EDWARDS J D & CO, 424B4, 1997-09-24

EDWARDS J D & CO
424B4, 1997-09-24
PREPACKAGED SOFTWARE

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<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-30701
PROSPECTUS

15,800,000 Shares

LOGO

COMMON STOCK
---------------------

OF THE 15,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 12,700,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS, AND 3,100,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS."
OF THE 15,800,000 SHARES OF COMMON STOCK OFFERED HEREBY, 12,500,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 3,300,000 SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT
RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING STOCKHOLDERS.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF
THE COMPANY. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE SHARES OF COMMON STOCK
OFFERED HEREBY HAVE BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "JDEC."

---------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 4 HEREOF.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------

PRICE $23 A SHARE
---------------------

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
Per Share.................. $23.00 $1.21 $21.79 $21.79
Total(3)................... $363,400,000 $19,118,000 $272,375,000 $71,907,000
</TABLE>

- ---------------

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."

(2) Before deducting expenses payable by the Company estimated at $1,450,000.

(3) The Company and certain of the Selling Stockholders have granted to the
U.S. Underwriters an option, exercisable within 30 days from the date
hereof, to purchase up to an aggregate of 2,370,000 additional Shares at
the price to public less underwriting discounts and commissions for the
purpose of covering over-allotments, if any. If the U.S. Underwriters
exercise such option in full, the total price to public, underwriting
discounts and commissions, proceeds to Company and proceeds to Selling
Stockholders will be $417,910,000, $21,985,700, $278,694,187 and
$117,230,113, respectively. See "Underwriters."

---------------------

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for
the Underwriters. It is expected that delivery of the Shares will be made on or
about September 29, 1997, at the office of Morgan Stanley & Co. Incorporated,
New York, N.Y., against payment therefor in immediately available funds.
---------------------

MORGAN STANLEY DEAN WITTER

DEUTSCHE MORGAN GRENFELL
ROBERTSON, STEPHENS & COMPANY
September 23, 1997
<PAGE> 2

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO
MAKE SUCH OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

UNTIL OCTOBER 18, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 4
The Company............................ 16
Use of Proceeds........................ 17
Dividend Policy........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Consolidated Financial Data... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 31
Management............................. 48
Certain Transactions................... 57

<CAPTION>
PAGE
-----
<S> <C>
Principal and Selling Stockholders..... 59
Description of Capital Stock........... 61
Shares Eligible for Future Sale........ 63
Certain United States Federal Income
Tax Considerations for Non-U.S.
Holders of Common Stock.............. 65
Underwriters........................... 67
Legal Matters.......................... 70
Experts................................ 70
Change in Accountants.................. 70
Additional Information................. 71
Index to Consolidated Financial
Statements........................... F-1
</TABLE>

------------------------

J.D. Edwards & Company, J.D. Edwards and WorldVision are registered
trademarks of the Company. WorldSoftware, OneWorld, Genesis and Configurable
Network Computing are trademarks of the Company. All other trade names and
trademarks referred to in this Prospectus are the property of their respective
owners.
------------------------

Unless the context otherwise requires, the "Company" or "J.D. Edwards"
refers to J.D. Edwards & Company and its consolidated subsidiaries. Except as
otherwise noted herein, all information in this Prospectus assumes no exercise
of the Underwriters' over-allotment option.
------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."

2
<PAGE> 3

[GATE FOLD -- SEE APPENDIX A]
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus.

THE COMPANY

J.D. Edwards develops, markets and supports highly functional Enterprise
Resource Planning software solutions that operate on multiple computing
platforms and are designed to accelerate customers' time to benefit, lower
customers' cost of ownership and reduce information systems risks arising from
changes in technology and business practices. The Company's integrated software
application suites support manufacturing, finance, distribution/logistics and
human resources operations for multi-site and multinational organizations.
Through its Configurable Network Computing architecture, the Company's ERP
software is specifically designed to enable customers to change technology
and/or business practices while minimizing costs and business interruptions. The
Company provides implementation, training and support services designed to
enable customers to rapidly achieve the benefits of the Company's ERP solutions.
The Company has developed and marketed ERP solutions for over 20 years,
principally for operation on AS/400 and other IBM mid-range systems and, more
recently, on leading UNIX and Windows NT servers through Windows- and Internet
browser-enabled desktop clients.

The Company's family of application suites is designed to improve most
organizations' core business processes. In addition, the Company extends its
application suites to address certain vertical markets with specific
configurations, templates and additional software features designed to meet
these industries' needs. The Company offers two versions of its application
suites -- WorldSoftware and OneWorld. WorldSoftware operates in a host-centric
environment on the AS/400 platform. OneWorld incorporates the Company's CNC
architecture and operates on leading UNIX and NT servers, as well as the AS/400
platform. The Company believes its network-centric CNC architecture provides a
valuable extension beyond traditional client/server architectures by masking
complexity, lowering cost of change and facilitating greater scalability. In
addition, WorldSoftware and OneWorld are capable of operating together in a
unified enterprise-wide environment. The Company also provides WorldSoftware and
OneWorld toolsets to enable rapid implementation, customization and modification
of its application suites.

The Company distributes, implements and supports its products worldwide
through 46 offices and 166 third-party business partners. To date, the Company
has more than 4,000 customers with sites in over 90 countries including Amgen,
Inc., E&J Gallo Winery, Harley Davidson Europe Ltd., Lexmark International,
Inc., Mobil Corporation, Samsonite Corporation and SmithKline Beecham plc.

THE OFFERING

<TABLE>
<S> <C>
U.S. offering............................................. 12,700,000 shares
International offering.................................... 3,100,000 shares
Total............................................. 15,800,000 shares (including 12,500,000 shares by the Company
and 3,300,000 shares by the Selling Stockholders)
Common Stock to be outstanding after the offering......... 91,684,910 shares(1)
Use of proceeds........................................... For general corporate purposes, including working capital.
See "Use of Proceeds."
Nasdaq National Market symbol............................. JDEC
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
ENDED YEAR ENDED OCTOBER 31, JULY 31,
OCTOBER 31, -------------------------------------------- --------------------
1992(2) 1993 1994 1995 1996 1996 1997
----------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenue.............................. $ 119,513 $196,834 $240,587 $340,766 $478,048 $323,783 $431,209
Total costs and expenses................... 116,154 184,546 223,140 311,888 434,421 308,754 406,751
Operating income........................... 3,359 12,288 17,447 28,878 43,627 15,029 24,458
Net income (loss).......................... (267) 7,380 12,063 18,209 26,326 8,672 14,398
Earnings (loss) per common share(3)........ $ (.00) $ .09 $ .15 $ .22 $ .30 $ .10 $ .15
Weighted average common shares
outstanding(3)........................... 81,458 81,986 82,253 82,504 87,667 87,456 95,291
</TABLE>

<TABLE>
<CAPTION>
JULY 31, 1997
---------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(4) ADJUSTED(5)
-------- -------- -------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 38,649 $ 38,649 $ 309,574
Total assets........................................................................ 300,939 318,922 589,847
Mandatorily redeemable shares, at redemption value.................................. 99,076 -- --
Stockholders' equity (deficit)...................................................... (15,300) 101,759 372,684
</TABLE>

- ---------------

(1) Based on the number of shares outstanding as of July 31, 1997. Excludes (i)
22,121,540 shares of Common Stock issuable upon exercise of outstanding
options as of July 31, 1997, with a weighted average exercise price of $4.53
per share, and (ii) 17,137,190 shares of Common Stock reserved for issuance
under the Company's stock plans as of July 31, 1997. Subsequent to July 31,
1997, the Company adopted new employee stock plans. The Company does not
anticipate making future grants under stock plans that were in effect prior
to July 31, 1997. As a result, as of the date of this offering, there will
be 12,000,000 shares of Common Stock reserved for future issuance under all
new employee stock plans. See "Management -- Employee Benefit Plans" and
Note 7 of Notes to Consolidated Financial Statements.

(2) In 1992, the Company changed its fiscal year end from December 31 to October
31. The consolidated statement of operations data for the period ended
October 31, 1992 reflects 10 months of operating activity as compared with
12 months for all other fiscal year periods.

(3) See Note 1 of Notes to Consolidated Financial Statements for a discussion of
the computation of earnings (loss) per common share and weighted average
common shares outstanding.

(4) Reflects the elimination of the mandatory redemption feature of the
mandatorily redeemable shares and the income tax benefits resulting from the
lapse of restrictions on certain shares of the Company's outstanding Common
Stock, both of which will occur automatically upon the closing of this
offering. See "Certain Transactions" and Note 1 of Notes to Consolidated
Financial Statements.

(5) Pro forma as adjusted to reflect the receipt by the Company of the estimated
net proceeds from the sale of the shares of Common Stock offered by the
Company hereby after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Capitalization" and
"Use of Proceeds."

3
<PAGE> 5

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. Actual results may differ
materially from those indicated in such forward-looking statements. Factors that
may cause such a difference include, but are not limited to, those discussed
below and in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."

Variability of Quarterly Operating Results; Seasonality. The Company's
quarterly operating results have fluctuated significantly in the past, and will
likely continue to fluctuate in the future, as a result of a number of factors,
many of which are outside the Company's control. These factors include the
demand for the Company's software products and services; the size and timing of
specific sales; the level of product and price competition that the Company
encounters; the length of sales cycles; the timing of new product introductions
and product enhancements by the Company or its competitors; market acceptance of
new products; changes in pricing policies by the Company or its competitors; the
Company's ability to hire sales and consulting personnel to meet the demand, if
any, for implementations of the OneWorld version of its application suites; the
Company's ability to establish and maintain relationships with third-party
implementation providers; the Company's ability to establish and maintain
relationships with hardware and software suppliers; the announcement of new
hardware platforms that cause delay of customer purchases; variations in the
length of the implementation process for the Company's software products; the
Company's ability to complete fixed-price consulting contracts on budget; the
mix of products and services sold; the mix of distribution channels through
which products are sold; the mix of international and domestic revenue; changes
in the Company's sales incentives; changes in the renewal rate of support
agreements; product life cycles; software defects and other product quality
problems; seasonality of technology purchases; personnel changes; changes in the
Company's strategy; the activities of competitors; the extent of industry
consolidation; expansion of the Company's international operations; general
domestic and international economic and political conditions; and budgeting
cycles of the Company's customers. The timing of large individual sales has been
difficult for the Company to predict, and large individual sales have, in some
cases, occurred in quarters subsequent to those anticipated by the Company.
There can be no assurance that the loss or deferral of one or more significant
sales would not have a material adverse effect on the Company's quarterly
operating results.

The Company's software products are typically shipped when orders are
received, and consequently, license backlog at the beginning of any quarter has
in the past represented only a small portion of that quarter's expected revenue.
As a result, license fee revenue in any quarter is difficult to forecast because
it is substantially dependent on orders booked and shipped in that quarter.
Moreover, the Company typically recognizes a substantial amount of its revenue
in the last month of the quarter, frequently in the last week or even days of
the quarter. Since the Company's operating expenses are based on anticipated
revenue levels and because a high percentage of the Company's expenses are
relatively fixed in the near term, any shortfall from anticipated revenue or any
delay in the recognition of revenue could result in significant variations in
operating results from quarter to quarter. Quarterly license fee revenue is also
difficult to forecast because the Company's sales cycles, from initial
evaluation to delivery of software, vary substantially from customer to
customer. If revenue falls below the Company's expectations in a particular
quarter, the Company's operating results could be materially adversely affected.
See "-- Lengthy Sales Cycle."

4
<PAGE> 6

quarter, any shortfall from anticipated revenue, particularly license fee
revenue, in the fourth quarter would have a disproportionately large adverse
effect on the Company's operating results for the fiscal year. In addition, the
Company's total revenue, license fee revenue, service revenue and net income in
its first fiscal quarter have historically been lower than those in the
immediately preceding fourth quarter. For example, total revenue, license fee
revenue, service revenue and net income in the first quarter of fiscal 1997
decreased 20%, 41%, 3% and 87%, respectively, from the fourth quarter of fiscal
1996. The Company's first quarter revenue has historically slowed during the
holiday season in November and December.

Based on all of the foregoing, the Company believes that future revenue,
expenses and operating results are likely to vary significantly from quarter to
quarter. As a result, quarter-to-quarter comparisons of operating results are
not necessarily meaningful or indicative of future performance. Furthermore, the
Company believes it is likely that in some future quarter the Company's
operating results will be below the expectations of public market analysts or
investors. In such event, or in the event that adverse conditions prevail, or
are perceived to prevail, with respect to the Company's business or generally,
the market price of the Company's Common Stock would likely be materially
adversely affected. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Limited Deployment of OneWorld Version; Entering New Markets. The Company
first shipped the OneWorld version of its application suites in late calendar
1996. The Company's future revenue growth is substantially dependent upon the
market acceptance of these OneWorld application suites and the ability of the
Company to license OneWorld application suites to new customers who are not
currently users of the Company's WorldSoftware. The Company does not expect to
generate substantial OneWorld license fee revenue from its existing installed
base of WorldSoftware users. The Company expects that it will take a longer time
to implement the OneWorld version of its application suites than it takes to
implement the WorldSoftware version, which typically takes six to 18 months. To
date, only a limited number of the Company's customers have licensed the
OneWorld version of its application suites, and, due to the lengthy
implementation process, only a few have completed implementation of some or all
of the licensed OneWorld applications suites. Potential and existing customers
may find it difficult, or be unable, to successfully implement OneWorld
application suites, or may not purchase OneWorld application suites for a number
of reasons, including a lack of implementation experience by the Company or its
third-party implementation providers in complex multi-platform environments; a
customer's lack of the necessary hardware, software or networking
infrastructure; an absence of required functionality in OneWorld application
suites; excessive time and cost of implementation; the failure of the OneWorld
version to be competitive with other products on the market; defects or "bugs"
in OneWorld application suites; and a failure to meet customer expectations. In
addition, because the Company is using OneWorld application suites to target
potential customers in new markets, the Company must overcome certain
significant obstacles, including new competitors who have significantly more
experience and name recognition with open systems customers, implementations and
platforms; the Company's limited relationships with third-party implementation
providers; the limited experience of the Company's sales and consulting
personnel in the open systems environment; and the Company's limited existing
reference accounts in the open systems market. If, for any reason, the Company
is unable to successfully sell or implement OneWorld in the UNIX or Windows NT
("NT") markets, the Company's reputation would be damaged, and such failure
would have a material adverse effect on the Company's business, operating
results and financial condition. Moreover, if the Company fails to meet the
expectations of market analysts or investors with regard to sales or
implementations of OneWorld application suites, the market price of the
Company's Common Stock would likely be materially adversely affected.

Dependence on IBM AS/400 Platform. Although the Company has recently
released the OneWorld version of its application suites to run on leading UNIX
and NT servers, the Company is and, for an extended period, expects to remain
substantially dependent upon the market for software products for the IBM AS/400
platform. All of the Company's revenue in fiscal 1994, 1995 and 1996 and
substantially all of the Company's revenue for the first nine months of fiscal
1997 was derived from its software products and related services for the AS/400
market. The market for the AS/400 platform is expected to grow at a minimal
rate; however, there can be no assurance that the AS/400 market will grow at all
in the future. Similarly, there can be no assurance that AS/400 customers or
prospective customers will respond favorably to the Company's future or

5
<PAGE> 7

enhanced software products or that the Company will continue to be successful in
selling its software products or services in the AS/400 market. The Company's
future growth will depend in part on its ability to gain market share in the
AS/400 market; however, there can be no assurance that the Company will be able
to achieve any such market share gains or maintain its current market share.
Moreover, the Company's goal of gaining market share in the AS/400 market will
be more difficult to achieve since the Company is also focusing on the UNIX and
NT markets. See "-- Management of Growth; Need for Additional Qualified
Personnel." If the Company's AS/400 installed customer base erodes, resulting in
a decline in recurring support and other service revenue, the Company's
business, operating results and financial condition will be materially adversely
affected.

Competition. The market for Enterprise Resource Planning ("ERP") software
solutions is intensely competitive, subject to rapid technological change and
significantly affected by new product introductions and other market activities
of industry participants. The Company's products are designed and marketed for
the AS/400 market and, more recently, for leading UNIX and NT servers. The
Company's primary competition comes from a large number of independent software
vendors including: (i) companies offering products that run on the AS/400
platform and other mid-range computers, including System Software Associates,
Inc., Marcam Corporation, Infinium Software, Inc. (formerly Software 2000) and
JBA Holdings plc; (ii) companies offering products that run on UNIX or NT
servers in a client/server environment, such as SAP Aktiengesellschaft ("SAP"),
Baan Company N.V. ("Baan"), PeopleSoft, Inc. ("PeopleSoft") and Oracle
Corporation ("Oracle"); and (iii) companies offering either standard or fully
customized products that run on mainframe computer systems, such as SAP.
Additionally, the Company faces indirect competition from suppliers of
custom-developed business application software that focus mainly on proprietary
mainframe and mid-range computer-based systems, such as systems consulting
groups of major accounting firms, and from IT departments of potential customers
that develop systems internally. The Company's competitors currently offer
products that run on the AS/400 platform and/or UNIX and NT servers or have
announced their intent to introduce such products in the near future. As a
result, the Company will experience increased competition. There can be no
assurance that the Company will be able to successfully compete with new or
existing competitors or that such competition will not have a material adverse
effect on the Company's business, operating results or financial condition. See
"Business -- Competition."

Many of the Company's competitors, and SAP and Oracle in particular, have
significantly greater financial, technical, marketing and other resources than
the Company, as well as wider name recognition and larger installed customer
bases. Moreover, the Company has traditionally competed only in the AS/400
market, which primarily consists of mid-sized organizations, and has only
recently entered the UNIX and NT markets. In contrast, each of SAP, Baan,
PeopleSoft and Oracle has significantly more experience with UNIX and NT
implementations and platforms, name recognition with potential UNIX and NT
customers, and reference accounts with UNIX and NT customers. Accordingly, such
competitors have significantly more customers in the UNIX and NT markets to use
as references when competing against the Company. Additionally, several of the
Company's competitors have well-established relationships with current and
potential customers of the Company. These relationships may prevent the Company
from competing effectively in divisions or subsidiaries of such customers. Many
of the Company's competitors, such as SAP, Baan, PeopleSoft and Oracle, also
offer, or have announced their intention to offer, vertical applications
targeted to mid-sized organizations, which market comprises a substantial
portion of the Company's revenue. Further, several of the Company's competitors
regularly and significantly discount prices on their products. If these
competitors continue to discount or increase the amount or frequency of such
discounts in response to increased competition or other factors, the Company may
be required to similarly discount its products, which could have an adverse
effect on the Company's margins. There can be no assurance that the Company will
be able to compete successfully against any of these competitors.

The Company relies, and expects to increase its reliance, on a number of
third-party implementation providers and other customer support services, as
well as for recommendations of its products during the evaluation stage of the
purchase process. A number of the Company's competitors, including SAP, Baan,
PeopleSoft, and Oracle, have significantly more well-established relationships
with such providers and, as a result, such firms may be more likely to recommend
competitors' products rather than the Company's

6
<PAGE> 8

products. Furthermore, there can be no assurance that these third parties, many
of which have significantly greater financial, technical, marketing and other
resources than the Company, will not market software products in competition
with the Company in the future. If the Company is unable to maintain or increase
the number and quality of its relationships with providers who recommend,
implement or support ERP software, the Company's business, operating results and
financial condition will be materially adversely affected.

Lengthy Sales Cycle. The Company's software is generally used for division-
or enterprise-wide, business-critical purposes and involves significant capital
commitments by customers. Potential customers generally commit significant
resources to an evaluation of available enterprise software and require the
Company to expend substantial time, effort and money educating them about the
value of the Company's solutions. Sales of the Company's software products
require an extensive sales effort throughout a customer's organization because
decisions to license such software generally involve the evaluation of the
software by a significant number of customer personnel in various functional and
geographic areas, each often having specific and conflicting requirements. A
variety of factors, including factors over which the Company has little or no
control, may cause potential customers to favor a particular supplier or to
delay or forego a purchase. As a result of these or other factors, the sales
cycle for the Company's products is long, typically ranging between six and 15
months. Moreover, the Company expects that the sales cycle for the recently
released OneWorld version of its application suites may be longer than that of
the WorldSoftware version, at least until the Company's sales force becomes
familiar with the needs of customers operating on UNIX and NT servers. As a
result of the length of the sales cycle for its software products, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
delay or failure to complete one or more large license transactions could have a
material adverse effect on the Company's business, operating results or
financial condition and cause the Company's operating results to vary
significantly from quarter to quarter. See "-- Variability of Quarterly
Operating Results; Seasonality."

Lengthy Implementation Process. The Company's software products are complex
and perform or directly affect business-critical functions across many different
functional and geographic areas of the enterprise. Consequently, implementation
of the Company's software is a complex, lengthy process that involves a
significant commitment of resources by the Company's customers and that is
subject to a number of significant risks over which the Company has little or no
control. The Company expects that implementation of the OneWorld version of its
application suites on UNIX and NT servers is likely to be more complex and
require more time than implementation on the AS/400 platform. In addition, the
Company's lack of experience in implementing the OneWorld version of its
application suites may contribute to the length of the implementation process.
Delays in the completion of implementations of any of its application suites
whether by the Company or its business partners, may result in customer
dissatisfaction or damage to the Company's reputation and could have a material
adverse effect on the Company's business, operating results or financial
condition.

Reliance on Third Parties and Development of Certain Relationships. The
Company intends to rely primarily on third-party implementation providers for
the implementation of the OneWorld version of its application suites. Although
the Company has historically subcontracted a portion of its implementation
services to third parties, the Company has adopted a strategy in which an
increasing number of OneWorld implementations will be performed by third parties
that will contract directly with the Company's customers to provide such
services. Executing this strategy will require that third-party implementation
providers with which the Company has existing relationships allocate additional
resources to OneWorld implementations and that the Company enter into new
relationships with additional third-party implementation providers to provide
such services. Due to the limited resources and capacities of many third-party
implementation providers and the reluctance of such providers to switch partners
or enter into new relationships with additional suppliers, there can be no
assurance that the Company will be able to establish or maintain relationships
with third parties having sufficient resources to provide the necessary
implementation services to support demand, if any, for the OneWorld version. If
such resources are unavailable, the Company will be required to perform such
services internally, and there can be no assurance that the Company will have
sufficient resources available for such purposes. In addition, there can be no
assurance that any third-party implementation provider with which the Company
has, or intends to establish, such a relationship will provide the level and
quality of service

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<PAGE> 9

required to meet the needs and expectations of the Company's customers. If the
Company is unable to establish and maintain effective, long-term relationships
with such providers, or if such providers do not meet customer needs, the
Company's business, operating results or financial condition will be materially
adversely affected.

The Company has established a number of relationships with third parties,
including consulting and systems integration firms, hardware suppliers, and
database, operating system and other independent software vendors, in order to
enhance its sales, marketing and customer service efforts. Many of these third
parties have better established relationships with one or more of the Company's
competitors and may, in specific instances, select or recommend ERP software
offerings of the Company's competitors rather than the Company's software. In
addition, certain of these third parties, including Oracle, compete with the
Company in developing and marketing ERP software applications. Competition
between the Company and these third parties may cause a deterioration in or
termination of such relationships, which could have a material adverse effect on
the Company's business, operating results or financial condition. See
"-- Competition."

Dependence on Service Revenue. The Company licenses software under
non-cancelable license agreements and provides related services, which consist
of support, training, consulting and implementation. Total revenue from license
fees and services has increased from year to year. As a percentage of total
revenue, service revenue has increased from 55.3% of total revenue in fiscal
1994 to 62.3% of total revenue in fiscal 1996 primarily as a result of the
Company's continued emphasis on providing consulting and training services that
complement its software products and increased support revenue resulting from
the Company's growing installed base of customers. Furthermore, the Company has
historically subcontracted a portion of its consulting and training services to
third parties, and, in fiscal 1996, such subcontracted services accounted for
approximately 40.0% of services revenue. However, the Company is currently
pursuing a strategy of relying on third-party implementation providers to
contract directly with its customers for OneWorld implementation and related
services. See "Business -- Strategy" and "Business -- Implementation Services
and Training." To the extent the Company is successful in implementing this
strategy and the OneWorld version of the Company's application suites achieves
market acceptance in future periods, revenue from subcontracted services and
total service revenue as a percentage of revenue will likely decrease. If such
revenue decreases more than anticipated, the Company's operating results will be
materially adversely affected. There can be no assurance that the Company will
be successful in implementing its strategy or that such products will achieve
market acceptance, the failure of which could have a material adverse effect on
its business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Management of Growth; Need for Additional Qualified Personnel. Although the
Company has experienced significant revenue growth in past years, such growth is
not necessarily indicative of future revenue growth. This growth has resulted in
new and increased responsibilities for management personnel and has placed, and
continues to place, a significant strain upon the Company's management,
operating and financial resources. There can be no assurance that such strain
will not have a material adverse effect on the Company's business, operating
results or financial condition. The rapid growth of the Company's business has
required the Company to make significant recent additions in personnel,
particularly in product development and sales and marketing. The Company
believes that its future operating results depend in significant part on its
ability to attract and retain highly skilled technical, managerial, sales,
marketing, service and support personnel. Although the Company has increased the
number of its sales, services and support personnel in recent years, the Company
has experienced, and expects to continue to experience, difficulty in recruiting
such personnel. The Company anticipates that it will need to continue to
increase the size of its direct sales, services and support personnel in future
periods. If the Company is unable to hire qualified personnel on a timely basis,
the Company's business, operating results and financial condition will be
materially adversely affected.

To manage its operations, the Company must continuously evaluate the
adequacy of its management structure and its existing procedures, including,
among others, its financial and internal controls. There can be no assurance
that management will adequately anticipate all of the changing demands that
growth may impose on the Company's procedures and structure. Any failure to
adequately anticipate and respond to such changing demands may have a material
adverse effect on the Company's business, operating results or

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<PAGE> 10

financial condition. As a result of the Company's development and release of the
OneWorld version of its application suites, a significant amount of the
Company's resources has been focused on the UNIX and NT markets. To maintain a
focus on the AS/400 market, as well as on the UNIX and NT markets, the Company
is in the process of implementing certain internal organizational changes. If
the Company's efforts to maintain a focus on both markets are unsuccessful, the
Company's business, operating results and financial condition may be materially
adversely affected.

Fixed-Price Service Contracts. The Company offers a combination of ERP
software, implementation and support services to its customers. Typically, the
Company enters into service agreements with its customers that provide for
consulting and implementation services on a "time and materials" basis. Certain
customers have asked for, and the Company has from time to time entered into,
fixed-price service contracts. These contracts specify certain milestones to be
met by the Company regardless of actual costs incurred by the Company in
fulfilling those obligations. The Company believes that fixed-price service
contracts may increasingly be offered by its competitors to differentiate their
product and service offerings. As a result, the Company may enter into more
fixed-price contracts in the future. There can be no assurance that the Company
can successfully complete these contracts on budget, and the Company's inability
to do so could have a material adverse effect on its business, operating results
and financial condition.

Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than three years, computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. Although the Company currently offers software
products that are designed to be Year 2000 compliant, there can be no assurance
that the Company's software products contain all necessary date code changes.

The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase software products such as those offered
by the Company. In addition, it is possible that certain of the Company's
customers are purchasing support contracts only to ensure that they become Year
2000 compliant and that, once such customers believe they are Year 2000
compliant, they will not renew support contracts. If a significant number of the
Company's customers do not renew support contracts for this or other reasons,
the Company's business, operating results and financial condition would be
adversely affected. Many potential customers may also choose to defer purchasing
Year 2000 compliant products until they believe it is absolutely necessary, thus
resulting in potentially stalled market sales within the industry. Conversely,
Year 2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a consequent decrease in long-term
demand for software products. Additionally, Year 2000 issues could cause a
significant number of companies, including current Company customers, to
reevaluate their current ERP system needs, and as a result consider switching to
other systems or suppliers. Moreover, the Company believes that some customers
may be purchasing the Company's products as an interim solution to their Year
2000 needs until their current suppliers reach compliance. There can be no
assurance that such customers will purchase support services from the Company or
that they will upgrade beyond their current version of the Company's software
once their current software suppliers reach compliance. Any of the foregoing
could result in a material adverse effect on the Company's business, operating
results and financial condition.

International Operations and Currency Fluctuations. International revenue
as a percentage of total revenue ranged between 35% and 37% from fiscal 1994
through the first nine months of fiscal 1997, and the Company expects that
revenue from international customers will continue to account for a significant
portion of the Company's total revenue. The Company currently has 27
international sales offices located throughout Canada, Europe, Asia, Latin
America and Africa. To service the needs of its customers with international
operations, the Company and its support partners must provide worldwide product
support services. One of the Company's strategies is to continue to expand its
existing international operations and enter additional

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<PAGE> 11

international markets, which will require significant management attention and
financial resources. Traditionally, international operations are characterized
by higher operating expenses and lower operating margins. As a result, if
international revenue increases as a percentage of total revenue, operating
margins may be adversely affected. Costs associated with international expansion
include the establishment of additional foreign offices, the hiring of
additional personnel, the localization and marketing of its products for
particular foreign markets, and the development of relationships with additional
international service providers. If international revenue is not adequate to
offset the expense of expanding foreign operations, the Company's business,
operating results or financial condition could be materially adversely affected.

A significant portion of the Company's revenue is received in currencies
other than U.S. dollars and, in the past, the Company has engaged in minimal
hedging activities. As a result, the Company is subject to risks associated with
foreign exchange rate fluctuations. In the first nine months of fiscal 1997 and
fiscal 1996, the Company incurred foreign exchange losses of approximately $1.6
million and $1.1 million, respectively. Accordingly, due to the substantial
volatility of foreign exchange rates, there can be no assurance that foreign
exchange rate fluctuations will not have a material adverse effect on the
Company's business, operating results or financial condition.

The Company's international operations are subject to other risks inherent
in international business activities, such as the imposition of governmental
controls, export license requirements, restrictions on the export of certain
technology, cultural and language difficulties associated with servicing
customers, the impact of a recessionary environment in economies outside the
United States, reduced protection for intellectual property rights in some
countries, the potential exchange and repatriation of foreign earnings,
political instability, trade restrictions, tariff changes, localization and
translation of products for foreign countries, difficulties in staffing and
managing international operations, difficulties in collecting accounts
receivable and longer collection periods, and the impact of local economic
conditions and practices. The Company's success in expanding its international
business will be dependent, in part, on its ability to anticipate and
effectively manage these and other risks. There can be no assurance that these
and other factors will not have a material adverse effect on the Company's
business, operating results or financial condition.

