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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22154
MANUGISTICS GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1469385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2115 EAST JEFFERSON STREET, ROCKVILLE, MARYLAND 20852
(Address of principal executive offices) (Zip code)
</TABLE>
(301) 984-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.002
PAR VALUE PER SHARE
(Title of Class)
Name of each exchange on which registered: None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 30, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $325 million. The pro forma
number of shares outstanding of the Registrant's common stock was approximately
21.7 million, after giving effect to the two-for-one stock split to be effected
by means of a 100% stock dividend that was authorized by the Registrant's Board
of Directors on May 9, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement relating to the 1997
Annual Meeting of Stockholders are incorporated by reference into Part III of
this Form 10-K. The Company anticipates that its Proxy Statement will be filed
with the Securities and Exchange Commission within 120 days after the end of
the Company's fiscal year ended February 28, 1997.
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PART I
ITEM 1. BUSINESS.
GENERAL
Manugistics Group, Inc. ("Manugistics" or the "Company") develops,
markets and supports software products for synchronized supply chain management
and provides related services. Synchronized supply chain management refers to
managing the complex interactions involved in the flows of products through the
supply chain, and involves forecasting product demand and coordinating the
timing of distribution, manufacturing, procurement and transportation
activities to meet this demand, not only across an entire enterprise, but also
among an enterprise and its suppliers and customers. The Company believes it is
the only provider of an integrated suite of strategic, tactical and operational
supply chain planning tools including a high level optimizer and products that
address the four key operational areas of supply chain management: demand
planning, supply planning, manufacturing scheduling and transportation
management. The Company was incorporated in Delaware in 1986 and completed its
initial public offering in August 1993.
INDUSTRY BACKGROUND
Many companies have faced increased competition and more demanding
customer service requirements in recent years. Customers have had the leverage
to demand better service from suppliers partially because bargaining power has
shifted to retailers and consumers from manufacturers and distributors over the
past decade. This shift followed the consolidation of significant portions of
the retail industry into large, powerful department store chains, the advent of
"superstores" and specialty category stores, and the rapid proliferation in the
number and variety of products. Also, many companies have contended with
shorter product life cycles in recent years. During the short window of market
demand for a product, insufficient supply could result in lost sales, while
excess inventories after demand declines could result in write-downs. In
addition, manufacturing companies in a number of industries have incurred very
high costs to build, acquire, maintain and operate plants and equipment. Given
these significant costs and increased competition, many companies have sought
ways to increase the returns from their significant investments in
manufacturing assets.
Just as business conditions have become more challenging, the
processes for manufacturing products and bringing them to market have become
more complex. Many companies conduct manufacturing and distribution operations
at multiple sites around the world. Their supply chains frequently involve
suppliers, warehouses, plants and customers on different continents. These
operations have traditionally been managed by various functional departments,
and there has often been incomplete coordination among them. There has also
frequently been imperfect communication, both within a single enterprise and
among a company and its suppliers and customers.
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In response to these business conditions, and in an attempt to manage
the complexity of their own operations and supply chains, many companies are
seeking to improve customer service, lower operating costs and increase returns
on assets through more effective management of their supply chains. Some of the
first companies to recognize the need for effective supply chain management
were companies that were significantly affected by the increase in competition
and the shift in market power from manufacturers to retailers: consumer
packaged goods, food and beverage firms. In terms of their manufacturing and
business models, these companies generally make product to stock in inventory
("make to stock"). Many of these companies produce their finished goods using
process manufacturing, and sell their products through retail channels. Also,
because their customers had begun demanding better service and lower prices,
these consumer packaged goods and other companies began working more closely
with their own suppliers as part of their efforts to manage their supply
chains. Thus, suppliers to these consumer-oriented process manufacturers, such
as chemical companies, which generally use process manufacturing and sell to
industrial customers, have also been significantly affected by the changed
business environment.
Companies in the apparel and consumer electronics industries, among
others, have also contended with more difficult business conditions and have
been particularly affected by the shorter product life cycles and the
associated difficulty of forecasting product demand. Companies such as these
manufacture products for consumers in discrete or high volume repetitive
manufacturing environments, and generally make or assemble their products upon
receipt of a customer order ("make to order"). These companies, as well as
discrete manufacturers that sell to industrial customers, have begun to
recognize that they can provide better service to their customers, have lower
operating costs and increase their return on assets by effective management of
their supply chains.
According to a recent study of 225 chemical, computers/electronic
equipment, consumer packaged goods, semiconductor and other companies, the top
20% of these companies, as measured by several supply chain management
benchmarks, recovered as much as 7% of their annual revenues from managing
their supply chains more effectively. These top companies used 60% fewer days'
supply in inventory, had up to a 60% advantage in cash-to-cash cycle time
(i.e., from the payment of cash for raw materials until the receipt of cash for
finished goods) and spent 50% less on material acquisition. As the study shows,
companies in many different industries now recognize that effective supply
chain management is a source of competitive advantage and is critical to
delivering the right product to the right place at the right time at the lowest
possible cost. Since becoming aware of the significant benefits that are
potentially available from effective supply chain management, many companies
are seeking software that can help them achieve these benefits.
The advent of sophisticated software to address the complex issues of
supply chain management was preceded by software designed to address the
information needs of manufacturing and distribution companies, which first came
into widespread use in the 1970s. Many large manufacturers used Material
Requirements Planning ("MRP") and later Manufacturing Resource Planning
("MRP-II") systems in individual plants to initiate inventory withdrawals and
to generate the necessary manufacturing orders, for example. Distribution
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Resource Planning ("DRP") software managed the transactions involved in
ordering, receiving, warehousing and delivering goods. More recently,
Enterprise Resource Planning ("ERP") systems have evolved that connect the MRP,
MRP-II and DRP systems with purchasing, accounting, financial and human
resources systems. ERP systems provide managers with the ability to access, for
example, inventory levels and locations for a product throughout an enterprise.
Because ERP systems were specifically designed to generate and maintain
detailed records of transactions, however, they are limited in their ability to
assist managers in making supply chain planning and scheduling decisions.
The data created and maintained by these ERP systems can serve as
input for a variety of analytical tools contained in supply chain management
software, the development of which the Company helped pioneer. Supply chain
management software enables companies to plan their supply and manufacturing
activities to meet anticipated customer demand, while considering capacity and
material constraints and other factors. Supply chain software complements ERP
systems and provides companies with information not only about their own
enterprise, but also about demand from customers and other information relating
to suppliers and transportation providers. Because of the potential for
significant returns on investment from supply chain management software and the
rapid payback period relative to ERP systems, one industry research firm has
recently recommended that, rather than implementing ERP systems first,
companies should re-prioritize their supply chain planning and ERP projects and
implement these applications simultaneously or even implement their supply
chain planning solution first so that they can begin capturing the benefits of
managing their supply chains sooner.
As companies have pursued these benefits, they have increasingly
recognized that the information technology that they choose to support their
efforts must enable them to take into account the effects of various events,
such as an unexpected customer order, in real-time, so that they can instantly
adjust their distribution and manufacturing activities accordingly. Many
companies have also recognized that in order to capture the advantages of
effective supply chain management, it is critical that the chosen technology
provide capabilities covering all different levels of supply chain issues,
including strategic and operational, and that it contain functionality
addressing all of the key aspects of supply chain planning, including demand
forecasting, planning of supply and production activities, scheduling of
manufacturing operations and transportation management. In addition, many
companies have realized that the information technology that they choose as
their tool for supply chain management must provide users around the world with
current, common information, so that all planners throughout an enterprise are
basing their decisions on the same set of facts, rather than old or
inconsistent data. Lastly, companies have increasingly realized the advantages
of choosing best-in-class vendors for different types of applications and
integrating the applications of these various best-in-class vendors, rather
than selecting a single vendor to provide a wide range of generally less robust
functionality. In particular, for companies evaluating supply chain management
software, there are important benefits available if the supply chain planning
application contains technology enabling integration with ERP and other systems.
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THE MANUGISTICS SOLUTION
Manugistics develops, markets and supports software products for
synchronized supply chain management and provides related services.
Synchronized supply chain management refers to managing the complex
interactions involved in the flows of products through the supply chain, and
involves forecasting product demand and coordinating the timing of
distribution, manufacturing, procurement and transportation activities to meet
this demand, not only across an entire enterprise, but also among an enterprise
and its suppliers and customers. The Company's solutions consider and balance
relevant demand, customer service, production, constraint, cost and
profitability information, both within an enterprise and among an enterprise
and its suppliers and customers. Manugistics' integrated suite of supply chain
management software includes (i) strategic tools, such as Supply Chain
Navigator's functionality for determining the initial setup of a supply chain
network, (ii) tactical capabilities, such as Constrained Production Planning's
functionality for performing production planning across multiple facilities,
and (iii) operational capabilities, such as Advanced Manufacturing Scheduling's
functionality for producing specified quantities of product within given time
parameters. See "Products." The Company's solution provides the following key
benefits:
Synchronized Planning and Scheduling. The Company's software
immediately alerts planners of changes that occur along the supply chain,
enabling them to evaluate and incorporate the effects of the changes and to
rapidly adjust the relevant pieces of the supply chain planning process. This
software thus enables them to synchronize their companies' supply planning and
manufacturing scheduling activities with the revised forecast of customer
demand. For example, after an unexpected event leads to an increase in
anticipated product demand, Manugistics' supply chain software incorporates the
expected effect of the event into the forecast and assists planners to
instantly re-optimize the supply chain network and to coordinate the timing of
manufacturing and distribution operations to meet the revised demand forecast.
The software immediately updates inventory levels around the network and
revises manufacturing schedules.
End-to-End Supply Chain Functionality. Manugistics' integrated supply
chain software suite includes strategic, tactical and operational
decision-making tools and includes demand forecasting, supply planning,
manufacturing scheduling and transportation management capabilities. This
software provides planners with a picture of their company's entire supply
chain and its links to suppliers and customers. This picture of the whole
supply chain provides critical real-time information about all of the effects
of supply chain actions, which empowers users to make superior decisions.
Rapid Time-to-Benefit. The Company's supply chain management software
products frequently deliver cost savings and improvements in customer service
within one year after implementation. (Implementation typically requires three
to 12 months, depending on the products licensed and the complexity and
geographic scope of the project.) As a result, customers typically receive a
quick payback on their investment.
Constantly-Updated Supply Chain Information Common to All Users.
Manugistics' Supply Chain Architecture(TM) is a distributed client/server
architecture that enables users throughout a company,
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regardless of their location, to access the same, constantly-updated supply
chain information at the same time. This architecture connects the distributed
user interface (client) to the application server and to the database, enabling
global access, a single view of the supply chain and rapid communication of
information and decisions. The architecture can also enable users to take
advantage of the communication capabilities available through the Internet and
the World Wide Web, capabilities which the Company believes will foster more
collaborative supply chain activities. In addition, this architecture and the
Company's advanced integration technology extend the availability of a
company's view of the supply chain to its suppliers and customers, which is
becoming a critical component of effective inter-enterprise supply chain
management.
Tight Integration with Complementary ERP Systems. Because of
Manugistics' architecture, its object-oriented foundation (which enables
sophisticated communication between applications) and its mutual interest with
ERP vendors in enabling clients to derive the maximum benefits from both their
Manugistics and ERP systems, the Company offers tight integration to the ERP
systems of leading vendors. See "Strategy," "Products," and "Alliances and
Partnering." These integrated offerings enable customers to select the
Company's supply chain suite and leading ERP solutions with the knowledge that
there is a commercially-available integration between the products and
compatibility between future releases.
STRATEGY
The Company's objective is to be the leading provider of supply chain
management solutions to companies worldwide. The Company's strategy to achieve
its objective includes the following elements:
Provide comprehensive solutions. As more companies recognize the
potential for significant and rapidly achievable benefits from effective supply
chain management, Manugistics' strategy is to deliver comprehensive solutions
to enable customers to fully realize these benefits. The Company delivers a
robust supply chain planning software suite, and continuously seeks to expand
and enhance its product offerings. The Company also provides consulting and
implementation services, education and training, and product support and other
services. Through Manugistics' unique supply chain management experience and
its collaboration with customers in a variety of industries for more than a
decade, the Company has developed extensive knowledge of supply chain
management issues and solutions. Based on this knowledge, the Company is
continuing to define comprehensive supply chain solutions and is delivering
these solutions to the market.
At the core of these solutions is the Company's software, and the
Company has introduced, and plans to continue to introduce, new applications
and functionality in order to address specific aspects of supply chain planning
more completely. An important aspect of the Company's solutions is its ability
to rapidly deliver new features and functions to the market in response to
emerging market opportunities and requirements. During fiscal 1997, the Company
introduced Advanced Manufacturing Scheduling, which creates superior production
schedules for a wide variety of manufacturing environments, and Supply Chain
Navigator, a strategic and tactical optimizer to support decision-making about
the entire supply chain network, within 10 months
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after embarking on these development projects. The Company also emphasizes
reliability in its schedule of releases because of the importance of
predictability to customers. Based in part on its ISO 9001-certified product
development processes, the Company believes that it has a relatively high
degree of reliability in its schedule of planned releases. This reliability and
rapid product development ability are important aspects of the Company's
solutions.
Customers have increasingly demanded the services offered by the
Company. To reduce the need to hire additional professional services employees
necessary to meet maximum anticipated demand for services, the Company offers
an extensive education and training program to third-party consultants from
firms such as Andersen Consulting, Inc., Booz Allen & Hamilton, Inc., Ernst &
Young LLP and Price Waterhouse LLP. The availability of these third-party
consultants to provide implementation services will assist the Company to
ensure that, during periods of increased demand, customers will continue to
receive effective and timely professional services.
Capitalize on Leadership Position. The Company seeks to take advantage
of its leadership position in the market for supply chain management software
by expanding its business in the following areas: new geographic markets, new
industries and mid-sized companies.
New geographic markets. The Company believes that companies outside
North America face similar supply chain management issues as North American
companies, and, accordingly, the Company plans to take advantage of its
knowledge of these issues to provide solutions to companies in other geographic
markets. The Company believes that, although they trail their North American
counterparts in terms of their adoption of supply chain management practices,
companies in South America, Europe, Australia and Asia, as well as
international subsidiaries of North American companies, are increasingly
seeking the benefits of effective supply chain management. To position itself
to meet anticipated demand, the Company maintains offices in Australia, France,
Germany, Ireland, The Netherlands and the United Kingdom. The Company believes
that companies in these and other geographic markets will increasingly demand
supply chain management solutions.
New industries. The Company believes it can capitalize on its
experience with, and operational knowledge of, process manufacturing companies
that target consumers, such as consumer packaged goods, food and beverage
firms, and process manufacturers that target the industrial sector, such as
chemical companies, to further penetrate other industries, including discrete
and high-volume repetitive manufacturers that target consumers, such as firms
that make apparel and consumer durables, or such manufacturers that target the
industrial sector.
Mid-sized companies. In addition, the Company believes it can
capitalize on its supply chain management knowledge and the price/performance
profile of client/server products to provide solutions to mid-sized companies
that recognize the benefits available from effective supply chain management.
Client/server product offerings have enabled the Company to expand its target
market to include mid-sized companies with annual revenues ranging from $250
million to $1 billion.
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Expand product distribution through alliances and partnering. The
Company is building and maintaining strong working relationships with
organizations that the Company believes can play important roles in marketing
the Company's products. These include: (I) ERP system vendors, such as The Baan
Company, N.V. ("Baan"), Marcam Corporation ("Marcam"), Oracle Corporation
("Oracle") and SAP AG ("SAP"), whose solutions maintain the data used by the
Company's supply chain planning products; (ii) consulting firms, such as
Andersen Consulting, Inc., Booz Allen & Hamilton, Inc., Ernst & Young LLP and
Price Waterhouse LLP, that are active in the selection and implementation of
large information systems; (iii) point-of-sale data providers, such as
Information Resources, Inc. ("IRI"), whose current or planned products also
complement those of the Company; (iv) other complementary solution providers
such as Microsoft Corporation; and (v) hardware vendors, such as
Hewlett-Packard, IBM, Digital Equipment Corporation and Sun Microsystems, that
offer hardware products on which the Company's products run. See "Alliances and
Partnering."
The Company believes that these relationships will enable prospective
customers to select various hardware systems, operating environments, ERP or
transaction systems and databases that can be easily integrated and rapidly
implemented with the Company's products, and that these relationships will
provide benefits to customers, the Company and these partners, including
enhanced potential for increased market penetration.
Offer products based on Manugistics' supply chain business object
model, incorporating advanced decision sciences, with state-of-the-art user
interface and integration technology. Manugistics' technology strategy is to
offer products based on the Company's unique set of software objects developed
specifically to support the business processes involved in supply chain
planning and scheduling, which provide customers with highly accurate models of
their supply chains and superior flexibility, scalability and performance.
Manugistics' applications incorporate a variety of advanced decision sciences,
including constraint-based optimization, heuristics and linear programming,
providing customers with the most appropriate solver techniques for different
types of supply chain problems. The Company's user interface technology
provides a state-of-the-art "look and feel" to enhance user productivity and
support visualization of the supply chain. The Company's leading-edge
integration technology enables seamless interchange among Manugistics
applications, ERP systems, and suppliers and customers.
The Company offers products for distributed, open systems enabling
customers to use the Company's supply chain management software with various
combinations of hardware systems, operating environments, complementary
software and databases. Open operating systems such as Windows NT and UNIX
enable customers to take advantage of portability, scalability and
interoperability of operating environments. Distributed computing such as that
associated with client/server architectures moves the Company's decision-making
capabilities closer to the user by providing a distributed user interface,
distributed processing (rather than more centralized processing) and
distributed database access. As more companies expand their operations and
supply chains globally, the Company's distributed approach supports customers
in their global supply chain planning activities.
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The Company's products incorporate standards-based technologies, which
provide a flexible foundation and leverages the technology investments of
customers. The Company's use of object-oriented technology for product
development enables it to develop new software program code with modular
components, which permits and encourages developers to re-use these components
and improves quality while shortening the time required to develop or enhance
products.
PRODUCTS
During the fourth quarter of fiscal 1997, the Company released the
fifth version of its client/server software, Manugistics5. The Company's supply
chain management software provides strategic, tactical and operational supply
chain planning tools and includes the Supply Chain Navigator, the Manugistics
Integrator for SAP(R) and four major families: Demand Planning, Supply
Planning, Manufacturing Scheduling and Transportation Management. (The Company
previously marketed portions of Supply Planning as its Distribution Planning
and Manufacturing Planning families.) The software operates in most major
environments and supports database software from leading relational database
software vendors.
SUPPLY CHAIN NAVIGATOR. Manugistics Supply Chain Navigator ("SCN")
features a graphical representation of a company's entire supply chain network
and enables executives to make longer-term business planning decisions about
the configuration of the supply chain network and network-wide capacity,
production, inventory and distribution, as well as shorter term tactical
planning decisions. SCN can produce an optimized network or an optimized plan
for the ideal mix of products to be produced at each plant and distributed to
each warehouse over multiple time periods that maximizes the profitability of a
portfolio of products or minimizes the costs of raw materials, manufacturing,
inventory and distribution. The strategic and tactical planning functionality
of SCN is fully integrated with the other tactical and operational products in
Manugistics' suite, giving users the ability to immediately implement the
strategic supply chain decisions that SCN supports. The Company introduced SCN
during the fourth quarter of fiscal 1997.
Supply Chain Navigator is a strategic and tactical optimizer of the
flows of materials through a supply chain which uses detailed, constraint-based
models. By simultaneously evaluating both manufacturing-related and
distribution-related constraints, and using powerful optimization routines, SCN
generates the optimal solution given user-defined goals (such as maximizing
product profitability or minimizing costs), and can be used to solve a wide
array of strategic and tactical supply chain problems.
For example, at the strategic level, SCN can be used to determine the
overall setup of a supply chain network or to rationalize an existing setup. By
either simultaneously constraining both manufacturing and distribution, or only
one, SCN can evaluate the addition, removal or relocation of a plant or
distribution center. SCN can also be used to rationalize capacity, including
the addition or removal of facilities space at a plant or distribution center,
the number of shifts, shipping capacity or the introduction or removal of new
suppliers. Another use of SCN is to generate the optimal allocation of capacity
during periods of severe shortage, including cost-
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minimized outsourcing, or to generate optimal sourcing, through dynamic
updating of sourcing relationships.
For tactical level issues, SCN can be used to choose the optimal
production method from among multiple choices, and can determine which machine
to use for which product. SCN can also optimize inventory levels and locations
given manufacturing, material and distribution constraints, and can optimize
inventory prebuilds based on constraints including product shelf life and
material expiration life.
DEMAND PLANNING. Manugistics Demand Planning addresses a key element
of successful supply chain planning: forecasting demand with as high a degree
of accuracy as possible. There are two products in the Demand Planning family,
Demand Planning and Demand Planning Extended Edition.
Demand Planning. Using advanced statistical techniques, Demand
Planning develops sophisticated demand forecasts for specific products at
specific locations. Users can adjust forecasts for market intelligence,
financial projections, sales promotion impact, or other information about
expected demand at any level of aggregation, and the software automatically
disaggregates this information to individual products. The resulting demand
forecasts are critical to meeting customers' service expectations and become
the basis for inventory, distribution, production and transportation plans. In
addition, the software provides the capability to track and manage forecast
accuracy.
Demand Planning Extended Edition. Demand Planning Extended Edition
("DP/EE") utilizes advanced forecasting methods developed at Manugistics'
Demand Management Center of Expertise in Essen, Germany to extend the
capabilities of the Company's Demand Planning product. DP/EE produces a
forecast that incorporates causal factors, such as the effects of changes in
price and the effects of non-seasonal holidays. To improve precision, DP/EE
also recognizes both long-term and short-term trends in product demand and
selects an appropriate technique to forecast demand more accurately. To
simplify forecasting demand for a new product over the course of its life
cycle, DP/EE can synthesize and analyze life-cycle information from other,
similar products to produce a forecast for the new product. This capability is
very important in industries that conduct some discrete and high volume
repetitive manufacturing operations, such as apparel or consumer durables, in
which product life cycles are short and life-cycle management is crucial to the
success of new products.
The Company is also developing a new capability in its Demand Planning
product family to incorporate point-of-sale ("POS") checkout scanner data. As
part of its agreements with Information Resources, Inc. ("IRI") signed during
the first quarter of fiscal 1998, the Company is working to enhance its Demand
Planning products to be able to use IRI's daily, store-level POS data. With its
exclusive rights among supply chain software vendors to this more detailed and
timely census data, the Company is seeking to enhance Demand Planning to
incorporate these data. The Company believes that using this POS data will
provide more accurate forecasts, thereby helping companies make superior
planning decisions, particularly companies in demand-sensitive,
consumer-oriented, process manufacturing industries.
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SUPPLY PLANNING. Manugistics Supply Planning provides managers with
the ability to plan supply activities across multiple facilities to meet demand
requirements, and contains extensive continuous replenishment and Vendor
Managed Inventory capabilities. The software considers the interdependencies
between distribution and manufacturing activities and uses this information as
the basis for decisions about stocking levels, sourcing, location, movement and
use of available materials and inventory. As a result, customer service can be
improved while inventories and cycle times can be reduced. The software also
facilitates effective management of production, considering constraints such as
capacity, raw materials, components and labor. Supply Planning enables managers
to review planned manufacturing activities at all manufacturing facilities for
time periods up to several years long, and allows them to analyze the ability
of their companies to meet demand and supply requirements and customer service
goals given aggregate capacity and material constraints.
Supply Planning synthesizes demand planning, inventory planning and
distribution network data to produce a distribution plan -- a schedule of
shipping requirements for each source and destination to meet the demand for
every product at every location in each planning period. Supply Planning
constructs a daily operational plan recommending a schedule of shipments to
implement the distribution plan that makes the best use of available inventory.
To satisfy the distribution plan, Supply Planning assists managers in
developing long-term and short-term enterprise-wide production plans and
detailed daily production schedules while calculating material needs. In
addition, this software assists managers in making cost-effective decisions
regarding the use of manufacturing and material resources.
The Supply Planning family includes Constrained Production Planning
("CPP"), a tool for longer term, aggregate planning across multiple facilities
that produces a master supply plan considering aggregate capacity and material
constraints. CPP uses inputs from several sources, including the unconstrained,
planned orders that are produced by Supply Planning, to develop a feasible
master production plan (for multiple weeks or months) that fits within capacity
and material constraints. This master production plan then provides input for
production planning and manufacturing scheduling. If CPP indicates that product
should be manufactured at an alternate plant, appropriate adjustments are made
throughout Supply Planning. CPP can also identify capacity constraints and
material shortages at times in the future, enabling planners to take corrective
action, such as leveling production load over time or across lines, before
problems develop.
During fiscal 1997, the Company released the critical material
allocation feature of Constrained Production Planning, which, for companies
such as personal computer makers, determines the highest profit or lowest cost
mix of products to produce based on longer term material availability. The
Company also released the critical constrained materials feature, which
addresses short term material shortages for process manufacturing companies
with restricted capacity or with projected material shortages in future
periods.
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Supply Planning links customer requirements and production
capabilities by producing a master schedule for each plant or contract producer
which best meets demand while considering multiple constraints, such as
capacity, materials and labor, and minimizing inventory levels. The software
translates that master schedule into time-phased material requirements
schedules for raw materials and intermediate or component products. The
software produces an enterprise-wide replenishment schedule of time-phased
requirements for each vendor, listing the planned and firm orders for each
item. In addition, the software can recommend the optimal source for raw
materials or components, and contains "available-to-promise" functionality
which provides managers who are responsible for supplying raw materials or
components (both within and outside an enterprise) with information about the
ability to satisfy production plans based on anticipated future levels of raw
materials or components. This capability enables these managers to work
proactively to find alternate materials or components or alternative production
cycles to minimize the effect of any anticipated shortages.
ADVANCED MANUFACTURING SCHEDULING. Manugistics Advanced Manufacturing
Scheduling ("AMS") delivers realistic, executable manufacturing schedules for
producing specified quantities of product within the time parameters contained
in the production plan. AMS is integrated with the rest of the Manugistics
supply chain planning software suite, giving users the same constantly updated
demand and supply information available to planners throughout an organization.
Correspondingly, planners elsewhere in the organization have current
information about manufacturing schedules. AMS optimizes production schedules
given certain user-defined constraints for several process, high-volume
repetitive and discrete manufacturing environments, enabling schedulers to
maximize customer service and asset utilization, minimize cost and reduce cycle
time. AMS incorporates the advanced manufacturing scheduling technologies
acquired from Avyx, Inc. during the first quarter of fiscal 1997. Users can
configure AMS to model the unique manufacturing environments of their
enterprises for various short to medium term time periods, including large,
complex processes, production of either small or large numbers of products, a
range of constraints including materials, labor, machine and storage capacity
and environmental restrictions. AMS generates a manufacturing schedule meeting
defined objectives while respecting constraints.
AMS enables users to employ a range of methods to respond to the
frequent changes to the manufacturing schedule, from regenerative scheduling to
incremental rescheduling. A key feature of AMS is its rescheduling capability.
AMS identifies the best location and time period to schedule a job. For
example, when a company receives a new order, AMS searches in real time for the
optimal plant and date to run the job, preserving the existing schedule and
enabling the scheduler to quote a delivery date immediately. AMS also addresses
floating capacity-constrained resources or bottlenecks, again by leveraging the
existing schedule, preserving the parts that are unaffected by the change and
revising other elements as necessary to meet the updated requirements. The
Company believes that the evolutionary nature of AMS's rescheduling capability
enables users to have greater control, because the schedule remains stable, and
greater speed, because the software reschedules only the necessary portion of
the entire schedule.
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TRANSPORTATION MANAGEMENT. Manugistics Transportation Management
provides managers with decision-making and optimization tools to determine how
to assign transportation resources so as to minimize costs while meeting
customer service requirements. This software allows for the coordination of
material and product movements on an enterprise-wide basis.
Transportation Management enables companies to plan and integrate
inbound, outbound and inter-company moves in a coordinated way and to build
feasible, cost-effective, consolidated loads that meet customer service and
business operating requirements and minimize enterprise-wide transportation
costs. This product also assists managers to determine the best available mix
of transportation modes and common carriers. In addition, Transportation
Management enables managers to integrate private fleet operations into the
shipment planning process to optimize transportation asset utilization and
customer service.
Communication among trading partners, particularly communication about
the status of transportation activities, is essential to effective supply chain
management. During fiscal 1997, the Company introduced Manugistics Intelligent
Messenger, which provides electronic commerce capabilities by collecting and
distributing supply chain data among trading partners. The Manugistics
Intelligent Messenger evaluates messages from the supply chain planning
applications, recognizes key business events, determines required action and
sends timely notification messages to appropriate decision makers. This product
was developed in partnership with Frontec AMT, Inc., a leading provider of
intelligent messaging solutions.
The Company's Transportation Management family also includes the
Routing and Scheduling product, which provides automated daily routing and is
designed for private fleet managers whose main concern is developing the best
possible distribution routes in order to maximize customer service and minimize
operating costs such as fuel, equipment and personnel.
During fiscal 1998, the Company anticipates commercial release of
Manugistics Bulk Distribution Planning, which is being developed specifically
to address the needs of the bulk chemical, petroleum and industrial gas
industries. Bulk Distribution Planning will include extensive transportation
management capabilities, as well as specialized demand planning, unique
inventory management features, and dynamic sourcing to meet demand, enabling
companies in these industries to improve customer service and reduce inventory
and transportation costs.
MANUGISTICS INTEGRATOR FOR SAP(R). During the third quarter of fiscal
1997, the Company released the Manugistics Integrator for SAP(R), a software
application that integrates SAP's R/3(R) ERP application with several
Manugistics supply chain planning products. Developed jointly by Manugistics
and SAP, the Integrator enables customers to implement an integrated supply
chain software and ERP solution that uses functionality from both applications
without the need to develop custom interface programming. The Integrator
reduces companies' integration costs, which can shorten the payback period on
their investments in supply chain planning and ERP systems, and it is fully
supported and maintained by Manugistics and SAP, which reduces the risk of
problems with forward compatiblity of future versions.
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Rather than simply transferring flat files, the Manugistics Integrator
for SAP facilitates true "communication" between the two applications about
what information each application needs and, when an event occurs, the effects
of the event. Using "publish/subscribe" object-based messaging, when a
triggering event occurs, data that are needed by both applications are
"published" by the source application using a message-based integration
architecture. The target application "subscribes" to events, processes the data
associated with them, and then publishes the results. For example, SAP's R/3(R)
stores information about items and stockkeeping units (SKUs) in the material
master tables. Additions, deletions and updates to the material master tables
can be communicated to Demand Planning for processing. Correspondingly,
Manugistics Supply Planning generates a feasible, cost-effective distribution
requirements plan, which is expressed as a set of planned orders. These orders
can be communicated to SAP's R/3(R) Production Planning as independent
requirements.
STATGRAPHICS SOFTWARE. Additionally, the Company markets and supports
STATGRAPHICS, a software application containing a comprehensive set of
statistical tools to control, manage and improve the quality of production
processes in manufacturing companies. It utilizes statistical quality control
and design of experiments to implement quality management in individual
locations throughout an enterprise or plant. In response to decreased demand,
the Company has decreased the resources dedicated to marketing STATGRAPHICS.
CUSTOMERS
The Company's supply chain management software historically has been
licensed by large organizations in the process manufacturing industries, such
as the consumer packaged goods, food, beverage, chemicals and pharmaceuticals
industries. More recently, the Company has licensed its software to customers
in the discrete and high-volume repetitive industries, including the paper,
apparel, electronics/high technology, automotive and consumer durables
industries. The Company has installed various combinations of its supply chain
management software products at hundreds of locations worldwide and has granted
more than 1,000 licenses for these products. The following customers are
representative of the Company's customer base in terms of their size and the
magnitude of revenues generated by their license agreements with the Company.
All of these customers have licensed software products from the Company (or
from Oracle pursuant to the Company's arrangement with Oracle) or these
customers have purchased maintenance, consulting or other services from the
Company within the last twelve months. See "Sales and Marketing."
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<TABLE>
<S> <C>
CONSUMER PACKAGED GOODS CHEMICALS AND PETROCHEMICALS
Eveready Battery Co. BASF Corporation
General Electric Company Dow Chemical Company, Limited
Gillette Company E. I. du Pont de Nemours and Company
Lever Brothers Company Exxon Company, International
The Procter & Gamble Company Mobil Oil Corporation
Revlon Consumer Products Corporation Rohm & Haas Company
FOOD & BEVERAGE CONSUMER ELECTRONICS/HIGH TECHNOLOGY
Frito-Lay, Inc. Analog Devices, Inc.
Nabisco Brands Inc. Hewlett-Packard Company
Ocean Spray Cranberries, Inc. International Business Machines Corporation
PepsiCo, Inc. Lucent Technologies, Inc.
Starbucks Corporation Xilinx, Inc.
PHARMACEUTICALS AUTOMOTIVE
Bristol-Myers Squibb Company Automobile Products plc
Eli Lilly and Company General Motors Service Parts Operations
Glaxo Wellcome Plc John Deere & Co.
Schering-Plough HealthCare Products, Inc. Tenneco Automotive
Warner Lambert Company
APPAREL
RETAIL DRUG/MASS MERCHANDISE/SPECIALTY RETAIL Fruit of the Loom, Inc.
Dayton Hudson Corporation Levi Strauss & Co.
Kmart Corporation Nike, Inc.
Revco D.S., Inc. Russell Corporation
Rite Aid Corporation The Timberland Company
Toys 'R' Us, Inc.
Wal-Mart Stores, Inc. PAPER
James River Corporation
GROCERY Mead Corp.
Food Lion, Inc. Sweetheart Cup Company, Inc.
Giant Eagle, Inc.
The Kroger Co. OTHER
Richfood, Inc. Baxter Healthcare Corporation
Safeway Stores, Inc. Black & Decker (U.S.) Inc.
Winn-Dixie Stores, Inc. Bridgestone/Firestone, Inc.
British Airways
Eastman Kodak Company
Owens & Minor Medical, Inc.
</TABLE>
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PRODUCT-RELATED SERVICES
A key element of the Company's business is to provide clients with
comprehensive solutions to their supply chain planning problems by combining
software with professional services that enable clients to derive the maximum
benefit from Manugistics' supply chain products. Typically, a client will make
many changes to its overall operations, including its planning functions, while
implementing the Company's software. To assist clients in making these changes,
the Company offers a wide range of product-related services, including business
operations consulting, change management consulting, end-user and system
administrator education and training, and, in certain circumstances, software
product modification. These services help clients reengineer their operations
to take maximum advantage of the Company's software and of effective supply
chain management.
These product-related services generally are not included in the
Company's software license fees and are provided on a time and materials basis.
The Company's product-related services group consisted of 174 employees as of
February 28, 1997.
CUSTOMER SUPPORT
Another element of the Company's comprehensive solution is to provide
on-going support to existing customers. Substantially all of the Company's
supply chain management customers enter into annual product maintenance
agreements entitling them to receive product support, including access to a
hotline and an electronic bulletin board, and to receive product revisions and
enhancements. The Company also uses its customer support function to collect
information to assist in focusing future product development efforts and in
identifying market demand.
As of February 28, 1997, the Company's customer support and
maintenance staff consisted of 22 employees.
PRODUCT DEVELOPMENT
The Company directs its current product development efforts toward the
development of new, complementary products, the enhancement of the features and
functions of existing products (including new Internet/Intranet capabilities,
enhancements for use in foreign countries and foreign language translations),
and the development of products tailored to particular industries. To date,
most of the Company's supply chain products have been developed by its internal
staff. Product documentation is generally created internally.
In developing new products or enhancements, the Company works closely
with current and prospective customers, as well as with other industry leaders,
to determine their requirements. The Company believes that these collaborative
efforts will lead to improved software functionality and will result in
superior products likely to have greater market demand. The Company maintains
committees of users and developers for its products. Among other things, these
committees define and rank issues associated with products and discuss product
enhancement priorities and directions.
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Since its inception, the Company has made substantial investments in
product development. The Company believes that getting products to market
quickly, without compromising quality, is critical to the success of these
products. The Company is continuing to make significant product development
expenditures that it believes are necessary for it to rapidly deliver new
product features and functions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company conducts a Product Launch Program for new applications and
major enhancements which allows customers to review design specifications and
prototypes and participate in product testing. The Company has also established
channels for customer feedback which include periodic surveys and focus groups.
In addition, the Company's product development staff works closely with the
Company's marketing, sales, support and services groups to develop supply chain
management software products that meet the needs of its current and prospective
customers.
As of February 28, 1997, the Company's product development staff
consisted of 167 employees. The Company's research and development expenses
were approximately $17.4 million, $11.2 million and $7.6 million for fiscal
years 1997, 1996 and 1995, representing 18.3%, 18.0 and 15.4%, respectively, of
total revenues. In addition, the Company capitalized software development costs
of $6.8 million, $4.9 million and $2.4 million for fiscal years 1997, 1996 and
1995. The Company amortizes capitalized software development costs over a
product's estimated economic life, generally two years, commencing when a
product is available for general commercial release.
