $ 1,213
1997.............................. 1,213 4,007 3,604 1,616
1998.............................. 1,616 6,726 5,291 3,051
For Six months ended November 30,
1998 (unaudited).................. 3,051 4,832 4,232 3,651
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement
5.1* Opinion of Dorsey & Whitney LLP
23.1* Consent of PricewaterhouseCoopers LLP
23.2* Consent of Deloitte & Touche LLP
23.3* Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1* Powers of Attorney
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT 1.1
Great Plains Software, Inc.
Common Stock
---------------------
UNDERWRITING AGREEMENT
, 1999
------------
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Hambrecht & Quist LLC,
U.S. Bancorp Piper Jaffray Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Great Plains Software, Inc., a Minnesota corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 1,035,000 shares and, at the election of the Underwriters, up to
300,000 additional shares of Common Stock, $.01 par value ("Stock") of the
Company and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 965,000 shares of Stock.
The aggregate of 2,000,000 shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the aggregate of 300,000
additional shares to be sold by the Company is herein called the "Optional
Shares". The Firm Shares and the Optional Shares that the Underwriters elect
to purchase pursuant to Section 2 hereof are herein collectively called the
"Shares".
1. (a) The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-70123) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you for each of the Underwriters, and,
excluding exhibits thereto but including all documents incorporated by
reference in the prospectus contained therein, have been declared effective
by the Commission in such form; other than a registration statement, if
any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as
<PAGE>
amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement (or any
document incorporated by reference therein) has heretofore been filed with
the Commission; and no stop order suspending the effectiveness of the
Initial Registration Statement, any post-effective amendment thereto or the
Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the rules
and regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of
final prospectus filed with the Commission pursuant to Rule 424(b) under
the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule
430A under the Act to be part of the Initial Registration Statement at the
time it was declared effective and the documents incorporated by reference
in the prospectus contained in the Initial Registration Statement at the
time such part of the Initial Registration Statement became effective, each
as amended at the time such part of the Initial Registration Statement
became effective or such part of the Rule 462(b) Registration Statement, if
any, became or hereafter becomes effective, are hereinafter collectively
called the "Registration Statement"; and such final prospectus, in the form
first filed pursuant to Rule 424(b) under the Act, is hereinafter called
the "Prospectus"; and any reference herein to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
Act, as of the date of such Preliminary Prospectus or Prospectus, as the
case may be; any reference to any amendment or supplement to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include any documents filed after the date of such Preliminary Prospectus
or Prospectus, as the case may be, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and incorporated by reference in
such Preliminary Prospectus or Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be deemed to
refer to and include any annual report of the Company filed pursuant to
Section 13(a) or 15(d) of the Exchange Act after the effective date of the
Initial Registration Statement that is incorporated by reference in the
Registration Statement);
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Item 7 of
Form S-3;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and
<PAGE>
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and any further documents so filed and
incorporated by reference in the Prospectus or any further amendment or
supplement thereto, when such documents become effective or are filed
with the Commission, as the case may be, will conform in all material
respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
are made, not misleading; PROVIDED, HOWEVER, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for
use therein;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Item 7 of Form S-3;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, which loss would have a material adverse effect on
the business, current or future consolidated financial position,
stockholders' equity or result of operations of the Company and its
subsidiaries, taken as a whole, otherwise than as set forth or contemplated
in the Prospectus; and, since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the Prospectus;
(vi) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its
<PAGE>
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Minnesota, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction;
(viii) The Company's wholly-owned direct subsidiary, Great Plains