Risks Associated with New Versions and New Products; Rapid Technological
Change; Risks of Software Defects. The market for the Company's products is
characterized by rapid technological change, evolving industry standards in
computer hardware and software technology, changes in customer requirements and
frequent new product introductions and enhancements. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. The life cycles of the
Company's software products are difficult to estimate. As a result, the
Company's future success will depend, in part, upon its ability to continue to
enhance existing products and develop and introduce in a timely manner new
products that keep pace with technological developments, satisfy customer
requirements and achieve market acceptance. There can be no assurance that the
Company will successfully identify new product opportunities and develop and
bring new products to market in a timely and cost-effective manner, or that
products, capabilities or technologies developed by others will not render the
Company's products or technologies obsolete or noncompetitive or shorten the
life cycles of the Company's products. See "-- Competition." Although the
Company has addressed the need to develop new products and enhancements
primarily through its internal development efforts, the Company has also
addressed this need through the licensing of third-party technology. Licensing
third-party technology involves numerous risks. See "-- Limited Protection of
Proprietary Technology; Risks of Infringement." If the Company is unable to
develop on a timely and cost-effective basis new software products or
enhancements to existing products, or if such new products or enhancements do
not achieve market acceptance, the Company's business, operating results and
financial condition may be materially adversely affected.

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<PAGE> 12

can be no assurance that such delays will not be experienced in the future. The
Company recently released OneWorld, the network-centric version of its
application suites. Because the development of enhancements in network-centric
environments is more complex than in host-centric systems, there can be no
assurance that the introduction of future enhancements will not be delayed. See
"Business -- Products."

Complex software products such as those offered by the Company frequently
contain undetected errors or "bugs" when first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. The Company has in the past
discovered software errors in new versions of its ERP software after their
release. To date, the Company's business, operating results or financial
condition have not been materially adversely affected by the release of products
containing errors. There can be no assurance, however, that errors will not be
found in the Company's products or that such errors will not result in delay or
loss of revenue, diversion of development resources, damage to the Company's
reputation, increased service and warranty costs, or impaired market acceptance
of these products, any of which could result in a material adverse effect on the
Company's business, operating results or financial condition. See
"Business -- Products."

Dependence on Key Personnel. The Company's success depends to a significant
extent upon a limited number of members of senior management and other key
employees. The loss of one or more key employees could have a material adverse
effect on the Company. Although the Company currently maintains key man life
insurance on C. Edward McVaney, Chairman, President and Chief Executive Officer,
such insurance is minimal and is not maintained on other key personnel. The
Company does not have employment agreements with its executive officers. In
addition, the Company believes that its future success will depend in part on
its ability to attract and retain highly skilled technical, managerial, sales
and marketing personnel. Competition for such personnel in the computer software
industry is intense. There can be no assurance that the Company will be
successful in attracting and retaining such personnel, and the failure to do so
could have a material adverse effect on the Company's business, operating
results or financial condition.

Limited Protection of Proprietary Technology; Risks of Infringement. The
Company's ability to compete is dependent in part upon its internally developed,
proprietary intellectual property. Although the Company currently has no
patents, it has five patent applications pending on various aspects of its
application suites. In addition, the Company has applied to register the
trademarks "WorldSoftware" and "OneWorld." The Company also relies on general
trademark and copyright protection for its technology, although it generally
does not register such intellectual property. Furthermore, the Company relies on
trade secret law, confidentiality procedures and licensing arrangements to
establish and protect its rights in its technology. Nevertheless, the Company
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, name
recognition, customer training and reliable product support, are more essential
to protect its market position. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
The Company typically enters into confidentiality or license agreements with its
employees, consultants and suppliers, and typically controls access to and
distribution of its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently through reverse
engineering or other means. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of the
United States. There can be no assurance that the Company's means of protecting
its proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technology. Preventing or
detecting unauthorized use of the Company's products is difficult. There can be
no assurance that the steps taken by the Company will prevent misappropriation
of its technology or that its license agreements will be enforceable. In
addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results or financial
condition.

The Company typically licenses its products to end users under the
Company's standard license agreements, although each license is individually
negotiated and may contain variations. The Company's

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<PAGE> 13

products are licensed not only to end users, but also to independent,
third-party distributors with a right to sublicense. Although the Company seeks
to establish the conditions under which the Company's products are licensed by
such distributors to end users, the Company cannot ensure that its distributors
do not deviate from such conditions. Moreover, in order to facilitate the
customization required by most of the Company's customers, the Company generally
licenses its software products to end users in both object code (machine-
readable) and source code (human-readable) format. Although this practice
facilitates customization, making software available in source code also makes
it easier for third parties to copy or modify the Company's software for
non-permitted purposes.

In the future, the Company may receive notice of claims of infringement of
other parties' proprietary rights. Although the Company does not believe that
its products infringe the proprietary rights of third parties, there can be no
assurance that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertions or prosecutions will not materially
adversely affect the Company's business, operating results or financial
condition. Regardless of the validity or the successful assertion of such
claims, defending against such claims could result in significant costs and
diversion of resources with respect to the defense thereof, which could have a
material adverse effect on the Company's business, operating results or
financial condition. In addition, the assertion of such infringement claims
could result in injunctions preventing the Company from distributing certain
products, which would have a material adverse effect on the Company's business,
operating results and financial condition. If any claims or actions are asserted
against the Company, the Company may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available on reasonable terms or at all.

The Company also relies on certain other technology which it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. Most
notably, the Company licenses the graphical user interface to the WorldSoftware
version of its application suites (which the Company markets as WorldVision).
There can be no assurance that these third-party technology licenses will
continue to be available to the Company on commercially reasonable terms. The
loss of, or inability to maintain, any of these technology licenses,
particularly that for WorldVision's graphical user interface, would result in
delays or reductions in product shipments until equivalent technology could be
identified, licensed or developed, and integrated. Any such delays or reductions
in product shipments could materially adversely affect the Company's business,
operating results or financial condition. Moreover, although the Company is
generally indemnified by third parties against claims that such third parties'
technology infringes the proprietary rights of others, such indemnification is
not always available for all types of intellectual property rights (for example,
patents may be excluded) and in some cases the geographic scope of
indemnification is limited. The result is that the indemnity that the Company
receives against such claims is often less broad than the indemnity that the
Company provides to its customers. Even in cases in which the indemnity that the
Company receives from a third-party licensor is as broad as the indemnity that
the Company provides to its customers, the third-party licensors from whom the
Company would be receiving indemnity are often not well-capitalized and may not
be able to indemnify the Company in the event that such third-party technology
infringes the proprietary rights of others. Accordingly, the Company could have
substantial exposure in the event that technology licensed from a third party
infringes another party's proprietary rights. The Company currently does not
have any liability insurance to protect against the risk that licensed
third-party technology infringes the proprietary rights of others. There can be
no assurance that infringement or invalidity claims arising from the
incorporation of third-party technology, and claims for indemnification from the
Company's customers resulting from such infringement claims, will not be
asserted or prosecuted against the Company or that any such assertions or
prosecutions will not materially adversely affect the Company's business,
operating results or financial condition. Regardless of the validity or
successful assertion of such claims, the Company could incur significant costs
and diversion of resources with respect to the defense thereof, in addition to
potential product redevelopment costs and delays, all of which could have a
material adverse effect on the Company's business, operating results or
financial condition.

Security; Product Liability. The Company has included security features in
certain of its Internet browser-enabled products that are intended to protect
the privacy and integrity of customer data. Despite the

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<PAGE> 14

existence of these security features, the Company's software products may be
vulnerable to break-ins and similar disruptive problems caused by Internet
users. Such computer break-ins and other disruptions may jeopardize the security
of information stored in and transmitted through the computer systems of the
Company's customers. Break-ins often involve hackers bypassing firewalls and
misappropriating confidential information. Addressing problems caused by such
third parties may require significant expenditures of capital and resources by
the Company, which may have a material adverse effect on the Company's business,
operating results or financial condition.

Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential
liability for damages arising out of use of or defects in the Company's
products, it is possible that such limitation of liability provisions may not be
effective as a result of existing or future federal, state or local laws or
ordinances or unfavorable judicial decisions. Although the Company has not
experienced any such product liability claims to date, there can be no assurance
that the Company will not be subject to such claims in the future. Because the
Company's software products may be used in business-critical applications, a
successful product liability claim brought against the Company could have a
material adverse effect on the Company's business, operating results or
financial condition. Moreover, defending such a suit, regardless of its merits,
could entail substantial expense and require the time and attention of key
management personnel, either of which could have a material adverse effect on
the Company's business, operating results or financial condition.

General Economic and Market Conditions. Segments of the software industry
have experienced significant economic downturns characterized by decreased
product demand, price erosion, work slowdowns and layoffs. The Company's
operations may in the future experience substantial fluctuations from period to
period as a consequence of general economic conditions affecting the timing of
orders from major customers and other factors affecting capital spending.
Although the Company has a diverse client base, it has targeted certain vertical
markets. Therefore, any economic downturns in general or in the targeted
vertical segments in particular would have a material adverse effect on the
Company's business, operating results and financial condition.

Control by Existing Stockholders. Immediately after the closing of this
offering (based on shares outstanding at July 31, 1997), 63.9% of the
outstanding Common Stock (61.4% if the Underwriter's over-allotment option is
exercised in full) will be held by the directors and executive officers of the
Company, together with certain entities affiliated with them, assuming no
exercise of outstanding stock options. As a result, these stockholders, if
acting together, would be able to control substantially all matters requiring
approval by the stockholders of the Company, including the election of all
directors and approval of significant corporate transactions. See
"Management -- Executive Officers and Directors" and "Principal and Selling
Stockholders." In addition, C. Edward McVaney, Robert C. Newman and Jack L.
Thompson (the "Founders") have entered into an Amended and Restated Stockholders
Agreement with the Company, which provides that Messrs. Newman and Thompson must
cast their votes in the same proportion as the votes cast by Mr. McVaney with
respect to certain significant corporate issues, such as any revision of the
Company's Certificate of Incorporation; any merger, consolidation, share
exchange or similar event; any sale or other disposition of all or substantially
all of the Company's assets; any dissolution or liquidation of the Company; or
bankruptcy filing for the Company. As a result, Mr. McVaney has substantial
control over the approval of such matters. In addition, each Founder must vote
for the election of each of the other Founders to the Company's Board of
Directors or a designee appointed by such other Founder. See "Certain
Transactions."

Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware
Law. Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws and certain provisions of Delaware law could delay or
make difficult a merger, tender offer or proxy contest involving the Company.
The authorized but unissued capital stock of the Company includes 5,000,000
shares of preferred stock. The Board of Directors is authorized to provide for
the issuance of such preferred stock in one or more series and to fix the
designations, preferences, powers and relative, participating, optional or other
rights and restrictions thereof. Accordingly, the Company may in the future
issue a series of preferred stock, without further stockholder approval, that
will have preference over the Common Stock with respect to the payment of
dividends and upon liquidation, dissolution or winding-up of the Company. See
"Description of Capital

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Stock -- Preferred Stock." In addition, the Company's Amended and Restated
Certificate of Incorporation includes provisions that create a classified board
of directors. See "Management -- Board of Directors." Further, Section 203 of
the General Corporation Law of the State of Delaware (as amended from time to
time, the "DGCL"), which is applicable to the Company, prohibits certain
business combinations with certain stockholders for a period of three years
after they acquire 15% or more of the outstanding voting stock of a corporation.
See "Description of Capital Stock -- Antitakeover Effects of Delaware Law and
Certain Provisions of the Company's Certificate of Incorporation and Bylaws."
Any of the foregoing could adversely affect holders of the Common Stock or
discourage or make difficult any attempt to obtain control of the Company.

Shares Eligible for Future Sale. Sales of a substantial number of shares of
Common Stock (including shares issued upon the exercise of outstanding options)
in the public market after this offering could materially adversely affect the
market price of the Common Stock. Such sales also might make it more difficult
for the Company to sell equity securities or equity-related securities in the
future at a time and price that the Company deems appropriate. Upon completion
of this offering (based on shares outstanding at July 31, 1997), the Company
will have outstanding an aggregate of 91,684,910 shares of Common Stock,
assuming no exercise of the Underwriters' over-allotment option and no exercise
of outstanding options. Of these shares, all of the shares sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" of the Company
as that term is defined in Rule 144 under the Securities Act (the "Affiliates").
The remaining 75,884,910 shares of Common Stock held by existing shareholders
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 promulgated under the Securities Act. As a
result of the contractual restrictions described below and the provisions of
Rules 144 and 701, the Restricted Shares will be available for sale in the
public market as follows: (i) 515,830 shares in addition to the shares offered
hereby will be eligible for immediate sale on the date of this Prospectus; (ii)
135,240 shares will be eligible for sale beginning on December 22, 1997, 90 days
after the date of this Prospectus; (iii) 75,224,600 shares will be eligible for
sale upon expiration of the lock-up agreements on March 22, 1998, 180 days after
the date of this Prospectus; and (iv) 9,240 shares will be eligible for sale
thereafter upon expiration of their respective one-year holding periods.
Notwithstanding the above, the Company's ESOP, in which 8,706,040 shares are
held as of the date of this Prospectus, obligates the trustees thereof to
distribute at scheduled distribution dates shares held therein to a beneficiary
following the cessation of his or her employment with the Company. The next
scheduled distribution date will not occur until March 30, 1998. Following such
distribution, the shares so distributed will be immediately available for sale
in the public market to the extent they are not held by Affiliates. All officers
and directors and certain stockholders and certain option holders of the Company
have agreed not to offer, pledge, sell, contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly (or enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of),
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a period of 180 days after the date
of this Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. The Company intends to file a registration statement on Form S-8
which would allow shares issuable upon exercise of options previously granted to
be freely tradeable, subject to compliance with Rule 144 in the case of
Affiliates of the Company and except to the extent that such shares are subject
to vesting restrictions with the Company or any contractual restrictions
described above. See "Management -- Employee Benefit Plans," "Shares Eligible
for Future Sale" and "Underwriters."

No Prior Public Market; Possible Stock Price Volatility. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active public market for the Common Stock will
develop or be sustained after this offering. The initial public offering price
was determined by negotiations among the Company, the Selling Stockholders, and
the representatives of the Underwriters based on several factors and may not be
indicative of the future market price of the Common Stock after this offering.
The market price of the Company's Common Stock is likely to be highly volatile
and may be subject to significant fluctuations in response to actual or
anticipated variations in quarterly operating results and other factors, such as
announcements of technological innovations, new products or new contracts

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<PAGE> 16

by the Company or its competitors, conditions and trends in the software and
other technology industries, adoption of new accounting standards affecting the
software industry, changes in earning estimates or recommendations by securities
analysts, general market conditions or other events. In addition, equity markets
have also experienced extreme volatility that has particularly affected the
market prices of equity securities of many high technology companies and that
has often been unrelated or disproportionate to the operating performance of
such companies. Broad market fluctuations, as well as economic conditions
generally and in the software industry specifically, may result in material
adverse effects on the market price of the Company's Common Stock. There can be
no assurance that the market price for the Company's Common Stock will not
decline below the initial public offering price. In the past, following periods
of volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against that company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, operating results or financial
condition. See "Underwriters."

Dilution; Dividend Policy. Investors participating in this offering will
incur immediate and substantial dilution of pro forma net tangible book value
per share of $19.12 from the initial public offering price. To the extent
outstanding options to purchase the Company's Common Stock are exercised, there
will be further dilution. There can be no assurance that the Company will not
require additional funds to support its working capital requirements or for
other purposes, in which case the Company may seek to raise such additional
funds through public or private equity financing or from other sources. There
can be no assurance that such additional financing will be available or that, if
available, such financing will be obtained on terms favorable to the Company and
would not result in additional dilution to the Company's stockholders. See
"Dilution." The Company has never paid or declared any cash dividends on the
Common Stock or other securities and does not anticipate paying cash dividends
in the foreseeable future. See "Dividend Policy."

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THE COMPANY

J.D. Edwards develops, markets and supports highly functional Enterprise
Resource Planning ("ERP") software solutions that operate on multiple computing
platforms and are designed to accelerate customers' time to benefit, lower
customers' cost of ownership and reduce information systems risks arising from
changes in technology and business practices. The Company's integrated software
application suites support manufacturing, finance, distribution/logistics and
human resources operations for multi-site and multinational organizations.
Through its Configurable Network Computing ("CNC") architecture, the Company's
ERP software is specifically designed to enable customers to change technology
and/or business practices while minimizing costs and business interruptions. The
Company provides implementation, training and support services designed to
enable customers to rapidly achieve the benefits of the Company's ERP solutions.
The Company has developed and marketed ERP solutions for over 20 years,
principally for operation on the IBM AS/400 platform and other IBM mid-range
systems and, more recently, on leading UNIX and Windows NT ("NT") servers
through Windows- and Internet browser-enabled desktop clients.

ERP systems are designed to enhance an organization's ability to manage and
execute business functions such as manufacturing, finance,
distribution/logistics and human resources. These systems manage and store large
amounts of diverse business information, providing continuous and simultaneous
availability of data to geographically dispersed employees, customers and
suppliers. According to Advanced Manufacturing Research ("AMR"), an industry
consulting firm, the worldwide market for ERP software license revenue was
approximately $3.5 billion in 1996, and it is expected to reach $16.2 billion by
2001, a compound annual growth rate of 36%.

Historically, ERP solutions have primarily consisted of host-centric
systems that operate on mainframes or mid-range computers. These systems,
developed over many years and representing considerable investments by
customers, provide high levels of performance, scalability, data security and
reliability. In addition, host-centric ERP systems designed as single-vendor
environments offer reduced complexity in implementation and management. In
recent years, ERP systems have been developed with client/server architectures.
These distributed systems generally offer users easier access to information, as
well as multi-site processing capabilities. In addition, as compared to
host-centric systems, client/server environments are better able to accommodate
diverse hardware, software and network technology changes that can result from
rapid organizational growth, acquisitions and consolidations. Both host-centric
and client/server systems require extensive initial implementation and ongoing
modifications to support an organization's current and continuously changing
business practices. The implementation of a new ERP system may in some cases
require an organization to subordinate or re-engineer its established business
practices to accommodate system or architectural constraints. These requirements
can increase the cost of ownership of an ERP system and overwhelm organizations
with limited internal information technology ("IT") staffs, particularly rapidly
growing and resource-constrained mid-sized organizations. In addition, the
difficulties associated with implementation and modification can put
organizations at risk of costly interruptions to normal business operations.

The Company's family of application suites is designed to improve most
organizations' core business processes. In addition, the Company extends its
application suites to address certain vertical markets with specific
configurations, templates and additional software features designed to meet
these industries' needs. The Company offers two versions of its application
suites -- WorldSoftware and OneWorld. WorldSoftware operates in a host-centric
environment on the AS/400 platform. With the addition of the WorldVision thin
client interface, WorldSoftware applications can be operated through a
Windows-based graphical user interface. OneWorld incorporates the Company's CNC
architecture and operates on leading UNIX and NT servers, as well as the AS/400
platform. The Company believes its network-centric CNC architecture provides a
valuable extension beyond traditional client/server architectures by masking
complexity, lowering cost of change and facilitating greater scalability. In
addition, WorldSoftware and OneWorld are capable of operating together in a
unified enterprise-wide environment. The Company also provides WorldSoftware and
OneWorld toolsets to enable rapid implementation, customization and modification
of its application suites.

The Company was incorporated in Colorado in March 1977 and was
reincorporated in Delaware in August 1997. The Company's principal executive
office is located at One Technology Way, Denver, Colorado 80237, and its
telephone number is (303) 334-4000.

16
<PAGE> 18

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 12,500,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$270.9 million (approximately $277.2 million if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. The Company
will not receive any proceeds from the sale of the Common Stock by the Selling
Stockholders. The primary purposes of this offering are to obtain additional
equity capital, create a public market for the Company's Common Stock,
facilitate future access by the Company to public equity markets, provide
liquidity to existing stockholders and provide increased visibility for the
Company in the marketplace.

The Company intends to use the net proceeds of this offering primarily for
general corporate purposes, including working capital. The Company may also use
a portion of the proceeds to acquire businesses, products or technologies that
are complementary to those of the Company, although no specific acquisitions are
currently planned and no portion of the net proceeds has been allocated for any
acquisition. Pending such uses, the Company intends to invest the net proceeds
from this offering in investment grade, short-term, interest-bearing securities.

DIVIDEND POLICY

The Company has never paid or declared any cash dividends on its Common
Stock or other securities and does not anticipate paying cash dividends in the
foreseeable future.

17
<PAGE> 19

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company (i) as of July 31, 1997; (ii) on a pro forma basis, giving effect to the
elimination of the mandatory redemption feature of the mandatorily redeemable
shares and the income tax benefits resulting from the lapse of restrictions on
certain outstanding shares of Common Stock, both of which will occur
automatically upon the closing of the offering; and (iii) on a pro forma as
adjusted basis, giving effect to the receipt by the Company of the estimated net
proceeds from the sale of 12,500,000 shares of Common Stock offered by the
Company hereby after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company:

<TABLE>
<CAPTION>
AS OF JULY 31, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Mandatorily redeemable shares, at redemption value.......... $ 99,076 $ -- $ --
-------- -------- --------
Stockholders' equity (deficit):
Preferred stock, par value $.001 per share; 5,000,000
shares authorized; none outstanding.................... -- -- --
Common stock, par value $.001 per share; 300,000,000
shares authorized; 79,184,910 shares issued and
outstanding actual and pro forma, and 91,684,910 shares
pro forma as adjusted(1)............................... 79 79 92
Additional paid-in capital................................ 4,780 22,763 293,675
Retained earnings......................................... 80,026 80,026 80,026
Cumulative translation adjustments and other, net......... (1,109) (1,109) (1,109)
Adjustment for mandatorily redeemable shares.............. (99,076) -- --
-------- -------- --------
Total stockholders' equity (deficit)................. (15,300) 101,759 372,684
-------- -------- --------
Total capitalization.............................. $ 83,776 $ 101,759 $ 372,684
======== ======== ========
</TABLE>

- ---------------

(1) Excludes (i) 22,121,540 shares of Common Stock issuable upon exercise of
outstanding options as of July 31, 1997, with a weighted average exercise
price of $4.53 per share, and (ii) 17,137,190 shares of Common Stock
reserved for issuance under the Company's stock plans as of July 31, 1997.
Subsequent to July 31, 1997, the Company adopted new employee stock plans.
The Company does not anticipate making future grants under stock plans that
were in effect prior to July 31, 1997. As a result, as of the date of this
offering, there will be 12,000,000 shares of Common Stock reserved for
future issuance under all new employee stock plans. See
"Management -- Employee Benefit Plans" and Note 7 of Notes to Consolidated
Financial Statements.

18
<PAGE> 20

DILUTION

The pro forma net tangible book value of the Company's Common Stock as of
July 31, 1997 was $84.5 million or $1.07 per share. Pro forma net tangible book
value per share is equal to the Company's total tangible assets less its total
liabilities (adjusted to reflect the removal of the mandatory redemption feature
of the mandatorily redeemable shares and the realization of income tax benefits
from the lapse of restrictions on certain of the Company's outstanding common
stock), divided by the pro forma shares of Common Stock outstanding as of July
31, 1997. After giving effect to the issuance and sale of the 12,500,000 shares
of Common Stock offered by the Company (after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company), the
Company's as adjusted net tangible book value as of July 31, 1997 would have
been $355.5 million or $3.88 per share. This represents an immediate increase in
the pro forma net tangible book value of $2.81 per share to existing
stockholders and an immediate dilution of $19.12 per share to new investors. The
following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $23.00
Pro forma net tangible book value per share as of July 31, 1997... $1.07
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 2.81
-----
As adjusted net tangible book value per share after offering........ 3.88
------
Dilution per share to new public investors.......................... $19.12
======
</TABLE>

The following table summarizes on an as adjusted basis as of July 31, 1997,
the difference between the existing stockholders and the purchasers of shares of
Common Stock in this offering (before deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company) with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).................... 79,184,910 86.4% $ 611 .2% $ .01
New public investors(1)..................... 12,500,000 13.6 287,500 99.8 23.00
---------- ------- -------- -------
Total............................. 91,684,910 100.0% $288,111 100.0%
========= ===== ======== =====
</TABLE>

- ---------------

(1) Sales by the Selling Stockholders will reduce the number of shares of Common
Stock held by existing stockholders to 75,884,910 shares or 82.8% of the
total number of shares of Common Stock outstanding after this offering
(73,804,914 or 80.2% assuming the Underwriters' over-allotment option is
exercised in full), and will increase the number of shares of Common Stock
held by new investors to 15,800,000 shares or 17.2% of the total number of
shares of Common Stock outstanding after this offering (18,170,000 shares or
19.8% assuming the Underwriters' over-allotment option is exercised in
full). See "Principal and Selling Stockholders."

The foregoing discussion and tables assume no exercise of any stock options
outstanding as of July 31, 1997. As of July 31, 1997, (i) 22,121,540 shares of
Common Stock were issuable upon the exercise of outstanding options at a
weighted average exercise price of $4.53 per share, and (ii) 17,137,190 shares
of Common Stock reserved for issuance under the Company's stock plans. To the
extent that any of these options are exercised, there will be further dilution
to new investors. Subsequent to July 31, 1997, the Company adopted new employee
stock plans. The Company does not anticipate making future grants under stock
plans that were in effect prior to July 31, 1997. As a result, as of the date of
this offering, there will be 12,000,000 shares of Common Stock reserved for
future issuance under all new employee stock plans. See "Management -- Employee
Benefit Plans" and Note 7 of Notes to the Consolidated Financial Statements.

19
<PAGE> 21

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data of the Company should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the consolidated financial statements and
notes thereto and other financial information included elsewhere in this
Prospectus. The consolidated statements of operations data set forth below for
the years ended October 31, 1994, 1995 and 1996 and the nine months ended July
31, 1997 and the consolidated balance sheet data as of October 31, 1995 and 1996
and as of July 31, 1997 are derived from, and are qualified by reference to, the
Company's consolidated financial statements audited by Price Waterhouse LLP,
independent accountants, which are included elsewhere in this Prospectus. The
consolidated statements of operations data for the ten months ended October 31,
1992 and the year ended October 31, 1993 and the consolidated balance sheet data
as of October 31, 1992, 1993 and 1994 are derived from consolidated financial
statements audited by Price Waterhouse LLP, independent accountants, which are
not included in this Prospectus. The consolidated statements of operations data
for the nine months ended July 31, 1996 are derived from unaudited consolidated
financial statements included in this Prospectus which have been prepared on the
same basis as the audited consolidated financial statements and, in the opinion
of the Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. Historical
results are not necessarily indicative of results for any future period. See
"Consolidated Financial Statements."

<TABLE>
<CAPTION>
TEN MONTHS
ENDED NINE MONTHS
OCTOBER ENDED
31, YEAR ENDED OCTOBER 31, JULY 31,
---------- ----------------------------------------- -------------------
1992(1) 1993 1994 1995 1996 1996 1997
---------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
License fees............................... $ 64,117 $ 94,518 $107,561 $134,138 $180,366 $110,498 $151,046
Services................................... 55,396 102,316 133,026 206,628 297,682 213,285 280,163
---------- -------- -------- -------- -------- -------- --------
Total revenue........................ 119,513 196,834 240,587 340,766 478,048 323,783 431,209
---------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of license fees....................... 6,861 10,401 12,832 18,461 27,443 19,797 24,984
Cost of services........................... 35,984 65,511 87,826 128,144 184,846 133,173 173,612
Sales and marketing........................ 49,874 70,662 76,169 102,310 128,759 90,837 118,616
General and administrative................. 15,188 22,488 27,377 38,677 53,052 37,119 48,439
Research and development................... 8,247 15,484 18,936 24,296 40,321 27,828 41,100
---------- -------- -------- -------- -------- -------- --------
Total costs and expenses............. 116,154 184,546 223,140 311,888 434,421 308,754 406,751
---------- -------- -------- -------- -------- -------- --------
Operating income............................. 3,359 12,288 17,447 28,878 43,627 15,029 24,458
Other income (expense):
Interest income............................ 232 214 483 1,697 629 442 383
Interest expense........................... (163) (142) (101) (576) (899) (725) (586)
Foreign currency losses and other, net..... (148) (687) (486) (411) (1,403) (759) (1,310)
---------- -------- -------- -------- -------- -------- --------
Income before income taxes................... 3,280 11,673 17,343 29,588 41,954 13,987 22,945
Provision for income taxes(2).............. 3,547 4,293 5,280 11,379 15,628 5,315 8,547
---------- -------- -------- -------- -------- -------- --------
Net income (loss)............................ $ (267) $ 7,380 $ 12,063 $ 18,209 $ 26,326 $ 8,672 $ 14,398
=========== ======== ======== ======== ======== ======== ========
Earnings (loss) per common share(3).......... $ (.00) $ .09 $ .15 $ .22 $ .30 $ .10 $ .15
=========== ======== ======== ======== ======== ======== ========
Weighted average common shares
outstanding(3)............................. 81,458 81,986 82,253 82,504 87,667 87,456 95,291
</TABLE>

<TABLE>
<CAPTION>
JULY 31, 1997
OCTOBER 31, -------------------
-------------------------------------------------- PRO
1992 1993 1994 1995 1996 ACTUAL FORMA(4)
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 3,654 $12,636 $ 28,615 $ 34,897 $ 25,554 $ 38,649 $ 38,649
Total assets...................................... 59,937 86,077 127,131 175,191 243,786 300,939 318,922
Mandatorily redeemable shares, at redemption
value........................................... 7,126 12,441 14,290 19,973 47,024 99,076 --
Stockholders' equity (deficit).................... (1,513) 1,814 13,612 22,972 22,902 (15,300) 101,759
</TABLE>

- ---------------

(1) In 1992, the Company changed its fiscal year end from December 31 to October
31. The consolidated statement of operations data for the period ended
October 31, 1992 reflects 10 months of operating activity as compared with
12 months for all other fiscal year periods.

(2) The provision for income taxes for the 10 months ended October 31, 1992
included a valuation allowance provided against foreign tax loss
carryforwards totaling $2.4 million. This valuation allowance was eliminated
in the year ended October 31, 1994 as a result of the Company's
determination that it would likely realize these benefits.

(3) See Note 1 of Notes to Consolidated Financial Statements for a discussion of
the computation of earnings (loss) per common share and weighted average
common shares outstanding.

(4) Reflects the elimination of the mandatory redemption feature of the
mandatorily redeemable shares and the income tax benefits resulting from the
lapse of restrictions on certain shares of the Company's outstanding Common
Stock, both of which will occur automatically upon the closing of this
offering. See Note 1 of Notes to Consolidated Financial Statements.

20
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements. Factors that may cause such a difference include,
but are not limited to, those discussed below and in the sections entitled "Risk
Factors" and "Business."

OVERVIEW

The Company's software application suites have historically been designed
to operate exclusively on certain mid-range computing platforms, most recently
the IBM AS/400 platform. The Company commenced shipment of the WorldSoftware
version of its application suites for use on the AS/400 platform in 1988, and
sales of such applications and related services have accounted for substantially
all of the Company's revenue in recent years. To take advantage of potential
opportunities in the UNIX and NT markets, as well as to enhance its position as
a leader in the AS/400 market, the Company released in late calendar 1996 the
OneWorld version of its application suites. The Company expects to continue to
generate a substantial portion of its revenue, for the foreseeable future, from
customers using the AS/400 platform; however, the Company does not expect to
generate substantial OneWorld license fee revenue from its existing installed
base of WorldSoftware users. The Company's future revenue growth will be
substantially dependent upon the market acceptance of OneWorld and the Company's
ability to license OneWorld applications to new customers.

