<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 31, 1999
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)
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)
(301) 984-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: $27.2 million shares of
common stock, $.002 par value per share, as of July 12, 1999.
================================================================================
<PAGE>
MANUGISTICS GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
May 31, 1999 (unaudited) and February 28, 1999 3
Condensed Consolidated Statements of Income -
Three months ended May 31, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Three months ended May 31, 1999 and 1998 (unaudited) 5
Notes to Condensed Consolidated Financial Statements -
May 31, 1999 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 30
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,709 $ 20,725
Marketable securities 25,050 22,637
Accounts receivable, net of allowance for doubtful accounts of $3,587 and
$6,299 at May 31, 1999 and February 28, 1999, respectively 46,765 50,987
Other current assets 12,588 14,805
---------- ----------
Total current assets 105,112 109,154
---------- ----------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION 18,093 21,832
NONCURRENT ASSETS:
Software development costs, net of accumulated amortization 20,419 20,540
Intangibles, net of accumulated amortization 8,948 9,382
Deferred tax asset 9,710 9,240
Other noncurrent assets 2,158 2,182
---------- ----------
Total noncurrent assets 41,235 41,344
---------- ----------
TOTAL $ 164,440 $ 172,330
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,119 $ 8,142
Accrued compensation 4,904 7,815
Other accrued expenses 13,204 14,060
Deferred revenue 27,553 24,710
Restructuring accrual 11,679 13,789
Line of credit 9,500 9,500
--------- ---------
Total current liabilities 70,959 78,016
--------- ---------
LONG-TERM LIABILITIES 409 454
RESTRUCTURING ACCRUAL - LONG-TERM 6,185 8,138
COMMITMENTS AND CONTINGENCIES (Note 3) - -
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock, $0.002 par value per share; 100,000,000 shares authorized;
27,705,382 and 27,030,733 shares issued, and 26,952,872 and
26,278,233 shares outstanding at May 31, 1999 and February 28, 1999, respectively 56 55
Additional paid-in capital 180,605 179,996
Retained deficit (92,869) (93,258)
Accumulated other comprehensive loss (188) (354)
Treasury stock - 752,510 shares, at cost (717) (717)
--------- ---------
Total stockholders' equity 86,887 85,722
--------- ---------
TOTAL $ 164,440 $ 172,330
========= =========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
May 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
License fees $ 13,097 $ 17,481
Consulting, maintenance and other services 26,096 23,642
-------- --------
Total revenues 39,193 41,123
-------- --------
OPERATING EXPENSES:
Cost of license fees 2,857 2,841
Cost of consulting, maintenance and other services 11,619 11,647
Sales and marketing 13,839 23,298
Product development 6,994 11,926
General and administrative 3,940 5,836
Restructuring costs 82 -
-------- --------
Total operating expenses 39,331 55,548
-------- --------
LOSS FROM OPERATIONS (138) (14,425)
OTHER INCOME - NET 357 1,091
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES 219 (13,334)
BENEFIT FOR INCOME TAXES (170) (4,795)
-------- --------
NET INCOME (LOSS) $ 389 $ (8,539)
======== ========
BASIC NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.33)
======== ========
DILUTED NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.33)
======== ========
SHARES USED IN SHARE COMPUTATION:
BASIC 27,011 26,253
======== ========
DILUTED 27,279 26,253
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
May 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 389 $ (8,539)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization 5,331 5,168
Deferred tax asset (95) (5,047)
Tax benefit from stock options exercised 246 -
Restructuring charge 82 -
Other (74) 132
Changes in assets and liabilities:
Accounts receivable 4,222 12,407
Other current assets 1,842 (373)
Other noncurrent assets 24 (497)
Accounts payable and accrued expenses (7,790) (13,970)
Restructuring accrual (3,099) -
Deferred revenue 2,843 463
Income taxes payable - (858)
-------------- --------------
Net cash provided by (used in) operating activities 3,921 (11,114)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - net (62) (6,305)
Capitalization of software development costs (1,538) (2,359)
Purchase of software licenses for resale (187) (314)
(Purchase)/sale of marketable securities - net (2,413) 5,168
-------------- --------------
Net cash used in investing activities (4,200) (3,810)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments)/ borrowings of long-term debt and capital lease obligations - net (45) 341
Proceeds from stock options and stock purchases 364 2,582
-------------- --------------
Net cash provided by financing activities 319 2,923
-------------- --------------
EFFECTS OF EXCHANGE RATES ON CASH BALANCES (56) 251
-------------- --------------
NET DECREASE IN CASH (16) (11,750)
-------------- --------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,725 20,338
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,709 $ 8,588
============== ==============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
MANUGISTICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MAY 31, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Manugistics Group, Inc. ("the Company") have been prepared in accordance
with generally accepted accounting principles for interim reporting and in
accordance with the instructions to the Quarterly Report on Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal, recurring adjustments) which are
necessary for a fair presentation of the unaudited results for the interim
periods presented have been included. The results of operations for the
periods presented herein are not necessarily indicative of the results of
operations for the entire fiscal year, which ends on February 29, 2000.
The unaudited condensed consolidated financial statements for the
three months ended May 31, 1998 have been revised to give effect to the
acquisition by merger of TYECIN Systems, Inc. ("TYECIN") on June 1, 1998,
which has been accounted for as a pooling of interests ("pooling").
These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto for the fiscal
year ended February 28, 1999 included in the Annual Report on Form 10-K of
the Company for that year.
2. Net Income (Loss) Per Share
Basic income (loss) per share is computed using the weighted average
number of shares of common stock outstanding. Diluted income (loss) per
share is computed using the weighted average number of shares of common
stock and, when dilutive, common equivalent shares from options to purchase
common stock using the treasury stock method. Common equivalent shares from
options were excluded from the calculation of diluted loss per share for
the three months ended May 31, 1998, as including them would be
antidilutive. The following table sets forth the computation of basic and
diluted income (loss) per share:
<TABLE>
<CAPTION>
Three months ended May 31,
--------------------------
1999 1998
----------- -----------
(in thousands, except
per share amounts)
<S> <C> <C>
Weighted average common shares 27,011 26,253
Dilutive potential common shares 268 -
----------- -----------
Shares used in diluted share computation 27,279 26,253
=========== ===========
Net income (loss) $ 389 $ (8,539)
=========== ===========
Basic income (loss) per share $ 0.01 $ (0.33)
=========== ===========
Diluted income (loss) per share $ 0.01 $ (0.33)
=========== ===========
</TABLE>
6
<PAGE>
3. Commitments and Contingencies
On March 7, 1997, the Company, as part of the acquisition of certain
assets of Information Resources, Inc. ("IRI"), entered into several
agreements with IRI, including a Data Marketing and Guaranteed Revenue
Agreement ("Agreement") and an Asset Purchase Agreement ("Purchase
Agreement"). The Agreement set forth the obligations of the parties with
regard to revenues to be paid to IRI from the sale by the Company of
specified products provided by IRI. Under the terms of the Agreement, the
Company guaranteed revenue to IRI in a total amount of $16.5 million over a
period of years following execution of the Agreement by way of three
separate revenue streams. As part of such commitment, the Company agreed
to guarantee revenues to IRI in a total amount of $12 million through three
separate payments over an initial three year period from execution of the
agreement ("First Revenue Stream").
The Company asserted that its ability to market the IRI products has
been impaired, which, under the terms of the Agreement, obligates the
parties to restructure the payments and/or modify the obligations with
regard to the First Revenue Stream. IRI responded, disagreeing that an
impairment existed, and in the alternative, that any impairment was
corrected. The parties discussed their disagreement over the impairment
issue until IRI filed a complaint in the Circuit Court of Cook County,
Illinois on January 15, 1999. The complaint alleges breach of the
Agreement and seeks damages in an amount in excess of $11.9 million for the
Company's alleged failure or anticipatory failure to make guaranteed
payments in the amount of $12 million. The complaint also alleges a breach
of a separate Non-Competition and Non-Solicitation Agreement executed at
the same time as the Agreement, and seeks damages in an amount in excess of
$100,000. The Company filed a Motion to Stay Proceedings and Compel
Arbitration, which was granted as to the claim under the Agreement and
denied as to the claim under the Non-Competition and Non-Solicitation
Agreement. Arbitration proceedings have not commenced; the civil action is
in the early stages of discovery. It is not possible at this time to
predict the outcome of the arbitration or litigation or the amount or
nature of any loss.
On April 2, 1999, as previously reported by the Company on its Annual
Report on Form 10-K for the period ending February 28, 1999, the Company
received notice from IRI of the dismissal of the lawsuit filed against IRI
by Think Systems Corporation. Such dismissal was a condition precedent to
the obligation of Manugistics, Inc. to proceed to a Second Closing pursuant
to the Purchase Agreement. IRI has requested that the parties proceed to
such Second Closing which relates to the transfer of certain assets to
Manugistics Services, Inc. Further, under the Agreement, the dismissal on
the Think Systems lawsuit triggers the commencement of a second revenue
stream to IRI, under the Agreement. The second revenue stream represents a
total guaranteed revenue of $1.75 million for the first and second year
following the Second Closing and $2.25 million for the third year following
the Second Closing.
As previously reported by the Company in its Current Report of Form
8-K dated June 18, 1998, a number of lawsuits were filed in various Federal
District Courts alleging disclosure violations under the federal securities
laws against the Company, its Chairman and then Chief Executive Officer,
and its Chief Financial Officer, arising from alleged omissions and
misrepresentations by the Company and these two individuals regarding the
Company's business, operations, and financial condition. Each complaint
seeks class action status on behalf of purchasers of the Company's common
stock during certain specified periods and seeks unspecified monetary
damages. The actions have been consolidated in the District of Maryland and
an amended consolidated complaint has been filed by the plaintiffs. On or
about May 6, 1999, the Company moved to dismiss the consolidated complaint.
Plaintiffs have not yet responded to the Company's motion. It is not
possible at this time to predict the outcome of the litigation or the
amount or nature of any loss.
The ultimate outcome of these lawsuits, as with litigation generally,
is inherently uncertain, and it is possible that one or more of these
matters may be resolved adversely to the Company. The adverse resolution of
one or more of these lawsuits could have a material adverse effect on the
Company's business, operating results, financial condition and cash flows.
4. Supplemental Information of Non-cash Investing and Financing Activities
Cash paid for income taxes amounted to approximately $48,410 and
$891,000 for the three months ended May 31, 1999 and 1998, respectively.
7
<PAGE>
5. Comprehensive Income (Loss)
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and the display of
comprehensive income and its components in the Company's financial
statements. SFAS No. 130 requires unrealized gains and losses on the
Company's available-for-sale securities and foreign currency translation
adjustments to be included in other comprehensive income. Total
comprehensive income (loss), net of tax, for the three months ended May 31,
1999 and 1998 was:
<TABLE>
<CAPTION>
Three months ended May 31
-------------------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Net income (loss) $ 389 $(8,539)
Other comprehensive income (loss) 166 (206)
------- -------
Total comprehensive income (loss) $ 555 $(8,745)
======= =======
</TABLE>
6. Restructuring
During the second half of fiscal 1999, the Company recorded
restructuring and unusual charges primarily associated with the
implementation of the Company's plan to restore the Company's
profitability. This plan reorganized the Company to focus on its core
business of providing supply chain solutions to companies with dynamic
supply chains, specifically those in the customer-driven industries. The
table below presents the activity in the first quarter of fiscal 2000
related to the restructuring charge reserves established in the third and
fourth quarters of fiscal 1999 as part of the restructuring activities. The
adjustments to the charge and utilization of accrual amounts are consistent
with the Company's estimates prepared at February 28, 1999. The Company
believes that the reserves as of May 31, 1999 are adequate and that no
revisions of estimates are necessary at this time.
The following table depicts the restructuring activity through
May 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Beginning Ending
Balance Adjustments Utilization of Accrual Balance
March 1, 1999 to Charge Cash Non-cash May 31, 1999
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Severance costs $ 1,152 $ 176 $ (925) $ 147 $ 550
Lease obligation costs 18,914 - (1,804) (83) 17,027
Impairment of long-lived assets 1,709 (94) (311) (1,029) 275
Other 152 - (59) (81) 12
------------- ------------- ------------- ------------- --------------
Total $ 21,927 $ 82 $ (3,099) $ (1,046) $ 17,864
============= ============= ============= ============= ==============
</TABLE>
7. Subsequent Event
In order to consolidate the Company's three facilities located in the
Rockville, Maryland area, the Company entered into several agreements
effective as of March 26, 1998 (the "Site Agreement") with a commercial
real estate developer, a property owner and other parties under which the
Company would lease a new office building of approximately 300,000 square
8
<PAGE>
feet to be built at a site near its current headquarters in Rockville,
Maryland. The Company anticipated taking occupancy of the new facility in
the spring of the year 2000. Pursuant to the Site Agreement, the developer
commenced development of the site. Due to the Company's operating losses in
fiscal 1999, and its restructuring, including a significant reduction in
the number of employees, the Company's need for expansion space was greatly
reduced. The Company therefore negotiated and executed agreements with the
developer and the other parties to terminate their respective obligations
under the Site Agreement. Under the terms of the termination agreements,
the Company will pay to the developer a total of $3.5 million in
installments. The Company made the first payment, in the amount of $1.5
million, as scheduled in June 1999. The remaining payments will be due
quarterly, commencing on September 30, 1999, in amounts ranging from
$250,000 to $312,500. The last quarterly payment will be due on March 31,
2001. The agreement provides for significant penalties in the event of
default. The Company will also pay a termination fee of $227,000, in
five equal monthly installments of $45,400, to the provider of program
management services. The first payment was made in June, 1999. The Company
had previously accrued these liabilities in the quarter ending February
28, 1999.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Manugistics Group, Inc. (the "Company") is a leading provider of solutions
for customer-centric supply chain optimization. The Company's solutions are
comprised of software products and related services that enable clients to
improve the efficiency of the flow of materials within and between organizations
(e.g., the flow of raw materials through the manufacturing process and the
delivery of finished product to the end-user). The Company's solutions enable
its clients to create and optimize their supply chains around their customers.
