-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T6tFx7fLorMROOGsVhHMplGRNk87K3TiFGB2FF7decYrLwdrq7gIatWspq0jY8F2 lgMf7ap3bgPwNiz1WET2lQ== 0000950134-98-008811.txt : 19981116 0000950134-98-008811.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950134-98-008811 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: I2 TECHNOLOGIES INC CENTRAL INDEX KEY: 0001009304 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 752294945 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28030 FILM NUMBER: 98746367 BUSINESS ADDRESS: STREET 1: 909 E LAS COLINAS BLVD STREET 2: 16TH FL CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 2148606000 MAIL ADDRESS: STREET 1: 909 E LAS COLINAS BLVD STREET 2: 16TH FLOOR CITY: IRVING STATE: TX ZIP: 75039 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1998 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 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 - 28030 i2 TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 75-2294945 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 909 E. LAS COLINAS BLVD., 16TH FLOOR, IRVING, TEXAS 75039 (Address of principal executive offices) (Zip code) (214) 860-6000 (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 at least the past 90 days. Yes X No ----- ----- As of November 3, 1998, the Registrant had outstanding 71,248,016 shares of Common Stock, $.00025 par value. ---------- =============================================================================== 2 i2 TECHNOLOGIES, INC. TABLE OF CONTENTS
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998 3 Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1997 and 1998 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1998 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II OTHER INFORMATION Item 2. Changes in Securities 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 23
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, September 30, 1997 1998 ------------ ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents ........................................... $ 127,433 $ 95,456 Short-term investments .............................................. 14,538 67,463 Accounts receivable, net ............................................ 75,037 101,341 Prepaid and other current assets .................................... 3,836 6,184 Income tax receivable ............................................... 1,097 -- Deferred income taxes ............................................... 3,823 5,552 ---------- ---------- Total current assets ........................................... 225,764 275,996 Furniture and equipment, net .............................................. 20,895 25,637 Deferred income taxes and other assets .................................... 3,604 7,514 ---------- ---------- Total assets ................................................... $ 250,263 $ 309,147 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................................... $ 7,712 $ 8,779 Accrued liabilities ................................................. 26,411 40,717 Revolving line of credit ............................................ 657 -- Deferred revenue .................................................... 29,713 40,965 Income taxes payable ................................................ -- 1,260 Deferred income taxes ............................................... 230 -- ---------- ---------- Total current liabilities ...................................... 64,723 91,721 Deferred income taxes ..................................................... 1,780 216 ---------- ---------- Total liabilities .............................................. 66,503 91,937 ---------- ---------- Stockholders' equity: Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued .................................................... -- -- Common Stock, $0.00025 par value, 200,000,000 shares authorized, 67,810,274 and 70,875,264 shares issued and outstanding, respectively .................................. 17 18 Additional paid-in capital .......................................... 167,852 189,587 Deferred compensation ............................................... (1,125) (657) Retained earnings ................................................... 17,016 28,262 ---------- ---------- Total stockholders' equity ..................................... 183,760 217,210 ---------- ---------- Total liabilities and stockholders' equity ..................... $ 250,263 $ 309,147 ========== ==========
See accompanying notes. 3 4 i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1997 1998 1997 1998 ---------- ---------- ---------- ---------- Revenues: Software licenses .......................... $ 38,207 $ 59,775 $ 96,024 $ 157,406 Services ................................... 14,119 23,324 37,385 63,576 Maintenance ................................ 5,770 11,082 14,162 28,218 ---------- ---------- ---------- ---------- Total revenues ......................... 58,096 94,181 147,571 249,200 ---------- ---------- ---------- ---------- Costs and expenses: Cost of software licenses .................. 82 1,529 2,604 5,677 Cost of services and maintenance ........... 12,819 19,388 32,746 51,369 Sales and marketing ........................ 19,016 31,627 50,942 84,896 Research and development ................... 15,122 22,054 36,943 59,705 General and administrative ................. 5,785 8,710 15,864 22,976 In-process research and development and acquisition costs ........................ -- 560 5,649 7,044 ---------- ---------- ---------- ---------- Total costs and expenses ............... 52,824 83,868 144,748 231,667 ---------- ---------- ---------- ---------- Operating income ................................. 5,272 10,313 2,823 17,533 Other income, net ................................ 777 1,774 2,231 5,163 ---------- ---------- ---------- ---------- Income before income taxes ....................... 6,049 12,087 5,054 22,696 Provision for income taxes ....................... 2,782 4,870 2,349 11,450 ---------- ---------- ---------- ---------- Net income ....................................... $ 3,267 $ 7,217 $ 2,705 $ 11,246 ========== ========== ========== ========== Net income per share ............................. $ 0.05 $ 0.10 $ 0.04 $ 0.16 Net income per share, assuming dilution .......... $ 0.05 $ 0.10 $ 0.04 $ 0.15 Weighted average common shares outstanding ....... 62,724 70,325 61,858 69,560 Weighted average common shares outstanding, assuming dilution .......................... 71,028 75,233 70,277 76,207