SALES AND MARKETING
The Company's supply chain management sales operation for North and
South America is headquartered at the Company's offices in Rockville, Maryland
and includes field sales personnel in the Atlanta, Boston, Charlotte, Chicago,
Cleveland, Columbus, Dallas, Houston, Los Angeles, Milwaukee, Philadelphia and
San Francisco metropolitan areas. The Company's direct sales organization
focuses on sales of supply chain management software to large, global
companies, as well as mid-sized companies with significant supply chain issues.
The Company markets its products in regions outside of North and South
America primarily through subsidiaries. The Company's British subsidiary, with
offices in the London and Dublin metropolitan areas, provides direct sales and
customer support primarily to customers and prospective customers in the United
Kingdom and Ireland. The Company's German, French and Dutch subsidiaries,
located in Essen, Germany, Paris, France, and Utrecht, The Netherlands,
respectively, provide direct sales of supply chain management software
primarily to customers located in continental Europe. The Company also
maintains offices in Australia for sales and support to customers in the
Pacific Rim and has recently established operations in Brazil. The Company
adapts its software for use in international markets by addressing different
languages, different standards of weights and measures and other operational
considerations.
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The Company has also begun using indirect sales channels, such as
complementary software vendors, third-party alliances and distributorships. See
"Alliances and Partnering." Using these channels, Manugistics seeks to increase
the market penetration of its supply chain management products by leveraging
the installed base and prospective customers of these parties. During fiscal
1997, the Company joined an initiative by Oracle Corporation, a large database
and enterprise application software vendor, under which Oracle has the
nonexclusive right to conduct marketing and sales activities on behalf of
Manugistics (and on behalf of a small number of other complementary vendors) to
potential customers in the consumer packaged goods industry. With this
initiative, these companies are seeking to provide a more complete offering
that incorporates many capabilities and satisfies many of the supply chain
planning, ERP and other needs of customers and prospective customers in that
industry.
The Company supports its supply chain management sales activities by
conducting a variety of marketing activities, including an annual clients'
conference, product "steering committees," appearances at industry conferences
such as those organized by the American Production and Inventory Control
Specialists (APICS) organization and the North American Wholesale Grocers
Association, client conferences hosted by complementary software vendors and
product demonstration seminars. In addition, the Company conducts lead
generation programs including public relations, direct mail, telemarketing,
advertising, seminars and ongoing customer and dealer communication programs.
The Company had 85 employees engaged in sales activities and 30
employees engaged in business development consulting activities at February 28,
1997.
The Company sells its STATGRAPHICS product in the U.S. and in other
countries through independent distributors, national resellers and local
dealers.
In fiscal 1997, approximately 23.4% of the Company's total revenues
were attributable to sales outside the United States and Canada. See Note 10 of
Notes to Consolidated Financial Statements.
ALLIANCES AND PARTNERING
The Company continues to implement its strategy of establishing
business alliances or partnering with leading software companies, consulting
firms and other complementary vendors. During fiscal 1997, in addition to
joining the Oracle initiative, the Company entered into an agreement with SAP,
a large ERP application software vendor. Manugistics and SAP have jointly
developed, and Manugistics has released, the Manugistics Integrator for SAP(R),
which enables customers to implement an integrated supply chain software
solution that uses functionality from both Manugistics' suite and SAP's R/3(R)
without the need to develop custom interface programming. See "Products."
The Company has also entered into joint marketing agreements with Baan
and Marcam, which generally provide that Manugistics and these companies will
conduct joint marketing activities.
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The Company continues to develop relationships with leading consulting
firms in order to provide marketing leverage to the Company's own marketing
efforts. For example, Andersen Consulting, Inc. in North America displays the
Company's supply chain management software at Logistics 2020, its logistics
Center of Excellence in Atlanta, Georgia, and at its SAP Center of Excellence
in Cincinnati, Ohio. Similarly, the Company works closely with Ernst & Young
LLP, Booz Allen & Hamilton, Inc. and Price Waterhouse LLP. In addition to
formal programs, the Company cooperates with professional services firms
informally on a client-by-client basis, which involves cooperation at the field
level.
LICENSE AGREEMENTS AND PRICING
Software product revenues consist principally of fees generated from
licenses of software products. In consideration of the payment of license fees,
the Company generally grants nonexclusive, nontransferable, perpetual licenses
which are primarily computer, site or user specific. License fee arrangements
vary depending upon the type of software product being licensed and the
computer environment. License fees generally are set based primarily on which
products are licensed and on the number of users or locations in the case of
client/server implementations and on a per CPU basis in the case of mainframe
installations. The United States list price for supply chain management
software products ranges from $200,000 for a single product to several million
dollars for the complete product suite.
Customers may obtain support services and maintenance for an annual
fee that is approximately 18% of the then-current license fee. The support and
maintenance fee is billed monthly or annually and is subject to changes in
software license list prices. The Company also provides pre-installation
assistance, systems administration, training and other product-related
services, generally on a time and materials basis. This allows the customer to
determine the level of support appropriate for its needs.
COMPETITION
The market for supply chain planning and scheduling software is highly
competitive. However, the Company believes that no single competitor markets an
integrated set of products that provides strategic, tactical and operational
capabilities and covers demand planning, supply planning, manufacturing
scheduling and transportation management like the Company. In certain
functional areas, other applications software vendors and certain professional
services organizations, including such vendors as American Software, Inc.,
InterTrans Logistics Solutions, i2 Technologies, Inc., Numetrix, Inc. and
Weseley Software Development Corp., offer products that are directly
competitive with some of the software applications marketed by the Company. The
principal competitive factors in the supply chain planning and scheduling
software markets served by the Company include product functionality and
quality, product suite integration, ease of use, customer service and
satisfaction, product support, product-related services, compliance with
industry standards, vendor reputation and, in international markets,
availability in foreign languages. The Company believes that it currently
competes favorably with respect to these factors, and that its principal
competitive advantages are its comprehensive, integrated solution,
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its substantial investment in product development, its client support and its
extensive knowledge of supply chain planning and scheduling.
PROPRIETARY RIGHTS AND LICENSES
The Company regards its software as proprietary and relies on a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure and other contractual provisions and technical measures to
protect its proprietary rights in its products. The Company distributes its
supply chain management software under software license agreements which
typically grant customers nonexclusive, nontransferable licenses to the
Company's products and have perpetual terms unless terminated for breach.
Under these license agreements, the Company retains all rights to market its
products. Use of the licensed software is usually restricted to the customer's
internal operations on designated computers at specified sites unless the
customer obtains a site license for use of the software that is restricted to
designated users. Use is subject to terms and conditions prohibiting
unauthorized reproduction or transfer of the software. The Company also seeks
to protect the source code of its software as a trade secret and as an
unpublished, copyrighted work.
The Company is the owner, user and federal registrant of Manugistics,
the Manugistics Logo and the phrase "Working As One" in the United States. The
Company has been granted trademark and service mark registration for the mark
Manugistics in Australia, the Benelux region, Canada, France, Germany, Japan,
Mexico, Spain and the United Kingdom.
EMPLOYEES
As of February 28, 1997, the Company had 598 full-time regular
employees. None of the Company's employees is represented by a labor union. The
Company has experienced no work stoppages and believes that its employee
relations are generally good. In addition, the Company utilizes consultants,
independent contractors and temporary employees to meet its staffing needs.
RISK FACTORS
The Company operates in a dynamic and rapidly changing environment
that involves numerous risks and uncertainties. The following section lists
some, but not all, of the risks and uncertainties which may have a material
adverse effect on the Company's business, operating results or financial
condition. This section should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited Consolidated Financial Statements and Notes thereto for the years
ended February 28, 1997, February 29, 1996 and February 28, 1995, including the
"Forward Looking Statements" section contained elsewhere in this Annual Report
on Form 10-K.
Potential Fluctuations in Quarterly Results; Seasonality. The
Company's quarterly operating results have varied in the past and might vary
significantly in the future because of factors such as business conditions or
the general economy, the timely availability and acceptance of the Company's
products, technological change, the effect of competitive products and pricing,
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changes in Company strategy, the mix of direct and indirect sales, changes in
operating expenses, personnel changes and foreign currency exchange rate
fluctuations. The Company typically ships software products shortly after
license agreements are signed, and, therefore, does not maintain any material
contract backlog. Furthermore, the Company has typically recognized a
substantial portion of its revenues in the last month of a quarter. As a
result, software products revenues in any quarter are substantially dependent
on orders booked and shipped in that quarter, and the Company cannot predict
software products revenues for any future quarter with any significant degree
of certainty.
The Company's software products revenues are also difficult to
forecast because the market for business application software products is
rapidly evolving, and the Company's sales cycles vary substantially from
customer to customer. Because the licensing of the Company's products generally
involves a significant capital expenditure by the customer, the Company's sales
process is subject to the delays and lengthy approval processes that are
typically involved in such expenditures. In addition, the Company expects that
sales derived through indirect channels, the timing of which is harder to
predict than for direct sales because there is less direct contact with the
prospective customer, will increase as a percentage of total revenues. For
these and other reasons, the sales cycle associated with the licensing of the
Company's products varies substantially from customer to customer and typically
lasts between four and six months, during which time the Company might devote
significant time and resources to a prospective customer, including costs
associated with multiple site visits, product demonstrations and feasibility
studies, and might experience a number of significant delays, over which the
Company has no control.
The Company's determines its expense levels based, at least in part,
on its expectations as to future revenues. If revenues in a period are below
expectations, operating results are likely to be adversely affected. Net income
might be disproportionately affected by a reduction in revenues because a
proportionately smaller amount of the Company's expenses varies directly with
revenues. As a result of the foregoing factors, it is likely that in some
quarter the Company's operating results will be below the published
expectations of financial research analysts. In that event, the price of the
Company's common stock would likely be materially adversely affected.
The Company has generally realized lower revenues in its first fiscal
quarter (May) than in the immediately preceding quarter. The Company believes
that these fluctuations are caused primarily by customer budgeting and
purchasing patterns and by the Company's sales commission policies, which
compensate sales personnel for meeting or exceeding annual performance quotas.
Competition. The market for business applications software is highly
competitive and subject to rapid change. Many application software vendors
offer products that are directly competitive with some of the software products
marketed by the Company. Some of the Company's current and potential
competitors have significantly greater financial, marketing, technical and
other competitive resources than the Company. As a result, they may be able to
adapt more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the promotion and sale of their
products than can the Company. In addition, certain ERP system vendors have
announced plans to develop new products or to incorporate additional
functionality into their current products that, if successfully developed and
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marketed, could compete with the products offered by the Company. Furthermore,
current and potential competitors may make acquisitions of other competitors or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address the supply chain
management needs of the Company's prospective customers. Accordingly, it is
possible that new competitors may emerge and rapidly acquire significant market
share. If this were to occur, the business, operating results and financial
condition of the Company could be materially adversely affected. See
"Competition."
Dependence on New Products and Rapid Technological Change; Risk of
Product Defects. The market for the Company's products is characterized by
rapidly changing technologies, frequent new product introductions, rapid
changes in customer requirements and evolving industry standards. The Company
believes that its future financial performance will depend in large part on its
ability to maintain and enhance its current product line, develop new products
that achieve market acceptance, maintain technological competitiveness and meet
an expanding range of customer requirements. There can be no assurance,
however, that the Company will be successful in developing and marketing new
products or product enhancements that respond to technological change or
evolving industry standards, or that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products, or that its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable, for technological or
other reasons, to successfully develop and introduce new products or
enhancements, the Company's business, operating results and financial condition
would be materially adversely affected.
In addition, software products as complex as those offered by the
Company might contain undetected errors or failures when first introduced or
when new versions are released. There can be no assurance, despite testing by
the Company and by current and prospective customers, that errors will not be
found in new products or product enhancements after commercial release,
resulting in loss of or delay in market acceptance, which could have a material
adverse effect upon the Company's business, operating results and financial
condition.
Management of Growth. The Company has recently experienced a period of
significant growth in net revenues that has placed a significant strain upon
its management systems and resources. The Company's ability to compete
effectively and to manage future growth, if any, will require the Company to
continue to improve its financial and management controls, reporting systems
and procedures on a timely basis. The Company has recently hired a significant
number of employees, and in order to maintain its ability to grow in the
future, the Company will be required to significantly increase the total number
of employees and to train and manage its employee work force. There can be no
assurance that the Company will be able to do so successfully. The Company's
failure to do so could have a material adverse effect upon the Company's
business, operating results and financial condition.
International Operations. The Company is currently conducting
operations in a small number of countries in Europe, Asia and South America and
plans to conduct operations in additional regions outside the United States,
which will require significant management attention
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and financial resources and could adversely affect the Company's operating
margins. There can be no assurance that the Company will be able to generate,
maintain or increase demand for the Company's products in new geographic
markets. Certain risks are inherent in international operations. Although only
some of the revenues from sales outside of the United States were denominated
in foreign currencies, the Company anticipates that the proportion of its
revenues denominated in foreign currencies will increase. A decrease in the
value of foreign currencies relative to the U.S. dollar could result in losses
from foreign currency translations. With respect to the Company's international
sales that are U.S. dollar-denominated, such a decrease could make the
Company's products and services less price competitive. The Company's
international sales and operations may be adversely affected by the imposition
of government controls, political and economic instability, difficulties in
staffing and managing international operations and general economic conditions
in foreign countries.
Expansion of Indirect Channels. The Company is building and
maintaining strong working relationships with ERP system vendors and consulting
firms that the Company believes can play important roles in marketing the
Company's products. The Company is currently investing, and intends to continue
to invest, significant resources to develop these relationships, which could
adversely affect the Company's operating margins. There can be no assurance
that the Company will be able to attract organizations that will be able to
market the Company's products effectively or that will be qualified to provide
timely and cost-effective customer support and service. In addition, the
Company's arrangements with these organizations are not exclusive and, in many
cases, may be terminated by either party without cause, and many of these
organizations are also involved with competing products. Therefore, there can
be no assurance that any organization will continue its involvement with the
Company and its products, and the loss of important organizations could
materially adversely affect the Company's results of operations. In addition,
if the Company is successful in selling products as a result of these
relationships, any material increase in the Company's indirect sales as a
percentage of total revenues would be likely to adversely affect the Company's
average selling prices and gross margins because of the lower unit prices that
the Company receives when selling through indirect channels.
Lack of Product Diversification. The Company's future results depend
on continued market acceptance of supply chain management software and services
as well as the Company's ability to continue to adapt and modify this software
to meet the evolving needs of its prospects and customers. Any reduction in
demand or increase in competition in the market for supply chain management
software products could have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence Upon Key Personnel. The loss of the services of one or more
of the Company's executive officers could have a material adverse effect on the
Company's business, operating results and financial condition. The Company does
not have employment contracts with any of its executive officers. There can be
no assurance that the Company will be able to retain its key personnel. The
Company's future success also depends on its continuing ability to attract,
assimilate and retain highly qualified sales, technical and managerial
personnel. Competition for
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such personnel is intense, and there can be no assurance that the Company can
attract, assimilate or retain such personnel in the future.
Intellectual Property and Proprietary Rights. The Company regards its
software as proprietary and relies on a combination of trade secret, copyright
and trademark laws, license agreements, nondisclosure and other contractual
provisions, technical measures and other methods to protect its proprietary
rights in its products. There can be no assurance that these protections will
be adequate to protect its proprietary rights or that the Company's competitors
will not independently develop products that are substantially equivalent or
superior to the Company's products. In addition, the laws of certain countries
in which the Company's products are or may be licensed do not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States. Although the Company believes that its products,
trademarks and other proprietary rights do not infringe upon the proprietary
rights of third parties, there can be no assurance that third parties will not
assert infringement claims against the Company.
ITEM 2. PROPERTIES.
The Company's principal sales, marketing, product development, support
and administrative facilities are located in Rockville, Maryland, where the
Company leases approximately 116,000 square feet of space under a lease
agreement which expires on April 30, 2002. At February 28, 1997, the annual
base rent was approximately $1,867,000, subject to annual increases. The
Company also leases approximately 41,000 square feet of additional space under
lease agreements expiring on or before October 31, 1999. This space is located
in a building on a property very close to the Company's headquarters
facilities. The base rent is $764,000, subject to annual increases. The Company
also leases office space for its fourteen sales, service and product
development offices in the United States and its subsidiaries in Australia,
France, Germany, The Netherlands and the United Kingdom. The Company believes
that its facilities are adequate for its current needs and that suitable
additional space will be available on acceptable terms as required.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company is a party to legal
proceedings and claims. In addition, from time to time, the Company has
contractual disagreements with certain customers concerning the Company's
products and services. In the opinion of the Company's management, none of the
current matters or proceedings, when ultimately concluded, are likely to have a
material adverse effect on the results of operations or financial condition of
the Company and its subsidiaries taken as a whole.
As previously disclosed, the Company was named as a defendant in an
action filed by Weseley Software Development Corp. in the U.S. District Court
for the District of Connecticut. The plaintiff sought injunctive relief and
damages. In March 1997, the Company and the plaintiff settled this action and
the Company made no payment of damages to the plaintiff.
24
<PAGE> 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended February 28, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The name, age and position held by each of the executive officers of
the Company or Manugistics, Inc., its principal operating subsidiary, are as
follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
William M. Gibson . . . . . . . . 52 President, Chief Executive Officer and Chairman of the Board of Directors
Joseph E. Broderick. . . . . . . . 52 Executive Vice President, Client Sales and Services
Kenneth S. Thompson . . . . . . . . 41 Executive Vice President, Supply Chain Products
Keith J. Enstice . . . . . . . . . 46 Senior Vice President, Field Operations Division, Americas
Mary Lou Fox . . . . . . . . . 54 Senior Vice President, Consumer Products Marketing Division and Professional
Services Division
Peter Q. Repetti . . . . . . . . . 35 Vice President, Finance and Administration and Chief Financial Officer
</TABLE>
Mr. Gibson has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since its formation in 1986.
From 1983 until 1986, when it was purchased by the Company, Mr. Gibson served
as President, Chief Executive Officer and Chairman of the Board of Directors of
STSC, Inc. (now Manugistics, Inc.). He joined STSC, Inc. as Executive Vice
President and Chief Operating Officer in 1982.
Mr. Broderick has served as Executive Vice President, Client Sales and
Services since December 1995. From 1991 to 1995, Mr. Broderick served as
President and Chief Operating Officer of Netwise, Inc., a communications
systems software company. From 1990 to 1991, Mr. Broderick served as Vice
President of Sales and Marketing for XA Systems, a productivity tools software
company.
Mr. Thompson has served as Executive Vice President, Supply Chain
Products, since January 1996. From 1990 to 1996, Mr. Thompson served as Senior
Vice President, Supply Chain Products. Mr. Thompson joined the Company in 1990
upon the Company's acquisition of The
25
<PAGE> 26
ROVER Technology Company, a transportation software products and services
company, of which Mr. Thompson had served as Chief Executive Officer.
Mr. Enstice has served as Senior Vice President, Field Operations
Division, Americas, since October 1995. From 1994 to 1995, he served as Senior
Vice President, Channels and Alliances Division, and from 1991 to 1994, Mr.
Enstice served as Vice President, Worldwide Sales. From 1989 until 1991, he
served as Vice President, Marketing. Mr. Enstice joined STSC, Inc. in 1983.
Ms. Fox has served as Senior Vice President, Consumer Products
Marketing Division and Professional Services Division, since April 1993. She
joined the Company in 1982 as a Senior Systems Analyst and subsequently served
in various technical and professional services roles and as Vice President,
Professional Services, from March 1990 through March 1993.
Mr. Repetti has served as Vice President, Finance and Administration
and Chief Financial Officer since April 1996. From 1994 to 1996, Mr. Repetti
served as Vice President, Finance. From 1990 to 1994, he served as Director of
Financial Planning and Analysis for USAir Group, Inc.
There are no family relationships among any of the executive officers
or directors of the Company. Executive officers of the Company are elected by
the Board of Directors on an annual basis and serve at the discretion of the
Board of Directors.
26
<PAGE> 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On May 9, 1997, the Company announced a two-for-one stock split after
the Board of Directors authorized a stock dividend of one share of common stock
for each share held, payable on June 11, 1997 to stockholders of record on May
23, 1997. All share prices provided below have been adjusted to reflect the
stock split.
The Company's common stock, $.002 par value per share, has traded on
The Nasdaq Stock Market under the symbol "MANU" since August 13, 1993. Prior to
the commencement of the Company's initial public offering on that date, there
was no public market for the Company's stock.
The following table sets forth, for the fiscal quarters indicated, the
high and low closing prices per share for the respective quarterly periods, as
reported in published financial sources and adjusted for the two-for-one stock
split disclosed above. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Fiscal Year 1997 High Low
---------------- ---- ---
<S> <C> <C>
First Quarter 8 1/2 5 5/8
(ended May 31, 1996)
Second Quarter 14 1/2 7 1/4
(ended August 31, 1996)
Third Quarter 24 1/8 13 13/16
(ended November 30, 1996)
Fourth Quarter 26 7/8 15 5/8
(ended February 28, 1997)
Fiscal Year 1996 High Low
---------------- ---- ---
First Quarter 7 1/4 5 1/8
(ended May 31, 1995)
Second Quarter 8 1/4 5 3/8
(ended August 31, 1995)
Third Quarter 10 1/4 7
(ended November 30, 1995)
Fourth Quarter 8 3/4 4 3/4
(ended February 28, 1996)
</TABLE>
27
<PAGE> 28
As of April 30, 1997, there were approximately 108 stockholders of
record and approximately 4,000 beneficial owners of the Common Stock, according
to information provided by the Company's transfer agent.
The Company has never declared or paid any cash dividends on its
Common Stock and does not intend to do so in the foreseeable future. It is the
present intention of the Company to retain any future earnings to provide funds
for the operation and expansion of its business. In addition, the Company has
an unsecured committed revolving credit facility with a commercial bank that
will expire on September 30, 1997, unless it is renewed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and Note 5 of Notes to Consolidated Financial
Statements. During the term of the facility, the Company is subject to a
covenant not to declare or pay cash dividends to holders of Common Stock.
Future payment of cash dividends, if any, will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors
as the Board of Directors may deem relevant, and will be subject to the
covenants contained in the credit facility.
28
<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA.
Selected consolidated financial data with respect to the Company for
each of the five fiscal years in the period ended February 28, 1997 are set
forth below. These data should be read in conjunction with the Consolidated
Financial Statements of the Company and related Notes thereto for the
corresponding periods which are contained in Part IV of this Annual Report on
Form 10-K. ON MAY 9, 1997, THE COMPANY'S BOARD OF DIRECTORS AUTHORIZED A STOCK
DIVIDEND OF ONE SHARE OF COMMON STOCK FOR EACH SHARE HELD, PAYABLE ON JUNE 11,
1997 TO STOCKHOLDERS OF RECORD AS OF MAY 23, 1997. ALL SHARE AND PER SHARE DATA
HAVE BEEN ADJUSTED TO REFLECT THIS TWO-FOR-ONE SPLIT.
29
<PAGE> 30
<TABLE>
<CAPTION>
Fiscal Year Ended February 28 or 29,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- -------------- -------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software products $ 50,778 $ 29,494 $ 24,758 $ 19,590 $ 14,731
Consulting, maintenance
and other services 43,944 32,828 24,652 18,371 13,553
--------------- --------------- -------------- -------------- --------------
Total revenues 94,722 62,322 49,410 37,961 28,284
Costs and operating expenses:
Cost of software sold 4,532 2,974 2,842 2,878 2,357
Cost of consulting, maintenance
and other services 19,101 14,614 12,990 9,518 7,850
Sales and marketing 32,909 21,365 16,580 13,374 10,538
Product development 17,380 11,229 7,550 5,011 4,097
General and administrative 8,817 6,080 5,130 3,714 3,437
Purchased research and development 3,697 - - - -
--------------- --------------- -------------- -------------- --------------
Total operating expenses 86,436 56,262 45,092 34,495 28,279
--------------- --------------- -------------- -------------- --------------
Income from operations 8,286 6,060 4,318 3,466 5
Other income (expense) 1,016 1,097 643 146 (92)
--------------- --------------- -------------- -------------- --------------
Net income (loss) before income taxes 9,302 7,157 4,961 3,612 (87)
Provision for income taxes 4,960 2,709 1,740 1,460 188
--------------- --------------- -------------- -------------- --------------
Net income (loss) $ 4,342 $ 4,448 $ 3,221 $ 2,152 $ (275)
=============== =============== ============== ============== ==============
Earnings (loss) per share $ 0.19 $ 0.21 $ 0.16 $ 0.12 $ (0.02)
=============== =============== ============== ============== ==============
Weighted average number of shares
outstanding (1) 22,964 21,628 20,574 18,442 14,926
</TABLE>
Net income for fiscal 1997 included a non-recurring charge to operations
in the amount of $3,697,000 in connection with the write-off of purchased
in-process research and development costs. This charge was not deductible
for income tax purposes. Excluding this item, pro forma net income and
earnings per share would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Pro forma net income $ 8,039 $ 4,448 $ 3,221 $ 2,152 $ (275)
=============== =============== ============== ============== ==============
Pro forma earnings per share $ 0.35 $ 0.21 $ 0.16 $ 0.12 $ (0.02)
=============== =============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
February 28 or 29,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net working capital $ 32,499 $ 29,201 $ 30,484 $ 21,274 $ 240
Total assets 84,323 60,431 49,759 34,665 14,046
Long-term debt, less current portion 220 182 337 528 795
Redeemable preferred stock - - - - 1,000
Total stockholders' equity 53,593 42,942 36,512 24,899 1,374
Pro forma stockholders' equity (2) NA NA NA NA 2,374
</TABLE>
----------------------------------------------
(1) Gives effect to (i) a two-for-one split of the Company's common stock
effected by means of a stock dividend authorized by the Company's Board of
Directors on May 9, 1997, (ii) the issuance of 379,747 shares of Series B
Convertible Preferred Stock on June 7, 1993; and (iii) the automatic
conversion of all outstanding shares of Series A and B Convertible
Preferred Stock into shares of common stock.
(2) For fiscal 1993, gives effect to the automatic conversion of all
outstanding shares of Series A and B Convertible Preferred Stock into
shares of common stock.
30
<PAGE> 31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Manugistics Group, Inc. ("Manugistics" or the "Company") develops,
markets and supports software products for synchronized supply chain management
and provides related services. Synchronized supply chain management refers to
managing the complex interactions involved in the flows of products through the
supply chain, and involves forecasting product demand and coordinating the
timing of distribution, manufacturing, procurement and transportation
activities to meet this demand, not only across an entire enterprise, but also
among an enterprise and its suppliers and customers. The Company believes it is
the only provider of an integrated suite of strategic, tactical and operational
supply chain planning tools including a high level optimizer and products that
address the four key operational areas of supply chain management: demand
planning, supply planning, manufacturing scheduling and transportation
management. Additionally, the Company markets and supports the STATGRAPHICS
personal systems product, which provides statistical tools for quality
management in manufacturing companies. The Company derived approximately 96%,
91%, and 84% of its revenues in fiscal 1997, 1996 and 1995, respectively, from
the Company's supply chain management software and services.
RESULTS OF OPERATIONS
REVENUES:
Software products. The Company's software products license revenues
increased in fiscal 1997 and fiscal 1996 because the Company's sales and
marketing efforts for supply chain management software products were effective,
and because of increased market acceptance of such products. These factors more
than offset decreased revenues from the personal systems software product. In
fiscal 1997, software products revenues increased to approximately 54% of total
revenues. This increase resulted from the Company's effective sales and
marketing and because the Company increased its resources devoted to generating
software products revenues more rapidly than its resources for producing
services revenues. See "Costs of Revenues and Operating Expenses." In fiscal
1996, software products revenues decreased to approximately 47% of total
revenues from approximately 50% in fiscal 1995, largely because consulting,
maintenance and other services revenues increased at a greater rate than
software products revenues. Although the percentage of total revenues
represented by software products revenues has varied in the past and is likely
to continue to vary, management of the Company anticipates that software
products revenues are likely to represent approximately 50% to 55% of total
revenues for fiscal 1998. See "Forward Looking Statements."
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Supply chain management $ 47,820 91% $ 25,070 29% $ 19,505
Percentage of total revenues 50.5% 40.2% 39.5%
Personal systems $ 2,958 -33% $ 4,424 -16% $ 5,253
Percentage of total revenues 3.1% 7.1% 10.6%
-------------- -------------- --------------
Total software products revenues $ 50,778 72% $ 29,494 19% $ 24,758
Percentage of total revenues 53.6% 47.3% 50.1%
</TABLE>
31
<PAGE> 32
Supply chain management. Software products license revenues increased
in fiscal 1997 because of increases in the number of licenses and the average
license fee per transaction. These increases occurred largely because the
Company increased the number of its sales and marketing employees, the
Company's sales productivity initiatives generated results, contributions from
the Company's international operations increased significantly and Manugistics'
alliances with complementary software companies and consulting firms led to
additional revenues. In addition, revenues increased because of increased
market acceptance of the Company's products, including new product offerings
and new versions released during fiscal 1997, which resulted in part from the
recognition by prospects and customers that they could rapidly realize
significant benefits from effective supply chain management. These companies
licensed the Company's software to help them obtain these benefits.
In fiscal 1996, software products license revenues increased primarily
because of an increase in the number of licenses. This increase resulted from
increased market acceptance of the Company's products and from an increase in
the Company's sales and marketing efforts, which was made possible largely by
the addition of sales and marketing employees. In addition, the Company
generated a small amount of revenues during the fourth fiscal quarter through
its alliances with complementary firms.
In fiscal 1997, 1996 and 1995, the Company derived the substantial
majority of its software license revenues from direct sales. However, the
Company has embarked on a strategy of expanding its product distribution
through alliances with complementary software vendors. Consequently, the
Company anticipates that software license revenues derived from indirect sales
by these complementary vendors will increase as a proportion of software
license revenues. See "Forward Looking Statements."
Personal systems. Software products license revenues decreased in
fiscal 1997 and fiscal 1996 primarily because customers and prospective
customers selected competing products and because the Company sold the assets
of its APL*PLUS business for UNIX and personal computer systems effective
October 1, 1995. Following this disposition, the only personal systems product
that the Company has marketed is STATGRAPHICS and the Company has decreased the
resources dedicated to that product. Management of the Company believes that
demand for STATGRAPHICS will continue to decrease.
Consulting, maintenance and other services. Revenues from consulting,
maintenance and other services increased in fiscal 1997 and fiscal 1996
principally as a result of increased demand for supply chain management
consulting and maintenance services from a growing base of customers that have
licensed the Company's supply chain management software.
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Supply chain management $ 43,120 36% $ 31,629 42% $ 22,205
Percentage of total revenues 45.5% 50.8% 44.9%
Personal systems $ 824 -31% $ 1,199 -51% $ 2,447
Percentage of total revenues 0.9% 1.9% 5.0%
-------------- -------------- --------------
Total consulting, maintenance
and other services revenues $ 43,944 34% $ 32,828 33% $ 24,652
Percentage of total revenues 46.4% 52.7% 49.9%
</TABLE>
32
<PAGE> 33
Supply chain management. Revenues from consulting and other services
increased in both the Americas and Europe in conjunction with (1) increases in
the number and average value of licenses of software products by new and
existing clients, which generally involve implementation and other consulting
services, and (2) the purchase of additional consulting services by established
clients.
Maintenance revenues have increased following the increase in the
installed base of customers that have licensed the Company's software products
and entered into maintenance contracts. Maintenance revenues tend to track
software products sold in prior periods. In the past three fiscal years,
approximately 90% to 95% of customers with maintenance contracts have renewed
these contracts.
Personal systems. Consulting, maintenance and other services revenues
decreased because of declines in maintenance and services revenues, which
decreased largely because the Company, consistent with its decision to focus on
its supply chain management business and in response to decreased demand for
personal systems products, disposed of the assets of its APL*PLUS business for
UNIX and personal computer systems in October 1995.
COSTS OF REVENUES AND OPERATING EXPENSES:
General. In fiscal 1998, the Company plans to continue to incur
relatively high levels of both sales and marketing expenditures and product
development expenditures as it pursues its strategies of expanding its business
into new geographic and other markets and expanding its distribution through
alliances and rapidly developing and delivering new product features and
functions. The percentage of revenues represented by these items may vary
because the Company's total quarterly and annual revenues have varied in the
past and are likely to continue to vary. Also, the percentages of revenues
represented by sales and marketing expenses, product development and the cost
of services can be affected by the total amount of expenses associated with new
employees and by the timing delays between the dates that these employees begin
work and the dates they first become productive after training.
33
<PAGE> 34
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Cost of software sold $ 4,532 52% $ 2,974 5% $ 2,842
Percentage of total revenues 4.8% 4.8% 5.7%
Cost of consulting, maintenance
and other services $ 19,101 31% $ 14,614 13% $ 12,990
Percentage of total revenues 20.2% 23.4% 26.3%
Sales and marketing $ 32,909 54% $ 21,365 29% $ 16,580
Percentage of total revenues 34.7% 34.3% 33.6%
Product development $ 17,380 55% $ 11,229 49% $ 7,550
Percentage of total revenues 18.3% 18.0% 15.3%
General and administrative $ 8,817 45% $ 6,080 19% $ 5,130
Percentage of total revenues 9.3% 9.8% 10.4%
-------------- -------------- --------------
Total operating expenses excluding
purchased research and development $ 82,739 47% $ 56,263 25% $ 45,092
Percentage of total revenues 87.3% 90.3% 91.3%
-------------- -------------- --------------
Purchased research and development $ 3,697 $ - $ -
Percentage of total revenues 3.9%
-------------- -------------- --------------
Total operating expenses $ 86,436 54% $ 56,262 25% $ 45,092
Percentage of total revenues 91.2% 90.3% 91.3%
</TABLE>
Cost of software sold. Cost of software sold includes 1) amortization
of capitalized software development costs and 2) cost of goods. The Company
amortizes capitalized software development costs over a product's estimated
economic life, generally two years, commencing when a product is available for
general commercial release.
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Amortization of capitalized software $ 3,543 59% $ 2,228 18% $ 1,884
Percentage of software products revenues 7.0% 7.6% 7.6%
Cost of goods $ 989 33% $ 746 -22% $ 958
Percentage of software products revenues 1.9% 2.5% 3.9%
-------------- -------------- --------------
Cost of software sold $ 4,532 52% $ 2,974 5% $ 2,842
Percentage of software products revenues 8.9% 10.1% 11.5%
</TABLE>
The cost of software sold increased in fiscal 1997 because
amortization increased following the general commercial release of additional
supply chain management software products for which costs had previously been
capitalized. The amount of capitalized software development costs has increased
in recent years as the Company has increased its gross product development
expenditures for supply chain management software. See "Results of Operations
- -- Product development." Cost of goods expenses increased in fiscal 1997 mainly
because of a write-off of obsolete and slow-moving inventory.
The cost of software sold decreased as a percentage of software
products revenues in fiscal 1997 from fiscal 1996 largely because software
products revenues increased more rapidly than the cost of software sold.
34
<PAGE> 35
The cost of software sold increased in fiscal 1996 because the amount
of the increase in amortization was more than the amount of the decrease in
cost of goods. Cost of goods expenses decreased in fiscal 1996 because of
decreases in the number of units of personal systems products that were sold
and decreases in the per-unit costs of certain personal systems products.
The cost of software sold decreased as a percentage of software
products revenues in fiscal 1996 from fiscal 1995 because software products
revenues increased at a greater rate than the cost of software sold and because
supply chain management products, which generally have a proportionately lower
cost of goods per product, constituted a higher proportion of total software
products revenues. Cost of software sold increased less rapidly than software
products revenues because of the decrease in the cost of goods component.
Cost of consulting, maintenance and other services. The cost of
consulting, maintenance and other services increased in fiscal 1997 primarily
because the Company added personnel in both North America and Europe to provide
the consulting and maintenance services that generated the corresponding
increase in supply chain management revenues from consulting, maintenance and
other services.
As a percentage of consulting, maintenance and other services
revenues, the cost of consulting, maintenance and other services decreased in
fiscal 1997 largely because a portion of the increase in corresponding revenues
was generated by maintenance and product support, which can be provided more
efficiently by serving a larger client base, and because of improved
utilization of the Company's consulting employees.
In fiscal 1996, the cost of consulting, maintenance and other services
increased primarily because the Company added consulting personnel, primarily
in North America. The increase in the cost of consulting services was partially
offset by a decrease in the cost of maintenance. Maintenance expenses decreased
in part because the Company created a smaller, more focused group to provide
maintenance services and because of improved software quality. In addition, the
engineering resources devoted to maintenance decreased because the quality of
the Company's software products increased as a result of the Company's
effective design and development processes, for which Manugistics' headquarters
office received ISO 9001 certification in December 1994.
As a percentage of consulting, maintenance and other services
revenues, the cost of consulting, maintenance and other services decreased in
fiscal 1996 principally because a portion of the increase in the corresponding
revenues was generated by maintenance and product support, the cost of which
decreased and which can be provided more efficiently by serving a larger client
base.