Software O.C., Inc., has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Minnesota,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of North Dakota, South Dakota, Washington
and each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each other subsidiary of the
Company has been duly incorporated (or in the case of a limited liability
company, duly formed) and is validly existing as a corporation or limited
liability company in good standing under the laws of its jurisdiction of
incorporation or formation;
(ix) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in
the Prospectus; and all of the issued shares of capital stock or membership
interests (whether denominated as units or otherwise), in the case of a
subsidiary that is a limited liability company, of each subsidiary of the
Company have been duly and validly authorized and issued, are (with respect
to corporate subsidiaries) fully paid and non-assessable and (except for
directors' qualifying shares and except as set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (and no person has any option, right or
claim to acquire any stock or membership interest in any subsidiary);
(x) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(xi) The issue and sale of the Shares to be sold by the Company and
the compliance by the Company with all of the provisions of this Agreement
and the consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its
<PAGE>
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Articles of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as
may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the Underwriters;
(xii) Neither the Company nor any of its subsidiaries is in violation
of its Articles of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or
by which it or any of its properties may be bound;
(xiii) The statements incorporated by reference into the Prospectus
(from the Company's Form 8-A filed with the Commission on June 13, 1997
under the caption "Description of Registrant's Securities to be
Registered"), insofar as they purport to constitute a summary of the terms
of the Stock, are accurate, complete and fair;
(xiv) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole; and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;
(xv) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" or an entity
controlled by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(xvi) PricewaterhouseCoopers LLP, which has certified certain
financial statements of the Company and its subsidiaries, and Deloitte &
Touche LLP, which has certified certain financial statements of ICONtrol,
Inc., a South Dakota corporation, are independent public accountants as
required by the Act and the rules and regulations of the Commission
thereunder;
(xvii) The Company owns, is licensed to use or otherwise possesses
adequate rights to use all material patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names and
copyrights described or referred to in the Prospectus as owned or used by
it or which are necessary for the conduct of its business as described in
the Prospectus; and the Company has not received any notice of, and has no
knowledge of, any action on the part of the Company which constitutes an
infringement of or conflict with asserted
<PAGE>
rights of others with respect to any patents, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or
copyrights;
(xviii) None of the Company, its subsidiaries, or, to the best of the
Company's knowledge, Barbara K. Burgum, the Company's directors or the
Company's officers, is a party to any stockholders' agreement involving the
Company or its capital stock or any other agreement involving buy/sell
arrangements or voting arrangements with respect to the Company's capital
stock;
(xix) To the best of the Company's knowledge, none of Barbara K.
Burgum, the Company's directors or the Company's officers is an
equityholder, debtholder, optionholder, partner, director or officer of
IRET Properties, a North Dakota limited partnership, or any other entity
associated with the Company's new headquarters campus in Fargo, North
Dakota;
(xx) The Company owns all of the issued and outstanding shares of
capital stock of the Operating Company, free and clear of all liens,
encumbrances, equities and claims; and
(xxi) The Company has reviewed its operations and that of its
subsidiaries and has made inquiries of any third parties with which the
Company or any of its subsidiaries has a material relationship, to evaluate
the extent to which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem. As a result of
such review and such inquiries, the Company has no reason to believe, and
does not believe, that the Year 2000 Problem will have a material adverse
effect on the general affairs, management, the current or future
consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries, taken as a
whole, or result in any material loss or interference with the Company's
business or operations. As used herein with respect to the Company, its
subsidiaries or such third parties, the "Year 2000 Problem" means any
material failure of computer hardware or software to function as
effectively with dates or time periods occurring after December 31, 1999,
as with dates or time periods occurring prior to January 1, 2000, whether
used in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation
of mechanical or electrical systems of any kind.