The solutions are designed to be implemented quickly, adapt easily to change,
and deliver rapid results.
With the Company's broad suite of supply chain software products, clients
can make improved operational decisions, resulting in increased revenues,
reduced inventories, improved customer service, improved relationships among
trading partners, greater speed to market, and lower overall costs throughout
the supply chain. Results are achievable in as little as eight weeks. The
Company currently has clients in a broad spectrum of industries around the
world. The Company's products are primarily targeted at companies with dynamic
supply chains and, increasingly, at those that desire to take advantage of
emerging e-commerce opportunities.
The Company's integrated suite of strategic, tactical and operational
supply chain planning software products enables collaboration within and among
enterprises by addressing the four key operational areas of supply chain
planning, which are: demand planning; supply planning; manufacturing scheduling;
and transportation management. The Company's products allow its clients to
collaborate with their suppliers, their customers and other third parties.
During fiscal 1999, the Company experienced declines in license fee
revenues and share of the supply chain planning software market compared to
prior years. The decline in demand for the Company's products, increased price
competition, poor sales execution by the Company, and the resulting losses, led
to the Company's decision to restructure its business during fiscal 1999 to
reduce its operating expenses, improve its competitiveness, and attempt to
return to profitability. The Company's restructuring included significant
headcount reductions, reorganization of the Company's senior management team,
hiring a new Chief Executive Officer, an increased focus on core competencies
and target markets, and increased investments in the Company's initiatives in e-
commerce enabled supply chain solutions. The Company believes that restructuring
actions initiated in fiscal 1999 will decrease operating expenses in fiscal 2000
compared with fiscal 1999. There can be no assurances that the Company's
restructuring actions and decrease in operating expenses will be sufficient to
offset the Company's decrease in license fee revenues and return the Company to
sustainable profitability.
Results of Operations
Revenues:
The Company licenses software under non-cancelable license agreements and
provides related services, including installation, consulting, and maintenance.
License fees are generally recognized when a non-cancelable license agreement
has been signed, the software product has been shipped, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable, no significant production, modification, or customization of the
software is required, and collection is considered probable in accordance with
Statement of Position 97-2, Software Revenue Recognition. Fees are allocated to
the various elements included in license agreements based on the Company's
10
<PAGE>
historical fair value experience. Fees related to consulting and implementation
services are recognized as the services are performed. When the Company enters
into a license agreement with a client that requires significant customization
or paid enhancement of the software products, the Company recognizes revenue
related to the license agreement using contract accounting.
<TABLE>
<CAPTION>
Revenues in thousands Three months ended May 31,
------------------------------------------------
1999 Change 1998
-------------- ------------- ----------------
<S> <C> <C> <C>
License fees $ 13,097 -25.1% $ 17,481
Percentage of total revenues 33.4% 42.5%
Consulting, maintenance and other
services 26,096 10.4% 23,642
Percentage of total revenues 66.6% 57.5%
------------ --------------
Total revenues $ 39,193 -4.7% $ 41,123
Percentage of total revenues 100.0% 100.0%
</TABLE>
License fees. The Company's license fees consist primarily of software
license revenues from direct sales. The Company also earns license fees
through licenses to customers via indirect channels, including complementary
software vendors, consulting firms, distributors, and systems integrators.
License fees decreased for the quarter ended May 31, 1999 because the
Company experienced approximately a 10% decrease in the number of transactions
closed during the period and approximately a 15% decrease in the average size of
transactions closed. In addition, the Company had reduced the size of its direct
sales force in conjunction with its restructuring activities in the second half
of fiscal 1999. In addition, the Company's operating results during fiscal 1999
raised concerns with clients and prospects about the Company's financial
viability, which tended to lengthen sales cycles. The Company believes that
these concerns adversely affected the Company's ability to generate license fee
revenues.
Consulting, maintenance, and other services ("services"). Services revenues
primarily consist of fees from software implementation engagements and the
related training, consulting, and maintenance revenues. Revenues from software
implementation and consulting engagements are recognized as the services are
performed and are billed on a time and materials basis.
11
<PAGE>
Maintenance revenues are recognized ratably over the maintenance contract, and
payments for maintenance fees are typically made in advance of the support
period. The software implementation process typically requires two to twelve
months to complete, depending on the complexity, scope of the project, and
client resources available.
Services revenue increased for the three months ended May 31, 1999 as
compared to 1998, primarily due to the continuation of customer implementations
from the license fee transactions in fiscal 1999. The Company typically begins
to recognize services revenues in the months following initiation of the
implementation of software, which generally occurs within a few weeks after
execution of the license agreement. In addition, the increase in the number of
existing clients over time has resulted in additional training and other
consulting services revenues. There can be no assurance that services revenue
will continue to increase in the future. See "Factors That May Affect Future
Results" and "Forward Looking Statements."
Maintenance revenues increased following the increase in the number of
clients that have licensed the Company's software products and entered into
annual maintenance contracts. Maintenance revenues tend to track software
license fee transactions in prior periods. In the past three fiscal years,
approximately 95% of customers with maintenance contracts have renewed these
contracts. There can be no assurance that this level of renewal will continue in
the future. See "Factors That May Affect Future Results" and "Forward-Looking
Statements."
Operating Expenses:
General. In the second half of fiscal 1999, the Company executed a company-
wide restructuring activities that implemented overall cost containment
initiatives as it pursued its business strategies of returning to profitability,
expanding product innovation to enable companies to take advantage of e-
commerce, interface, and integration technology, and expanding its indirect
distribution channels through alliances with complementary software vendors and
consulting and implementation organizations.
Due to the Company's cost containment actions, such as headcount and
occupancy reductions, quarterly comparisons of results, expense levels and
percentages of total revenues from the three months ended May 31, 1999 compared
to the three months ended May 31, 1998 are not necessarily meaningful as a
result of changes in the relative amounts of revenues and expenses and in the
relative proportions of revenues between license fees and services earned in
each respective period.
<TABLE>
<CAPTION>
Three months ended May 31,
------------------------------------------
Operating expenses in thousands 1999 Change 1998
---------- ----------- --------------
<S> <C> <C> <C>
Cost of license fees $ 2,857 0.6% $ 2,841
Percentage of total revenues 7.3% 6.9%
Cost of consulting, maintenance and other services 11,619 -0.2% 11,647
Percentage of total revenues 29.7% 28.3%
Sales and marketing 13,839 -40.6% 23,298
Percentage of total revenues 35.3% 56.7%
Product development 6,994 -41.4% 11,926
Percentage of total revenues 17.8% 29.0%
General and administrative 3,940 -32.5% 5,836
Percentage of total revenues 10.1% 14.2%
Restructuring costs 82 N/M -
Percentage of total revenues 0.2% -
---------- --------------
Total operating expenses $ 39,331 -29.2% $ 55,548
Percentage of total revenues 100.4% 135.1%
</TABLE>
12
<PAGE>
Cost of license fees. Cost of license fees consists of amortization of
capitalized software development costs, cost of goods and other expenses, which
includes royalty fees associated with third-party software included with the
Company's licensed software, and amortization of goodwill associated with
certain recent acquisitions. Software development costs and acquired research
and development costs are amortized at the greater of the amount computed using
either the straight-line method over the estimated economic life of the product,
commencing with the date the product is first available for general release, or
the ratio that current gross revenues from the product bears to the total
current and anticipated future gross revenues. Generally, an economic life of
two to five years is assigned to capitalized software development costs.
Goodwill is amortized over five years.
Cost of license fees increased as a percentage of total revenues due to
additional amortization expense of capitalized software costs following the
commercial release of new supply chain planning software products and an overall
decrease in revenues generated for the three months ending May 31, 1999 compared
to the same period last year.
Cost of consulting, maintenance and other services. Cost of consulting,
maintenance and other services increased as a percentage of total revenues, as a
result of increased services revenues and an overall decrease in revenues
generated for the three months ending May 31, 1999 compared to the same period
last year.
Sales and marketing. Sales and marketing expenses consist primarily of
personnel costs, commissions, promotional events, and advertising. Sales and
marketing expenses decreased for the three months ended May 31, 1999 as a
percentage of total revenues primarily due to the reduction of headcount
implemented under the Company restructuring activities during the second half of
fiscal 1999 and the focus by the Company to monitor its discretionary spending
to aid in cost containment.
Product development. The Company records product development expenses net
of capitalized software development costs for products that have reached
technological feasibility in accordance with Statement of Financial Accounting
Standard No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed."
<TABLE>
<CAPTION>
Three months ended May 31,
------------------------------------------------
Dollars in thousands 1999 Change 1998
------------ ----------- ---------------
<S> <C> <C> <C>
Gross product development costs $ 8,532 -40.3% $ 14,285
Percentage of total revenues 21.8% 34.7%
Less: capitalized product development costs 1,538 -34.8% 2,359
Percentage of gross product development costs 18.0% 16.5%
------------ ---------------
Product development expenses $ 6,994 -41.4% $ 11,926
Percentage of total revenues 17.8% 29.0%
</TABLE>
Gross product development costs and net product development costs decreased
primarily due to the reduction of headcount implemented under the Company's
restructuring plan during the fourth quarter of fiscal 1999 and the focus by the
Company on cost containment.
General and administrative. General and administrative expenses consist
primarily of personnel costs, infrastructure expenses, and the fees and expenses
associated with legal, accounting, and other functions. General and
administrative expenses decreased for the three months ended May 31, 1999, due
13
<PAGE>
to the reduction of headcount implemented under the Company's restructuring
plan during the second half of fiscal 1999 and the focus by the Company to
monitor its discretionary spending to aid in cost containment.
Restructuring costs. In conjunction with a corporate-wide reorganization
plan implemented during fiscal 1999, the Company recorded approximately $82,000
in additional restructuring expenses for the three month period ending May 31,
1999.
Other Income - Net (in thousands):
<TABLE>
<CAPTION>
Three months ended May 31,
------------------------------------------
1999 Change 1998
------------ ---------- --------------
<S> <C> <C> <C>
Other income $ 357 -67.3% $ 1,091
Percentage of total revenues 0.9% 2.7%
</TABLE>
Other income includes interest income from short-term investments, interest
expense from borrowings, foreign currency exchange gains or losses, and other
gains or losses. Other income decreased for the three months ended May 31, 1999
primarily because the Company's investment balances were reduced to fund
operating activities during the prior fiscal year.
Benefit for Income Taxes (in thousands):
<TABLE>
<CAPTION>
Three months ended May 31,
-----------------------------------------
1999 Change 1998
------------- ---------- ---------------
<S> <C> <C> <C>
Income taxes $ (170) N/M $ (4,795)
Percentage of income before taxes N/M 35.9%
Percentage of total revenues N/M N/M
</TABLE>
The income tax benefit for the three months ended May 31, 1999 was
$170,000. A net increase of net operating losses incurred by the Company's
international subsidiaries resulted in an income tax benefit. Management of the
Company believes that in fiscal 2000 the effective tax rate of the Company on a
consolidated basis is likely to be approximately 39%, excluding non-recurring
charges recorded in connection with acquisitions or other transactions. This
estimate is based on current domestic and foreign tax law and is thus, subject
to change. The Company's future utilization of deferred tax net operating
losses may cause the effective tax rate to differ from 39%. See "Forward-
Looking Statements."
Net Income (Loss) and Net Income (Loss) Per Share:
Net income (loss) is derived by taking total revenues less total operating
expenses, determining the effect of other income-net, taking the resulting
income (loss) before taxes and adding the income tax benefit.
<TABLE>
<CAPTION>
Three months ended May 31,
----------------------------
Dollars in thousands 1999 1998
(except share amounts) ---------------------------
<S> <C> <C>
Net income (loss) $ 389 $ (8,539)
Net income (loss) per share - basic $ 0.01 $ (0.33)
Net income (loss) per share - diluted $ 0.01 $ (0.33)
Shares used in basic computation 27,011 26,253
===========================
Shares used in diluted computation 27,279 26,253
===========================
</TABLE>
14
<PAGE>
Liquidity and Capital Resources:
<TABLE>
<CAPTION>
As of
----------------------------------------------
Dollars in thousands May 31, Feb. 28,
1999 Change 1999
------------ -------------- ---------------
<S> <C> <C> <C>
Working capital $ 34,153 9.7% $ 31,138
Cash, cash equivalents and marketable securities $ 45,759 5.5% $ 43,362
</TABLE>
The Company has historically financed its growth primarily through funds
generated from operations, through proceeds from offerings of capital stock, and
to a lesser extent, short-term borrowings under a revolving credit facility. The
increase in working capital at May 31, 1999 as compared to February 28, 1999
resulted from increases in operating cash flows.
The Company's operating activities provided cash of approximately $3.9
million for the three months ended May 31, 1999. Operating cash flows increased
for the period as a result of decreases in accounts payable, accrued expenses
and restructuring accruals which were offset by a decrease in accounts
receivable and other current assets.
Investing activities used cash of $4.2 million for the three months ended
May 31, 1999, primarily attributed to the purchase of marketable securities and
capitalization of software development costs. Financing activities provided cash
of approximately $300,000 for the three months ended May 31, 1999, primarily
from proceeds received by the Company from the exercise of employee stock
options.
The Company has an unsecured committed revolving credit facility with a
commercial bank. Under the terms of the facility, the Company may request cash
advances, letters of credit, or both 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 will expire in September 1999, unless renewed.
As of May 31, 1999, $10 million was outstanding on the revolving credit
facility, including letters of credit. On June 8, 1999, the Company repaid $9.5
million of the $10 million outstanding on the revolving credit facility . The
remaining $500,000 represents outstanding letters of credit. The Company
currently anticipates that it will renew or replace its existing credit
facility. See "Forward Looking Statements."