Sales and marketing. Sales and marketing expenses increased in fiscal
1997 and fiscal 1996 because the Company increased its sales and marketing
resources in the U.S. and Europe and increased its marketing expenses in
connection with expanded product offerings. The Company also incurred increased
commission expenses as a result of greater software products license revenues.
As a percentage of total revenues, sales and marketing expenses increased in
fiscal 1997 principally because these expenses increased at a more rapid rate
than total revenues. The Company is continuing to hire and train additional
employees and to make other expenditures as it pursues its strategy of
expanding its business into new geographic and other markets and expanding its
distribution through alliances. As a percentage of fiscal 1996 revenues, sales
and
35
<PAGE> 36
marketing expenses increased largely because the Company hired several new
sales employees late in the year.
Product development. The Company records product development expenses
net of capitalized software development costs.
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Gross product development costs $ 24,223 50% $ 16,144 63% $ 9,900
Percentage of total revenues 25.6% 25.9% 20.0%
Less: Capitalized prod. dev. costs $ 6,843 39% $ 4,915 109% $ 2,350
Percentage of gross prod. dev. costs 28.3% 30.4% 23.7%
-------------- -------------- --------------
Product development expenses $ 17,380 55% $ 11,229 49% $ 7,550
Percentage of total revenues 18.3% 18.0% 15.3%
</TABLE>
Gross product development costs for fiscal 1997 and fiscal 1996
increased primarily because the Company employed more developers of supply
chain management software. The Company hired these developers to develop new
software products and new versions of existing products, and to incorporate new
technologies into the Company's product offerings. As a percentage of total
revenues, net product development expenses increased in fiscal 1997 and fiscal
1996 largely because these expenses increased at a greater rate than total
revenues. In fiscal 1998, the Company plans to continue to incur significant
product development expenditures as it pursues its strategy of rapidly
developing and delivering new products and new product features and functions.
See "Forward Looking Statements."
General and administrative. General and administrative expenses
increased in fiscal 1997 and fiscal 1996 primarily because of expenses
associated with supporting an organization with more employees and a greater
geographic scope. As a percentage of total revenues, general and administrative
expenses decreased in fiscal 1997 and fiscal 1996 because the Company was able
to use its base of administrative resources to support a larger organizational
structure.
Purchased research and development. During the first quarter of fiscal
1997, the Company acquired by merger all of the outstanding capital stock of
Avyx, Inc., a developer and services provider of custom manufacturing
scheduling systems. The Company incurred a non-recurring charge to operations
of $3.7 million ($.16 per share) in connection with the write-off of purchased
in-process research and development costs. This one-time charge affected the
Company's operating performance for fiscal 1997. See Note 4 of Notes to
Consolidated Financial Statements.
36
<PAGE> 37
INCOME FROM OPERATIONS:
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Income from operations excluding $ 11,983 98% $ 6,060 40% $ 4,318
purchased research and development
Percentage of total revenues 12.7% 9.7% 8.7%
Purchased research and development $ 3,697 $ - $ -
Percentage of total revenues 3.9%
Income from operations $ 8,286 37% $ 6,060 40% $ 4,318
Percentage of total revenues 8.7% 9.7% 8.7%
</TABLE>
OTHER INCOME:
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Other income (expense) $ 1,016 -7% $ 1,097 71% $ 643
Percentage of total revenues 1.1% 1.8% 1.3%
</TABLE>
Other income (expense) includes income from short term investments,
interest expense, foreign currency exchange gains or losses, and other gains or
losses. Other income decreased in fiscal 1997 because of slight changes in the
various components. Other income increased in fiscal 1996 because income from
short term investments increased.
PROVISION FOR INCOME TAXES:
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Pro forma income taxes $ 3,555 31% $ 2,709 56% $ 1,740
Percentage of income before taxes 38.2% 37.9% 35.1%
Percentage of total revenues 3.8% 4.3% 3.5%
Income tax related to
purchased research and development $ 1,405 $ - $ -
Income taxes $ 4,960 83% $ 2,709 56% $ 1,740
Percentage of income before taxes 53.3% 37.9% 35.1%
Percentage of total revenues 5.2% 4.3% 3.5%
</TABLE>
The effective tax rate represented by the Company's provision for
income taxes in fiscal 1997 was approximately 53%, primarily because the
expenses associated with the Company's write-off of purchased research and
development costs during the first quarter of fiscal 1997 were not deductible
for tax purposes. Excluding the effect of this write-off on taxable income, the
pro forma effective tax rate would have been approximately 38%. Management of
the Company believes that, in fiscal 1998, the effective tax rate of the
Company on a consolidated basis is likely to be approximately 39%, excluding
one-time charges taken in connection with acquisitions or other transactions.
This estimate is based on current domestic and foreign tax law and is thus
subject to change. See Note 9 of Notes to Consolidated Financial Statements.
37
<PAGE> 38
The effective tax rate represented by the Company's provision for
income taxes in fiscal 1996 was approximately 38%, largely because of a
reduction of a valuation allowance associated with net operating losses of the
Company's Germany subsidiary, which more than offset higher marginal tax rates
applicable to certain income generated by the Company's foreign subsidiaries.
NET INCOME AND EARNINGS PER SHARE:
<TABLE>
<CAPTION>
Fiscal year ended February 28 or 29,
------------------------------------------------
1997 Change 1996 Change 1995
------ ------- ------ ------ ------
<S> <S> <C> <C> <C> <C>
Net income excluding $8,039 81% $4,448 38% $3,221
purchased research and development
Percentage of total revenues 8.5% 7.1% 6.5%
Purchased research and development $3,697
------ ------ ------
Net income $4,342 -2% $4,448 38% $3,221
Percentage of total revenues 4.6% 7.1% 6.5%
====== ====== ======
Earnings per share excluding $0.35 67% $0.21 31% $0.16
purchased research and development
Purchased research and development $0.16
------ ------ ------
Earnings per share $0.19 10% $0.21 31% $0.16
====== ====== ======
Weighted average common shares
and equivalent shares outstanding 22,964 21,628 20,574
====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
February 28 or 29,
-----------------------------------------------------------------------------
1997 Change 1996 Change 1995
-------------- ---------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Working capital $ 32,499 11% $ 29,201 -4% $ 30,484
Cash, cash equivalents
and marketable securities $ 22,174 -6% $ 23,479 -6% $ 24,965
</TABLE>
The Company has historically financed its growth primarily through
funds generated from operations and through proceeds from offerings of capital
stock. The increase in working capital at February 28, 1997 from February 29,
1996 resulted principally from increases in the Company's accounts receivable
and cash balances, which more than offset a decrease in marketable securities
resulting from the Company's payments in May 1996 in connection with the
acquisition of Avyx, Inc. See Note 4 of Notes to Consolidated Financial
Statements.
The Company's operating activities provided cash of $14.2 million,
$9.4 million and $6.6 million in fiscal 1997, 1996 and 1995, respectively.
Operating cash flows increased largely because the cash flows resulting from
net income were augmented by increases in non-cash expenses and increases in
deferred revenues, accrued compensation, other accrued liabilities and income
taxes payable, and offset by increases in accounts receivable. At fiscal 1997
year end, accounts receivable were $37.1 million, compared to $19.3 million at
fiscal 1996 year end, primarily as a result of increases in the number and size
of software license transactions. Deferred
38
<PAGE> 39
revenue increased from $6.7 million to $14.0 million because of growth in
software licensing activity and increases in related services and maintenance
revenues.
Investing activities used cash of $13.5 million, $9.6 million and
$10.8 million in fiscal 1997, 1996 and 1995, respectively. Sales of marketable
securities provided cash, but the amounts provided were more than offset by
cash used for purchases of property and equipment, capitalization of software
development costs, purchases of marketable securities and acquisitions. In
accordance with its strategies for positioning itself to be able to meet
anticipated demand for supply chain management software and of rapidly
delivering new product features and functions, the Company used cash to acquire
computer and other equipment, to expand its facilities and to expand its
product development efforts.
Financing activities provided cash of $2.4 million, $0.7 million and
$6.8 million in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, cash
from financing activities was derived primarily from the exercise of stock
options and the issuance of stock under stock purchase plans. See Note 6 of
Notes to Consolidated Financial Statements. In fiscal 1995, the Company
received approximately $6.8 million from the private placement of 490,000
newly-issued shares of common stock.
The Company has an unsecured committed revolving credit facility with
a commercial bank. Under the terms of the facility, the Company may request
advances in the aggregate amount of up to $10 million. The Company may make
borrowings under the facility for short-term working capital purposes or for
acquisitions. (Acquisition-related borrowings are limited to $7.5 million per
acquisition.) The facility contains certain financial covenants that the
Company believes are typical for a facility of this nature and amount. This
facility succeeds a similar facility that the Company maintained with two
commercial banks, one of which is the lender under the current facility, and
will expire in September 1997, unless renewed. There were no amounts
outstanding under this facility at February 28, 1997.
During the first quarter of fiscal 1998, the Company and Information
Resources, Inc. ("IRI") entered into agreements relating to the Company's
development of a supply chain planning solution that will incorporate IRI's
point-of-sale scanner data into the Company's supply chain management software.
Under the agreements, the Company paid $1.5 million to IRI and the Company will
market IRI's point-of-sale data and will have l0-year, exclusive rights among
supply chain software vendors in most geographic markets to incorporate IRI's
data, the Company and IRI will resell certain of each other's products, and the
Company might acquire certain other products of IRI (subject to the
satisfaction of certain contingencies).
As part of these agreements, the Company has committed that it will
generate a minimum of $16.5 million in revenues for IRI from specified products
over periods of approximately one to three years, beginning after the
occurrence of certain events. This commitment is subject to the satisfaction
of significant contingencies specified in the agreements. Although the Company
currently anticipates that it will be able to produce a sufficient amount of
qualifying revenues to satisfy its commitment, if the Company is unable to
generate the minimum annual revenues set forth in the agreements, it will be
obligated to pay to IRI from its own funds an amount equal to the difference
between the qualifying revenues generated and the required minimum, which could
result in a decrease in working capital.
39
<PAGE> 40
The Company investigates potential candidates for acquisition, joint
venture opportunities or other relationships on an ongoing basis. Depending on
certain factors, including the amount, nature, method and timing of the
consideration to be paid by the Company, any such acquisitions, transactions or
relationships might result in a decrease in working capital.
The Company believes that existing cash balances, marketable
securities, funds generated from operations and amounts available under the
revolving credit facility will be sufficient to meet its anticipated liquidity
and working capital requirements for the next 12 to 18 months. If the Company
decides to expand its operations more rapidly, to broaden or enhance its
products more rapidly, to acquire businesses or technologies or to make other
significant expenditures to respond to market opportunities or competitive
pressures, then the Company may need additional funds at an earlier time.
FORWARD LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section and the "Business" section of this Annual Report
on Form l0-K contain certain forward looking statements that are subject to a
number of risks and uncertainties. In addition, the Company may publish forward
looking statements from time to time relating to such matters as anticipated
financial performance, business prospects and strategies, technological
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of l995 provides a safe
harbor for forward looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated or other expectations expressed in the Company's forward looking
statements in this Annual Report or elsewhere in the future. The risks and
uncertainties that may affect the business, operating results or financial
condition of the Company include those set forth above under "Risk Factors" and
the following:
The Company believes that the market for supply chain management
software is expanding rapidly. If market demand for the Company's products does
not continue to grow rapidly, because of such factors as adverse changes in
domestic or international business and economic conditions, the timely
availability and acceptance of the Company's products, technological change or
the effect of competitive products and pricing, software license revenue growth
could be adversely affected.
Revenues for any period depend on the volume, timing and size of
license agreements. The Company typically ships software products shortly after
license agreements are signed, and, therefore, does not maintain any material
contract backlog. The timing of license agreements is difficult to forecast
because software sales cycles are affected by the size of transactions and
other external factors such as general business or economic conditions or
competitors' actions. A small variation in the timing of software licensing
transactions, particularly at or near the end of any quarter or year, can cause
significant variations in software products license revenues in any period.
There can be no assurance that the Company will be able to attract
complemenatary software vendors, consulting firms or other organizations that
will be able to market the Company's products effectively or that will be
qualified to provide timely and cost-effective customer support and service. In
addition, there can be no assurance that any
40
<PAGE> 41
organization will continue its involvement with the Company and its products,
and the loss of important organizations could materially adversely affect the
Company's results of operations.
The timing of releases of the Company's software products can be
affected by client needs, marketplace demands and technological advances.
Development plans frequently change, and it is difficult to predict with
accuracy the release dates for products in development.
41
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements and supplementary
data, together with the report of Deloitte & Touche LLP, independent auditors,
are included in Part IV of this Form 10-K. Reference is made to the "Index to
Consolidated Financial Statements" on page 41.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
41
<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the information set forth in the definitive Proxy
Statement relating to the 1997 Annual Meeting of Stockholders (to be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year ended February 28, 1997) (the "Proxy Statement") under
the caption "Election of Directors," and to the information set forth in Part I
of this Annual Report on Form 10-K regarding executive officers under the
caption "Item 4A. Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the information set forth in the Proxy Statement
under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the information set forth in the Proxy Statement
under the caption "Ownership of Common Stock."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information set forth in the Proxy Statement
under the caption "Certain Business Relationships."
42
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of this Report:
(1) Financial Statements:
<TABLE>
<CAPTION>
Page Number
In This Report
--------------
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets as of February 28, 1997
and February 29, 1996 F-2
Consolidated Statements of Operations for Each of the Three Years in
the Period Ended February 28, 1997 F-3
Consolidated Statements of Stockholders' Equity for Each of the Three
Years in the Period Ended February 28, 1997 F-4
Consolidated Statements of Cash Flows for Each of the Three Years in
the Period Ended February 28, 1997 F-5
Notes to Consolidated Financial Statements F-6
The financial statements listed above and the financial statement schedule listed below are
filed as part of this Annual Report on Form 10-K.
(2) Financial Statement Schedule:
(A) Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
Schedules other than the one listed above are omitted because they are
not required or are not applicable, or the required information is shown in the
consolidated financial statements or notes thereto contained in this Annual
Report on Form 10-K.
43
<PAGE> 45
(3) Exhibits
The exhibits required by Item 601 of Regulation S-K are listed below
and are filed or incorporated by reference as part of this Annual Report on
Form 10-K. Exhibits 10.1, 10.2, 10.3, 10.11, 10.12 and 10.15 are compensatory
plans required to be filed as exhibits pursuant to Item 14(c) of this report.
<TABLE>
<CAPTION>
Number Notes Description
- ------ ----- -----------
<S> <C> <C>
2.1 (B)(i) Asset Purchase Agreement dated as of the 19th of
May, 1994 by and among Manugistics (Deutschland)
GmbH, Societe de Traitments et de Services
Conversationnels S.A., Dr. Rudolf Lewandowski,
sole proprietor of Marketing Systems SP, Marketing
Systems S.A.R.L. and Dr. Rudolf Lewandowski, as
amended.
2.2 (B) Shareholders' Agreement dated May 19, 1994 between
Manugistics Group, Inc. and Dr. Rudolf Lewandowski,
individually and d/b/a Marketing Systems SP.
2.3 (B) Guaranty dated May 19, 1994 by the Company in favor
of Marketing Systems SP.
3.1 (A) Certificate of Incorporation of the Company, as amended.
3.2 (A) Amended and Restated By-Laws of the Company.
10.1 (J) Employee Incentive Stock Option Plan of the Company,
as amended.
10.2 (J) Employee Stock Option Plan of the Company, as amended.
10.3 (A) Merger Stock Option Plan of the Company, as amended.
10.4 (A) Form of Notice of Grant of Option pursuant to the
Director Stock Option Plan.
10.7 (A) Lease Agreement dated May 1, 1992 between the Company
and GTE Realty Corporation.
10.7(a) (E) First Amendment to Lease Agreement dated July 19, 1993
between the Company and GTE Realty Corporation.
10.7(b) (E) Second Amendment to Lease Agreement dated April 13,
1994 between the Company and East Jefferson Associates.
</TABLE>
44
<PAGE> 46
<TABLE>
<S> <C> <C>
10.7(c) (E) Third Amendment to Lease Agreement dated May 1, 1994
between the Company and East Jefferson Associates.
10.7(d) (E) Fourth Amendment to Lease Agreement dated February 27,
1996 between the Company and East Jefferson
Associates.
10.7(e) Fifth Amendment to Lease Agreement dated September 6,
1996 between the State of Maryland and the Company
10.7(f) Sixth Amendment to Lease Agreement dated October 10,
1996 between the State of Maryland and the Company
10.7(g) Seventh Amendment to Lease Agreement dated April 25,
1997 between the State of Maryland and the Company
10.10 Agreement dated July 26, 1994 between the Company and
The Dun & Bradstreet Corporation, as amended
10.11 (D) Outside Directors Non-Qualified Stock Option Plan
10.12 (D) Executive Incentive Stock Option Plan
10.13 (H) Financing Agreement dated as of April 24, 1996 by and
among the Company, NationsBank, N.A. and Silicon
Valley Bank, N.A.
10.14 (H) Form of Revolving Promissory Note dated April 24, 1996
by the Company in favor of NationsBank, N.A.
10.15 (F) Employee Stock Purchase Plan of the Company
(previously identified as Exhibit 10.14)
10.16 (G)(i) Purchase Agreement dated November 20, 1995 by and
among Manugistics, Inc., Dr. Rudolf Lewandowski and
Marketing Systems S.A.R.L.
10.17 (H) Sublease dated May 5, 1995 between the Company and
NationsBank, N.A., as amended
10.18 (I) Agreement and Plan of Merger dated May 24, 1996
between Avyx, Inc., Manugistics Acquisition, Inc. and
the Company
10.19 (I) Consulting Agreement dated May 24, 1996 between The
Kendall Group, Inc. and the Company
</TABLE>
45
<PAGE> 47
<TABLE>
<S> <C> <C>
10.20 (I) Confidentiality, Non-Competition and Non-Solicitation
Agreement dated May 24, 1996 between the Company and
John K. Willoughby and Jo Anne Gardner
10.21 (K) Financing Agreement dated as of September 30, 1996 by
and among the Company and NationsBank, N.A.
10.22 (K) Form of Revolving Promissory Note dated September 30,
1996 by the Company in favor of NationsBank, N.A.
10.23 Sublease Agreement between CTA Incorporated and the
Company dated May 23, 1996
10.24 (ii) Data Marketing and Guaranteed Revenue Agreement dated
March 7, 1997 between the Company and Information
Resources, Inc.
10.25 (ii) Asset Purchase Agreement dated March 7, 1997 between
Manugistics, Inc., Manugistics Services, Inc., IRI
Logistics, Inc. and Information Resources, Inc.
11 Statement re: Computation of Per Share Earnings
21 Subsidiaries of the Company
23 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
46
<PAGE> 48
(A) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S
REGISTRATION STATEMENT ON FORM S-1 (NO. 33-65312).
(B) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MAY 31, 1994.
(C) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S CURRENT
REPORT ON FORM 8-K DATED JULY 27, 1994.
(D) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1994.
(E) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1995.
(F) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1995.
(G) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1995.
(H) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996.
(I) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MAY 31, 1996.
(J) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S
DEFINITIVE PROXY STATEMENT RELATING TO THE 1996 ANNUAL MEETING OF SHAREHOLDERS
DATED JUNE 20, 1996.
(K) INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1996.
(i) CONFIDENTIAL TREATMENT PREVIOUSLY GRANTED FOR CERTAIN PORTIONS OF THIS
EXHIBIT.
(ii) CONFIDENTIAL TREATMENT REQUESTED FOR CERTAIN PORTIONS OF THIS EXHIBIT.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended
February 28, 1997.
46
<PAGE> 49
(c) Exhibits
See the response to Item 14(a)(3) above.
(d) Financial Statement Schedules
The financial statement schedule required to be filed is listed in the
response to Item 14(a)(2) above, and appears on page S-2 of this
report.
47
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on May 28, 1997.
MANUGISTICS GROUP, INC.
(Registrant)
By:/s/William M. Gibson
----------------------
William M. Gibson
President, Chief Executive Officer
and Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on May 28, 1997.
<TABLE>
<S> <C>
/s/William M. Gibson /s/Peter Q. Repetti
---------------------- -----------------------
William M. Gibson Peter Q. Repetti
President, Chief Executive Officer and Vice President, Finance and Administration
Chairman of the Board of Directors and Chief Financial Officer
(Principal executive officer) (Principal financial officer and
principal accounting officer)
/s/Jack A. Arnow /s/Joseph H. Jacovini
---------------------- -----------------------
Jack A. Arnow Joseph H. Jacovini
Director Director
/s/J. Michael Cline /s/William G. Nelson
---------------------- -----------------------
J. Michael Cline William G. Nelson
Director Director
/s/ Lynn C. Fritz /s/Thomas A. Skelton
---------------------- -----------------------
Lynn C. Fritz Thomas A. Skelton
Director Director
</TABLE>
47
<PAGE> 51
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Manugistics Group, Inc.:
We have audited the accompanying consolidated balance sheets of Manugistics
Group, Inc. (the Company) and its subsidiaries as of February 28, 1997 and
February 29, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended February 28, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
at February 28, 1997 and February 29, 1996, and the results of their operations
and their cash flows for each of the three years in the period ended February
28, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, on May 9,
1997, the Directors of the Company declared a two-for-one stock split to be
paid in the form of a stock dividend effective June 11, 1997 to shareholders of
record as of May 23, 1997. All applicable share and per share amounts have
been adjusted to reflect the stock split.
DELOITTE & TOUCHE LLP
Washington, D.C.
March 28, 1997 (except Note 12 as to which the date is May 9, 1997)
F-1
<PAGE> 52
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
--------------------------------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,543 $ 4,921
Marketable securities 13,631 18,558
Accounts receivable (net of allowance for returns and
uncollectible accounts - 1997, $1,215; 1996, $711) 37,093 19,281
Prepaid expenses and other current assets 1,221 1,354
Deferred taxes 1,054 809
-------------- ---------------
Total current assets 61,542 44,923
PROPERTY AND EQUIPMENT - Net 10,355 6,046
OTHER NONCURRENT ASSETS:
Software development costs (net of accumulated
amortization - 1997, $6,375; 1996, $2,956) 9,932 6,084
Intangibles (net of accumulated amortization -
1997, $1,943; 1996, $992) 2,130 2,927
Other noncurrent assets 364 451
-------------- ---------------
TOTAL $ 84,323 $ 60,431
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,244 $ 3,282
Accrued compensation 6,181 1,727
Other accrued expenses 3,393 3,184
Deferred revenue 13,808 6,652
Current portion of long-term debt 191 155
Income taxes payable 1,226 722
-------------- ---------------
Total current liabilities 29,043 15,722
LONG-TERM DEBT 220 182
DEFERRED TAXES 1,467 1,585
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock - $.002 par value; 30,000,000 shares
authorized; shares issued, 22,429,414 in 1997;
10,846,502 in 1996; shares outstanding,
21,676,904 in 1997; 10,456,247 in 1996 44 22
Additional paid-in capital 38,837 33,131
Retained earnings 14,970 10,628
Translation adjustment 459 (95)
Treasury stock - shares at cost, 752,510 in 1997; 390,255 in 1996 (717) (744)
-------------- ---------------
Total stockholders' equity 53,593 42,942
-------------- ---------------
TOTAL $ 84,323 $ 60,431
============== ===============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 53
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
---------------------------------------------
1997 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Software products $ 50,778 $ 29,494 $ 24,758
Consulting, maintenance and other services 43,944 32,828 24,652
--------- --------- ---------
Total revenues 94,722 62,322 49,410
--------- --------- ---------
OPERATING EXPENSES:
Cost of software sold 4,532 2,974 2,842
Cost of consulting, maintenance and other services 19,101 14,614 12,990
Sales and marketing 32,909 21,365 16,580
Product development 17,380 11,229 7,550
General and administrative 8,817 6,080 5,130
Purchased research and development 3,697 - -
--------- --------- ---------
Total operating expenses 86,436 56,262 45,092
--------- --------- ---------
INCOME FROM OPERATIONS 8,286 6,060 4,318
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income 1,201 1,204 717
Interest expense (58) (91) (59)
Other (127) (16) (15)
--------- --------- ---------
Other income - net 1,016 1,097 643
--------- --------- ---------
INCOME BEFORE INCOME TAXES 9,302 7,157 4,961
PROVISION FOR INCOME TAXES 4,960 2,709 1,740
--------- --------- ---------
NET INCOME $ 4,342 $ 4,448 $ 3,221
========= ========= =========
EARNINGS PER SHARE $0.19 $0.21 $0.16
========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
AND EQUIVALENT SHARES OUTSTANDING
22,964 21,628 20,574
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 54
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 and FEBRUARY 28, 1995
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS
<S> <C> <C> <C> <C>
BALANCE, MARCH 1, 1994 9,853 $ 20 $ 22,819 $ 2,959
Issuance of common stock 490 1 6,837 -
Tax benefit of options exercised - - 1,065 -
Exercise of stock options 189 - 228 -
Amortization of deferred compensation - - - -
Translation adjustment - - - -
Net income - - - 3,221
------------- ------ ----------- ----------
BALANCE, FEBRUARY 28, 1995 10,532 21 30,949 6,180
Issuance of common stock 42 - 377 -
Tax benefit of options exercised - - 1,056 -
Exercise of stock options 273 1 538 -
Issuance of treasury stock - - 211 -
Amortization of deferred compensation - - - -
Translation adjustment - - - -
Net Income - - - 4,448
------------- ------ ----------- ----------
BALANCE, FEBRUARY 29, 1996 10,847 22 33,131 10,628
Issuance of common stock 50 - 733 -
Tax benefit of options exercised - - 2,591 -
Exercise of stock options 318 - 1,907 -
Fair value of options issued - - 217 -
Compensation expense - - 69 -
Issuance of treasury stock - - 211 -
Translation adjustment - - - -
Net Income - - - 4,342
Two-for-one stock split 11,214 22 (22) -
------------- ------ ----------- ----------
BALANCE, FEBRUARY 28, 1997 22,429 $44 $ 38,837 $ 14,970
============= ====== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
TRANSLATION TREASURY DEFERRED
ADJUSTMENT STOCK COMPENSATION TOTAL
<S> <C> <C> <C> <C>
BALANCE, MARCH 1, 1994 $ (86) $ (771) $ (42) $24,899
Issuance of common stock - - - 6,838
Tax benefit of options exercised - - - 1,065
Exercise of stock options - - - 228
Amortization of deferred compensation - - 30 30
Translation adjustment 231 - - 231
Net income - - - 3,221
--------------- ----------- ----------------- --------
BALANCE, FEBRUARY 28, 1995 145 (771) (12) 36,512
Issuance of common stock - - - 377
Tax benefit of options exercised - - - 1,056
Exercise of stock options - - - 539
Issuance of treasury stock - 27 - 238
Amortization of deferred compensation - - 12 12
Translation adjustment (240) - - (240)
Net Income - - - 4,448
--------------- ----------- ----------------- --------
BALANCE, FEBRUARY 29, 1996 (95) (744) - 42,942
Issuance of common stock - - - 733
Tax benefit of options exercised - - - 2,591
Exercise of stock options - - - 1,907
Fair value of options issued - - - 217
Compensation expense - - - 69
Issuance of treasury stock - 27 - 238
Translation adjustment 554 - - 554
Net Income - - - 4,342
Two-for-one stock split - - - -
--------------- ----------- ----------------- --------
BALANCE, FEBRUARY 28, 1997 $ 459 $ (717) - $ 53,593
=============== =========== ================= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 55
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
----------------------------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,342 $ 4,448 $ 3,221
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,986 4,543 3,432
Write-off of purchased research and development 3,697 - -
Other 345 466 (135)
Changes in assets and liabilities (net of the
effects of acquisitions):
Accounts receivable (17,642) (4,096) (4,033)
Prepaid expenses and other current assets 137 (408) 373
Other noncurrent assets 97 32 (86)
Accounts payable and accrued expenses 629 2,276 740
Accrued compensation 4,454 (169) 598
Deferred revenue 7,047 863 1,136
Income taxes payable 3,095 1,468 1,347
------------ ------------- ------------
Net cash provided by operating activities 14,187 9,423 6,593
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 7,933 5,570 2,635
Purchase of marketable securities (3,006) (3,662) (7,435)
Purchase of property and equipment (7,130) (5,126) (1,803)
Acquisition of Avyx, Inc. and Marketing Systems GmbH (Note 4) (3,582) (1,068) (1,505)
Purchase of treasury stock - - (334)
Capitalization of computer software development costs (6,843) (4,915) (2,350)
Purchase of software licenses for resale (878) (382) (50)
------------ ------------- ------------
Net cash used in investing activities (13,506) (9,583) (10,842)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under line of credit 1,000 - -
Payments under line of credit (1,000) - -
Payments under long-term obligations (273) (188) (250)
Proceeds from sale of common stock 733 377 6,838
Proceeds from exercise of stock options 1,907 539 228
------------ ------------- ------------
Net cash provided by financing activities 2,367 728 6,816
------------ ------------- ------------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES 574 (246) 35
------------ ------------- ------------
NET INCREASE IN CASH 3,622 322 2,602
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,921 4,599 1,997
------------ ------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 8,543 $ 4,921 $ 4,599
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 56
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED FEBRUARY 28, 1997
Manugistics Group, Inc. has the following operating subsidiaries: Manugistics,
Inc.; Manugistics Colorado, Inc.; Manugistics Canada Ltd.; Manugistics U.K.
Ltd.; Manugistics (Deutschland) GmbH; and Manugistics France S.A.;
(collectively, the "Company"). The Company develops, markets and supports
software products for synchronized supply chain management and provides related
services. Synchronized supply chain management refers to managing the complex
interactions involved in the flows of products through the supply chain, and
involves forecasting product demand and coordinating the timing of
distribution, manufacturing, procurement, and transportation activities to meet
this demand, not only across an entire enterprise, but also among an enterprise
and its suppliers and customers. The Company believes it is the only provider
of an integrated suite of strategic, tactical and operational supply chain
planning tools including a high level optimizer and products that address the
four key operational areas of supply chain management: demand planning, supply
planning, manufacturing scheduling and transportation management. Additionally,
the Company markets and supports the STATGRAPHICS personal systems product,
which provides statistical tools for quality management in manufacturing
companies.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Manugistics Group, Inc. and its subsidiaries, all
of which are wholly-owned. All significant intercompany transactions and
balances have been eliminated.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues 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 the AICPA's Statement of Position 91-1, "Software
Revenue Recognition." Software license revenues from supply chain
management products are recognized upon the customer's execution of a
noncancellable license agreement and shipment of the software, provided
that no significant vendor obligations remain outstanding, amounts are
due within one year and collection is considered probable by management.
Software license revenues from the sale of personal systems products are
recognized upon the Company's shipment of the software.
Revenues from consulting services are recognized when the services are
provided. Revenues from maintenance and other support services are
deferred and recognized on a straight-line basis over the term of the
agreement.
Amounts received in advance of revenue recognition are classified as
deferred revenue.
Cash and Cash Equivalents - The Company considers cash on hand, deposits
in banks, and highly liquid investments with an original maturity of
three months or less as cash and cash equivalents.
F-6
<PAGE> 57
Marketable Securities - The Company has classified its short-term
marketable securities as available-for-sale. At February 28, 1997 and
February 29, 1996, marketable securities consisted of investments in
municipal bonds and other short-term investments, and cost approximated
market value.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
investments in marketable securities and accounts receivable. The
Company has investment policies that limit investments to investment
grade securities and that limit the amount of credit exposure to any one
issuer. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for potential losses, but does not require
collateral. The Company's credit risk is also further mitigated as its
customer base is diversified, geographically and by industry.
Fair Values of Financial Instruments - The carrying values of cash and
cash equivalents, marketable securities, accounts receivable, and
accounts payable approximate fair value due to the short maturities of
such instruments. The carrying value of long-term debt approximates fair
value based on current rates offered to the Company for debt with similar
collateral and guarantees, if any, and maturities.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, ranging from three to ten years.
Software Development Costs - Certain software development costs are
capitalized upon establishment of technological feasibility. Costs
incurred prior to establishing technological feasibility are charged to
product development expense as incurred. Capitalized costs are amortized
over the estimated economic life of the product, generally two years,
commencing with the date the product is available for general release.
Intangibles - Intangibles include intellectual property, customer lists
and goodwill. Intellectual property and goodwill are amortized on a
straight-line basis and customer lists are amortized using the double
declining balance method. The amortization period for these assets is
five years or less, commencing on the date of acquisition (see Note 4).
Impairment of Long-Lived Assets - The Company reviews its long-lived
assets, including property and equipment and intangibles, for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable. In the event an
evaluation of recoverability is required, the estimated future
undiscounted net cash flows of the assets would be compared to the
assets' carrying amount to determine if a write down is required.
Income Taxes - The provision for income taxes is based on income
recognized for financial reporting purposes and includes the effects of
temporary differences between such income and income recognized for
income tax purposes. Deferred income taxes reflect the net tax effects
of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes.
Foreign Currency Translation - Assets and liabilities denominated in
foreign currencies are translated at the exchange rate on the balance
sheet date. The related revenues and expenses are translated at the
prevailing exchange rate during the reporting period. Translation
adjustments related to this process are charged to stockholders' equity.
Earnings Per Share - Earnings per share data are computed using the
weighted average number of shares of common stock outstanding and common
equivalent shares; common equivalent shares include dilutive stock
options and are calculated using the treasury stock method. Fully
diluted earnings per
F-7
<PAGE> 58
share have been excluded since they are approximately the same as primary
earnings per share. See Note 12, "Subsequent Events".
Stock-Based Compensation Plans - Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), was issued in October 1995 and is effective for the Company's 1997
fiscal year. As permitted by SFAS 123, the Company has elected to
continue to account for stock-based compensation to employees in
accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and has made the pro forma
disclosure required by SFAS 123 in Note 6.
New Accounting Pronouncements - In February 1997, Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") was issued
and will be effective for the Company's 1998 fiscal year. This statement
replaces the presentation of primary earnings per share with basic
earnings per share and requires a reconciliation of basic earnings per
share to fully diluted earnings per share. Fully diluted earnings per
share is computed similarly to the previous requirements. The Company's
computation of basic earnings per share under SFAS No. 128, which
excludes the dilutive effect of stock options, would have been $0.21,
$0.22, and $0.17 in 1997, 1996 and 1995, respectively.
Reclassification of Account Balances - Certain prior year amounts have
been reclassified for comparability with the current year's financial
statement presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following amounts as of February
28, 1997 and February 29, 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software $12,205 $7,278
Office furniture and equipment 4,165 2,876
Leasehold improvements 2,192 1,011
------------ -------------
Total 18,562 11,165
Less accumulated depreciation and amortization (8,207) (5,119)
------------ -------------
Property and equipment - net $10,355 $6,046
============ =============
</TABLE>
Depreciation expense during fiscal years 1997, 1996, and 1995 was
$3,031,000, $1,631,000, and $1,062,000 respectively.
3. SOFTWARE DEVELOPMENT COSTS
The Company has capitalized purchased software costs during fiscal years
1997, 1996 and 1995 of approximately $878,000, $382,000 and $50,000,
respectively, which are being amortized on a straight-line basis over
useful lives of up to three years. Amortization expense of $331,000,
$51,000 and $30,000 was recorded during fiscal years 1997, 1996, and
1995, respectively.
During fiscal years 1997, 1996, and 1995, the Company capitalized
internal computer software development costs of $6,843,000, $4,915,000
and $2,350,000 respectively. Such costs are being amortized on a
straight-line basis over the estimated life of the products, which is
generally two years.
F-8
<PAGE> 59
Amortization expense of $3,230,000, $2,228,000 and $1,884,000 was
recorded for fiscal years 1997, 1996, and 1995, respectively.
In addition, during fiscal year 1997, the Company wrote off approximately
$312,000 of internally capitalized computer software development costs.
These capitalized costs were deemed to exceed their future net realizable
value as a result of new technologies acquired in conjunction with the
purchase of Avyx, Inc. (Note 4).
4. ACQUISITION OF ASSETS
Avyx, Inc.
On May 24, 1996, the Company acquired by merger Avyx, Inc., a custom
developer and services provider of manufacturing scheduling software,
based in Colorado. The total purchase price was $3,799,000, primarily
comprised of cash, assumed liabilities, and acquisition costs.
The acquisition was accounted for as a purchase. Accordingly, the
purchase price was allocated among the identifiable tangible assets and
liabilities based on their respective fair market values. In addition,
the purchase price was also allocated to certain intangible assets, such
as existing software products which had reached technological
feasibility, and in-process software development efforts which had not
reached technological feasibility ("purchased research and development").
The write-off of purchased research and development, resulted in a
one-time charge in the Company's operating results, and reduced net
income for fiscal year 1997 by $3,697,000, or $0.16 per share. The excess
of purchase price over these estimated fair values of the net assets
acquired was accounted for as goodwill. Amounts allocated to existing
software products and goodwill are being amortized on a straight-line
basis over five years.