See accompanying notes. 4 5 i2 TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended September 30, ------------------------------- 1997 1998 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................ $ 2,705 $ 11,246 Adjustments to reconcile net income to net cash provided by operating activities: Write-off of in-process research and development ..... 907 4,379 Depreciation and amortization ........................ 3,576 7,269 Amortization of deferred compensation ................ 555 468 Deferred income taxes ................................ (1,139) (5,872) Tax benefit of stock options ......................... 5,810 12,932 Changes in operating assets and liabilities: Accounts receivable, net ......................... (18,416) (26,304) Income tax receivable/payable .................... (3,459) 2,357 Prepaid and other assets ......................... (2,020) (3,386) Accounts payable ................................. 3,052 1,067 Accrued liabilities .............................. 14,595 13,906 Deferred revenue ................................. 8,207 11,252 ---------- ---------- Net cash provided by operating activities ... 14,373 29,314 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisition, net of acquired cash ................ (1,000) (1,822) Purchases of furniture and equipment ...................... (12,392) (11,983) Net purchases of short-term investments ................... (4,903) (52,925) ---------- ---------- Net cash used in investing activities ....... (18,295) (66,730) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments on revolving line of credit .................. (100) (657) Proceeds from sale of common stock and exercise of stock options ............................ 1,402 6,096 ---------- ---------- Net cash provided by financing activities ... 1,302 5,439 ---------- ---------- Net decrease in cash and cash equivalents ....................... (2,620) (31,977) Cash and cash equivalents at beginning of period ................ 41,390 127,433 ---------- ---------- Cash and cash equivalents at end of period ...................... $ 38,770 $ 95,456 ========== ==========
See accompanying notes. 5 6 i2 TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements include the accounts of i2 Technologies, Inc. and its wholly owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited interim condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring entries, except as discussed in Note 3) which, in the opinion of the Company's management, are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These financial statements should be read in conjunction with the audited supplemental financial statements and notes thereto for the three-year period ended December 31, 1997, included in the Company's Current Report on Form 8-K dated June 19, 1998. The results of operations for the three and nine months ended September 30, 1998 are not necessarily indicative of results that may be expected for any other interim period or for the full year. Certain prior year financial statement items have been reclassified to conform to the current year's format. 2. NET INCOME PER SHARE The Company computes net income per share in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Net income per share is based upon the weighted average number of common shares outstanding and excludes the effect of dilutive potential common stock from the exercise of stock options. Net income per share, assuming dilution, includes the effect of dilutive potential common stock from the exercise of stock options using the treasury stock method, except in loss periods where the effect would be antidilutive. All net income per share computations herein give retroactive effect to the exchange of shares in connection with the InterTrans Logistics Solutions ("ITLS") acquisition (see Note 3). In addition, share amounts for all prior periods presented herein have been restated to reflect the two-for-one stock split on June 2, 1998. 6 7 Reconciliations of the net income per share and net income per share, assuming dilution, computations for the three and nine months ended September 30, 1997 and 1998 are as follows (amounts in thousands, except per share amounts):
Three Months Ended Nine months Ended September 30, September 30, --------------------- --------------------- 1997 1998 1997 1998 -------- -------- -------- -------- NET INCOME PER SHARE: Weighted-average common shares outstanding ............. 62,724 70,325 61,858 69,560 ======== ======== ======== ======== Net income ............................................. $ 3,267 $ 7,217 $ 2,705 $ 11,246 ======== ======== ======== ======== Net income per share ................................... $ 0.05 $ 0.10 $ 0.04 $ 0.16 ======== ======== ======== ======== NET INCOME PER SHARE, ASSUMING DILUTION: Weighted-average common shares outstanding ............. 62,724 70,325 61,858 69,560 Common shares issuable on exercise of stock options, net of shares assumed to be repurchased ............. 8,304 4,908 8,419 6,647 -------- -------- -------- -------- Weighted-average common shares outstanding, assuming dilution ............................................ 71,028 75,233 70,277 76,207 ======== ======== ======== ======== Net income ............................................. $ 3,267 $ 7,217 $ 2,705 $ 11,246 ======== ======== ======== ======== Net income per share, assuming dilution ................ $ 0.05 $ 0.10 $ 0.04 $ 0.15 ======== ======== ======== ========