For the fiscal year ended February 28, 1999, the Company incurred a loss of
approximately $96 million. As noted above, the Company restructured certain of
its business operations during the second half of fiscal 1999 to reduce
operating expenses, continue its efforts to improve execution and efficiencies,
better align expenses with revenues, and enhance its sales and marketing
activities to meet the challenges of the marketplace. The Company's
restructuring activities included significant headcount reductions,
simplification and reorganization of the Company's senior management team,
hiring a new Chief Executive Officer, and an increased focus on and increased
investments in the Company's e-commerce enabled supply chain solutions. The
Company believes that restructuring actions effected in fiscal 1999 will
decrease operating expenses in fiscal 2000 compared with fiscal 1999. There can
be no assurances that the Company's restructuring actions and decrease in
operating expenses will be sufficient to return the Company to sustainable
profitability. The Company believes that its existing cash balances and
marketable securities, anticipated funds generated from operations, and amounts
available under its revolving credit facility and other possible sources of
15
<PAGE>
funding will be sufficient to meet its anticipated liquidity and working capital
requirements in the near term. The Company anticipates, that in light of its
operating results for fiscal 1999, the cost of any additional funds which the
Company might obtain, might be greater than funds available to the Company under
its existing revolving credit facility or otherwise. In the event that the
Company requires additional financing and is unable to obtain it on terms
satisfactory to the Company, its liquidity, results of operations, and financial
condition would be materially adversely affected. The Company believes that
inflation did not have a material effect on its results of operations in fiscal
1999.
In June, 1999, the company negotiated and executed agreements with a
developer and other parties to terminate respective obligations related to the
development of a new office building. Under these agreements, the Company will
pay a total of approximately $3.7 million in installment payments. The Company
has made initial payments of $1.5 million and will make additional payments
through March 31, 2001. The Company believes that it will have adequate funds
available to meet the remaining payment obligations on a timely basis.
Certain information regarding commitments and contingencies, including
pending litigation, which may have an adverse impact on the Company's liquidity
and financial condition is set forth below under "Factors That May Affect Future
Results."
Year 2000 Compliance
General. Many older computer systems, software products, and embedded
microprocessor chips that are in use today were programmed to accept two digit
entries in the date code field (e.g., "98" for "1998"). These systems, software,
and embedded microprocessor chips need to be modified or upgraded to distinguish
twenty-first century dates (e.g., "2002") from twentieth century dates (e.g.,
"1902"), in order to avoid the possibility of erroneous results or systems
failures.
The Company has reviewed and continues to evaluate and update its formal
processes and procedures to address any potential Year 2000 compliance issues
relating to its corporate infrastructure and to the software products that it
licenses to clients. The Company believes that it has allocated adequate
resources for this purpose and expects its Year 2000 compliance program to be
completed by the year 2000. While the Company believes that it has adequately
tested and modified the products it currently actively markets, the Company does
not intend to test or modify all prior versions of its software products or
certain software products that the Company plans to replace with either new
software products or Year 2000 compliant releases by the end of 1999. All
clients who have licensed the Company's software have been contacted and
strongly encouraged to upgrade to a Year 2000 compliant version of the Company
provided software. The Information Technology Association of America ("ITAA")
has recently certified the Company's software development processes as part of
the Company's comprehensive effort to address the Year 2000 issues.
Corporate Infrastructure State of Readiness. The Company believes that its
identification of Year 2000 compliance issues is complete with respect to the
Company's internal operating systems. The infrastructure is composed of
Information Technology ("IT") systems (i.e. financial, human resources, order
entry, client support tracking, voicemail) and non-IT systems (i.e. elevators,
fire suppression systems, United Parcel Service systems). The Company has
identified those systems which are not affected and those systems which need
replacement or modification. The Company believes that all identified systems
that are at risk will be made Year 2000 compliant or be replaced before December
31, 1999 and that its business critical systems that have date sensitivity will
be fixed, tested, and in place before the year 2000. The Company believes that
it has communicated with all its material vendors, suppliers, landlords, and
other third parties regarding Year 2000 compliance of embedded processors in
computers, facilities, software, other information technology, and other
products and services which the Company obtains from such third parties. The
Company anticipates that affected embedded processors will be replaced before
the year 2000. Most of the Company's landlords have provided guarantees of
16
<PAGE>
Year 2000 compliance or descriptions of the work being performed to achieve
compliance with their facilities and operations. Although the Company has
completed its assessment of the Year 2000 compliance issues with respect to the
products, facilities, and services which it obtains from third parties, the
Company continues to monitor and assess Year 2000 issues relating to such
products, facilities, and services.
The Company has tested all business critical systems for Year 2000
compliance, whether or not these systems have been warranted Year 2000 compliant
by the manufacturer. The testing environment has been established and test
development is ongoing. Test execution began at the end of October 1998 and
finished, for business critical systems, at the end of February 1999. The
Company is in the process of making required modifications to the IT and non-IT
systems within the corporate infrastructure. The Company anticipates these
modifications will be validated by the end of calendar third quarter 1999, and
fully implemented before the year 2000. Contingency plans for the various
business areas of the Company will be developed in the second part of calendar
1999.
Products. The Company has tested the products it currently actively
markets in environments containing third-party software and tools used in the
production of and embedded in the Company's solutions, along with supported
relational databases, and believes the software currently marketed by the
Company to be Year 2000 compliant. The Company, however, can make no assurances
that those third-party platforms will not experience issues related to the Year
2000.
Costs. The Company has expensed approximately $360,000 to date as of May
31, 1999 in its Year 2000 compliance program, mainly for consulting services and
hardware costs. Approximately seventeen percent (17%) of the costs were for
identification and assessment of the Year 2000 issue, approximately fifty-eight
percent (58%) of the costs were for modification and replacement, and twenty-
five percent (25%) were for testing. The Company currently estimates that it
will cost an additional $400,000, budgeted under its IT and product development
functions, prior to January 1, 2000, to modify its internal information systems,
other systems, and internally developed software products affected by the Year
2000 issue; the portion of this amount attributable to fiscal 2000 constitutes
approximately four percent (4%) of the IT budget for fiscal 2000. The Company
estimates that of the remaining costs to be spent on the Company's Year 2000
readiness program, eighty percent (80%) will be for modification and replacement
and twenty percent (20%) will be for testing. The Company does not separately
track the internal costs for its Year 2000 compliance project; such costs
consist principally of the related payroll costs for its employees working on
the project, costs for outside consulting services and hardware costs. See
"Forward Looking Statements" below.
Risks. 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. This includes the risk that products thought to be Year 2000
compliant are not Year 2000 compliant. While the Company believes that it has
adequately assessed, corrected, and tested its products to address the Year 2000
issue, there can be no assurances that the Company's software products contain
or will contain all necessary date code changes or that errors will not be found
in new products or product enhancements after commercial release, which could
result in loss of or delay in market acceptance or potential liability to our
client or other third parties. In addition, the Company might experience
unforeseen difficulties that could delay or prevent the continued successful
development and release of products that are Year 2000 compliant. If the Company
experiences any unforeseen delays or the Company's efforts to make the date code
changes necessary in order to achieve Year 2000 compliance of its products are
delayed, there could be a material adverse effect upon the Company's business,
17
<PAGE>
operating results, financial condition, and cash flows.
The Company utilizes third-party vendor equipment, telecommunications
products, and software products. The Company is currently taking steps to
address the impact, if any, of the Year 2000 compliance issue surrounding such
third-party products. The Company has been communicating with such third parties
about their plans and progress in addressing the Year 2000 problem, and the
Company has requested assurances that equipment, products, and services provided
by such third parties will be Year 2000 compliant. The Company has received such
assurances from certain of the third-party vendors and is waiting to receive
such assurances from the remaining vendors. However, such third parties' Year
2000 compliance efforts are not within the control of the Company. In the event
that such additional assurances are not timely received, the Company will switch
to another vendor or take such other action as the Company shall then deem
appropriate. The failure of any critical technology components to operate
properly may have a material impact on business operations or require the
Company to incur unanticipated expenses to remedy any problems.
There are substantial operational risks beyond the Company's control,
including the risk that vital services provided by utilities and governmental
agencies will be interrupted. It is possible that interruptions in vital
services in late calendar year 1999 and early calendar year 2000 will interfere
with normal business operations, and that such failures could materially and
adversely affect the Company's results of operations, financial condition and
cash flows.
Many companies, including the Company's clients and prospects, might need
to modify or upgrade their information systems to address this Year 2000 issue.
The effects of this issue and of the efforts by companies to address it are
unclear. The Company believes that Year 2000 issues might have affected the
purchasing patterns of clients and prospective clients. Many companies are
allocating significant resources to attain Year 2000 compliance. These
allocations might have resulted in reduced resources available to license
software products and utilize the implementation services such as those offered
by the Company. Additionally, Year 2000 issues inherent in a client's other
software programs might significantly limit that client's ability to realize the
intended benefits to be derived from the Company's supply chain planning
software. Due to the general uncertainty inherent in the Year 2000 issues
resulting, in part, from the possible risks described above, the consequences of
the Year 2000 failures will potentially have a material impact on the Company's
operating results, financial condition, and cash flows.
Factors That May Affect Future Results
In addition to the other information in this Form 10-Q, the following
factors should be considered in evaluating the Company and its business. The
Company's operating results have varied in the past and might vary significantly
in the future because of factors such as domestic and international business
conditions or the general economy, the timely availability and acceptance of the
Company's products, technological change, issues with the Year 2000 problem
faced by clients and prospects, the effect of competitive products and pricing,
the effects of marketing pronouncements by competitors or potential competitors,
changes in the Company's strategy, the mix of direct and indirect sales, changes
in operating expenses, personnel changes, and foreign currency exchange rate
fluctuations. Furthermore, clients may defer or cancel their purchases of the
Company's products if they experience a downturn in their business or if there
is a downturn in the general economy.
18
<PAGE>
Potential for Significant Fluctuations in Quarterly Results; Seasonality
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, license fee
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter, and the Company cannot predict license fee revenues for any
future quarter with any significant degree of certainty. The Company has
experienced and might continue to experience from time to time very large,
individual license sales which can cause significant variations in quarterly
license revenues.
The Company's license fee revenues are also difficult to forecast
because the market for business application software products is evolving
rapidly, and the Company's sales cycles vary substantially from client to
client. The sales cycles depend, in part, on the nature of the transactions,
including the breadth of the solution to be licensed and the organizational and
geographical scope of the licenses. Because the licensing of the Company's
products generally involves a significant capital expenditure by the client, 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 will be more difficult to
predict in timing and size than for direct sales because there is less direct
contact and influence with the prospective client. For these and other reasons,
the sales cycle associated with the licensing of the Company's products varies
substantially from client to client and typically lasts between six and twelve
months. During this time the Company might devote significant time and resources
to a prospective client, including costs associated with multiple site visits,
product demonstrations, feasibility studies, and might experience a number of
significant delays over which the Company has no control.
The Company bases its expense levels upon anticipated future revenues.
A substantial portion of the Company's revenues in any quarter is typically
derived from a limited number of large contracts. Therefore, if revenues in a
period are below expectations, operating results are likely to be adversely
affected, which occurred throughout fiscal 1999. 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. The
Company has generally realized lower revenues in its first fiscal quarter
(ending in May) than in the immediately preceding quarter. The Company believes
that these fluctuations are caused primarily by client budgeting and purchasing
patterns and by the Company's sales commission policies, which compensate
personnel for meeting or exceeding annual and other 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 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 development, promotion, and sale of their products than can the
Company. Certain competitors have also attempted to raise concerns regarding the
Company's viability given the Company's recent losses.
19
<PAGE>
Certain Enterprise Resource Planning ("ERP") system vendors have
acquired supply chain planning software companies, products, or functionality,
or have announced plans to develop new products or to incorporate additional
functionality into their current products that, if successfully developed and
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 planning
needs of the Company's prospective clients. Accordingly, it is possible that new
competitors may emerge and rapidly acquire significant market share. If this
were to occur, the business, operating results, financial condition, and cash
flows of the Company could be materially adversely affected.
Risks of a Developing Market
The Company currently derives a significant portion of its revenue from
licenses for supply chain planning software and related services. However, the
Company is investing significant resources in developing and marketing broader
functionality with its e-commerce technology. The market for this broader
functionality may not develop, or competitors might develop superior
technologies, products, or both, each of which could have a material adverse
effect upon the Company's business, operating results, financial condition, and
cash flows.
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 largely on its ability to
maintain and enhance its products, develop new products that achieve market
acceptance, maintain technological competitiveness, and meet an expanding and
evolving range of client 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, 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 prospective clients and achieve market acceptance. If the
Company is unable, for technological or other reasons, to successfully develop
and introduce new products or product enhancements, the Company's business,
operating results, financial condition, and cash flows could be materially
adversely affected.
The Company's software products incorporate some software code from
third-party affiliates. There can be no assurance that the Company will be able
to continue to use these third-party software codes nor that the Company will be
able to identify, license, and integrate replacement products.
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 clients, 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, financial
condition, and cash flows.
20
<PAGE>
Lack of Product Diversification
The Company's future results depend on continued market acceptance of
supply chain planning 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 clients. Any reduction in demand or increase in competition in the
market for supply chain planning software products could have a material adverse
effect on the Company's business, operating results, financial condition, and
cash flows.
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,
confidentiality agreements with employees, nondisclosure and other contractual
requirements imposed on its clients, consulting partners and others, and other
methods to protect proprietary rights in its products. There can be no assurance
that these protections will adequately 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.