The Company recognizes revenue in accordance with the provisions of
Statement of Position 91-1, "Software Revenue Recognition." The Company licenses
software under non-cancelable license agreements and provides related services,
including support, training, consulting and implementation. Training, consulting
and implementation services are not essential to the functionality of the
Company's software products, are separately priced and are available from a
number of suppliers. Accordingly, revenue from these services is recorded
separately from the license fee. License fee revenue is recognized when a
non-cancelable license agreement has been signed, the product has been
delivered, collection is probable and all significant contractual obligations
relating to this license have been satisfied. Revenue on all software license
transactions in which there are significant outstanding obligations is deferred
and recognized once such obligations are fulfilled. Typically, the Company's
software licenses do not include significant post-delivery obligations to be
fulfilled by the Company, and payments are due within a 12-month period from
date of delivery. Where software license contracts call for payment terms in
excess of 12 months from date of delivery, revenue is recognized as payments
become due and all other conditions for revenue recognition have been satisfied.
Revenue from training, and consulting and implementation services is recognized
as services are performed. Revenue from agreements for supporting and providing
periodic upgrades to licensed software is recorded as deferred revenue and is
recognized ratably over the support service period, and includes a portion of
the related license fee equal to the fair value of any bundled support services.

Total revenue from license fees and services has increased from year to
year. As a percentage of total revenue, service revenue has increased from year
to year primarily as a result of the Company's continued emphasis on providing
consulting and training services that complement its software products and
increased support revenue resulting from the Company's growing installed base of
customers. Gross margins on license fee revenue are generally higher than gross
margins on service revenue. The mix between license fee and service revenue may
change in future periods depending upon a number of factors, particularly the
Company's success in penetrating the UNIX and NT markets with the OneWorld
version of its application suites.

21
<PAGE> 23

Furthermore, the Company has historically subcontracted a portion of its
consulting and training services to third parties and in fiscal 1996, such
subcontracted services accounted for 40% of this revenue. However, the Company
is currently pursuing a strategy of relying on third-party implementation
providers to contract directly with its customers for OneWorld implementations
and related services. See "Business -- Strategy" and "Business -- Implementation
Services and Training." To the extent the Company is successful in implementing
this strategy and the OneWorld version of the Company's application suites
achieves market acceptance in future periods, revenue from subcontracted
services and total service revenue as a percentage of revenue will likely
decrease; however, there can be no assurance that the Company will be successful
in implementing its strategy or that such products will achieve market
acceptance. See "Risk Factors -- Limited Deployment of OneWorld Version;
Entering New Markets," "Risk Factors -- Reliance On Third Parties and
Development of Certain Relationships" and "Risk Factors -- Dependence on Service
Revenue."

The Company has experienced, and is expected to continue to experience, a
high degree of seasonality, with a disproportionately greater amount of the
Company's revenue for any fiscal year being recognized in its fourth fiscal
quarter and an even greater proportion of net income being recognized in such
quarter. For example, in fiscal 1996, 32% of total revenue, 39% of license fee
revenue, 28% of service revenue and 67% of net income were recognized in the
fourth fiscal quarter. In addition, because the Company's operating expenses are
relatively fixed in the near term, the Company's operating margins have
historically been significantly higher in its fourth fiscal quarter than in its
other quarters. The Company believes that such seasonality is primarily the
result of both the efforts of the Company's direct sales force to meet or exceed
fiscal year-end sales quotas and the tendency of certain customers to finalize
sales contracts at or near the Company's fiscal year end. Because total revenue,
operating margins and net income are greater in the fourth quarter, any
shortfall from anticipated revenue, particularly license fee revenue, in the
fourth quarter would have a disproportionately large adverse effect on the
Company's operating results for the fiscal year. In addition, the Company's
total revenue, license fee revenue, service revenue and net income in its first
fiscal quarter have historically been lower than those in the immediately
preceding fourth quarter. For example, total revenue, license fee revenue,
service revenue and net income in the first quarter of fiscal 1997 decreased
20%, 41%, 3% and 87%, respectively, from the fourth quarter of fiscal 1996. The
Company's first quarter revenue has historically slowed during the holiday
season in November and December.

The Company distributes its products and services through both direct and
indirect channels. Currently, the Company has 46 direct sales and consulting
offices located throughout the world. The first international office was
established in Europe in 1989, and the Company has since added offices
throughout Canada, Europe, Asia, Latin America and Africa, investing significant
resources in the start-up of these operations. The Company also utilizes 166
outside sales and consulting partners with offices throughout the world as an
indirect distribution channel to penetrate certain vertical markets or
geographic areas. Generally, operating margins are higher on domestic revenue
than on international revenue. International revenue as a percentage of total
revenue ranged between 35% and 37% from fiscal 1994 through the first nine
months of fiscal 1997.

Total costs and operating expenses have increased in general due to the
overall growth of the Company, primarily as a result of an increase in headcount
and related costs. The Company's total employees expanded from 934 at the
beginning of calendar 1992 to 3,369 as of July 31, 1997. In addition, the
Company opened new offices and expanded existing offices during this period,
which increased total facilities costs.

22
<PAGE> 24

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income as a percentage of total
revenue (except for gross margin data):

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED OCTOBER 31, JULY 31,
----------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
License fees.............................. 44.7% 39.4% 37.7% 34.1% 35.0%
Services.................................. 55.3 60.6 62.3 65.9 65.0
----- ----- ----- ----- -----
Total revenue..................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of license fees...................... 5.3 5.4 5.7 6.1 5.8
Cost of services.......................... 36.5 37.6 38.7 41.1 40.3
Sales and marketing....................... 31.6 30.0 27.0 28.1 27.5
General and administrative................ 11.4 11.4 11.1 11.5 11.2
Research and development.................. 7.9 7.1 8.4 8.6 9.5
----- ----- ----- ----- -----
Total costs and expenses.......... 92.7 91.5 90.9 95.4 94.3
----- ----- ----- ----- -----
Operating income............................ 7.3 8.5 9.1 4.6 5.7
Other income (expense), net................. (.1) .2 (.3) (.3) (.4)
----- ----- ----- ----- -----
Income before income taxes.................. 7.2 8.7 8.8 4.3 5.3
Provision for income taxes................ 2.2 3.4 3.3 1.6 2.0
----- ----- ----- ----- -----
Net income.................................. 5.0% 5.3% 5.5% 2.7% 3.3%
===== ===== ===== ===== =====
Gross margin on license fee revenue......... 88.1% 86.2% 84.8% 82.1% 83.5%
Gross margin on service revenue............. 34.0% 38.0% 37.9% 37.6% 38.0%
</TABLE>

NINE MONTHS ENDED JULY 31, 1997 AND 1996

Revenue. Total revenue increased to $431.2 million for the first nine
months of fiscal 1997 from $323.8 million for the first nine months of fiscal
1996, representing an increase of 33%. This increase was primarily a result of
greater acceptance of the Company's software products by mid-sized organizations
in key domestic and international markets, together with new releases of the
Company's application suites, and enhanced services, support and custom
programming capabilities. International revenue as a percentage of total revenue
was 36.3% of total revenue in the first nine months of fiscal 1997 and 36.9% in
the first nine months of fiscal 1996.

License fee revenue increased to $151.0 million for the first nine months
of fiscal 1997 from $110.5 million for the first nine months of fiscal 1996,
representing an increase of 37%. The increase was primarily due to a greater
volume of license transactions and an increase in average transaction size. For
the first nine months of fiscal 1996, all license fee revenue was generated from
customers operating on the AS/400 platform. For the first nine months of fiscal
1997, substantially all license fee revenue was generated from customers
operating on the AS/400 platform.

Service revenue increased to $280.2 million for the first nine months of
fiscal 1997 from $213.3 million for the first nine months of fiscal 1996,
representing an increase of 31%. This increase was primarily due to higher
revenue from consulting, which is the largest component of services, although
support and training revenue also increased. Total service revenue is dependent
upon the amount and size of consulting engagements, the number of Company and
business partner consultants available to staff engagements, the number of
customers on support and the related fees, billing rates for consulting services
and training courses, and average training course sizes. Service revenue as a
percentage of total revenue was 65.0% for the first nine months of fiscal 1997

23
<PAGE> 25

compared to 65.9% for the first nine months of fiscal 1996. The Company has
experienced consistent demand for services resulting from its continued emphasis
on providing consulting and training services that complement its software
products and the growth in its installed base of customers. However, to the
extent the Company is successful in implementing its strategy of relying on
third parties to contract directly with the Company's customers for the
implementation of its OneWorld version of its application suites, service
revenue is likely to decrease as a percentage of total revenue.

Cost of license fees. Cost of license fees includes royalties, business
partner commissions, amortization of capitalized software development costs,
documentation costs and software delivery expenses. Cost of license fees
increased to $25.0 million for the first nine months of fiscal 1997 from $19.8
million for the first nine months of fiscal 1996. Gross margin on license fee
revenue increased to 83.5% for the first nine months of fiscal 1997 from 82.1%
for the first nine months of fiscal 1996, primarily as a result of a higher
percentage of license fee revenue being generated from the Company's direct
sales force in the 1997 period compared to the 1996 period.

Amortization of capitalized software development costs increased to $4.3
million for the first nine months of fiscal 1997 compared to $1.9 million for
the first nine months of fiscal 1996. This increase was the result of the
amortization of capitalized OneWorld development costs, which began upon the
release of the OneWorld version of the Company's application suites in late
calendar 1996. OneWorld development costs will be amortized through fiscal 1999.
The Company offers certain complementary software products that are subject to
royalties. License fees subject to royalties were higher during the first nine
months of fiscal 1997 compared to the first nine months of fiscal 1996 primarily
due to increased license fee revenue from application suites incorporating
WorldVision, a graphical user interface for WorldSoftware that utilizes
technology licensed from third parties. Gross margin on license fee revenue
varies, in part, depending upon the proportion of the Company's software
products that are subject to royalty payments. Business partner commissions
increased during the first nine months of fiscal 1997 from the first nine months
of fiscal 1996 due primarily to an increase in license fee revenue from the
Company's Genesis version of its application suites, which is offered
exclusively through business partners.

Cost of services. Cost of services includes the personnel and related
overhead costs for training and customer support services, together with fees
paid to third parties for subcontracted services. Cost of services increased to
$173.6 million for the first nine months of fiscal 1997 from $133.2 million for
the first nine months of fiscal 1996. This increase was due to increased
personnel and subcontracted services to support the growing demand for
implementation and consulting services. Gross margin on service revenue was
relatively stable at 38.0% and 37.6% for the first nine months of fiscal 1997
and 1996, respectively. Generally, the gross margin on support revenue is higher
than on consulting and training revenue, and any change in the mix in services
will affect the gross margin on service revenue. In particular, the extent to
which the Company is successful in implementing its strategy of relying on third
parties to contract directly with the Company's customers for OneWorld
implementations and related services will affect gross margin on service
revenue.

Sales and marketing. Sales and marketing expense consists of personnel and
related overhead costs, including commissions, for the sales and marketing
activities of the Company, together with advertising and promotion costs. Sales
and marketing expense increased to $118.6 million for the first nine months of
fiscal 1997 from $90.8 million for the first nine months of fiscal 1996,
representing 27.5% and 28.1% of total revenue, respectively. The increased
dollar amount was primarily the result of the addition of direct sales personnel
necessary to support the Company's selling efforts, especially the OneWorld
version of its application suites.

General and administrative. General and administrative expense includes
personnel and related overhead costs for the support and administration
functions of the Company. General and administrative expense increased to $48.4
million for the first nine months of fiscal 1997 from $37.1 million for the
first nine months of fiscal 1996, representing 11.2% and 11.5% of total revenue,
respectively. Total expense was higher in the first nine months of fiscal 1997
primarily due to an increase in personnel to support the growth in the Company's
operations.

Research and development. Research and development expense includes
personnel and related overhead costs for product development, enhancements,
upgrades, quality assurance and testing. Research and development expense
increased to $41.1 million for the first nine months of fiscal 1997 from $27.8
million for

24
<PAGE> 26

the first nine months of fiscal 1996. In addition, capitalized software
development costs were $2.2 million for the first nine months of fiscal 1997,
down from $5.8 million for the first nine months of fiscal 1996. Total research
and development expenditures, which includes capitalized software development
costs, were higher in the 1997 period primarily due to a 25% increase in
personnel, together with increases in related facilities and equipment costs.
During each period, development resources were devoted to continued enhancements
of the Company's application suites. Capitalized software development costs for
both periods primarily consisted of OneWorld development costs. Due to the
release of the OneWorld version in late calendar 1996, the Company ceased
capitalizing OneWorld development costs during the first half of fiscal 1997.
The Company anticipates that research and development expense will increase in
subsequent quarters.

While research and development expenditures, which include capitalized
software development costs, increased in the first nine months of fiscal 1997
from the first nine months of fiscal 1996, these expenditures as a percentage of
total revenue remained relatively constant at 10.1% in the first nine months of
fiscal 1997 and 10.4% in the first nine months of fiscal 1996. As a percentage
of license fee revenue, these expenditures were 28.7% in the first nine months
of fiscal 1997 and 30.4% in the first nine months of fiscal 1996.

Other income (expense). Other income (expense) includes interest expense on
the Company's bank line of credit, interest income on cash and cash equivalents
and foreign currency gains and losses. Interest expense decreased to $586,000
for the first nine months of fiscal 1997 from $725,000 for the first nine months
of fiscal 1996, due to lower average borrowings outstanding on the Company's
line of credit during the fiscal 1997 period. Interest income decreased to
$383,000 for the first nine months of fiscal 1997 from $442,000 for the first
nine months of fiscal 1996 primarily due to lower average invested cash
balances. Foreign currency losses increased to $1.6 million for the 1997 period
from $1.1 million for the 1996 period, primarily due to the strengthening of the
U.S. dollar against most of the European currencies.

Provision for income taxes. The Company's effective income tax rate
decreased to 37.2% for the first nine months of fiscal 1997 from 38.0% for the
first nine months of fiscal 1996, primarily as a result of a reorganization of
the Company's domestic operations.

FISCAL YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994

Revenue. Total revenue increased to $478.0 million in fiscal 1996 from
$340.8 million in fiscal 1995 and $240.6 million in fiscal 1994, representing
increases of 40% in fiscal 1996 and 42% in fiscal 1995. These increases were
primarily a result of greater acceptance of the Company's software products by
mid-sized organizations in key domestic and international markets, together with
new releases of the Company's application suites, and enhanced services, support
and custom programming capabilities. International revenue as a percentage of
total revenue ranged from 34.9% to 36.8% during the last three fiscal years.

License fee revenue increased to $180.4 million in fiscal 1996 from $134.1
million in fiscal 1995 and $107.6 million in fiscal 1994, representing increases
of 34% in fiscal 1996 and 25% in fiscal 1995. These increases were primarily due
to the expansion of the Company's domestic and international direct and indirect
sales organizations, a greater volume of license transactions and an increase in
average transaction size. All of the license fee revenue recognized during the
fiscal years 1996, 1995 and 1994 were generated from customers that operate on
the AS/400 platform.

Service revenue increased to $297.7 million in fiscal 1996 from $206.6
million in fiscal 1995 and $133.0 million in fiscal 1994, representing increases
of 44% in fiscal 1996 and 55% in fiscal 1995. The increases were primarily due
to higher revenue from consulting and support, although training revenue also
increased. In fiscal 1995, the Company raised prices for support contracts
which, in addition to the increase in new support contracts, resulted in higher
support revenue. Service revenue as a percentage of total revenue was 62.3%,
60.6% and 55.3% in fiscal 1996, 1995 and 1994, respectively. These increases
were primarily a result of the Company's continued emphasis on providing
consulting and training services that complement its software products and the
growth in the Company's installed base of customers.

Cost of license fees. Cost of license fees increased to $27.4 million in
fiscal 1996 from $18.5 million in fiscal 1995 and $12.8 million in fiscal 1994.
Gross margin on license fee revenue declined to 84.8% for fiscal 1996 from 86.2%
for fiscal 1995 and 88.1% for fiscal 1994. These declines were primarily due to
higher

25
<PAGE> 27

royalties on complementary products, in particular royalties incurred in
connection with increased licenses of applications with WorldVision.

Cost of services. Cost of services increased to $184.8 million in fiscal
1996 from $128.1 million in fiscal 1995 and $87.8 million in fiscal 1994. Gross
margin on service revenue was 37.9%, 38.0% and 34.0% in fiscal 1996, 1995 and
1994, respectively. Generally, gross margin on support revenue is higher than
gross margin on consulting and training revenue, and any change in the mix in
services will affect the gross margin on service revenue. Gross margin in fiscal
1996 as compared to fiscal 1995 remained relatively consistent. The increase in
gross margin in fiscal 1995 as compared to fiscal 1994 was primarily a result of
the Company raising prices for support contracts, as well as an increase in new
support contracts, which together resulted in increased support revenue as a
percentage of service revenue.

Sales and marketing. Sales and marketing expense increased to $128.8
million for fiscal 1996 from $102.3 million for fiscal 1995 and $76.2 million
for fiscal 1994, representing 27.0%, 30.0% and 31.6% of total revenue,
respectively. The increase in dollar amounts was primarily the result of an
increase in sales and marketing personnel and related costs, together with
increased advertising and promotion costs. The decline in sales and marketing
expense as a percentage of total revenue was primarily the result of growing
service revenue, increased productivity from the direct sales force and an
increase in the average transaction size.

General and administrative. General and administrative expense increased to
$53.1 million for fiscal 1996 from $38.7 million for fiscal 1995 and $27.4
million for fiscal 1994, representing 11.1%, 11.4% and 11.4% of total revenue,
respectively. The increase in dollar amounts was primarily the result of
additional support and administration personnel hired throughout this period to
support the expansion of the Company's operations.

Research and development. Research and development expense increased to
$40.3 million for fiscal 1996 from $24.3 million for fiscal 1995 and $18.9
million for fiscal 1994. In addition, capitalized software development costs
were $7.3 million for fiscal 1996 compared to $9.8 million for fiscal 1995 and
$2.1 million for fiscal 1994. Total research and development expenditures, which
include capitalized software development costs, rose 40% in fiscal 1996 and 62%
in fiscal 1995 primarily due to increases in personnel, facilities, equipment
costs and professional contract services. During fiscal 1996 and 1995, the
Company increased resources devoted to the development of the OneWorld version
of its application suites as well as continued enhancements of the WorldSoftware
version, including Genesis. Capitalized software development costs for fiscal
1996 primarily represented OneWorld development costs while, for fiscal 1995,
such costs primarily represented OneWorld and, to a lesser extent, Genesis
development costs.

Although research and development expenditures, including capitalized
software development costs, increased in each fiscal year, as a percentage of
total revenue these expenditures remained relatively stable at 10.0% for fiscal
1996 and 1995 compared to 8.7% for fiscal 1994. As a percentage of license fee
revenue, these expenditures were 26.4%, 25.4% and 19.6% for fiscal 1996, 1995
and 1994, respectively.

Other income (expense). Interest income was $629,000 for fiscal 1996
compared to interest income of $1.7 million for fiscal 1995 and $483,000 for
fiscal 1994. During fiscal 1996, the Company had lower cash and cash equivalent
balances and related interest income than in prior fiscal years due to a $19.4
million investment in land in early fiscal 1996. Interest expense was $899,000,
$576,000 and $101,000 for fiscal years 1996, 1995 and 1994, respectively.
Interest expense increased in each fiscal year due to higher borrowings on the
Company's bank line of credit. Foreign currency losses increased to $1.7 million
in fiscal 1996 from $237,000 for fiscal 1995 and $223,000 for fiscal 1994. This
increase was primarily due to the strengthening of the U.S. dollar against the
Japanese yen and certain European currencies.

Provision for income taxes. The Company's effective income tax rate was
37.3% in fiscal 1996, 38.5% in fiscal 1995 and 30.4% in fiscal 1994. The
effective income tax rate decreased in fiscal 1996 from fiscal 1995 primarily
due to a reorganization of the Company's domestic operations. The effective
income tax rate in fiscal 1994 was lower than the rates for subsequent fiscal
years due to the elimination of a valuation allowance for foreign tax loss
carryforwards as a result of the Company's determination that it would fully
utilize these benefits.

26
<PAGE> 28

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited consolidated statements of
income data, both in absolute dollars and as a percentage of total revenue
(except for gross margin data), for each of the Company's last seven quarters.
This data has been derived from unaudited consolidated financial statements that
have been prepared on the same basis as the annual audited consolidated
financial statements and, in the opinion of the Company, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. These unaudited quarterly results should be
read in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus. The consolidated results of operations
for any quarter are not necessarily indicative of the results for any future
period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
APRIL
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, 30, JULY 31,
1996 1996 1996 1996 1997 1997 1997
----------- --------- -------- ----------- ----------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Revenue:
License fees......................... $35,201 $ 37,077 $ 38,220 $ 69,868 $ 40,934 $ 51,129 $ 58,983
Services............................. 62,731 73,133 77,421 84,397 81,887 94,725 103,551
------- ------- ------- -------- -------- -------- --------
Total revenue.................. 97,932 110,210 115,641 154,265 122,821 145,854 162,534
------- ------- ------- -------- -------- -------- --------
Costs and expenses:
Cost of license fees................. 6,705 6,150 6,942 7,646 7,698 9,386 7,900
Cost of services..................... 40,257 44,732 48,184 51,673 51,493 57,813 64,306
Sales and marketing.................. 27,674 29,927 33,236 37,922 34,706 39,029 44,881
General and administrative........... 11,858 12,854 12,407 15,933 14,772 16,315 17,352
Research and development............. 8,207 9,986 9,635 12,493 10,142 14,391 16,567
------- ------- ------- -------- -------- -------- --------
Total costs and expenses....... 94,701 103,649 110,404 125,667 118,811 136,934 151,006
------- ------- ------- -------- -------- -------- --------
Operating income....................... 3,231 6,561 5,237 28,598 4,010 8,920 11,528
Other income (expense), net............ 414 (629) (827) (631) (313) (1,178) (22)
------- ------- ------- -------- -------- -------- --------
Income before income taxes............. 3,645 5,932 4,410 27,967 3,697 7,742 11,506
Provision for income taxes........... 1,370 2,266 1,679 10,313 1,368 2,893 4,286
------- ------- ------- -------- -------- -------- --------
Net income............................. $ 2,275 $ 3,666 $ 2,731 $ 17,654 $ 2,329 $ 4,849 $ 7,220
======= ======= ======= ======== ======== ======== ========
Earnings per common share.............. $ .03 $ .04 $ .03 $ .20 $ .02 $ .05 $ .07
======= ======= ======= ======== ======== ======== ========
Weighted average common shares
outstanding.......................... 85,507 88,467 88,381 88,313 93,520 95,544 96,799
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
License fees......................... 35.9% 33.6 % 33.1% 45.3% 33.3% 35.1% 36.3 %
Services............................. 64.1 66.4 66.9 54.7 66.7 64.9 63.7
------- ------- ------- -------- -------- -------- --------
Total revenue.................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- -------- -------- -------- --------
Costs and expenses:
Cost of license fees................. 6.8 5.6 6.0 5.0 6.3 6.4 4.9
Cost of services..................... 41.1 40.5 41.7 33.5 41.9 39.6 39.6
Sales and marketing.................. 28.3 27.1 28.8 24.6 28.2 26.8 27.6
General and administrative........... 12.1 11.7 10.7 10.3 12.0 11.2 10.7
Research and development............. 8.4 9.1 8.3 8.1 8.3 9.9 10.2
------- ------- ------- -------- -------- -------- --------
Total costs and expenses....... 96.7 94.0 95.5 81.5 96.7 93.9 93.0
------- ------- ------- -------- -------- -------- --------
Operating income....................... 3.3 6.0 4.5 18.5 3.3 6.1 7.0
Other income (expense), net............ .4 (.6) (.7) (.4) (.3) (.8) (.0)
------- ------- ------- -------- -------- -------- --------
Income before income taxes............. 3.7 5.4 3.8 18.1 3.0 5.3 7.0
Provision for income taxes........... 1.4 2.1 1.4 6.7 1.1 2.0 2.6
------- ------- ------- -------- -------- -------- --------
Net income............................. 2.3% 3.3 % 2.4% 11.4% 1.9% 3.3% 4.4 %
======= ======= ======= ======== ======== ======== ========
Gross margin on license fee revenue.... 81.0% 83.4 % 81.8% 89.1% 81.2% 81.6% 86.6 %
Gross margin on service revenue........ 35.8% 38.8 % 37.8% 38.8% 37.1% 39.0% 37.9 %
</TABLE>

In the last seven quarters, expenses and operating income as a percentage
of total revenue have varied primarily due to seasonality, which has resulted in
disproportionately higher license fee revenue in the fourth

27
<PAGE> 29

fiscal quarter. Expenses have decreased as a percentage of revenue in the fourth
quarter due to seasonally higher license fee revenue. Gross margin on license
fee revenue has varied quarterly from 81.0% to 89.1% within the last seven
quarters due to fluctuations in license volume and the mix of fixed and variable
cost of licenses. Gross margin on service revenue has remained stable except for
the first quarters of fiscal 1996 and fiscal 1997 due to lower service revenue
during the holiday season in November and December.

The Company's quarterly operating results have fluctuated significantly in
the past, and will likely continue to fluctuate in the future, as a result of a
number of factors, many of which are outside the Company's control. These
factors include the demand for the Company's software products and services; the
size and timing of specific sales; the level of product and price competition
that the Company encounters; the length of sales cycles; the timing of new
product introductions and product enhancements by the Company or its
competitors; market acceptance of new products; changes in pricing policies by
the Company or its competitors; the Company's ability to hire sales and
consulting personnel to meet the demand, if any, for implementations of
OneWorld; the Company's ability to establish and maintain relationships with
third-party implementation providers; the Company's ability to establish and
maintain relationships with hardware and software suppliers; the announcement of
new hardware platforms that cause delay of customer purchases; variations in the
length of the implementation process of the Company's software products; the
Company's ability to complete fixed-price consulting contracts on budget; the
mix of products and services sold; the mix of distribution channels through
which products are sold; the mix of international and domestic revenue; changes
in the Company's sales incentives; changes in the renewal rate of support
agreements; product life cycles; software defects and other product quality
problems; seasonality of technology purchases; personnel changes; changes in the
Company's strategy; the activities of competitors; the extent of industry
consolidation; expansion of the Company's international operations; general
domestic and international economic and political conditions; and budgeting
cycles of the Company's customers. The timing of large individual sales has been
difficult for the Company to predict, and large individual sales have, in some
cases, occurred in quarters subsequent to those anticipated by the Company.
There can be no assurance that the loss or deferral of one or more significant
sales would not have a material adverse effect on the Company's quarterly
operating results.

The Company's software is generally used for division- or enterprise-wide,
business-critical purposes and involves significant capital commitments by
customers. Potential customers generally commit significant resources to an
evaluation of available enterprise software and require the Company to expend
substantial time, effort and money educating them about the value of the
Company's solutions. As a result, sales of the Company's software products
require an extensive sales effort throughout the customer's organization because
decisions to license such software generally involve the evaluation of the
software by a significant number of customer personnel in various functional and
geographical areas, each often having specific and conflicting requirements. A
variety of factors, including factors over which the Company has little or no
control, may cause potential customers to delay or forego a purchase. As a
result of these or other factors, the sales cycle for the Company's products is
long, typically ranging between six and 15 months. Moreover, the Company expects
that the sales cycle for the recently released OneWorld version of its
application suites may be longer than that of the WorldSoftware version, at
least until the Company's sales force becomes familiar with the needs of
customers operating on UNIX and NT servers. As a result of the length of the
sales cycle for its software products, the Company's ability to forecast the
timing and amount of specific sales is limited, and the delay or failure to
complete one or more large license transactions could have a material adverse
effect on the Company's business, operating results or financial condition and
cause the Company's operating results to vary significantly from quarter to
quarter. See "Risk Factors -- Variability of Quarterly Operating Results;
Seasonality."

28
<PAGE> 30

anticipated revenue or a delay in the recognition of revenue could result in
significant variations in operating results from quarter to quarter. Quarterly
license fee revenue is also difficult to forecast because the Company's sales
cycles, from initial evaluation to delivery of software, varies substantially
from customer to customer. If revenue falls below the Company's expectations in
a particular quarter, the Company's operating results could be materially
adversely affected. See "Risk Factors -- Lengthy Sales Cycle."

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations and growth to date primarily through
cash generated from operating activities. As of July 31, 1997, the Company's
principal sources of liquidity consisted of $38.6 million of cash and cash
equivalents, and a $50 million, unsecured, revolving line of credit that it
borrows against for working capital requirements and other general corporate
purposes. As of July 31, 1997, no amounts were outstanding under the Company's
bank line of credit, and the Company had working capital of $35.6 million.
Included in such amounts is a short-term deferred revenue and customer deposits
of $79.5 million. Short-term deferred revenue primarily represents annual
support payments billed to customers and is recognized ratably as revenue over
the support service period. Without the short-term deferred revenue and customer
deposits, working capital would have been $115.1 million.

The Company generated operating cash flow of $23.4 million for the first
nine months of fiscal 1997 and $42.4 million, $41.3 million and $27.2 million
for fiscal 1996, 1995 and 1994, respectively. Operating cash flow is affected by
seasonality, among other factors, and is disproportionately higher in the fourth
quarter of the fiscal year than in each of the first three quarters of such
fiscal year. The increases in operating cash flow from year to year were due
primarily to increasing net income. During these periods growth in operating
assets such as accounts receivable has been funded by similar growth in
operating liabilities, primarily deferred revenue and accrued liabilities.

The Company utilized cash for investing activities of $9.8 million for the
first nine months of fiscal 1997 and $51.2 million, $29.2 million and $10.9
million for fiscal 1996, 1995 and 1994, respectively. During these periods, the
Company experienced significant growth and invested funds in the purchase of
furniture, fixtures and equipment that were necessary to support its expanding
operations. In the first nine months of fiscal 1997, the Company's cash utilized
for investing activities was offset in part by $8.6 million of proceeds from the
sale of assets. In fiscal 1996, the Company invested $19.4 million in the
purchase of land in Denver, Colorado, a portion of which is being used by the
Company for a headquarters facility.

The Company did not have significant net financing activities for the first
nine months of fiscal 1997 or for fiscal 1996, 1995 or 1994. The Company
utilized its bank line of credit for working capital and other general corporate
purposes but repaid all amounts borrowed within each of these periods.

Management believes the net proceeds from this offering, together with its
cash and cash equivalents balance, amounts available under existing credit
facilities and funds generated from operations, will be sufficient to meet its
cash needs through fiscal 1998. However, there can be no assurance that the
Company will not require additional funds to support its working capital
requirements or for other purposes, in which case the Company may seek to raise
such additional funds through public or private equity financing or from other
sources. There can be no assurance that such additional financing will be
available or that, if available, such financing will be obtained on terms
favorable to the Company and would not result in additional dilution to the
Company's stockholders.

29
<PAGE> 31

RECENT ACCOUNTING PRONOUNCEMENTS

The Company has determined that the adoption of the recently issued
Statements of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," No. 129, "Disclosure of Information about Capital Structure," No. 130,
"Reporting Comprehensive Income," and No. 131, "Disclosures about Segments of an
Enterprise and Related Information," will not have a material impact on its
financial condition or results of operations. The pro forma effect of SFAS No.
128 is disclosed in the notes to the consolidated financial statements included
herein.