3. BUSINESS COMBINATIONS In April 1998, the Company completed the acquisition of ITLS. Under the terms of the agreement, the Company agreed to issue approximately 3.3 million shares of its common stock for all of the outstanding capital stock and all unexpired and unexercised options of ITLS. The ITLS acquisition was accounted for as a pooling of interests, and accordingly, the accompanying condensed consolidated financial statements give retroactive effect to the combination and include the combined operations of the Company and ITLS for all periods presented. In connection with the ITLS acquisition, the Company incurred expenses that included, among other things, investment banking, legal and accounting fees and expenses. In addition, in the second and third quarters of 1998, the Company completed acquisitions, accounted for using the purchase method, for an aggregate purchase price of $6.6 million, which included stock, cash, acquisition costs and the assumption of net liabilities. A portion of the purchase price of these transactions represented the value of in-process research and development and was expensed immediately. The total purchase price payable to the shareholders of the acquired company may increase in the future depending upon the achievement of certain revenue targets associated with the acquired or in-process technologies through the year 2000. For the nine months ended September 30, 1998, the total of all acquisition-related expenses resulted in a one-time charge to the Company's operating results of $7.0 million, or $0.09 per share, assuming dilution. The historical operations of the companies acquired in the second and third quarters of 1998 accounted for using the purchase method are not material to the Company's consolidated operations or financial position, and therefore, supplemental pro forma information has not been presented. The amounts allocated to in-process research and development were determined through established valuation techniques in the software industry and were expensed upon acquisition because technological feasibility had not been established and no alternative future uses existed. Research and development costs to bring the acquired technologies or products to technological feasibility are not expected to have a material impact on the Company's future results of operations, cash flows or liquidity. 7 8 In May 1997, the Company acquired Think Systems Corporation ("Think") and Optimax Systems Corporation ("Optimax"). Under the terms of these agreements, the Company issued approximately 7.7 million shares and approximately 2.7 million shares of its common stock for all the outstanding capital stock and all unexpired and unexercised options of Think and Optimax, respectively. These acquisitions were both accounted for as a pooling of interests. The Think product offerings broadened the Company's suite of decision support products by providing premium demand chain solutions, including an integrated line of flexible, client/server-based software applications, for sales, marketing and logistics departments representing a variety of industries including consumer packaged goods, high technology, pharmaceutical, apparel, automotive and other product-driven specializations. Optimax provided supply chain sequencing software using unique genetic algorithms for customer-driven, make-to-order manufacturing, further expanding the Company's suite of decision support products. For the nine months ended September 30, 1997, the Company incurred approximately $5.6 million in certain acquisition-related expenses in connection with the Think, Optimax and other business combinations. These costs included, among other things, investment banking, legal and accounting fees and expenses and the write-off of in-process research and development. In total, these expenses resulted in a one-time charge to the Company's operating results and reduced net income by $3.1 million, or $0.04 per share, assuming dilution, for the nine months ended September 30, 1997. 4. STOCK OPTION REPRICING PROGRAM In October 1998, the Company's Board of Directors authorized all employees, except executive officers, the right to exchange certain outstanding stock options for option grants with an exercise price of $13.9375 per share (the fair market value on the date of grant). As a condition to the repricing, the vesting period of each repriced option will restart as of the date of repricing. 5. RECENT ACCOUNTING PRONOUNCEMENTS In the second quarter of 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which requires derivatives be marked-to-market on an ongoing basis along with the underlying hedged items. This standard becomes effective in 2000. The effect on the Company is not expected to be material. Accounting standard SOP 98-1 was issued in the first quarter of 1998 and becomes effective January 1, 1999. It requires capitalization of costs incurred to acquire or develop software to be used internally. The Company expects to adopt the standard in the first quarter of 1999 for qualifying costs in that quarter and thereafter. The effect on the Company is not expected to be material. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve risks and uncertainties, such as statements concerning: growth and future operating results; developments in the Company's markets and strategic focus; new products and product enhancements; potential acquisitions and the integration of acquired businesses, products and technologies; strategic relationships; and future economic, business and regulatory conditions. Such forward-looking statements are generally accompanied by words such as "plan," "estimate," "expect," "believe," "should," "would," "could," "anticipate," "may" or other words that convey uncertainty of future events or outcomes. These forward-looking statements and other statements made elsewhere in this report are made in reliance on the Private Securities Litigation Reform Act of 1995. The section below entitled "Factors That May Affect Future Results" sets forth and incorporates by reference certain factors that could cause actual future results of the Company to differ materially from these statements. OVERVIEW The Company is the leading provider of client/server-based decision support software products for supply chain management and related applications. The Company also provides services such as consulting, training and maintenance related to these products. Supply chain management encompasses the planning and scheduling of manufacturing and related logistics, including demand forecasting, raw materials procurement, work-in-process, distribution and transportation across multiple enterprises. i2's client/server products, collectively known as RHYTHM, are designed to provide customers with an end-to-end decision support solution, enabling customers to model complex, multi-enterprise supply chains to rapidly generate integrated solutions to supply chain challenges such as demand volatility, production bottlenecks, supply interruptions and distribution alternatives. RHYTHM utilizes a unique, constraint-based methodology which simultaneously considers a broad range of factors -- from changing revenue forecasts to machine capabilities to individual customer commitments -- to optimize all aspects of the supply chain. Recently, the Company announced its new product direction to include not only the Electronic Business Process Optimization ("eBPO") of supply chain management, but also to encompass other significant business processes of its customers. These processes include customer service, financial optimization, product portfolio management, sales and marketing and others. The focus of the Company remains on providing decision support solutions to optimize forward-looking operations. 9 10 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentages that selected items in the unaudited Condensed Consolidated Statements of Income bear to total revenues. The period to period comparisons of financial results are not necessarily indicative of future results.
Three Months Ended Nine months Ended September 30, September 30, ---------------- ---------------- 1997 1998 1997 1998 ----- ----- ----- ----- Revenues: Software licenses ............................................ 65.8% 63.5% 65.1% 63.2% Services ..................................................... 24.3 24.7 25.3 25.5 Maintenance .................................................. 9.9 11.8 9.6 11.3 ----- ----- ----- ----- Total revenues ............................................ 100.0 100.0 100.0 100.0 ----- ----- ----- ----- Costs and expenses: Cost of software licenses .................................... 0.1 1.6 1.8 2.3 Cost of services and maintenance ............................. 22.1 20.6 22.2 20.6 Sales and marketing .......................................... 32.7 33.6 34.5 34.1 Research and development ..................................... 26.0 23.4 25.0 24.0 General and administrative ................................... 10.0 9.2 10.8 9.2 In-process research and development and acquisition costs .... -- 0.6 3.8 2.8 ----- ----- ----- ----- Total costs and expenses .................................. 90.9 89.0 98.1 93.0 ----- ----- ----- ----- Operating income ................................................. 9.1 11.0 1.9 7.0 Other income, net ................................................ 1.3 1.9 1.5 2.1 ----- ----- ----- ----- Income before income taxes ....................................... 10.4 12.9 3.4 9.1 Provision for income taxes ....................................... 4.8 5.2 1.6 4.6 ----- ----- ----- ----- Net income ....................................................... 5.6% 7.7% 1.8% 4.5% ===== ===== ===== =====
REVENUES The Company's revenues consist of software license revenues, service revenues and maintenance revenues. Software license revenues consist of sales of software licenses which, for periods subsequent to December 31, 1997, are recognized in accordance with the American Institute of Certified Public Accountants' Statement of Position ("SOP") 97-2, "Software Revenue Recognition". Under SOP 97-2, software license revenues are recognized upon execution of a contract and delivery of software, provided that the license fee is fixed and determinable, no significant production, modification or customization of the software is required and collection is considered probable by management. For periods prior to December 31, 1997, software license revenues were recognized in accordance with SOP 91-1, "Software Revenue Recognition." Under SOP 91-1, software license revenues were recognized upon execution of a contract and shipment of the software, provided that no significant vendor obligations remained outstanding, amounts were due within one year and collection was considered probable by management. The application of SOP 97-2 did not have a material impact on the Company's consolidated financial statements for the three and nine months ended September 30, 1998. However, because SOP 97-2 does not give specific implementation guidance and limited industry practice has been established regarding the provisions of SOP 97-2, there can be no assurance that SOP 97-2 will not have a material impact on the Company's revenue recognition in the future, which could be material to the Company's consolidated financial statements. Service revenues are primarily derived from fees for implementation, consulting and training services and are recognized as the services are performed. Maintenance revenues are derived from customer support agreements generally entered into in connection with initial license sales and subsequent renewals. Maintenance revenues are recognized ratably over the term of the maintenance period. Payments for maintenance fees are generally made in advance. 