(b) Each of the Selling Stockholders severally represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary
for the execution and delivery by such Selling Stockholder of this
Agreement and the Power of Attorney and the Custody Agreement hereinafter
referred to, and for the sale and delivery of the Shares to be sold by such
Selling Stockholder hereunder, have been obtained; and such Selling
Stockholder has full right, power and authority to enter into this
Agreement, the Power-of-Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which such Selling Stockholder is a party
<PAGE>
or by which such Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the Partnership
Agreement of such Selling Stockholder if such Selling Stockholder is a
partnership or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to the each
Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder
will have, good and valid title to the Shares to be sold by such Selling
Stockholder hereunder, free and clear of all liens, encumbrances, equities
or claims; and, upon delivery of such Shares and payment therefor pursuant
hereto, good and valid title to such Shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several Underwriters;
(iv) Subject to Section 1(c) below, during the period beginning from
the date hereof and continuing to and including the date 90 days after the
date of the Prospectus, not to offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder, any securities of the Company
that are substantially similar to the Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to employee stock option plans existing on,
or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Agreement), without your
prior written consent;
(v) Subject to Section 1(c) below, such Selling Stockholder has not
taken and will not take, directly or indirectly, any action which is
designed to or which has constituted or which might reasonably be expected
to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the Shares
to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to Norwest Bank Minnesota, National Association, as custodian
<PAGE>
(the "Custodian"), and such Selling Stockholder has duly executed and
delivered a Power of Attorney, in the form heretofore furnished to you (the
"Power of Attorney"), appointing the persons indicated in Schedule II
hereto, and each of them, as such Selling Stockholder's attorneys-in-fact
(the "Attorneys-in-Fact") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder, to determine the purchase
price to be paid by the Underwriters to the Selling Stockholders as
provided in Section 2 hereof, to authorize the delivery of the Shares to be
sold by such Selling Stockholder hereunder and otherwise to act on behalf
of such Selling Stockholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement;
(ix) The Shares represented by the certificates held in custody for
such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholders hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by
the occurrence of any other event; if any individual Selling Stockholder or
any such executor or trustee should die or become incapacitated, or if any
such estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should occur,
before the delivery of the Shares hereunder, certificates representing the
Shares shall be delivered by or on behalf of the Selling Stockholders in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to
the Powers of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event;
(x) Such selling stockholder is not a party to any stockholders'
agreement involving the Company or its capital stock or any other agreement
involving buy/sell arrangements or voting arrangements with respect to the
Company's capital stock; and
(xi) Such selling stockholder is not an equityholder, debtholder,
optionholder, partner, director or officer of IRET Properties, a North
Dakota limited partnership, or any other entity associated with the
Company's new headquarters campus in Fargo, North Dakota.
(c) Notwithstanding anything herein to the contrary, including without
limitation Sections 1(b)(iv) and 1(b(v) above, Goldman, Sachs & Co. and its
affiliates may engage in brokerage, investment advisory, investment company,
financial advisory, anti-raid advisory, financing, asset management, trading,
market making, arbitrage and other similar activities conducted in the ordinary
course of its and its affiliates' business.
2. Subject to the terms and conditions herein set forth, (a) the Company
and each of the Selling Stockholders agree, severally and not jointly, to sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company and each of the Selling Stockholders,
at a purchase price per share of $.............., the number of Firm Shares (to
be
<PAGE>
adjusted by you so as to eliminate fractional shares) determined by
multiplying the aggregate number of Shares to be sold by the Company and each of
the Selling Stockholders as set forth opposite their respective names in
Schedule II hereto by a fraction, the numerator of which is the aggregate number
of Firm Shares to be purchased by such Underwriter as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the aggregate number of Firm Shares to be purchased by all of the Underwriters
from the Company and all of the Selling Stockholders hereunder and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 300,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours'
prior notice to the Company and the Selling Stockholders shall be delivered
by or on behalf of the Company and the Selling Stockholders to Goldman, Sachs
& Co., through the facilities of the Depository Trust Company ("DTC"), for
the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company and the Custodian on
behalf of each of the Selling Stockholders, as their interests may appear, to
Goldman, Sachs & Co. at least forty-eight hours in advance. The Company will
cause the certificates representing the Shares to be made available for
checking and packaging at least twenty-four hours prior to the Time of
Delivery (as defined below) with respect thereto at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m.,
New York time, on ............., 1999 or such other time and date as Goldman,
Sachs & Co., the Company and the Custodian on behalf of the Selling
Stockholders may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs &
Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co. and the
<PAGE>
Company may agree upon in writing. Such time and date for delivery of the
Firm Shares is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, and the payment of the purchase
price by wire transfer as specified in subsection (a) above, will be
delivered at the offices of Dorsey & Whitney LLP, Pillsbury Center South, 220
South Sixth Street, Minneapolis, Minnesota 55402 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time