Consolidated pro forma revenues, income, and earnings per share would not
have been materially different from the reported amounts for the fiscal
years ended February 28, 1997 and February 29, 1996, excluding the
one-time charge for purchased research and development costs. Such pro
forma amounts are not necessarily indicative of what the actual
consolidated results of operations might have been if the acquisition had
been effective at the beginning of fiscal year 1996.
In addition, the Company entered into a three-year non-compete agreement
with two of the principals of Avyx, Inc., who did not become employees of
the Company, in exchange for an option to purchase 60,000 shares of the
Company's common stock. The agreement was valued at $217,000, which
represented the estimated fair value of the stock options issued, and is
being amortized over the life of the agreement, which is three years.
Marketing Systems GmbH
Effective June 1, 1994, the Company acquired certain assets of a division
of Marketing Systems GmbH, a closely-held German company. Under the
acquisition agreement, the Company made an initial cash payment of
approximately $1,000,000 and delivered 100,000 unregistered shares of the
Company's common stock to the seller. The original agreement provided
that the Company would make additional annual payments if revenues
generated in connection with acquired assets exceeded certain performance
objectives. The Company allocated the initial payment to the tangible
and intangible property acquired.
Subsequent to the acquisition, the Company determined that the "causal
analysis" capability and other functionality contained in the acquired
intellectual property assets could be incorporated into the Demand
Planning product family (later named "Demand Planning Extended Edition"),
thereby
F-9
<PAGE> 60
generating greater potential value to the Company. Consequently, the
performance objectives contained in the original purchase agreement were
no longer relevant. In view of the foregoing, a new agreement was
entered into in November 1995 to increase the initial acquisition cost
and payment to the seller by approximately $2,000,000. The additional
payment, consisting of approximately $1,000,000 in cash and 112,000
unregistered shares of the Company's common stock, represented the
remaining balance of management's estimated value of the assets acquired.
The total value of the cash and stock was recorded as goodwill. Under
the agreement, the Company commenced delivering the shares of stock in
four equal quarterly installments in November 1995. At February 28,
1997, all shares had been issued pursuant to the agreement. Under the
terms of the November 1995 agreement, the Company may be required to make
certain additional annual cash payments, subject to the achievement of
certain revenue-based performance objectives for Demand Planning Extended
Edition. No payments have been made under this agreement at February 28,
1997.
Had the acquisition been completed as of March 1, 1994, fiscal year 1995
revenue, net income and earnings per share would have been $50,110,000,
$2,886,000 and $0.14 per share, respectively, (unaudited). The unaudited
pro forma information is not necessarily indicative either of results of
operations that would have occurred had the purchase been made on March
1, 1994, or future results of combined operations.
5. DEBT
Long-term debt and other borrowings consisted of the following amounts as
of February 28, 1997 and February 29, 1996:
<TABLE>
<CAPTION>
1997 1996
----------------
(IN THOUSANDS)
<S> <C> <C>
Treasury stock notes payable $ 182 $ 250
Capital lease obligations (see Note 8) 229 87
----- -------
Total 411 337
Less - current portion (191) (155)
----- -------
Total long-term debt $ 220 $ 182
====== =======
</TABLE>
Treasury Stock Notes Payable - The Company has a total of three notes
outstanding to former employees which were issued as partial
consideration for common stock repurchased from these individuals upon
their termination of employment with the Company. The notes accrue
interest at 1.5% below the prime rate of interest. The interest rate at
February 28, 1997 and February 29, 1996 was 6.75%. A fixed portion of
the principal balance of the notes and the interest thereon is payable in
annual installments. The notes mature over varying terms ranging from
one to four years.
Principal repayment requirements under the notes payable and capital
lease obligations for each of the four succeeding years beginning March
1, 1997 are as follows: $191,000 for 1997, $176,000 for 1998, $22,000
for 1999 and $22,000 for 2000.
Line of Credit - The Company has an unsecured committed revolving credit
facility with a commercial bank. Under the terms of the facility, the
Company may request advances in an aggregate amount of up to $10,000,000.
The Company may make borrowings under the facility for short-term working
capital purposes or for acquisitions. (Acquisition-related borrowings
are limited to $7,500,000 per acquisition). For the interest rate on
borrowings, the Company may select either the prime rate of the lender or
either the three-month or six-month London Interbank Offered Rate (LIBOR)
plus one and
F-10
<PAGE> 61
one-half percent. The facility contains certain financial covenants that
the Company believes are typical for a facility of this nature and
amount, and the Company is subject to a covenant not to pay or declare
cash dividends. This facility succeeds a similar facility that the
Company maintained with two commercial banks, one of which is the lender
under the current facility, and will expire in September 1997, unless
renewed. There were no outstanding amounts under the credit facility at
February 28, 1997.
6. STOCKHOLDERS' EQUITY
Preferred Stock - All of the Company's shares of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock were retired
when such shares were automatically converted into shares of Common Stock
upon the closing of the Company's underwritten offering during fiscal
1994. Such shares cannot be reissued. During fiscal 1997, the Company
formally eliminated the Series A and Series B Convertible Preferred
Stock, reducing the number of shares of the Company's authorized $.01 par
value preferred stock by 1,129,747 shares, from 5,750,000 shares to
4,620,253 shares. As of February 28, 1997, no preferred shares were
outstanding.
Common Stock - The Company has authorized 30,000,000 shares of $.002 par
value common stock. No cash dividends on common stock have been declared
or paid in any of fiscal years 1997, 1996, or 1995.
Employee Stock Purchase Plan - In October 1994, the Company adopted an
employee stock purchase plan ("ESPP") that authorizes the Company to sell
up to 500,000 shares of common stock to employees through voluntary
payroll withholdings. The stock price to employees is equal to 85% or
95% of the market price on the lower of either the first or last day of
each six-month withholding period. Payroll deductions may not exceed 10%
of a participant's base salary and stock purchased may not exceed $25,000
per year. The Company has sold 100,818 shares and 84,404 shares in
fiscal 1997 and 1996, respectively. The weighted average fair value of
shares sold in 1997 and 1996 was $14.09 and $7.13, respectively.
Stock Options
The Company has an employee stock option plan under which non-qualified
options of up to 5,564,238 shares may be granted to employees to purchase
common stock at prices not less than the fair market value at the time of
grant. Under the plan, prior to 1994, options vested and became
exercisable four years from the date of grant. In 1994, the Company
amended the plan such that options granted after the amendment vest and
become exercisable ratably over a four-year period from the date of
grant. The right to exercise the vested options expires upon the earlier
of either ten years (or for options granted prior to 1994, eleven years)
from the date of grant, or within thirty days of termination of
employment. As of February 28, 1997, the Company has granted options on
4,801,386 shares.
In 1994, the Company adopted the 1994 Outside Directors Non-Qualified
Stock Option Plan, which provides for the grant of stock options of up
to 200,000 shares to the Company's non-employee directors. Under this
plan, non-qualified options are granted annually at the fair market value
of the Company's common stock on the date of grant. The number of
options granted annually to each non-employee director is fixed by the
plan. Options become fully exercisable on the first anniversary of the
date of grant. Under this plan, options may be granted over a ten year
period through May 23, 2004. As of February 28, 1997, the Company has
granted options on 132,500 shares.
In January 1996, the Company amended its Employee Incentive Stock Option
Plan, whereby the Company may grant options of up to 1,805,950 shares to
certain key executive employees. Options are granted at an exercise
price equal to or greater than the fair market value of the stock on the
date of
F-11
<PAGE> 62
grant and expire ten years from the date of grant. All options granted
vest in accordance with plan terms. As of February 28, 1997 the Company
has granted options on 1,610,000 shares.
In 1994, the Company adopted the 1994 Executive Incentive Stock Option
Plan, whereby the Company may grant options to certain key executive
officers of the Company of up to 1,750,000 shares. Options are granted
at an exercise price equal to or greater than the fair market value of
the stock on the date of grant and expire ten years from the date of
grant. Options will vest ratably over a four-year period. As of
February 28, 1997 the Company has granted options on 57,654 shares.
A summary of the status of the Company's stock option plans at February
28, 1997, February 29, 1996, and February 28, 1995, and changes during
the years then ended is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ------------------------- --------------------------
(SHARE AMOUNTS IN THOUSANDS)
Option to Option to Option to
Purchase Wtd Avg Purchase Wtd Avg Purchase Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
--------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year 3,324 $ 4.20 2,840 $ 2.56 $ 2,556 $ 1.67
Options Granted at Fair Value 1,290 11.54 1,182 6.67 946 4.14
Options Granted Greater Than Fair Value 24 8.01 - - - -
Exercised (636) 3.00 (546) 1.00 (378) 0.61
Cancelled (216) 5.19 (152) 4.45 (284) 2.41
--------------- -------------- --------------
Outstanding at end of year 3,786 $ 6.78 3,324 $ 4.20 2,840 $ 2.56
=============== ============== ==============
Exercisable at end of year 1,082 942 854
=============== ============== ==============
</TABLE>
The weighted average fair value of options granted in 1997 and 1996 was
$5.19 and $3.51, respectively. A summary of the weighted average
remaining contractual life and the weighted average exercise price of
options outstanding as of February 28, 1997 is presented below (share
amounts in thousands):
<TABLE>
<CAPTION>
WEIGHTED AVG
NUMBER REMAINING NUMBER WEIGHTED AVG
RANGE OF OUTSTANDING AT CONTRACTUAL WEIGHTED AVG EXERCISABLE EXERCISE
EXERCISE PRICES 2/28/97 LIFE EXERCISE PRICE AT 2/28/97 PRICE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.22 - $ 3.00 668 4.33 $1.38 662 $ 1.37
3.28 - 5.25 1,028 7.77 4.41 262 4.45
5.38 - 7.57 958 8.48 6.93 148 7.40
7.63 - 9.75 828 9.33 9.35 10 8.57
9.82 - 25.57 304 9.80 19.09 - 9.82
---------- ---------- ----------- ------------- ---------
$ 0.22 - $ 25.57 3,786 7.85 $6.78 1,082 $ 3.00
========== ==============
</TABLE>
Stock-Based Compensation
As permitted under SFAS 123, the Company continues to account for
stock-based compensation to employees in accordance with APB Opinion No.
25, under which no compensation expense is recognized, since the exercise
price of options granted is equal to or greater than the fair market
value of the underlying security on the grant date. Pro forma
information regarding net income and earnings
F-12
<PAGE> 63
per share is required by SFAS 123, which uses the fair value method. The
fair value of the Company's stock-based awards to employees was estimated
as of the date of grant using the Black-Scholes option pricing model.
Limitations on the effectiveness of the Black-Scholes option valuation
model are that it was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully
transferable and that the model requires the use of highly subjective
assumptions including expected stock price volatility. Because the
Company's stock-based awards to employees have characteristics
significantly different from those of traded options and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock-based
awards.
Had compensation cost for these plans been recorded, the Company's net
income and earnings per_share would have been $2,606,000 and $0.11 in
fiscal year 1997 and $3,785,000 and $0.17 in fiscal year 1996,
respectively. The increase in the fair value of stock options granted in
1997 resulted primarily from a significant increase in the price of the
Company's common stock during fiscal year 1997 from fiscal year 1996.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to March 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years. Additionally, the 1997 and 1996 pro forma amounts include
$279,000 and $173,000, respectively, related to the purchase discount
offered under the employee stock purchase plan.
The fair value of options granted was estimated assuming no dividends
and using_the following weighted-average assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
------- ----
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Risk-free interest rates 5.44% - 5.73% 6.68% - 7.08% 5.67% 6.44%
Expected term 1.54 - 4.51 years 1.54 - 4.77 years 6 months 6 months
Volatility .6358 .6910 .6562 .6910
</TABLE>
7. RETIREMENT PLANS
The Company has two defined contribution retirement savings plans (one in
the U.S. and another in the U.K.) under the terms of which the Company
matches a percentage of the employees' qualified contributions. New
employees are eligible to participate in the plans upon completing one
month of service. The Company's contribution to the plans totaled
$535,000, $337,000, and $226,000 for the fiscal years 1997, 1996 and
1995, respectively.
The Company is not obligated under any other post-retirement benefit
plans.
8. COMMITMENTS AND CONTINGENCIES
Commitments - The Company leases office space, office equipment, and
automobiles under operating leases and various computer and other
equipment under capital leases. Property acquired through capital leases
amounted to $830,000 at February 28, 1997 and $429,000 at February 29,
1996, and has been included in computer equipment and software (Note 2).
Total accumulated amortization relating to these leases was $576,000 and
$349,000 as of February 28, 1997 and February 29, 1996, respectively.
F-13
<PAGE> 64
Rent expense for operating leases for the fiscal years 1997, 1996 and
1995 was approximately $4,439,000, $3,610,000, and $2,714,000,
respectively. The future minimum lease payments under these capital and
operating leases for each of the succeeding years beginning March 1, 1997
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ------
(IN THOUSANDS)
<S> <C> <C>
1997 $132 $4,669
1998 109 4,008
1999 - 3,090
2000 - 2,273
2001 - 2,280
Thereafter - 421
---- -------
Total minimum lease payments 241 $16,741
=======
Less amount representing interest (12)
----
Present value of net minimum lease payments $229
====
</TABLE>
The Company has collaborative arrangements with various parties relating
to product development and joint marketing programs. In March 1997, the
Company entered into agreements with a third-party which include future
commitments of the Company. See Note 12 ,"Subsequent Events."
Contingencies - In the ordinary course of business, the Company may be a
party to legal proceedings and claims. In addition, from time to time,
the Company may have contractual disagreements with certain customers
concerning the Company's products and services. In management's
opinion, the future settlements of such claims are not likely to have a
material adverse effect on the results of operations or financial
position of the Company and its subsidiaries taken as a whole.
9. INCOME TAXES
Income Tax Provision - The components of the provision for income taxes
for the years ended February 28, 1997, February 29, 1996, and February
28, 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $3,475 $ 1,433 $ 1,450
State 348 339 459
Foreign 901 597 36
------- -------- ----------
Total current provision 4,724 2,369 1,945
------- -------- ----------
Deferred:
Federal 177 792 34
State 40 4 11
Foreign 19 (456) (250)
------- -------- ----------
Total deferred provision (benefit) 236 340 (205)
------- -------- ----------
Total provision for income taxes $ 4,960 $ 2,709 $ 1,740
======= ======== ==========
</TABLE>
F-14
<PAGE> 65
The income tax benefits related to the exercise of stock options reduce
taxes currently payable and are credited to additional paid-in capital.
Such amounts were approximately $ 2,591,000, $1,056,000, and $1,065,000
for 1997, 1996, and 1995, respectively.
Deferred Income Taxes - The components of the Company's deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Uncollectible receivables and sales returns $ 434 $ 206
Rent accruals 207 186
Operating loss carryforwards:
Domestic 657 151
Foreign 1,353 1,088
Software revenue recognition 183 152
Depreciation and amortization 691 338
Other temporary differences 193 22
-------- --------
Total deferred tax assets 3,718 2,143
Less: valuation allowance (734) (450)
-------- --------
Total deferred tax assets 2,984 1,693
Deferred tax liabilities:
Software development costs (3,313) (2,248)
Other temporary differences (84) (221)
-------- --------
Total deferred tax liabilities (3,397) (2,469)
-------- --------
Net deferred tax liabilities $ (413) $ (776)
======== ========
</TABLE>
At February 28, 1997, the Company had $1,463,000 of federal, $2,448,000
of state and $3,389,000 of foreign net operating loss carryforwards
(NOLs) available to offset future taxable income in those respective
taxing jurisdictions. The federal NOLs expire in the years 2006 and 2011
while the state NOLs expire during 1997, 1998 and 2011. Approximately
$1,954,000 of the foreign NOLs expire during the years 2000 to 2002 while
the remaining NOLs are available in perpetuity. The Company considers
the earnings of foreign subsidiaries to be permanently reinvested outside
the United States. Accordingly, no United States income tax on these
earnings has been provided.
Effective and Statutory Rate Reconciliation - The difference between the
income tax provision and the amount computed by applying the federal
statutory income tax rate to pretax accounting income is summarized as
follows:
F-15
<PAGE> 66
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision computed at federal statutory rate $ 3,163 $ 2,434 $ 1,687
Increase (reduction) in taxes resulting from:
State and foreign taxes, net of federal benefit 387 417 327
Change in valuation allowance 291 (31) 121
Purchased research and development write-off 1,257 - -
Tax exempt income (163) (257) (142)
Other 25 146 (253)
------- -------- ----------
Provision for income taxes $ 4,960 $ 2,709 $ 1,740
======= ======== ==========
</TABLE>
10. SEGMENT INFORMATION
The Company operates in two industry segments. The Company develops,
markets, and supports a set of business operations planning software for
supply chain management. The Company also markets and supports the
STATGRAPHICS product within its personal systems segment.
<TABLE>
<CAPTION>
Industry Segments 1997 1996 1995
-------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Supply chain management $ 90,951 $ 56,698 $ 41,710
Personal systems 3,771 5,624 7,700
-------- -------- ---------
$ 94,722 $ 62,322 $ 49,410
======== ======== =========
Income from operations:
Supply chain management $ 15,156 $ 10,554 $ 9,000
Personal systems 1,032 1,184 132
-------- -------- ---------
$ 16,188 $ 11,738 $ 9,132
Corporate (7,902) (5,678) (4,814)
-------- -------- ---------
$ 8,286 $ 6,060 $ 4,318
======== ======== =========
Identifiable assests:
Supply chain management $ 58,052 $ 32,144 $ 18,329
Personal systems 1,014 1,375 4,925
Corporate 25,257 26,912 26,505
-------- -------- ---------
$ 84,323 $ 60,431 $ 49,759
======== ======== =========
</TABLE>
F-16
<PAGE> 67
<TABLE>
<CAPTION>
Industry Segments 1997 1996 1995
--------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital expenditures:
Supply chain management $ 6,528 $ 2,756 $ 1,523
Personal systems 24 172 55
Corporate 1,456 2,580 275
------------ ------------ ------------
$ 8,008 $ 5,508 $ 1,853
============ ============ ============
Depreciation and amortization:
Supply chain management $ 7,077 $ 3,646 $ 2,417
Personal systems 24 426 848
Corporate 885 471 167
------------ ------------ ------------
$ 7,986 $ 4,543 $ 3,432
============ ============ ============
Geographic Areas 1997 1996 1995
--------------------------------------------------
(IN THOUSANDS)
<C> <C> <C>
Revenues:
North America $ 82,484 $ 56,401 $ 44,425
Europe 18,273 7,625 6,613
Eliminations (6,035) (1,704) (1,628)
------------ ------------ ------------
$ 94,722 $ 62,322 $ 49,410
============ ============ ============
Income from operations:
North America $ 7,666 $ 9,047 $ 6,369
Europe 6,655 (1,283) (423)
Eliminations (6,035) (1,704) (1,628)
------------ ------------ ------------
$ 8,286 $ 6,060 $ 4,318
============ ============ ============
Identifiable assets:
North America $ 86,229 $ 56,911 $ 45,871
Europe 12,161 7,421 7,286
Eliminations (14,067) (3,901) (3,398)
------------ ------------ ------------
$ 84,323 $ 60,431 $ 49,759
============ ============ ============
</TABLE>
Domestic and export sales for fiscal years 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
United States $ 68,667 $ 46,996 $ 39,500
Europe 19,821 9,423 8,710
Canada 3,853 3,886 495
Other 2,381 2,017 705
---------- ----------- -----------
$ 94,722 $ 62,322 $ 49,410
========== =========== ===========
</TABLE>
No customer accounted for 10% or more of the Company's net sales in 1997,
1996 and 1995.
11. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest amounted to approximately $55,000, $78,000, and
$55,000 in 1997, 1996 and 1995, respectively. Cash paid for income taxes
amounted to approximately $1,223,000, $924,000 and $17,000 in 1997, 1996
and 1995, respectively.
Supplemental information of non-cash investing and financing activities is
as follows:
During fiscal years 1997, 1996 and 1995, the Company received an income
tax benefit of $2,591,000, $1,056,000 and $1,065,000, respectively,
relating to the exercise of stock options. The benefit was recorded as an
increase to additional paid in capital. During 1997, the fair value of
treasury stock issued was $238,000. Also during 1997 options valued at
$217,000 were granted under a non-compete agreement and $345,000 relating
to a leased asset and obligation was capitalized. During 1996, a
F-17
<PAGE> 68
$294,000 note receivable was recorded relating to an asset divestiture.
During 1996, the fair value of treasury stock issued was $238,000 and a
$714,000 liability was recorded related to the fair value of stock to be
issued. (see Note 4).
12. SUBSEQUENT EVENTS
In March 1997, the Company entered into a reseller and marketing agreement
with Information Resources, Inc. ("IRI"), of which the Company guarantees
certain revenue levels to IRI in the amount of $16,500,000 over several
years. In the event that the activities performed by the Company through
joint marketing arrangements with IRI do not meet the minimum amounts, the
Company may be obligated to pay the difference. The Company plans to meet
the revenue levels and accordingly does not expect to be obligated to make
such payments.
In addition, the Company entered into a definitive agreement to acquire
certain assets of IRI. The total purchase price was approximately
$1,900,000, primarily comprised of cash, assumed liabilities, and
acquisition costs. The transaction is being accounted for under the
purchase method.
Consolidated pro forma revenue, income and earnings per share would not
have been materially different from the reported amounts for the year
ended February 28, 1997. Such pro forma amounts are not necessarily
indicative of what the actual consolidated results of operations might
have been if the acquisition had been effective at the beginning of fiscal
year 1997.
On May 9, 1997, the Directors of the Company declared a two-for-one stock
split on the Company's common stock, to be paid in the form of a stock
dividend effective June 11, 1997 to shareholders of record as of May 23,
1997. The shares outstanding, weighted average shares, amounts per share,
and all other references to shares of common stock reported have been
restated to give effect to the stock dividend.
* * * * * *
F-18
<PAGE> 69
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Stockholders and Board of Directors of
Manugistics Group, Inc.:
We have audited the consolidated financial statements of Manugistics Group,
Inc. (the Company) and its subsidiaries as of February 28, 1997 and February
29, 1996, and for each of the three years in the period ended February 28,
1997, and have issued our report thereon dated March 28, 1997 (except Note 12
as to which the date is May 9, 1997); such consolidated financial statements
and report are included elsewhere in this Form 10-K. Our audit also included
the consolidated financial statement schedule listed in Item 14 of this Form
10-K. This consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
Washington, D.C.
March 28, 1997 (except Note 12 as to which the date is May 9, 1997)
<PAGE> 70
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND SALES RETURNS
Year Ended February 28, 1997 711 2,529 (2,025) 1,215
Year ended February 29, 1996 833 732 (854) 711
Year ended February 28, 1995 410 1,059 (636) 833
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.7(e)
FIFTH AMENDMENT TO LEASE AGREEMENT
DATED MAY 1, 1992, ENTERED INTO BY AND BETWEEN
STATE OF MARYLAND FOR THE USE OF THE BOARD OF TRUSTEES
OF THE STATE RETIREMENT AND PENSION SYSTEM, AS LANDLORD
(SUCCESSOR LANDLORD TO EAST JEFFERSON ASSOCIATES),
AND MANUGISTICS, INC., AS TENANT
THIS FIFTH AMENDMENT TO LEASE is made this 6th day of September, 1996
by and between STATE OF MARYLAND FOR THE USE OF THE BOARD OF TRUSTEES OF THE
STATE RETIREMENT AND PENSION SYSTEM ("Landlord"), and MANUGISTICS, INC., a
Delaware corporation (the "Tenant").
RECITALS:
R-1. GTE Realty Corporation ("Original Landlord") and Tenant entered
into a Lease Agreement dated May 1, 1992 (the "Lease"), as amended by that
certain First Amendment to Lease Agreement dated July 19, 1993, whereby Tenant
leased from Original Landlord approximately 84,800 square feet of space in the
building situated at 2115 East Jefferson Street, Rockville, Maryland, for a
term commencing May 1, 1992 and ending April 30, 2002.
R-2. Pursuant to paragraph 1(a) of Attachment B to the Lease,
effective as of March 1, 1993, the Premises were expanded by adding thereto an
additional 15,702 square feet of space, thereby increasing the size of the
Premises to a total of 100,582 square feet of space.
R-3. Pursuant to that certain Second Amendment to Lease Agreement
dated April 13, 1994, the Premises were expanded by adding thereto an
additional 3,074 square feet of space increasing the total size of the Premises
to 103,656 square feet of space.
R-4. Pursuant to that certain Third Amendment to Lease Agreement dated
May 1, 1994, the Premises were expanded by 2,552 square feet of space
increasing the total size of the Premises to 106,208 square feet of space.
R-5. Pursuant to that certain Fourth Amendment to Lease Agreement
dated February 7, 1995, the Premises were expanded by 2,376 square feet of
space increasing the total size of the Premises to 108,584 square feet of
space.
R-6. Pursuant to a Deed dated May 5, 1995, Landlord purchased the
subject building from East Jefferson Associates (successor Landlord to Original
Landlord) and thereby assumed all right, title and interest as Landlord under
the Lease.
R-7. Landlord and Tenant now desire to amend the Lease to further
expand the Premises by adding thereto an additional 2,215 square feet of space.
<PAGE> 2
NOW, THEREFORE, in consideration of the Premises, the sum of Ten
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant do hereby
agree as follows:
1. Recitals. The Recitals are incorporated herein by this
reference.
2. Expansion Space. On September 15, 1996, which is the date on which
the expansion space is being made available to Tenant, the Premises shall be
expanded by adding thereto approximately 2,215 square feet of space as shown on
Exhibit "A-1" attached hereto and made a part hereof ("Fourth Amendment
Expansion Space"), whereupon the Premises shall contain a total of 110,799
square feet of space. The term for Tenant's lease of the Fourth Amendment shall
expire on April 30, 2002, which is the termination date for the Lease of the
balance of the Premises to Tenant, subject to that certain renewal option
contained in the Lease.
3. Annual Base Rent. Annual Base Rent for the Fourth Amendment
Expansion Space shall be Thirty-Seven Thousand Six Hundred Fifty-Five Dollars
($37,655.00) (subject to increase pursuant to Paragraph 4(a)(iii) of the
Lease), payable in equal monthly installments of Three Thousand One Hundred
Thirty-Seven Dollars and 92/100 ($3,137.92), in advance, commencing on February
15, 1997 (for a one-half month period) and on the first day of each month
thereafter.
4. Tenant's Pro-Rata Share. Paragraph 4(b) of the Lease is hereby
amended to reflect that effective September 15, 1996, Tenant's Pro-Rata Share
shall be Eighty-Nine and Ninety-Four One-Hundredths Percent (89.94%).
5. As-Is; Improvement Allowance. Tenant, having had ample opportunity
to inspect the Fifth Amendment Expansion Space, hereby accepts said space in
"as-is" condition, without representation or warranty. No Improvement Allowance
(as defined in the Lease) shall be due to Tenant as a result of its leasing of
the Fifth Amendment Expansion Space.
6. Ratification. Except as modified hereinabove, the Lease, as
heretofore amended, shall be and remain in full force and effect in accordance
with its terms and is ratified and accepted by the parties hereto.
[SIGNATURES TO FOLLOW ON NEXT PAGE]
08/22/96
77990
2
<PAGE> 3
IN WITNESS WHEREOF, Landlord and Tenant have caused this Fifth
Amendment to be executed as of the date first above written.
WITNESS: LANDLORD:
STATE OF MARYLAND FOR THE USE
OF THE BOARD OF TRUSTEES OF THE
MARYLAND STATE RETIREMENT
AND PENSION SYSTEM
By: LaSalle Advisors, its authorized agent
/s/ PATRICIA C. THOMPSON By: /s/ JAMES M. RIORDAN
- ----------------------------- ---------------------------------
James M. Riordan, Vice President
TENANT:
MANUGISTICS, INC.
By: /s/ HELEN A. NASTASIA
- ----------------------------- ---------------------------------
Helen A. Nastasia
General Counsel
08/22/96
77990
3
<PAGE> 1
EXHIBIT 10.7(f)
SIXTH AMENDMENT TO LEASE AGREEMENT
DATED MAY 1, 1992, ENTERED INTO BY AND BETWEEN
STATE OF MARYLAND FOR THE USE OF THE BOARD OF TRUSTEES
OF THE STATE RETIREMENT AND PENSION SYSTEM, AS LANDLORD
(SUCCESSOR LANDLORD TO EAST JEFFERSON ASSOCIATES),
AND MANUGISTICS, INC., AS TENANT
THIS SIXTH AMENDMENT TO LEASE is made this 10th day of October, 1996
by and between STATE OF MARYLAND FOR THE USE OF THE BOARD OF TRUSTEES OF THE
STATE RETIREMENT AND PENSION SYSTEM ("Landlord"), and MANUGISTICS, INC., a
Delaware corporation (the "Tenant").
RECITALS:
R-1. GTE Realty Corporation ("Original Landlord") and Tenant entered
into a Lease Agreement dated May 1, 1992 (the "Lease"), as amended by that
certain First Amendment to Lease Agreement dated July 19, 1993, whereby Tenant
leased from Original Landlord approximately 84,800 square feet of space in the
building situated at 2115 East Jefferson Street, Rockville, Maryland, for a
term commencing May 1, 1992 and ending April 30, 2002.
R-2. Pursuant to paragraph 1(a) of Attachment B to the Lease,
effective as of March 1, 1993, the Premises were expanded by adding thereto an
additional 15,702 square feet of space, thereby increasing the size of the
Premises to a total of 100,582 square feet of space.
R-3. Pursuant to that certain Second Amendment to Lease Agreement
dated April 13, 1994, the Premises were expanded by adding thereto an
additional 3,074 square feet of space increasing the total size of the Premises
to 103,656 square feet of space.
R-4. Pursuant to that certain Third Amendment to Lease Agreement dated
May 1, 1994, the Premises were expanded by 2,552 square feet of space
increasing the total size of the Premises to 106,208 square feet of space.
R-5. Pursuant to that certain Fourth Amendment to Lease Agreement
dated February 27, 1995, the Premises were expanded by 2,376 square feet of
space increasing the total size of the Premises to 108,584 square feet of
space.
R-6. Pursuant to a Deed dated May 5, 1995, Landlord purchased the
subject building from East Jefferson Associates (successor Landlord to Original
Landlord) and thereby assumed all right, title and interest as Landlord under
the Lease.
R-7. Pursuant to that certain Fifth Amendment to Lease Agreement dated
September 6, 1996, the Premises were expanded by 2,215 square feet of space
increasing the total size of the Premises to 110,799 square feet of space.
R-8. Landlord and Tenant now desire to amend the Lease to further
expand the Premises by adding thereto an additional 5,053 square feet of space.
NOW, THEREFORE, in consideration of the Premises, the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant do hereby agree as
follows:
1. Recitals. The Recitals are incorporated herein by this reference.
2. Expansion Space. On October 1, 1996, which is the date on which
the expansion space is being made available to Tenant, the Premises shall be
expanded by adding
<PAGE> 2
thereto approximately 5,053 square feet of space as shown on Exhibit "A-1"
attached hereto and made a part hereof ("Sixth Amendment Expansion Space"),
whereupon the Premises shall contain a total of 115,852 square feet of space.
The term for Tenant's lease of the Sixth Amendment Expansion Space shall expire
on April 30, 2002, which is the termination date for the Lease of the balance
of the Premises to Tenant, subject to that certain renewal option contained in
the Lease.
3. Annual Base Rent. Annual Base Rent for the Sixth Amendment
Expansion Space shall be Eighty-Five Thousand Nine Hundred and One Dollars
($85,901.00) (subject to increase pursuant to Paragraph 4(a)(iii) of the
Lease), payable in equal monthly installments of Seven Thousand One Hundred
Fifty-Eight Dollars and 42/100 ($7,158.42), in advance, commencing on March 1,
1997 and on the first day of each month thereafter.
4. Tenant's Pro-Rata Share. Paragraph 4(b) of the Lease is hereby
amended to reflect that effective October 1, 1996, Tenant's Pro-Rata Share
shall be Nine-Four and Four One-Hundredths Percent (94.05%).
5. As-Is; Improvement Allowance. Tenant, having had ample
opportunity to inspect the Sixth Amendment Expansion Space, hereby accepts said
space in "as-is" condition, without representation or warranty. No Improvement
Allowance (as defined in the Lease) shall be due to Tenant as a result of its
leasing of the Sixth Amendment Expansion Space.
6. Commissions. Landlord shall pay a commission to Cushman &
Wakefield (the "Broker") in consideration of Tenant's lease of the Sixth
Amendment Expansion Space per separate agreement. Other than the Broker, each
party hereto warrants that no brokers have been employed in connection with
Tenant's lease of the Sixth Amendment Expansion Space.
7. Ratification. Except as modified hereinabove, the Lease, as
heretofore amended, shall be and remain in full force and effect in accordance
with its terms and is ratified and accepted by the parties hereto.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Sixth Amendment
to be executed as of the date first above written.
WITNESS: LANDLORD:
STATE OF MARYLAND FOR THE USE OF THE BOARD
OF TRUSTEES OF THE MARYLAND STATE
RETIREMENT AND PENSION SYSTEM
By: LaSalle Advisors, its authorized agent
By: /s/ GEORGE W. DUKE
---------------------------------
George W. Duke, Principal
/s/ PATRICIA C. THOMPSON By: /s/ DAVID L. REAHL
- ----------------------------- ---------------------------------
David L. Reahl, Vice President
TENANT:
MANUGISTICS, INC.
/s/ ELLEN SEERY RYAN By: /s/ JOSEPH E. BRODERICK
- ----------------------------- ---------------------------------
Joseph E. Broderick, Executive Vice
President
09/25/96
78850
2
<PAGE> 1
EXHIBIT 10.7(g)
SEVENTH AMENDMENT TO LEASE AGREEMENT
DATED MAY 1, 1992, ENTERED INTO BY AND BETWEEN
STATE OF MARYLAND FOR THE USE OF THE BOARD OF TRUSTEES
OF THE STATE RETIREMENT AND PENSION SYSTEM, AS LANDLORD
(SUCCESSOR LANDLORD TO EAST JEFFERSON ASSOCIATES),
AND MANUGISTICS, INC., AS TENANT
THIS SEVENTH AMENDMENT TO LEASE is made this 25th day of April, 1997
by and between STATE OF MARYLAND FOR THE USE OF THE BOARD OF TRUSTEES OF THE
STATE RETIREMENT AND PENSION SYSTEM ("Landlord"), and MANUGISTICS, INC., a
Delaware corporation (the "Tenant").
RECITALS:
R-1. GTE Realty Corporation ("Original Landlord") and Tenant entered
into a Lease Agreement dated May 1, 1992 (the "Lease"), as amended by that
certain First Amendment to Lease Agreement dated July 19, 1993, whereby Tenant
leased from Original Landlord approximately 84,800 square feet of space in the
building situated at 2115 East Jefferson Street, Rockville, Maryland, for a
term commencing May 1, 1992 and ending April 30, 2002.
R-2. Pursuant to paragraph 1(a) of Attachment B to the Lease,
effective as of March 1, 1993, the Premises were expanded by adding thereto an
additional 15,702 square feet of space, thereby increasing the size of the
Premises to a total of 100,582 square feet of space.
R-3. Pursuant to that certain Second Amendment to Lease Agreement
dated April 13, 1994, the Premises were expanded by adding thereto an
additional 3,074 square feet of space increasing the total size of the Premises
to 103,656 square feet of space.
R-4 Pursuant to that certain Third Amendment to Lease Agreement dated
May 1, 1994, the Premises were expanded by 2,552 square feet of space
increasing the total size of the Premises to 106,208 square feet of space.
R-5. Pursuant to that certain Fourth Amendment to Lease Agreement
dated February 27, 1995, the Premises were expanded by 2,376 square feet of
space increasing the total size of the Premises to 108,584 square feet of
space.
R-6. Pursuant to a Deed dated May 5, 1995, Landlord purchased the
subject building from East Jefferson Associates (successor Landlord to Original
Landlord) and thereby assumed all right, title and interest as Landlord under
the Lease.
R-7. Pursuant to that certain Fifth Amendment to Lease Agreement dated
September 6, 1996, the Premises were expanded by 2,215 square feet of space
increasing the total size of the Premises to 110,799 square feet of space.
R-8. Pursuant to that certain Sixth Amendment to Lease Agreement dated
October 10, 1996, the Premises were expanded by 5.053 square feet of space
increasing the total size of the Premises to 115,852 square feet of space.
R-9. Landlord and Tenant now desire to amend the Lease to further
expand the Premises by adding thereto an additional 6,580 square feet of space,
which represents the balance of square footage available for lease at the
building.
NOW, THEREFORE, in consideration of the Premises, the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant do hereby agree as
follows:
<PAGE> 2
1. Recitals. The Recitals are incorporated herein by this reference.
2. Expansion Space. On May 1, 1997, which is the date on which
the expansion space is being made available to Tenant, the Premises shall be
expanded by adding thereto approximately 6,580 square feet of space as shown on
Exhibit "A-1" attached hereto and made a part hereof ("Seventh Amendment
Expansion Space"), whereupon the Premises shall contain a total of 122,432
square feet of space (subject to the remeasurement provision in Section 7
herein). The term for the Tenant's lease of the Seventh Amendment Expansion
Space shall expire on April 30, 2002, which is the termination date for the
Lease of the balance of the Premises to Tenant, subject to that certain renewal
option contained in the Lease.