Expansion of Indirect Channels
The Company is developing and maintaining significant working
relationships with complementary vendors, such as ERP system vendors, and
consulting firms that the Company believes can play an important role in
marketing the Company's products. The Company is currently investing, and
intends to continue to invest, resources to develop these relationships. 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, that they will be
qualified to provide timely and cost-effective client support and service, or
that current partners will continue to promote and/or license the Company's
solutions. In addition, difficulties experienced by these complementary vendors
in selling the Company's products and services may adversely affect the
Company's results of operations. Furthermore, 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. Certain ERP system vendors have acquired supply chain
planning software companies, products, or functionality or have announced plans
to develop new products or to incorporate additional functionality into their
current products that would compete with the Company's 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 operating margins because of the lower unit prices
that the Company receives when selling through indirect channels.
21
<PAGE>
International Operations
The Company currently conducts operations in a number of countries in
Europe, Asia/Pacific, and South America which requires significant management
attention and financial resources. If these operations are unable to generate,
maintain, or increase demand for the Company's products, then the Company's
operating results could be adversely affected. Certain risks are inherent in
international operations. Although the majority of the Company's contracts are
denominated in U.S. currency, most of the revenues from sales outside the United
States have been denominated in foreign currencies, typically the local currency
of the Company's business unit. 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 fluctuations. In connection with transactions denominated
in foreign currency, the Company has taken steps to minimize the risks
associated with such foreign currency in the past and might take such steps in
similar circumstances in the future. With respect to the Company's international
sales that are U.S. dollar-denominated, currency fluctuations could make the
Company's products and services less price competitive. The Company's
international sales and operations might be adversely affected by the imposition
of government controls, changes in financial currencies (such as the unified
currency known as the European Monetary Unit), political and economic
instability, difficulties in staffing and managing international operations, and
general economic and currency exchange rate conditions in foreign countries.
Year 2000 Issues
A discussion of certain risks relating to Year 2000 issues is set forth
above in Item 2 under "Liquidity and Capital Resources-Year 2000 Compliance."
Risks Associated With the European Monetary Union ("EMU")
The Company's foreign exchange exposure to legacy sovereign currencies
of the participating countries in the EMU will include foreign exchange
exposures to the European Monetary Unit ("Euro") upon its introduction. To the
extent impacted hedging transactions are entered into for exposures after
January 1, 1999, they will be denominated in Euros as applicable. Although the
Company is not aware of any material adverse financial risk consequences of
the change from legacy sovereign currencies to the Euro, conversion may result
in problems, which may have an adverse impact on the Company's business since
the Company may be required to incur unanticipated expenses to remedy these
problems.
Recent Senior Management Changes
As previously reported, the Company has experienced recent significant
changes in its senior management team in this fiscal quarter. In the fiscal
quarter ending May 31, 1999, William M. Gibson, the Company's Chairman, Chief
Executive Officer and President, recently resigned the offices of Chief
Executive Officer and President. Gregory J. Owens became Chief Executive Officer
and President in April 1999. Jeffrey L. Holmes and Eric J. Hughey have recently
been promoted to serve as Senior Vice President, North American Sales Operations
and Senior Vice President, Supply Chain Products, respectively. Kenneth S.
Thompson, Executive Vice President, resigned effective May 1999. Subsequent to
the end of the first quarter the Company hired Terrence A. Austin as Executive
Vice President, Electronics and High Technology and Richard F. Bergmann,
Executive Vice President, Global Sales and Services. The Company anticipates
that it will attract additional senior management in the near future.
22
<PAGE>
The Company's success depends on the ability of its management team to
work together effectively. The Company's business, revenues and financial
condition will be materially adversely affected if its new senior management
team does not manage the Company effectively or if it is unable to attract
additional senior management in a timely manner or retain existing senior
management personnel.
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, cash flows, and financial condition. The Company does not
have employment contracts which provide for a term of employment with any of its
executive officers, other than its Chief Executive Officer and President,
Gregory J. Owens and does not maintain key person insurance for any of its
executive officers, other than for Mr. Owens. 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 such personnel is intense, and there can
be no assurance that the Company can attract, assimilate, or retain such
personnel in the future. In addition, the Company's financial performance has
resulted in a reduction in the Company's stock price and has reduced or
eliminated the financial benefit of stock options granted to employees. The
Company has experienced an increased rate of attrition in its employee base in
the past year. If the Company continues to lose talented personnel in key
positions and is unable to replace such personnel in a timely manner, the
Company's business, operating results, and financial condition could be
adversely affected.
Real Estate Commitments
The Company entered into an agreement to lease a new office building of
approximately 300,000 square feet. However, as a result of the restructuring,
the Company no longer needs additional space. The Company has signed an
agreement with the developer and other parties to terminate the original
agreement. See further details in the Notes to Condensed Consolidated Financial
Statements (Unaudited), specifically "Subsequent Event."
Restructuring of Operations
During the second half of fiscal 1999, the Company announced and began
to implement certain restructuring actions aimed at reducing its cost structure
and restoring profitability. Implementation of this restructuring involved
several risks, including the risk that by focusing on its core products that
meet the needs of the consumer-driven marketplace, the Company has increased its
dependence within these industries, reduced the sales and consulting
organizations, replaced members of its executive team, and consolidated many of
its office locations. Although the Company believes that the actions it has
taken in connection with the restructuring will contribute to reductions in the
Company's cost structure, there can be no assurance that such actions will
restore the Company to sustainable profitability. If the Company is unable to
effectively manage the changes in connection with the corporate-wide
restructuring, the Company's future operating results and financial condition
could be adversely impacted. Additional information relating to the
restructuring of operations may be found in Part I, Item 1 of this Form 10-Q in
the Notes to Condensed Consolidated Financial Statements - May 31, 1999
(unaudited) at Note 6 under the subheading "Restructuring," which information is
hereby incorporated by reference.
23
<PAGE>
Stock Option Re-pricing
To encourage employee retention, the Company offered to re-price
employee stock options other than those held by executive officers or directors
of the Company, effective February 1, 1999. The effect of this re-pricing
resulted in approximately 1.52 million shares being re-priced and the four year
vesting period starting over. The re-pricing may have a material adverse impact
on future financial performance based on the proposed amendment to the
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," which, if adopted without revision, could require the Company to
record expenses associated with the change in the price of these options.
Possible Volatility of Stock Price
Factors such as announcements of new products or technological
innovations by the Company or its competitors, as well as quarterly variations
in the Company's operating results, have caused and may cause the market price
of the Company's common stock to fluctuate significantly. In addition, the stock
market in recent years has experienced price and volume fluctuations which have
particularly affected the market prices of many high technology stock issues and
have often been unrelated or disproportionate to the operating performance
of such companies. These broad market fluctuations, as well as general economic
conditions, have at certain times, adversely affected the market price of the
Company's common stock and are likely to do so in the future.
Forward-Looking Statements
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of this Quarterly Report on Form 10-Q contains
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, sales and marketing efforts, technological
developments, new products, research and development activities, consulting
services, and similar matters. The Private Securities Litigation Reform Act of
1995 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 results or other expectations expressed in the Company's
forward-looking statements in this Quarterly Report or elsewhere. The risks and
uncertainties that may affect the business, operating results or financial
condition of the Company include those set forth above under "Factors That May
Affect Future Results" and the following:
Revenues for any period depend on the number, size, and timing of
license agreements. The number, size, and timing of license agreements depends
in part on the ability of the Company to hire and thereafter to train,
integrate, and deploy its sales force effectively. The size and timing of
license agreements is difficult to forecast because software sales cycles are
affected by the nature of the transactions, including the breadth of the
solution to be licensed and the organizational and geographic scope of the
licenses. In addition, the number, size, and timing of license agreements also
may be affected by certain external factors such as general domestic and
international business or economic conditions, including the effects of such
conditions on the Company's customers and prospects, or competitors' actions. A
small variation in the timing of software licensing transactions, particularly
near the end of any quarter or year, can cause significant variations in
software product license revenues in any period.
24
<PAGE>
The Company believes that the market for supply chain planning software
continues to expand, although more slowly than in prior periods. However, if
market demand for the Company's products does not grow as rapidly as the Company
expects, revenue growth, margins, or both could be adversely affected. If
competitors make acquisitions of other competitors or establish cooperative
relationships among themselves or with third parties to enhance the ability of
their products to address the supply chain planning needs of prospects and
customers, or if ERP or other software vendors that have announced plans to
develop or incorporate functionality that could compete with the Company's
products successfully develop and market such functionality, revenue growth
could be adversely affected.
There can be no assurance that the Company will be able to attract
complementary 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 services. In
addition, there can be no assurance that a sufficient number of organizations
will continue their involvement with the Company and its products, and the loss
of current relationships with important organizations could materially adversely
affect the Company's results of operations.
Statements regarding the Company's or management's beliefs or estimates
as to the adequacy and effectiveness of the Company's Year 2000 efforts, when
the various phases or components of its Year 2000 efforts will be completed, and
the costs of such efforts, are based upon management's best estimates, which
were derived using certain assumptions, including the continued availability of
resources, adequacy and timeliness of third party modification or replacement
plans and other factors. Specific factors that might cause differences between
the estimates and actual results include, but are not limited to, the
availability and cost of personnel trained in these areas, the ability to locate
and correct all relevant computer code, timely responses to and corrections by
suppliers and other third parties, the ability to implement interfaces between
the new systems and the systems not being replaced and other similar
uncertainties. Due to the general uncertainty inherent in the Year 2000 problem
resulting from the possible risks described in "Year 2000 Compliance" above,
there can be no assurance that the Company will be able to timely and
cost-effectively resolve problems associated with the Year 2000 issue that may
affect its operations and business or expose it to third party liability.
25
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Foreign Currency. In the three months ended May 31, 1999, the Company
generated approximately 30% of its revenues outside the United States and
Canada. International sales usually are made by the Company's foreign
subsidiaries in the local currencies and the expenses incurred by foreign
subsidiaries are denominated in the local currencies.
In certain circumstances, the Company enters into foreign currency
contracts with banking institutions to protect large foreign currency
receivables against currency fluctuations. When the foreign currency receivable
is collected, the contract is liquidated and the foreign currency receivable is
converted to U.S. dollars.
Interest rates. The Company manages its interest rate risk by
maintaining an investment portfolio of available-for-sale instruments with high
credit quality and relatively short average maturities. These instruments
include, but are not limited to, money-market instruments, bank time deposits,
and taxable and tax-advantaged variable rate and fixed rate obligations of
corporations, municipalities, and national, state and local government agencies,
in accordance with an investment policy approved by the Company's Board of
Directors. These instruments are denominated in U.S. dollars. The fair value of
securities held at May 31, 1999 was approximately $25.1 million.
The Company also holds cash balances in accounts with commercial banks
in the United States and foreign countries. These cash balances represent
operating balances only and are invested in short-term time deposits of the
local bank. Such operating cash balances held at banks outside the United States
are denominated in the local currency.
Many of the Company's investments carry a degree of interest rate risk.
When interest rates fall, the Company's income from investments in variable-rate
securities declines. When interest rates rise, the fair market value of the
Company's investments in fixed-rate securities declines. The Company attempts to
mitigate risk by holding fixed-rate securities to maturity, should its liquidity
needs force it to sell fixed-rate securities prior to maturity, the Company may
experience a loss of principal.
26
<PAGE>
PART II OTHER INFORMATION
Item 1. 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 may have
contractual disagreements with certain clients concerning the Company's products
and services. The Company has established accruals related to such matters that
are probable and reasonably estimable. In management's opinion, any liability
that may ultimately result from the resolution of these matters in excess of
amounts provided would not be likely to have a material adverse effect on the
financial position of the Company.
On March 7, 1997, the Company, as part of the acquisition of certain
assets of Information Resources, Inc. ("IRI"), entered into several agreements
with IRI, including a Data Marketing and Guaranteed Revenue Agreement
("Agreement") and an Asset Purchase Agreement ("Purchase Agreement"). The
Agreement sets forth the obligations of the parties with regard to revenues to
be paid to IRI from the sale by the Company of specified products. Under the
terms of the Agreement, the Company guaranteed revenue to IRI in a total amount
of $16.5 million over a period of years following execution of the Agreement via
three separate revenue streams. As part of the $16.5 million commitment, the
Company agreed to guarantee revenues to IRI in a total amount of $12 million
through three separate payments over an initial three (3) year period from
execution of the agreement ("First Revenue Stream").
In discussions with IRI with respect to the Company's refusal to make
payments of the First Revenue Stream, the Company asserted that its inability to
generate revenues from the sale of IRI's products (from which such First Revenue
Stream payments were to be derived), was directly attributable to the fact that
such products were impaired and were therefore not able to be sold. Under the
terms of the Agreement, impairment of the IRI products would constitute grounds
for restructuring or modifying the payment obligations with regard to the First
Revenue Stream. In such discussions, IRI disputed the Company's characterization
of its products as impaired. IRI disagreed, stating that no impairment existed,
or if one did, that any impairment had been corrected. As previously reported by
the Company, the parties discussed their disagreement over the impairment issue
until IRI filed a complaint in the Circuit Court of Cook County, Illinois on
January 15, 1999. The complaint alleges breach of the Agreement and seeks
damages in an amount in excess of $11.9 million, for the Company's alleged
failure or anticipatory failure to make guaranteed payments in the amount of $12
million. The complaint also alleges a breach of a separate Non-Competition and
Non-Solicitation Agreement, executed at the same time as the Agreement, seeking
damages in an amount in excess of $100,000. The Company filed a Motion to Stay
Proceedings and Compel Arbitration, which was granted as to the claim under the
Agreement and denied as to the claim under the Non-Competition and Non-
Solicitation Agreement. Arbitration proceedings have not yet commenced; the
civil action is in the early stages of discovery. It is not possible at this
time to predict the outcome of the arbitration or litigation or the amount or
nature of any loss. If the litigation is not resolved satisfactorily to the
Company, the Company's financial condition and results of operations could be
materially adversely affected.