of Delivery. A meeting will be held at the Closing Location at 2:00 p.m.,
New York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not
a day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be disapproved by
you promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you with copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any Preliminary Prospectus or
Prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or Prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in
<PAGE>
any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to
time, to furnish the Underwriters with copies of the Prospectus in New York
City in such quantities as you may reasonably request, and, if the delivery
of a prospectus is required at any time prior to the expiration of nine
months after the time of issue of the Prospectus in connection with the
offering or sale of the Shares and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the Act or the Exchange
Act, to notify you and upon your request to file such document and to
prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request
of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance, and in case
any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time
of issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations of the Commission thereunder (including, at the
option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans existing on, or upon the conversion
or exchange of convertible or exchangeable securities outstanding as of,
the date of this Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement), to make
available to its stockholders consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
<PAGE>
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ"); and
(j) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the
date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
6. (a) Subject to Section 6(b) hereof, the Company and each of the
Selling Stockholders covenant and agree with one another and with the several
Underwriters that (i) the Company will pay or cause to be paid the following:
(1) the fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares under the Act
and all other expenses in connection with the preparation, printing and
filing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (2) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the
Blue Sky Memorandum, closing documents (including any compilations thereof)
and any other documents in connection with the offering, purchase, sale and
delivery of the Shares; (3) all expenses in connection with the qualification
of the Shares for offering and sale under state securities laws as provided
in Section 5(b) hereof, including the fees and disbursements of counsel for
the Underwriters in connection with such qualification and in connection with
the Blue Sky survey (4) all fees and expenses in connection with listing the
Shares on NASDAQ; (5) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing
any required review by the National Association of Securities Dealers, Inc.
of the terms of the sale of the Shares; (6) the cost of preparing stock
certificates; (7) the cost and charges of any transfer agent or registrar and
(8) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in
this Section; and (ii) such Selling Stockholder will pay or cause to be paid
all costs and expenses incident to the performance of such Selling
Stockholder's obligations hereunder which are not otherwise specifically
provided for in this Section, including (1) any fee and expenses of counsel
for such Selling Stockholder, (2) such Selling Stockholder's pro rata share
of the fees and expenses of the Attorneys-in-Fact and the Custodian, and (3)
all expenses and taxes incident to the sale and delivery of the Shares to be
sold by such Selling Stockholder to the Underwriters hereunder. In
connection with clause (ii) of the preceding sentence, Goldman, Sachs & Co.
agrees to pay New York
<PAGE>
State stock transfer tax, and the Selling Stockholder agrees to reimburse
Goldman, Sachs & Co. for associated carrying costs if such tax payment is not
rebated on the day of payment and for any portion of such tax payment not
rebated. It is understood, however, that the Company shall bear, and the
Selling Stockholders shall not be required to pay or to reimburse the Company
for, the cost of any other matters not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that, except as
provided in this Section, and Sections 8 and 11 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any
advertising expenses connected with any offers they may make.
(b) The Company and each of the Selling Stockholders covenant and agree
with one another and with the several Underwriters that none of GS Capital
Partners, L.P., Bridge Street Fund 1994, L.P. and Stone Street Fund 1994,
L.P. will pay or cause to be paid any of the fees, disbursements or expenses
identified in Section 6(a) hereof.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion,
to the condition that all representations and warranties and other statements
of the Company and of the Selling Stockholders herein are, at and as of such
Time of Delivery, true and correct, the condition that the Company and the
Selling Stockholders shall have performed all of its and their obligations
hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become effective
by 10:00 p.m., Washington, D.C. time, on the date of this Agreement; no
stop order suspending the effectiveness of the Registration Statement or
any part thereof shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission; and all requests
for additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Hale and Dorr LLP, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions, dated such Time of
Delivery, with respect to the matters covered in paragraphs (i), (ii),
(vi), (x) and (xi) of subsection (c) below as well as such other related
matters as you may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them
to pass upon such matters;
(c) Dorsey & Whitney LLP, counsel for the Company, shall have
furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Minnesota, with power and authority (corporate and
other) to own its properties and conduct its business as described in
the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at such
Time of Delivery) have been duly and validly authorized and issued
and
<PAGE>
are fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of North Dakota (such counsel being entitled to rely
in respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state that
they believe that both you and they are justified in relying upon
such opinions and certificates and further provided that such counsel
furnishes to the representatives copies of any such opinions and
certificates);
(iv) Great Plains Software O.C., Inc., a Minnesota
corporation (the "Operating Company"), has been duly incorporated and