3. Annual Base Rent. Annual Base Rent for the Seventh Amendment
Expansion Space shall be One Hundred Eighteen Thousand Four Hundred Forty
Dollars ($118,440.00) (subject to increase pursuant to Paragraph 4(a)(iii) of
the Lease), payable in equal monthly installments of Nine Thousand Eight
Hundred Seventy Dollars ($9,870.00), in advance, commencing on May 1, 1997
(prorated for a partial month) and on the first day of each month thereafter.
4. Tenant's Pro-Rata Share. Paragraph 4(b) of the Lease is hereby
amended to reflect that effective May 1, 1997, Tenant's Pro-Rata Share shall
be One Hundred Percent (100%).
5. As-Is; Improvement Allowance. Tenant, having had ample
opportunity to inspect the Seventh Amendment Expansion Space, hereby accepts
said space in "as-is" condition, without representation or warranty. No
Improvement Allowance (as defined in the Lease) shall be due to Tenant as a
result of its leasing of the Seventh Amendment Expansion Space.
6. Commissions. Landlord shall pay a commission to Cushman &
Wakefield (the "Broker") in consideration of Tenant's lease of the Seventh
Amendment Expansion Space per separate agreement. Other than the Broker, each
party hereto warrants that no brokers have been employed in connection with
Tenant's lease of the Seventh Amendment Expansion Space.
7. Remeasurement. Inasmuch as the lease by Tenant of the Seventh
Amendment Expansion Space results in the Premises being expanded to the entire
rentable square footage of the building, Landlord hereby reserves the right to
remeasure the Premises (as contemplated in Section 1(b) of the Lease utilizing
the D.C. Board of Realtors Standard Form of Measurement) to determine the
actual square footage of the Premises. Notwithstanding the results of any such
remeasurement, in no event shall the square footage of the Premises be less
than 122,432 square feet.
8. Ratification. Except as modified hereinabove, the Lease, as
heretofore amended, shall be and remain in full force and effect in accordance
with its terms and is ratified and accepted by the parties hereto.
03/21/97
84797
2
<PAGE> 3
IN WITNESS WHEREOF, Landlord and Tenant have caused this Seventh Amendment
to be executed as of the date first above written.
WITNESS: LANDLORD:
STATE OF MARYLAND FOR THE USE OF THE BOARD
OF TRUSTEES OF THE MARYLAND STATE
RETIREMENT AND PENSION SYSTEM
By: LaSalle Advisors, its authorized agent
By: /s/ JAMES M. RIORDAN
- ----------------------------- ---------------------------------
James M. Riordan, Vice President
By: /s/ DAVID L. REAHL
- ----------------------------- ---------------------------------
David L. Reahl, Vice President
TENANT:
MANUGISTICS, INC.
By: /s/ HELEN A. NASTASIA
- ----------------------------- ---------------------------------
Helen A. Nastasia
General Counsel & Secretary
03/21/97
84797
3
<PAGE> 1
EXHIBIT 10.10
ASSUMPTION AND ACKNOWLEDGEMENT AGREEMENT
THIS ASSUMPTION AND ACKNOWLEDGEMENT AGREEMENT, dated this 27th day of
June, 1996, by and between The Dun & Bradstreet Corporation, a Delaware
corporation (the "Transferor") and ACNielsen Corporation, a Delaware
corporation (the "Transferee") to and for the benefit of Manugistics Group,
Inc., a Delaware corporation (the "Company").
BACKGROUND
Pursuant to an agreement dated as of July 26, 1994 (the "Stock Purchase
Agreement") between the Transferor and the Company, the Transferor acquired
490,000 shares of Common Stock of the Company (the "Investor Shares");
The Transferor desires to transfer all of the Investor Shares to the
Transferee prior to October 1, 1996 (the "Transfer");
The Transferee is an Affiliate of the Transferor, as that term is defined
in the Stock Purchase Agreement; and
Pursuant to Section 8(e) of the Stock Purchase Agreement, the Transferee
must agree to be bound by Section 8 of the Stock Purchase Agreement as a
condition to the passage of voting rights in respect of the Investor Shares to
the Transferee.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, hereby acknowledge, covenant and agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Stock Purchase Agreement.
2. Immediately upon the consummation of the Transfer, Transferee shall
assume and shall be bound by and perform all provisions of Section 8 of the
Stock Purchase Agreement as if a signatory thereto.
3. (a) The "3.5% Condition" is triggered by the Transfer; (b) Investor
Director, Robert J Lievense, shall immediately resign in anticipation of the
Transfer in accordance with Section 6 of the Stock Purchase Agreement; and (c)
all rights of the Transferor under Section 6 of the Stock Purchase Agreement
have terminated. Attached hereto as Schedule "A" is the proposed form of
resignation of Mr. Lievense.
4. The Company has not consented, and the Company's consent to this
Agreement shall not be construed as consent, to the assignment to Transferee of
any or all of Transferor's rights, if
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any, under the Stock Purchase Agreement.
5. Transferor reserves its rights, if any, to transfer any and all rights
under the Stock Purchase Agreement (other than Section 6 thereof which has
terminated as indicated above) to Transferee, including but not limited to
Section 9 thereof, and nothing herein shall be construed as a waiver of such
rights; provided however, that such rights are subject to all rights and
remedies of the Company to object or oppose any such attempted transfer, and
nothing herein shall be construed as a waiver of such rights and remedies of
the Company.
6. By consenting to this Acknowledgement Agreement by its execution as
below indicated, the Company shall agree that (i) upon receipt of the stock
certificates representing the Investor Shares and executed stock powers, it
will issue stock certificates representing such shares in the name of the
Transferee and (ii) all notices under the Stock Purchase Agreement will also be
delivered to the Transferee (the address for delivery to be provided to the
Company in writing).
7. The Company is a direct, intended third-party beneficiary of this
Acknowledgement Agreement and, as such, shall have standing to enforce its
rights hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this Assumption and
Acknowledgement Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
THE DUN & BRADSTREET CORPORATION,
Transferor
By: /s/ EARL H. DOPPELT
-----------------------------------
Name: Earl H. Doppelt
Title: Senior Vice President and
General Counsel
Date: June 20, 1996
---------------------------------
ACNIELSEN CORPORATION, Transferee
By: /s/ ELLENORE O'HANRAHAN
-----------------------------------
Name: Ellenore O'Hanrahan
---------------------------------
Title: Vice President and Secretary
--------------------------------
Date: June 20, 1996
---------------------------------
Consented to:
MANUGISTICS GROUP, INC.
By: /s/ WILLIAM M. GIBSON
----------------------------
Name: William M. Gibson
Title: President & CEO
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<PAGE> 1
EXHIBIT 10.23
SUBLEASE AGREEMENT
1. PARTIES.
This Sublease, dated May 23, 1996, is made between CTA Incorporated (CTA)
("Sublessor") and Manugistics, Inc. (Manugistics) ("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated February 6, 1989,
wherein 6116 Limited Partnership ("Lessor") leased to Sublessor the real
property located at 6116 Executive Boulevard, Rockville, Maryland,
described as approximately 49,451 square feet located on the third (3rd)
and eighth (8th) floors ("Master Premises").
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): Approximately 20,639 square feet on the third (3rd) floor.
See attached copy of floor plan marked as Exhibit A.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default of breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of the provisions of the Master Lease. In the
event that Sublessor is ever placed in default of the Master Lease, the
Sublessor shall have the right to cure such default. In the event
Sublessor does not cure such default within the time allowed by the Master
Lease, the Sublessee shall have the right to immediately cancel the
Sublease.
5. TERM.
The Term of this Sublease shall commence 120 days from the date of this
agreement ("Commencement Date"), and end on June 30, 1999 ("Termination
Date"), unless otherwise sooner terminated in accordance with the
provisions of this Sublease. Possession of the Premises ("Possession")
shall be delivered to Sublessee 60 days from the date of this agreement,
for the sole purpose of retrofitting the Premises.
6. RENT.
Sublessee shall pay to Sublessor as base rent, without deduction, setoff,
notice, or demand, at 6116 Executive Boulevard, Rockville, Maryland, or at
such other place as Sublessor shall designate from time to time by notice
to Sublessee, the annual sum of Three Hundred Seventy-One Thousand Five
Hundred Two and 00/100 Dollars, ($371,502.00), paid in equal monthly
installments of Thirty Thousand Nine Hundred Fifty-Eight and 50/100
Dollars ($30,958.50), in advance on the first
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day of each month of the Term. If the term begins or ends on a day other
than the first or last day of a month, the rent for the partial months
shall be prorated on a per diem basis. At the commencement of each lease
year, the base rent shall be increased by three and one-quarter percent
(3.25%).
7. USE OF PREMISES.
The Premises shall be used and occupied only for general office use and
for no other use or purpose.
8. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises except to a party controlling, controlled by, or under
common control with Sublessee without the prior written consent of
Sublessor, which shall not be unreasonably withheld, conditioned or
delayed, (and the consent of Lessor, if such is required under the terms
of the Master Lease).
9. OTHER PROVISIONS OF THE SUBLEASE.
AB applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder and the Premises the Master
Premises. The following articles do not apply to the Sublease, including,
but not limited to: Article 6 and Addendum No. 1, Article 3, Article 4,
Article 7, Article 8, Article 9, Article 10, Article 11, Article 13,
Article 14, and Article 19 (b), (c) and (d). Sublessee assumes and agrees
to perform the lessee's obligations under the Master Lease during the Term
to the extent that such obligations are applicable to the Premises, except
that the obligation to pay rent to Lessor under the Master Lease shall be
considered performed by Sublessee to the extent and in the amount rent is
paid to Sublessor in accordance with Section 6 of this Sublease. Sublessee
shall not commit or suffer any act or omission that will violate any of
the provisions of the Master Lease. Sublessor shall exercise due diligence
in attempting to cause Lessor to perform its obligations under the Master
Lease for the benefit of Sublessee. If the Master Lease terminates, this
Sublease shall terminate and the parties shall be relieved of any further
liability or obligation under this Sublease, provided however, that if the
Master Lease terminates as a result of a default or breach by Sublessor or
Sublessee under this Sublease and/or the Master Lease, then the defaulting
party shall be liable to the nondefaulting party for the damage suffered
as a result of such termination. Notwithstanding the foregoing, if the
Master Lease gives Sublessor any right to terminate the Master Lease in
the event of the partial or total damage, destruction, or condemnation of
the Master Premises of the building or project of which the Master
Premises are a part, the exercise of such right by Sublessor shall not
constitute a default or breach hereunder. In the event that Sublessee
abandons the premises while maintaining rent payments to Sublessor,
Sublessee shall not be considered in default of the Sublease.
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<PAGE> 3
10. ATTORNEY'S FEES.
If Sublessor or Sublessee shall commence an action against the other
arising out of or in connection with this Sublease, the prevailing party
shall be entitled to recover its cost of suit and reasonable attorney's
fees.
11. LIMITATION OF LIABILITY.
Neither party shall be liable for loss of profit, goodwill or other
consequential damage arising out of this agreement even if advised of the
possibility of such damages. Either party's liability for all claims
(excluding physical injury or property damage resulting from negligent or
willful misconduct) that arise out of this agreement shall not exceed the
sum of rent paid by the Sublessee to the Sublessor for the year in which
the cause of action arose.
12. HOLDOVER.
Sublessee shall have no rights to occupy the premises beyond the
Termination Date of June 30, 1999 stated in this Sublease Agreement. In
the event the Sublessee continues to occupy the premises beyond the
Termination Date, this action shall constitute a Holdover by the
Sublessee. Sublessee hereby understands and agrees that in the event of a
Holdover by the Sublessee, the Sublessee is bound by the terms of the
Master Lease and shall be responsible for all damages, penalties, and
costs resulting from such action. Sublessee further agrees that any and
all damages, penalties, and costs resulting from a holdover by the
Sublessee shall not be limited to the sum of rent paid by the Sublessee to
the Sublessor for the year in which the action occurred.
13. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent by United
States Mail, postage prepaid, addressed to the Sublessee at the Premises,
and to the address herein below, or to such other place as Sublessee may
from time to time designate in a notice to the Sublessor. All notices and
demands by the Sublessee to Sublessor shall be sent by United States Mail,
postage prepaid, addressed to the Sublessor at the address set forth
herein, and to such other person or place as the Sublessor may from time
to time designate in a notice to the Sublessee.
To Sublessor: CTA Incorporated
6116 Executive Boulevard
Rockville, Maryland
To Sublessee: Manugistics, Inc.
Attention: General Counsel
2115 East Jefferson Street
Rockville, Maryland 20852
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<PAGE> 4
14. CONSENT BY LESSOR.
This Sublease shall be of no force or effect unless consented to by the
Lessor after execution thereof, if such consent is required under the
terms of the Master Lease.
15. CONDITION OF THE PREMISES.
Sublessee accepts the Demised Premises in their present "as is" condition
and configuration. Sublessor shall be responsible for demising the space.
16. PARKING.
Sublessor shall provide sixty-four (64) parking spaces for Sublessee's use
at no charge at the commencement of the Sublease and for the entire term.
17. AFTER HOURS HVAC.
Sublessee shall be responsible for overtime HVAC charges applied to the
Sublessor as may be provided for in the Master Lease
18. GENERAL.
A. GOVERNING LAW. Sublease shall be construed and enforced in
accordance with the laws of the state of Maryland.
B. SEVERABILITY. Any provision of this Sublease that is held to be
invalid by a court of competent jurisdiction shall be severed from
this Sublease, and the remaining provisions shall remain in full
force and effect.
C. FORCE MAJEURE. Neither party shall be liable to the other party for
failure or delay in fulfilling its obligations under this Sublease to
the extent that such failure or delay is due to causes beyond its
control, including, but not limited to: acts of God; war, civil
disturbance; and riot.
D. WAIVER. Failure or delay by either party to enforce compliance with
any term or condition of this Sublease shall not constitute a waiver
of such term or condition.
E. ENTIRE AGREEMENT. This Sublease shall constitute the entire agreement
between the parties with regard to the subject matter of this
Sublease and supersede all previous communications, whether oral or
written, between the parties with respect to such subject matter.
Neither the course of conduct between the parties nor trade usage
shall modify or alter this Sublease. If either party issues a
purchase order or other writing addressing the subject matter of this
Sublease, such purchase order or writing shall be for issuing party's
internal purposes only, and the terms and conditions contained
therein shall have no force or effect.
F. MODIFICATION. No waiver or modification of any of the provisions
hereof shall be binding unless in writing and signed by duly
authorized representatives of both parties.
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The parties hereto have executed this sublease agreement.
/s/ GREGORY H. WAGNER Date: May 23, 1996
- ---------------------------------------- ------------------
SUBLESSOR: CTA Incorporated
By:
/s/ HELEN NATASIA Date: May 15, 1996
- ---------------------------------------- ------------------
SUBLESSEE: Manugistics, Inc.
Helen Natasia
By: GENERAL COUNSEL
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<PAGE> 1
Exhibit 10.24
Data Marketing and Guaranteed Revenue Agreement
[ *** ] -Indicates those portions of this agreement in which confidential
treatment has been requested. Omitted portions have been filed separately with
the Securities and Exchange Commission.
<PAGE> 2
DATA MARKETING AND GUARANTEED REVENUE AGREEMENT
This Data Marketing and Guaranteed Revenue Agreement (the "Agreement"), made by
and between Manugistics, Inc., with its principal place of business at 2115
East Jefferson Street, Rockville, MD 20852 ("MANUGISTICS"), and Information
Resources, Inc., with its principal place of business at 150 N. Clinton Street,
Chicago, IL 60661-1416 ("IRI"), is effective as of March 7, 1997 (the
"Effective Date").
RECITALS
A. MANUGISTICS designs, develops, markets, licenses and supports
certain supply chain management software, as more fully
defined in ARTICLE I hereunder.
B. IRI designs, develops, markets, licenses and supports certain
supply chain data and related software products, all as more
fully defined in ARTICLE I hereunder.
C. IRI and MANUGISTICS entered into a reseller agreement (the
"IRI Reseller Agreement"), pursuant to which IRI granted
MANUGISTICS and its affiliates (as defined therein), agents
and representatives a non-exclusive, non-transferable license
to market and sublicense certain IRI software products when
sold in combination with certain MANUGISTICS software
products.
D. IRI and MANUGISTICS entered into a reseller agreement (the
"Manugistics Reseller Agreement"), pursuant to which
MANUGISTICS granted to IRI and its affiliates (as defined
therein), agents and representatives a non-exclusive,
non-transferable license to market and sublicense certain
MANUGISTICS software products.
E. The parties desire to enter into this Agreement whereby IRI
shall appoint MANUGISTICS as a marketer of IRI's Exclusive
Supply Chain Data (as hereinafter defined) and MANUGISTICS
shall agree to guarantee IRI certain revenues on terms
hereinafter set forth.
Therefore, in consideration of the mutual promises and covenants set forth
below, MANUGISTICS and IRI agree as follows:
ARTICLE I - DEFINITIONS
1.1 BASELINING CODE
"Baselining Code" shall mean the line of code developed and owned by
IRI which filters point of sale movement data for a store or aggregate
of stores into two or more separate streams by removing or separating
one or more of the following effects: in-store promotions; in-store
price reductions; and/or holiday effects.
<PAGE> 3
1.2 CONTRACTED AMOUNT
"Contracted Amount" shall mean, with respect to a Customer contract
entered into during the Guaranteed Revenue Period (as defined below),
the total of those amounts due from a Customer thereunder that will be
included within Manugistics Generated Revenue (as set forth in Article
IV hereof) at such time as such amounts become Revenue (as defined
below).
1.3 CUSTOMER
"Customer" shall mean a third party to whom MANUGISTICS and/or IRI
software products have been marketed or licensed and/or access to
Supply Chain Data has been marketed or sold by MANUGISTICS, IRI or
their respective affiliates, agents or representatives.
1.4 EXCLUSIVE SUPPLY CHAIN DATA
"Exclusive Supply Chain Data" shall mean Supply Chain Data processed
by IRI for Customers specifically and exclusively for use with the
Manugistics Software, as defined below.
1.5 GUARANTEED REVENUE PERIOD
"Guaranteed Revenue Period" shall mean the period beginning on the
Effective Date of this Agreement and ending on the last day of the
latest to end of the three Revenue Periods.
1.6 IRI
"IRI" shall mean Information Resources, Inc. and any other
corporation, partnership, firm, association, joint venture or any
other person in which IRI, directly or indirectly, holds a fifty
percent (50%) or more ownership interest.
1.7 IRI RESELLER PRODUCTS
"IRI Reseller Products" shall mean the IRI Software listed on Schedule
A of the IRI Reseller Agreement as "Licensed Programs," together with
the documentation provided to MANUGISTICS under the IRI Reseller
Agreement for such Licensed Programs.
1.8 IRI RESELLER ROYALTIES
"IRI Reseller Royalties" shall mean the royalties payable by
MANUGISTICS to IRI pursuant to the terms of the IRI Reseller
Agreement.
1.9 IRI SOFTWARE
"IRI Software" shall mean the DataServer Analyzer, TradeWins (or the
IRI software product that IRI designates as TradeWins' functional
equivalent), Apollo, Baselining Code and Category Manager software
products owned by or licensed to IRI and any other software products
owned by or licensed to IRI that the parties mutually agree in writing
to include in the IRI Reseller Agreement.
1.10 MANUGISTICS
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"MANUGISTICS" shall mean Manugistics, Inc. and any other corporation,
partnership, firm, association, joint venture or any other person in
which MANUGISTICS, directly or indirectly, holds a fifty percent (50%)
or more ownership interest.
1.11 MANUGISTICS SOFTWARE
"Manugistics Software" shall mean all versions of the supply chain
software products owned by or licensed to MANUGISTICS prior to or
subsequent to the date of this Agreement, including, without
limitation, MANUGISTICS' current supply chain software products
commonly known as Demand Planning, Supply Planning, Manufacturing
Scheduling and Transportation Planning and any other software products
with similar functionality to these current products developed by or
for the benefit of MANUGISTICS, together with the logical successors
to such products developed or to be developed by or for the benefit of
MANUGISTICS.
1.12 REVENUE
"Revenue" shall mean revenue recorded and recognized by IRI in
accordance with generally accepted accounting principles on a basis
consistent with IRI's current revenue recognition policy as set forth
in IRI's 1995 Annual Report in Form 10-K.
1.13 REVENUE PERIOD
"Revenue Period" shall mean the First Revenue Period, the Second
Revenue Period and/or the Third Revenue Period, as applicable (as such
terms are defined in Section 4.1 hereof).
1.14 REVENUE PERIOD YEAR
"Revenue Period Year" shall mean each consecutive period of twelve
(12) months in a given Revenue Period.
1.15 SETTLEMENT DATE
[ *** ]
1.16 SUPPLY CHAIN DATA
"Supply Chain Data" shall mean IRI's point of sale movement data (to
the extent IRI is authorized to release such data on the date hereof
and throughout the term of this Agreement) for a store or an aggregate
of stores, which data (a) is comprised of the following measures:
total volume, base volume, incremental volume and the percent increase
generated by in-store promotions, specifically feature, display and
temporary price reductions; and (b) has been processed by IRI in its
usual quality control and processing system and licensed to Customers
specifically for the purposes of being used for forecasting future
sales in conjunction with supply chain software applications that
provide forecasts and supply plans for such Customers' products.
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1.17 TERRITORY
"Territory" shall mean the world except with respect to Japan, which
shall be included within the Territory if Information Resources Japan,
a Japanese joint venture in which Information Resources, Inc. owns an
interest ("IRJ"), grants its approval to such inclusion, which
approval shall be granted or refused on or before March 31, 1997,
unless the parties shall agree to a later date.
All other terms not defined in this Article I shall be defined hereinafter.
ARTICLE II - MANUGISTICS' RIGHT TO MARKET EXCLUSIVE SUPPLY CHAIN DATA
2.1 Appointment. For the Term of this Agreement, IRI appoints MANUGISTICS
as an exclusive (except as limited in Section 2.2 below), independent marketing
agent to solicit orders for Exclusive Supply Chain Data from Customers, and
MANUGISTICS hereby accepts such appointment, for the compensation and on the
basis of each and all of the other covenants, agreements, terms and conditions
set forth in this Agreement. IRI also grants MANUGISTICS the right to appoint
third parties to act as independent marketing agents for Exclusive Supply Chain
Data hereunder on behalf of MANUGISTICS, subject to the terms and conditions of
this Agreement provided IRI first consents to each such appointment, which
consent shall not be unreasonably withheld.
2.2 Specific Exclusions. Unless authorized in advance by IRI in writing
and in its discretion, MANUGISTICS shall not solicit orders for any IRI
services or products other than the Exclusive Supply Chain Data or other than
as specifically contemplated by the IRI Reseller Agreement, nor shall
MANUGISTICS solicit from Customers outside the Territory. MANUGISTICS'
designation hereunder is exclusive with respect to Exclusive Supply Chain Data,
except that IRI retains the right, in its discretion, directly or indirectly,
to solicit orders from and make sales of any IRI services and/or products,
including the Exclusive Supply Chain Data, to any Customer anywhere in the
world.
2.3 Responsibilities of MANUGISTICS
2.3.1 Generally. MANUGISTICS shall use its best efforts to promote
the sale of the Exclusive Supply Chain Data for use with the
Manugistics Software to the Customers and solicit orders of the
Exclusive Supply Chain Data in connection with a license of the
Manugistics Software from the Customers and, in connection with which,
MANUGISTICS shall (i) actively promote sale of the Exclusive Supply
Chain Data for use with the Manugistics Software to the Customers in a
vigorous and diligent manner, (ii) promptly respond to inquiries from
Customers, (iii) perform general liaison services between IRI and its
customers, (iv) exercise due care to protect the trade name,
trademarks and general goodwill of IRI and refrain from any activities
detrimental thereto, and (v) notify IRI of any complaints or claims
concerning IRI or the Exclusive Supply Chain Data, any apparent
violations of IRI's trademark or other proprietary rights, and any
competitive conditions or customer behavior which may adversely affect
the marketability or quality image of the Exclusive Supply Chain Data.
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2.3.2 Terms of Orders and Sales of Exclusive Supply Chain Data.
From time to time, IRI will provide MANUGISTICS with copies of its
current standard forms of presentation materials, contract terms and
conditions and pricing information for the Exclusive Supply Chain
Data. If a Customer desires to purchase access to the Exclusive
Supply Chain Data, MANUGISTICS shall solicit an order from such
Customer or refer that Customer directly to IRI. In either case, IRI
will be solely responsible for selling and delivering Exclusive Supply
Chain Data access to such Customer. As the initial point of contact
with the Customer, MANUGISTICS will have sole responsibility and
authority to set prices for access to Exclusive Supply Chain Data for
Customers referred to IRI by MANUGISTICS, subject to certain mutually
agreed upon minimum access fees. MANUGISTICS shall solicit orders
only with IRI's then standard form of "IRI Service Order Form," a
current copy of the format of which is attached hereto as Exhibit A.
No order, commitment or proposed contract solicited by MANUGISTICS
shall be binding upon IRI unless and until accepted by IRI in its sole
discretion; however, IRI hereby agrees that it will accept any orders
on IRI's then-standard form of "IRI Service Order Form" provided: (a)
such form has not been modified by MANUGISTICS, its agents or
representatives or the Customer; (b) the terms contained in such order
forms are in compliance with the terms of this Agreement; and (c) IRI
does not have a compelling business reason to reject such orders.
Compelling business reason, for the purposes of this Section, shall
include, but not be limited to, the following: non-payment or credit
risk concerns or contractual obligations restricting IRI from
fulfilling the terms of such order. IRI's contract with the Customer
(which may take the form of an addendum to Manugistics' contract with
the Customer, an addendum to such Customer's existing InfoScan
Contract with IRI or a standalone contract) shall specify that the
Customer's right to use Exclusive Supply Chain Data is limited to use
with the Manugistics Software only and not with any other software
applications, regardless of whether these other software applications
are owned by IRI, MANUGISTICS or by a third party.
2.3.3 Conduct of Business and Expenses. MANUGISTICS' sole
compensation hereunder shall be the referral fees set forth in Section
2.4 below. MANUGISTICS shall maintain adequate staffing and office(s)
to fulfill its responsibilities under this Agreement. MANUGISTICS
shall conduct all of its business in its own name and, consistent with
the provisions of this Agreement, in such manner as it may reasonably
see fit. MANUGISTICS shall be responsible for all expenses incurred
in connection with the operation of its office, employees, and its
activities hereunder.
2.3.4 Trademarks and Trade Names. IRI hereby grants to MANUGISTICS
the right to use IRI's trademarks, tradenames, logo and/or other
commercial symbols found on or pertaining to any of the Exclusive
Supply Chain Data or other IRI services and products, packaging or
otherwise, as the parties mutually agree is reasonably necessary for
MANUGISTICS to fulfill its obligations under this Agreement; provided,
however, that MANUGISTICS agrees not to remove, alter or change in any
way, any such IRI trademark, trade name, logo or other commercial
symbol without the prior written permission of IRI which may be
withheld in its sole discretion.
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2.4. Compensation of MANUGISTICS
2.4.1 Referral Fee. MANUGISTICS shall receive as full and complete
compensation for its services rendered hereunder with respect to
Exclusive Supply Chain Data a referral fee [ *** ] for each
contract year or portion thereof derived from Exclusive Supply Chain
Data access sales that are referred or solicited by Manugistics, and
generated pursuant to a contract entered into between IRI and a
Customer within 12 months after the date of written referral by
MANUGISTICS.
2.4.2 Payment. Subject to Section 4.1.4.6. below, IRI shall pay to
MANUGISTICS on or before the 45th day following the end of each three
month period of this Agreement the Referral Fees owing hereunder
related to payments received by IRI during the three month period then
ended from Customers for Exclusive Supply Chain Data access for which
MANUGISTICS is entitled to receive a Referral Fee hereunder.
2.4.3 Rescinded Orders. IRI shall deduct from any sum due
MANUGISTICS under Section 2.4.1 an amount equal to Referral Fees
previously paid to MANUGISTICS on sales of access to Exclusive Supply
Chain Data, where the Customer has thereafter rescinded or repudiated
its order for, or agreement to purchase, such access; however, in the
event a Customer of a rescinded or repudiated order subsequently
affirms such order, IRI shall include such amount in Referral Fees due
MANUGISTICS hereunder. Notwithstanding the foregoing, sums related to
orders that were rescinded or repudiated as a result of IRI's failure
to perform under the contracts submitted to IRI and accepted in
accordance with Section 2.3.2 above shall be included in Manugistics
Generated Revenues for purposes of calculating Revenues under ARTICLE
IV.
2.5 Responsibilities of IRI
2.5.1 Orders. IRI shall use its best efforts to fill promptly all
orders from Customers obtained by MANUGISTICS pursuant to this
Agreement and accepted by IRI in accordance with Section 2.3 hereof,
but shall not be liable for any loss, damage, detention or delay
resulting from causes beyond its reasonable control or caused by fire,
strike, actions of civil or military authority, accidents or delays in
transportation, insurrection or riots, acts of God, war, federal,
state or local governmental laws, regulations or restrictions, or
inability or delay due to causes beyond IRI's control to obtain
necessary labor, materials, or production facilities.
2.5.2 Sales and Technical Information. IRI will furnish MANUGISTICS
from time to time with such sales leads, catalogs, photographs,
specifications, price lists and other information and literature as it
may deem appropriate or as reasonably requested by MANUGISTICS to
assist MANUGISTICS in performing MANUGISTICS' obligations hereunder.
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2.5.3 Samples. IRI will make available to MANUGISTICS samples and
facsimiles of the Exclusive Supply Chain Data for the sole purpose of
showing them to Customers and (if approved in advance by IRI)
demonstrating or showing them at trade and promotional shows, in
connection with which MANUGISTICS hereby agrees as follows:
(a) Selection of Samples. The choice of such samples,
duration of time in which MANUGISTICS shall have a right to
possess and show them, and MANUGISTICS' usage of them shall be
at the sole discretion of IRI, which discretion shall be
reasonably exercised.
(b) Title in the Samples. All right, title, and interest
in any Exclusive Supply Chain Data provided for MANUGISTICS'
use as samples shall remain in IRI. MANUGISTICS shall return
all such samples at any time IRI shall ask for them and, in
any event, not later than the termination of this Agreement.
2.5.4 Quarterly Reporting By IRI. IRI will provide to MANUGISTICS a
quarterly report summarizing the Revenues recognized by IRI from the
sale of Supply Chain Data to the extent such Revenues are to be
included within Manugistics Generated Revenues as set forth in ARTICLE
IV. The form of this report will be agreed to by the parties but, at
a minimum, will include Customer names if IRI is permitted to disclose
such names, amounts of Revenue and the status of Supply Chain Data
sales renewals to Customers that have previously purchased access to
Supply Chain Data, to the extent Revenues from such sales were
included within Manugistics Generated Revenues as set forth in ARTICLE
IV. This report will be provided to MANUGISTICS within thirty (30)
days after the end of each three month period of this Agreement.
2.6 Warranties. IRI shall be responsible for the design, development,
supply, production and performance of the Exclusive Supply Chain Data, and
shall be obligated to Customers for the warranties on the Exclusive Supply
Chain Data as set forth in the written warranty terms and conditions as
approved and issued by IRI. MANUGISTICS shall not change or modify, or purport
to change or modify, such warranty terms and conditions. IRI MAKES NO
WARRANTIES TO MANUGISTICS HEREUNDER, WHETHER EXPRESS OR IMPLIED, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
2.7 Indemnification. IRI shall indemnify and hold MANUGISTICS harmless
from and against any and all liabilities, losses, damages, injuries, costs,
expenses, causes of action, claims, demands, assessments and similar matters,
including without limitation reasonable attorneys' fees and other costs of
suit, resulting from or arising out of the manufacture and performance of the
Exclusive Supply Chain Data, including without limitation claims for product
liability, infringement of any intellectual property rights and claims under
any warranties given by IRI, but excluding any claim to the extent it arises
from or in connection with any act or omission by MANUGISTICS or any officer,
agent or employee of MANUGISTICS, any failure of MANUGISTICS or any officer,
agent or employee of MANUGISTICS to comply with the terms of this Agreement or
any performance or failure to perform by Manugistics Software used with the
Exclusive Supply Chain
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Data for and against which MANUGISTICS hereby agrees to indemnify IRI;
provided, that the indemnified party shall promptly notify the indemnifying
party in writing upon learning of any such claim or potential claim, and that
the indemnifying party shall have the option of handling the defense of the
same through counsel of its choice, in which event the indemnified party shall
provide reasonable cooperation and assistance.
2.8 Property Rights of IRI. IRI hereby represents and warrants that it
owns all right, title and interest in and to the Exclusive Supply Chain Data
and has the right to grant the rights granted hereunder with respect to the
Exclusive Supply Chain Data. Subject to the licenses herein, IRI shall retain
all right, title and interest in and to all patent, copyright, trade secret,
trademark and other intellectual property rights ("Intellectual Property
Rights") in the Exclusive Supply Chain Data and in any modifications,
enhancements, localizations and extensions thereto and derivative works based
thereon.
ARTICLE III - NON-DISCLOSURE
3.1 Non-Disclosure. It is expected that the parties may disclose to each
other certain information which may be considered confidential and trade secret
information ("Confidential Information"). Confidential Information shall
include: (a) Manugistics Software, Supply Chain Data and/or IRI Software, and
other methodologies of either party; (b) any documentation relating to
Manugistics Software, Supply Chain Data and/or IRI Software or other user or
developer documentation to which either party may have access in connection
with this Agreement; (c) product designs and specifications, release management
and version control standards, localization support requirements, technical
reference manuals and information concerning product strategy; (d) pricing,
customer lists and marketing plans; (e) confidential information disclosed by
either party in writing that is marked as confidential at the time of
disclosure; or (f) confidential information disclosed by either party in any
other manner and is identified as confidential at the time of disclosure and is
also summarized and designated as confidential in a written memorandum
delivered to the receiving party within thirty (30) days of disclosure.
Notwithstanding the foregoing, Confidential Information shall not
include information which: (a) is or becomes a part of the public domain
through no act or omission of the other party; (b) was in the receiving party's
possession before receipt from the party providing such Confidential
Information; (c) is rightfully received by the receiving party from a third
party without any duty of confidentiality; (d) is independently developed by
the other party; (e) is disclosed under operation of law; or (f) is disclosed
with the prior written approval of the party providing such Confidential
Information.
All Confidential Information owned solely by one party and disclosed
to the other party shall remain solely the property of the disclosing party.
The parties agree, both during the Term of this Agreement and for a period of
five (5) years after the later to occur of termination or expiration of the IRI
Reseller Agreement, the Manugistics Reseller Agreement or this Agreement, to
hold each other's Confidential Information in confidence and to protect the
disclosed Confidential Information by using the same degree of care to prevent
the unauthorized use,
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dissemination or publication of the Confidential Information as they use to
protect their own confidential information of a like nature. The receiving
party will limit disclosure of the disclosing party's Confidential Information
to the receiving party's employees who have a need to know and who have signed
written agreements enabling the receiving party to fully comply with its
obligations hereunder (including without limitation this Section 3.1). The
receiving party shall not make the disclosing party's Confidential Information
available in any form to any third party, except contractors with a need to
know and with which the receiving party has written agreements in place
enabling the receiving party to fully comply with its obligations hereunder
(including without limitation this Section 3.1), legal counsel and auditors.
Neither party will use the other's Confidential Information for any purpose
other than the implementation of this Agreement.
ARTICLE IV - GUARANTEED REVENUES
4.1 Terms of Guarantee. MANUGISTICS hereby guarantees to IRI that IRI
shall receive Revenue derived directly or indirectly from certain
MANUGISTICS' activities as hereinafter set forth ("Manugistics
Generated Revenues") in the total sum of not less than $16,500,000
during the Term of this Agreement via three separate revenue streams
as hereinafter set forth.
4.1.1 First Revenue Stream
4.1.1.1. For a three (3) year period ("First Revenue Period")
beginning on the first day of the month next following the
date on which the Exclusive Supply Chain Data and both of the
DataServer Analyzer(R) and TradeWins(TM) (or the software
product that IRI designates as TradeWins' functional
equivalent) software products are ready for commercial
licensing in the United States ("Commercially Ready") as the
parties shall mutually agree as determined in accordance with
the criteria set forth in Exhibit B, but in no event shall
such date be later than November 1, 1997 (the "Solution
Release Date"), MANUGISTICS will guarantee IRI on an annual
basis Manugistics Generated Revenues equal to the sum of (a)
the IRI Reseller Royalties (as defined in Section 1.8 above),
excluding those royalties attributable to the sublicense of
Oracle Programs (as defined in the IRI Reseller Agreement),
plus (b) IRI's net Revenue (after sales and use taxes and
payment of royalties owed to Oracle Corporation ("Oracle") or
any other third party) from any license of the DataServer
Analyzer product licensed in conjunction with or specifically
for use with any previously licensed Manugistics Software
("DataServer Net Revenues"), without regard to whether such
DataServer Analyzer product is licensed pursuant to a
MANUGISTICS, IRI, Oracle or other third-party contract,
subject to the restrictions set forth in Section 4.1.1.2
below, plus (c) IRI's Revenue from the license of Supply Chain
Data and/or Baselining Code to third parties referred by
MANUGISTICS net of any Referral Fees or other fees owed to
MANUGISTICS and/or third parties related thereto, plus (d)
IRI's Revenue from the license of Exclusive Supply Chain Data
without regard to
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whether such data are licensed on a MANUGISTICS, Oracle or
other third-party contract (net of Revenue calculated under
clause (c) above and any Referral Fees owed to MANUGISTICS
related thereto), plus (e) IRI's Revenue derived from
implementation and consulting services provided by IRI to
Customers with respect to the license of supply chain software
products to Customers but only to the extent such services are
rendered in connection with such Customer's access to
Exclusive Supply Chain Data.