On April 2, 1999, as previously reported by the Company on its Annual
Report on Form 10-K for the period ending February 28, 1999, the Company
received notice from IRI of the dismissal of the lawsuit filed against IRI by
Think Systems Corporation. Such dismissal was a condition precedent to the
27
<PAGE>
obligation of Manugistics Services, Inc. to proceed to a Second Closing pursuant
to the Purchase Agreement. IRI has requested that the parties proceed to such
Second Closing which relates to the transfer of ownership of certain assets from
IRI to Manugistics Services, Inc. Further, under the Agreement, the dismissal on
the Think Systems lawsuit triggers the commencement of a second revenue stream
under the Agreement. The second revenue stream represents a total guaranteed
revenue of $1.75 million for the first and second years following the Second
Closing and $2.25 million for the third revenue year following the Second
Closing.
28
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.32 Termination of Employment Agreement dated May 26, 1999,
between Manugistics, Inc. and Kenneth S. Thompson.
10.33(a)Termination Agreement dated June 16, 1999 by and among
Manugistics, Inc. Boston Properties Limited Partnership and
certain other parties.
10.33(b)Letter Agreement dated June 16, 1999, between Manugistics, Inc.
and Himes Associates, Ltd.
27 Financial Data Schedule
_____________________
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Manugistics Group, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MANUGISTICS GROUP, INC.
(Registrant)
Date: July 15, 1999 By: /s/ Gregory J. Owens
------------------------------------
Gregory J. Owens
President, Chief Executive Officer
Date: July 15, 1999 By: /s/ Peter Q. Repetti
------------------------------------
Peter Q. Repetti
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
30
<PAGE>
EXHIBIT 10.32
Manugistics, Inc.
2115 E. Jefferson Street
Rockville, Maryland 20852
TERMINATION OF EMPLOYMENT AGREEMENT
Date Presented: May 25, 1999
This Termination of Employment Agreement ("Agreement") is entered into by
Manugistics, Inc. ("Manugistics") and Ken Thompson ("you") who has been employed
since July, 1983. It is acknowledged that your last day of work will be May 28,
1999.. Both you and Manugistics agree to set forth the terms and conditions upon
which the employment relationship is to be terminated. You also agree that you
have received valuable and sufficient consideration for entering into this
Agreement. Any payment made by Manugistics after your last day worked will only
be made after there has been a signed agreement between the parties. The parties
agree to the following terms:
1. Termination Date.
Your Severance Period will begin on May 29, 1999 and continue through
February 25, 2000. You will not be required to perform company work during your
Severance Period except as otherwise noted in this Agreement. You will receive
your current base pay and benefits during the period May 30, 1999 through
November 26, 1999, a period of twenty six (26) weeks. You will receive Severance
pay during this twenty six (26) week period even if you should secure employment
with another employer. Your period of severance will continue from November 27,
1999 and through February 25, 2000 without pay and benefits except as provided
for in paragraph 1a. of the AGREEMENT.
Your termination of employment from Manugistics will be effective as of close of
business on your Termination Date, February 25, 2000. You will vest stock
options through your Termination Date.
1a. Extension of Severance Period with Pay and Benefits.
In the event you have not begun full time professional employment with
another employer by November 27, 1999, your severance pay and benefits will be
continued through February 25, 2000 (maximum 13 weeks), or until professional
employment begins with another employer, whichever occurs first. Occasional
"spot" consulting will not be considered professional employment under the terms
of paragraph 1a.
2. Reason for Termination.
It is mutually agreed by the parties that you have resigned your employment
with Manugistics in order to secure employment that is more aligned with
your career objectives and philosophy. Effective June 1, 1999, or sooner if
directed by the CEO, you will discontinue your official duties and
responsibilities as Executive Vice President of Manugistics, member of EXEC
and officer of Manugistics.
3. Severance Pay.
<PAGE>
a. Severance paychecks will be issued according to Manugistics' regular
payroll procedures. As part of severance payment, you agree to provide
reasonable transition assistance to Manugistics during the severance
period.
b. Manugistics may offset against any amounts due to you under this
Severance Agreement: (a) all amounts due from you to Manugistics; and (b)
the value of any property of Manugistics that is in your possession which
is not returned to Manugistics by the Severance Date.
4. Benefits.
a. You will receive all the benefits of employment with Manugistics that
you have in force as of the date of this Agreement. These benefits will
continue through your Termination Date, unless this Agreement specifically
provides otherwise. This Agreement will not affect any rights or
obligations you have otherwise accrued under Manugistics benefit plans,
including Manugistics Insurance Plans, and the Manugistics, Inc. 401(K)
Retirement Savings Plan. However, the terms of those Plans shall control
the termination of benefits under those plans. You will be eligible for
Short Term Disability and Good Health Subsidy until your Severance Period
begins. The Employee Assistance Plan (1-800-225-8451) is available to you
for six months following your Termination Date. PC Subsidy and Tuition
Assistance must have been approved by HRD prior to the date of this letter
to be considered. You may be eligible for unemployment compensation
benefits to the extent state law allows. Severance payments made to you
include all vacation, holiday entitlements and fully satisfy any claim you
may have for such benefit entitlements.
b. Following your Termination Date, you will be able to continue your
company health insurance plan as set forth under COBRA. To be eligible, you
must complete a timely COBRA application for coverage. Under COBRA law you
will be eligible for at least 18 months of coverage. You will be
responsible for payment of the full premium and administrative costs:
Standard Plan (approximately $215.91 per month for Employee only, $481.14
-------------
per month for Employee plus one dependent, or $630.83 per month for Family
coverage); HMO, (approximately $184.29 per month for Employee only, or
---
$497.60 per month for Family coverage). Insurance premiums are subject to
change as such changes would apply to other employees.
c. On request, Carl Di Pietro will meet with you regarding employment
sources and otherwise provide employment counseling. Based on your
performance to date, you are eligible for reemployment with Manugistics
should a suitable opportunity exist.
d. You will be required to exercise vested stock options that may be due
you within thirty (30) days following your Termination Date, or such
options will be forfeited.
e. To assist you in your job search, you may retain your notebook
computer. Please provide the Manugistics equipment number or serial number.
Your AT&T company calling card will be deactivated as of June 1, 1999.
During your Severance Period, you will be entitled to reimbursement of up
to $500 for long distance telephone calls, and to defray other job search
costs, that are required in your search for employment. Submit expense
reports to HRD for reimbursement in no less than $100 increments. To be
paid, expense reports must be submitted no later than 30 days following
your Termination Date.
5. Condition Precedent.
<PAGE>
All obligations of Manugistics under this Agreement are conditioned upon
your compliance with your obligations herein.
6. Termination Procedure.
a. You will comply with the duties and responsibilities noted in
Manugistics' termination procedures set forth in the on-line Employee
Encyclopedia and which the parties agree are a part of this Agreement.
These duties and responsibilities include, but are not limited to,
returning licensed manuals, proprietary information, computer
equipment/software, office keys, access cards, credit cards and paying off
Diner's Club in full. Your current voicemail and email shall continue until
July 1, 1999. Effective July 1, 1999, Manugistics will provide you with a
new voice mailbox so that you can receive employment related calls from
outside the Company. On or before your Termination Date, the new voice
mailbox , may be deactivated at the discretion of the company or at your
request. You agree to remove your personal property from and leave
Manugistics premises, during regular Manugistics' business hours, on or
before June 15, 1999 unless there is mutual agreement to extend this period
of time.
7. Release of Claims.
a. Employee Release. You hereby release Manugistics and its directors,
officers, and employees from past and present claims based on acts or
omissions occurring before and as of today's date. These include, but are
not limited to, claims for salary, benefits, commissions and damages which
are directly or indirectly related to your employment by Manugistics or the
termination of your employment.
b. Manugistics Release. Manugistics and its directors, officers,
successors, agents and attorneys hereby release you and your heirs,
administrators, executors, representatives, agents and attorneys from past
and present claims based on acts or omissions occurring before and as of
today's date. These include, but are not limited to, breach of contract,
breach of duties, personal injury or torts, which are directly or
indirectly related to your employment by Manugistics or the termination of
your employment.
c. Limitation of Releases. The releases in this Section apply to your
employment or termination of your employment, but do not apply to claims
for breach of this Agreement.
d. In consideration of the severance benefits paid to Employee pursuant to
this Agreement, the Employee hereby releases Employer from any claims under
the Age Discrimination in Employment Act which arose prior to the execution
date of this Agreement. Employee should discuss any questions concerning
this waiver with an attorney of Employee's choice prior to executing this
Agreement. Employee shall have a period of forty five (45) days from the
date of this Agreement within which to consider this Agreement or
amendments thereto. Employee may revoke this Agreement for a period of
seven (7) days following its execution, and this Agreement shall not be
effective or enforceable until such seven-day revocation period has
expired.
8. Noninterference.
You agree to maintain a cooperative attitude toward Manugistics, not to
disrupt Manugistics ongoing business, and not to make disparaging remarks
about Manugistics. You agree to act in good faith in your conduct and to
refrain from any involvement in the business affairs of Manugistics except
as provided in this section or expressly directed by the CEO. Manugistics
agrees to act in good faith and not to make disparaging remarks about you.
<PAGE>
The press release announcing the employee's termination from Manugistics
must be jointly approved in advance by the employee and Manugistics.
9. Noncompete.
For three (3) months after Manugistics is obligated to make payments under
paragraph 1a of the Agreement, you agree not to directly or indirectly:
a. Solicit, attempt to solicit or contact for the purpose of soliciting for
employment (for you or for any other person or business) any employees of
Manugistics.
b. Solicit, attempt to solicit or contact for the purpose of soliciting
(for you or for any other person or business) any person or business which
was a customer of Manugistics during employment with Manugistics, or any
person or business to whom Manugistics had proposed future service within
the three (3) month period prior to May 28, 1999. The solicitation
restrictions of this paragraph apply to you if you are associated with or
representing, directly or indirectly, any interest with products and
services that are in direct competition with Manugistics. Under the terms
of paragraph 9 b., direct competition organizations are limited to 12, the
supply chain practice of SAP, Logility, J.D. Edwards, Synquest and Paragon.
c. Seek or accept employment with I2, SAP, Logility, J.D. Edwards,
Synquest and Paragon. Once you have decided on a new employer, you agree to
notify Manugistics' Director of Human Resources, in writing, with the
employer's name and address, date of employment, your new job title.
You understand that you cannot disclose any confidential information and/or
trade secrets of Manugistics as set out in your Conditions of Employment or
applicable law. Breach of any of the obligations in the Code of Conduct or
Conditions of Employment are deemed a breach of this AGREEMENT.
d. Both parties agree that your consent to your obligations under this
Noncompete Section is an important consideration for Manugistics to enter
into this Agreement and that these obligations are meant to protect
Manugistics confidential information which is a valuable asset and could be
used by its competitors to Manugistics detriment. You understand the value
of this provision to Manugistics, and you also agree that Manugistics may
not be able to fully protect its rights through money damages. Therefore,
you understand that Manugistics may seek injunctive relief in order to
ensure that this provision is enforced. If a court with proper jurisdiction
finds that this provision is too broad, both parties agree that the court
may limit it so that it may be enforced to the fullest extent possible.
10. Reaffirmation of Your Obligations.
You also agree to be available by telephone and in person until Termination
Date to the extent that Manugistics reasonably finds such necessary.
Questions you receive concerning the daily business affairs of Manugistics,
including questions from customers of Manugistics, should be promptly
referred to the CEO or his designee.
You agree to reaffirm the obligations under the Manugistics Employee Code
of Conduct and the Manugistics Conditions of Employment to which you have
been bound since your first day of employment by Manugistics. Receipt of
Manugistics payments and benefits as noted in this Agreement or elsewhere,
are subject to your full compliance with the Manugistics Code of Conduct
and Conditions of Employment.
<PAGE>
11. Entire Agreement.
This Agreement is the entire agreement between the parties with regard to
your employment with Manugistics, and the termination of your employment,
and supersedes all previous communications between you and Manugistics
relating to your employment or termination.
12. Confidentiality.
You hereby agree to keep the terms of this Agreement confidential and not
to disclose this Agreement with anyone other than your tax or legal
advisors, without Manugistics' consent which will not be unreasonably
withheld. Manugistics will only disclose the terms of this Agreement to its
tax and legal advisors and those Manugistics employees whose position
reasonably requires such knowledge.
13. Acknowledgment of Understanding.
YOU AGREE THAT YOU HAVE READ AND FULLY UNDERSTAND AND AGREE WITH THE TERMS
OF THIS AGREEMENT. YOU ALSO AGREE THAT YOU HAVE NOT BEEN COERCED IN ANY
MANNER WITH REGARD TO THIS AGREEMENT, AND HAVE AGREED TO THESE TERMS AFTER
FULL AND FAIR NEGOTIATION.
This Agreement is agreed to and accepted by:
YOU: MANUGISTICS:
By: /s/ Kenneth Thompson By: /s/ Carl Di Pietro
(Signature) (Signature)
Print Name: Kenneth Thompson Print Name: Carl Di Pietro
Title: Executive Vice President Title: Director, Human Resources
Date Signed: 5/20/99 Date Signed: 5.26.99
<PAGE>
EXHIBIT 10.33 (A)
TERMINATION AGREEMENT
---------------------
THIS TERMINATION AGREEMENT (this "Agreement") is made as of the ____
day of June, 1999, by and among (i) MANUGISTICS, INC. ("Manugistics"), a
Delaware corporation with its principal office in Rockville, Maryland; and (ii)
WASHINGTONIAN NORTH ASSOCIATES LIMITED PARTNERSHIP ("Washingtonian North"), a
Maryland limited partnership, BOSTON PROPERTIES, INC. ("BPI"), a Delaware
corporation, and BOSTON PROPERTIES LIMITED PARTNERSHIP ("BPLP"), a Delaware
limited partnership, each with its principal office in Boston, Massachusetts
(Washingtonian North, BPI and BPLP being referred to herein collectively as
"Boston Properties").