10 11 Total revenues increased 62% to $94.2 million in the quarter ended September 30, 1998 from $58.1 million in the quarter ended September 30, 1997. In the first nine months of 1998, total revenues increased 69% to $249.2 million from $147.6 million in the first nine months of 1997. The Company currently derives substantially all of its revenues from licenses associated with its RHYTHM suite of decision support products which includes demand planning, factory planning, supply chain planning, distribution planning, transportation planning and other supply chain management related applications as well as related services and maintenance. The Company expects that revenues from the RHYTHM suite of products will continue to account for substantially all of the Company's revenues in the foreseeable future. As a result of the Company's dependence on the continued market acceptance of the RHYTHM suite of products and enhancements thereto, there can be no assurance that total revenues will continue to increase at the rates experienced in prior periods, if at all. SOFTWARE LICENSES. Revenues from software licenses increased 56% to $59.8 million in the quarter ended September 30, 1998 from $38.2 million in the quarter ended September 30, 1997. In the first nine months of 1998, revenues from software licenses increased 64% to $157.4 million from $96.0 million in the first nine months of 1997. The significant increases in software license revenues were primarily due to an increased awareness of the benefits of supply chain management, growing market acceptance of the Company's software products and continued expansion into new geographic and vertical markets. To date, sales of software licenses have been derived principally from direct sales to customers. Although the Company believes that direct sales will continue to account for a majority of software license revenues, the Company's strategy is to increase the level of indirect sales activities. The Company expects that sales of its software products through sales alliances, distributors, resellers and other indirect channels will increase as a percentage of software license revenues. However, there can be no assurance that the Company's efforts to expand indirect sales will be successful. SERVICES. Revenues from services increased 65% to $23.3 million in the quarter ended September 30, 1998 from $14.1 million in the quarter ended September 30, 1997. In the first nine months of 1998, revenues from services increased 70% to $63.6 million from $37.4 million in the first nine months of 1997. The significant increases in the dollar amount of service revenues were primarily due to the significant increase in the number of RHYTHM licenses sold and a significant investment in the Company's consulting organization as a result of the increased demand for the Company's products. The increases were also due to an increase in the use of third-party consultants to provide implementation services to the Company's customers which has allowed the Company to more rapidly penetrate international markets. Service revenues as a percentage of total revenues have fluctuated, and are expected to continue to fluctuate on a period-to-period basis, based upon the demand for implementation, consulting and training services. MAINTENANCE. Revenues from maintenance increased 92% to $11.1 million in the quarter ended September 30, 1998 from $5.8 million in the quarter ended September 30, 1997. In the first nine months of 1998, revenues from maintenance increased 99% to $28.2 million from $14.2 million in the first nine months of 1997. The significant increases in the dollar amount of maintenance revenues were primarily due to the continued increase in the number of RHYTHM licenses sold and a high percentage of maintenance agreement renewals. The Company expects that the dollar amount of maintenance revenues will continue to increase. CONCENTRATION OF REVENUES. The Company generally derives a significant portion of its software license revenues in each quarter from a small number of relatively large sales. For example, in the second and third quarters of 1998 and in each quarter of 1997, one or more customers each accounted for at least 15% of total software license revenues. While the Company believes that the loss of any of these particular customers would not have a material adverse effect upon the Company's business, operating results or financial condition, an inability to consummate one or more substantial license sales in any future period could have a material adverse effect on the Company's operating results for that period. 