30
<PAGE> 32

BUSINESS

J.D. Edwards develops, markets and supports highly functional Enterprise
Resource Planning ("ERP") software solutions that operate on multiple computing
platforms and are designed to accelerate customers' time to benefit, lower
customers' cost of ownership and reduce information systems risks arising from
changes in technology and business practices. The Company's integrated software
application suites support manufacturing, finance, distribution/logistics and
human resources operations for multi-site and multinational organizations.
Through its Configurable Network Computing ("CNC") architecture, the Company's
ERP software is specifically designed to enable customers to change technology
and/or business practices while minimizing costs and business interruptions. The
Company provides implementation, training and support services designed to
enable customers to rapidly achieve the benefits of the Company's ERP solutions.
The Company has developed and marketed ERP solutions for over 20 years,
principally for operation on AS/400 and other IBM mid-range systems and, more
recently, on leading UNIX and Windows NT ("NT") servers through Windows- and
Internet browser-enabled desktop clients.

The Company's family of application suites is designed to improve most
organizations' core business processes. In addition, the Company extends its
application suites to address certain vertical markets with specific
configurations, templates and additional software features designed to meet
these industries' needs. The Company offers two versions of its application
suites -- WorldSoftware and OneWorld. WorldSoftware operates in a host-centric
environment on the AS/400 platform. With the addition of the WorldVision thin
client interface, WorldSoftware applications can be operated through a
Windows-based graphical user interface. OneWorld incorporates the Company's CNC
architecture and operates on leading UNIX and NT servers, as well as the AS/400
platform. The Company believes its network-centric CNC architecture provides a
valuable extension beyond traditional client/server architectures by masking
complexity, lowering cost of change and facilitating greater scalability. In
addition, WorldSoftware and OneWorld are capable of operating together in a
unified enterprise-wide environment. The Company also provides WorldSoftware and
OneWorld toolsets to enable rapid implementation, customization and modification
of its application suites.

The Company distributes, implements and supports its products worldwide
through 46 offices and through 166 third-party business partners. To date, the
Company has more than 4,000 customers with sites in over 90 countries including
Amgen, Inc., E&J Gallo Winery, Harley Davidson Europe Ltd., Lexmark
International, Inc., Mobil Corporation, Samsonite Corporation and SmithKline
Beecham plc.

INDUSTRY BACKGROUND

ERP systems are designed to enhance an organization's ability to manage and
execute business functions such as manufacturing, finance,
distribution/logistics and human resources. These systems manage and store large
amounts of diverse business information, providing continuous and simultaneous
availability of information to geographically dispersed employees, customers and
suppliers. According to Advanced Manufacturing Research ("AMR"), an industry
consulting firm, the worldwide market for ERP software license revenue was
approximately $3.5 billion in 1996, and is expected to reach $16.2 billion by
2001, a compound annual growth rate of 36%.

In recent years, ERP systems have been developed with client/server
architectures. These distributed systems generally offer users easier access to
information, as well as multi-site processing capabilities. In addition, as
compared to host-centric systems, client/server environments are better able to
accommodate diverse hardware, software and network technology changes that can
result from rapid organizational growth,

31
<PAGE> 33

acquisitions and consolidations. However, such systems are inherently complex
and generally require lengthy and costly implementation efforts, extensive user
training and substantial ongoing support.

Both host-centric and client/server systems require extensive initial
implementation and ongoing modifications to support an organization's current
and continuously changing business practices. The implementation of a new ERP
system may in some cases require an organization to subordinate or re-engineer
its established business practices to accommodate system or architectural
constraints. These requirements can increase the cost of ownership of an ERP
system and overwhelm organizations with limited internal IT staffs, particularly
rapidly growing and resource-constrained mid-sized organizations. In addition,
the difficulties associated with implementation and modification can put
organizations at risk of costly interruptions to normal business operations.
Accordingly, the Company believes there is a substantial market opportunity for
ERP solutions that offer faster time to benefit, reduce risks associated with
implementation and modification and lower overall cost of ownership. These
solutions should consist of an integrated suite of ERP applications and services
that offer the reliable performance, ease of implementation and ease of
management available in host-centric systems as well as the flexibility to
support multi-site, multi-supplier, multi-platform environments found in
client/server systems. At the same time, these solutions should mask the
complexities of the underlying hardware, software and network technologies.

THE J.D. EDWARDS SOLUTION

J.D. Edwards develops, markets and supports highly functional ERP software
solutions that operate on multiple computing platforms and are designed to
accelerate customers' time to benefit, lower customers' cost of ownership and
reduce information systems risks arising from changes in technology and business
practices. The Company's integrated software application suites support
manufacturing, finance, distribution/logistics and human resources operations
for multi-site and multinational organizations. Through its CNC architecture,
the Company's ERP software is specifically designed to enable customers to
change technology and/or business practices while minimizing costs and business
interruptions. The Company provides implementation, training and support
services designed to enable customers to rapidly achieve the benefits of the
Company's ERP solutions. The Company has developed and marketed ERP solutions
for over 20 years, principally for operation on AS/400 and other IBM mid-range
systems and, more recently, on leading UNIX and NT servers through Windows- and
Internet browser-enabled desktop clients.

The Company's ERP solutions are designed to offer the following customer
benefits:

DELIVER AND SUPPORT COMPREHENSIVE SOLUTIONS FOR GLOBAL ENTERPRISES. The
Company's ERP software supports an organization's core business processes
through a family of application suites, including manufacturing, finance,
distribution/logistics and human resources. These application suites are
designed to enable a customer to integrate business information across its
organization and throughout its entire supply chain; accommodate diverse
business practices across a geographically dispersed organization; and support
multiple languages, currencies and jurisdictions. The Company's experienced
service organization provides training, support and a tested methodology to
enable rapid implementation of its ERP solutions.

FACILITATE CHANGES IN TECHNOLOGY AND BUSINESS PRACTICES. The Company's CNC
architecture is designed to mask the complexities of underlying platform
technologies, thus enhancing flexibility and simplifying software modification.
Using the Company's highly flexible software toolset, customers can modify the
Company's application suites to accommodate their business practices without
regard to the underlying hardware, software and network technologies. By masking
the complexity of the underlying technology, the Company's CNC architecture
facilitates the incorporation of new technologies and enables customers to
modify business practices without extensive low-level software code modification
or support.

OFFER TECHNOLOGY CHOICES FOR DIFFERENT MARKET SEGMENTS. Customers can
select between two versions of the Company's application suites. The Company
offers its WorldSoftware version to customers who seek the reliable performance
and lower cost of ownership associated with host-centric systems. The Company
provides its OneWorld version to customers who want the accessibility of
information and ease of use typically associated with client/server systems,
without the burdens often associated with these complex systems. OneWorld's
object-based technology is designed to enhance programmer productivity,
facilitate modification

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of business practices and leverage network scalability. OneWorld, introduced in
late 1996, operates on leading UNIX and NT servers, in addition to the AS/400
platform. By offering two versions of its software, the Company addresses
different market segments and allows customers to maintain consistent business
functionality while combining different technologies to meet their specific
requirements.

PRESERVE AND EXTEND CUSTOMER INVESTMENT. The Company designed OneWorld to
provide customers with a migration path to a network-centric architecture, while
preserving the customers' existing investments in AS/400 platforms. The
Company's CNC architecture enables OneWorld and WorldSoftware application suites
to co-exist on the AS/400 platform, allowing customers to incorporate the new
technologies of OneWorld while maintaining consistent functionality with their
WorldSoftware systems. This architecture minimizes disruptions and reduces the
overall cost of change for customers.

LOWER COST OF OWNERSHIP. The Company's ERP solutions are designed to reduce
overall cost of ownership through a combination of advanced technology and
comprehensive service and support. The Company's CNC architecture is
specifically designed to enable customers to change business practices or
technology environments without significant costs or business interruptions. In
addition, the Company's OneWorld software version is platform independent,
allowing customers to select the best price and performance solutions from
multiple hardware and software suppliers. The Company also offers implementation
services and support enabling more rapid deployment of the Company's ERP
solutions, thus reducing customers' overall cost of ownership.

ESTABLISH LONG-TERM CUSTOMER RELATIONSHIPS. The Company has designed its
ERP software solutions with broad business functionality and flexibility to
reduce the need for significant custom modifications. By minimizing custom
modifications, the customer's ability to benefit from subsequent releases is
enhanced, as is the Company's ability to support the software as implemented.
The Company believes its investment in worldwide customer support services and
user groups facilitates customer communication and feedback, enhancing customer
satisfaction. The Company believes this focus on standard software functionality
and flexibility, and its investment in customer support and user groups,
contribute to long-term customer relationships.

STRATEGY

J.D. Edwards' objective is to strengthen and expand its position as a
leading supplier of ERP software and services. The key elements of the Company's
strategy are as follows:

LEVERAGE LEADERSHIP POSITION IN MIDDLE MARKET. The Company believes that
its ERP solutions address the needs of a broad spectrum of organizations,
ranging from organizations with revenue in the tens of millions to the largest
global enterprises. The Company has principally targeted mid-sized
organizations, including divisions and business units of larger companies, with
annual revenues between $100 million and $2 billion. The Company believes the
ease of implementation and lower cost of ownership associated with its
application suites meet important needs of rapidly growing and
resource-constrained mid-sized organizations. The Company's ERP solutions
provide robust functionality, reduced implementation time and ease of use.
Although the Company expects to devote a significant amount of its resources to
further penetrate this market, the Company also intends to leverage its
extensive ERP experience with mid-sized organizations to address the needs of
larger global enterprises.

LEVERAGE DEVELOPMENT RESOURCES THROUGH ADVANCED TECHNOLOGIES. The Company
uses advanced technologies to develop highly functional, integrated ERP
solutions in a rapid and efficient manner. The Company's OneWorld toolset is
specifically designed for rapid creation of business functionality and
incorporation of new technologies. The Company uses the OneWorld toolset to
develop OneWorld application suites, thus leveraging the Company's development
resources. Using its OneWorld toolset, the Company has been able to recreate
business functionality in OneWorld application suites in substantially less time
than it took to develop the same application suites for WorldSoftware. The
Company believes that this ability to rapidly create business functionality and
incorporate new technologies is an important competitive advantage in its
market.

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EXPAND VERTICAL MARKET FOCUS. Over the last 20 years, the Company has
acquired significant vertical market experience and expertise through
developing, selling and deploying ERP solutions for over 4,000 customers across
a variety of industries. The Company has leveraged this experience into the
development of customized application suites for a number of vertical markets.
These application suites include configurations and templates designed to
provide more rapid customization, implementation and time to benefit for
customers in these industries. In addition, the Company believes that the
ability to focus its development and sales personnel on the needs of specific
industries has made its sales and marketing efforts more efficient and effective
in these vertical markets. To date, the Company has developed customized
application suites for three vertical markets: (1) architecture, engineering,
construction, mining and real estate; (2) energy and chemical systems; and (3)
public sector. The Company is developing additional customized application
suites in vertical markets in which it has significant experience and expertise,
including automotive supply, consumer packaged goods, electronics, fabricated
metals and pharmaceuticals.

PROVIDE HIGH QUALITY SERVICES DIRECTLY AND THROUGH THIRD PARTIES. The
Company believes that its high-quality consulting, implementation, support and
training services enable the Company to achieve a high level of customer
satisfaction, strong customer references and long-term relationships, as well as
facilitate software improvement based on customer feedback. The Company is
committed to providing efficient, high-quality service. To this end, the Company
offers extensive worldwide implementation, training and support services for its
AS/400 customers directly through its customer service personnel and through
third-party implementation providers to whom the Company subcontracts such
services. The Company intends to rely primarily on third-party implementation
providers to contract directly with customers for the implementation of the
OneWorld version of its application suites. These relationships will enable the
Company to provide implementation services through third-party personnel with
extensive client/server expertise, while concentrating its own service resources
on those activities it can perform most efficiently. The Company believes that
this direct and third-party customer service strategy will enable it to deliver
comprehensive and timely services worldwide.

EXPAND STRATEGIC RELATIONSHIPS. The Company intends to expand its existing,
and develop new, strategic relationships with leading hardware and software
suppliers, such as IBM, Hewlett-Packard, Digital Equipment Corporation, Oracle
and Microsoft, as well as with third-party implementation providers, including
global accounting and consulting firms. The Company believes these activities
will provide greater access to a wider variety of potential customers and
leverage the technical expertise of such third parties, allowing the Company to
devote additional resources to product development and marketing activities.

EXTEND GLOBAL PRESENCE. The Company plans to extend its already significant
commitment to international sales and support to take advantage of worldwide ERP
market opportunities. The Company's ERP solutions have been designed to meet the
special requirements of multi-site and multinational organizations. Currently,
the Company employs over 800 international sales and customer service
representatives in 27 international offices. The Company also relies upon its
indirect channel of 166 consulting and sales partners with offices throughout
the world. The Company believes that further expansion of its direct and
indirect sales channels will enhance its competitive position, increase market
penetration and achieve greater name recognition.

PRODUCTS

The Company's family of application suites is designed to improve most
organizations' core business processes. In addition, the Company extends its
application suites to address certain vertical markets with specific
configurations, templates and additional software features designed to meet
these industries' needs. The Company offers two versions of its application
suites -- WorldSoftware and OneWorld. WorldSoftware operates in a host-centric
environment on the AS/400 platform. With the addition of the WorldVision thin
client interface, WorldSoftware applications can be operated through a
Windows-based graphical user interface. OneWorld incorporates the Company's CNC
architecture and operates on leading UNIX and NT servers, as well as the AS/400.
The Company believes its network-centric CNC architecture provides a valuable
extension beyond traditional client/server architectures by masking complexity,
lowering cost of change and facilitating greater scalability. In addition,
WorldSoftware and OneWorld are capable of operating

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together in a unified enterprise-wide environment. The Company also provides
WorldSoftware and OneWorld toolsets to enable rapid implementation,
customization and modification of its application suites.

APPLICATION SUITES

The Company's family of application suites includes manufacturing, finance,
distribution/logistics and human resources. The Company's application suites
accommodate different business practices across a geographically dispersed
organization, as well as multiple languages, currencies and jurisdictions. Each
suite can operate on a stand-alone basis, or can be integrated with other
Company suites and selected third-party applications and systems. The majority
of the Company's customers deploy multiple application suites.

MANUFACTURING

The Company's manufacturing application suite is designed to enable
organizations to optimize their manufacturing operations resources within a
single plant or across multiple locations and to provide information links to
other departments within the organization. The following describes the principal
functionality of the manufacturing application suite and its primary customer
benefits:

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
PRINCIPAL FUNCTIONALITY PRIMARY CUSTOMER BENEFITS
- --------------------------------------------------------------------------------------------
- Requirements Planning - Tracks product variances in costs,
- Product Data Management margins, and quantity
- Engineering Change Management - Monitors inventory
- Configuration Management - Facilitates multi-site integration
- Shop Floor Management - Provides process and discrete
- Maintenance Management manufacturing capabilities in a single
plant environment
- Supports multi-mode manufacturing for
purposes of mass customization
- Manages tracking and communication of
engineering change orders from initial
modification through final approval
- Matches shop floor operations and
procedures with reporting needs
- --------------------------------------------------------------------------------------------
</TABLE>

FINANCE

The Company's finance application suite is designed to provide structure,
security and the ability to audit a customer's financial systems without
limiting the customer's ability to respond to operational and market changes.
The application suite provides a central repository of financial information
with simplified transaction processing. The following describes the principal
functionality of the finance application suite and its primary customer
benefits:

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
PRINCIPAL FUNCTIONALITY PRIMARY CUSTOMER BENEFITS
- --------------------------------------------------------------------------------------------
- Cost-based Accounting - Offers flexible accounting and management
- Financial Modeling and Budgeting report formats
- General Accounting Functions - Provides real-time access to remote
- Accounts Receivable locations
- Accounts Payable - Facilitates forecasting through modeling
- Financial Reporting and budgeting functions
- Fixed Assets - Provides flexibility to accommodate
- Enterprise-wide Consolidations changing organizational structures
- --------------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 37

DISTRIBUTION/LOGISTICS

The Company's distribution/logistics application suite is designed to
provide enterprise-wide distribution chain, supply chain and logistics
management. The following describes the principal functionality of the
distribution/logistics application suite and its primary customer benefits:

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
PRINCIPAL FUNCTIONALITY PRIMARY CUSTOMER BENEFITS
- --------------------------------------------------------------------------------------------
- Demand Management - Manages multi-site inventory, materials
- Forecasting and supplies through the supply chain
- Supplier Management - Simplifies planning for future demand and
- Inventory Management inventory deployment
- Warehouse Automation - Improves management of purchases and
- Electronic Data Interchange sales order processes
- Tailors order fulfillment process to
customer and item level
- --------------------------------------------------------------------------------------------
</TABLE>

HUMAN RESOURCES

The Company's human resources application suite is designed to address the
unique needs of human resource and payroll managers and offers close integration
with the Company's other application suites. The following describes the
principal functionality of the human resources application suite and its primary
customer benefits:

<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------
PRINCIPAL FUNCTIONALITY PRIMARY CUSTOMER BENEFITS
- --------------------------------------------------------------------------------------------
- Applicant and Requisition Management - Reduces payroll administration cost
- Salary and Wage Administration - Complies with and responds to regulatory
- Benefits Administration requirements
- Legislative and Regulatory Compliance and - Allows HR/payroll team to reduce clerical
Reporting time
- Payroll - Manages complex payrolls including
- Labor Distribution multiple unions, contractors,
- Budgeting and Recruiting subcontractors, step progressions
- --------------------------------------------------------------------------------------------
</TABLE>

VERTICAL MARKET APPLICATION SUITES

Over the last 20 years, the Company has acquired significant vertical
market experience and expertise through developing, selling and deploying ERP
solutions for over 4,000 customers across a variety of industries. The Company
has leveraged this experience into the development of customized application
suites for a number of vertical markets. To date, the Company has developed
customized application suites for three vertical markets: (1) architecture,
engineering, construction, mining and real estate ("AEC"); (2) energy and
chemical systems; and (3) public sector. These industry-specific configurations
are designed to provide more rapid customization and implementation,
accelerating time to benefit for customers in these industries. Moreover, the
Company believes its vertical market strategy has improved the efficiency and
effectiveness of its own sales and service operations. Each of the current
targeted vertical markets is described below:

Architecture, Engineering, Construction, Mining and Real Estate. The
Company's AEC application suite includes templates for such common tasks as job
costing, work order management, contract and service billing and equipment
management, among others, while offering additional industry-specific functions
for each market.

Energy and Chemical Systems. The Company's energy and chemical application
suite enables customers to manage all phases of energy and chemical product and
process flow, which is particularly critical given the regulatory controls and
competitive environment of these industries. This template is used for equipment

36
<PAGE> 38

management, load and delivery management, procurement planning, bulk inventory
management and other related functions.

Public Sector. The Company provides its public sector application suite for
use by organizations and agencies such as government entities, school districts
and utilities. In addition to providing such organizations and agencies with
common functions, including financial administration, budgeting and reporting,
and human resources administration, this application suite provides
functionality specific to the needs of each sector.

The Company has significant expertise in the following additional vertical
markets: automotive supply, consumer packaged goods, electronics, fabricated
metals and pharmaceuticals. The Company plans to continue its strategy of
customizing application suites and templates for these vertical markets. As with
its existing vertical markets, the Company also plans to offer industry specific
training and services to these new markets. In addition to its vertical market
focus, the Company has developed Genesis, a version of WorldSoftware with
simplified implementation features for the small business market. Genesis is
designed to enable small businesses to obtain many of the benefits of
WorldSoftware while streamlining the implementation and training process.

The Company's application suites are licensed under perpetual, fully paid
licenses. The prices for such licenses are based on the functionality of the
application suite and the number and type of licensed users. Customers pay a
base amount per application suite plus a per user amount. For global
enterprises, the base price per application suite ranges from $16,500 to $38,800
and includes supported languages and localizations. The price per user is
dependent upon volume and type of user and for global enterprises generally
begins at $7,900 per user.

TECHNOLOGY ARCHITECTURE

The Company offers two versions of its application suites -- WorldSoftware
and OneWorld. WorldSoftware operates in a host-centric environment on the AS/400
platform. OneWorld incorporates the Company's CNC architecture and operates on
leading UNIX and NT servers, as well as the AS/400. In addition, WorldSoftware
and OneWorld are capable of operating together in a unified enterprise-wide
environment.

SUITES AND ARCHITECTURE GRAPH

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<PAGE> 39

WorldSoftware is a well established, procedural-based technology designed
to take advantage of the security, integrity and easily maintained architecture
of the AS/400 platform. Unlike many host-centric ERP systems, WorldSoftware
provides flexibility to make run-time changes in application suites without the
need to recompile software. WorldSoftware also incorporates features such as an
active data dictionary, user defined codes and a variety of run-time options.
With the addition of the WorldVision thin client interface, WorldSoftware
applications can be operated through a Windows-based graphical user interface.

OneWorld is an object-based, event-driven technology designed to provide
the information access and other user benefits of traditional client/server
systems while masking complexity and accommodating future change. OneWorld's CNC
architecture enables the deployment of a single version of an application across
a network, regardless of the underlying technologies. The CNC architecture
consists of three components: (1) the application layer; (2) the toolset layer;
and (3) the technology layer.

The OneWorld application layer contains the specific business functionality
of the OneWorld manufacturing, finance, distribution/logistics and human
resources application suites. OneWorld application suites are composed of up to
3,000 reusable objects. The applications are distributed by the OneWorld
deployment server in object form to individual platforms where they are compiled
and executed. A customer changes the application logic by modifying the objects
or creating new objects using the OneWorld toolset. Applications containing the
modified or newly created objects are then redistributed to individual
platforms. The Company believes that this single-point-of-change architecture
significantly reduces the cost of change compared to traditional client/server
architectures.

The OneWorld toolset is used to create or modify OneWorld objects, allowing
customers or the Company's developers to quickly create new application
functionality. The toolset also insulates users from lower level technologies.
For example, OneWorld objects exist independent of any specific computer
language. Currently, the OneWorld toolset can generate objects in three computer
languages -- C, C++ and Java. The Company believes it can readily incorporate
new languages in the future as market requirements dictate. The Company also
believes that this unified toolset approach significantly reduces customers'
cost of ownership when compared to traditional client/server systems that
require a variety of tools.

The OneWorld technology layer is designed to mask the differences between
underlying platforms and provide a uniform interface for OneWorld applications.
This uniformity allows a single object to execute on a wide variety of
platforms, a "write once, run anywhere" capability. The technology layer
currently supports IBM's AS/400 and S/390 platforms; Digital Equipment
Corporation's Alpha- and Intel-based NT servers; IBM's RS/6000,
Hewlett-Packard's 9000, as well as other UNIX servers from Siemens/Nixdorf; and
NT servers from NEC and Fujitsu. Supported clients include personal computers
running Windows 95 and Windows NT or any desktop system running an Internet
browser. Supported databases include Oracle databases, the IBM DB2 family and
Microsoft's SQL Server. The Company intends to continue to integrate additional
platforms, servers and software as necessary to meet market demands.

The technology layer also integrates a variety of components not typically
integrated in traditional client/server architectures, including an object
request broker, a transaction processing monitor, a workflow engine, a C/C++
generator and a Java generator. In traditional client/server implementations,
customers often have to integrate these components obtained from multiple
suppliers. The Company believes that its architecture and high degree of
integration reduce the cost of ownership and facilitate change when compared to
traditional client/server implementations.

TOOLSETS

The Company's software application suites were developed with the Company's
WorldSoftware and OneWorld toolsets. These toolsets are also used for the
ongoing enhancement and modification of the Company's products. The Company
believes the advantages of these toolsets include increased productivity,
increased code consistency, self-documenting code and improved quality.

The WorldSoftware and OneWorld toolsets are bundled with the WorldSoftware
and OneWorld applications, providing customers the same productivity,
consistency and quality benefits enjoyed by the

38
<PAGE> 40

Company's own developers, thus reducing the complexities typically associated
with upgrades to new releases. Since modifications made by customers to conform
the applications to local business practice and modifications made by the
Company in the course of creating new releases are made with the same toolset,
it is easier and faster to upgrade to new releases while preserving the
customers' modifications. The Company believes that this capability enables
customers to incorporate new functionality more rapidly, while also reducing the
Company's support costs, since fewer customers remain on older releases.

The Company's WorldSoftware toolset provides a high-level architecture,
allowing the Company's development staff to express business practices as an
abstract model. The toolset then uses the model to generate RPG code that runs
on an AS/400 platform in a host-centric, procedural architecture. The Company
continues to use this toolset to add new functionality to the WorldSoftware
application suites.

The Company's OneWorld toolset incorporates more advanced technologies,
including object-based methods and event-driven models. The OneWorld toolset
generates code in C, C++ and Java for a multi-platform, network-centric
environment. Because the OneWorld toolset rigorously separates business logic
from underlying technologies, it also facilitates the incorporation of new
technologies. For example, in 1996, the Company incorporated a Java generator
into the OneWorld technology layer and then regenerated and released
approximately 1,000 existing OneWorld objects in Java in approximately three
months. This process was completed without rewriting the application code. The
Company believes that the ability to incorporate new technologies by
regenerating, rather than rewriting, applications provides a competitive
advantage.

IMPLEMENTATION SERVICES AND TRAINING

The Company believes that delivery of its ERP software together with high
quality consulting, implementation, support and training services enables the
Company to achieve a high level of customer satisfaction, strong customer
references and long-term relationships, as well as facilitate software
improvement based on customer feedback. The Company offers extensive
implementation and training services directly and through third parties to
assist customers in rapidly achieving benefits from its ERP solutions. As of
July 31, 1997, the Company had 1,160 employees in its customer services and
training departments, located worldwide, and had relationships with 166 business
partners with offices throughout the world.

IMPLEMENTATION SERVICES

The Company has designed an implementation process called the REP
methodology ("Rapidly, Economically and Predictably"), which offers a balance of
structure and flexibility for organizations implementing the Company's ERP
solutions. The goal of REP is to accelerate customers' time to benefit by taking
advantage of the Company's technology, business know-how and experience in the
ERP market. REP is a nine-step process designed to enable on-time and on-budget
implementation of the Company's ERP solutions. The nine steps are illustrated in
the following chart:

NINE-STEP GRAPH

In addition to its standard implementation services, the Company also
offers a full range of custom implementation services, including conversion
programs, upgrade assistance, custom modifications and interfaces, and technical
documentation. Implementation services are generally provided on a time and
materials basis.

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<PAGE> 41

THIRD-PARTY IMPLEMENTATION PROVIDERS

The Company seeks to provide its customers with high quality implementation
services in the most efficient and effective manner. In cases where the Company
does not provide implementation services itself, it subcontracts such services
through third parties. The Company also has relationships with a limited number
of third-party implementation providers that contract directly with customers to
assist in the implementation of the Company's software. The Company selects
these third-party providers carefully to ensure that they have the ability and
knowledge to represent the Company and implement its ERP solutions properly.
Providers receive intensive training regarding the Company's application suites
and its REP implementation process. In addition, the Company evaluates these
providers on a regular basis to ensure quality service and support to its
customers. In the future, the Company intends to rely primarily on third-party
implementation providers to contract directly with customers for the
implementation of the OneWorld version of its applications suites. These
relationships will enable the Company to provide implementation services through
third-party personnel with extensive client/server expertise, while
concentrating its own service resources on those activities it can perform most
efficiently. The Company believes that this direct and third-party customer
service strategy will enable it to deliver comprehensive and timely services
worldwide.

EDUCATION AND TRAINING

The Company offers a comprehensive education and training program to its
customers and to the Company's third party implementation providers. Classes are
offered at in-house facilities located throughout the world, as well as at
customer locations. The Company's instructors are certified for each course they
teach, and their backgrounds generally include cross-functional experience in
product testing, customer support and implementation services.

SUPPORT

The Company believes that providing business solutions along with a high
level of on-going support to its customers is a critical element in establishing
long-term relationships and maintaining a high level of customer satisfaction.
The Company provides support services for an annual fee, which entitles the
customer to receive telephone customer support, as well as enhancements and
updates to its implemented version of the Company's software. The Company
provides customer support through three customer support centers located in
Denver, London and Singapore, which are connected to each other through a wide
area network. Customer support from these centers is provided in nine languages
on a 12-hour-per-day, five-day-per-week basis, and in English-only on a
24-hour-per-day, seven-day-per-week basis. Customer support personnel have the
ability to access customer systems remotely to diagnose and resolve problems. As
of July 31, 1997, the Company had 347 employees in its customer support
department.

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<PAGE> 42

CUSTOMERS

As of July 31, 1997, the Company had licensed its application suites to
over 4,000 customers. During each of the last three fiscal years, no customer
accounted for more than 10% of total revenue. The following is a representative
sample of current customers across various industry groups:

ARCHITECTURE, ENGINEERING, CONSTRUCTION,
MINING AND REAL ESTATE

Benderson Development Company, Inc.
Bovis, Inc.
CBI Industries, Inc.
David Weekley Homes
Foster Wheeler Corporation
Gilbane Building Company
Granite Construction Company
Hensel Phelps Construction Company
Hoffman Corporation
Hubbard Construction Company
Koll Construction Company
PCL Constructors
RE/MAX International Incorporated
Sundt Corporation
The Ryland Group, Inc.

AUTOMOTIVE

ASC, Inc.
B.F. Goodrich Europe Coordination
Center N.V.
Champion Laboratories, Inc.
Dana Corporation
Harley Davidson Europe Ltd.
Lectron Products, Inc.
Saab Automobile AB

CONSUMER PACKAGED GOODS

American Home Products Corporation
Bacardi Imports, Inc.
Ball Corporation
Beringer Wine Estates Company
Bic SA
Boise Cascade Office Products
Corporation
E&J Gallo Winery
Estee Lauder International, Inc.
Libbey Glass, Inc.
Parker Pen USA, Ltd.
Prestone Products Corporation
Rawlings Sporting Goods Company
Regal Ware, Inc.
Robert Mondavi Winery
Rollerblade, Inc.
Rollins, Inc.
Samsonite Corporation
Seiko Corporation of America
Tambrands, Inc.
The Limited
United Merchandising
VANS, Inc.

ELECTRONICS

Emerson Electric Company
General Instrument Corporation
IBM
Lexmark International, Inc.
Medtronic, Inc.
Oki Electric Europe Gmbh
Oki Electronics (Hong Kong) Ltd.
Paradyne Corporation
Philips Electronics Ireland Limited
Simmons Canada, Inc.