4.1.1.2. MANUGISTICS hereby agrees that the Manugistics
Generated Revenues guaranteed under this Section 4.1.1 (the
"First Revenue Stream") will [ *** ] in the First Revenue
Period Year of the First Revenue Period (only [ *** ] of
this minimum may be comprised of [ *** ] Revenues); [
*** ] in the Second Revenue Period Year of the First Revenue
Period (only [ *** ] of this minimum may be comprised of [
*** ] Revenues) and [ *** ] in the Third Revenue Period
Year of the First Revenue Period (only [ *** ] of this
minimum may be comprised of [ *** ] Revenues).
4.1.1.3. If, at the end of any Revenue Period Year of the
First Revenue Period, IRI has not recognized Manugistics
Generated Revenues in the full amount guaranteed for such year
as set forth in Section 4.1.1.2 above, Manugistics will pay
IRI the difference (the "First Stream Shortfall Payment")
within 30 days after receipt of an invoice from IRI therefor.
To the extent any part of a First Stream Shortfall Payment
relates to Contracted Amounts that IRI is not able to
recognize as Revenue during such Revenue Period Year, but is
able to recognize as Revenue thereafter ("First Stream
Subsequent Revenue"), IRI shall pay to Manugistics the amount
of such First Stream Subsequent Revenue actually received by
IRI during the Guaranteed Revenue Period from Customers
("First Stream Refund Payment") within 30 days after the end
of the quarter (based on the Revenue Period Year) in which it
is received by IRI provided, however, that under no
circumstances shall the First Stream Refund Payment made by
IRI with respect to a Revenue Period Year be in excess of the
First Stream Shortfall Payment made by MANUGISTICS for such
year. Any First Stream Subsequent Revenue included within a
First Stream Refund Payment shall be credited towards the
Manugistics Generated Revenues for the Revenue Period Year
with respect to which such First Stream Refund Payment was
made and not the Revenue Period Year in which such First
Stream Subsequent Revenue was actually received by IRI.
4.1.1.4. Each party agrees to work diligently and in good
faith with the other party to ensure that the Exclusive Supply
Chain Data and the DataServer Analyzer and TradeWins software
products are Commercially Ready as soon as reasonably possible
after the date of this Agreement. To this end, IRI agrees to
use its best efforts to make the Exclusive Supply Chain Data
and the DataServer Analyzer and Tradewins software products
available to MANUGISTICS to test their commercial readiness on
or before July 1, 1997 and MANUGISTICS agrees to use its best
efforts to test such data and software products and provide
IRI with
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written notice of any material defects it has found within 30
days after it has received such data and software products
from IRI. Thereafter, IRI agrees to use its best efforts to
correct the material defects noted by MANUGISTICS within 90
days after its receipt of such defect notice. Neither the
failure by either party to meet the dates set forth above nor
the failure of the parties to mutually agree to a Solution
Release Date earlier than November 1, 1997 shall have any
effect on the fact that the Solution Release Date shall take
place no later than November 1, 1997.
4.1.2 Second Revenue Stream
4.1.2.1. For a three (3) year period ("Second Revenue
Period") beginning on the first day of the month next
following the Settlement Date, MANUGISTICS guarantees IRI
Manugistics Generated Revenues on an annual basis equal to the
sum of (a) the IRI Reseller Royalties, excluding those
royalties attributable to the sublicense of Oracle Programs
(as defined in the IRI Reseller Agreement), plus (b) IRI's
Revenue from the license of Exclusive Supply Chain Data
without regard to whether such data are licensed on a
MANUGISTICS, Oracle or other third-party contract (net of any
Referral Fees owed to MANUGISTICS related thereto).
4.1.2.2. MANUGISTICS guarantees to IRI that the Manugistics
Generated Revenues under this Section 4.1.2 (the "Second
Revenue Stream") will be a minimum of [ *** ] total in the
First Revenue Period Year and the Second Revenue Period Year
of the Second Revenue Period and [ *** ] in the Third
Revenue Period Year of the Second Revenue Period. The parties
acknowledge that the Manugistics Generated Revenues under this
Section 4.1.2. shall be in addition to the Manugistics
Generated Revenues under Section 4.1.1 above as part of the
First Revenue Stream.
4.1.2.3. If, at the end of any Revenue Period Year of the
Second Revenue Period, IRI has not recognized Manugistics
Generated Revenues in the full amount guaranteed for such year
as set forth in Section 4.1.2.2 above, Manugistics will pay
IRI the difference (the "Second Stream Shortfall Payment")
within 30 days after receipt of an invoice from IRI therefor.
To the extent any part of a Second Stream Shortfall Payment
relates to Contracted Amounts that IRI is not able to
recognize as Revenue during such Revenue Period Year, but is
able to recognize as Revenue thereafter ("Second Stream
Subsequent Revenue"), IRI shall pay to Manugistics the amount
of such Second Stream Subsequent Revenue actually received by
IRI during the Guaranteed Revenue Period from Customers
("Second Stream Refund Payment") within 30 days after the end
of the quarter (based on the Revenue Period Year) in which it
is received by IRI provided, however, that under no
circumstances shall the Second Stream Refund Payment made by
IRI with respect to a Revenue Period Year be in excess of the
Second Stream Shortfall Payment made by MANUGISTICS for such
year. Any Second Stream Subsequent Revenue included within a
Second Stream Refund Payment shall be credited
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towards the Manugistics Generated Revenues for the Revenue
Period Year with respect to which such Second Stream Refund
Payment was made and not the Revenue Period Year in which such
Subsequent Revenue was actually received by IRI.
4.1.3 Third Revenue Stream.
4.1.3.1. For the one (1) year period ("Third Revenue Period")
beginning on the date of this Agreement, MANUGISTICS
guarantees IRI Manugistics Generated Revenues equal to the sum
of (a) the IRI Reseller Royalties, excluding those royalties
attributable to the sublicense of Oracle Programs (as defined
in the IRI Reseller Agreement), plus (b) DataServer Net
Revenues from any license of the DataServer Analyzer product
licensed in conjunction with or specifically for use with any
previously licensed Manugistics Software, without regard to
whether such DataServer Analyzer product is licensed pursuant
to a MANUGISTICS, IRI, Oracle or other third-party contract,
subject to the restrictions set forth in Section 4.1.3.2
below, plus (c) IRI's Revenue from the license of Exclusive
Supply Chain Data without regard to whether such data are
licensed on a MANUGISTICS, Oracle or other third-party
contract (net of any Referral Fees owed to MANUGISTICS related
thereto).
4.1.3.2. MANUGISTICS guarantees to IRI that the Manugistics
Generated Revenues under this Section 4.1.3 (the "Third
Revenue Stream") will be [ *** ] (only [ *** ] of which
may be comprised of [ *** ] Revenues). The parties
acknowledge that the Manugistics Generated Revenues under this
Section 4.1.3 shall be in addition to the Manugistics
Generated Revenues under Section 4.1.1 and Section 4.1.2 above
as part of the First and Second Revenue Streams.
4.1.3.3. If, at the end of Third Revenue Period, IRI has not
recognized Manugistics Generated Revenues in the full amount
guaranteed for such Revenue Period as set forth in Section
4.1.3.2 above, Manugistics will pay IRI the difference (the
"Third Stream Shortfall Payment") within 30 days after receipt
of an invoice from IRI therefor. To the extent any part of
the Third Stream Shortfall Payment relates to Contracted
Amounts that IRI is not able to recognize as Revenue during
such Revenue Period, but is able to recognize as Revenue
thereafter ("Third Stream Subsequent Revenue"), IRI shall pay
to Manugistics the amount of such Third Stream Subsequent
Revenue actually received by IRI during the Guaranteed Revenue
Period from Customers ("Third Stream Refund Payment") within
30 days after the end of the quarter (based on the Revenue
Period Year) in which it is received by IRI provided, however,
that under no circumstances shall the Third Stream Refund
Payment made by IRI with respect to the Third Revenue Period
be in excess of the Third Stream Shortfall Payment made by
MANUGISTICS for such Third Revenue Period.
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4.1.4 Additional Terms Related to Manugistics Generated Revenues.
4.1.4.1. Any Manugistics Generated Revenues applicable to
either the First Revenue Stream or the Second Revenue Stream
in excess of the minimum Manugistics Generated Revenues
guaranteed in the first or second year of such Revenue Periods
will be applied to the minimum Manugistics Generated Revenues
guaranteed under Sections 4.1.1 or 4.1.2 above for the
succeeding year.
4.1.4.2. Any Manugistics Generated Revenues applicable to
either the First Revenue Stream or the Second Revenue Stream
earned prior to the commencement of MANUGISTICS' obligation to
guarantee such Revenue streams (but contracted for subsequent
to the Effective Date of this Agreement) to IRI will be
credited toward the minimum Manugistics Generated Revenues
for the First Revenue Stream only guaranteed under Section
4.1.1 above for any year of the First Revenue Period.
4.1.4.3. In the event any Manugistics Generated Revenue
meets the requirements for eligibility under more than one
Revenue Stream, MANUGISTICS shall have the right, in its sole
discretion (so as to maximize the satisfaction of its
guaranteed obligations hereunder), but subject to the
limitations of this Article IV, to select which Revenue
Stream such Manugistics Generated Revenue shall be credited
towards; provided, however, that the Revenue Stream selected
by MANUGISTICS must be active (i.e., the beginning date of
such Revenue Stream must have already occurred) at the time
that such Manugistics Generated Revenue is received by IRI.
4.1.4.4. In the event that MANUGISTICS sublicenses the
TradeWins software product to a Customer and, in conjunction
with such sublicensing, the Customer licenses IRI data (other
than Exclusive Supply Chain Data) for use with TradeWins, the
Revenue generated by the sale of such IRI data, net of sales
and use taxes, for use with TradeWins will be included when
calculating Manugistics Generated Revenues for purposes of the
First and/or Second Revenue Stream.
4.1.4.5. The parties agree that they shall characterize all
payments made by MANUGISTICS under this Article IV as ordinary
license or royalty payments, it being acknowledged and
understood that IRI will include all such payments as ordinary
income and MANUGISTICS shall deduct all such payments as
operating expenses.
4.1.4.6. MANUGISTICS shall have the right to off-set any
Shortfall Payments owed to IRI hereunder against Referral Fees
and/or Refund Payments owed by IRI pursuant to Section 2.4 or
Article IV hereof, respectively, to the extentsuch amounts are
past due and not then disputed by IRI in good faith. IRI
shall have the right to off-set any Referral Fees and/or
Refund Payments owed by it hereunder against amounts
guaranteed by MANUGISTICS to IRI pursuant to this
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Article IV, including Shortfall Payments, to the extent such
amounts are past due and not then disputed by MANUGISTICS in
good faith.
4.1.5 Notwithstanding anything to the contrary in this Agreement, in
the event MANUGISTICS' ability to market the Exclusive Supply
Chain Data in the United States or resell the IRI Reseller
Products in the United States is Impaired (as defined in
Section 4.1.6) prior to the end of the Guaranteed Revenue
Period and IRI fails to correct such situation or provide a
reasonably acceptable workaround within 60 days after receipt
of written notice from MANUGISTICS detailing such situation,
the parties mutually agree to restructure or modify the
payments and/or obligations created under this Agreement with
respect to the First Revenue Stream only. Such restructuring
shall be limited to (a) lowering the First Revenue Stream due
hereunder; (b) extending the First Revenue Period; and/or (c)
redefining the products which are used to generate the First
Revenue Stream. If the parties cannot agree how or if such
restructuring is to take place, the parties will resolve the
matter in accordance with the Dispute Resolution Procedures
provided for in Article VI below entitled "Dispute Resolution"
provided, however, that IRI shall not be required, as part of
such dispute resolution, to appoint MANUGISTICS as a marketer
or reseller of IRI services and/or products (except as already
set forth in this Agreement) unless IRI agrees to such
appointment.
4.1.6 For the purposes of Section 4.1.5 above, the term "Impaired"
shall mean any one or more of the following situations which
result in MANUGISTICS being materially damaged in its ability
to meet its Revenue guarantee obligations hereunder: (a) IRI
does not maintain and update the Exclusive Supply Chain Data
in the United States and/or the IRI Reseller Products for use
in the United States consistent with reasonable industry
practices; or (b) despite MANUGISTICS' best efforts to market
and sell access to the Exclusive Supply Chain Data in the
United States, there ceases to be a reasonable demand for such
Exclusive Supply Chain Data in MANUGISTICS' current and
prospective client base in the United States for reasons such
as the failure of the Exclusive Supply Chain Data in the
United States to measurably improve the forecasting accuracy
for such clients; or (c) despite MANUGISTICS' best efforts to
market and sublicense the IRI Reseller Products, there ceases
to be a reasonable demand for such IRI Reseller Products in
MANUGISTICS' current or prospective client base in the United
States; or (d) IRI delivers Exclusive Supply Chain Data in the
United States and/or IRI Reseller Products to Customers at any
time during the term of this Agreement with material defects
within IRI's reasonable control, which material defects
prevent the productive use of such Exclusive Supply Chain Data
and/or IRI Reseller Products; or (e) there exists an
injunction that restricts MANUGISTICS from marketing the
Exclusive Supply Chain Data in the United States and/or
reselling the IRI Reseller Products in any form; or (f) IRI
fails to have the Apollo software product Commercially Ready
as of the first day of the Second Revenue Period Year of the
First Revenue Stream; or (g) an event constituting a force
majeure as set forth in
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Section 5.2.3 occurs; or (h) IRI terminates the IRI Reseller
Agreement for reasons other than a breach thereof by
MANUGISTICS.
4.1.7 In the event that a Customer's accounts receivable balance to
IRI related to Manugistics Generated Revenue has become over
60 days past due, IRI shall have the right to notify
MANUGISTICS of such delinquency and MANUGISTICS shall use its
best efforts, for the 60 day period after its receipt of such
notice from IRI, to assist IRI, as IRI shall reasonably
request, in the collection of amounts due IRI. If, after such
60 day period, the Customer has not remitted the amounts due
to IRI, IRI shall make an adjustment to reduce Revenue for
100% of the delinquent balance in the applicable Revenue
Stream. At the time of IRI's cash receipt of any amounts
previously adjusted for as set forth in the preceding
sentence, IRI will increase Revenue in the applicable Revenue
Stream to reflect such cash receipt.
4.2 Reporting/Payment Terms.
4.2.1 Reporting. During the First Revenue Period, the Second
Revenue Period and the Third Revenue Period, IRI shall include
within the report it delivers to MANUGISTICS as set forth in
Section 2.5.4 hereof the Manugistics Generated Revenues
actually received by IRI during the preceding three month
period and the source of such revenues.
4.2.2 Final Reconciliation. IRI shall conduct a final
reconciliation within 45 days after the last day of the
Guaranteed Revenue Period to determine the sum of the
Shortfall Payments and Manugistics Generated Revenues received
or deemed to be received by IRI under all three Revenue
Streams during the Guaranteed Revenue Period, less the total
amount of Refund Payments made or deemed to be made by IRI
under all three Revenue Streams during the Guaranteed Revenue
Period ("Total Actual Revenues"). In the event the Total
Actual Revenues are in excess of $16,500,000 and include
Shortfall Payments made by MANUGISTICS under the terms of
Sections 4.1.1.3, 4.1.2.3., and 4.1.3.3. above, then IRI shall
refund to MANUGISTICS, within 30 days after such final
reconciliation is completed, such excess amount but only to
the extent such excess is equal to or less than the sum of all
Shortfall Payments included within the Total Actual Revenues
less the sum of all Refund Payments made by IRI with respect
to such Shortfall Payments. In the event the Total Actual
Revenues are less than $16,500,000, then IRI shall invoice
MANUGISTICS for the difference ("Final Reconciliation
Amount"). MANUGISTICS agrees to pay such invoice received
hereunder within 30 days of receipt. To the extent any part of
the Final Reconciliation Amount relates to Contracted Amounts
that IRI is not able to recognize as Revenue during the
Guaranteed Revenue Period, but is able to recognize as Revenue
("Final Subsequent Revenue Amounts") within two (2) years
thereafter (the "Final Reconciliation Period"), IRI shall pay
to Manugistics the amount of such Final Subsequent Revenue
Amounts actually received by IRI within the Final
Reconciliation Period from Customers ("Final Refund Payment")
within 30 days
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after the end of the quarter in which it is received by IRI
provided, however, that under no circumstances shall the total
Final Refund Payment made by IRI with respect to the Final
Reconciliation Period be in excess of the Final Reconciliation
Amount paid by MANUGISTICS to IRI hereunder.
4.3 Records; Right to Audit. Each of IRI and MANUGISTICS shall keep
accurate books of account and records pertaining to the Manugistics
Generated Revenues. No more than twice during any twelve (12) month
period, each of IRI and MANUGISTICS (the "Inspecting Party") may, at
its sole expense, employ an independent Certified Public Accountant
who is not compensated based on the results of the audit, and who is
reasonably acceptable to the other party (the "Inspected Party"), to
inspect such books of account and records upon reasonable notice to
the Inspected Party, and at a reasonable time during normal business
hours for the purpose of verifying the Manugistics Generated Revenues
payable to and/or received by IRI pursuant to this Agreement. Such
Certified Public Accountant shall hold all information obtained in
strict confidence; shall not disclose such information to any other
persons or entity (except the Inspecting Party) without the Inspected
Party's prior written consent; and shall not disclose to the
Inspecting Party any information regarding the Inspected Party's
business other than any noncompliance by the Inspected Party with the
Revenue payment provisions hereof.
ARTICLE V - TERM AND TERMINATION
5.1 Term. This Agreement shall become effective on the Effective Date and
shall remain in effect until the later to occur of: (a) the date on
which MANUGISTICS has completely fulfilled its guarantee obligations
to IRI of at least $16,500,000 under Article IV hereof, or (b) ten
(10) years after the Effective Date hereof, unless extended by mutual
agreement or sooner terminated as specified herein (the "Term").
5.2 Termination.
5.2.1 Termination for Cause. Either party (the "Notifying Party")
may terminate this Agreement, or any part thereof, including
any future Revenue commitments due hereunder (except as
otherwise set forth in Section 5.2.2 below), in the event the
other party hereto (the "Breaching Party") materially breaches
this Agreement and the Notifying Party provides written notice
to the Breaching Party specifying such breach in detail and
the Breaching Party fails to remedy such breach within sixty
(60) days after receipt of such notice. The parties agree to
resolve any dispute over whether a material breach has
occurred in accordance with Section 6.3 (Dispute Resolution)
below.
5.2.2 Second and Third Revenue Stream Not Terminable.
Notwithstanding the terms of Section 5.2.1 above or any other
provision of this Agreement, under no circumstances shall
MANUGISTICS have the right to terminate its obligations to
guarantee and pay to IRI the Second or Third Revenue Stream.
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5.2.3 Force Majeure. Neither party shall be liable to the other for
failure or delay in the performance of a required obligation
if such failure or delay is caused by riot, fire, flood,
explosion, earthquake or other natural disaster, government
regulation, or other similar cause beyond such party's
control, provided that such party gives prompt written notice
of such condition and resumes its performance as soon as
possible.
5.3 Effect of Termination. Upon termination or expiration of this
Agreement, all rights and obligations of the parties under this
Agreement shall cease, except as provided in this Article V.
Termination of this Agreement shall not limit either party from
pursuing other remedies available to it, including injunctive relief,
nor shall such termination relieve either party of its obligation to
pay all royalties and/or fees that have accrued or are otherwise owed
by it to the other party under this Agreement. The parties' rights
and obligations under Articles V (Term and Termination), VII (General)
and Sections 2.7 (Indemnification) and 2.8 (Property Rights of IRI) of
Article II, as well as those other Sections reasonably required to
allow the parties to exercise their post-termination rights hereunder,
shall survive expiration of termination of this Agreement.
ARTICLE VI - BUSINESS PLAN; RELATIONSHIP MANAGERS; DISPUTE RESOLUTION
6.1 Business Plan. The parties shall, with all due diligence,
cooperatively develop a Business Plan for implementation of the sales
and marketing terms of this Agreement with respect to the Exclusive
Supply Chain Data. The parties shall use commercially reasonable
efforts to agree on the Business Plan within ninety (90) days after
execution of this Agreement and shall update the Business Plan
annually. Such Business Plan shall:
(a) Specify the operating guidelines for such sales and marketing
activities,
(b) Define criteria and formats for operations and business
reviews, to be conducted jointly by the parties, to monitor
their performance against the Business Plan with respect to
sales and marketing of the Exclusive Supply Chain Data
pursuant to the terms of this Agreement, and
(c) Contain a jointly developed budget covering all of the
parties' obligations under this Agreement. Such budget shall
detail Revenue and expense plans for all obligations and
commitments hereunder to be performed during the upcoming
year. Such plan shall be subject to adjustment and review on
a quarterly basis taking into account actual expenses and
Revenue earned during the preceding quarter.
6.2 Relationship Managers. Each party shall designate a Relationship
Manager who shall maintain primary responsibility for the relationship
between the parties. The Relationship Manager shall serve as the
primary point of contact for communications with the other party, for
ensuring that the appropriate resources within his or her company are
brought to
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bear for the success of the relationship and for escalating issues as
required. The name of each party's Relationship Manager is specified
on Exhibit C hereto.
6.3 Dispute Resolution. In the event that any dispute or disagreement
exists between representatives of the parties which cannot be
satisfactorily resolved between them, the matter shall be referred to
an executive for the appropriate functional area from each party, who
shall diligently work to resolve the dispute. If the two executives
cannot resolve the dispute to the parties' mutual satisfaction within
ten (10) business days after the dispute has been referred to them,
the executives shall refer the matter to their respective Chief
Executive Officers. If the Chief Executive Officers are unable to
render a decision or the decision does not serve to resolve the
dispute within ten (10) business days, except in disputes dealing with
the ownership of, title to or authority to license or sell
intellectual property which shall be referred to the court system,
then either party may resort to arbitration.
In the event a matter is referred to arbitration by either party, such
arbitration shall be conducted in the English Language and shall take
place in a city to be mutually agreed by the parties. The arbitration
tribunal shall be composed of three (3) arbitrators appointed pursuant
to the procedures set forth in Arbitration Rules of the American
Arbitration Association. The procedure to be followed by the
arbitration tribunal shall be the Commercial Arbitration Rules of the
American Arbitration Association. The basis for the final decision of
the arbitration panel shall be given in writing to the parties when
the award is made. The award shall be given by a majority decision.
If there is no majority, the award shall be given by the chairman for
the arbitration tribunal alone. The award shall be enforceable at law
against the parties as if it had been established by the ordinary
domestic courts of the parties. Judgment may be entered on the award
by any competent court having jurisdiction.
Except for disputes relating to the ownership of, title to or
authority to license intellectual property, neither party shall
exercise its rights of termination so long as an arbitration process
has been initiated and shall continue to perform its obligations under
this Agreement in order to allow the parties to settle the dispute or
disagreement, so long as, if the dispute concerns a material breach,
the party alleged to be in breach has promptly commenced cure and
pursues the cure in good faith. Neither party shall begin any formal
proceedings for arbitration of the dispute, except for the seeking of
equitable relief, until the dispute has been elevated to the Chief
Executive Officers, and they conclude, after endeavoring in good faith
to resolve the dispute, that resolution through continued negotiation
is not likely.
ARTICLE VII - GENERAL
7.1 Governing Law. This Agreement, and all matters arising out of or
relating to this Agreement, shall be governed by the procedural and
substantive laws of the State of Delaware.
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7.2 Assignment. Neither party may assign any rights, duties, obligations
or privileges under this Agreement without the prior written consent
of the other party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, 30 days prior written notice shall be
required but consent shall not be required in the event the proposed
assignee is an entity controlling, controlled by or under common
control with the assigning party and the non-assigning party does not
reasonably consider such assignee to be its competitor.
7.3 Notice. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed by
certified mail, return receipt requested, with postage prepaid, or
sent through a nationally recognized courier service, addressed as
follows:
For IRI: Information Resources, Inc.
150 N. Clinton Street
Chicago, IL 60661
Attn: General Counsel
For Manugistics: Manugistics, Inc.
2115 East Jefferson Street
Rockville, MD 20852
Attn: General Counsel
7.4 Relationship Between the Parties. In all matters relating to this
Agreement, MANUGISTICS and IRI shall act as independent contractors.
Neither party will represent that it has any authority to assume or
create any obligation, express or implied, on behalf of the other
party, or to represent the other party as agent, employee or in any
other capacity except as expressly permitted in Article II above.
Neither party shall have any obligation, express or implied, except as
expressly set forth herein. In no event shall the parties be
considered to have formed a partnership under or in any way to have
contracted to form a joint venture for purposes of state law or tax
purposes.
7.5 Interpretation. This Agreement, including any exhibits, addenda,
schedules and amendments, has been negotiated at arm's length and
between persons sophisticated and knowledgeable in the matters dealt
with in this Agreement. Each party has been represented by
experienced and knowledgeable legal counsel. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the
purposes of the parties and this Agreement.
7.6 Entire Agreement. This Agreement, together with the Exhibits hereto,
sets forth the entire agreement between the parties and supersedes
prior proposals, agreements, and representations between them, whether
written or oral, relating to the subject matter contained herein
except the IRI Reseller Agreement and the Manugistics Reseller
Agreement between the parties. This Agreement may be changed only if
agreed to in writing and signed by an authorized signatory of each
party. Purchase Orders issued
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pursuant to this Agreement shall be for the internal purposes of the
issuing party and shall not serve to modify the terms of this
Agreement.
7.7 Export. The parties agree to comply fully with all relevant export
laws and regulations ("Export Laws") to assure that neither the Supply
Chain Data nor any direct product thereof is (a) exported, directly or
indirectly, in violation of Export Laws; or (b) is intended to be used
for any purposes prohibited by the Export Laws, including without
limitation, nuclear, chemical, or biological weapons proliferation.
7.8 Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
7.9 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together
constitute one and the same instrument.
7.10 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
7.11 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES
FOR LOSS OF PROFITS OR REVENUE INCURRED BY EITHER PARTY OR ANY THIRD
PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED,
HOWEVER, THAT NOTHING IN THIS SECTION 7.11 SHALL OPERATE TO PREVENT AN
INDEMNIFIED PARTY FROM SEEKING INDEMNIFICATION FROM THE INDEMNIFYING
PARTY UNDER SECTION 2.7 HEREUNDER OR OTHERWISE FOR INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR DAMAGES FOR LOSS OF
PROFITS OR REVENUE CLAIMED BY A THIRD PARTY. NEITHER PARTY'S
LIABILITY FOR DIRECT DAMAGES HEREUNDER, EXCLUDING DAMAGES INCURRED BY
EITHER PARTY RELATED TO THE OTHER PARTY'S ALLEGED INFRINGEMENT OF
THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS, FRAUD OR INTENTIONAL BREACH
OF ANY COVENANT OR OBLIGATION IN THIS AGREEMENT, AND EXCLUDING
MANUGISTICS' OBLIGATIONS TO GUARANTEE REVENUES TO IRI HEREUNDER, SHALL
EXCEED ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000).
The provisions of this Section 7.11 allocate the risks under this
Agreement between the parties and are an intrinsic part of the bargain
between the parties. The fees provided for in this Agreement reflect
this allocation of risks and the limitation of liability specified
herein.
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7.12 Category Management Process Cooperation. Both parties recognize that
the category management process and related products such as IRI's
Category Manager software product, have the potential for adding
substantial value to the integration of decision support and supply
chain operations at retailers. IRI and MANUGISTICS agree to use
commercially reasonably efforts to work together to investigate and
define possible category management solutions that will integrate with
supply chain operations in the retailer environment, with the mutual
intent of being able to introduce such solution(s) to retailers within
18 months of the date of this Agreement.
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MANUGISTICS, INC. INFORMATION RESOURCES, INC.
By: /s/ William M. Gibson By: /s/ Gian M. Fulgoni
--------------------------------------- -------------------
Title: President, Chief Executive Officer Title: /s/ Chief Executive Officer
---------------------------------- ---------------------------
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<PAGE> 1
Exhibit 10.25
Asset Purchase Agreement
[ *** ] -Indicates those portions of this agreement in which confidential
treatment has been requested. Omitted portions have been filed separately with
the Securities and Exchange Commission.
<PAGE> 2
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 7th day of March 1997, between Manugistics,
Inc., a Delaware corporation, with its principal offices at 2115 East Jefferson
Street, Rockville, Maryland 20852 ("Manugistics"), Manugistics Services, Inc.,
a Delaware corporation, with its principal offices at 2115 East Jefferson
Street, Rockville, Maryland 20852 ("Purchaser"), IRI Logistics Inc., f/k/a
Logicnet, Inc., a Delaware corporation with its principal offices at 150 North
Clinton Street, Chicago, Illinois 60661 ("Seller") and Information Resources,
Inc., a Delaware corporation with its principal offices at 150 North Clinton
Street, Chicago, Illinois 60661-1416 ("IRI").
BACKGROUND
A. Seller, a wholly-owned subsidiary of IRI, is engaged in the
business of manufacturing and distributing logistics software and providing
data analytic services connected with such logistics software to end users (the
"Business").
B. Purchaser, a wholly-owned subsidiary of Manugistics, wishes to
purchase certain of the assets of the Business from Seller and Seller desires
to sell and assign such assets to Purchaser on the terms and conditions herein
set forth.
C. Certain other assets and liabilities of the Business will remain
with Seller and not be transferred to Purchaser, including the name IRI
Logistics, all as more particularly set forth herein.
NOW THEREFORE, for and in consideration of the mutual promises, terms and
conditions herein set forth, and intending to be legally bound hereby, the
parties hereto agree as follows:
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<PAGE> 3
ARTICLE I
Definitions
Section 1.01. In this Agreement, in addition to the terms elsewhere defined
herein, the following terms shall have the following meanings:
(a) "Assets" shall mean the following tangible and intangible
assets of the Logistics Business (as hereinafter defined), wherever situated,
as the same shall exist on the applicable Closing Date (as hereinafter
defined):
(i) Software Products; Tools. The software products owned,
licensed or under development by Seller or IRI and listed in Schedule
1.01(a)(i), including, without limitation, any and all source and object codes,
and any and all enhancements to such products which Seller and/or IRI develops
prior to the applicable Closing Date, in each case as existing as of the
applicable Closing Date (collectively, the "Software Products"), together with
the software design and development tools and scripts, and modifications and
additions to such tools and scripts, listed in Schedule 1.01(a)(i), which were
or are used in the development, operation or maintenance of the Software
Products, including, without limitation, any and all source and object codes,
in each case as existing as of the applicable Closing Date (collectively, the
"Tools");
(ii) Transferred Agreements.
(A) First Closing Transferred Agreements. All rights of
Seller and IRI from and after the First Closing Date (except as otherwise set
forth in the Seller Disclosure Schedule attached hereto) under the agreements
entered into between Seller or IRI and third parties
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named therein in the operation of the Logistics Business listed in Schedule
1.01(a)(ii)(A) (collectively, the "First Closing Transferred Agreements").
(B) Second Closing Transferred Agreements. All rights of
Seller and IRI from and after the Second Closing Date (except as otherwise set
forth in the Seller Disclosure Schedule attached hereto) under the agreements
entered into between Seller or IRI and third parties named therein in the
operation of the Logistics Business listed in Schedule 1.01(a)(ii)(B) and all
deferred revenue with respect to the Delegated Duties, as such term is defined
in that certain Services Subcontract (the "Services Subcontract") of even date
herewith (collectively, the "Second Closing Transferred Agreements"). The
First Closing Transferred Agreements together with the Second Closing
Transferred Agreement are referred to collectively as the "Transferred
Agreements."
(iii) Tangible Assets. The tangible personal property listed in
Schedule 1.01(a)(iii), including all existing spare and maintenance parts
therefor (collectively, the "Tangible Assets");
(iv) Equipment Leases. The leases in Schedule 1.01(a)(iv) with
respect to certain of the Tangible Assets set forth in Schedule 1.01(a)(iii)
(the "Equipment Leases");
(v) Real Estate Lease. The real property leasehold interests
listed in Schedule 1.01(a)(v) (the "Real Estate Lease");
(vi) Intellectual Property.
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(A) The patent and patent applications, copyright
registrations, trademarks, tradenames, and service marks listed in
Schedule 1.01(a)(vi), and all renewals, modifications and extensions thereof,
together with all associated goodwill; and
(B) Any and all design and code documentation, processes,
trade secrets, copyrights, design information and all related proprietary rights
which are necessary to, used in, or derived from the Assets ((A) and (B)
collectively, the "Intellectual Property");
(vii) Governmental Permits, Licenses and Approvals. All
governmental permits, licenses and approvals which relate to the Assets or the
Assumed Liabilities (as hereinafter defined), to the extent transferable
(collectively, the "Permits");
(viii) Claims. All of Seller's and IRI's rights of action as of
the applicable Closing Date, relating to the Assets and the Assumed Liabilities
other than those arising out of Seller's and IRI's rights under [
*** ], but including all warranty and other claims with
respect to the Assets; and
(ix) Documents. All documents and data relating to the Assets,
including books, records, operating data, credit information, copies of
customer lists, warranty records, export and licensing records, correspondence
relating to customers and to the Assets, copies of sales, marketing and service
records and literature, all user manuals and reference manuals pertaining to
the Software Products and to the extent owned by Seller, the Tools, excluding,
however, Seller's minute books, stock books and accounting records. Pursuant to
Section 4.05 hereof, Seller and IRI, shall also make available to Purchaser
copies of any other information related to the Assets reasonably required by
Purchaser from time to time (both before and after the Closing) including
without limitation,
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miscellaneous correspondence, financial and tax information, all books and
records pertaining to the Assets and all technical information and materials
relating to testing and correcting defects in the Assets;
(b) "Assumed Liabilities" shall mean only the following: (i) those
liabilities arising out of Purchaser's operation and ownership of the Assets
(excluding the Second Closing Assets, as hereinafter defined) from and after
the First Closing Date (as hereinafter defined); (ii) the obligation to perform
those duties defined as "Delegated Duties" under the Services Subcontract but
only upon the terms and conditions described in the Services Subcontract; (iii)
those liabilities arising out of Purchaser's operation and ownership of the
Second Closing Assets from and after the Second Closing Date (as hereinafter
defined); (iv) all of Seller's and IRI's obligations under the First Closing
Transferred Agreements, the Equipment Leases and the Real Estate Lease; and (v)
except as otherwise set forth in the Seller Disclosure Schedule, all of
Seller's and IRI's obligations under the Second Closing Transferred Agreements
from and after the Second Closing Date.
(c) "Closing" shall mean the First Closing and/or the Second Closing,
as applicable.
(d) "Closing Date" shall mean the First Closing Date and/or the Second
Closing Date, as applicable.
(e) "Excluded Assets" shall mean all of Seller's and IRI's rights,
title and interest in and to all of the assets of Seller and IRI other than the
Assets (collectively, the "Excluded Assets"). Excluded Assets shall include,
without limitation, those assets identified in Schedule 1.01(e).