RECITALS
--------
A. BPLP and Manugistics entered into a Memorandum of Agreement dated
March 5, 1998 (the "Memorandum"), setting forth the basic terms and conditions
governing the ownership, development and leasing of a site known as
Washingtonian North, located in the City of Gaithersburg, Maryland, and
containing approximately 27.9787 acres of land (together with any improvements
thereon and appurtenances thereto, the "Property"). BPLP's interest in the
Memorandum was assigned to Washingtonian North pursuant to an Assignment and
Assumption of Memorandum of Agreement dated as of March 5, 1998.
B. Washingtonian North acquired the Property pursuant to that certain
Contract of Sale dated February 13, 1998, by and between Washingtonian
Associates, L.C., as seller ("Peterson"), and Manugistics, as buyer (as amended,
the "Contract"), and a Development Agreement between the same parties, also
dated February 13, 1998 (the "Development Agreement"), both as assigned to BPI
pursuant to the Memorandum and an Assignment and Assumption of Contract and
Development Agreement between Manugistics and BPI dated as of March 5, 1998, as
further assigned to BPLP pursuant to an Assignment and Assumption of Contract
and Development Agreement dated as of March 5, 1998, and as further assigned to
Washingtonian North pursuant to an Assignment and Assumption of Contract and
Development Agreement dated as of March 25, 1998.
C. Pursuant to the Memorandum, the following agreements were entered
into: (i) that certain Lease Agreement between Washingtonian North, as landlord,
and Manugistics, as tenant, dated as of March 26, 1998 (the "Lease"); (ii) that
certain Agreement for the Phased Development of Washingtonian North between
Washingtonian North and Manugistics dated as of March 26, 1998 (the "Phased
Development Agreement"); (iii) that certain Development Management Services
Agreement by and among Himes Associates, Ltd., as development manager ("Himes"),
BPLP, as owner's representative, Washingtonian North, as owner, and Manugistics,
as tenant, dated as of March 26, 1998 (the "Phase I Development Agreement") ;
and (iv) that certain Guaranty made by BPLP to Manugistics dated as of March 26,
1998 (the "Guaranty") (the Memorandum, the Lease, the Phased Development
Agreement, the Phase I Development Agreement and the Guaranty being referred to
herein collectively as the "Transaction Documents").
<PAGE>
D. Due to a change of circumstances, the parties have agreed not to
proceed with the development and leasing of the Property and other transactions
contemplated by the Transaction Documents (collectively, the "Transaction") and
have agreed to terminate the Transaction Documents and release one another from
their respective obligations thereunder on the terms and conditions set forth
herein.
E. Boston Properties has thus far incurred costs and expenses in
connection with the Transaction, including interest carry on such costs and
expenses, in the approximate aggregate sum of Six Million Dollars ($6,000,000),
but, as an accommodation for the purpose of expeditiously resolving the terms
upon which the Transaction Documents will be terminated, is willing to accept
the lesser sum of Three Million Five Hundred Thousand Dollars ($3,500,000),
payable in installments as set forth herein, in full and final satisfaction of
Manugistics' responsibilities to Boston Properties in connection with the
Transaction, but only on the condition that Manugistics makes all such
installment payments as and when due (subject to applicable cure periods as set
forth below) and otherwise fully complies with the terms of this Agreement. As
used herein, the term "Total Costs" means the sum of Six Million Dollars
($6,000,000).
F. Recognizing that the termination of the Transaction Documents gives
rise to a right of repurchase by Peterson under the Contract, the parties also
wish to set forth herein their agreement with regard to the effect that the
exercise by Peterson of such repurchase right would have upon the agreements set
forth herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises set
forth below, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Termination Payments. Manugistics hereby agrees to pay to Boston
--------------------
Properties the sum of Three Million Five Hundred Thousand Dollars ($3,500,000)
(the "Settlement Amount"), payable in installments in accordance with the
following payment schedule:
Installment Due Date
----------- --------
$1,500,000 June 21, 1999
250,000 September 30, 1999
250,000 December 31, 1999
250,000 March 31, 2000
312,500 June 30, 2000
312,500 September 30, 2000
312,500 December 31, 2000
312,500 March 31, 2001
Notwithstanding the foregoing, if either (i) Manugistics fails to make the first
installment payment due hereunder as and when due (Manugistics hereby expressly
waiving any right to any notice, grace or cure period with respect to such
payment); or (ii) Manugistics fails to make any other installment payment as and
when due and such failure is not cured within fifteen (15) days
2
<PAGE>
following the date notice thereof is given to Manugistics by Boston Properties
in accordance with the notice provisions hereof (a failure under either of
clause (i) or (ii) being referred to herein as an "Event of Default"), then the
entire amount of Total Costs, less any and all amounts paid by Manugistics to
Boston Properties on account of the Settlement Amount prior to the occurrence of
the Event of Default, plus interest accrued on the unpaid balance of the Total
Costs from June 1, 1999 to the date of payment at an annual rate (the "Interest
Rate") of two (2) percentage points in excess of the Prime Rate of interest from
time to time quoted in The Wall Street Journal, shall become immediately due and
payable hereunder. The Interest Rate shall be adjusted as of the effective date
of each change in the Prime Rate. In addition, following an Event of Default,
Manugistics shall be liable to Boston Properties for all costs of collection and
other costs and expenses (including, but not limited to, reasonable attorneys'
fees) incurred by Boston Properties in enforcing this Agreement, whether or not
suit is filed hereon. No payment made by Manugistics following an Event of
Default shall operate to cure any outstanding default, but all such payments
shall be applied by Boston Properties, without waiver of its rights, to
Manugistics' obligations hereunder.
2. Termination. Effective as of the date hereof, each of the Transaction
-----------
Documents, other than the Phase I Development Agreement, is hereby terminated,
and all rights, obligations and liabilities of the parties thereunder are hereby
released and discharged. Concurrently herewith or promptly following the
execution hereof, the Phase I Development Agreement is being or shall be
terminated and Boston Properties and Manugistics are being or shall be released
from their respective obligations thereunder pursuant to a separate Termination
Agreement substantially in the form attached hereto as Exhibit A (the "Himes
---------
Termination Agreement"). The parties hereto agree to work diligently and in good
faith to expeditiously reach agreement with Himes on the final form of and to
enter into the Himes Termination Agreement; however, the obligations of the
parties under this Agreement are independent of, and not contingent upon, such
agreement with Himes.
3. Peterson Repurchase Option.
--------------------------
(a) As a result of the termination of the Transaction Documents,
Boston Properties shall offer Peterson the right to repurchase the Property
pursuant to the terms of the repurchase option set forth in Section 34 of the
Contract, by giving Peterson a repurchase notice in the form attached hereto as
Exhibit B. The Contract provides that if Peterson exercises its repurchase
- ---------
option, Peterson is to pay to Boston Properties at the closing of the repurchase
(the "Closing Date") the sum of (x) Actual Costs (as defined in the Contract);
and (z) interest accruing on Actual Costs until the Closing Date, calculated as
provided in the Contract ("Interest on Actual Costs"). Among the costs included
in Actual Costs are (A) the Purchase Price paid to Peterson pursuant to (and as
defined in) the Contract; and (B) the Five Million Five Hundred Thousand Dollar
($5,500,000) payment (the "Overpass Contribution") that was made by Boston
Properties pursuant to the Development Agreement as its contribution to the
costs of the Interchange Work more particularly described (and defined) in the
Development Agreement. The parties hereto agree that if Peterson exercises its
repurchase option, then, as between Boston Properties and Manugistics, the sums
paid by Peterson shall be applied and credited as follows:
3
<PAGE>
(i) first, to Boston Properties on account of the Purchase
Price and the portion of Interest on Actual Costs
representing interest accrued on the Purchase Price;
(ii) second, to Boston Properties on account of the Overpass
Contribution and the portion of Interest on Actual Costs
representing interest accrued on the Overpass
Contribution;
(iii) third, to Boston Properties on account of Interest on
Actual Costs accruing between June 1, 1999 and the date of
payment by Peterson (to the extent not already credited
pursuant to clauses (i) or (ii) immediately above);
(iv) fourth, to Boston Properties and applied to the portion of
Total Costs that is in excess of the Settlement Amount;
(v) fifth, to Boston Properties and applied to reduce the
outstanding balance of the Settlement Amount;
(vi) sixth, to Manugistics to the extent of the aggregate
amount of any installment payments made by Manugistics to
Boston Properties hereunder; and
(vii) seventh, any remaining sums shall be the property of
Boston Properties.
Except as expressly stated above, Manugistics shall have no right to
receive any portion of the sums paid by Peterson to Boston Properties nor any
right to receive any sums that may be paid to Boston Properties in connection
with any other sale or other disposition of the Property.
(b) Boston Properties hereby agrees that if Peterson exercises its
repurchase option, Boston Properties will (i) use its reasonable and good faith
efforts to collect from Peterson the maximum sum to which Boston Properties is
entitled on account of the repurchase pursuant to the terms of the Contract; and
(ii) provide to Manugistics a full and complete accounting of the determination
of Actual Costs and the other sums payable by Peterson on account of the
repurchase.
4. Payment of Himes and other Contractors.
--------------------------------------
(a) Boston Properties has paid or will pay Himes development
management fees for the months of March and April 1999 in the amount of Ten
Thousand Dollars ($10,000.00) per month, plus reimbursable expenses of One
Hundred Eighty-Four Dollars and Eighty-Three Cents ($184.83), for a total
payment of $20,184.83. With respect to the contractors identified on Exhibit C
---------
attached hereto, whose complete and final invoices have not yet been provided,
Boston Properties agrees to pay such contractors the outstanding sums due such
4
<PAGE>
contractors, as approximately identified on Exhibit C, as and when complete
---------
invoices and back-up therefor are provided to Boston Properties.
(b) Boston Properties shall have no responsibility for payment of any
further development management fee or other fees or invoices owed or payable to
or claimed by Himes or any other contractor. Boston Properties and Manugistics
shall be released from all further obligations under the Phase I Development
Agreement pursuant to the Himes Termination Agreement. In addition, the parties
hereto agree to work diligently and in good faith to expeditiously obtain a
release substantially in the form attached hereto as Exhibit D, pursuant to
---------
which Boston Properties and Manugistics shall be released from any liability to
HOK (the base building architect named in the Phase I Development Agreement);
however, the obligations of the parties under this Agreement are independent of,
and not contingent upon, obtaining such release from HOK.
5. Release by Manugistics. Except as to obligations arising under this
----------------------
Agreement, Manugistics, for itself and its affiliates, officers, directors,
employees, shareholders, partners, successors, heirs, assigns, agents,
attorneys, and representatives, hereby forever and irrevocably releases,
remises, discharges, and acquits each of the entities comprising Boston
Properties and each of their respective affiliates, officers, directors,
shareholders, employees, partners, successors, heirs, assigns, agents,
subcontractors, attorneys, and representatives, from any and all claims,
actions, causes of action, demands, rights, damages and costs of whatsoever kind
or nature, whether at law, in equity, or mixed, whether known or unknown, based
on, arising out of or related to the Transaction Documents and all dealings
between Boston Properties and Manugistics relating to the Transaction Documents.
6. Release by Boston Properties. Except as to obligations arising under
----------------------------
this Agreement, each of the entities comprising Boston Properties, for itself
and each of its affiliates, officers, directors, employees, shareholders,
partners, successors, heirs, assigns, agents, attorneys, and representatives,
hereby forever and irrevocably releases, remises, discharges, and acquits
Manugistics and its affiliates, officers, directors, shareholders, employees,
partners, successors, heirs, assigns, agents, subcontractors, attorneys, and
representatives, from any and all claims, actions, causes of action, demands,
rights, damages and costs of whatsoever kind or nature, whether at law, in
equity, or mixed, whether known or unknown, based on, arising out of or related
to the Transaction Documents and all dealings between Boston Properties and
Manugistics relating to the Transaction Documents.
7. Remedies. Manugistics hereby expressly agrees that by execution of
--------
this Agreement, Manugistics shall have no further rights of any kind in or to
the Property and that any claims Manugistics may have arising hereunder shall be
enforced solely against Boston Properties and not against the Property.
Manugistics and Boston Properties each agrees that under no circumstances
(including in the event of a breach hereof) will it seek to rescind this
Agreement or otherwise attempt to reinstate the Transaction Documents.
8. Notices. All notices or other communications required hereunder shall
-------
be in writing and shall be delivered in person (with receipt therefor), or sent
by certified mail, return receipt
5
<PAGE>
requested, postage prepaid, or by facsimile transmission, to the following
addresses or facsimile numbers:
(i) if to Boston Properties, at:
Boston Properties, Inc.
500 E Street, SW
Washington, DC 20024
Attn: E. Mitchell Norville, Senior Vice President
facsimile no. 202-488-8644 (verify no. 202-646-7600);
with copies to:
Boston Properties, Inc.
500 E Street, SW
Washington, DC 20024
Attn: Regional General Counsel
facsimile no. 202-554-4167 (verify no. 202-646-7600);
and
Boston Properties, Inc.
8 Arlington Street
Boston, Massachusetts 02116
Attn: General Counsel
facsimile no. 617-536-4233 (verify no. 617-859-2600);
and
Shaw Pittman
2300 N Street, NW
Washington, DC 20037
Attn: Sheldon J. Weisel, Esq.
facsimile no. 202-663-8007 (verify no. 202-663-8096);
(ii) if to Manugistics, at:
Manugistics, Inc.
2115 East Jefferson Street
Rockville, Maryland 20852
Attn: Director of Operations
facsimile no. 301-984-5405 (verify no. 301-984-5000);
with copies to:
Manugistics, Inc.
6
<PAGE>
2115 East Jefferson Street
Rockville, Maryland 20852
Attn: General Counsel
facsimile no. 301-984-5144 (verify no. 301-984-5000);
and
Manugistics, Inc.