ENERGY AND CHEMICAL SYSTEMS

Albright & Wilson Americas, Inc.
Burmah Castrol plc.
Chevron Chemical Company
Elf Oil U.K.
LaRoche Industries, Inc.
Mississippi Chemical Corporation
Mobil Corporation
Praxair, Inc.
Sandoz Technology Limited
Shell International Limited
Unocal Chemicals Division

FABRICATED METALS

Coachman Industries, Inc.
Electrolux AB
Huffy Corporation
Kawneer Company, Inc.
Krones, Inc.
Mueller Co.
New Holland
Overhead Door Corporation
Parker Hannifin Corporation
Zexel USA Corporation
PHARMACEUTICALS

Amgen, Inc.
Baxter Healthcare Corporation
Lilly Industries Limited
Mallinckrodt Group, Inc.
Sanofi
SmithKline Beecham plc
Sterling Winthrop, Inc.
Warner Lambert Company

PUBLIC SECTOR

City of Battle Creek
City of Calgary -- Land
and Housing Development
City of Falls Church, Virginia
City of Troy, Michigan
Colorado Housing & Finance Authority
Government of Bermuda
Government of the British Virgin
Islands -- Ministry of Finance
Idaho Housing Agency
Louisiana Employees' Retirement System
Manchester Airport (UK) plc
McCarran Airport, Las Vegas (Clark County)
The Metropolitan Government of
Nashville & Davidson County
Missouri Department of Corrections
New Jersey Natural Gas
Texas Department of Criminal Justice

GENERAL MANUFACTURING/GENERAL BUSINESS

Alltel Corporation
Blockbuster Entertainment Corporation
British Sky Broadcasting Group Limited
Cementos Mexicanos S.A.
Cox Communications, Inc.
Holiday Inns
The Museum of Modern Art
Royal Caribbean Cruises, Ltd.
Tiffany & Co.
Waste Management International, Ltd.

SALES AND MARKETING

Selling the Company's software to multinational organizations typically
requires the Company to engage in a lengthy sales cycle, generally between six
and 15 months, and to expend substantial time, effort and money educating
prospective customers regarding the use and benefits of the Company's products.
See "Risk Factors -- Lengthy Sales Cycles." The Company sells its software and
services through direct sales and business partner channels throughout the
world. As of July 31, 1997, the Company's direct sales force consisted of 512
employees based at the Company's 46 offices, including 19 offices in the United
States and 27 offices located throughout the rest of the world. In addition, the
Company utilizes 166 sales and consulting business partners worldwide as an
indirect distribution channel to penetrate certain vertical markets and
geographic areas, in particular those areas in which the Company has not
invested resources to establish a

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<PAGE> 43

direct presence. The Company expects to increasingly rely on indirect channels
in order to enhance its market penetration and implementation capabilities. See
"Risk Factors -- Management of Growth; Need For Additional Qualified Personnel."
International revenue as a percentage of total revenue ranged between 35% and
37% from fiscal 1994 through the first nine months of fiscal 1997, and the
Company expects that revenue from international customers will continue to
account for a significant portion of the Company's total revenue.

The Company's marketing strategy is to position the Company as a premier
provider of ERP solutions and to increase recognition of the J.D. Edwards name.
In support of this strategy, the Company's marketing programs include developing
and maintaining industry analyst and public relations, developing databases of
targeted customers, conducting advertising and direct mail campaigns, and
maintaining a World Wide Web home page.

Typically, the Company's software products are shipped when orders are
received, and customer service agreements for consulting and implementation
services are billed on a "time and materials" basis as services are performed.
Consequently, license and service backlog at the beginning of any quarter has in
the past represented only a small portion of that quarter's expected revenue.
See "Risk Factors -- Variability of Quarterly Operating Results; Seasonality"
and "Risk Factors -- Fixed Price Service Contracts."

PRODUCT DEVELOPMENT

The Company has invested and expects to continue to invest substantial
resources in research and product development. The research and product
development department is organized into three groups that work closely
together: the development technologies group; the application development group;
and the documentation, localization and translations group. The efforts of these
groups is enhanced by cross-functional product management teams, frequent
solicitation of customer feedback and close contact with customers through the
Company's implementation services. As of July 31, 1997, the Company's research
and product development operations included 589 employees, primarily located in
Denver, Colorado. Research and development expenditures, which include
capitalized software development costs, were $43.3 million, $47.6 million, $34.1
million and $21.0 million for the nine months ended July 31, 1997 and for the
fiscal years ended October 31, 1996, 1995 and 1994, respectively. The Company
anticipates that research and development expenditures will increase in the
future.

The Company's development technologies group is responsible for both the
toolsets and underlying technologies of WorldSoftware and OneWorld. The
WorldSoftware development technologies team is primarily focused on maintaining
and enhancing the toolset and underlying technologies for WorldSoftware. The
OneWorld development technologies team focuses on enhancing the flexibility,
simplicity and performance of the OneWorld toolset, as well as OneWorld's CNC
technology layer. Both development technologies teams share responsibility for
cross-functional coordination with sales and support, as well as with hardware
and software suppliers with which the Company has relationships, to identify,
analyze, prioritize and schedule new features and functionalities. As of July
31, 1997, the development technologies group consisted of 157 employees, the
substantial majority of whom are assigned to the OneWorld team.

The application development group is responsible for developing, enhancing
and maintaining the WorldSoftware and OneWorld application suites, including the
vertical market application suites. Separate application development teams use
the toolsets developed by the development technologies group to create and
enhance each application suite. The Company has designed its toolsets to enable
application programming to be performed by nonprogrammers responsible for
business practices. These application development teams also work with customers
and third-party implementation providers to identify, analyze, prioritize and
schedule new functionality in the Company's existing application suites, as well
as to establish specifications and priorities for new vertical markets. As of
July 31, 1997, the application development group consisted of 305 employees.

The Company's documentation, localization and translations group is
responsible for the documentation and the localization and translation of the
Company's application suites for particular foreign markets, as well as the
vertical market application suites and templates, for both WorldSoftware and
OneWorld. The documentation, localization and translations group works closely
with domestic and international customers

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<PAGE> 44

and third-party implementation providers, as well as cross-functional Company
teams of development, implementation, support and training professionals, to
ensure that appropriate enhancements are incorporated into products,
documentation and implementation processes. This group also develops and
maintains a single database for documentation, which is currently translated
into eight languages. The Company intends to offer additional language
translations in the future. As of July 31, 1997, the documentation, localization
and translation group consisted of 127 employees.

The market for the Company's products is characterized by rapid
technological change, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards can render existing
products obsolete and unmarketable. The life cycles of the Company's ERP
software are difficult to estimate. As a result, the Company's future success
will depend, in part, upon its ability to continue to enhance existing products
and develop and introduce in a timely manner new products that keep pace with
technological developments, satisfy customer requirements and achieve market
acceptance. There can be no assurance that the Company will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner, or that products, capabilities or
technologies developed by others will not render the Company's products or
technologies obsolete or noncompetitive or shorten the life cycles of the
Company's products. See "-- Competition." Although the Company has addressed the
need to develop new products and enhancements primarily through its internal
development efforts, the Company has also addressed this need through the
licensing of third-party technology. Licensing third-party technology involves
numerous risks. See "-- Proprietary Rights and Licensing." If the Company is
unable to develop on a timely and cost-effective basis new software products or
enhancements to existing products, or if such new products or enhancements do
not achieve market acceptance, the Company's business, operating results and
financial condition may be materially adversely affected.

Historically, the Company has issued significant new releases of its family
of software products periodically, with interim releases issued even more
frequently. As a result of the complexities inherent in software development,
and in particular for multi-platform environments, and the broad functionality
and performance demanded by customers for ERP products, major new product
enhancements and new products can require long development and testing periods
before they are commercially released. The Company has on occasion experienced
delays in the scheduled introduction of new and enhanced products and there can
be no assurance that such delays will not be experienced in the future. The
Company recently released OneWorld, the network-centric version of its
application suites. Because the development of enhancements in network-centric
environments are more complex than in host-centric systems, there can be no
assurance that the introduction of future enhancements will not be delayed.

COMPETITION

The market for ERP software solutions is intensely competitive, subject to
rapid technological change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are designed and marketed for the AS/400 market and, more
recently, for leading UNIX and NT servers. The Company's primary competition
comes from a large number of independent software vendors including: (i)
companies offering products that run on the AS/400 platform and other mid-

43
<PAGE> 45

range computers, including System Software Associates, Inc., Marcam Corporation,
Infinium Software, Inc. (formerly Software 2000) and JBA Holdings plc; (ii)
companies offering products that run on UNIX- or Windows NT-based systems in a
client/server environment, such as SAP, Baan, PeopleSoft and Oracle; and (iii)
companies offering either standard or fully customized products that run on
mainframe computer systems, such as SAP. Additionally, the Company faces
indirect competition from suppliers of custom developed business applications
software that focus mainly on proprietary mainframe and mid-range computer-based
systems, such as systems consulting groups of major accounting firms and from IT
departments of potential customers that develop systems internally. The
Company's competitors currently offer products that run on the AS/400 platform
and UNIX and NT servers or have announced their intent to introduce such
products in the near future. As a result, the Company will experience increased
competition. There can be no assurance that the Company will be able to
successfully compete with new or existing competitors or that such competition
will not have a material adverse effect on the Company's business, operating
results or financial condition.

Many of the Company's competitors, and SAP and Oracle in particular, have
significantly greater financial, technical, marketing and other resources than
the Company, as well as wider name recognition and a larger installed customer
bases. Moreover, the Company has traditionally competed only in the AS/400
market, which primarily consists of mid-sized organizations, and has only
recently entered the UNIX and NT markets. In contrast, each of SAP, Baan,
PeopleSoft and Oracle, has significantly more experience and name recognition
with UNIX and NT, implementations and platforms, name recognition with potential
UNIX and NT customers, and reference accounts with UNIX and NT customers.
Accordingly, such competitors have significantly more customers in the UNIX and
NT markets to use as references when competing against the Company.
Additionally, several of the Company's competitors have well-established
relationships with current and potential customers of the Company. These
relationships may prevent the Company from competing effectively in divisions or
subsidiaries of such customers. Many of the Company's competitors, such as SAP,
Baan, PeopleSoft and Oracle, also offer, or have announced their intention to
offer, vertical applications targeted to mid-sized organizations, which market
comprises a substantial portion of the Company's revenue. Further, several of
the Company's competitors regularly and significantly discount prices on their
products. If these competitors continue to discount or increase the amount or
frequency of such discounts in response to increased competition or other
factors, the Company may be required to similarly discount its products, which
could have an adverse effect on the Company's margins. There can be no assurance
that the Company will be able to compete successfully against any of these
competitors.

The Company relies, and expects to increase its reliance, on a number of
systems consulting and systems integration firms for implementation and other
customer support services, as well as for recommendations of its products during
the evaluation stage of the purchase process. A number of the Company's
competitors, including SAP, Baan, PeopleSoft, and Oracle, have significantly
more well-established relationships with such firms and, as a result, such firms
may be more likely to recommend competitors' products rather than the Company's
products. Furthermore, there can be no assurance that these third parties, many
of which have significantly greater financial, technical, marketing and other
resources than the Company, will not market software products in competition
with the Company in the future. If the Company is unable to maintain or increase
the number and quality of its relationships with third parties who recommend,
implement or support ERP software, the Company's business, operating results and
financial condition will be materially adversely affected.

The Company believes that the principal competitive factors affecting the
market for the Company's software products are responsiveness to customer needs,
product architecture, functionality, speed of implementation, ease of use,
performance and features, quality and reliability, breadth of distribution,
vendor and product reputation, quality of customer support and price. The
Company believes that it competes favorably with respect to these factors. In
order to be successful in the future, the Company must continue to respond
promptly and effectively to the challenges of technological change and its
competitors' innovations by continually enhancing its own product offerings.
There can be no assurance, however, that the Company's products will continue to
compete favorably or that the Company will be successful in the face of
increasing

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<PAGE> 46

competition from new products and enhancements introduced by existing
competitors or by new companies entering this market.

PROPRIETARY RIGHTS AND LICENSING

The Company's ability to compete is dependent in part upon its internally
developed, proprietary intellectual property. Although the Company currently has
no patents, it has five patent applications pending on various aspects of its
application suites. In addition, the Company has applied to register the
trademarks "WorldSoftware" and "OneWorld." The Company also relies on general
trademark and copyright protection for its technology, although it generally
does not register such intellectual property. Furthermore, the Company relies on
trade secret law, confidentiality procedures and licensing arrangements to
establish and protect its rights in its technology. Nevertheless, the Company
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, name
recognition, customer training and support and reliable product support are more
essential to protect a technology leadership position. There can be no assurance
that others will not develop technologies that are similar or superior to the
Company's technology. The Company typically enters into confidentiality or
license agreements with its employees, consultants and vendors, and typically
controls access to and distribution of its software, documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology independently
through reverse engineering or other means. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as do
the laws of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or abroad will
be adequate or that competitors will not independently develop similar
technology. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Preventing
or detecting unauthorized use of the Company's products is difficult. There can
be no assurance that the steps taken by the Company will prevent
misappropriation of its technology or that its license agreements will be
enforceable. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results or financial condition.

The Company typically licenses its products to end users under the
Company's standard license agreements, although each license is individually
negotiated and may contain variations. The Company's products are not only
licensed to end users, but also to independent, third-party distributors with a
right to sublicense. Although the Company seeks to establish the conditions
under which the Company's products are licensed by such distributors to end
users, the Company cannot ensure that its distributors do not deviate from such
conditions. Moreover, in order to facilitate the customization required by most
of the Company's customers, the Company generally licenses its software products
to end users in both object code (machine-readable) and source code
(human-readable) format. Although this practice facilitates customization,
making software available in source code also makes it easier for third parties
to copy or modify the Company's software for non-permitted purposes.

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<PAGE> 47

financial condition. If any claims or actions are asserted against the Company,
the Company may seek to obtain a license to such intellectual property rights.
There can be no assurance, however, that such a license would be available on
reasonable terms or at all.

The Company also relies on certain other technology which it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. Most
notably, the Company licenses the graphical user interface to its WorldSoftware
version of its application suites (which the Company markets as WorldVision).
There can be no assurance that these third-party technology licenses will
continue to be available to the Company on commercially reasonable terms. The
loss of, or inability to maintain, any of these technology licenses,
particularly for WorldVision's graphical user interface, would result in delays
or reductions in product shipments until equivalent technology could be
identified, licensed or developed, and integrated. Any such delays or reductions
in product shipments could materially adversely affect the Company's business,
operating results or financial condition. Moreover, although the Company is
generally indemnified by third parties against claims that such third parties'
technology infringes the proprietary rights of others, such indemnification is
not always available for all types of intellectual property rights (for example,
patents may be excluded) and in some cases the geographical scope of
indemnification is limited. The result is that the indemnity that the Company
receives against such claims is often less broad than the indemnity that the
Company provides to its customers. Even in cases in which the indemnity that the
Company receives from a third-party licensor is as broad as the indemnity that
the Company provides to its customers, the third-party licensors from whom the
Company would be receiving indemnity are often not well-capitalized and may not
be able to indemnify the Company in the event that such third-party technology
infringes the proprietary rights of others. Accordingly, the Company could have
substantial exposure in the event that technology licensed from a third party
infringes another party's proprietary rights. The Company currently does not
have any liability insurance to protect against the risk that licensed
third-party technology infringes the proprietary rights of others. There can be
no assurance that infringement or invalidity claims arising from the
incorporation of third-party technology, and claims for indemnification from the
Company's customers resulting from such infringement claims, will not be
asserted or prosecuted against the Company or that any such assertions or
prosecutions will not materially adversely affect the Company's business,
operating results or financial condition. Regardless of the validity or
successful assertion of such claims, the Company could incur significant costs
and diversion of resources with respect to the defense thereof, in addition to
potential product redevelopment costs and delays, all of which could have a
material adverse effect on the Company's business, operating results or
financial condition.

EMPLOYEES

As of July 31, 1997, the Company had 3,369 full-time employees: 512 in
management and administration; 589 in research and development; 761 in sales and
marketing; 1,160 in customer services and training; and 347 in customer support.
The Company believes that its continuing success will depend, in part, on its
ability to retain a limited number of key employees and other members of senior
management, as well as its ability to attract and retain highly skilled
technical, marketing and management personnel, who are in great demand. See
"Risk Factors -- Management of Growth; Need for Additional Qualified Personnel."
The Company has not had a work stoppage, and no employees are represented under
collective bargaining agreements. The Company considers its employee relations
to be good.

PROPERTIES

The Company's corporate headquarters and executive offices are in Denver,
Colorado, where the Company leases approximately 507,000 square feet of space in
multiple facilities. The leases on these facilities expire in 1998 through 2012.
The Company also leases approximately 219,000 square feet of space, primarily
for regional sales and support offices, elsewhere in the United States.
Additionally, the Company leases office space in countries outside the United
States, used primarily for sales and support offices. Expiration dates on
material sales and support office leases range from fiscal 1998 to 2010. The
Company believes that its current domestic and international facilities will be
sufficient to meet its needs for at least the next twelve months. See

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<PAGE> 48

Note 8 of Notes to Consolidated Financial Statements and "Certain Transactions"
for information regarding the Company's obligations under its facilities leases.

LEGAL PROCEEDINGS

From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. While the outcome of
these matters cannot be predicted with certainty, in the opinion of management,
the adverse outcome of any such current legal proceedings would not have a
material adverse effect on the Company's results of operations or financial
condition.

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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the executive
officers and directors of the Company as of July 31, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- -------------------------- --- ---------------------------------------------------------
<S> <C> <C>
C. Edward McVaney......... 56 Chairman, President and Chief Executive Officer
Douglas S. Massingill..... 40 Executive Vice President and Chief Operating Officer
Richard E. Allen(1)(2).... 40 Vice President, Finance and Administration, Chief
Financial Officer and Director
Paul E. Covelo............ 42 Vice President of International Operations
David E. Girard........... 42 Vice President and General Manager of the East Area
David M. Neal............. 36 Vice President and General Manager of the West Area
Pamela L. Saxton.......... 45 Vice President of Finance, Controller and Chief
Accounting Officer
Jack D. Schneider......... 52 Vice President and General Manager of the South Area
Richard G. Snow, Jr....... 52 Vice President, General Counsel and Secretary
Daniel B. Snyder.......... 39 Vice President and General Manager of the Midwest Area
Robert C. Newman(1)(2).... 53 Director
Jack L. Thompson.......... 48 Director
Gerald Harrison(2)(3)..... 65 Director
Delwin D. Hock(2)(3)...... 62 Director
Harry T. Lewis, 64 Director
Jr.(1)(3)...............
Michael J. Maples(4)...... 54 Director
Trygve E. Myhren(1)(4).... 60 Director
</TABLE>

- ---------------

(1) Member of the Finance Committee
(2) Member of the Governance Committee
(3) Member of the Audit Committee
(4) Member of the Compensation Committee

C. Edward McVaney is Chairman of the Board of Directors, President and
Chief Executive Officer of the Company, which he co-founded. He has held these
positions since the Company's inception, except that Mr. McVaney was not
President of the Company from September 1987 through September 1991. Prior to
founding the Company, he was partner-in-charge of information technology and
consulting services for the Denver, Colorado office of Alexander, Grant &
Company, a public accounting firm. Mr. McVaney holds a B.S. in mechanical
engineering from the University of Nebraska and an M.B.A. from Rutgers
University.

Douglas S. Massingill has been Executive Vice President and Chief Operating
Officer of the Company since March 1997. From February 1994 to March 1997, he
was Executive Vice President of Worldwide Operations, and from January 1993 to
March 1994, Mr. Massingill was Vice President and General Manager of the South
Area. Mr. Massingill joined the Company in June 1990 as Account Executive for
the Large Accounts Program. Prior to joining the Company, Mr. Massingill was
Regional Sales Vice President for Integral Systems, an applications software
company. Mr. Massingill holds a B.A. in accounting from Shorter College and an
M.B.A. from Georgia Southern University.

Richard E. Allen has been a member of the Board of Directors since
September 1991. He has been Chief Financial Officer, Vice President, Finance and
Administration, Treasurer and Assistant Secretary since January 1990. From
August 1985 to September 1994, Mr. Allen served as Controller of the Company and
as Secretary from March 1986 to January 1990. Prior to joining the Company, he
worked as Controller for Luff Exploration Company, an oil and gas exploration
and production company, and as a senior accountant with Coopers & Lybrand,
L.L.P. Mr. Allen holds a B.S. in business administration from Colorado State
University.

Paul E. Covelo has been Vice President of International Operations since
August 1994. Prior to that, he served as Vice President and General Manager of
the West Area from January 1992 to September 1994 and Manager of the Newport
Beach Region from July 1988 to January 1992. Prior to joining the Company in

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<PAGE> 50

1988, Mr. Covelo held various positions at IBM including Account Executive and
Advisory Executive. Mr. Covelo holds a B.A. in marketing from Loyola Marymount
University.

David E. Girard has been Vice President and General Manager of the East
Area since joining the Company in May 1994. From July 1992 to November 1993, Mr.
Girard served as Vice President and General Manager of the Northeastern Region
of Dun & Bradstreet Software. From March 1990 to July 1992, he served as Vice
President of Product Development, Client Services and Corporate Operations for
Information Associates, Inc., a division of Dun & Bradstreet Software. Mr.
Girard holds a B.S. in marketing from University of Connecticut and attended the
Columbia Executive Marketing Management Program at Columbia University.

David M. Neal has been Vice President and General Manager of the West Area
since January 1997. From December 1994 to December 1996, he served as Director
of Sales of the West Area. Prior to that, he served as Branch Manager of the
Southwest region from August 1992 to November 1994, Sales Manager from June 1990
to July 1992 and Account Executive of the Northwest region from March 1986 to
May 1990. Prior to joining the company, Mr. Neal was an Account Executive for
New Generation Software. He holds a B.S. in Management Information Systems from
Sacramento State University.

Pamela L. Saxton has been Vice President of Finance, Controller and Chief
Accounting Officer since joining the Company in September 1994. From 1989 to
1994, she was Vice President, Controller and Secretary for Amax Gold, Inc., a
mining company, and Assistant Controller for Cyprus Amax Minerals Company, a
mining company. Ms. Saxton holds a B.S. in accounting from University of
Colorado.

Jack D. Schneider has been Vice President and General Manager of the South
Area and the Energy and Chemical Systems Business Unit since October 1995. From
April 1994 to September 1995, he served as Vice President and General Manager of
the Energy and Chemical Systems and Architecture, Engineering, Construction,
Mining and Real Estate Business Units. From May 1993 to March 1994, Mr.
Schneider served as Vice President of Worldwide Operations, and from January
1993 to April 1993, he served as Vice President of European Sales. Prior to
that, he served as Director of Large Account Sales and European Support from
January 1992 to December 1992. Prior to joining the Company in January 1992, Mr.
Schneider held various management positions in sales and marketing at IBM.

Richard G. Snow, Jr. has been Vice President, General Counsel and Secretary
since joining the Company in January 1990. From February 1986 to January 1990,
Mr. Snow was Corporate Counsel and Secretary for Hathaway Corporation, a
manufacturer of computer components and power utility monitoring devices. Prior
to that, he was Vice President, General Counsel and Secretary for
Global-Ultimacc Systems, Inc., a systems integrator, and Senior Counsel for
Storage Technology Corporation, a manufacturer of computer storage devices. He
holds a B.S. in business administration from the University of California,
Berkeley and a J.D. from California Western University Law School.

Daniel B. Snyder has been Vice President and General Manager of the Midwest
Area since March 1992, and from January 1992 to March 1992, he served as
Director of Large Accounts for the Midwest Area. From June 1979 to January 1992,
Mr. Snyder held various positions at IBM, including marketing, field positions
and staff management positions. Mr. Snyder holds a B.S. in business
administration from Arizona State University, and an M.B.A. in finance from
University of Southern California.

Robert C. Newman is one of the co-founders of the Company and has been a
member of the Board of Directors since August 1978. He is currently a professor
at the University of Denver and manages private investments. From August 1978
until June 1997, he served in a number of management roles with the Company,
including Vice President of Complementary Technologies and Managing Director of
J.D. Edwards & Company, Ltd. (U.K.). Prior to joining the Company, he was a
programmer or consultant at Deloitte & Touche, Motorola Inc. and Rockwell
International. Dr. Newman holds a B.S. in industrial engineering from the
University of California, Berkeley, an M.B.A. from the University of California,
Los Angeles, and a Ph.D. in management from Golden Gate University.

Jack L. Thompson is a member of the Board of Directors and one of the
co-founders of the Company. Mr. Thompson has been a member of the Board since
the Company's inception in March 1977. He served as Vice President of Technical
Foundations from the Company's inception to March 1996. Prior to joining the
Company, Mr. Thompson was a consultant at Alexander Grant & Company, a public
accounting firm, and a programmer for National Farmers Union Life, an insurance
company.

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<PAGE> 51

Gerald Harrison has been a member of the Board of Directors since January
1997. He currently engages in private research and writing. From 1982 to 1984,
he was President and Chief Executive Officer of Stearns-Roger World Corporation,
an engineering and construction firm, and for 14 years prior to that, he served
in various other positions. Mr. Harrison holds an L.L.B. from the University of
Colorado School of Law.

Delwin D. Hock has been a member of the Board of Directors since March
1997. He retired from his position as Chief Executive Officer of Public Service
Co. of Colorado, a utility services company, in January 1996 and as Chairman of
the Board of Directors in July 1997. From September 1962 to January 1996, Mr.
Hock held various positions at Public Service Co. Mr. Hock received his B.S. in
accounting from the University of Colorado. He serves as a director of
Serv-Tech, Inc., Hathaway Corporation and American Century Investors.

Harry T. Lewis, Jr. has been a member of the Board of Directors since March
1995. Since April 1988, Mr. Lewis has been self-employed as a private investor
and financial consultant. From January 1981 to March 1988, he was Senior Vice
President for Dain Bosworth Incorporated, an investment banking firm. Prior to
that, Mr. Lewis was employed by Boettcher & Company, an investment banking firm.
Mr. Lewis has an A.B. from Dartmouth College and an M.B.A. from the Amos Tuck
School of Business Administration at Dartmouth College. He serves as a director
of The Berger Mutual Funds.

Michael J. Maples has been a member of the Board of Directors since January
1997. He is currently a consultant to Microsoft Corporation. From April 1988 to
July 1995, Mr. Maples held various management positions at Microsoft
Corporation, most recently as Executive Vice President of the Worldwide Products
Group. Prior to that, he served as a Director of Software Strategy for IBM. Mr.
Maples holds a B.S. in electrical engineering from Oklahoma University and an
M.B.A. from Oklahoma City University. He serves as a director of Lexmark
International, Inc. and PSW Technologies.

Trygve E. Myhren has been a member of the Board of Directors since January
1997. He is currently President of Myhren Media, Inc., which invests in and
advises media, telecommunications and consumer products companies. From November
1990 to March 1996, he served as President of The Providence Journal Company, a
company that owned and managed newspapers, broadcast television stations, cable
television systems, programming networks and interactive and multimedia
ventures. During this same time, he was Chief Executive Officer of King
Holdings, an owner and manager of broadcast and cable television properties.
From 1981 to 1988, Mr. Myhren served as Chairman and Chief Executive Officer of
American Television and Communications Corporation, a publicly traded subsidiary
of Time, Inc. During 1986 and 1987, Mr. Myhren served as Chairman of the
National Cable Television Association. Mr. Myhren has a B.A. in political
science and philosophy from Dartmouth College, and an M.B.A. from the Amos Tuck
School of Business Administration at Dartmouth College. He serves on the boards
of Peapod, Ltd., Advanced Marketing Services, Inc., University of Denver, Verio,
Inc., Founders Funds Inc. and Cable Labs.

BOARD OF DIRECTORS

The Company currently has authorized nine directors. Currently, each
director holds office until the next annual meeting of the stockholders or until
his or her successor is duly elected and qualified. The Company's Amended and
Restated Certificate of Incorporation provides for a classified Board of
Directors upon the effective date of this offering. In accordance with the terms
of the Amended and Restated Certificate of Incorporation, the Board of Directors
will be divided into three classes, whose terms will expire at different times.
Class I consists of Messrs. Harrison, Hock and Thompson, who will serve until
the annual meeting of stockholders to be held in 1998. Class II consists of
Messrs. Allen, Lewis and Newman, who will serve until the annual meeting of
stockholders to be held in 1999. Class III consists of Messrs. Maples, McVaney
and Myhren, who will serve until the annual meeting of stockholders to be held
in 2000. At each annual meeting of stockholders beginning with the 1998 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.

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COMMITTEES. The Company's Board of Directors has an Audit Committee,
Compensation Committee, Finance Committee and Governance Committee.

The Audit Committee is responsible for reviewing and reporting to the Board
on the quality and performance of internal and external accountants and
auditors, the reliability of its financial information, and the adequacy of its
financial controls and policies, initiating and/or approving appropriate changes
in any or all of these areas when necessary.

The Compensation Committee is responsible for reviewing and reporting to
the Board on compensation and personnel policies, programs and plans, including
management development and succession plans, and to approve employee
compensation and benefits and to administer the Company's stock plans. See
"-- Employee Benefit Plans."

The Finance Committee is responsible for the review of the Company's
capital structure, capital expenditures, financing arrangements, risk management
and long range financial planning.

The Governance Committee is responsible for acting on behalf of the Board
during intervals between meetings of the Board and then reporting to the Board
at its next regular meeting on any actions taken. Actions of the Governance
Committee may generally be limited to handling legal formalities and
technicalities concerning administrative operations, however, the Governance
Committee has the power to act on major matters where it deems action
appropriate.

DIRECTOR COMPENSATION. In January 1997, the Board approved compensation
guidelines for directors who are not officers or employees of the Company or any
of its subsidiaries ("Eligible Directors"). Eligible Directors receive $15,000
as an annual retainer, a fee of $1,000 for attendance at each meeting of the
Board of Directors, and a fee of $1,000 for attendance at each meeting of a
committee of the Board of Directors. After this offering, Eligible Directors may
elect to receive, in lieu of such cash compensation, options to purchase shares
having a fair market value of the foregone cash compensation. Eligible Directors
are reimbursed for expenses incurred in attending any Board of Directors or
committee meetings. Directors who are officers of or employed by the Company or
any of its subsidiaries do not receive additional compensation for serving as
directors of the Company or attending Board of Directors or committee meetings.

The compensation guidelines also provide that Eligible Directors will
automatically be granted under the Company's 1992 Nonqualified Stock Option Plan
an option to purchase 35,000 shares of Common Stock (the "First Option") on the
date on which each such person becomes an Eligible Director. After the First
Option has been granted to the Eligible Director, such director will
automatically be granted an option to purchase 7,000 shares on an annual basis.
The foregoing option provisions terminate upon completion of this offering.