is validly existing as a corporation in good standing under the laws
of the State of Minnesota; and all of the issued shares of capital
stock of the Operating Company have been duly and validly authorized
and issued, are fully paid and non-assessable;
(v) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or
any of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries, would individually or in
the aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole;
and, to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
(vi) This Agreement has been duly authorized, executed
and delivered by the Company;
(vii) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument filed as an exhibit to the Registration Statement or any
document incorporated by reference therein, nor will such action
result in any violation of the provisions of the Articles of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act
of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
<PAGE>
(ix) The Company is not an "investment company", as such
term is defined in the Investment Company Act;
(x) The documents incorporated by reference in the
Prospectus or in any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion), when they became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Act or the Exchange
Act, as applicable and the rules and regulations of the Commission
thereunder; and they have no reason to believe that any of such
documents, when such documents became effective or were so filed, as
the case may be, contained, in the case of a registration statement
which became effective under the Act, an untrue statement of a
material fact, or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or, in the case of other documents which were filed under
the Exchange Act with the Commission, an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made when such documents were so filed, not
misleading; and
(xi) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder;
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, they have no reason to
believe that, as of its effective date, the Registration Statement or
any further amendment thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make
the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading or that, as of such Time of Delivery,
either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be incorporated by reference into the
Prospectus or required to be described in the Registration Statement
or the Prospectus which are not filed or incorporated by reference or
described as required;
<PAGE>
(d) The respective counsel for each of the Selling Stockholders, as
indicated in Schedule II hereto, each shall have furnished to you their
written opinion with respect to each of the Selling Stockholders for whom
they are acting as counsel, dated the First Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have
been duly executed and delivered by such Selling Stockholder and
constitute valid and binding agreements of such Selling Stockholder
in accordance with their terms;
(ii) This Agreement has been duly executed and delivered
by or on behalf of such Selling Stockholder; and the sale of the
Shares to be sold by such Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the provisions of
this Agreement, the Power-of-Attorney and the Custody Agreement and
the consummation of the transactions herein and therein contemplated
will not conflict with or result in a breach or violation of any
terms or provisions of, constitute a default under, any statute,
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which such Selling Stockholder
is a party or by which such Selling Stockholder is bound or to which
any of the property or assets of such Selling Stockholder is subject,
nor will such action result in any violation of the provisions of any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
of the transactions contemplated by this Agreement in connection with
the Shares to be sold by such Selling Stockholder hereunder, except
as have been obtained under the Act and such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of such Shares by the Underwriters;
(iv) Immediately prior to the First Time of Delivery,
such Selling Stockholder had good and valid title to the Shares to be
sold at the First Time of Delivery by such Selling Stockholder under
this Agreement, free and clear of all liens, encumbrances, equities
or claims, and full right, power and authority to sell, assign,
transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder; and
(v) Good and valid title to such Shares, free and clear
of all liens, encumbrances, equities or claims, has been transferred
to each of the several Underwriters.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of such Selling Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
such Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate
and further provided that such counsel furnishes to the representatives copies
of any such certificate;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date
of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time
<PAGE>
of Delivery, each of PricewaterhouseCoopers LLP (as to the Company and
its subsidiaries) and Deloitte & Touche LLP (as to ICONtrol, Inc). shall
have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the
effect set forth in Annex I hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached as Annex
I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been
any change in the capital stock or long-term debt of the Company or any of
its subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the Representatives so material and adverse
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities
declared by Federal, New York or Minnesota authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this Clause (iv) in the judgment of
the Representatives makes it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(h) The Shares at such Time of Delivery shall have been duly listed
for quotation on NASDAQ;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of the stockholders of the
Company identified on Schedule III hereto, substantially to the effect set
forth in Subsection 1(b)(iv) hereof in form and substance satisfactory to
you;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company and the Selling Stockholders shall have furnished
or caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the
<PAGE>
Selling Stockholders, respectively, satisfactory to you as to the
accuracy of the representations and warranties of the Company and the
Selling Stockholders, respectively, herein at and as of such Time of
Delivery, as to the performance by the Company and the Selling
Stockholders of all of their respective obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request, and the Company shall have
furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (f) of this Section.