11 12 INTERNATIONAL REVENUES. The Company's international revenues, primarily generated from customers located in Europe, Asia and Canada, in the three and nine months ended September 30, 1998, were approximately 17% and 19% of total revenues, respectively, compared to approximately 22% and 28% of total revenues, respectively, in the three and nine months ended September 30, 1997. The decreases in international revenues were due to a confluence of factors, including execution issues related to the previous international management team and the resulting international management reorganization in 1998 and overall weakness in certain international economies, primarily in the Asia-Pacific region, resulting in decreased levels of customer spending in those markets. The Company believes that continued growth and profitability will require expansion of its sales in international markets. In order to successfully increase the level of international sales, the Company has utilized and will continue to utilize substantial resources to expand existing international operations, establish additional international operations and hire additional personnel. COSTS AND EXPENSES COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of (i) commissions paid to third-parties in connection with joint marketing and other related agreements, (ii) royalty fees associated with third-party software included with sales of RHYTHM, (iii) the cost of user documentation and (iv) the cost of reproduction and delivery of the software. Cost of software licenses was $1.5 million and $0.1 million in the quarters ended September 30, 1998 and 1997, representing 3% and 0.2% of software license revenues, respectively. Cost of software licenses was $5.7 million and $2.6 million in the first nine months of 1998 and 1997, representing 4% and 3% of software license revenues, respectively. The increases in the dollar amount of the cost of software licenses were primarily due to an increase in commissions paid to third-parties in connection with joint marketing and other related agreements. COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists primarily of costs associated with implementation, consulting and training services. Cost of services and maintenance also includes the cost of providing software maintenance to customers such as hotline telephone support and packaging and shipping costs related to new releases of software and updated user documentation, none of which costs have been material to date. Cost of services and maintenance was $19.4 million and $12.8 million in the quarters ended September 30, 1998 and 1997, representing 56% and 64% of total services and maintenance revenues, respectively. Cost of services and maintenance was $51.4 million and $32.7 million in the first nine months of 1998 and 1997, representing 56% and 64% of total services and maintenance revenues, respectively. The increases in the dollar amount of cost of services and maintenance were primarily due to the increase in the number of consultants, product support and training staff and the increased use of third-party consultants to provide implementation services. The decreases in cost of services and maintenance as a percentage of total services and maintenance revenues were primarily due to the Company's ability to leverage its growing base of consultants, product support and training staff to serve its growing customer base. The Company expects to continue to increase the number of its consulting, product support and training personnel in the foreseeable future as a means to expand into different geographic and vertical markets. To the extent that the Company's license sales do not increase at anticipated rates, the hiring of additional personnel could adversely affect the Company's gross and operating margins. SALES AND MARKETING. Sales and marketing expenses consist primarily of personnel costs, commissions, office facilities, travel, promotional events such as trade shows, seminars and technical conferences, advertising and public relations programs. Sales and marketing expenses were $31.6 million and $19.0 million in the quarters ended September 30, 1998 and 1997, representing 34% and 33% of total revenues, respectively. These same expenses were $84.9 million and $50.9 million in the first nine months of 1998 and 1997, representing 34% and 35% of total revenues, respectively. The increases in the dollar amount of sales and marketing expenses were primarily due to (i) increased staffing as the Company established new domestic and international sales offices and expanded its existing direct sales force, (ii) increased sales commissions as a result of higher revenues and (iii) increased marketing and promotional activities. The Company expects to continue to increase its sales and marketing activities in order to expand its sales force, both domestically and internationally, and enter into new vertical markets. As a result, the Company believes that the dollar amount of sales and marketing expenses will continue to increase and sales and marketing expenses as a percentage of total revenues may also increase from the levels attained in the three and nine months ended September 30, 1998. 12 13 RESEARCH AND DEVELOPMENT. Research and development expenses were $22.1 million and $15.1 million in the quarters ended September 30, 1998 and 1997, representing 23% and 26% of total revenues, respectively. These same expenses were $59.7 million and $36.9 million in the first nine months of 1998 and 1997, representing 24% and 25% of total revenues, respectively. The increases in the dollar amount of research and development expenses were primarily due to the hiring of additional research and development personnel and other related costs incurred in connection with expanding the Company's research and development centers. The Company expects that the dollar amount of research and development expenses will continue to increase as the Company continues to invest in developing new products, applications and product enhancements for new vertical markets. In accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. To