Effective upon the date of this offering, Eligible Directors will be
eligible to participate in the Company's 1997 Equity Incentive Plan. Each new
Eligible Director will automatically receive a grant of an option to purchase
35,000 shares of Common Stock on the date on which such person first becomes an
Eligible Director. Additionally, beginning at the Company's annual meeting of
stockholders for the fiscal year ending October 31, 1997 and at each successive
annual stockholder meeting, each Eligible Director will receive an option to
purchase 7,000 shares of Common Stock. Twenty-five percent of the shares subject
to each option will vest on the first anniversary of the date of grant, and
1/48th of the shares subject to each option will vest each month thereafter. The
exercise price per share for all options automatically granted to directors
under the 1997 Plan will be equal to the market price of the Common Stock on the
date of grant. Directors are also eligible to receive discretionary grants under
the 1997 Plan. See "Management -- Employee Benefit Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company's Compensation Committee was formed to review and recommend to
the Board the compensation and benefits for the Company's executive officers,
administer the Company's stock purchase and stock option plans and make
recommendations to the Board of Directors regarding such matters. Prior to
January 1997, the Committee was composed of Jay S. Horowitz, a former member of
the Board. The Committee is currently composed of Mr. Myhren and Mr. Maples. No
interlocking relationship exists

51
<PAGE> 53

between any member of the Company's Board or Compensation Committee and the
board of directors or compensation committee of any other company, nor has any
such interlocking relationship existed in the past.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following table sets forth certain
information concerning total compensation received by the Company's Chief
Executive Officer and each of the Company's four most highly compensated
executive officers during the last fiscal year (collectively, the "Named
Officers") for services rendered to the Company in all capacities during the
fiscal year ended October 31, 1996.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- ----------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
C. Edward McVaney........................ $300,000 $404,500 -- --
Chairman, President and
Chief Executive Officer
Douglas S. Massingill.................... 253,333 206,764(1) 112,000 $ 66(2)
Executive Vice President and Chief
Operating Officer
Paul E. Covelo........................... 204,700 170,035(3) 112,000 24(2)
Vice President of International
Operations
David E. Girard.......................... 179,500 171,500 112,000 466(2)
Vice President and General Manager of
the East Area
Daniel B. Snyder......................... 162,366 203,500 112,000 714(2)
Vice President and General Manager of
the Midwest Area
</TABLE>

- ---------------

(1) Includes reimbursement of $31,647 for relocation expenses.

(2) Represents payment for insurance premiums.

(3) Includes reimbursement of $26,035 for relocation expenses.

OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth, as to
the Named Officers, information concerning stock options granted during the
fiscal year ended October 31, 1996.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE DATE(3) 5% 10%
- ----------------------- ---------- --------------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
C. Edward McVaney...... -- -- -- -- -- --
Douglas S.
Massingill........... 112,000 2% $ 6.24 02/01/06 $439,381 $1,113,478
Paul E. Covelo......... 112,000 2 6.24 02/01/06 439,381 1,113,478
David E. Girard........ 112,000 2 6.24 02/06/06 439,381 1,113,478
Daniel B. Snyder....... 112,000 2 6.24 02/01/06 439,381 1,113,478
</TABLE>

- ---------------

(1) The options in this table are incentive stock options or nonqualified stock
options granted under the 1992 Incentive Stock Option Plan or the 1992
Nonqualified Stock Option Plan and have exercise prices equal to the fair
market value of the Company's Common Stock on the date of grant. All such
options have 10-year terms and vest over a period of 5 years at a rate of
20% of the shares per year.

(2) The Company granted options to purchase 5,572,560 shares of Common Stock to
employees in fiscal 1996.

(3) The options in this table may terminate before their expiration as a result
of the termination of optionee's status as an employee or consultant or upon
the optionee's disability or death.

52
<PAGE> 54

(4) Under rules promulgated by the Securities and Exchange Commission (the
"SEC"), the amounts in these two columns represent the hypothetical gain or
"option spread" that would exist for the options in this table based on
assumed stock price appreciation from the date of grant until the end of
such options' ten-year term at assumed annual rates of 5% and 10%. The 5%
and 10% assumed annual rates of appreciation are specified in SEC rules and
do not represent the Company's estimate or projection of future stock price
growth. There can be no assurance that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% annual rates
of compounded stock appreciation or at any other defined rate.

AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES. The following table sets forth, as to the Named Officers, certain
stock option information concerning the number of shares subject to both
exercisable and unexercisable stock options and the value of unexercised options
as of October 31, 1996. No options were exercised by Named Officers in the
fiscal year ended October 31, 1996.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
C. Edward McVaney............................ -- -- -- --
Douglas S. Massingill........................ 350,770 621,180 $ 2,797,555 $ 4,536,587
Paul E. Covelo............................... 410,620 646,030 3,279,527 4,736,704
David E. Girard.............................. 152,600 372,400 1,210,412 2,546,241
Daniel B. Snyder............................. 281,260 504,840 2,243,023 3,607,549
</TABLE>

- ---------------

(1) Based on the deemed fair market value of the Company's Common Stock at
fiscal year end, as determined by the Company's Board of Directors less the
exercise price payable for such shares.

EMPLOYEE BENEFIT PLANS

Corporate Plan for Retirement/The Profit Sharing/401(k) Plan

The Company's Corporate Plan for Retirement/The Profit Sharing/401(k) Plan
(the "401(k) Plan") was adopted in 1988, restated in its entirety in July 1994
and amended in June 1996. The 401(k) Plan is designed to enable eligible
employees to save for retirement. All employees who have completed six months of
consecutive service with the Company and have attained the age of 21 are
eligible to participate in the 401(k) Plan. Generally, the Company matches 50%
of an employee's eligible contributions up to a maximum match of 2% of eligible
compensation. The trustee under the 401(k) Plan invests the assets of the 401(k)
Plan in any of several investment options at the direction of each beneficiary.
The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code of 1986, as amended (the "Code").

Employee Stock Ownership Plan

In 1989, the Company adopted the J.D. Edwards & Company Employee Stock
Ownership Plan (the "ESOP") and restated the ESOP in 1996. The ESOP is a stock
bonus plan designed to invest primarily in the Company's Common Stock for the
benefit of the Company's employees. With certain limitations, employees who work
for the Company within the United States, or in Canada prior to 1995, and
employees who are United States citizens who work outside the United States and
receive United States source pay are eligible to participate in the ESOP at the
first enrollment date after one year of service.

Company contributions to the ESOP, as determined by the Board of Directors,
are discretionary and, if made, may be in the form of cash or Company stock. An
ESOP committee, appointed by the Board of Directors, administers the ESOP and
directs the trustees with respect to ESOP investments. As of July 31, 1997, the
ESOP trustees were Mr. Allen, Mr. Thompson and Greg A. Dixon. The ESOP committee
generally directs the trustees with respect to the voting of Company stock held
by the ESOP, except that each participant has the right to direct the voting of
the stock with respect to the approval or disapproval of a merger or
consolidation, recapitalization, liquidation, dissolution, asset sale or similar
transaction. Once the

53
<PAGE> 55

Company's stock is publicly traded, the right to direct the vote with respect to
shares allocated to participant accounts must be passed through to participants
with respect to all corporate matters. As of July 31, 1997, the ESOP owned
8,706,040 shares of the Company's Common Stock.

Company contributions and forfeitures for a plan year are allocated among
the accounts of eligible employees. Allocations are made in the proportion that
each participant's annual base salary (not to exceed $160,000, as adjusted by
law) bears to the aggregate base salary of all participants. Each participating
employee's interest in the ESOP vests at a rate of 20% per calendar year in
which the employee works at least 1,000 hours, beginning with the third such
year after commencement of employment, and therefore is fully vested upon
completion of seven years of employment.

The Company anticipates continuing to make contributions to the ESOP
through the end of fiscal 1997 and that such contributions will be in the form
of the Company's Common Stock. The Company also anticipates merging the ESOP
into the 401(k) Plan during fiscal 1998 and thereafter may continue to make
contributions of Company Common Stock to the 401(k) Plan.

1992 Incentive Stock Option Plan

The Company's 1992 Incentive Stock Option Plan (the "1992 ISO Plan")
provides for the granting of incentive stock options to key employees. An
aggregate of 35,000,000 shares of Common Stock has been reserved for issuance
under the 1992 ISO Plan and the 1992 NSO Plan described below. As of July 31,
1997, there were options to purchase 13,188,840 shares of Common Stock
outstanding under the 1992 ISO Plan. The Company does not anticipate granting
additional options under the 1992 ISO Plan after this offering.

1992 Nonqualified Stock Option Plan

The Company's 1992 Nonqualified Stock Option Plan (the "1992 NSO Plan")
provides for the granting of nonqualified stock options to key employees,
consultants and nonemployee directors. An aggregate of 35,000,000 shares of
Common Stock has been reserved for issuance under the 1992 ISO Plan and the 1992
NSO Plan. As of July 31, 1997, there were options to purchase 8,932,700 shares
of Common Stock outstanding under the 1992 NSO Plan. The Company does not
anticipate granting additional options under the 1992 NSO Plan after this
offering.

Restricted Stock Grant Plan

The Company's 1990 Restricted Stock Grant Plan (the "1990 Plan") provides
for the issuance of a maximum of 3,141,110 shares of Common Stock to certain
employees of the Company. As of July 31, 1997, there were 2,135,000 shares of
Common Stock outstanding under the 1990 Plan. The Company has not issued any
shares under this plan since 1992 and does not anticipate issuing additional
shares under this plan.

Stock Plan for Employees

The Company's Stock Plan for Employees (the "Employee Stock Plan") provides
for the issuance of a maximum of 6,997,200 shares of Common Stock to certain
employees of the Company. As of July 31, 1997, there were 1,715,000 shares of
Common Stock outstanding under the Employee Stock Plan. The Company has not
issued any shares under this plan since 1986 and does not anticipate issuing
additional shares under this plan.

Employee Stock Purchase Plan

The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and the stockholders in August 1997, to take
effect upon the date of the offering. A total of 2,000,000 shares of Common
Stock has been reserved for issuance under the Purchase Plan, less the number of
shares of Common Stock issued under the Company's 1997 Employee Stock Purchase
Plan for Non-U.S. Employees. However, an annual increase will be made to the
Purchase Plan on each anniversary date of the adoption of the Plan, in an amount
equal to the number of shares of Common Stock required to restore the

54
<PAGE> 56

maximum number of shares of Common Stock reserved for issuance to 2,000,000, or
a lesser amount determined by the Board. The Purchase Plan, which is intended to
qualify under Section 423 of the Internal Revenue Code, is implemented by an
initial offering period of approximately 15 months, commencing on the first
trading day on or after the effective date of this offering and ending on the
last trading day in the period ending December 31, 1998, and a second offering
period of approximately 12 months, commencing on the first trading day on or
after January 1, 1998, and ending on the last trading day in the period ending
December 31, 1998. The first offering period will contain three purchase periods
during which payroll deductions will be accumulated and shares of Common Stock
purchased for participants. The second offering period will contain two purchase
periods. Subsequent offering periods will last approximately six months and will
commence on the first trading day on or after January 1 and July 1 of each year
during which the Purchase Plan is in effect. The Purchase Plan is administered
by the Board of Directors or by a committee appointed by the Board. Employees
are eligible to participate if they are customarily employed by the Company or
any participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. The Purchase Plan permits eligible employees to
purchase Common Stock through payroll deductions of up to 10% of an employee's
compensation (including commissions, bonuses, overtime and shift premium),
except that no participant's rights to purchase shares of Common Stock may
accrue at a rate which exceeds $25,000 of stock per calendar year. The price of
stock purchased under the Purchase Plan is 85% of the lower of the fair market
value of the Common Stock at the beginning of the offering period or the end of
the relevant purchase period or offering period. Employees may end their
participation at any time during an offering period, and they will be paid their
payroll deductions to date. Participation ends automatically upon termination of
employment with the Company.

Rights granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Purchase Plan. The Purchase Plan provides that, in
the event of a merger of the Company with or into another corporation or a sale
of all or substantially all of the Company's assets, each participant's right to
purchase Common Stock will be assumed or an equivalent right substituted by the
successor corporation. If the successor corporation refuses to undertake such an
assumption or substitution, the Board of Directors shall shorten the purchase
and offering periods then in progress (so that employees' rights to purchase
stock under the Plan are exercised prior to the merger or sale of assets). In
the event of a dissolution or liquidation, the purchase and offering periods
then in place will be shortened (so that employees' rights to purchase stock
under the Purchase Plan are exercised prior to the dissolution or liquidation).
The Purchase Plan will terminate in 2007. The Board of Directors has the
authority to amend or terminate the Purchase Plan, except that no such action
may adversely affect any outstanding rights to purchase stock under the Purchase
Plan.

1997 Employee Stock Purchase Plan for Non-U.S. Employees

The Company's 1997 Employee Stock Purchase Plan for Non-U.S. Employees (the
"Foreign Purchase Plan") was adopted by the Board of Directors and the
stockholders in August 1997, to take effect upon the date of the offering. The
number of shares reserved for issuance under the Foreign Purchase Plan equals
the number of shares reserved for issuance under the Purchase Plan, but not yet
issued. The terms of the Foreign Purchase Plan are substantially similar to
those of the Purchase Plan. The Foreign Purchase Plan is not intended to qualify
under Section 423 of the Code.

1997 Equity Incentive Plan

The Company's 1997 Equity Incentive Plan (the "1997 Plan") was adopted by
the Board of Directors and stockholders in August 1997. A total of 10,000,000
shares of Common Stock has been reserved for issuance under the 1997 Plan, which
number will be increased on each anniversary date of the adoption of the 1997
Plan, beginning in 1998, by a number of shares equal to (i) the number of shares
needed to restore the maximum aggregate number of shares reserved for issuance
under the 1997 Plan to 10,000,000, or (ii) a lesser amount determined by the
Board of Directors. The purposes of the 1997 Stock Plan are to attract and
retain the best available personnel to serve the Company and to provide
additional incentive to the Company's key personnel.

55
<PAGE> 57

The 1997 Plan provides for the granting of incentive stock options to
employees and the granting of nonstatutory stock options and stock purchase
rights ("SPRs") to employees, directors and consultants. The 1997 Plan also
provides for an automatic grant of an option to purchase 35,000 shares of Common
Stock (the "First Option") to each person who first becomes a non-employee
director following the effective date of the 1997 Plan on the date on which such
person first becomes a non-employee director. After the First Option is granted
to the non-employee director, he or she will automatically be granted an option
to purchase 7,000 shares (a "Subsequent Option") on the date of the first Board
of Directors meeting in each subsequent year, provided he or she is then a
non-employee director and, provided further, that on such date he or she has
served on the Board at least six months. Each First Option and each Subsequent
Option will have a term of eight years. Twenty-five percent of the shares
subject to each First Option and each Subsequent Option will vest on the first
anniversary of their date of grant, and 1/48th of the shares subject to each
First Option and each Subsequent Option will vest each month thereafter. The
exercise price of each First Option and each Subsequent Option will be 100% of
the fair market value per share of the Company's Common Stock on the date of the
grant of the option.

The 1997 Plan will be administered by the Board of Directors or a committee
designated by the Board (the "Administrator"). Options and SPRs under the 1997
Plan are not generally transferable by the optionee except by will or by the
laws of descent and distribution, and are exercisable during the lifetime of the
optionee only by such optionee. Options granted to employees and consultants
under the 1997 Plan must generally be exercised within one month of the end of
an optionee's status as an employee or consultant of the Company, or within 12
months after such optionee's termination by death or disability, but in no event
later than the expiration of the option term. Options granted to non-employee
directors under the 1997 Plan may generally be exercised, to the extent vested,
at any time during their eight year term, notwithstanding the director's
cessation of service to the Company. The exercise price of all nonstatutory
stock options granted under the 1997 Plan (except First and Subsequent Options)
will be determined by the Administrator. With respect to any participant who
owns stock possessing more than ten percent (10%) of the voting power of all
classes of the Company's outstanding capital stock (a "10% Stockholder"), the
exercise price of any incentive stock option granted must equal at least 110% of
the fair market value on the grant date. The exercise price of incentive stock
options for all other employees will be no less than 100% of the fair market
value per share on the date of grant.

The maximum term of a stock option granted under the 1997 Plan may not
exceed eight years from the date of grant, or five years from the date of grant
in the case of an incentive stock option granted to a 10% Stockholder. In the
case of SPRs, unless the Administrator determines otherwise, the Company will
have a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). Such repurchase option lapses at a rate
determined by the Administrator. The purchase price for shares repurchased by
the Company will be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option will lapse at a rate determined by the Administrator.

In the event of a merger or asset sale, the options or SPRs shall fully
vest, unless the options or SPRs are assumed or substituted with equivalent
options or SPRs by the successor corporation. In the event of a dissolution or
liquidation, the Administrator has the discretion to fully vest the outstanding
options and SPRs.

56
<PAGE> 58

CERTAIN TRANSACTIONS

In March 1997, C. Edward McVaney, Chairman, President and Chief Executive
Officer, sold a total of 46,200 shares of Common Stock of the Company from his
personal holdings to an employee of the Company and to Trygve E. Myhren, Harry
T. Lewis, Jr., Michael J. Maples and Gerald Harrison, each a director of the
Company, for an aggregate purchase price of approximately $500,000. Each of the
individuals purchased 9,240 shares. Additionally, in April 1997, Mr. McVaney
sold 9,240 shares to Delwin D. Hock, a director of the Company, for a purchase
price of approximately $100,000.

In January 1996, the Company was notified of a contractual arrangement
whereby two founders, Robert C. Newman and Jack L. Thompson, directors of the
Company, proposed to sell 3,500,000 shares of their Company stock holdings to
certain identified third parties. Under the terms of an Old Shareholder
Agreement, described below, such stock was required to be offered to the Company
at the pending sales price prior to the sale to third parties. The Company
assigned its right to purchase these shares to the ESOP, which purchased the
3,500,000 shares of Common Stock from Messrs. Newman and Thompson for $10.4
million. Mr. Newman sold 875,000 shares, and Mr. Thompson sold 2,625,000 shares.

In December 1995, the Company loaned $120,000 to Jack D. Schneider, an
executive officer of the Company. The loan bore no interest and was paid in full
in June 1996.

In May 1995, the Company loaned $150,000 to Mr. McVaney. The loan bore
interest at 2% over the prime lending rate and was collateralized by shares of
the Company's Common Stock owned by Mr. McVaney. The loan plus accrued interest
was paid in full in August 1995.

In November 1994, Mr. Thompson exercised his right under the Old
Shareholder Agreement, described below, to require the Company to purchase
176,260 shares of Common Stock. Such shares were purchased by the ESOP for a
purchase price of $200,000.

In November 1994, Mr. McVaney sold 1,112,020 shares of Common Stock to the
Company for a purchase price of $2,838,828, Mr. Thompson sold 487,760 shares of
Common Stock to the Company for a purchase price of $1,245,181, and Mr. Newman
sold 358,820 shares of Common Stock to the Company for a purchase price of
$916,016.

In July 1994, the Company loaned $195,000 to Mr. Thompson who was also an
executive officer and director of the Company at the time of the loan and
currently a director of the Company. The loan bore interest at a rate of 2% over
the prime lending rate and was collateralized by shares of the Company's Common
Stock owned by Mr. Thompson. The loan plus accrued interest was paid in full in
November 1994.

In November 1993, the Company loaned $350,000 to Mr. McVaney. The loan bore
interest at 2% over the prime lending rate and was collateralized by shares of
the Company's Common Stock owned by Mr. McVaney. The loan plus accrued interest
was paid in full in December 1993.

In February 1993, the Founders (Messrs. McVaney, Thompson and Newman) and
the Company entered into a Shareholder Agreement, which was amended in January
1996 (the "Old Shareholder Agreement"). The Old Shareholder Agreement sets
forth, among other things, certain voting covenants and transfer restrictions on
the shares beneficially owned by the Founders. In August 1997, the Founders and
the Company amended and restated the Old Shareholder Agreement (the "Amended and
Restated Stockholders Agreement"), which will become effective upon the date of
this offering. The Amended and Restated Stockholders Agreement provides that
Messrs. Newman and Thompson must cast their votes in the same proportion as the
votes cast by Mr. McVaney with respect to certain significant corporate issues,
such as amending the Company's Certificate of Incorporation or any merger, share
exchange, sale or dissolution of the Company. In addition, each Founder must
vote for the election of each of the other Founders to the Company's Board of
Directors or a designee appointed by such other Founder.

In the past, the Company has granted options to certain of its executive
officers. The Company intends to continue to grant options to its officers in
the future. See "Management -- Option Grants in Last Fiscal Year" and "Principal
and Selling Stockholders."

The Company believes that each of the transactions involving the Company
described above were on terms no less favorable to the Company than could have
been obtained from unaffiliated third parties. All

57
<PAGE> 59

future transactions between the Company and any director or executive officer
will be subject to approval by a majority of the disinterested members of the
Board.

The Company's Amended and Restated Certificate of Incorporation limits the
liability of its directors for monetary damages arising from a breach of their
fiduciary duty as directors, except to the extent otherwise required by the
General Corporation Law of Delaware. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission. The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. The Company intends to enter into indemnification agreements
with each of its officers and directors containing provisions that requires the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to cover its
directors and officers under any Company liability insurance policies applicable
to its directors and officers.

58
<PAGE> 60

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information concerning the beneficial
ownership of the Company's Common Stock as of July 31, 1997, and as adjusted to
reflect the sale of shares offered by this Prospectus, for the following: (i)
each person or entity who is known by the Company to own beneficially more than
five percent of the outstanding shares of the Company's Common Stock (a "5%
Stockholder"), (ii) each of the Company's current directors, (iii) each of the
Named Officers, (iv) all directors and executive officers as a group, and (v)
each Selling Stockholder. Unless otherwise indicated, each 5% Stockholder can be
reached at the principal offices of the Company.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES OFFERING(1)(2)
--------------------- BEING --------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------- ----------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, NAMED OFFICERS AND 5%
STOCKHOLDERS:
C. Edward McVaney(3)...................... 36,890,840 46.6% 1,122,245 35,768,595 39.0%
Jack L. Thompson(4)....................... 12,924,520 16.3 643,912 12,280,608 13.4
Robert C. Newman(5)....................... 10,988,530 13.9 686,347 10,302,183 11.2
Douglas S. Massingill(6).................. 545,160 * -- 545,160 *
Richard E. Allen(7)....................... 744,030 * 66,500 677,530 *
Paul C. Covelo(8)......................... 625,030 * -- 625,030 *
David E. Girard(9)........................ 257,600 * -- 257,600 *
David M. Neal(10)......................... 50,400 * -- 50,400 *
Pamela L. Saxton(11)...................... 110,600 * -- 110,600 *
Jack D. Schneider(12)..................... 293,160 * -- 293,160 *
Richard G. Snow, Jr.(13).................. 54,810 * -- 54,810 *
Daniel B. Snyder(14)...................... 438,480 * -- 438,480 *
Gerald Harrison........................... 9,240 * -- 9,240 *
Delwin D. Hock............................ 9,240 * -- 9,240 *
Harry T. Lewis, Jr.(15)................... 23,240 * -- 23,240 *
Michael J. Maples......................... 9,240 * -- 9,240 *
Trygve E. Myhren.......................... 9,240 * -- 9,240 *
J.D. Edwards & Company ESOP(16)........... 8,706,040 11.0 -- 8,706,040 9.5
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (17 PERSONS)(17).................... 63,983,360 78.0% 2,519,004 61,464,356 65.0%
OTHER SELLING STOCKHOLDERS:
James P. Bessey(18)....................... 256,900 * 55,125 201,775 *
Edward W. Bettencourt(19)................. 138,880 * 3,500 135,380 *
William J. Bovaird III(20)................ 799,330 1.0 59,850 739,480 *
Mary E. Collison(21)...................... 838,530 1.1 102,900 735,630 *
Treasure I. Diehl(22)..................... 106,750 * 2,100 104,650 *
James L. Foos(23)......................... 448,770 * 52,500 396,270 *
Michael C. Heber.......................... 105,000 * 52,500 52,500 *
Michael Iiams(24)......................... 602,630 * 38,346 564,284 *
Idella Kercher(25)........................ 493,500 * 39,900 453,600 *
Leo LaCascia(26).......................... 218,960 * 44,000 174,960 *
Rod N. McDonald(27)....................... 933,030 1.2 105,000 828,030 *
R. Howard Miller(28)...................... 277,900 * 58,275 219,625 *
James A. Parish(29)....................... 86,800 * 13,750 73,050 *
Robert W. Siefker(30)..................... 120,400 * 35,000 85,400 *
Perry Stensland(31)....................... 183,120 * 25,000 158,120 *
Peter F. Sullivan(32)..................... 363,720 * 78,750 284,970 *
Charles H. Williams(33)................... 84,070 * 14,500 69,570 *
</TABLE>

- ---------------

* Less than 1% of the Company's outstanding Common Stock.

(1) Assumes no exercise of the Underwriters' over-allotment option. The number
and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Exchange Act, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any shares as to which the individual or
entity has voting power or investment power and any shares which the
individual has the right to acquire within 60 days of July 31, 1997 through
the exercise of any stock option or other right. Unless otherwise indicated
in the footnotes, each person or entity has sole voting and investment
power (or shares such powers with his or her spouse) with respect to the
shares shown as beneficially owned.

(2) If the Underwriters' over-allotment option is exercised in full, Messrs.
McVaney, Thompson and Newman will sell an additional 1,065,255 shares,
606,088 shares and 408,653 shares, respectively, in the offering. In such
event, Messrs. McVaney, Thompson and Newman will beneficially own
34,703,340

59
<PAGE> 61

shares, 11,674,520 shares and 9,893,530 shares, respectively, or 37.7%,
12.7% and 10.8%, respectively, of the shares outstanding. The Company will
sell the remaining 290,004 shares of the over-allotment option if such
option is exercised in full.

(3) Includes 8,118,950 shares held by the C. Edward McVaney Trust, 14,000,000
shares held by the C. Edward McVaney G.R.A.T., 466,690 shares held of
record by Mr. McVaney's wife, Carole L. McVaney, 14,000,000 held of record
by the Carole L. McVaney, G.R.A.T. and 305,200 held of record by the
McVaney Family Foundation. Pursuant to the Amended and Restated
Stockholders Agreement, Mr. McVaney must vote his shares in accordance with
the provisions of such agreement.

(4) Includes 3,500,000 shares held by JVB Properties L.L.L.P., a company owned
by Mr. Thompson and his wife, and excludes 8,706,040 shares owned by the
ESOP. Mr. Thompson is a co-trustee of the ESOP, and shares voting and
dispositive power of the shares owned by the ESOP, but has no pecuniary
interest therein. Pursuant to the Amended and Restated Stockholders
Agreement, Mr. Thompson must vote his shares in accordance with the
provisions of such agreement.

(5) Includes 5,600,000 shares held by Newkop Investments L.L.L.P., a company
affiliated with Mr. Newman, and 157,500 shares held of record by the
Jennifer A. Newman Trust. Pursuant to the Amended and Restated Stockholders
Agreement, Mr. Newman must vote his shares in accordance with the
provisions of such agreement.

(6) Includes 545,160 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(7) Includes 499,030 shares subject to stock options exercisable within 60 days
of July 31, 1997 and 14,000 shares held of record by Mr. Allen's children.
Excludes 8,706,040 shares owned by the ESOP. Mr. Allen is a co-trustee of
the ESOP, and shares voting and dispositive power of the shares owned by
the ESOP, but has no pecuniary interest therein.

(8) Includes 625,030 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(9) Includes 257,600 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(10) Includes 50,400 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(11) Includes 110,600 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(12) Includes 293,160 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(13) Includes 54,810 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(14) Includes 438,480 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(15) Includes 14,000 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(16) Excludes shares owned by Messrs. Allen, Dixon and Thompson, the trustees of
the ESOP.

(17) Includes 2,888,270 shares subject to stock options exercisable within 60
days of July 31, 1997.

(18) Includes 29,400 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(19) Includes 19,880 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(20) Includes 361,830 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(21) Includes 499,030 shares subject to stock options exercisable within 60 days
of July 31, 1997, 64,750 shares held of record by the Stephanie Ann Moore
Irrevocable Trust and 64,750 shares held of record by the Donavan Vincent
Rossi Irrevocable Trust.

(22) Includes 29,750 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(23) Includes 12,600 shares held by Mr. Foos' wife and 331,170 shares subject to
stock options exercisable within 60 days of July 31, 1997.

(24) Includes 1,750 shares held by Mr. Iiams' daughter and 476,630 shares
subject to stock options exercisable within 60 days of July 31, 1997.

(25) Includes 274,960 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(26) Includes 113,960 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(27) Includes 499,030 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(28) Includes 50,400 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(29) Includes 9,800 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(30) Includes 50,400 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(31) Includes 43,120 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(32) Includes 66,220 shares subject to stock options exercisable within 60 days
of July 31, 1997.

(33) Includes 14,070 shares subject to stock options exercisable within 60 days
of July 31, 1997.

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<PAGE> 62

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, the authorized capital stock of the
Company will consist of 300,000,000 shares of Common Stock, $0.001 par value,
and 5,000,000 shares of Preferred Stock, $0.001 par value.

COMMON STOCK

As of July 31, 1997, there were 79,184,910 shares of Common Stock
outstanding, held of record by 120 stockholders. The holders of Common Stock are
entitled to one vote per share on all matters to be voted upon by the
stockholders. Holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board out of funds legally available
therefor, subject to any preferences that may be applicable to any outstanding
Preferred Stock. See "Dividend Policy." In the event of liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to any
prior liquidation rights of any outstanding Preferred Stock. The Common Stock
has no preemptive, subscription or conversion rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All the outstanding
shares of Common Stock are, and the shares of Common Stock offered hereby will
be, when issued, fully paid and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, 5,000,000 shares of Preferred Stock will
be authorized and no shares will be outstanding. The Board has the authority,
without any further vote or action by the stockholders, to issue 5,000,000
shares of Preferred Stock in one or more series and to fix the price, powers,
designations, preferences and relative, participating, optional or other rights
thereof, including dividend rights, conversion rights, voting rights, redemption
terms, liquidation preferences and the number of shares constituting any series
and the designations of such series. The issuance of Preferred Stock in certain
circumstances may have the effect of delaying, deferring or preventing a change
of control of the Company without further action by the stockholders, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of, and the
voting and other rights of, the holders of Common Stock. The Company has no
present plans to issue any shares of Preferred Stock.

ANTITAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS

The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition involving the interested stockholder
of 10% or more of the assets of the corporation; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the

61
<PAGE> 63

proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.

The Company's Amended and Restated Certificate of Incorporation provides
that, upon the effective date of this offering, the Company's Board of Directors
will be classified into three classes of directors. See "Management -- Board of
Directors." In addition, the Company's Bylaws will not permit stockholders of
the Company to call a special meeting of stockholders. Only the Company's Board
of Directors, Chairman of the Board or President may call a special meeting of
stockholders.

These and other provisions could have the effect of making it more
difficult to acquire the Company by means of a tender offer, proxy contest or
otherwise or to remove the incumbent officers and directors of the Company.
These provisions may discourage certain types of coercive takeover practices and
encourage persons seeking to acquire control of the Company to first negotiate
with the Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is Harris
Trust Company of California.

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<PAGE> 64

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.