(a) The Company, Douglas J. Burgum and Bradley J. Burgum, jointly and
severally, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; PROVIDED, HOWEVER, that the Company, Douglas J. Burgum
and Bradley J. Burgum shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein; and
PROVIDED FURTHER, HOWEVER, that the aggregate liability of each of Douglas J.
Burgum and Bradley J. Burgum pursuant to this Subsection 8(a) and Subsection
8(d) below shall not exceed the product of the number of Shares sold by such
Selling Stockholder and the purchase price per share set forth in clause (a)
of Section 2 above.
(b) Each of the Selling Stockholders (except for Douglas J. Burgum and
Bradley J. Burgum) will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder expressly for use therein; and will
reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending
any such action or claim as such expenses are incurred; PROVIDED, HOWEVER,
that such Selling Stockholder shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and
<PAGE>
in conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein.
(c) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities
to which the Company or such Selling Stockholder may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman,
Sachs & Co. expressly for use therein; and will reimburse the Company and
each Selling Stockholder for any legal or other expenses reasonably incurred
by the Company or such Selling Stockholder in connection with investigating
or defending any such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have
to any indemnified party otherwise than under such subsection. In case any
such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of
the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action
or claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of faut, culpability or a failure to act, by
or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand
<PAGE>
and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on
the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relate to information supplied by the Company or the Selling
Stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, each of the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined by
PRO RATA allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this subsection
(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (e) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding
the provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and
the respective Selling Stockholders may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company and to
each person, if any, who controls the Company or any Selling Stockholder
within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares, which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such
<PAGE>
Shares, then the Company and the Selling Stockholders shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In
the event that, within the respective prescribed periods, you notify the
Company and the Selling Stockholders that you have so arranged for the
purchase of such Shares, or the Company and the Selling Stockholders notify
you that they have so arranged for the purchase of such Shares, you or the
Company and the Selling Stockholders shall have the right to postpone a Time
of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement
or the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh
of the aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company and the Selling Stockholders shall have the right
to require each non-defaulting Underwriter to purchase the number of Shares
which such Underwriter agreed to purchase hereunder at such Time of Delivery
and, in addition, to require each non-defaulting Underwriter to purchase its
pro rata share (based on the number of Shares which such Underwriter agreed
to purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of
Delivery, or if the Company and the Selling Stockholders shall not exercise
the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company or the Selling Stockholders,
except for the expenses to be borne by the Company and the Selling
Stockholders and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company, or any of the Selling Stockholders, or any
officer or director or controlling person of the Company, or any controlling
person of any Selling Stockholder, and shall survive delivery of and payment
for the Shares. Anything herein to the contrary notwithstanding, the
indemnity agreement of the Company in subsection (a) of Section 8 hereof, the
representations and warranties in subsections (a)(ii), (a)(iii) and
<PAGE>
(a)(iv) of Section 1 hereof and any representation or warranty as to the
accuracy of the Registration Statement or the Prospectus contained in any
certificate furnished by the Company pursuant to Section 7 hereof, insofar as
they may constitute a basis for indemnification for liabilities (other than
payment by the Company of expenses incurred or paid in the successful defense
of any action, suit or proceeding) arising under the Act, shall not extend to
the extent of any interest therein of a controlling person or partner of an