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(f) "Excluded Liabilities" shall mean all of Seller's and IRI's
liabilities and obligations of every nature not expressly assumed by the
Purchaser under this Agreement. Without limitation to the foregoing, the
following shall be considered "Excluded Liabilities" for the purposes hereof
except to the extent that such liabilities (aa) are included within the Assumed
Liabilities, or (bb) result from or arise out of any act or failure to act by
or on behalf of Purchaser and/or Manugistics: (i) any liability or obligation
of Seller and/or IRI existing as a result of any act or failure to act which
constitutes a violation of the representations, warranties and covenants of
Seller and/or IRI, contained in this Agreement or which gives rise to any
claims whenever such may be made, for breach of contract, injury to any person,
damage to any property, including any act, condition or circumstance giving
rise to any violation of any environmental law; (ii) any product liability
claim of any nature in respect of merchandise manufactured, sold, distributed
or shipped by Seller and/or IRI prior to the applicable Closing Date; (iii) all
liabilities for federal, state and local taxes including without limitation
Social Security taxes that may have been incurred as a result of operations or
otherwise by Seller and/or IRI or will be incurred by Seller and/or IRI for the
period ending with the First Closing Date with respect to the First Closing
Assets and the Transferred Employees and the Second Closing Date with respect
to the Second Closing Assets but excluding any sales taxes resulting from the
sale of the Assets pursuant to this Agreement, the payment of which shall be
shared equally by Purchaser and Seller; (iv) any obligation, unfunded or
otherwise, arising under any health, welfare, thrift, pension, life or
disability insurance or worker's compensation policy maintained by Seller or
IRI; (v) any obligation arising under the Equipment Leases, the Real Estate
Lease or the First Closing Transferred Agreements prior to the First Closing
Date, including without limitation, any obligation to Application Consulting
Group arising
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<PAGE> 8
prior to the First Closing Date pursuant to contract or otherwise; (vi) any
obligation under the Second Closing Transferred Agreements prior to the Second
Closing Date other than those obligations related to the performance of the
Delegated Duties (as defined in the Services Subcontract) under the Second
Closing Transferred Agreements upon the terms and conditions set forth in the
Services Subcontract; (vii) from and after the First Closing Date until the
effective date of the third party consents thereto, any obligation or liability
arising under any of the First Closing Transferred Agreements that are not
transferred to Purchaser because of Seller's failure or inability to obtain
such third party consent required for the transfer or assignment of such
contract or agreement to Purchaser; (viii) from and after the Second Closing
Date until the effective date of the third party consents thereto, any
obligation or liability arising under any of the Second Closing Transferred
Agreements that are not transferred to Purchaser because of Seller's failure or
inability to obtain any such third party consent required for the transfer or
assignment of such contract or agreement to Purchaser; (ix) any obligation or
liability that is not transferred because it does not constitute an Assumed
Liability, including without limitation, any and all liability for loss, cost,
damage or expense resulting from or arising out of any of Seller's or IRI's
contracts with any third parties, purchase orders with customers or suppliers
other than such liability arising from Purchaser's or any affiliate's actions
from and after the applicable Closing Date under the Transferred Agreements;
(x) any liability of Seller or IRI to any current and former employees and
consultants (including the Transferred Employees) incurred at any time
whatsoever, including without limitation any contracts or obligations of Seller
for executive compensation, severance benefits, accrued but unused vacation
time or any other fringe benefits and any liability of Seller and/or IRI for
amounts due by Seller to affiliated companies, including without limitation
amounts due to IRI and/or
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<PAGE> 9
Seller; (xi) any and all liability for Seller's and IRI's accounts payable; and
(xii) any and all Damages (as defined in Section 7.01) for which Seller and IRI
are indemnifying Purchaser and affiliates under Article VII.
(g) "Financial Statements" shall mean the following unaudited
financial statements of Seller: Balance Sheet and Statement of Operations as of
December 31, 1995 and the Balance Sheet and Statement of Operations as of
November 30, 1996 (the November 30, 1996 Financial Statements being hereinafter
referred to as the "Recent Financials").
(h) "First Closing" and "First Closing Date" shall have the meanings
given such terms in Section 2.02 hereto.
(i) "First Closing Assets" shall mean all of the Assets except the
Second Closing Assets.
(j) "Logistics Business" shall mean that portion of the Business
conducted with the Assets.
(k) "Person" shall mean any individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or government or
any agency or political subdivision thereof, or other entity.
(l) "Purchase Price" The Purchase Price for the Assets shall mean
the sum of One Million Five Hundred Thousand Dollars ($1,500,000) payable in
cash or by wire transfer at the First Closing.
(m) "Second Closing" and "Second Closing Date" shall have the
meanings given such terms in Section 2.02.
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<PAGE> 10
(n) "Second Closing Assets" shall mean the Software Products and
Tools comprising a part of the Assets as identified in Schedule 1.01(a)(i) as
the "Second Closing Assets" together with the Intellectual Property related to
such Software Products and Tools and the Second Closing Transferred Agreements
identified on Schedule 1.01(a)(ii)(B).
(o) [ *** ]
(p) "Transferred Employees" shall mean those employees of Seller or
IRI hired by Purchaser pursuant to Section 5.11.
ARTICLE II
Sale of Assets
Section 2.01. Acquisition. Subject to the terms and conditions hereof
Seller hereby agrees to sell, transfer, assign and deliver to Purchaser, and
Purchaser hereby agrees to acquire and purchase, the First Closing Assets on
the First Closing Date and the Second Closing Assets on the Second Closing
Date, in all cases free and clear of all claims, encumbrances and third party
interests except the Assumed Liabilities and except as otherwise set forth in
the Seller Disclosure Schedule. In exchange for the transfer of such Assets to
Purchaser on the applicable Closing Date, and the execution by Seller and IRI
as of the First Closing Date of this Agreement and the Services Subcontract,
Purchaser hereby agrees to assume the Assumed Liabilities related to the First
Closing Assets as of the First Closing Date, assume the Assumed Liabilities
related to the Second Closing Assets as of the Second Closing Date, pay the
Purchase Price to the Seller on the First Closing Date and execute this
Agreement as of the First Closing Date as herein provided.
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<PAGE> 11
Section 2.02. Closing. Seller shall transfer title to the First Closing
Assets, and Purchaser shall accept transfer of such title and assume all
Assumed Liabilities related to the First Closing Assets at the first closing of
the transactions herein contemplated (the "First Closing") which shall take
place at the offices of Dilworth, Paxson, Kalish & Kauffman LLP, 3200 Mellon
Bank Center, 1735 Market Street, Philadelphia, PA 19103 on March 7th, 1997 or
such other date which is mutually acceptable to the parties hereto (the "First
Closing Date"). Seller shall transfer title to the Second Closing Assets, and
Purchaser shall accept transfer of such title and assume all Assumed
Liabilities related to the Second Closing Assets at the second closing of the
transactions herein contemplated (the "Second Closing") which shall take place
at the offices of Dilworth, Paxson, Kalish & Kauffman LLP, 3200 Mellon Bank
Center, 1735 Market Street, Philadelphia, PA 19103 on the fifth business day
following the date on which the [ *** ] (the "Second
Closing Date").
Section 2.03. Deliveries at First Closing by Seller and IRI. At the
First Closing, Seller and/or IRI shall deliver the First Closing Assets to
Purchaser, and Seller and/or IRI shall take such actions and execute and
deliver such agreements, bills of sale, assignment and assumption agreements,
and other instruments and documents as necessary or appropriate to effectuate
the transactions contemplated by this Agreement in accordance with its terms,
including without limitation the following:
(a) all bills of sale, leases, subleases, assignments, financing
statement releases from all secured parties and other instruments of transfer
effective to vest in Purchaser good and marketable title (and all of Seller's
and IRI's right, title and interest) in and to the First Closing Assets (free
and clear of all liens, security interests, claims or other encumbrances of
every nature, except as set forth in
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the Seller Disclosure Schedule), in each case in form and substance
satisfactory to Purchaser and counsel for Purchaser;
(b) a certified copy of resolutions of Seller's Board of Directors and
Seller's shareholder authorizing and approving the execution, delivery and
performance through the Second Closing Date, as applicable, of this Agreement,
the Services Subcontract and any other agreements executed between any or all
of the parties as of even date herewith (collectively, excluding this
Agreement, the "Other Agreements"), and the consummation of the transactions
contemplated hereby and thereby on the First Closing Date;
(c) all third party consents required to effectuate the transfer and
assignment to Purchaser of the First Closing Assets;
(d) the various certificates, applications, letters and agreements
referred to in Article V hereof relating to the First Closing Assets, duly
executed by the appropriate Person;
(e) the Other Agreements.
Section 2.04. Deliveries at First Closing by Purchaser and Manugistics.
At the First Closing, Purchaser and/or Manugistics shall deliver to Seller the
following:
(a) a certified copy of resolutions of Purchaser's and Manugistics'
Board of Directors authorizing and approving the execution, delivery and
performance through the Second Closing Date, as applicable, of this Agreement
and the Other Agreements, and the consummation of the transactions contemplated
hereby and thereby to occur on the First Closing Date;
(b) the various certificates and agreements referred to in Article VI
hereof duly executed by the appropriate Person;
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(c) A certified check or wire transfer in the amount of One Million
Five Hundred Thousand Dollars ($1,500,000);
(d) the Other Agreements.
Section 2.05. Deliveries at Second Closing by Seller and IRI. At the
Second Closing, Seller and/or IRI shall deliver the Second Closing Assets to
Purchaser and Seller and/or IRI shall take such actions and execute and deliver
such agreements, bills of sale, assignment and assumption agreements, and other
instruments and documents as necessary or appropriate to effect the
transactions contemplated by this Agreement in accordance with its terms,
including without limitation the following:
(a) all bills of sale, leases, subleases, assignments, financing
statement releases from all secured parties and other instruments of transfer
effective to vest in Purchaser good and marketable title (and all of Seller's
and IRI's right, title and interest) in and to the Second Closing Assets free
and clear of all liens, security interests, claims or other encumbrances of
every nature, except as expressly contemplated hereby, in each case in form and
substance satisfactory to Purchaser and counsel for Purchaser;
(b) all third party consents required to effectuate the transfer and
assignment to Purchaser of the Second Closing Assets; and
(c) the various certificates, applications, letters and agreements
referred to in Article V hereof duly executed by the appropriate Person
relating to the Second Closing Assets.
Section 2.06. Deliveries at Second Closing by Purchaser and Manugistics.
At the Second Closing, Purchaser and Manugistics shall deliver to Seller the
following:
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(a) the various certificates and agreements referred to in Article VI
hereof relating to the Second Closing Assets, duly executed by the appropriate
Person.
ARTICLE III
Representations and Warranties
Section 3.01. Representations and Warranties of Seller and IRI. Except
as otherwise set forth in the Seller Disclosure Schedule, Seller and IRI,
jointly and severally, represent and warrant to Purchaser and Manugistics that:
(a) Organization and Qualification. Seller and IRI are each a
corporation duly organized, validly existing and in good standing under the
laws of Delaware. Seller and IRI respectively have the corporate power and
authority to own and lease their property and to carry on their business as now
being conducted and are each duly qualified as a foreign corporation and are in
good standing in all states where the nature of their business and assets
requires such qualification, except to the extent that a failure to so qualify
would not have a material adverse effect on the Logistics Business or the
Assets.
(b) Financial Statements. The Recent Financials heretofore delivered
by Seller to Purchaser, are true and complete copies thereof. All such Recent
Financials were prepared in accordance with the books of account and records of
Seller in accordance with generally accepted accounting principles consistently
applied in accordance with all preceding accounting periods and were prepared
on the basis of the books and records of Seller and fully and fairly present
the condition of the Seller as of the date thereof and the results of
operations of the Seller as of the dates thereof,
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except that the Recent Financials do not contain footnote disclosure and do not
reflect interest expenses on a promissory note due to IRI in the principal
amount of $1,000,000.
(c) Absence of Undisclosed Liabilities. Seller has no indebtedness,
liabilities or obligations whether accrued, absolute, contingent, liquidated or
unliquidated, and whether due or to become due, which (i) were not reflected in
or reserved against on the Recent Financials, except as set forth in Section
3.01(b) above or (ii) did not arise in the ordinary course. Nothing in this
Section 3.01(c) shall be taken to mean that Purchaser is assuming any
liabilities or obligations other than as provided in Section 1.01(b).
(d) Properties. Schedule 1.01(a)(v) hereto describes the location and
ownership of all real property and interests in real property to be leased by
Purchaser in accordance with Section 1.01(a)(v) hereof. All electrical,
plumbing, heating and air conditioning systems existing at such properties are
and will, on the Closing Date, be in good working order. Schedule 1.01(a)(iii)
and Schedule 1.01(a)(iv) hereto describes the location, type, identification
and character of all machinery, equipment, furniture, fixtures, vehicles and
other personal property and interests in personal property owned, leased or
used by Seller and/or IRI to be purchased by Purchaser. All such property
listed on Schedule 1.01(a)(iii) and Schedule 1.01(a)(iv) will, on the date
hereof, be in satisfactory operating condition. Schedule 1.01(a)(vi) hereto
contains a complete list of all intellectual property rights owned by Seller
and/or IRI which relate exclusively to the Assets being purchased pursuant to
this Agreement, which rights Seller and IRI represent and warrant are all of
the rights owned by Seller and/or IRI which are necessary for the operation of
the Assets and the Logistics Business. Except as indicated in the Seller
Disclosure Schedule, none of the property or interests listed in Schedules
1.01(a)(iv), 1.01(a)(v)
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and 1.01(a)(vi) is subject to any covenant or other restriction preventing
or limiting the right of Seller or IRI to transfer the same to Purchaser or
(ii) infringes on the rights of any Person.
(e) Title Exceptions. Except as specifically described in the Seller
Disclosure Schedule, Seller or IRI, as applicable, has good and marketable
title to, or a valid leasehold interest in, all the Assets free and clear of
all claims of any kind (other than taxes not yet due and payable), or
conditional sale agreements, other title retention agreements or condemnation
proceedings except for such claims, if any, which are not substantial in
character, amount or extent and which do not materially detract from the value
of, or materially interfere with the present use of, or intended use by
Purchaser of the Assets subject thereto or affected thereby.
(f) Contracts, Plans etc. In connection with the Logistics Business,
except as disclosed in the Seller Disclosure Schedule, neither Seller nor IRI
is a party to or bound by any contracts, leases, licenses, agreements, or
commitments, oral or written, express or implied involving any: (i) contract
for the employment of any of the Transferred Employees which is not immediately
terminable without penalty on or at any time on or before the First Closing
Date; (ii) contract with or commitment to any labor union or association
representing any Person; (iii) bonus, pension, profit sharing, deferred
compensation, retirement, incentive, stock purchase, stock option, termination,
severance, hospitalization, insurance, welfare or other plan or arrangement
providing benefits to any of the Transferred Employees or his or her
dependents, beneficiaries or heirs; (iv) contract or agreement with any
affiliate of Seller or IRI, relating to the Assets; (v) continuing contract or
commitment for the purchase or acquisition of materials, supplies, merchandise,
equipment, or services that are at a cost to Seller outside of the ordinary
course of business; (vi) [intentionally omitted]; (vii) continuing contract
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or commitment for the sale or furnishing of materials, supplies, equipment,
merchandise or services involving the payment or receipt of funds or property
that will generate revenue to Seller outside of the ordinary course of
business; (viii) license or royalty agreement; (ix) distributor, dealer,
manufacturer's representative, consignment, advertising or public relations
contract; (x) contract with any government or any agency or instrumentality
thereof; (xi) to the knowledge of Seller and IRI, contract or other arrangement
in or pursuant to which any or all of the Transferred Employees of Seller or
IRI, or any relative or associate of any thereof has a material interest; (xii)
contract continuing for a period of more than one year from its effective date
involving the payment or receipt of funds or property in excess of Ten Thousand
Dollars ($10,000); or (xiii) in connection with or relating to the Logistics
Business, contract for the grant to any person of any preferential rights to
purchase any assets or properties of Seller or IRI or which limits or restricts
the right of Seller and/or any successor to Seller to purchase supplies or
inventory or to sell any products manufactured by Seller.
(g) Enforceability, etc. of Contracts, Leases. Except as set forth
in the Seller Disclosure Schedule, none of the Real Estate Lease, the Equipment
Leases or the Transferred Agreements is terminable or subject to modification
as a result of, or otherwise requires the consent or other approval of any
other Person with respect to, the transactions and assignments contemplated
hereby. Seller and IRI have in all material respects performed all the
obligations required to be performed by them to date under the Real Estate
Lease, the Equipment Leases and the Transferred Agreements and are not in
material default thereunder and no facts exist which are known to Seller or IRI
that indicate that Seller and/or IRI will or may be in material default
hereafter in respect of any thereof, and to the knowledge of Seller and IRI:
(i) each of the other parties thereto or bound thereby
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have in all material respects performed all the obligations required to be
performed by them to date and are not in default in any material respect
thereunder and (ii) no facts exist that indicate that such parties will or may
be in material default hereafter in respect of any thereof. To the knowledge of
Seller and IRI, each of the Real Estate Lease, the Equipment Leases and the
Transferred Agreements is in full force and effect and constitutes a legal,
valid and binding obligation of Seller and/or IRI and any other party or
parties thereto, in accordance with its terms.
(h) Litigation. Schedule 3.01(h) hereto contains a list and brief
description of all pending actions, suits and proceedings against or affecting
Seller and/or IRI which relate to the Logistics Business, the Assets or the
transactions contemplated hereby. Except as expressly set forth in the Seller
Disclosure Schedule, there is no action, suit or proceeding pending or, to the
knowledge of Seller and/or IRI, threatened against, by or affecting Seller or
IRI relating to the Logistics Business, the Assets, or any of the transactions
contemplated hereby in any court or by or before any federal, state or other
governmental department, commission, board, bureau, agency or instrumentality
or before any arbitrator of any kind. Except as set forth in the Seller
Disclosure Schedule, neither Seller nor IRI, has failed to comply with, been
notified of or, to the knowledge of Seller or IRI, been threatened with a
charge or violation of, or to the knowledge of Seller or IRI, is under
investigation with respect to a possible violation of any law, regulation or
order of any government or governmental agency or authority materially
affecting the Logistics Business or any of the Assets or the transactions
contemplated hereby and neither Seller nor IRI has any knowledge of any
violation of any such law, regulation or order which would have such effect.
Neither Seller nor IRI has committed any illegal acts or omissions that would
have a material adverse impact on Seller's ability to transact business with
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any government entity. Except as set forth in the Seller Disclosure Schedule,
neither Seller nor IRI is in default in any respect under any order, writ,
injunction or decree of any court or federal, state, local, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
materially affecting the Logistics Business, the Assets or any of the
transactions contemplated hereby. None of Seller's customers or suppliers
have given notice or verbally advised that their purchases from the Logistics
Business will be different from past practice, and neither Seller nor IRI has
any reason to believe any such change may occur, as a result of the
transactions contemplated hereby, other than as a result of general economic or
competitive conditions.
(i) Licenses and Permits. Seller and IRI possess all material
governmental or other licenses, franchises, consents, authorizations or permits
necessary for the conduct of the Logistics Business and the consummation of the
transactions contemplated hereby. All such licenses, permits, franchises,
consents, authorizations are in full force and effect and neither Seller nor
IRI has received any notice that any revocation or limitation thereof is
threatened or pending.
(j) Absence of Certain Changes or Events.
(i) In connection with the Logistics Business, the Assets and the
transactions contemplated hereby, since the date of the Recent Financials,
neither Seller nor IRI has, except as disclosed in the Seller Disclosure
Schedule, (1) discharged or satisfied any lien, security interest or
encumbrance other than in the ordinary course of business as conducted on such
date or paid, other than in the ordinary course of business as conducted on
such date, any liability or obligation other than current liabilities reflected
on its Recent Financials and current liabilities since incurred in the ordinary
course of business, or sold, assigned, voluntarily encumbered, granted a
license or sublicense with
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respect to, subcontracted or disposed of any material assets, properties or
goodwill of Seller, other than pursuant to that certain Services Subcontract or
in the ordinary course of its business as conducted on the dates of the Recent
Financials; (2) whether or not in the ordinary course of business, incurred any
liability for borrowed money that will not be satisfied prior to Closing; (3)
incurred any other obligation or liability other than those incurred in the
ordinary course of business as conducted on the dates of its Recent Financials;
(4) suffered any extraordinary losses or waived any rights of substantial
value; (5) increased, directly or indirectly, the salary or other compensation
of any of the Transferred Employees or paid or entered into any agreement for
any bonus or other extraordinary compensation to any of such Transferred
Employees; (6) entered into any contract or commitment except in the ordinary
course of business as conducted on the dates of the Recent Financials; (7) made
any capital expenditures or commitments therefor for an amount exceeding Ten
Thousand Dollars ($10,000) in the case of any single contract or commitment,
except expenditures for commitments listed in the Seller Disclosure Schedule;
(8) changed in any material respect its business policies or practices; (9)
altered or revised in any way its accounting principles, procedures, methods or
practices; (10) removed, or caused or permitted to be removed, from any of its
properties, any of its material assets except in the ordinary course of
business as conducted on the dates of the Recent Financials; (11) with respect
to the Transferred Agreements, changed its credit policies as to the creation
or collection of accounts receivable; or (12) entered into any other
transaction or taken any other action except in the ordinary course of business
as conducted on the dates of its Recent Financials. In connection with the
Logistics Business, the Assets, or the transactions contemplated hereby, to the
knowledge of Seller and IRI, no director, officer or employee of Seller, or any
agent of Seller, has, since the date of the Recent
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Financials, removed or purchased anything of material value located at the
premises of any office or other facility of, or under the control of, Seller.
(ii) Since the date of the Recent Financials, there has been no
material adverse change in the financial condition, business properties or
assets of Seller or IRI forming part of the Logistics Business, the Assets or
the transactions contemplated hereby and to the knowledge of Seller and IRI, no
adverse change (material or otherwise) and no event, condition or circumstance
exists or has occurred which might give rise to any adverse change (material or
otherwise) to the financial condition, business, properties or assets of Seller
or IRI forming part of the Logistics Business, the Assets or the transactions
contemplated hereby. The financial condition of the Business, the Logistics
Business and the Assets considered as a whole, is and will be through the First
Closing Date, similar to or better in all material respects to such condition
reflected on the Recent Financials.
(k) Authority. etc. Seller and IRI each have the full right, power,
capacity and authority to execute and deliver this Agreement and to the extent
each is a party, the Other Agreements, and to consummate the transactions
contemplated hereby and thereby. All acts and other proceedings required to be
taken by or on the part of Seller and/or IRI, as the case may be, to authorize
the Seller and/or IRI to carry out this Agreement, the Other Agreements and the
transactions contemplated hereby and thereby have been duly and properly taken.
This Agreement and the Other Agreements have been duly executed and delivered
by Seller and IRI, as the case may be, and constitute the legal, valid and
binding obligation of Seller and IRI, as the case may be, enforceable against
Seller and IRI, as the case may be, in accordance with its or their terms,
subject to the effect of bankruptcy and insolvency, creditors rights and
equitable remedies, generally. Except as indicated in the Seller Disclosure
Schedule, the execution
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and delivery of this Agreement and the Other Agreements by Seller and IRI, as
the case may be, and the consummation of the transactions contemplated hereby
and thereby do not violate any law or regulation applicable to Seller or IRI,
as the case may be, or conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or result in the creation of any lien or encumbrance on any of
the properties or assets of Seller and/or IRI pursuant to the charter or
by-laws of Seller and/or IRI, or any indenture, mortgage, lease or agreement or
other instrument to which either Seller and/or IRI is a party or by which
Seller's and/or IRI's assets, may be bound. No approval, authorization,
consent, permit or other order or action of or filing with any court,
administrative agency or other governmental authority or any other person is
required for the execution and delivery by Seller and/or IRI of this Agreement
and the Other Agreements or the consummation by Seller and/or IRI of the
transactions contemplated hereby and thereby that has not already been
obtained.
(l) Taxes. Seller has filed all federal, state, and local tax returns,
reports and forms required to be filed, and the amount of tax liability shown
on each of such returns, reports and forms has been paid in full, except for
the portions thereof not yet due and payable. Except as set forth in the Seller
Disclosure Schedule, Seller has not received notice and to the knowledge of
Seller, there are no pending examinations by any taxing authority of the tax
returns of Seller. Seller has not executed or filed with any taxing authority
any agreement extending the period for assessment or collection of any taxes
for which Seller may be liable and Seller is not a party to any pending action
or proceeding by any governmental authority for assessment or collection of
taxes for which Seller may be liable, nor has any
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such claim been asserted against Seller. Except as set forth in the Seller
Disclosure Schedule, no taxing authority has conducted an audit of any tax
returns filed by Seller within the last five (5) years.
(m) Significant Customers. All of the Seller's customers are set
forth in Schedule 3.01(m) hereto. Seller does not have any open orders. With
respect to the Transferred Agreements, deferred revenue under the Transferred
Agreements represents the amounts received or to be received for services to be
performed by Seller from the date hereof under such agreements which arose in
the ordinary course of Seller's and/or IRI's business, in accordance with
generally accepted accounting principles.
(n) Insurance. Attached hereto as Schedule 3.01(n) is a list of all
insurance policies and other forms of insurance in force with respect to the
Logistics Business or the Assets, or maintained with respect to the Transferred
Employees indicating the nature and amount of coverage in each case and the
name of the insurer. All premiums under any of such policies have been paid or
adequate reserves have been established therefor and, to the knowledge of
Seller and IRI, no act or failure to act has occurred which has caused or might
cause any premium to be cancelled or terminated, and all material notices and
acts by Seller and/or IRI required to be given or done thereunder have been
properly given or done. Such policies will remain outstanding and in full force
and effect up to and including the Second Closing Date.
(o) Investments in and Payments to Certain Persons. Except as
reflected in the Seller Disclosure Schedule, neither Seller nor IRI has any
loan to or investment in any of the Transferred Employees. In connection with
the Logistics Business, neither Seller nor IRI has any loan to or investment in
any affiliated person or entity, customer, sales representative or distributor
of Seller
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and/or IRI and neither Seller nor IRI has, directly or indirectly, made any
loans or advances or otherwise, in connection with the Logistics Business,
extended credit to any affiliated person, entity, customer, sales
representative or distributor.
(p) Copies. True and complete copies of the Real Estate Lease, the
Transferred Agreements (except for the licenses to third party software
contained in Attachment 1 to Schedule 1.01(a)(ii) (A)) and each of the
Equipment Leases have been delivered to Purchaser.
(q) Quality. Except as set forth in the Seller Disclosure Schedule,
neither Seller nor IRI has knowledge of any quality problems or defects in any
of the Assets. Notwithstanding the foregoing, Seller and IRI hereby represent,
warrant and covenant that the Software Products and the Tools owned by Seller
and/or IRI shall operate and substantially conform to the prevailing
specifications, as defined by Seller's or IRI's user manuals and reference
manuals. Except as reflected in the Seller Disclosure Schedule, there are no
pending, or, to the knowledge of Seller or IRI, threatened product liability
suits or claims against Seller and/or IRI, and neither Seller nor IRI has
knowledge of any incident that could give rise to any such suit or claim.
Notwithstanding anything contained in this Section 3.01(q) to the contrary, no
representation is made hereby with respect to any products or equipment which
do not form part of the Logistics Business, the Assets or pertain to any of the
transactions contemplated hereby.
(r) Disclosure. No representation or warranty of Seller and/or IRI
contained in this Agreement, the Other Agreements or any Schedule or Exhibit
attached hereto or thereto, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which made.
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(s) Pensions. etc. All Pension, Profit Sharing, Health, Life and
Disability Insurance, Welfare, Thrift and other employee benefit plans
pertaining to the Transferred Employees are fully set forth in Schedule 3.01(s)
hereto.
(t) Accelerations of Sale. Since the dates of the Recent Financials,
Seller has not accelerated or effected any sale of goods or merchandise prior
to the date such sale normally would have been effected consistent with the
past practice of Seller in its ordinary course of business.
(u) Environmental and Other Claims. Except as set forth in the Seller
Disclosure Schedule, neither IRI nor Seller has any knowledge of any unasserted
but potential claims that may exist against Seller or IRI as a result of the
operation of the Logistics Business, including, without limitation, any
unasserted claim resulting from any product warranty made by Seller, any claim
resulting from Seller's or IRI's use or manufacture of hazardous waste or
materials, or any environmental claim.
(v) Prospects. Neither Seller nor IRI has knowledge of any pending
loss of business or any other conditions, including any problem with respect to
the collectibility of any amounts due under the Transferred Agreements, other
than as a result of general economic or competitive conditions, the incurrence
of which might have a material adverse effect upon the Logistics Business, the
Assets or the transactions contemplated hereby or prospects of Seller or which
would prevent the continued conduct of the Logistics Business, or the
transactions contemplated hereby in substantially the same manner as conducted
on the date hereof.
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(w) Preservation of Assets. Since the date of the Recent Financials
to the First Closing Date, each of Seller and IRI represents and warrants that
it has used commercially reasonable efforts to preserve the goodwill of all of
its customers and suppliers. Prior to the Second Closing Date, Seller and IRI
shall have used commercially reasonable efforts to preserve the Second Closing
Assets and shall not have taken any unreasonable actions detrimental to the
goodwill of any of its customers and suppliers with respect to the Logistics
Business and/or Purchaser's relationships with such customers and suppliers and
shall provide prompt written notice to Purchaser of any detrimental actions
taken. Further, prior to the Second Closing, to the extent that Seller or IRI
shall have continued a relationship with any customer or supplier, Seller and
IRI shall have taken no unreasonable actions detrimental to the goodwill of
such customer or supplier with respect to the Logistics Business and shall have
conducted its business with respect to any such customer and supplier in the
same manner and with the same effect as conducted prior to such date and shall
provide prompt written notice of any detrimental actions taken. In addition,
prior to the Second Closing, Seller and IRI, jointly and severally, represent
and warrant that each shall not have engaged in any transactions with such
customers and suppliers with respect to the Logistics Business, other than
those in the usual and ordinary course of Seller's and IRI's business
consistent with past practice.
(x) Overtime, Back Wages, Etc. There are no outstanding claims
against Seller or IRI (whether under federal, state or local law, employment
agreements or otherwise) to the knowledge of Seller or IRI, asserted by any of
the Transferred Employees on account of or for:
(i) overtime pay, other than overtime pay for work done
during the current payroll period;
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(ii) wages or salary for any period other than the current
payroll period;
(iii) any amount of vacation pay or pay in lieu of vacation
or time off; or
(iv) any violation of any statute, ordinance or regulation
relating to minimum wages or maximum hours at work or any other work related
claim whatsoever; and neither Seller nor IRI has knowledge of any such claims
which have not been so asserted.
Section 3.02. Representations and Warranties of Purchaser and
Manugistics. Purchaser and Manugistics, jointly and severally, represent and
warrant to Seller and IRI that:
(a) Authority. etc. Manugistics and Purchaser each have the full
right, power, capacity and authority to execute and deliver this Agreement and
to the extent each is a party, the Other Agreements, and to consummate the
transactions contemplated hereby and thereby. All acts and other proceedings
required to be taken by or on the part of Manugistics and/or Purchaser, as the
case may be, to authorize Manugistics and/or Purchaser to carry out this
Agreement, the Other Agreements and the transactions contemplated hereby and
thereby have been duly and properly taken. This Agreement and the Other
Agreements have been duly executed and delivered by Purchaser and Manugistics,
as the case may be, and constitute the legal, valid and binding obligation of
Purchaser and Manugistics, as the case may be, enforceable against Purchaser
and Manugistics, as the case may be, in accordance with its or their terms,
subject to the effect of bankruptcy and insolvency, creditors rights and
equitable remedies, generally. The execution and delivery of this Agreement
and the Other Agreements by Purchaser and Manugistics, as the case may be, and
the consummation of the transactions contemplated hereby and thereby do not
violate any law or regulation applicable to Purchaser or Manugistics, as the
case may be, or conflict with or result in any breach of or constitute a
default (or an
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event which with notice or lapse of time or both would become a default) under,
or result in the creation of any lien or encumbrance on any of the properties
or assets of Purchaser and/or Manugistics pursuant to the charter or by-laws of
Purchaser and/or Manugistics or any indenture, mortgage, lease or agreement or
other instrument to which either Purchaser and/or Manugistics is a party or by
which Purchaser and/or Manugistics may be bound. No approval, authorization,
consent, permit or other order or action of or filing with any court,
administrative agency or other governmental authority or any other person is
required for the execution and delivery by Purchaser and/or Manugistics of this
Agreement and the Other Agreements or the consummation by Purchaser and/or
Manugistics of the transactions contemplated hereby and thereby that has not
already been obtained.
(b) Organization and Qualification. Purchaser and Manugistics are
each a corporation duly organized, validly existing and in good standing under
the laws of Delaware. Purchaser and Manugistics respectively have the
corporate power and authority to own and lease their property and to carry on
their business as now being conducted and are each duly qualified as a foreign
corporation and are in good standing in all states where the nature of their
business and assets requires such qualification, except to the extent that a
failure to so qualify would not have a material adverse effect on Purchaser's
or Manugistics' business.
ARTICLE IV
Conduct of Seller's Business, and Seller's
Obligations Prior to the First Closing Date and
the Second Closing Date
Prior to the First Closing Date, with respect to the First Closing Assets
and prior to the Second Closing Date, with respect to the Second Closing
Assets, except as otherwise consented to or
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approved by Purchaser in writing, Seller and IRI (individually and to the
extent required to cause Seller to act) jointly and severally covenant and
agree with Purchaser and Manugistics as follows:
Section 4.01. Regular Course of Business. Seller and IRI shall not have
taken any unreasonable action detrimental to the goodwill or relationships of
Purchaser with Seller's customers and suppliers with respect to the Logistics
Business, and to the extent that Seller or IRI continues a relationship with
such customers or suppliers from and after the First Closing Date, Seller or
IRI, as applicable, shall in good faith and in the usual, regular and ordinary
manner, consistent with past practice, use commercially reasonable efforts to
maintain its present relationships with customers having business dealings with
Seller, and shall not have taken any unreasonable action detrimental to the
goodwill of such customers with respect to the Logistics Business. Prior to
the First Closing Date, Seller and IRI shall use its best efforts to maintain
the continued services of the Transferred Employees whose names are set forth
in Schedule 4.01 hereto, provided that Seller shall not be obligated to incur
any financial obligation beyond continued payment of current salary and
benefits nor shall Seller be restricted from terminating any such employees for
cause, so long as Seller shall first advise Purchaser a reasonable time in
advance of such action. Prior to the date of the applicable Closing, Seller
and IRI will maintain all of the Assets in customary repair, order and
condition except for reasonable wear and use. Prior to the date of the
applicable Closing, Seller and IRI shall not, nor shall either enter into any
agreement to dispose of or encumber, hypothecate, or lease any of the Assets,
except as permitted by this Article IV. Neither Seller nor IRI shall take any
action that would cause a violation of the representations set forth in Section
3.01 hereof at any time up to and through the Second Closing Date.
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Section 4.02. Insurance. Seller will maintain in full force and effect
all policies of insurance it currently has in effect. If any of the Assets or
the premises subject to the Real Estate Lease are damaged or destroyed by fire
or other casualty, whether insured or uninsured, Seller or IRI, as appropriate,
will promptly proceed with the complete repair, restoration or replacement
thereof.
Section 4.03. Amendment and Waiver. Neither Seller nor IRI shall amend,
modify, or waive any of its rights under any of the Transferred Agreements, the
Equipment Leases and the Real Estate Lease.
Section 4.04. Notice to Purchaser. Seller and/or IRI shall give prompt
notice to Purchaser of: (i) any notice of, or order or communication relating
to, any default or event which could reasonably be considered to be material to
Seller, with respect to the Logistics Business, which with notice or lapse of
time or both would become a material default, received by Seller or IRI
subsequent to the date of this Agreement under any material indenture,
instrument, lease or agreement to which any of the Assets is bound or subject
or (ii) any notice or other communication received by Seller or IRI from any
third party alleging that the consent of such third party may be required in
connection with the transactions contemplated by this Agreement. Upon request,
from time to time prior to the Second Closing Date, Seller and IRI will use all
commercially reasonable efforts to promptly supplement or amend the Schedules
hereto with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such Schedules. No supplement or amendment to such
Schedules shall have any effect for the purpose of determining satisfaction of
the condition set forth in Section 5.01 hereof.
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Section 4.05. Full Access. From and after the date hereof up to and
including the Second Closing Date, Seller and IRI will maintain their
respective books and records in the ordinary manner and in accordance with
generally accepted accounting principles consistently applied. Seller and IRI
shall afford to Purchaser and its authorized representatives free and unlimited
access during normal business hours to the properties, books and records of
Seller and IRI relating to the Assets in order that Purchaser may have a full
opportunity to make such investigation as it shall desire of the affairs of
Seller and IRI with respect to the Assets, and both Seller and IRI will cause
to be furnished such financial and operating data and other information with
respect to Seller and IRI as Purchaser shall from time to time reasonably
request. Except and as to the extent required by law, Purchaser for a period
of five (5) years commencing with the date hereof, shall hold all of the
foregoing to the extent that same is non-public, in confidence and shall not
disclose same to third parties without the prior consent of Seller and IRI.
Likewise, Seller and IRI shall maintain all nonpublic information received from
Purchaser in strict confidence for a period of five (5) years commencing with
the date hereof and shall not disclose same to third parties without the
consent of Purchaser. The confidentiality obligations set forth in this
Section 4.05 shall apply to any information received by any party hereto from a
third party in breach of its own confidentiality obligations.
Section 4.06. Consents. Seller and IRI shall use commercially reasonable
efforts to obtain, at the earliest practicable date and prior to the First
Closing Date and (with respect to the Second Closing Assets) the Second Closing
Date, all consents necessary to the consummation of the transactions
contemplated hereby including, without limitation, any consents described in
Schedule 4.06 hereof.