Upon completion of this offering (based on shares outstanding at July 31,
1997), the Company will have outstanding an aggregate of 91,684,910 shares of
Common Stock, assuming no exercise of the Underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the 15,800,000 shares
sold in this offering will be freely tradeable without restriction or further
registration under the Securities Act, unless such shares are purchased by an
existing "affiliate" of the Company as that term is defined in Rule 144 under
the Securities Act (an "Affiliate"). The remaining 75,884,910 shares of Common
Stock held by existing stockholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144, 144(k) or 701 promulgated
under the Securities Act, which rules are summarized below. As a result of the
contractual restrictions described below and the provisions of Rules 144, 144(k)
and 701, additional shares will be available for sale in the public market as
follows: (i) 515,830 shares will be eligible for immediate sale on the date of
this Prospectus, (ii) 135,240 shares will be eligible for sale on December 22,
1997, 90 days after the date of this Prospectus, (iii) 75,224,600 shares will be
eligible for sale upon expiration of the lock-up agreements on March 22, 1998,
180 days after the date of this Prospectus and (iv) 9,240 shares will be
eligible for sale upon expiration of their respective one-year holding periods.
Notwithstanding the above, the Company's ESOP, in which 8,706,040 shares are
held as of the date of this Prospectus, obligates the trustees thereof to
distribute at scheduled distribution dates shares held therein to a beneficiary
following the cessation of his or her employment with the Company. The next
scheduled distribution date will not occur until March 30, 1998. Following such
distribution, the shares so distributed will be immediately available for sale
in the public market to the extent they are not held by Affiliates.

All officers and directors and certain stockholders and option holders of
the Company have agreed not to offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer, lend or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or enter into
any swap or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock for a period
of 180 days after the date of this Prospectus, without the prior written consent
of Morgan Stanley & Co. Incorporated, subject to certain limited exceptions.
Morgan Stanley & Co. Incorporated currently has no plans to release any portion
of the securities subject to lock-up agreements. When determining whether or not
to release shares from the lock-up agreements, Morgan Stanley & Co. Incorporated
will consider, among other factors, the stockholder's reasons for requesting the
release, the number of shares for which the release is being requested and
market conditions at the time.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 916,849 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an Affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of

63
<PAGE> 65

any prior owner except an Affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Accordingly, unless otherwise restricted, "144(k)
shares" may therefore be sold immediately upon the completion of this offering.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the SEC has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of this offering).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this Prospectus, may be sold (i) by persons other than Affiliates,
subject only to the manner of sale provisions of Rule 144 and (ii) by
Affiliates, under Rule 144 without compliance with its one-year minimum holding
period requirements.

The Company has agreed not to offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer, lend or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or enter into
any swap or similar agreement that transfers, in whole or in part, the economic
risk of ownership of the Common Stock, for a period of 180 days after the date
of this Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated, subject to certain limited exceptions.

Following the offering, the Company intends to file registration statements
under the Securities Act covering approximately 34,321,540 shares of Common
Stock issued and outstanding, subject to outstanding options or reserved for
issuance under the Company's stock plans. See "Management -- Employee Benefit
Plans." Accordingly, shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to Affiliates, be available
for sale in the open market, except to the extent that such shares are subject
to vesting restrictions with the Company or the contractual restrictions
described above.

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<PAGE> 66

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK

The following discussion concerns the material United States federal income
tax consequences of the ownership and disposition of shares of Common Stock
applicable to Non-U.S. Holders of such shares of Common Stock. In general, a
"Non-U.S. Holder" is any holder other than (i) a citizen or an individual
considered under the United States tax laws to be a resident of the United
States, (ii) a corporation or partnership created or organized in the United
States or under the laws of the United States or any State, (iii) an estate
whose income is includible in gross income for United States federal income tax
purposes regardless of its source or (iv) a trust for which a court within the
United States is able to exercise primary supervision over the administration of
the trust, and for which one or more United States fiduciaries has the authority
to control all substantial decisions of the trust. The discussion is based on
current law, which is subject to change retroactively or prospectively, and is
for general information only. The discussion does not address all aspects of
federal income taxation and does not address any aspects of federal estate
taxation or of state, local or foreign tax laws. The discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder (including the fact that in the case of a Non-U.S. Holder that
is a partnership, the United States tax consequences of holding and disposing of
shares of Common Stock may be affected by certain determinations made at the
partner level). Accordingly, prospective investors are urged to consult their
tax advisors regarding the United States federal, state, local and non-U.S.
income, estate and other tax consequences of holding and disposing of shares of
Common Stock.

Dividends. Dividends, if any (see "Dividend Policy"), paid to a Non-U.S.
Holder generally will be subject to United States withholding tax at a 30% rate
(or a lower rate as may be prescribed by an applicable tax treaty) unless the
dividends are effectively connected with a trade or business of the Non-U.S.
Holder within the United States. Dividends effectively connected with a trade or
business will generally not be subject to withholding (if the Non-U.S. Holder
complies with applicable United States Internal Revenue Service ("IRS")
reporting requirements) and generally will be subject to United States federal
income tax on a net income basis at regular graduated rates. In the case of a
Non-U.S. Holder which is a corporation, such effectively connected income also
may be subject to the branch profits tax (which is generally imposed on a
foreign corporation on the repatriation from the United States of effectively
connected earnings and profits) at a 30% rate or, if available, a lower treaty
rate. Under current U.S. Treasury regulations, dividends paid to an address
outside the United States in a foreign country are presumed to be paid to a
resident of such country for purposes of the withholding tax. Under current
interpretations of U.S. Treasury regulations, the same presumption applies to
determine the applicability of a reduced rate of withholding under a tax treaty.
Thus, non-U.S. holders receiving dividends at addresses outside the United
States are not currently required to file tax forms to obtain the benefit of an
applicable treaty rate. Under U.S. Treasury regulations that are proposed to be
effective for distributions after 1997 (the "Proposed Regulations"), to claim
the benefits of a tax treaty a non-U.S. holder of Common Stock would be required
to satisfy applicable certification requirements. In addition, under the
Proposed Regulations, in the case of Common Stock held by a foreign partnership,
(x) the certification requirement would generally be applied to the partners of
the partnership and (y) the partnership would be required to provide certain
information. The Proposed Regulations also provide look-through rules for tiered
partnerships as well as rules for payments to so-called "hybrid entities." It is
not certain whether, or in what form, the Proposed Regulations will be adopted
as final regulations.

Sale of Common Stock. Generally, a Non-U.S. Holder will not be subject to
United States federal income tax on any gain realized upon the disposition of
such holder's shares of Common Stock unless (i) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder with the
United States (in which case the branch profits tax may also apply); (ii) the
Non-U.S. Holder is an individual who holds the shares of Common Stock as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition and to whom such gain is United States source;
(iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain former United States citizens or residents; or
(iv) the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes (which the Company does not believe that it is or is
likely to become) at any time during the five year period ending on the date of
disposition (or such shorter period that such shares were held).

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<PAGE> 67

BACKUP WITHHOLDING AND INFORMATION REPORTING

Dividends. The Company must report annually to the IRS and to each Non-U.S.
Holder the amount of dividends paid to and the tax withheld, if any, with
respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced by an applicable tax treaty.
Copies of these information returns may also be available under the provisions
of a specific treaty or agreement with the tax authorities in the country in
which the Non-U.S. Holder resides. Dividends that are subject to United States
withholding tax at the 30% statutory rate or at a reduced tax treaty rate and
dividends that are effectively connected with the conduct of a trade or business
in the United States (if certain certification and disclosure requirements are
met) are exempt from backup withholding of U.S. federal income tax. In general,
backup withholding at a rate of 31% and information reporting will apply to
other dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and fail to provide in the manner required certain identifying
information (such as the holder's name, address and taxpayer identification
number). Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients.

Disposition of Common Stock. The payment of the proceeds from the
disposition of shares of Common Stock through the United States office of a
broker will be subject to information reporting and backup withholding unless
the holder, under penalties of perjury, certifies, among other things, its
status as a Non-U.S. Holder, or otherwise establishes an exemption. Generally,
the payment of the proceeds from the disposition of shares of Common Stock to or
through a non-U.S. office of a broker will not be subject to backup withholding
and will not be subject to information reporting. In the case of the payment of
proceeds from the disposition of shares of Common Stock through a non-U.S.
office of a broker that is a U.S. person or a "U.S.-related person," existing
regulations require information reporting (but not backup withholding) on the
payment unless the broker receives a statement from the owner, signed under
penalties of perjury, certifying, among other things, its status as a Non-U.S.
Holder, or the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder, the broker has no actual knowledge to the contrary and certain
other requirements are satisfied. For tax purpose, a "U.S.-related person" is
(i) a "controlled foreign corporation" for United States federal income tax
purposes or (ii) a foreign person 50% or more of whose gross income from all
sources for the three year period ending with the close of its taxable year
preceding the payment (or for such part of the period that the broker has been
in existence) is derived form activities that are effectively connected with the
conduct of a United States trade or business.

Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the IRS. Non-U.S. Holders
should consult their tax advisors regarding the application of these rules to
their particular situations, the availability of an exemption therefrom and the
procedures for obtaining such an exemption, if available.

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<PAGE> 68

UNDERWRITERS

Under the terms and subject to the conditions in an Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the U.S. Underwriters
named below for whom Morgan Stanley & Co. Incorporated, Deutsche Morgan Grenfell
Inc. and Robertson, Stephens & Company LLC are acting as U.S. Representatives,
and the International Underwriters named below for whom Morgan Stanley & Co.
International Limited, Morgan Grenfell & Co. Limited and Robertson, Stephens &
Company LLC are acting as International Representatives, have severally agreed
to purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite the names of such
Underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
--------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated............................ 2,533,334
Deutsche Morgan Grenfell Inc................................. 2,533,333
Robertson, Stephens & Company LLC............................ 2,533,333
William Blair & Company, L.L.C............................... 300,000
Cowen & Company.............................................. 300,000
Dain Bosworth Incorporated................................... 300,000
A.G. Edwards & Sons, Inc..................................... 600,000
Furman Selz LLC.............................................. 300,000
Goldman, Sachs & Co.......................................... 600,000
Hanifen, Imhoff Inc.......................................... 300,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated........... 600,000
Montgomery Securities........................................ 600,000
Piper Jaffray Inc............................................ 300,000
Soundview Financial Group Inc................................ 300,000
UBS Securities LLC........................................... 600,000
----------
Subtotal.................................................. 12,700,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited................... 1,033,334
Morgan Grenfell & Co. Limited................................ 1,033,333
Robertson, Stephens & Company LLC............................ 1,033,333
----------
Subtotal.................................................. 3,100,000
----------
Total................................................ 15,800,000
=========
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S.

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<PAGE> 69

Underwriter and an International Underwriter, the foregoing representations and
agreements (i) made by it in its capacity as a U.S. Underwriter apply only to it
in its capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."

Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer

68
<PAGE> 70

or sell, any of such Shares, directly or indirectly, in Japan or to or for the
account of any resident thereof except for offers or sales to Japanese
International Underwriters or dealers and except pursuant to any exemption from
the registration requirements of the Securities and Exchange Law and otherwise
in compliance with applicable provisions of Japanese law, and that such dealer
will send to any other dealer to whom it sells any of such Shares a notice
containing substantially the same statement as is contained in this sentence.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $.70 a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $.10 a
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.

The Company and certain Selling Shareholders have granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 2,370,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as the number set
forth next to such U.S. Underwriter's name in the preceding table bears to the
total number of shares of Common Stock set forth next to the names of all U.S.
Underwriters in the preceding table.

The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.

The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "JDEC."

Each of the Company and the directors, executive officers and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not
during the period ending March 22, 1998, 180 days after the date of this
Prospectus (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer, lend or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, except under
certain limited circumstances.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time. The Underwriters and dealers may engage
in passive market making transactions in the Common Stock in accordance with
Rule 103 of Regulation M promulgated by the SEC. In general, a passive market
maker may not bid for, or purchase, the Common Stock at a price that exceeds the
highest independent bid. In addition, the net daily purchases made by any
passive market maker generally may not exceed 30% of its average daily trading
volume in the

69
<PAGE> 71

Common Stock during a specified two month prior period, or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price was determined by negotiations between
the Company, the Selling Stockholders and the U.S. Representatives. Among the
factors considered in determining the initial public offering price were the
future prospects of the Company and its industry in general, sales, earnings and
certain other financial operating information of the Company in recent periods,
and the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of the Company.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain matters will be passed
upon for the Underwriters by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, Menlo Park, California.

EXPERTS

The consolidated financial statements and financial statement schedule of
J.D. Edwards & Company as of October 31, 1995, October 31, 1996 and July 31,
1997 and for the years ended October 31, 1994, 1995 and 1996 and the nine months
ended July 31, 1997, included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.

CHANGE IN ACCOUNTANTS

Effective May 1995, Price Waterhouse LLP was engaged as the Company's
independent accountants and replaced Arthur Andersen LLP who were dismissed as
the Company's independent accountants. The decision to change independent
accountants was approved by the Company's Board of Directors. In the period from
November 1, 1991 to May 1995, Arthur Andersen LLP issued no audit report which
was qualified or modified as to uncertainty, audit scope or accounting
principles, no adverse opinions or disclaimers of opinion on any of the
Company's financial statements, and there were no disagreements with Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures. Arthur Andersen LLP has
not audited or reported on any of the financial statements or information
included in this Prospectus. Prior to May 1995, the Company had not consulted
with Price Waterhouse LLP on items which involved the Company's accounting
principles or the form of audit opinion to be issued on the Company's financial
statements.

70
<PAGE> 72

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement (of which this
Prospectus is a part and which term shall encompass any amendments thereto) on
Form S-1 pursuant to the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
of which are omitted as permitted by the rules and regulations of the SEC.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to any
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matters involved, and each such statement shall be deemed
qualified in its entirety by such reference.

Upon completion of this offering, the Company will be subject to the
information requirements of the Exchange Act, and, in accordance therewith, will
file reports and other information with the SEC. The Registration Statement, the
exhibits and schedules forming a part thereof and the report and other
information filed by the Company with the SEC in accordance with the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, 13th Floor, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may also be accessed electronically by
means of the SEC's home page on the Internet at http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to make available quarterly reports
containing unaudited summary financial information for the first three fiscal
quarters of each fiscal year.

71
<PAGE> 73

(This page intentionally left blank)
<PAGE> 74

J.D. EDWARDS & COMPANY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Income..................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 75

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
J. D. Edwards & Company

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of J.D. Edwards & Company and its subsidiaries at October 31,
1995 and 1996, and July 31, 1997 and the results of their operations and their
cash flows for each of the three years in the period ended October 31, 1996, and
the nine months ended July 31, 1997 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 audits 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.

PRICE WATERHOUSE LLP

Boulder, Colorado
August 22, 1997

F-2
<PAGE> 76

J.D. EDWARDS & COMPANY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
OCTOBER 31, STOCKHOLDERS'
------------------- JULY 31, EQUITY
1995 1996 1997 JULY 31,
-------- -------- ----------- 1997
--------------
(NOTE 1)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 34,897 $ 25,554 $ 38,649
Accounts receivable, net of allowance for
doubtful accounts of $5,700, $5,600 and
$6,700 at October 31, 1995 and 1996 and July
31, 1997, respectively....................... 85,136 120,736 167,916
Prepaid and other current assets................ 4,192 13,172 5,268
Current portion of deferred income taxes........ 7,729 7,122 8,510
-------- -------- --------
Total current assets.................... 131,954 166,584 220,343
Property and equipment, net....................... 28,507 51,355 53,931
Software development costs, net................... 10,905 15,657 13,582
Non-current portion of deferred income taxes...... 1,819 4,282 7,283
Deposits and other assets......................... 2,006 5,908 5,800
-------- -------- --------
$175,191 $243,786 $ 300,939
======== ======== ========

LIABILITIES, MANDATORILY REDEEMABLE SHARES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable................................ $ 20,386 $ 32,321 $ 25,818
Unearned revenue and customer deposits.......... 35,206 44,327 79,492
Accrued liabilities............................. 54,629 69,367 79,424
-------- -------- --------
Total current liabilities............... 110,221 146,015 184,734
Unearned revenue, net of current portion, and
other noncurrent liabilities.................... 22,025 27,845 32,429
-------- -------- --------
Total liabilities....................... 132,246 173,860 217,163
-------- -------- --------
Commitments and contingencies (Notes 5 and 8)..... -- -- --
Mandatorily redeemable shares, at redemption
value........................................... 19,973 47,024 99,076 $ --
-------- -------- -------- --------
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 5,000,000
shares authorized; none outstanding.......... -- -- -- --
Common stock, $.001 par value; 300,000,000
shares authorized; 79,038,820 and 79,093,070
issued and outstanding as of October 31, 1995
and 1996, respectively, and 79,184,910 issued
and outstanding as of July 31, 1997 actual
and pro forma................................ 79 79 79 79
Additional paid-in capital...................... 3,593 3,669 4,780 22,763
Retained earnings............................... 39,302 65,628 80,026 80,026
Cumulative translation adjustments and other,
net.......................................... (29) 550 (1,109) (1,109)
Adjustment for mandatorily redeemable shares.... (19,973) (47,024) (99,076) --
-------- -------- -------- --------
Total stockholders' equity (deficit).... 22,972 22,902 (15,300) $101,759
-------- -------- -------- --------
$175,191 $243,786 $ 300,939
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 77

J.D. EDWARDS & COMPANY

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY
YEAR ENDED OCTOBER 31, 31,
------------------------------ ----------------------
1994 1995 1996 1997
-------- -------- -------- 1996 --------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License fees............................. $107,561 $134,138 $180,366 $ 110,498 $151,046
Services................................. 133,026 206,628 297,682 213,285 280,163
-------- -------- -------- ----------- --------
Total revenue.................... 240,587 340,766 478,048 323,783 431,209
-------- -------- -------- ----------- --------
Costs and expenses:
Cost of license fees..................... 12,832 18,461 27,443 19,797 24,984
Cost of services......................... 87,826 128,144 184,846 133,173 173,612
Sales and marketing...................... 76,169 102,310 128,759 90,837 118,616
General and administrative............... 27,377 38,677 53,052 37,119 48,439
Research and development................. 18,936 24,296 40,321 27,828 41,100
-------- -------- -------- ----------- --------
Total costs and expenses......... 223,140 311,888 434,421 308,754 406,751
-------- -------- -------- ----------- --------
Operating income........................... 17,447 28,878 43,627 15,029 24,458
Other income (expense):
Interest income.......................... 483 1,697 629 442 383
Interest expense......................... (101) (576) (899) (725) (586)
Foreign currency losses and other, net... (486) (411) (1,403) (759) (1,310)
-------- -------- -------- ----------- --------
Income before income taxes................. 17,343 29,588 41,954 13,987 22,945
Provision for income taxes............... 5,280 11,379 15,628 5,315 8,547
-------- -------- -------- ----------- --------
Net income................................. $ 12,063 $ 18,209 $ 26,326 $ 8,672 $ 14,398
======== ======== ======== ========= ========
Earnings per common share.................. $ 0.15 $ 0.22 $ 0.30 $ 0.10 $ 0.15
======== ======== ======== ========= ========
Weighted average common shares
outstanding.............................. 82,253 82,504 87,667 87,456 95,291
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 78

J.D. EDWARDS & COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMMON STOCK
(INCLUDING ADJUSTMENT
MANDATORILY FOR
REDEEMABLE SHARES) ADDITIONAL MANDATORILY
------------------- PAID-IN RETAINED REDEEMABLE
SHARES AMOUNT CAPITAL EARNINGS OTHER SHARES
---------- ------ ---------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1993.............................. 81,053,140 $ 81 $ 6,445 $ 9,030 $(1,301) $ (12,441)
Purchase of common stock............................... (568,610) -- (255) -- -- --
Shares issued to ESOP.................................. 608,230 -- 1,640 -- -- (1,640)
Increase in share redemption value of mandatorily
redeemable ESOP shares............................... -- -- -- -- -- (209)
Net income............................................. -- -- -- 12,063 -- --
Change in cumulative translation adjustment and other,
net.................................................. -- -- -- -- 199 --
---------- ------ ---------- -------- ------- -----------
Balance, October 31, 1994.............................. 81,092,760 81 7,830 21,093 (1,102) (14,290)
Purchase of common stock............................... (2,706,690) (3) (6,450) -- -- --
Shares issued to ESOP.................................. 647,570 1 2,200 -- -- (2,201)
Increase in share redemption value of mandatorily
redeemable ESOP shares............................... -- -- -- -- -- (3,682)
Purchase of founders' stock by ESOP.................... -- -- -- -- -- 200
Net income............................................. -- -- -- 18,209 -- --
Change in cumulative translation adjustment and other,
net.................................................. 5,180 -- 13 -- 1,073 --
---------- ------ ---------- -------- ------- -----------
Balance, October 31, 1995.............................. 79,038,820 79 3,593 39,302 (29) (19,973)
Purchase of common stock............................... (25,200) -- (152) -- -- 152
Increase in share redemption value of mandatorily
redeemable ESOP shares............................... -- -- -- -- -- (23,903)
Increase in founders' stock purchase obligation........ -- -- -- -- -- (3,300)
Stock option exercises................................. 79,450 -- 228 -- -- --
Net income............................................. -- -- -- 26,326 -- --
Change in cumulative translation adjustment and other,
net.................................................. -- -- -- -- 579 --
---------- ------ ---------- -------- ------- -----------
Balance, October 31, 1996.............................. 79,093,070 79 3,669 65,628 550 (47,024)
Increase in share redemption value of mandatorily
redeemable ESOP shares............................... -- -- -- -- -- (52,052)
Stock option exercises................................. 91,840 -- 306 -- -- --
Net income............................................. -- -- -- 14,398 -- --
Change in cumulative translation adjustment and other,
net.................................................. -- -- 805 -- (1,659) --
---------- ------ ---------- -------- ------- -----------
Balance, July 31, 1997................................. 79,184,910 $ 79 $ 4,780 $80,026 $(1,109) $ (99,076)
========== ======= ========= ======== ======== ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 79

J.D. EDWARDS & COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED OCTOBER 31, JULY 31,
------------------------------ -------------------
1994 1995 1996 1997
-------- -------- -------- 1996 --------
--------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................. $ 12,063 $ 18,209 $ 26,326 $ 8,672 $ 14,398
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.............................. 6,143 7,978 13,166 9,979 11,363
Amortization of software development
costs.................................. 2,139 2,193 2,568 1,865 4,319
Provision for deferred income taxes....... (4,840) (3,588) (1,854) 1,298 (4,389)
Other..................................... 38 1,195 2,216 1,530 884
Changes in operating assets and liabilities:
Accounts receivable, net.................. (15,228) (21,365) (35,975) (17,004) (48,752)
Prepaid and other current assets.......... (1,307) 2,886 (2,065) (5,860) 380
Accounts payable.......................... 3,917 5,480 12,138 6,403 (6,091)
Unearned revenue and customer deposits.... 11,142 13,313 13,655 21,224 41,072
Accrued liabilities....................... 13,170 15,039 12,185 (6,235) 10,251
-------- -------- -------- -------- --------
Net cash from operating
activities...................... 27,237 41,340 42,360 21,872 23,435
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment.......... (8,837) (19,454) (41,135) (36,262) (16,174)
Proceeds from sale of assets................ -- -- -- -- 8,590
Capitalized software development costs...... (2,103) (9,763) (7,320) (5,807) (2,244)
Other....................................... -- -- (2,695) (2,695) --
-------- -------- -------- -------- --------
Net cash used for investing
activities...................... (10,940) (29,217) (51,150) (44,764) (9,828)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from bank line of credit........... 3,000 -- 85,100 57,050 81,950
Repayment of bank line of credit............ (3,000) -- (85,100) (56,150) (81,950)
Purchase of common stock.................... (136) (6,452) (152) -- --
Other....................................... (205) 514 83 (274) 306
-------- -------- -------- -------- --------
Net cash provided by (used for)
financing activities............ (341) (5,938) (69) 626 306
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash..... 23 97 (484) (462) (818)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 15,979 6,282 (9,343) (22,728) 13,095
Cash and cash equivalents at beginning of
period.................................... 12,636 28,615 34,897 34,897 25,554
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
period.................................... $ 28,615 $ 34,897 $ 25,554 $ 12,169 $ 38,649
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF OTHER CASH AND
NON-CASH INVESTING AND FINANCING
TRANSACTIONS
Interest paid............................. $ 94 $ 576 $ 899 $ 725 $ 586
Income taxes paid......................... 5,532 13,452 8,061 5,982 20,735
ESOP contribution funded with common
stock.................................. 1,640 2,201 -- -- --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 80

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operation

J. D. Edwards & Company and Subsidiaries (the "Company") develops, markets
and supports highly functional Enterprise Resource Planning ("ERP") software
solutions that operate on multiple computing platforms and are designed to
accelerate customers' time to benefit, lower customers' cost of ownership and
reduce information systems risks arising from changes in technology and business
practices. The Company's integrated software application suites support
manufacturing, finance, distribution/logistics and human resources operations
for multi-site and multinational organizations. The Company provides
implementation, training and support services designed to enable customers to
rapidly achieve the benefits of the Company's ERP solutions. The Company has
developed and marketed ERP solutions for over 20 years, principally for
operation on AS/400 and other IBM mid-range systems and, more recently, on
leading UNIX and Windows NT servers through Windows- and Internet
browser-enabled desktop clients. The Company operates primarily in the United
States, Canada, Europe, Asia, Latin America and Africa.

Principles of Consolidation and Basis of Presentation

The accounts of the Company have been consolidated. All intercompany
accounts and transactions have been eliminated. The consolidated financial
statements are stated in United States dollars and are prepared under United
States generally accepted accounting principles.

Reincorporation and Stock Split

In August 1997, the Company reincorporated in Delaware. In connection
therewith, the Company effected a 70-for-one stock split with 300.0 million
authorized shares of $.001 par value common stock and 5.0 million authorized
shares of $.001 par value preferred stock. All references in the consolidated
financial statements to shares, share prices, and per share amounts have been
adjusted retroactively for all periods presented.

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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with the provisions of
Statement of Position 91-1, "Software Revenue Recognition." The Company licenses
software under non-cancelable license agreements and provides related services,
including support, training, consulting and implementation. Training, consulting
and implementation services are not essential to the functionality of the
Company's software products, are separately priced and are available from a
number of suppliers. Accordingly, revenue from these services is recorded
separately from the license fee. License fee revenue is recognized when a
non-cancelable license agreement has been signed, the product has been
delivered, collection is probable and all significant contractual obligations
relating to this license have been satisfied. Revenue on all software license
transactions in which there are significant outstanding obligations is deferred
and recognized once such obligations are fulfilled. Typically, the Company's
software licenses do not include significant post-delivery obligations to be
fulfilled by the Company and payments are due within a twelve-month period from
date of delivery. Where software license contracts call for payment terms in
excess of twelve months from date of delivery, revenue is

F-7
<PAGE> 81

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognized as payments become due and all other conditions for revenue
recognition have been satisfied. Revenue from training, consulting and
implementation services is recognized as services are performed. Revenue from
agreements for supporting and providing periodic upgrades to the licensed
software is recorded as deferred revenue and is recognized ratably over the
support service period, and includes a portion of the related license fee equal
to the fair value of any bundled support services. The Company does not require
collateral for its receivables and reserves are maintained for potential losses.

Software Research and Development Costs

The Company capitalizes internally developed software costs in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization of development costs of software products begins once the
technological feasibility of the product is established. Based on the Company's
product development process, technological feasibility is established upon
completion of a detailed program design. Capitalization ceases when such
software is ready for general release, at which time amortization of the
capitalized costs begins.

Amortization of capitalized internally developed software costs is computed
as the greater of: (a) the amount determined by ratio of the product's current
revenue to its total expected future revenue or (b) the straight-line method
over the product's estimated useful life of three years. During all periods
presented herein, the Company has used the straight-line method to amortize such
capitalized costs.

Research and development costs relating principally to the design and
development of products (exclusive of costs capitalized under SFAS No. 86) are
expensed as incurred. The cost of developing routine enhancements are expensed
as research and development costs as incurred because of the short time between
the determination of technological feasibility and the date of general release
of related products.

Foreign Currency Translation

The functional currency of each subsidiary is the local currency.
Translation of balance sheet amounts to U.S. dollars is based on exchange rates
as of each balance sheet date. Income statement and cash flow statement amounts
are translated at the average exchange rates for the period. Cumulative currency
translation adjustments, net of related deferred taxes, are presented in a
separate component of stockholders' equity (deficit). Transaction gains and
losses and unrealized gains and losses on short-term intercompany receivables
and payables are included in income as incurred.

Cash and Cash Equivalents

All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. All cash equivalents are
carried at cost, which approximates fair value.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash investments and trade
receivables. The Company has cash investment policies that limit investments to
investment grade securities. The Company believes the risk with respect to trade
receivables is mitigated, to some extent, by the fact that the Company's
customer base is widespread geographically and is highly diversified. No single
customer accounted for ten percent or more of revenue for fiscal 1994, 1995 or
1996 or for the nine months ended July 31, 1997, or of accounts receivable at
October 31, 1995 or 1996 or at July 31, 1997.

F-8
<PAGE> 82

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including cash
and accounts receivable and payable, approximate their fair values.

Property and Equipment

Property and equipment are stated at cost and are depreciated over their
estimated useful lives using the straight-line method. The estimated useful
lives are as follows:

<TABLE>
<S> <C>
Furniture and fixtures................................... 5-7 years
Computer equipment....................................... 3 years
</TABLE>

Stock-based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in
October 1995. This accounting standard permits the use of either a fair value
based method or the method defined in Accounting Principles Board Opinion 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") to account for
stock-based compensation arrangements. Companies that elect to use the method
provided in APB No. 25 are required to disclose the pro forma net income and
earnings per share that would have resulted from the use of the fair value based
method. The Company has elected to continue to determine the value of
stock-based compensation arrangements under the provisions of APB No. 25, and
accordingly, it has included the pro forma disclosures required under SFAS No.
123 in Note 7.

Income Taxes

Deferred tax assets and liabilities are recorded for the estimated future
tax effects of temporary differences between the tax bases of assets and
liabilities and amounts reported in the accompanying consolidated balance
sheets, as well as operating loss and tax credit carryforwards. Deferred tax
assets may be reduced by a valuation allowance if current evidence indicates
that it is considered likely that these benefits will not be realized.

Earnings Per Common Share

Earnings per common share ("EPS") are computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares consist of stock options, and the weighted average
shares outstanding for each period have been adjusted to include all common
shares issuable under stock options using the treasury stock method. Pursuant to
the Securities and Exchange Commission Staff Accounting Bulletin No. 83, such
computations include all common and common equivalent shares issued within the
twelve months preceding the initial filing date of the Company's Registration
Statement as if they were outstanding for all periods presented, using the
treasury stock method and an assumed initial public offering price. All shares
owned by the J.D. Edwards & Company Employee Stock Ownership Plan (the "ESOP")
are included in the weighted average common shares outstanding.