2115 East Jefferson Street
Rockville, Maryland 20852
Attn: Chief Financial Officer
facsimile no. 301-984-5223 (verify no. 301-984-5000);
and
Arter & Hadden LLP
1801 K Street, NW
Suite 400K
Washington, DC 20006
Attn: Philip M. Horowitz, Esq.
facsimile no. 202-857-0172 (verify no. 202-775-7988).
Either party may change its address for the giving of notices by notice given in
accordance with this Section. Notices given by any means other than by facsimile
shall be deemed given or received on the date actually received or, if refused,
on the date delivery was attempted and refused. Notices given by facsimile shall
be deemed given or received when confirmation of complete receipt is obtained by
the transmitting party during normal business hours or, if not confirmed during
normal business hours, on the next business day.
9. Confidentiality. The parties agree to keep the economic terms of this
---------------
Agreement strictly confidential and shall not disclose the same to any person or
entity except (1) as required by court order; (2) as necessary to enforce any
term of this Agreement; (3) as required to obtain tax, accounting, legal, or
regulatory advice or financing; or (4) as may be necessary or appropriate
(including by issuance of a press release) to comply with applicable laws,
including, without limitation, SEC and other governmental regulatory,
disclosure, tax and reporting requirements.
10. Miscellaneous.
-------------
a. This Agreement shall be governed by, and construed in
accordance with, the laws of the state of Maryland, without regard to its
conflict of law provisions, and shall be binding upon, inure to the benefit of,
and be enforceable by, the parties hereto and their respective officers,
directors, shareholders, affiliates, agents, employees, heirs, successors and
assigns.
b. Any dispute involving or alleging a breach of this Agreement
shall be brought only in a state or federal court of competent jurisdiction in
Maryland. Each party hereto hereby
7
<PAGE>
consents, and waives any objection to, personal jurisdiction and venue in the
state and federal courts of Maryland. If for any reason the state and federal
courts of Maryland decline to exercise jurisdiction or hear any such dispute,
then the dispute may be brought in any other court of competent jurisdiction.
c. This Agreement and the Exhibits referred to herein contain the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof. There are no other agreements or understandings
between the parties with respect to, and there have not been any contrary or
additional representations (express or implied) between the parties concerning,
the subject matter herein. No party shall be bound by any terms, covenants,
conditions or representations not expressly contained herein in writing, all of
which are agreed to be immaterial and none of which was relied upon by any party
entering into this Agreement.
d. This Agreement may be amended or modified only by a written
instrument duly executed by each of the parties hereto.
e. Each party acknowledges that the terms of this Agreement shall
survive the execution of the general releases set forth herein.
f. This Agreement is a negotiated document prepared by one party
as a matter of convenience and, in the event of any dispute between the parties,
the parties agree that it shall not be construed against or in favor of any
party solely as a consequence of such party's preparation, or lack of
preparation, of this Agreement.
g. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, and all of which, together, shall constitute
the same document.
h. Each of the parties hereto represents, warrants and agrees that
such party shall execute such instruments and perform such further acts as shall
be reasonably necessary to carry out the terms of this Agreement.
i. Each of the persons executing this Agreement on behalf of a
corporation hereby personally warrants and represents that he has been fully
authorized and empowered to execute this Agreement on behalf of such
corporation.
j. All of the parties to this Agreement represent that they have
read it, understand its terms and conditions, have consulted with legal counsel
regarding this Agreement, and voluntarily sign it after conferring with their
legal counsel.
k. If any provision of this Agreement is held invalid by a court
of competent jurisdiction, such provision shall be deemed to be restated to
reflect as nearly as possible the original intentions of the parties in
accordance with applicable law, and the remainder of this Agreement shall remain
in full force and effect as if the Agreement had been entered into with the
restated provision.
l. Time is of the essence hereof.
8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement under seal as of the date first above written.
MANUGISTICS, INC.,
a Delaware corporation
By: /s/ Peter Q Repetti
----------------------------
Name: PETER Q REPETTI
--------------------------
Title: SVP. CFO
-------------------------
(Seal)
BOSTON PROPERTIES, INC.,
a Delaware corporation
By: /s/ Raymond A. Ritchey
----------------------------
Name: Raymond A. Ritchey
--------------------------
Title: Executive Vice President
-------------------------
(Seal)
WASHINGTONIAN NORTH ASSOCIATES
LIMITED PARTNERSHIP
By: Boston Properties LLC, a Delaware
limited liability company, its General
Partner
By: Boston Properties Limited
Partnership, a Delaware limited
partnership, its Managing Member
By: Boston Properties, Inc., a
Delaware corporation, its
General Partner
By: /s/ Raymond A. Ritchey
-------------------------
Name: Raymond A. Ritchey
-----------------------
Title: Executive Vice President
-------------------------
(Seal)
9
<PAGE>
BOSTON PROPERTIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Boston Properties, Inc., a Delaware
corporation, its General Partner
By: /s/ Raymond A. Ritchey
----------------------------
Name: Raymond A. Ritchey
--------------------------
Title: Executive Vice President
---------------------------
(Seal)
EXHIBITS:
EXHIBIT A - Form of Himes Termination Agreement
- ---------
EXHIBIT B - Form of Repurchase Option Notice
- ---------
EXHIBIT C - Schedule of Contractors
- ---------
EXHIBIT D - Form of HOK Release
- ---------
10
<PAGE>
EXHIBIT A
---------
Form of Himes Termination Agreement
-----------------------------------
Himes Termination
SHAW PITTMAN 6-8-99 DRAFT
TERMINATION AGREEMENT
----------------------
THIS TERMINATION AGREEMENT (this "Agreement") is made as of the ____ day of
June, 1999, by and among MANUGISTICS, INC. ("Manugistics"), a Delaware
corporation with its principal office in Rockville, Maryland; WASHINGTONIAN
NORTH ASSOCIATES LIMITED PARTNERSHIP ("Washingtonian North"), a Maryland limited
partnership with its principal office in Boston, Massachusetts; BOSTON
PROPERTIES LIMITED PARTNERSHIP ("BPLP"), a Delaware limited partnership with its
principal office in Boston, Massachusetts (Washingtonian North and BPLP being
referred to herein collectively as "Boston Properties"); and HIMES ASSOCIATES,
LTD., a Virginia corporation with its principal office in Fairfax, Virginia
("Himes").
RECITALS
--------
A. Washingtonian North is the owner of a development parcel known as
Washingtonian North, located in the City of Gaithersburg, Maryland, and
containing approximately 27.9787 acres of land (the "Property"), which was to be
developed and leased to Manugistics pursuant to the following agreements: (i)
that certain Lease Agreement between Washingtonian North, as landlord, and
Manugistics, as tenant, dated as of March 26, 1998 (the "Lease"); (ii) that
certain Agreement for the Phased Development of Washingtonian North between
Washingtonian North and Manugistics dated as of March 26, 1998 (the "Phased
Development Agreement"); and (iii) that certain Development Management Services
Agreement by and among Himes, as development manager, BPLP, as owner's
representative, Washingtonian North, as owner, and Manugistics, as tenant, dated
as of March 26, 1998 (the "Phase I Development Agreement").
B. Due to a change of circumstances, Manugistics and Boston Properties
have agreed not to proceed with the development and leasing of the Property and
other transactions contemplated by the aforesaid agreements (collectively, the
"Transaction") and, pursuant to a separate Termination Agreement dated as of
June __, 1999 (the "BP/Manugistics Termination Agreement"), are terminating the
Lease, the Phased Development Agreement and certain other agreements entered
into in connection therewith (collectively, together with the Phase I
Development Agreement, the "Transaction Documents").
<PAGE>
C. Concurrently herewith, Himes and Manugistics are entering into a post-
termination agreement (the "Himes/Manugistics Agreement") setting forth the
rights and responsibilities of those two parties with respect to certain matters
arising out of the Phase I Development Agreement being terminated hereby.
D. The parties hereto, being all of the parties to the Phase I
Development Agreement, wish to terminate the Phase I Development Agreement and
release one another from their respective obligations thereunder on the terms
and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises set
forth below, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Termination. Effective as of the date hereof, the Phase I Development
-----------
Agreement is hereby terminated, and all rights, obligations and liabilities of
the parties thereunder are hereby released and discharged. As a result thereof,
effective as of the date hereof, no terms, provisions or agreements contained in
the Phase I Development Agreement, including, but not limited to, any provisions
regarding the survival of any terms thereof or any provisions regarding rights
and obligations upon termination, shall be of any further force or effect, and
all such terms, provisions and agreements are hereby rendered null and void.
Further, following the date hereof, Himes shall have no further responsibilities
for maintenance of insurance, stabilization of the site or otherwise advancing
development of the Property from its current state.
2. Payment of Himes and other Contractors. Upon the execution hereof,
--------------------------------------
Boston Properties will pay Himes development management fees for the months of
March and April 1999 in the amount of Ten Thousand Dollars ($10,000.00) per
month, together with an expense reimbursement of One Hundred Eighty-Four Dollars
and Eighty-Three Cents ($184.83), for a total payment of $20,184.83, in full and
final payment of all sums due Himes under the Phase I Development Agreement.
Boston Properties hereby acknowledges and agrees that it has paid or will in due
course pay the sums due contractors pursuant to those certain Applications for
Payment numbered 8, 9 and 10 that have previously been submitted to Boston
Properties by Himes. With respect to the contractors identified on Exhibit A
---------
attached hereto, whose complete and final invoices have not yet been provided,
Boston Properties agrees to pay such contractors the outstanding sums due such
contractors, as approximately identified on Exhibit A, as and when complete
---------
invoices and back-up therefor are provided to Boston Properties. In addition,
Boston Properties agrees to replace the three (3) bonds that have been posted by
Hensel Phelps Construction Co. pursuant to its agreement with Himes. Boston
Properties shall have no responsibility for payment of any further development
management fee or other fees or invoices owed or payable to or claimed by Himes
or any other contractor claiming by, through or under Himes.
3. Release and Indemnification by Himes.
------------------------------------
(a) Except as to obligations of Manugistics arising under the
Himes/Manugistics Agreement and obligations arising hereunder, Himes, for itself
and its affiliates, officers, directors, employees, shareholders, partners,
successors, heirs, assigns, agents, attorneys, and
2
<PAGE>
representatives, hereby forever and irrevocably releases, remises,
discharges, and acquits Manugistics and each of the entities comprising Boston
Properties and each of their respective affiliates, officers, directors,
shareholders, employees, partners, successors, heirs, assigns, agents,
subcontractors, attorneys, and representatives, from any and all claims,
actions, causes of action, demands, rights, damages and costs of whatsoever kind
or nature, whether at law, in equity, or mixed, whether known or unknown, based
on, arising out of or related to the Phase I Development Agreement or any of the
other Transaction Documents or the dealings between or among Boston Properties,
Manugistics and/or Himes relating to any of such agreements.
(b) Himes hereby agrees to indemnify and hold harmless Manugistics and
each of the entities comprising Boston Properties and each of their respective
affiliates, officers, directors, shareholders, employees, partners, successors,
heirs, assigns, agents, subcontractors, attorneys and representatives, from any
and all claims, actions, causes of action, demands, rights, damages and costs of
whatsoever kind or nature, whether at law, in equity, or mixed, whether known or
unknown, asserted or claimed by contractors or other persons or entities engaged
by Himes or otherwise claiming by, through or under a written or oral agreement
or understanding with Himes and based on, arising out of or related to the
development of the Property, including, but not limited to, claims for services
or materials provided in connection therewith, but excluding the specific claims
for which Boston Properties has agreed to be responsible pursuant to the terms
of Paragraph 2 above and the obligations of Manugistics pursuant to the
Himes/Manugistics Agreement.
4. Release by Manugistics.
----------------------
(a) Except as to obligations of Himes arising under the
Himes/Manugistics Agreement and obligations arising hereunder, Manugistics, for
itself and its affiliates, officers, directors, employees, shareholders,
partners, successors, heirs, assigns, agents, attorneys, and representatives,
hereby forever and irrevocably releases, remises, discharges, and acquits Himes
and its affiliates, officers, directors, shareholders, employees, partners,
successors, heirs, assigns, agents, subcontractors, attorneys, and
representatives, from any and all claims, actions, causes of action, demands,
rights, damages and costs of whatsoever kind or nature, whether at law, in
equity, or mixed, whether known or unknown, based on, arising out of or related
to the Phase I Development Agreement or any of the other Transaction Documents
or the dealings between or among Boston Properties, Manugistics and/or Himes
relating to any of such agreements.
(b) Manugistics hereby agrees to indemnify and hold harmless Himes
and its affiliates, officers, directors, shareholders, employees, partners,
successors, heirs, assigns, agents, subcontractors, attorneys and
representatives, from any and all claims, actions, causes of action, demands,
rights, damages and costs of whatsoever kind or nature, whether at law, in
equity, or mixed, whether known or unknown, asserted or claimed by contractors
or other persons or entities engaged by Manugistics or otherwise claiming by,
through or under a written or oral agreement or understanding with Manugistics
and based on, arising out of or related to the development of the Property,
including, but not limited to, claims for services or materials provided in
connection therewith.
3
<PAGE>
5. Release by Boston Properties.
----------------------------
(a) Except as to obligations arising hereunder, each of the entities
comprising Boston Properties, for itself and its affiliates, officers,
directors, employees, shareholders, partners, successors, heirs, assigns,
agents, attorneys, and representatives, hereby forever and irrevocably releases,
remises, discharges, and acquits Himes and its affiliates, officers, directors,
shareholders, employees, partners, successors, heirs, assigns, agents,
subcontractors, attorneys, and representatives, from any and all claims,
actions, causes of action, demands, rights, damages and costs of whatsoever kind
or nature, whether at law, in equity, or mixed, whether known or unknown, based
on, arising out of or related to the Phase I Development Agreement or any of the
other Transaction Documents or the dealings between or among Boston Properties,
Manugistics and/or Himes relating to any of such Agreements.