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ARTICLE V
Conditions Precedent to the Obligations of Purchaser
and Manugistics
Each and every obligation of Purchaser and Manugistics under this
Agreement to be performed on or before the First Closing Date or the Second
Closing Date, as the case may be, shall be subject to the satisfaction, on or
before the First Closing Date, or the Second Closing Date, as the case may be,
of each of the following conditions, except to the extent that Purchaser and
Manugistics shall have waived such satisfaction:
Section 5.01. Representations, Warranties and Covenants; Performance,
Certificate. Each of the representations and warranties made by Seller and IRI
herein shall be true and correct in all material respects on the date made, on
the First Closing Date and on the Second Closing Date, with respect to the
Second Closing Assets only, with the same effect as though made on such dates,
except for changes contemplated, permitted or required by this Agreement, it
being acknowledged and understood that with respect to the Second Closing
Assets, no representation or warranty is required to be made with respect to
conduct by Purchaser of the Delegated Duties under the Services Subcontract.
Seller and IRI shall have performed and complied in all material respects with
all agreements, covenants and conditions required by this Agreement to be
performed and complied with by them at or prior to the First Closing Date or
the Second Closing Date, as the case may be.
Section 5.02 Certificates and Other Documents. Purchaser and Manugistics
shall have received a certificate of the President and the Secretary of Seller
and IRI on the date of First Closing and Second Closing certifying to the
fulfillment of the foregoing conditions substantially in the form of Exhibits A
and B attached hereto.
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Section 5.03. Consents. All approvals and consents from third parties,
including without limitation, all federal, state and local governmental
agencies and boards, all directors, shareholders, creditors and suppliers
required to consummate the transactions contemplated hereby and to assign the
Real Estate Lease, the Equipment Leases and the Transferred Agreements shall
have been obtained.
Section 5.04. INTENTIONALLY OMITTED.
Section 5.05. No Proceeding or Litigation. Except in connection with the
[ *** ], no action, suit or proceeding before any court or
any governmental or regulatory authority shall have been commenced, and no
action, suit or proceeding shall have been, to Seller's knowledge, threatened
against Seller, IRI or any of its affiliates, associates, officers or
directors, seeking to restrain, prevent or change the transactions contemplated
hereby or questioning the validity or legality of any of such transactions or
seeking damages in connection with any of such transactions or which might have
a material adverse effect on the transactions contemplated hereby.
Section 5.06. Certificates and Other Documents. Purchaser shall have
received such certificates of Seller's officers as may be reasonably requested
by it to evidence compliance with the conditions set forth in this Article V.
Section 5.07. Legal Opinions. Purchaser shall have received the legal
opinion of Freeborn & Peters in the form annexed hereto as Exhibit C.
Section 5.08. Transfer of Good Title. Seller and IRI shall have
transferred to Purchaser good and marketable title to all of the Assets free
and clear of all liens, security interests, claims or other encumbrances of
every nature, except as set forth in the Seller Disclosure Schedule.
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<PAGE> 34
Section 5.09. Compliance with the Laws and Regulations. Seller and IRI
shall be in substantial compliance of all laws and regulations pertaining to
the Assets, the Logistics Business and the transactions contemplated hereby.
Section 5.10. Other Agreements. Seller and IRI, as the case may be,
shall have executed and delivered the Other Agreements.
Section 5.11. Employment. Purchaser shall have agreed to employment
terms with at least six (6) of those employees listed in Schedule 4.01, three
(3) of whom shall be key employees as designated thereon, one from each
employment category in Schedule 4.01.
Section 5.12. Allocation of Purchase Price. Seller and IRI shall have
agreed to the allocation of the Purchase Price set forth in Schedule 5.12
hereto.
ARTICLE VI
Conditions Precedent to the
Obligations of Seller and IRI
Each and every obligation of Seller and/or IRI under this Agreement to be
performed on or before the First Closing Date or the Second Closing Date, as
the case may be, shall be subject to the satisfaction, on or before the First
Closing Date or the Second Closing Date, as the case may be, of each of the
following conditions, except to the extent that Seller and IRI shall have
waived such satisfaction:
Section 6.01. Representations, Warranties and Covenants; Performance,
Certificate. Each of the representations and warranties made by Purchaser and
Manugistics herein shall be true and correct in all material respects on the
date hereof, on the First Closing Date and on the Second Closing Date, with
respect to the Second Closing Assets, with the same effect as though made on
such dates, except
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<PAGE> 35
for changes contemplated, permitted or required by this Agreement. Purchaser
and Manugistics shall have performed and complied in all material respects with
all agreements, covenants and conditions required by this Agreement to be
performed and complied with by them at or prior to the First Closing Date or
the Second Closing Date, as the case may be.
Section 6.02. Certificates and Other Documents. Seller and IRI shall
have received a certificate of the President and the Secretary of Manugistics
and Purchaser on the date of First Closing and Second Closing certifying as to
the fulfillment of the foregoing conditions substantially in the form of
Exhibits D and E attached hereto.
Section 6.03. Legal Opinion. Seller shall have received the legal
opinion of Dilworth, Paxson, Kalish & Kauffman in the form attached hereto as
Exhibit F.
Section 6.04. Other Agreements. Purchaser and Manugistics, as the case
may be, shall have executed and delivered the Other Agreements.
Section 6.05. Allocation of Purchase Price. Purchaser shall have agreed
to the allocation of the Purchase Price set forth in Schedule 5.12 annexed
hereto.
Section 6.06 Consents. All approvals and consents from third parties,
including without limitation, all federal, state and local governmental
agencies and boards, all directors, creditors and suppliers required to
consummate the transactions contemplated hereby shall have been obtained.
Section 6.07 No Proceeding or Litigation. Except as contained in
Schedule 6.07 hereto, no action, suit or proceeding before any court or any
governmental or regulatory authority shall have been commenced, and no action,
suit or proceeding shall have been, to Purchaser's knowledge, threatened
against Purchaser, Manugistics, or any of its affiliates, associates, officers
or directors, seeking to
34
<PAGE> 36
restrain, prevent or change the transactions contemplated hereby or
questioning the validity or legality of any of such transactions or seeking
damages in connection with any of such transactions or which might have a
material adverse effect on the transactions contemplated hereby.
Section 6.08 Employment. Purchaser shall have offered employment, to
commence as of the First Closing Date, to the Transferred Employees, at similar
or better overall compensation as was in effect prior to the First Closing
Date. Purchaser and/or Manugistics hereby covenants that for the first six
months after the First Closing Date, Purchaser shall provide those of the
Transferred Employees who accept Purchaser's offer of employment, with
severance benefits arrangements, in the event of termination by Purchaser, no
less favorable than those formerly provided by Seller.
ARTICLE VII
Indemnification
Section 7.01. Grant of Indemnity.
(a) Indemnification by Seller and IRI. Seller and IRI shall jointly
and severally indemnify, defend and hold harmless Purchaser, Manugistics and
all affiliates and the officers, directors and agents of all of them from and
against any loss, cost, expense or other damage, including attorneys' fees and
all other litigation expenses (all of the foregoing items being hereinafter
referred to in this Article VII as "Damages") incurred by Manugistics,
Purchaser and/or any affiliate thereof, resulting from, arising out of, or
incurred with respect to, or alleged to result from, arise out of or have been
incurred with respect to:
(i) the breach of any representation or warranty made by, or the
breach of any covenant to be performed or complied with by, Seller and/or IRI,
herein or in any Schedule hereto;
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<PAGE> 37
(ii) the breach of any representation or warranty made by, or the
breach of any covenant to be performed or complied with by, Seller and/or IRI
under the Services Subcontract;
(iii) the failure by Seller and/or IRI to comply with any
applicable laws in connection with their operation of the Logistics Business
and the Assets, or the consummation of the transactions required to be
consummated by them under this Agreement and the Services Subcontract;
(iv) the failure by Seller and/or IRI to transfer the Assets on
the First Closing Date or the Second Closing Date, as applicable;
(v) any third party claims (including but not limited to claims
relating to the [ *** ]) asserted prior to the date hereof, or
which may hereinafter be asserted, arising out of the conduct of Seller and/or
IRI involving the Assets, the Logistics Business or any of the transactions
contemplated by this Agreement or the Services Subcontract, either before or
after the date hereof;
(vi) [ *** ]
(vii) any liability to third parties arising from a violation of
any third party's trademark rights, trade secrets, proprietary rights,
copyrights, patent rights or other intellectual property rights, in connection
with the use of the Software Products and/or Tools by any party hereto or any
third party at any time, except to the extent that such violation arises from
the use or combination by or on behalf of Purchaser and/or Manugistics of the
Software Products and/or Tools with software, hardware, or other materials or
the modification of the Software Products and/or Tools by or on behalf of
Purchaser and/or Manugistics if such violation (1) could have been avoided by
not so using, combining, or modifying the Software Products and/or Tools; and
(2) does not arise out of the [ *** ];
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<PAGE> 38
(viii) the Excluded Liabilities or any of them;
(ix) any liability in excess of $1000.00 in connection with time
lost and/or expenses incurred as a result of time spent by the Transferred
Employees at Seller's request in assisting Seller and/or IRI pursuant to
Section 7.02 or Section 9.11 in connection with the [ *** ];
(x) liability to any of the Transferred Employees arising in
connection with the termination of any or all of them, to the extent that such
termination is mandated by any court order in connection with the [ ***
].
(b) Manugistics and Purchaser acknowledge that their sole remedy
against Seller and/or IRI for any matter arising out of this Agreement and the
Services Subcontract is as set forth in this Article VII and further that with
respect to any of the Other Agreements (other than the Services Subcontract),
the rights and remedies of the parties thereto shall be governed by the
provisions thereof which shall be deemed to include a right of setoff in
accordance with the provisions set forth in Section 7.04 hereof.
Notwithstanding anything contained in the previous sentence to the contrary,
the parties shall be entitled to pursue any other rights and remedies which
they may have (i) in law, equity or otherwise with respect to any fraud or
willful breach or willful misrepresentation hereunder, and (ii) in equity with
respect to the breach of any covenant herein or in the Services Subcontract.
Further, the foregoing indemnities shall not be affected by the First Closing
or the Second Closing and shall survive the First Closing and the Second
Closing.
(c) Indemnification by Purchaser and Manugistics. Purchaser and
Manugistics shall jointly and severally indemnify, defend and hold harmless
IRI, Seller, and all affiliates, and the officers, directors and agents of all
of them from and against any Damages incurred by Seller, IRI
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<PAGE> 39
and/or any affiliate thereof, resulting from, arising out of, incurred with
respect to, or alleged to result from, arise out of or have been incurred with
respect to:
(i) the breach of any representation or warranty made by, or the
breach of any covenant to be performed or complied with by, Purchaser and/or
Manugistics herein or in any Schedule hereto;
(ii) the Assumed Liabilities or any of them;
(iii) the failure by Purchaser and/or Manugistics to comply with
any applicable laws in connection with their operation of the Logistics
Business and the Assets or the consummation of the transactions required to be
consummated by them under this Agreement and the Services Subcontract;
(iv) the breach of any representation or warranty made by, or the
breach of any covenant to be performed or complied with by, Purchaser and/or
Manugistics under the Services Subcontract;
(v) any third party claims (other than with respect to the [ ***
]) asserted prior to the date hereof or which may hereinafter be asserted,
arising out of the conduct of Manugistics and/or Purchaser involving the Assets
or the Logistics Business after the First Closing Date, or any of the
transactions contemplated by this Agreement or the Services Subcontract, either
before or after the First Closing Date;
(vi) any liability to third parties (other than with respect to the
[ *** ]) arising from a violation of any third party trademark
rights, trade secrets, proprietary rights, copyrights, patent rights or other
intellectual property rights in connection with the use of the Add-On Products
(as
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<PAGE> 40
such term is defined in the Services Subcontract) by any party hereto or any
third party at any time, except to the extent that such violation arises from
the use or combination by or on behalf of Seller and/or IRI of the Add-On
Products with software, hardware or other materials or the modification of the
Add-On Products by or on behalf of Seller and/or IRI if such violation could
have been avoided by not so using, combining, or modifying the Add-On Products.
(d) Seller and IRI acknowledge that their sole remedy against
Purchaser and/or Manugistics for any matters arising out of this Agreement and
the Services Subcontract is as set forth in this Article VII and further that
with respect to any of the Other Agreements (other than the Services
Subcontract) the rights and remedies of the parties thereto shall be governed
by the provisions thereof which shall be deemed to include a right of setoff in
accordance with provisions set forth in Section 7.04 hereof. Notwithstanding
anything contained in the previous sentence to the contrary, the parties shall
be entitled to pursue any other rights and remedies which they may have in (i)
law, equity or otherwise with respect to any fraud or willful breach or willful
misrepresentation hereunder, and (ii) in equity with respect to the breach of
any covenant herein or in the Services Subcontract.
Further, the foregoing indemnities shall not be affected by the First
Closing or the Second Closing and shall survive the First Closing and the
Second Closing.
(e) Limitations on Amount under this Agreement and the Services
Subcontract. No party shall have any liability (for indemnification or
otherwise) to the other parties hereto under this Agreement and the Services
Subcontract until the total of all Damages exceeds $10,000, and then only for
the amount by which such Damages exceeds $10,000. The aggregate amount payable
under this Article VII by the Seller and IRI to Purchaser and Manugistics on
the one hand, and by Purchaser and
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Manugistics to Seller and IRI on the other, shall not exceed $1,500,000, except
(i) in the event and to the extent of fraud or any willful misrepresentation by
a party with respect to any statement made by such party in this Agreement or
in the certificates delivered by a party pursuant to Section 5.02 and 6.02 of
this Agreement; (ii) in the event and to the extent of any willful breach by
any party of any covenant or obligation in this Agreement; (iii) in the event
and to the extent that Seller and/or IRI breaches (whether by fraud, willful
misrepresentation, or otherwise) the representations and warranties contained
in Section 3.01(e); and (iv) with respect to Damages arising from any claims
asserted by third parties relating to the matters governed by Section 7.01(a)
and 7.01(c) hereof.
(f) Waiver of Certain Damages. Each of Seller, IRI, Purchaser and
Manugistics, to the fullest extent permitted by law, irrevocably waives any
rights that it may have to punitive, multiple or consequential damages based on
or arising out of this Agreement, the Services Subcontract, or any course of
conduct, course of dealing, statements or actions of any of them related
thereto, provided, however, that nothing in this Section 7.01(f) shall operate
to prevent an Indemnified Party (as hereinafter defined) from seeking
indemnification from the Indemnifying Party (as hereinafter defined) under this
Article VII for punitive, multiple or consequential damages claimed by a third
party.
Section 7.02. Procedure for Indemnification.
(a) The party or parties claiming indemnification (individually or
collectively, the "Indemnified Party") shall promptly give notice hereunder to
the indemnifying party or parties (individually or collectively, the
"Indemnifying Party") as the case may be, after obtaining knowledge of any
claim as to which recovery may be sought against the Indemnifying Party because
of the indemnity in Section 7.01, and, if such indemnity shall arise from the
claim of a third party, shall permit the
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Indemnifying Party to assume the defense of any such claim, provided that the
Indemnified Party shall not be required to permit the Indemnifying Party to
assume the defense of any third party claim which if not first paid, discharged
or otherwise complied with would result in an interruption or cessation of the
conduct of the business by the Indemnified Party. Notwithstanding the
foregoing notice requirement, the right to indemnification hereunder shall not
be affected by a failure of the Indemnified Party to give such notice or any
delay by the Indemnified Party in giving such notice unless, and then only to
the extent that, the rights and remedies of the Indemnifying Party shall have
been prejudiced as a result of the failure to give, or delay in giving, such
notice. Failure by an Indemnifying Party to notify the Indemnified Party of its
election to defend any such claim or action within fourteen (14) business days
of its receipt of notice thereof, shall be deemed to constitute its consent to
assumption by the Indemnified Party of such defense. If the Indemnifying Party
assumes the defense of such claim or litigation resulting therefrom, the
obligations of such Indemnifying Party hereunder as to such claim shall include
taking all steps necessary in the defense or settlement of such claim or
litigation resulting therefrom including the retention of counsel reasonably
satisfactory to the Indemnified Party and holding harmless the Indemnified
Party from and against any and all Damages resulting from, arising out of, or
incurred with respect to any settlement approved by the Indemnifying Party or
any judgment in connection with such claim or litigation resulting therefrom.
No Indemnifying Party shall, in the defense of such claim or litigation, (i)
consent to the entry of any judgment (other than a judgment of dismissal on the
merits without costs) except with the written consent of the Indemnified Party
or (ii) enter into any settlement (except with the written consent of the
Indemnified Party), which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified
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<PAGE> 43
Party or parties to be indemnified a release from all liability in respect of
such claim or litigation, unless in either case all Indemnifying Parties shall
jointly and severally agree to hold harmless the Indemnified Party from and
against any and all Damages resulting from, arising out of or incurred with
respect to such judgment or settlement.
(b) If the Indemnifying Party shall not assume the defense of any such
claim by a third party or litigation resulting therefrom, the Indemnified Party
may defend against such claim or litigation in such manner as it deems
appropriate, and, unless the Indemnifying Party shall deposit with the
Indemnified Party a sum equivalent to the total amount demanded in such claim
or litigation plus an amount equal to the estimate by the Indemnified Party of
the cost of defending the same, the Indemnified Party may settle such claim or
litigation on such terms as it may deem appropriate and the Indemnifying Party
shall promptly reimburse the Indemnified Party for the amount of such
settlement and for all damages incurred by the Indemnified Party in connection
with the defense against or settlement of such claim or litigation.
The obligation of the Indemnifying Party hereunder is subject to the
Indemnified Party fully cooperating with the Indemnifying Party in its defense
or settlement of any claim for which the Indemnified Party seeks to be
indemnified hereunder, including without limitation, providing all information
and taking all actions reasonably requested by the Indemnifying Party in
connection therewith.
(c) Any indemnity payable pursuant to this Article VII shall be paid
within the later of (a) thirty (30) days after the Indemnified Party's request
thereof (in the case of claims involving a
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<PAGE> 44
third party) or (b) ten (10) days prior to the date on which the Damages upon
which the indemnity is based are required to be satisfied by the Indemnified
Party.
7.03 Period of Indemnity.
(a) Period of Indemnity Under this Agreement. The indemnity
obligations described in this Article VII with respect to matters arising under
this Agreement shall remain in full force and effect (i) as they relate to
claims asserted by third parties for a period equal to the applicable statute
of limitation for such claim, except in connection with the [ ***
], for which the period of indemnity shall be unlimited; provided,
however, that if prior to the expiration of such period any claim for
indemnification has been asserted but not fully determined, such period will be
extended as to such claim until it is finally determined and concluded; and
(ii) as they relate to breaches of representations, warranties and covenants
(other than those contained in Section 3.01(e) and 3.01(l) where the
appropriate period shall be the applicable statute of limitations period for
such claim) shall remain in force for a period of two (2) years following the
First Closing Date with respect to the Assets and the Second Closing Date with
respect to the Second Closing Assets in the case of representations and
warranties and in the case of a covenant, two (2) years from the date that such
covenant has been fully performed or waived by the other party, notwithstanding
any investigation conducted before or after the applicable Closing Date as to
the decision of any party to complete such Closing, provided, however, that if
prior to the expiration of such applicable two (2) year period (or any longer
period as provided above with respect to the representations and warranties set
forth in Section 3.01(e) and 3.01(l) hereof), any claim for breach of any such
representation, warranty, covenant or agreement has
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been asserted but not fully determined, such period will be extended as to such
claim until it is finally determined or concluded.
(b) Period of Indemnity Under the Services Subcontract. With respect
to matters arising under the Services Subcontract, the indemnity obligations
described in this Article VII shall remain in full force and effect:
(i) as they relate to claims asserted by third parties for a period
equal to the applicable statute of limitation for such claim; provided,
however, that if prior to the expiration of such period any claim for
indemnification has been asserted but not fully determined, such period will be
extended as to such claim until it is finally determined and concluded; and
(ii) as they relate to breaches of representations, warranties and
covenants in the Services Subcontract shall remain in force for a period of two
(2) years following the date of the termination of the Services Subcontract and
in the case of a covenant, two (2) years from the date that such covenant has
been fully performed or waived by the other party, notwithstanding any
investigation conducted before or after the date hereof as to the decision of
any party to enter into such Services Subcontract, provided, however, that if
prior to the expiration of such applicable two (2) year period, any claim for
breach of any such representation, warranty, covenant or agreement has been
asserted but not fully determined, such period will be extended as to such
claim until it is finally determined or concluded.
Section 7.04 Set-off; Escrow.
(a) In order to satisfy any indemnification obligations of any one
party to any other party to this Agreement, and the Other Agreements, each
party hereto hereby grants to each other such
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party the right (in addition to collecting by way of indemnification directly
from the Indemnifying Party) of setoff (in the manner provided pursuant to this
Section 7.04) against any amount otherwise due to a party by any other party
pursuant to any agreement between Seller or IRI and Purchaser and/or
Manugistics. In the event that there is any dispute between the parties
regarding the setoff rights of one party to another, the parties shall promptly
cooperate in good faith for the purpose of resolving such dispute, which
resolution, if achieved, shall be binding upon the parties and not subject to
dispute or review, unless otherwise noted in the document evidencing such
resolution.
(b) If (i) the party electing to exercise its setoff rights (the
"Electing Party") shall have failed to give written notice of the relevant
Damages within fourteen (14) business days after assertion of a written claim
by any third party or the discovery of facts upon which the claim is based,
which notice specified in reasonable detail the amount, nature and source of
the Damages and the rights of the party against whom setoff is claimed (the
"Charged Party") are prejudiced by such delay, but not otherwise; or (ii) the
Electing Party shall have failed to respond to reasonable requests of the
Charged Party for information with respect to the relevant claim, or (iii) the
Charged Party shall have denied the claim or, in the case of third party
claims, chosen to contest the claim in legal proceedings which have not yet
been finally resolved, and if the parties do not resolve, within the applicable
time period specified in Section 7.02(c), any dispute they have regarding the
Electing Party's right to exercise its setoff right, then the Electing Party
shall not be entitled to exercise its right of setoff.
(c) In the event the Electing Party is not entitled to exercise its
right of setoff as provided in subsection 7.04 (b) above, the Electing Party
shall have the right, instead of making any of such payments in accordance with
any of the agreements between any and all of the parties hereto, to
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deposit in escrow an amount reasonably necessary to cover the Damages that can
be reasonably expected to result from disputed or contested claims for
indemnification. Any such deposit into escrow shall be pursuant to a Setoff
Escrow Agreement, substantially in the form of Exhibit 7.04 hereto, with an
escrow agent reasonably satisfactory to Manugistics and IRI. Any amount which
is not setoff by the Electing Party or deposited into escrow by the Electing
Party in accordance with this Section 7.04 shall be paid in accordance with the
terms of this Agreement and the Other Agreements between Seller or IRI and
Purchaser and/or Manugistics.
(d) No setoff by any party hereto shall constitute a waiver by the
Charged Party of its right to contest the validity of the underlying claims for
indemnity of the Electing Party pursuant to this Article VII.
ARTICLE VIII
INTENTIONALLY OMITTED
ARTICLE IX
Miscellaneous Provisions
Section 9.01. INTENTIONALLY OMITTED.
Section 9.02. Brokers. Seller and IRI jointly and severally, represent
and warrant to Purchaser and Manugistics that neither Seller, IRI, nor any
party acting on behalf of either of them, has incurred any liability, either
express or implied, to any "broker" or "finder", or similar person in
connection with this Agreement or any of the transactions contemplated hereby.
Purchaser and Manugistics jointly and severally, represent and warrant to
Seller and IRI that neither Purchaser, Manugistics nor any party acting on
their behalf, has incurred any liability, either express or implied, to any
"broker" or "finder",
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or similar person in connection with this Agreement or any of the transactions
contemplated hereby. Seller and IRI jointly and severally on the one hand in
favor of Purchaser and Manugistics, and Purchaser and Manugistics jointly and
severally on the other in favor of Seller and IRI, each agree to indemnify and
hold harmless such other party against any loss, liability, damage, cost, claim
or expense by reason of any brokerage commission or finders fee finally
determined by a court of competent jurisdiction to be payable because of any
act, omission or statement of the indemnifying party.
Section 9.03. Expenses; Exclusivity.
(a) Each party hereto shall pay its or their own expenses arising
from this Agreement and the transactions contemplated hereby, including,
without limitation, all legal and accounting fees and disbursements, except as
otherwise provided in any of the Other Agreements. In the event of termination
of this Agreement for any reason whatsoever, no party shall be responsible for
the expenses of any other party.
(b) In consideration of the time and expense which the Purchaser
has expended and incurred in connection with its investigation of the Seller
and the preparation of this Agreement and related documents, neither Seller,
IRI nor anyone acting on behalf of either, including without limitation the
officers or directors of either shall, at any time prior to the Second Closing
Date, either directly or indirectly, whether through a broker, finder,
consultant, shareholder or other intermediary, solicit, initiate or encourage
any inquiries or proposals or otherwise participate in any negotiations or
carry on any discussions of any nature whatsoever (except on a need to know
basis with attorneys, accountants and immediate family members) with any party
other than the Purchaser or Manugistics concerning the sale to or purchase by
any party other than the Purchaser of the Second Closing Assets
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or the transactions contemplated hereby, whether by merger, sale of assets,
liquidation, tender offer or other business combination. Seller, IRI, their
officers and directors shall promptly communicate to Purchaser or Manugistics
the terms of any such acquisition proposal received from any third party of
which any of them has knowledge.
Section 9.04. Transfer Taxes. Purchaser and Seller will each pay half of
all sales, use or similar transfer taxes and all recording or registration fees
applicable to the sale and purchase of the Assets.
Section 9.05. Tax Minimization. Each party will cooperate to the extent
practicable in minimizing all taxes and fees levied by reason of the sale and
conveyance of the Assets pursuant to this Agreement. Neither party hereto will
pay any tax that the other party is required to pay without such other party's
prior written consent, which consent will not be unreasonably withheld or
delayed.
Section 9.06. Tax Cooperation. After the First Closing and the Second
Closing, Purchaser and Seller will cooperate with each other and will make
available to each other as reasonably requested, and to any taxing authority,
all information, records and documents relating to tax liabilities or potential
tax liabilities of the Logistics Business for all periods ending on or prior to
the First Closing Date and the Second Closing Date, as applicable, and will
preserve all such information, records and documents until the expiration of
any applicable statutes of limitations or extensions thereof. Purchaser and
Seller also will make available to each other, as reasonably requested by
Purchaser or Seller, as the case may be, personnel responsible for preparing or
maintaining information, records and documents in connection with tax matters,
and they shall also cooperate with each other in the preparation and filing of
tax returns and refund claims relating to periods ending on or prior to the
First Closing Date and the Second Closing Date, as applicable.
48
<PAGE> 50
Section 9.07. Survival of Representations. etc. All representations and
warranties made by Seller, IRI, Manugistics, Purchaser and their respective
officers hereunder shall survive the First Closing Date and the Second Closing
Date as provided in Article VII.
Section 9.08. Amendment, Modification and Termination. This Agreement
may be amended, modified or supplemented only by the written agreement of
Purchaser, Manugistics, Seller and IRI at any time prior to the date of First
Closing with respect to any of the terms contained herein.
Section 9.09. Public Announcements. None of the parties to this
Agreement shall, directly or indirectly, make any public comment, statement or
communication with respect to, or otherwise disclose or permit the disclosure
of the existence of, this Agreement or the transactions contemplated hereby
(except to lawyers, accountants and other professional advisors on a need to
know basis) other than with the express written consent of the other party,
except as required by law or court order, and further subject to Manugistics'
and IRI's legal duty to make appropriate public disclosures under SEC or NASD
rules and regulations. Seller and Manugistics shall consult with each other
concerning the means by which their respective employees, customers and
suppliers will be informed of the transactions contemplated hereby.
Section 9.10. Waiver of Compliance; Consents. Any failure of Seller or
IRI on the one hand, or Purchaser or Manugistics on the other hand, to comply
with any obligation, covenant, agreement or condition may be waived in writing
by the party entitled to the performance of such obligation, covenant or
agreement or who has the benefit of such condition, but such waiver or failure
to insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
49
<PAGE> 51
Section 9.11. Further Assurances. Each of the parties hereto shall
hereafter execute and deliver such further documents and instruments and do
such further acts and things as may be required or useful to carry out the
intent and purpose of this Agreement and as are not inconsistent with the terms
hereof. Seller and IRI shall use their best efforts to obtain any required
consents not received on or before the First Closing Date as promptly as
practicable following the occurrence of such First Closing Date, and Purchaser
and Manugistics shall cooperate in all reasonable respects in connection with
such efforts. The parties shall fully cooperate in all reasonable respects
with one another in the defense or settlement of the [
*** ], including, without limitation, providing all information and
taking all actions reasonably requested by the party seeking cooperation.
Section 9.12. Enforcement. The parties recognize that the
representations, covenants and warranties set forth in this Agreement are
special and unique and, in the event there is a breach hereof by Seller, IRI,
Purchaser or Manugistics, the non-breaching party will suffer irreparable harm,
the amount of which will be impossible to ascertain and as a result of which
the remedy at law will not be adequate. Accordingly, except as otherwise
provided in Section 7.01(b) and (d), any party shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either at law or in equity, to obtain damages for any breach or
to enforce specific performance of the provisions or to enjoin Seller, IRI,
Purchaser or Manugistics from committing any act in breach of this Agreement.
Except as otherwise provided in Section 7.01(b) and (d), the remedies granted
to each party in this Agreement are cumulative and are in addition to remedies
otherwise available to such party at law or in equity.
50
<PAGE> 52
Section 9.13. Severability. If any term or provision of this Agreement
or the application thereof to any person or circumstance shall, to any extent,
be held invalid or unenforceable by any court of competent jurisdiction, the
remainder of this Agreement or the application of any such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted
by law. If any provision contained in this Agreement shall for any reason be
held to be excessively broad as to duration, scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be valid and
enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
Section 9.14. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed by certified
mail, return receipt requested, with postage prepaid as follows:
(a) If to Seller or IRI to:
IRI Logistics, Inc.
150 North Clinton Street
Chicago, IL 60661-1416
Attention: Edward S. Berger, Esq.,
General Counsel
With a copy to:
Robert A. McWilliams
Freeborn & Peters
311 S. Wacker Drive
Suite 3000
Chicago, IL 60606
or to such other person or address as Seller shall furnish to Purchaser in
writing.
51
<PAGE> 53
(b) If to Purchaser or Manugistics to:
Manugistics Services, Inc.
2115 East Jefferson Street
Rockville, MD 20852
Attn.: Helen Nastasia, General Counsel
With a copy to:
Harriet J. Koren, Esquire
Dilworth, Paxson, Kalish & Kauffman, LLP
3200 Mellon Bank Center
1735 Market Street
Philadelphia, PA 19103
Section 9.15. Assignment. This Agreement shall not be assigned by a party
hereto without the prior written consent of the other parties hereto which
shall not be unreasonably withheld. Subject to the foregoing, this Agreement
and all of the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns, heirs,
executors and personal representatives. Nothing in this Agreement is intended
to or shall be taken as granting any right of any nature to any Person not a
party hereto.
Section 9.16. Governing Law. All matters with respect to this Agreement,
including but not limited to matters of validity, construction and performance,
shall be governed by the laws of Delaware applicable to contracts made and to
be performed therein between residents thereof (regardless of the laws that
might be applicable under principles of conflicts of law).
Section 9.17. Books and Records. Following the First Closing, Purchaser
shall retain all of the financial and personnel books and records included in
the Assets in a safe and reasonably accessible place for a period of five (5)
years. Purchaser shall on reasonable prior notice to it, afford to Seller and
to its counsel, accountants, consultants and other representatives reasonable
access to all such books
52
<PAGE> 54
and records so retained by Purchaser to examine, inspect and copy all of such
books and records for any reasonable purpose. All costs associated with any
copying of such books and records shall be borne by Seller and IRI.
Section 9.18. Counterparts. This Agreement may be executed in two or
more fully or partially executed counterparts, each of which shall be deemed an
original binding the signer thereof against the other signing parties, but all
counterparts together shall constitute one and the same instrument.
Section 9.19. Headings. The article and section headings contained in
this Agreement are for reference purposesonly and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 9.20. Certain Rules of Construction. Whenever any statement or
representation of a party hereto is made herein to the knowledge or best
knowledge of such party, such statement or representation shall be deemed to
have been made with such knowledge as would have been obtained by such party
after conducting a reasonable investigation with respect to such statement or
representation.
Section 9.21. Entire Agreement. This Agreement, the Schedules and
Exhibits hereto, and any other document to be furnished pursuant to the
provisions hereof embody the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants, or
undertakings, other than those expressly set forth or referred to in such
documents. This Agreement and such documents supersede all prior agreements
and understandings between the parties with respect to such subject matter.
53
<PAGE> 55
Section 9.22 Schedules. For purposes of this Agreement, with respect to
any matter that is clearly disclosed in a schedule to this Agreement in
response to the information called for by the corresponding section of this
Agreement in such a way as to make its relevance to the information called for
by another section of this Agreement clearly apparent (if through an
appropriate cross-reference or otherwise) such matter shall be deemed to have
been included in the schedule corresponding to such other section.
54
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
PURCHASER:
MANUGISTICS SERVICES, INC.
Attest: /s/ Helen A. Nastasia By: /s/ William M. Gibson
--------------------------- ------------------------
Secretary President
MANUGISTICS, INC.
Attest: /s/ Helen A. Nastasia By: /s/ William M. Gibson
-------------------------- ------------------------
Secretary President
SELLER:
IRI LOGISTICS, INC.
Attest: /s/ Edward S. Berger By: /s/ Narendra Mulani
-------------------------- ------------------------
Secretary President
INFORMATION RESOURCES, INC.
Attest: /s/ Edward S. Berger By: /s/ Gian M. Fulgoni
-------------------------- ------------------
Secretary Chief Executive Officer
55
<PAGE> 1
EXHIBIT 11
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
1997 1996 1995
------------------------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Weighted average number of shares of common
stock outstanding 21,324 20,602 19,676
Net effect of dilutive stock options based on
treasury stock method 1,640 1,026 898
-------- -------- ----------
Weighted average shares outstanding 22,964 21,628 20,574
-------- -------- ----------
Net income $ 4,342 $ 4,448 $ 3,221
-------- -------- ----------
Primary income per share $ 0.19 $ 0.21 $ 0.16
======== ======== ==========
Fully-diluted income per share $ 0.19 $ 0.21 $ 0.16
======== ========= ===========
</TABLE>
Amounts have been adjusted to reflect the two-for-one stock split.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF MANUGISTICS GROUP, INC.
Listed below are the significant subsidiaries of the Company and their
jurisdictions of organization. All of these subsidiaries are wholly-owned by
the Company.
<TABLE>
<CAPTION>
State or
Jurisdiction
of Incorporation Name Under Which
Name or Organization Subsidiary Does Business
---- --------------- ------------------------
<S> <C> <C>
Manugistics Colorado, Inc. Delaware Manugistics, Inc.
Manugistics, Inc. Delaware Manugistics, Inc.
Manugistics France S.A. France Manugistics France S.A.
Manugistics, Inc. Foreign Virgin Islands Manugistics, Inc.
Sales Corporation
Manugistics U.K. Ltd. United Kingdom Manugistics U.K. Ltd.
Manugistics Canada Ltd. Ontario Manugistics Canada Ltd.
Manugistics (Deutschland) GmbH Germany Manugistics (Deutschland) GmbH
Manugistics European Holding Netherlands Manugistics European
Company B.V. Holding Company B.V.
Manugistics Services, Inc. Delaware Manugistics, Inc.
Manugistics Japan K.K. Japan Manugistics Japan K.K.
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements of
Manugistics Group, Inc. on Form S-8 (File Nos. 33-67994, 33-67996, 33-67998,
33-89490, 33-89492, 33-98820 and 33-09481) of our reports dated March 28, 1997
(except Note 12 as to which the date is May 9, 1997), appearing in the Annual
Report on Form 10K of Manugistics Group, Inc. and subsidiaries for the year
ended February 28, 1997.
DELOITTE & TOUCHE LLP
Washington, D.C.
May 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDED FEBRUARY 28, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 8,543
<SECURITIES> 13,631
<RECEIVABLES> 38,308
<ALLOWANCES> 1,215
<INVENTORY> 333
<CURRENT-ASSETS> 61,542
<PP&E> 18,562
<DEPRECIATION> 8,207
<TOTAL-ASSETS> 84,323
<CURRENT-LIABILITIES> 29,043
<BONDS> 220
0
0
<COMMON> 44
<OTHER-SE> 53,549
<TOTAL-LIABILITY-AND-EQUITY> 84,323
<SALES> 50,778
<TOTAL-REVENUES> 94,722
<CGS> 4,532
<TOTAL-COSTS> 86,436
<OTHER-EXPENSES> 1,016
<LOSS-PROVISION> 606
<INTEREST-EXPENSE> 1,016
<INCOME-PRETAX> 9,302
<INCOME-TAX> 4,960
<INCOME-CONTINUING> 4,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,342
<EPS-PRIMARY> 0.19<F1>
<EPS-DILUTED> 0.19<F1>
<FN>
<F1>Item reflects two-for-one stock split
</FN>
</TABLE>