F-9
<PAGE> 83

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SFAS No. 128, "Earnings per Share," was issued in February of 1997. The
Company will be required to apply this statement in its consolidated financial
statements for fiscal 1998. This pronouncement establishes new standards for
computing and presenting EPS on a basis that is more comparable to international
standards and provides for the presentation of basic and diluted EPS, replacing
the currently required primary and fully-diluted EPS. The basic EPS will be
computed by dividing net income by the weighted average number of shares
outstanding during the period. Diluted EPS will be computed in a manner similar
to the current method for calculating fully-diluted EPS. Prior period EPS will
be restated to conform with the new statement. The pro forma effect of applying
SFAS No. 128 on the Company's historical consolidated financial statements is as
follows (in thousands, except per share data):

<TABLE>
<CAPTION>
NINE MONTHS ENDED JULY
YEAR ENDED OCTOBER 31, 31,
-------------------------- ----------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
EPS AS REPORTED
Primary EPS................................. $ 0.15 $ 0.22 $ 0.30 $ 0.10 $ 0.15
Weighted average common shares
outstanding.............................. 82,253 82,504 87,667 87,456 95,291
PRO FORMA EPS
Basic EPS Computation:
Basic EPS................................ $ 0.15 $ 0.23 $ 0.33 $ 0.11 $ 0.18
Weighted average common shares
outstanding............................ 80,872 79,139 79,044 79,046 79,120
Diluted EPS Computation:
Diluted EPS.............................. $ 0.15 $ 0.22 $ 0.30 $ 0.10 $ 0.15
Weighted average common shares
outstanding assuming dilution.......... 82,253 82,504 87,667 87,456 95,291
</TABLE>

Unaudited Pro Forma Stockholders' Equity

The Board of Directors has authorized management of the Company to file a
registration statement with the Securities and Exchange Commission ("SEC")
permitting the Company to sell shares of its common stock to the public. If the
Company's initial public offering ("IPO") is consummated under the terms
presently anticipated, the mandatory redemption feature of the mandatorily
redeemable shares will be removed and restrictions on certain of the Company's
outstanding Common Stock will lapse, resulting in income tax benefits to the
Company. Such benefits will arise from tax deductions available to the Company
upon the lapse of the stock restrictions. Because these tax deductions did not
result from any corresponding charges to income for financial statement
purposes, the tax benefit will be credited to additional paid-in capital in
accordance with SFAS No. 109, "Accounting for Income Taxes." Unaudited pro forma
stockholders' equity as of July 31, 1997, as set forth on the accompanying
consolidated balance sheets, is adjusted for the aforementioned events based on
an assumed public offering price.

Unaudited Interim Financial Statements

The accompanying interim consolidated financial statements for the nine
months ended July 31, 1996 are unaudited. In the opinion of the Company, the
unaudited interim consolidated financial statements have been prepared on the
same basis as the annual consolidated financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the results of the Company's operations and its cash flows for
the nine months ended July 31, 1996.

F-10
<PAGE> 84

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) BALANCE SHEET COMPONENTS

Certain balance sheet components are as follows (in thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
--------------------- JULY 31,
1995 1996 1997
-------- -------- -----------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Furniture and fixtures.......................... $ 24,739 $ 34,519 $ 41,265
Computer equipment.............................. 22,589 30,469 36,255
Land............................................ -- 16,321 16,418
-------- -------- -----------
47,328 81,309 93,938
Less: accumulated depreciation.................. (18,821) (29,954) (40,007)
-------- -------- -----------
$ 28,507 $ 51,355 $ 53,931
======== ======== =========
SOFTWARE DEVELOPMENT COSTS:
Software development costs...................... $ 17,072 $ 24,392 $ 26,636
Less: accumulated amortization.................. (6,167) (8,735) (13,054)
-------- -------- -----------
$ 10,905 $ 15,657 $ 13,582
======== ======== =========
ACCRUED LIABILITIES:
Accrued compensation and related expenses....... $ 34,893 $ 36,462 $ 50,610
Income taxes payable............................ 5,044 13,869 7,556
Other accrued expenses.......................... 14,692 19,036 21,258
-------- -------- -----------
$ 54,629 $ 69,367 $ 79,424
======== ======== =========
</TABLE>

(3) BANK LINE OF CREDIT

The Company has a $50 million, unsecured, revolving line of credit (the
"Revolver") with a syndication of banks. The Revolver expires on July 31, 1999.
Borrowings under the Revolver are for working capital requirements and other
general corporate purposes and bear interest up to the bank's prime rate plus
.50% or LIBOR plus 1.75% at the option of the Company. The credit agreement
associated with the Revolver requires that the Company remain in compliance with
certain affirmative and negative covenants and representations and warranties.
The financial covenants include liquidity, leverage, and coverage ratios,
capital expenditure limitations and profitability requirements. Non-financial
covenants include, but are not limited to, certain restrictions on additional
indebtedness, contingent liabilities, mergers and acquisitions and investments.
At October 31, 1995 and 1996 and July 31, 1997, the Company was in full
compliance with all covenants under the credit agreement in place at the time.
There were no borrowings outstanding under any credit agreement at October 31,
1995 and 1996 and July 31, 1997.

(4) ESOP AND ESOP MANDATORILY REDEEMABLE SHARES

Effective January 1, 1989, the Company established the ESOP, subject to the
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The
Company makes discretionary contributions of cash and/or shares of common stock
of the Company to the ESOP trust fund. The trust fund is maintained in the form
of individual participant accounts that vest over a seven-year period.
Allocations to these accounts are made on the basis of each participant's
proportionate share of total compensation paid by the Company to all ESOP
participants. At the discretion of the Company, unvested shares forfeited by a
terminated participant may be used to offset future Company contributions to the
ESOP or may be reallocated to the remaining participants of the ESOP. With
certain limitations, Company employees in the United States who are at least 21
years old and have completed one year of service are eligible ESOP participants.

Upon termination of employment, a participant may elect to receive a
distribution of Company common stock for shares vested or require the Company to
purchase such vested shares. In the event the Company is required to purchase
such shares from a terminating employee, the Company will purchase the vested
shares

F-11
<PAGE> 85

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

at the appraised value for the shares. The Company engages an independent
appraiser to perform an annual valuation of the Company's common stock for this
purpose.

The ESOP provides that once the Company's common stock is publicly traded,
a terminating employee will only be allowed to receive his or her vested shares
and will no longer be able to require the Company to purchase such vested
shares. In accordance with the requirements of the SEC, which provide that the
total redemption value of the ESOP shares be excluded from stockholders' equity,
the redemption value of shares held by the ESOP, based upon the last annual
valuation, has been reflected in the accompanying balance sheets as mandatorily
redeemable shares with the offsetting adjustments included as a reduction of
stockholders' equity. Upon completion of the IPO, the Company's obligation to
purchase the ESOP shares will terminate and the amount related to the
mandatorily redeemable shares will be reclassified to stockholders' equity.
Accordingly, the pro forma balance sheet presentation gives effect to the
removal of the option of terminating employees requiring the Company to purchase
such vested shares.

Compensation cost is measured as the estimated fair value of shares
contributed to or committed to be contributed to the ESOP plus the cash
contributed to or committed to be contributed to the ESOP. For the years ended
October 31, 1994, 1995 and 1996, the Company recognized as compensation cost
$3.0 million, $4.5 million and $5.9 million, respectively. For the nine months
ended July 31, 1997, the Company recognized $5.2 million as compensation cost.
The ESOP owned 5,231,450, 6,718,040, and 8,706,040 at October 31, 1995 and 1996
and July 31, 1997, respectively. All shares owned by the ESOP have been
allocated to participants.

(5) FOUNDERS' STOCK

The founders of the Company currently own or control a majority of the
Company's issued and outstanding common stock. The Company and the founders have
a shareholder agreement (the "Shareholder Agreement") whereby the Company has
agreed to purchase a limited amount of the founders' stock in the event of their
deaths. This purchase obligation is limited to proceeds of life insurance
policies owned by the Company on the lives of the founders. Under the
Shareholder Agreement, a founder may also require the Company to purchase a
limited number of shares up to an aggregate amount of $2.2 million at October
31, 1995 and $5.5 million at October 31, 1996 and July 31, 1997. This purchase
obligation is at a price equal to 40% of fair value, as determined by the
Company's Board of Directors. Additionally, if a founder proposes to sell any of
his shares, he must first offer the shares to the Company and the Company, at
its option, may purchase such shares at the lesser of fair value or the price
offered by a third party. The Company may allow the ESOP to purchase any shares
sold pursuant to the Shareholder Agreement.

In August 1997, the founders of the Company entered into an agreement which
will replace the Shareholder Agreement upon the completion of the IPO (the "New
Shareholder Agreement"). The New Shareholder Agreement has no provisions which
obligate the Company to purchase any shares of the founders' stock.

In accordance with the requirements of the SEC, the share redemption
obligations under the Shareholder Agreement were reflected in the accompanying
balance sheets as mandatorily redeemable shares with the offsetting adjustment
included as a reduction of stockholders' equity. Upon completion of the IPO, the
New Shareholder Agreement eliminates the Company's purchase obligation and the
mandatorily redeemable amount will be reclassified to stockholders' equity and,
accordingly, the pro forma balance sheet gives effect to this reclassification.

During the year ended October 31, 1995, the three founders sold 2.0 million
shares of common stock to the Company for $5.0 million under the terms of the
Shareholder Agreement.

Additionally, during the year ended October 31, 1995 one of the founders
exercised his option under the Shareholder Agreement to require the Company to
purchase 176,260 shares of common stock. The Company allowed such shares to be
purchased by the ESOP for $200,000.

F-12
<PAGE> 86

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the year ended October 31, 1996, the Company was notified of a
contractual arrangement whereby two founders would sell 3.5 million shares of
stock to certain identified third parties. Under the terms of the Shareholder
Agreement, such stock was required to be offered to the Company at the pending
sales price prior to the sale to the third parties. The Company assigned its
right-to-purchase these shares to the ESOP, which purchased the 3.5 million
shares of common stock from the founders for $10.4 million.

During the nine months ended July 31, 1997, one of the founders sold 55,440
shares of common stock to certain members of the Board of Directors and one
employee. The Company recognized as compensation expense $223,000 which
represented the difference between the sales price and the estimated fair value
of the Company's common stock on the date of the sale.

(6) INCOME TAXES

Income before income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED
----------------------------- JULY 31,
1994 1995 1996 1997
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Domestic..................................... $18,895 $27,852 $24,770 $ 8,889
Foreign...................................... (1,552) 1,736 17,184 14,056
------- ------- ------- -----------
$17,343 $29,588 $41,954 $22,945
======= ======= ======= =========
</TABLE>

Components of the provision for income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED
----------------------------- JULY 31,
1994 1995 1996 1997
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Current provision:
U.S. Federal............................... $ 6,226 $ 7,829 $ 8,737 $ 7,714
State...................................... 1,591 2,044 1,259 1,005
Foreign.................................... 2,303 5,094 7,486 4,217
------- ------- ------- -----------
10,120 14,967 17,482 12,936
------- ------- ------- -----------
Deferred provision (benefit):
U.S. Federal............................... (2,970) (1,134) (4,951) (3,734)
State...................................... (608) (425) -- (128)
Foreign.................................... (1,262) (2,029) 3,097 (527)
------- ------- ------- -----------
(4,840) (3,588) (1,854) (4,389)
------- ------- ------- -----------
Total provision for income taxes... $ 5,280 $11,379 $15,628 $ 8,547
======= ======= ======= =========
</TABLE>

F-13
<PAGE> 87

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provisions for income taxes are different from the amounts computed by
applying the federal statutory rate to income before income taxes. The amounts
are reconciled as follows (in thousands):

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED
----------------------------- JULY 31,
1994 1995 1996 1997
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Statutory rate............................... $ 6,070 $10,356 $14,684 $ 8,031
Reversal of valuation allowance for foreign
subsidiaries' loss carryforwards........... (2,352) -- -- --
Foreign income taxed at higher rates......... 1,646 1,887 3,018 1,550
Non-deductible expenses...................... 662 1,007 1,676 1,027
State income taxes, net of federal benefit... 612 1,052 818 570
Income tax credits........................... (1,593) (2,774) (3,844) (2,309)
Other........................................ 235 (149) (724) (322)
------- ------- ------- -----------
Provision for income taxes................... $ 5,280 $11,379 $15,628 $ 8,547
======= ======= ======= =========
</TABLE>

Deferred tax assets and liabilities are comprised of the following (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 31,
------------------- JULY 31,
1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Revenue deferred for book purposes................ $ 5,059 $ 6,743 $ 7,767
Foreign tax credit carryforwards.................. -- 4,639 4,639
Allowance for doubtful accounts................... 2,032 1,677 2,756
Vacation and other accruals....................... 1,796 2,412 3,604
Unrealized currency losses........................ 797 112 161
Foreign subsidiaries' loss carryforwards.......... 2,546 -- --
Foreign income currently subject to U.S. tax...... -- 1,986 1,986
Other............................................. 2,308 1,216 1,463
------- ------- -----------
Total deferred tax assets................. 14,538 18,785 22,376
------- ------- -----------
Deferred tax liabilities:
Capitalized software development costs............ (4,185) (5,503) (4,912)
Previously taxed revenue.......................... -- (1,546) (1,584)
Other............................................. (805) (332) (87)
------- ------- -----------
Total deferred tax liabilities............ (4,990) (7,381) (6,583)
------- ------- -----------
Net deferred tax asset.............................. $ 9,548 $11,404 $15,793
======= ======= =========
Current portion of deferred taxes................... $ 7,729 $ 7,122 $ 8,510
Non-current portion of deferred taxes............... 1,819 4,282 7,283
------- ------- -----------
Net deferred tax asset.............................. $ 9,548 $11,404 $15,793
======= ======= =========
</TABLE>

The Company has available approximately $4.6 million of foreign tax credit
carryforwards generated by certain foreign subsidiaries, which will expire in
2001.

At October 31, 1996 and July 31, 1997, the unremitted earnings of the
foreign subsidiaries were $7.5 million and $5.2 million, respectively. The
unrecognized deferred tax liability for such earnings is immaterial.

F-14
<PAGE> 88

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) EMPLOYEE RETIREMENT SAVINGS PLAN AND STOCK OPTIONS

Employee Retirement Savings Plan

In 1988, the Company established the J.D. Edwards & Company Retirement
Savings Plan (the "401(k) Plan") subject to the provisions of ERISA. The 401(k)
Plan is an Internal Revenue Code Section 401(k) plan, commonly known as a salary
reduction retirement plan. Employees with a minimum of six months of service are
eligible to participate in the 401(k) Plan.

The Company generally matches 50% of an employee's eligible contributions
to the 401(k) Plan, up to a maximum match of 2% of eligible compensation. Both
matching and discretionary contributions are determined in connection with the
determination of contributions to the ESOP. The Company's matching contributions
are fully vested to all participants completing 1,000 hours of service and
employed by the Company on the last day of the calendar year. Discretionary
contributions are subject to a vesting schedule based on number of years of
service with the Company. The Company recognized expense for matching
contributions of $1.1 million, $1.8 million, $200,000 and $1.6 million for
fiscal 1994, 1995 and 1996, and the nine months ended July 31, 1997,
respectively. There have been no discretionary contributions made by the Company
since the inception of the 401(k) Plan.

Stock Options

In August 1997, the Company established an Equity Incentive Plan (the "1997
Plan"). A total of 10,000,000 shares of common stock are reserved for issuance
under the 1997 Plan, which number will be increased on each anniversary date of
the adoption of the 1997 Plan, beginning in 1998, by a number of shares equal to
the number of shares needed to restore the maximum aggregate number of shares
reserved for issuance under the 1997 Plan to 10,000,000 or a lesser amount
determined by the Company's Board of Directors. The 1997 Plan provides for the
granting of incentive stock options to employees and the granting of
nonstatutory stock options and stock purchase rights to employees, directors and
consultants.

In November 1992, the Company established an Incentive Stock Option Plan
and a Nonqualified Stock Option Plan (the "1992 Option Plans"). A total of
35,000,000 shares of common stock are authorized for issuance under the 1992
Option Plans, of which 14,980,490 shares and 12,701,990 shares were available
for grant as of October 31, 1996 and July 31, 1997, respectively. The Company
does not anticipate granting additional options under the 1992 Option Plans
after completion of the IPO. Options granted vest over a period of time ranging
from four to five years with a term of not more than ten years.

The Company records compensation expense related to stock options using the
intrinsic value based method and includes a pro forma disclosure in the
footnotes for compensation value measured using the fair value accounting
treatment. Generally, stock options are granted with an exercise price equal to
the fair value at the date of grant, and accordingly no compensation expense was
recognized during fiscal 1994, 1995, or 1996. During the nine months ended July
31, 1997, the Company recorded $581,000 as deferred compensation representing
the excess of the estimated fair value of the Company's common stock over the
exercise price of such options. Such deferred compensation cost is being
amortized over the five-year vesting period of the options. Of the total amount,
$126,000 was recognized during the nine months ended July 31, 1997.

For the fair value disclosure below, compensation value is estimated for
each option grant under the 1992 Option Plans on the date of grant using a
minimum value option pricing model with the following assumptions used for
grants in fiscal 1996 and the nine months ended July 31, 1997, respectively:
risk-free rates ranging from 5.1% to 5.8% in fiscal 1996 and 5.8% to 6.1% in the
nine months ended July 31, 1997 and corresponding to government securities with
original maturities similar to the expected option lives; expected dividend
yield of 0% for both periods; and expected lives of one year beyond vest dates
for both periods.

F-15
<PAGE> 89

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Based on calculations using the minimum value option-pricing model, the
weighted-average grant date fair value of options was $1.12 and $2.36 in fiscal
1996 and the nine months ended July 31, 1997, respectively. The pro forma impact
on the Company's net income and net income per share had compensation cost been
recorded as determined under the fair value method is shown below (in thousands,
except per share data).

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
OCTOBER 31, 1996 JULY 31, 1997
---------------- -----------------
<S> <C> <C>
Net income:
As reported........................... $ 26,326 $14,398
Pro forma............................. 24,735 11,779
Net income per share:
As reported........................... 0.30 0.15
Pro forma............................. 0.28 0.13
</TABLE>

The status of total stock options outstanding and exercisable under the
1992 Option Plans as of July 31, 1997 follows:

<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING
- ------------------------------------------------------------------------
WEIGHTED AVERAGE STOCK OPTIONS EXERCISABLE
REMAINING ------------------------------
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OF SHARES LIFE (YEARS) EXERCISE PRICE OF SHARES EXERCISE PRICE
- --------------- ---------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$2.66-2.84 10,832,430 6.26 $ 2.70 7,247,170 $ 2.70
3.44 3,737,860 7.54 3.44 1,469,300 3.44
6.24 5,124,000 8.51 6.24 1,017,800 6.24
10.71-23.00 2,427,250 9.33 10.73 -- 10.73
---------- ---------
2.66-23.00 22,121,540 7.34 4.53 9,734,270 3.18
========= ========
</TABLE>

Activity of the 1992 Option Plans is summarized in the following table:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE OPTIONS EXERCISE
SHARES PRICE EXERCISABLE PRICE
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Options outstanding, October 31, 1993................. 3,675,210 $ 2.66 -- $--
Options granted..................................... 8,065,260 2.72
Less: options forfeited............................. (343,350) 2.68
----------
Options outstanding, October 31, 1994................. 11,397,120 2.70 728,910 2.66
Options granted..................................... 4,011,000 3.43
Less: options forfeited............................. (262,570) 2.86
Less: options exercised............................. (5,180) 2.69
----------
Options outstanding, October 31, 1995................. 15,140,370 2.89 3,046,750 2.70
Options granted..................................... 5,572,560 6.18
Less: options forfeited............................. (698,600) 4.01
Less: options exercised............................. (79,450) 2.87
----------
Options outstanding, October 31, 1996................. 19,934,880 3.77 5,895,960 2.79
Options granted..................................... 2,446,500 10.73
Less: options forfeited............................. (168,000) 5.89
Less: options exercised............................. (91,840) 3.34
----------
Options outstanding, July 31, 1997.................... 22,121,540 4.53 9,734,270 3.18
==========
</TABLE>

F-16
<PAGE> 90

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employee Stock Purchase Plans

In August 1997, the Company established employee stock purchase plans (the
"Employee Stock Purchase Plans") to take effect upon completion of the IPO. A
total of 2,000,000 shares of common stock have been reserved for issuance under
the Employee Stock Purchase Plans. An annual increase will be made to the
Employee Stock Purchase Plans on each anniversary date of the plans in an amount
equal to the number of shares of common stock required to restore the maximum
number of shares reserved for issuance to 2,000,000, or a lesser amount
determined by the Company's Board of Directors. The Employee Stock Purchase
Plans permit eligible employees to purchase common stock totaling up to 10% of
an employee's compensation through payroll deductions. The Employee Stock
Purchase Plan for U.S. employees is intended to qualify under Section 423 of the
Internal Revenue Code. The price of common stock to be purchased will be 85% of
the lower of the fair market value of the common stock on the first or last day
of each purchase period.

(8) COMMITMENTS AND CONTINGENCIES

Leases

The Company leases equipment and office space under various long-term
non-cancelable operating leases. Rent expense on these leases for fiscal 1994,
1995 and 1996 and the nine months ended July 31, 1997 was $13.3 million, $14.7
million and $21.6 million, and $20.5 million, respectively.

Minimum future non-cancelable commitments under these leases as of July 31,
1997, are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL
YEAR AMOUNT
------------------------------------------------------------------ --------
<S> <C>
1997.............................................................. $ 8,265
1998.............................................................. 27,769
1999.............................................................. 19,229
2000.............................................................. 13,223
2001.............................................................. 9,856
Thereafter........................................................ 45,544
--------
$123,886
========
</TABLE>

Legal Matters

The Company is involved in certain disputes and legal actions as a result
of its normal operations. In management's opinion, none of these disputes and
legal actions are expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.

F-17
<PAGE> 91

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) GEOGRAPHICAL INFORMATION

The following is an analysis of the Company's operations by geographical
region (in thousands):

<TABLE>
<CAPTION>
ASIA,
EUROPE, LATIN
MIDDLE EAST AMERICA
DOMESTIC AND AFRICA AND CANADA TOTAL
-------- ----------- ---------- --------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1994
Total revenue...................................... $155,068 $51,442 $ 34,077 $240,587
Operating income................................... 5,670 1,744 10,033 17,447
Total assets....................................... 72,732 25,809 28,590 127,131
YEAR ENDED OCTOBER 31, 1995
Total revenue...................................... 215,201 77,853 47,712 340,766
Operating income................................... 24,916 1,004 2,958 28,878
Total assets....................................... 108,817 43,176 23,198 175,191
YEAR ENDED OCTOBER 31, 1996
Total revenue...................................... 311,238 99,021 67,789 478,048
Operating income................................... 22,307 14,123 7,197 43,627
Total assets....................................... 199,489 23,354 20,943 243,786
NINE MONTHS ENDED JULY 31, 1997
Total revenue...................................... 274,886 86,846 69,477 431,209
Operating income................................... 13,897 8,292 2,269 24,458
Total assets....................................... 250,550 28,404 21,985 300,939
</TABLE>

Total revenue for each geographic region represents revenue from
unaffiliated customers only. Operating income includes intercompany royalty and
cost allocation arrangements that were in effect for each year. Total revenue
shown above for the Company's foreign regions includes software that was shipped
from the United States. The total amount of these export sales was $22.2
million, $30.5 million, $36.9 million and $30.3 million for Europe, Middle East,
and Africa and $24.4 million, $23.5 million, $27.2 million and $32.1 million for
Asia, Latin America, and Canada for fiscal 1994, 1995, 1996 and the nine months
ended July 31, 1997, respectively.

F-18
<PAGE> 92

J.D. EDWARDS & COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The Company's quarterly financial information for fiscal 1995 and 1996, and
the first nine months of fiscal 1997 is as follows (in thousands, except per
share data):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1995:
Total revenue........................... $ 64,577 $ 78,746 $ 90,501 $106,942
Less: costs and expenses.............. 63,386 74,166 83,001 91,335
-------- -------- -------- --------
Operating income........................ 1,191 4,580 7,500 15,607
-------- -------- -------- --------
Income before income taxes.............. 1,788 4,345 8,455 15,000
Net income.............................. 1,100 2,674 5,204 9,231
Earnings per common share............... $ 0.01 $ 0.03 $ 0.06 $ 0.11
YEAR ENDED OCTOBER 31, 1996:

Total revenue........................... $ 97,932 $110,210 $115,641 $154,265
Less: costs and expenses.............. 94,701 103,649 110,404 125,667
-------- -------- -------- --------
Operating income........................ 3,231 6,561 5,237 28,598
-------- -------- -------- --------
Income before income taxes.............. 3,645 5,932 4,410 27,967
Net income.............................. 2,275 3,666 2,731 17,654
Earnings per common share............... $ 0.03 $ 0.04 $ 0.03 $ 0.20
NINE MONTHS ENDED JULY 31, 1997:
Total revenue........................... $122,821 $145,854 $162,534
Less: costs and expenses.............. 118,811 136,934 151,006
-------- -------- --------
Operating income........................ 4,010 8,920 11,528
-------- -------- --------
Income before income taxes.............. 3,697 7,742 11,506
Net income.............................. 2,329 4,849 7,220
Earnings per common share............... $ 0.02 $ 0.05 $ 0.07
</TABLE>

F-19
<PAGE> 93
Appendix A--Description of Graphics

Gatefold

The graphic heading starts with the J.D. Edwards logo, then reads
"Software and Service Solutions for a Changing World." In the center of the
gatefold there is a box with the following lead-in text: "The J.D. Edwards
corporate culture relies on three fundamental tenets -- Solutions,
Relationships, and Value -- to ensure the Company retains a customer-centric,
business oriented focus." Beneath the lead-in text are the following three
bullet points: (1) "Solutions -- J.D. Edwards provides customers with complete
enterprise solutions -- functionally rich software and the services needed to
realize benefits quickly and continuously."; (2) "Relationships -- An emphasis
on customer satisfaction combined with a program of continual product
enhancements provide the foundation for long-term relationships."; (3) "Value
- -- J.D. Edwards offers better value up front with a streamlined implementation
methodology and over time through flexible, adaptable technology." Four arrows
emanate from the corners of this box, directing the reader to four separate
text and graphic subsections.

The upper left hand subsection carries the graphic heading
"Continuous Evolution of ERP Software Solutions." Beneath this heading is a
graphic depicting three cresting waves, each progressively higher, beneath
which are two captions: "WorldSoftware" and "OneWorld". Above the lowest wave
is a sub-heading "Host-centric," and the following bullet points: (1) "high
reliability"; (2) "low cost of ownership"; and (3) "departmental applications."
Above the middle wave is a sub-heading "Client/Server," and the following
bullet points: (1) "easier access"; (2) "more user-friendly"; and (3)
"enterprise applications." Above the highest wave is the sub-heading
"Network-centric" and the following bullet points: (1) "mask complexity"; (2)
"reduce time and cost of change"; (3) "leverage network scalability"; (4)
"reduce time to benefit"; and (5) "inter-enterprise applications." Beneath the
graphic is the following text: "J.D. Edwards' ERP solutions offer continuity
through successive waves of technology. WorldSoftware provides a highly
functional, host-centric solution with a smooth transition to client-server
computing. OneWorld, which can co-exist with WorldSoftware, offers the
advantages of client/server while masking the complexity in a network-centric
environment."

The lower left hand subsection carries the graphic heading "Integrated
Application Suites and Technology Architecture." Beneath this heading is a
multi-layered graphic depicting the interrelationship of the software
applications and the systems platforms, the left panel of which depicts "World
Software," while the right depicts "OneWorld." An overarching layer is labeled
"Application Suites," with four separate sub-headings: (1) "Manufacturing"; (2)
"Finance"; (3) "Distribution/Logistics"; and (4) "Human Resources." The left
panel shows a solid bar labeled "Toolset," beneath which are two interlocking
pieces, the upper labeled "Technology Layer" and the lower "AS/400." The right
panel shows a solid bar labeled "Toolset," beneath which are four interlocking
pieces, the topmost labeled "Technology Layer," and the bottom three labeled,
from left to right as (1) "AS/400"; (2) "UNIX"; and (3) "NT." Beneath this
graphic is the following text: "The Company's comprehensive family of
integrated ERP application suites addresses customer requirements for improving
the productivity and effectiveness of their manufacturing, finance,
distribution/logistics, and human resources organizations. J.D. Edwards'
advanced architecture allows different generations of technology --host-centric
WorldSoftware and network-centric OneWorld-- to coexist in a single
environment. The architecture also masks the complexities of a mixed platform
network-centric environment. The OneWorld toolset provides a single point of
change for all platforms on the network. Developers use one toolset and users
work in a consistent environment, regardless of the unique characteristics of
the underlying platform."

<PAGE> 94

The upper right hand subsection carries the graphic heading
"Structured Implementation Methodology and Services." To the right of this
heading is a graphic depicting a flow chart with nine boxes. The topmost box is
labeled "Agree on Expectations," beneath which are two boxes, the left labeled
"Train the Client Project Team" and the right "Analyze Client Requirements."
Below these boxes are another two, the left labeled "Conduct Conference Room
Pilot" and the right labeled "Develop Technical Solutions." Below these boxes
is a single box labeled "Tune the Environment, Train, and Test." Below this box
is another, labeled "Go Live." The final two boxes are beneath this one, the
left labeled "Upgrade to the Latest Version" and the right labeled "Perform
Periodic Systems Audit." Beneath the graphic heading and to the left of the
flow chart is the following text: "J.D. Edwards offers clients a complete suite
of software implementation, upgrade, and support services either directly or
through third-party business partners. In particular, the Company believes its
nine-step Rapid, Economic and Predictable (REP) methodology contributes to the
ability to accelerate client time to benefit and lower lifetime total cost of
ownership."

The lower right subsection carries the graphic heading "Global
Presence, Local Support." Beneath this heading is a graphic depicting the
globe, upon which are superimposed the following three lines of text: (1) "Over
4,000 customers installed in 90 countries"; (2) "Software available in 18
languages"; and (3) "24 hour-per-day, 7 day-per-week support available
worldwide." Beneath this graphic is the following text: "J.D. Edwards' 3,369
employees are located in 46 offices throughout the world. The Company provides
customer support through these offices and through a network of 166 business
partners. The result is uniform implementations and consistent support
worldwide."

Graphic--Page 37

This is a multi-layered graphic depicting the interrelationship of the
software applications and the systems platforms, the left panel of which
depicts "World Software," while the right depicts "OneWorld." An overarching
layer is labeled "Application Suites," with four separate sub-headings: (1)
"Manufacturing"; (2) "Financials"; (3) "Distribution/Logistics"; and (4) "Human
Resources." The left panel shows a solid bar labeled "Toolset," beneath which
are two interlocking pieces, the upper labeled "Technology Layer" and the lower
"AS/400". The right panel shows a solid bar labeled "Toolset," beneath which
are four interlocking pieces, the topmost labeled "Technology Layer," and the
bottom three labeled, from left to right as (1) "AS/400"; (2) "UNIX"; and (3)
"NT".

Graphic--Page 39

This graphic consists of a flow chart with nine boxes. The leftmost
box is labeled "Agree on Expectations," to the right of which are two boxes,
the top labeled "Train the Client Project Team" and the bottom "Analyze Client
Requirements." To the right of these boxes are another two, the top labeled
"Conduct Conference Room Pilot" and the bottom labeled "Develop Technical
Solutions." To the right of these boxes is a single box labeled "Tune the
Environment, Train, and Test." To the right of this box is another, labeled

<PAGE> 95

"Go Live." The final two boxes are to the right of this one, the top labeled
"Upgrade to the Latest Version" and the bottom labeled "Perform Periodic
Systems Audit."

<PAGE> 96

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