Underwriter who is a director, officer or controlling person of the Company
when the Registration Statement has become effective, except in each case to
the extent that an interest of such character shall have been determined by a
court of appropriate jurisdiction as not against public policy as expressed
in the Act. Unless in the opinion of counsel for the Company the matter has
been settled by controlling precedent, the Company will, if a claim for such
indemnification is asserted, submit to a court of appropriate jurisdiction
the question of whether such interest is against public policy as expressed
in theAct and will be governed by the final adjudication of such issue.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof;
but, if for any other reason any Shares are not delivered by or on behalf of
the Company and the Selling Stockholders as provided herein, the Company and
each of the Selling Stockholders pro rata (based on the number of Shares to
be sold by the Company and such Selling Stockholder hereunder), will
reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
and the Selling Stockholders shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Stockholder made or
given by any or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of Goldman,
Sachs & Co., 32 Old Slip, 9th Floor, New York, New York 10005, Attention:
Registration Department; if to any Selling Stockholder shall be delivered or
sent by mail, telex or facsimile transmission to counsel for such Selling
Stockholder at its address set forth in Schedule II hereto; and if to the
Company shall be delivered or sent by mail, telex or facsimile transmission
to the address of the Company set forth in the Registration Statement,
Attention: Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or
facsimile transmission to such Underwriter at its address set forth in its
Underwriters' Questionnaire or telex constituting such Questionnaire, which
address will be supplied to the Company or the Selling Stockholders by you on
request. Any such statements, requests, notices or agreements shall take
effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and,
to the extent provided in Sections 8 and
<PAGE>
10 hereof, the officers and directors of the Company and each person who
controls the Company, any Selling Stockholder or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us eight counterparts hereof (one for the Company and each of
the Representatives plus one for each counsel and the Custodian), and upon
the acceptance hereof by you, on behalf of each of the Underwriters, this
letter and such acceptance hereof shall constitute a binding agreement among
each of the Underwriters, the Company and each of the Selling Stockholders.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement
among Underwriters, the form of which shall be submitted to the Company and
the Selling Stockholders for examination, upon request, but without warranty
on your part as to the authority of the signers thereof.
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a
validly existing and binding Power-of-Attorney which authorizes such
Attorney-in-Fact to take such action.
Very truly yours,
Great Plains Software, Inc.
By:
----------------------------------
Douglas J. Burgum
Chief Executive Officer
Selling Stockholders:
GS Capital Partners, L.P.
Bridge Street Fund 1994 L.P.
Stone Street Fund 1994 L.P.
<PAGE>
By:
----------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders
named in Schedule II to this Agreement.
Selling Stockholders:
Douglas J. Burgum
Bradley J. Burgum
Barbara K. Burgum
By:
----------------------------------
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders
named in Schedule II to this Agreement.
<PAGE>
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Hambrecht & Quist LLC
U.S. Bancorp Piper Jaffray Inc.
By:
------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF
TOTAL NUMBER OPTIONAL
OF SHARES TO BE
FIRM SHARES PURCHASED IF
TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
<S> <C> <C>
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
Hambrecht & Quist LLC
U.S. Bancorp Piper Jaffray Inc.
Total
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
OPTIONAL
TOTAL NUMBER SHARES TO BE
OF SOLD IF
FIRM SHARES MAXIMUM OPTION
TO BE SOLD EXERCISED
<S> <C> <C>
The Company 1,035,000 300,000
The Selling Stockholders:
GS Capital Partners, L.P. (a) 615,661 0
Bridge Street Fund 1994 L.P. (a) 42,891 0
Stone Street Fund 1994 L.P. (a) 41,448 0
Douglas J. Burgum (b) 200,000 0
Bradley J. Burgum (b) 25,000 0
Barbara K. Burgum (b) 40,000 0
965,000 0
</TABLE>
(a) This Selling Stockholder is represented by Ben Adler, c/o Goldman, Sachs
& Co., 85 Broad Street, New York, New York 10005 and has appointed Eve M.
Gerriets and Ben Adler, and each of
<PAGE>
them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by Dorsey & Whitney LLP, Pillsbury
Center South, 220 South Sixth Street, Minneapolis, Minnesota 55402 and has
appointed Terri F. Zimmerman, Douglas R. Herman and Dave Edson, and each of
them, as the Attorneys-in-Fact for such Selling Stockholder.