(b) Boston Properties hereby agrees to indemnify and hold harmless
Himes and its affiliates, officers, directors, shareholders, employees,
partners, successors, heirs, assigns, agents, subcontractors, attorneys and
representatives, from any and all claims, actions, causes of action, demands,
rights, damages and costs of whatsoever kind or nature, whether at law, in
equity, or mixed, whether known or unknown, asserted or claimed by contractors
or other persons or entities engaged by Boston Properties or otherwise claiming
by, through or under a written or oral agreement or understanding with Boston
Properties and based on, arising out of or related to the development of the
Property, including, but not limited to, claims for services or materials
provided in connection therewith.
6. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the state of Maryland, without regard to its conflict of law
provisions, and shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective officers, directors,
shareholders, affiliates, agents, employees, heirs, successors and assigns.
(b) Any dispute involving or alleging a breach of this Agreement shall
be brought only in a state or federal court of competent jurisdiction in
Maryland. Each party hereto hereby consents, and waives any objection to,
personal jurisdiction and venue in the state and federal courts of Maryland. If
for any reason the state and federal courts of Maryland decline to exercise
jurisdiction or hear any such dispute, then the dispute may be brought in any
other court of competent jurisdiction.
(c) This Agreement and the Exhibit referred to herein contain the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof. There are no other agreements or understandings
between the parties with respect to, and there have not been any contrary or
additional representations (express or implied) between the parties concerning,
the subject matter herein. No party shall be bound by any terms, covenants,
4
<PAGE>
conditions or representations not expressly contained herein in writing, all of
which are agreed to be immaterial and none of which was relied upon by any party
entering into this Agreement.
(d) This Agreement may be amended or modified only by a written instrument
duly executed by each of the parties hereto.
(e) Each party acknowledges that the terms of this Agreement shall survive
the execution of the general releases set forth herein.
(f) This Agreement is a negotiated document prepared by one party as a
matter of convenience and, in the event of any dispute between the parties, the
parties agree that it shall not be construed against or in favor of any party
solely as a consequence of such party's preparation, or lack of preparation, of
this Agreement.
(g) This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, and all of which, together, shall constitute the same
document.
(h) Each of the parties hereto represents, warrants and agrees that such
party shall execute such instruments and perform such further acts as shall be
reasonably necessary to carry out the terms of this Agreement.
(i) Each of the persons executing this Agreement on behalf of a
corporation hereby personally warrants and represents that he has been fully
authorized and empowered to execute this Agreement on behalf of such
corporation.
(j) All of the parties to this Agreement represent that they have read it,
understand its terms and conditions, have consulted with legal counsel regarding
this Agreement, and voluntarily sign it after conferring with their legal
counsel.
(k) If any provision of this Agreement is held invalid by a court of
competent jurisdiction, such provision shall be deemed to be restated to reflect
as nearly as possible the original intentions of the parties in accordance with
applicable law, and the remainder of this Agreement shall remain in full force
and effect as if the Agreement had been entered into with the restated
provision.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement under seal as of the date first above written.
MANUGISTICS, INC.,
a Delaware corporation
By: ______________________________
Name: ___________________________
Title: __________________________
(Seal)
WASHINGTONIAN NORTH ASSOCIATES
LIMITED PARTNERSHIP
By: Boston Properties LLC, a Delaware
limited liability company, its General
Partner
By: Boston Properties Limited
Partnership, a Delaware limited
partnership, its Managing Member
By: Boston Properties, Inc., a
Delaware corporation, its
General Partner
By: ____________________
Name: __________________
Title: _________________
(Seal)
[Signatures Continue on Next Page]
6
<PAGE>
BOSTON PROPERTIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Boston Properties, Inc., a Delaware
corporation, its General Partner
By: ____________________________
Name: __________________________
Title: _________________________
(Seal)
HIMES ASSOCIATES, LTD.,
a Virginia corporation
By: _____________________________
Name: ___________________________
Title: __________________________
(Seal)
EXHIBITS:
EXHIBIT A - Schedule of Contractors
- ---------
7
<PAGE>
EXHIBIT A
---------
Schedule of Contractors
-----------------------
Contractor's Name Approximate Amount Due
- ----------------- ----------------------
Hensel Phelps Construction Co. $29,959.61
R.G. Vanderweil Engineers $ 7,460.00
Loiderman & Associates, Inc. $ 5,000.00
<PAGE>
EXHIBIT B
---------
Form of Repurchase Option Notice
--------------------------------
____________, 1999
Via Federal Express
- -------------------
Washingtonian Associates L.C.
12500 Fair Lakes Circle
Suite 400
Fairfax, VA 22033
Attention: Nancy Zabriskie McGrath, Esq.
Re: Repurchase Notice - 27.9787 acre parcel of land (the "Property") known as
Washingtonian North, located in Gaithersburg, MD and conveyed pursuant to
that certain Contract of Sale dated February 13, 1998, by and between
Washingtonian Associates L.C., as Seller, and Manugistics, Inc.
("Manugistics"), as Buyer, as assigned to Boston Properties, Inc., as
further assigned to Boston Properties Limited Partnership, and as further
assigned to Washingtonian North Associates Limited Partnership (as amended
and assigned, the "Contract")
Ladies and Gentlemen:
This is to notify you that the undersigned, Washingtonian North Associates
Limited Partnership ("Owner"), has terminated its agreements with Manugistics
for the development and leasing of the referenced Property for use as
Manugistics' headquarters facility. As a result, Owner desires to use the
Property for a use that is not "Buyer's Intended Use", as such term is defined
in Section 34 of the Contract, thus entitling you to repurchase the Property in
accordance with the terms of such Section 34. This notice constitutes the
Repurchase Notice required pursuant to Section 34 of the Contract.
The repurchase price, should you elect to exercise your right to
repurchase, shall be $_________________, representing the sum of Actual Costs
(as defined in the Contract) and interest thereon (calculated as specified in
the Contract), as more particularly detailed in Schedule A attached hereto.
----------
Section 34 of the Contract requires that, if you wish to exercise your
repurchase right, you are to notify the undersigned of such intent, in writing,
within thirty (30) days from your receipt of this notice, with settlement to
take place within sixty (60) days after such exercise of the repurchase right.
<PAGE>
If you have any questions concerning this matter, please call
_________________ at 202-646-7600.
Sincerely,
WASHINGTONIAN NORTH ASSOCIATES
LIMITED PARTNERSHIP
By: Boston Properties LLC, a Delaware limited
liability company, its General Partner
By: Boston Properties Limited
Partnership, a Delaware limited
partnership, its Managing Member
By: Boston Properties, Inc., a
Delaware corporation, its
General Partner
By: ___________________
Name:__________________
Title:_________________
(Seal)
Attachment:
Schedule A - Calculation of Repurchase Price
- ----------
cc: William J. Durkin, Jr., Esq. - via Federal Express
1101 23rd Street, NW
Washington, DC 20037
2
<PAGE>
EXHIBIT C
---------
Schedule of Contractors
-----------------------
Contractor's Name Approximate Amount Due
- ----------------- ----------------------
Hensel Phelps Construction Co. $29,959.61
R.G. Vanderweil Engineers $ 7,460.00
Loiderman & Associates, Inc. $ 5,000.00
<PAGE>
EXHIBIT D
---------
Form of HOK Release
-------------------
RELEASE
-------
THIS RELEASE (this "Release") is made as of the ____ day of _________,
1999, by HOK, a __________________ with its principal offices in
____________________________ ("HOK"), to and for the benefit of the following
(collectively, the "Released Parties"): MANUGISTICS, INC. ("Manugistics"), a
Delaware corporation with its principal office in Rockville, Maryland;
WASHINGTONIAN NORTH ASSOCIATES LIMITED PARTNERSHIP ("Washingtonian North"), a
Maryland limited partnership with its principal office in Boston, Massachusetts;
BOSTON PROPERTIES LIMITED PARTNERSHIP ("BPLP"), a Delaware limited partnership
with its principal office in Boston, Massachusetts (Washingtonian North and BPLP
being referred to herein collectively as "Boston Properties"); and HIMES
ASSOCIATES, LTD., a Virginia corporation with its principal office in Fairfax,
Virginia ("Himes").
RECITALS
--------
A. Washingtonian North is the owner of a development parcel known as
Washingtonian North, located in the City of Gaithersburg, Maryland, and
containing approximately 27.9787 acres of land (the "Property"), which was to be
developed and leased to Manugistics pursuant to the following agreements: (i)
that certain Lease Agreement between Washingtonian North, as landlord, and
Manugistics, as tenant, dated as of March 26, 1998 (the "Lease"); (ii) that
certain Agreement for the Phased Development of Washingtonian North between
Washingtonian North and Manugistics dated as of March 26, 1998 (the "Phased
Development Agreement"); and (iii) that certain Development Management Services
Agreement by and among Himes, as development manager, BPLP, as owner's
representative, Washingtonian North, as owner, and Manugistics, as tenant, dated
as of March 26, 1998 (the "Phase I Development Agreement").
B. Due to a change of circumstances, Manugistics and Boston Properties
have agreed not to proceed with the development and leasing of the Property and
other transactions contemplated by the aforesaid agreements (collectively, the
"Transaction") and, pursuant to termination agreements dated on or about the
date hereof, are terminating the aforesaid agreements.
C. In connection with the foregoing, any and all agreements or
understandings, written or oral, between HOK and Himes and/or any of the other
Released Parties relating to the development of the Property have been
terminated, and HOK wishes to confirm the same and release the Released Parties
from any and all liability in connection therewith, as hereinafter provided.
NOW, THEREFORE, in consideration of the sum of Ten Dollars and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned,
<PAGE>
HOK, hereby acknowledges and agrees that any and all agreements or
understandings, written or oral, between HOK and Himes and/or any of the other
Released Parties relating to the development of the Property have been
terminated, HOK has been paid all sums due in connection therewith, and any and
all rights, obligations and liabilities of the parties thereunder have been
released and discharged. Further, HOK, for itself and its affiliates, officers,
directors, employees, shareholders, partners, successors, heirs, assigns,
agents, subcontractors, subconsultants, attorneys, and representatives, hereby
forever and irrevocably releases, remises, discharges, and acquits Himes,
Manugistics, each of the entities comprising Boston Properties and each of their
respective affiliates, officers, directors, shareholders, employees, partners,
successors, heirs, assigns, agents, subcontractors, attorneys, and
representatives, from any and all claims, actions, causes of action, demands,
rights, damages and costs of whatsoever kind or nature, whether at law, in
equity, or mixed, whether known or unknown, based on, arising out of or related
to the development of the Property, any agreements or understandings, written or
oral, between HOK and Himes and/or any of the other Released Parties relating
thereto or the dealings between or among HOK, Himes and/or any of the other
Released Parties relating thereto.
IN WITNESS WHEREOF, the undersigned has duly executed this Release under
seal as of the date first above written.
HOK, a ___________________________
By: ______________________________
Name:_____________________________
Title: ___________________________
(Seal)
2
<PAGE>
EXHIBIT 10.33 (B)
[LETTERHEAD OF HIMES ASSOCIATED, LTD. APPEARS HERE]
June 16, 1999
MANUGISTICS, INC,
2115 East Jefferson Street
Rockville, Maryland 20852
ATTN: MR. PETER Q. REPETTI
RE: MANUGISTICS CENTER AT WASHINGTONIAN NORTH
TERMINATION AGREEMENT
Dear Pete,
This letter of agreement serves to confirm our discussions regarding the
termination of the above project. As a consequence of the termination of the
Lease and the Phased Development Agreement by and between Manugistics, Inc.
("Manugistics") and Washingtonian North Associates Limited Partnership
("Washingtonian North"), the Development Management Services Agreement among
Manugistics, Washington North, Boston Properties Limited Partnership and Himes
Associates, Ltd. ("Himes") and the program management services being performed
by Himes for Manugistics have been terminated by agreement of all applicable
parties.
This agreement sets forth the understanding of Manugistics and Himes resulting
from the termination of the Development Management Services Agreement and the
program management services.
1. A termination fee of $227,000, shall be paid to Himes in five equal
installments of $45,400.00 by Manugistics. The first payment shall be made
by Manugistics on June 16, 1999, with each succeeding installment being due
and payable on or before the first day of each month thereafter (i.e.,
---
July, August, September and October), beginning July 1, 1999.
2. Manugistics will enter into a separate multi-year agreement with Himes to
provide project management services in North America and, to the extent
Himes can demonstrate added value, for projects outside North America.
Please acknowledge your agreement with this letter of understanding by signing
below.
Sincerely,
/s/ Paul E. Himes
Paul E. Himes
President
ACCEPTED: MANUGISTICS, INC.
/s/ Peter Q. Repetti 6/16/99
- ----------------------------------------- -----------
Peter Q. Repetti, Chief Financial Officer Date
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE PERIOD ENDED MAY 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> MAY-31-1999
<CASH> 20,709
<SECURITIES> 25,050
<RECEIVABLES> 50,352
<ALLOWANCES> 3,587
<INVENTORY> 75
<CURRENT-ASSETS> 105,112
<PP&E> 42,259
<DEPRECIATION> 24,166
<TOTAL-ASSETS> 164,440
<CURRENT-LIABILITIES> 70,959
<BONDS> 409
0
0
<COMMON> 56
<OTHER-SE> 86,831
<TOTAL-LIABILITY-AND-EQUITY> 164,440
<SALES> 13,097
<TOTAL-REVENUES> 39,193
<CGS> 2,857
<TOTAL-COSTS> 25,458
<OTHER-EXPENSES> 6,994
<LOSS-PROVISION> 404
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> (138)
<INCOME-TAX> (170)
<INCOME-CONTINUING> 389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 389
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