date, the establishment of technological feasibility of the Company's products and general release of such software have substantially coincided. As a result, software development costs qualifying for capitalization have been insignificant, and therefore, the Company has not capitalized any software development costs. GENERAL AND ADMINISTRATIVE. General and administrative expenses include the personnel and other costs of the finance, human resources, information systems, administrative and executive departments of the Company and the fees and expenses associated with legal, accounting and other requirements. General and administrative expenses were $8.7 million and $5.8 million in the quarters ended September 30, 1998 and 1997 representing 9% and 10% of total revenues, respectively. These same expenses were $23.0 million and $15.9 million in the first nine months of 1998 and 1997, representing 9% and 11% of total revenues, respectively. The increases in the dollar amount of general and administrative expenses were primarily the result of increased staffing and related costs associated with the growth of the Company's business. The decreases in general and administrative expenses as a percentage of total revenues were primarily due to the substantial increase in total revenues and the Company's ability to leverage its base of resources to support a larger organization. The Company expects that the dollar amount of general and administrative expenses will continue to increase in the foreseeable future. IN-PROCESS RESEARCH AND DEVELOPMENT AND ACQUISITION COSTS. In the recent past, the Company has sought to expand the depth of its current product offerings through various technology or business acquisitions. Some of these business combinations involve technology that is not yet determined to be technologically feasible and has no alternative future use in its current stage of development at the acquisition date. In such instances, in accordance with appropriate accounting guidelines, the portion of the purchase price allocated to in-process research and development is expensed immediately upon acquisition. Further, the final purchase price on certain transactions is ultimately dependent upon future events such as payouts based on the attainment of future revenue targets for the acquired products or technologies. Such future earnouts, if any, may be considered additional cost of the acquired company and would be allocated to in-process research and development, acquired technology, goodwill or a combination of the three, based on the initial valuation of the acquired and in-process technologies and resulting purchase price allocation. None of the business acquisitions accounted for using the purchase method of accounting in the first nine months of 1998 were material to the Company's results of operations or financial position, and therefore no separate disclosures have been made. In April 1998, the Company completed the acquisition of ITLS, which was accounted for as a pooling of interests. Additionally, in the second and third quarters of 1998, the Company completed other business acquisitions, accounted for using the purchase method, and a portion of the purchase prices was recorded as in-process research and development. For the nine months ended September 30, 1998, the Company incurred a total of $7.0 million in acquisition-related expenses, which included, among other things, investment banking, legal and accounting fees and expenses and the write-off of in-process research and development. See Note 3 of the Notes to Condensed Consolidated Financial Statements for further discussion. 13 14 In the first nine months of 1997, the Company completed an acquisition for a cash purchase price of $1.0 million. The acquisition was accounted for using the purchase method, and a substantial portion of the purchase price was recorded as in-process research and development. Also in the first nine months of 1997, the Company completed the acquisitions of Think and Optimax in transactions each accounted for as a pooling of interests. The Company incurred approximately $5.6 million in certain acquisition-related expenses in connection with these three business combinations, which were recorded in the second quarter of 1997. These costs included, among other things, investment banking, legal and accounting fees and expenses and the write-off of in-process research and development. See Note 3 of the Notes to Condensed Consolidated Financial Statements for further discussion. OTHER INCOME, NET Other income, net consists primarily of interest income on short-term investments and overnight repurchase agreements partially offset by interest expense. Other income, net was $1.8 million and $0.8 million in the quarters ended September 30, 1998 and 1997, representing 2% and 1% of total revenues, respectively. Other income, net was $5.2 million and $2.2 million in the first nine months of 1998 and 1997, representing 2% of total revenues in both periods. The increases in other income, net were primarily due to interest earned on higher balances of cash, cash equivalents and short-term investments resulting from improved operating cash flow and the net proceeds of the public offering of the Company's common stock that was completed in December 1997. PROVISION FOR INCOME TAXES The Company's effective tax rate for the three and nine months ended September 30, 1998 was 40% and 50%, respectively, compared to 46% for both the three and nine months ended September 30, 1997. The effective tax rate for the three and nine months ended September 30, 1998 and 1997 varied significantly from the U.S. statutory rate due primarily to the non-deductibility of certain acquisition-related expenses. Without