<PAGE>
SCHEDULE III
PERSONS SUBJECT TO LOCK-UP AGREEMENTS
<TABLE>
<S> <C>
SHARES OWNED BY INDIVIDUALS: SHARES OWNED BY TRUSTS:
Barner, Julie Benjamin Burgum Trust, Julie Burgum, trustee
Burgum, Barbara Brooks Burgum Trust, Jody Burgum, trustee
Burgum, Benjamin Bryce Peltier Trust, Cathy Peltier, trustee
Burgum, Bradley J. James Burgum Trust, Julie Burgum, trustee
Burgum, Brooks F. Jamie Peltier Trust, Cathy Peltier, trustee
Burgum, Dorothy Jay Peltier Trust, Cathy Peltier, trustee
Burgum, Douglas J. Jessamine Burgum Trust, Karen S. Burgum, trustee
Burgum, Frederick W. Joseph Burgum Trust, Karen S. Burgum, trustee
Burgum, James Katherine J. Burgum Trust, Jody Burgum, trustee
Burgum, Jedelle
Burgum, Joseph
Burgum, Julie
Burgum, Karen
Burgum, Katherine J.
Burgum, Katherine K.
Campbell, William V.
Carey, Brian R. SHARES OWNED BY INVESTMENT PARTNERSHIPS:
Good, Raymond F. GS Capital Partners, L.P.
Laybourn, Darren Bridge Street Fund 1994, L.P.
Olsen, Michael J. Stone Street Fund 1994, L.P.
Peltier, Bryce
Peltier, Cathy
Peltier, Jamie
Peltier, Jay
Peltier, Jeff
Peltier, Joseph
Peltier, Keith
Peltier, Norma
Roizen, J.A. Heidi
Slette, Michael A.
Sydness, Steven K.
Tibbetts, Jr., Joseph S.
Uecker-Rust, Jodi A.
Zimmerman, Terri F.
</TABLE>
<PAGE>
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, each of the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included or incorporated by reference in the Registration
Statement or the Prospectus comply as to form in all material respects with
the applicable accounting requirements of the Act or the Exchange Act, as
applicable, and the related published rules and regulations thereunder;
and, if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the consolidated interim financial statements, selected financial data, pro
forma financial information, financial forecasts and/or condensed financial
statements derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports thereon,
copies of which have been separately furnished to the representatives of
the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus and/or included in the Company's quarterly report on Form 10-Q
incorporated by reference into the Prospectus as indicated in their reports
thereon copies of which have been separately furnished to the
Representatives; and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for financial
and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
and included or incorporated by reference in Item 6 of the Company's Annual
Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Company's Annual Reports on
Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with
<PAGE>
the disclosure requirements of Items 301, 302, 402 and 503(d), respectively
of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included or incorporated by reference
in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus and/or included or incorporated
by reference in the Company's Quarterly Reports on Form 10-Q
incorporated by reference in the Prospectus do not comply as to form
in all material respects with the applicable accounting requirements
of the Exchange Act as it applies to Form 10-Q and the related
published rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus or included in the Company's
Quarterly Reports on Form 10-Q incorporated by reference in the
Prospectus, for them to be conformity with generally accepted
accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any such
unaudited data and items were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the
audited consolidated financial statements included or incorporated by
reference in the Company's Annual Report on Form 10-K for the most
recent fiscal year;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
financial statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the published rules
and regulations thereunder or the pro forma adjustments have not been
properly applied to the historical amounts in the compilation of
those statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of convertible
securities, in each case which
<PAGE>
were outstanding on the date of the latest balance sheet included or
incorporated by reference in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its subsidiaries, or
any decreases in consolidated net current assets or stockholders'
equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included
or incorporated by reference in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus to
the specified date referred to in Clause (E) there were any decreases
in consolidated net revenues or operating profit or the total or per
share amounts of consolidated net income or other items specified by
the Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
increases or decreases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus (excluding
documents incorporated by reference) or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives
or in documents incorporated by reference in the Prospectus specified by
the Representatives, and have compared certain of such amounts, percentages
and financial information with the accounting records of the Company and
its subsidiaries and have found them to be in agreement.