these expenses, the Company's effective tax rate for the three and nine months ended September 30, 1998 would have been 38.5%. EARNINGS PER SHARE The Company's earnings per share are calculated in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". This method requires calculation of both earnings per share and earnings per share, assuming dilution. Earnings per share excludes the dilutive effect of common stock equivalents such as stock options, while earnings per share, assuming dilution includes such dilutive effects. For the three months ended September 30, 1998, the decrease in weighted average common shares outstanding, assuming dilution as compared to prior periods was due to a decreased number of in-the-money stock options as calculated by comparing the exercise prices of outstanding options to the average stock price for the period. As a result of the stock option repricing that occurred in October 1998, the fourth quarter 1998 share base may return to a more historical level. Future shares outstanding will be impacted by the following factors: (i) the ongoing issuance of common stock associated with stock option exercises; (ii) the issuance of common shares associated with the Company's employee stock purchase program; (iii) any fluctuations in the Company's stock price, which could cause changes in the number of common stock equivalents included in the earnings per share, assuming dilution computation; and (iv) the issuance of common stock to effect business combinations should the Company enter into such transactions. 14 15 LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has primarily financed its operations and met its capital expenditure requirements through cash flows from operations, long-term borrowings and sales of equity securities. The Company maintained a strong liquidity and financial position with $184.3 million of working capital as of September 30, 1998 as compared to $161.0 million as of December 31, 1997. The increase in working capital was primarily related to an increase in cash, cash equivalents and short-term investments to $162.9 million at September 30, 1998 from $142.0 million at December 31, 1997. Cash flows from operations were $29.3 million and $14.4 million for the nine months ended September 30, 1998 and 1997, respectively. Operating cash flows increased primarily due to increases in net income, deferred revenue and the tax benefit from stock option activity offset somewhat by an increase in accounts receivable. The tax benefit from stock option activity is primarily the result of disqualifying dispositions of stock acquired under the Company's stock plans. Accounts receivable, net of allowance for doubtful accounts, increased to $101.3 million at September 30, 1998 from $75.0 million at December 31, 1997. However, quarter-end days' sales outstanding decreased slightly to 98 days at September 30, 1998 from 103 days at December 31, 1997. Accounts receivable and days' sales outstanding can fluctuate for a variety of reasons including (i) the amount and timing of revenues earned; (ii) the Company's collection experience; (iii) the amount of receivables generated from international customers which generally have longer payment terms compared to customers in the United States and (iv) the number of large sales for which some amounts may not be due upon execution of the contract. The Company believes that the allowance for doubtful accounts at September 30, 1998 is adequate to cover any collection difficulties with respect to accounts receivable. However, a significant portion of the Company's accounts receivable are derived from sales of large licenses, often to new customers with whom the Company does not have a payment history. Accordingly, there can be no assurance that the allowance will be adequate to cover any receivables which are later determined to be uncollectible, particularly if one or more large receivables become uncollectible. Cash used in investing activities was $66.7 million for the nine months ended September 30, 1998 as compared to $18.3 million for the nine months ended September 30, 1997. The increase in cash used in investing activities was primarily due to the continued investment in financial instruments classified as short-term investments as a result of improved operating cash flows. At September 30, 1998, the Company did not have any material commitments for capital expenditures. Cash provided by financing activities was $5.4 million for the nine months ended September 30, 1998 as compared to $1.3 million for the nine months ended September 30, 1997. The increase in cash provided by financing activities was due to an increase in net proceeds received by the Company upon the exercise of stock options by its employees partially offset by the payment of the remaining balance on the Company's revolving line of credit. The Company may in the future pursue additional acquisitions of businesses, products and technologies, or enter into joint venture arrangements, that could complement or expand the Company's business. Any material acquisition or joint venture could result in a decrease to the Company's working capital depending on the amount, timing and nature of the consideration to be paid. In October 1998, the Company entered into a $15.0 million revolving credit agreement. Borrowings under the agreement bear interest at various customary market rates. The maximum borrowings available under the facility are reduced by the value of outstanding letters of credit issued by the lender on behalf of the Company. This facility contains customary restrictive covenants, including covenants requiring the Company to maintain certain financial ratios. The Company utilizes third-party vendor equipment, telecommunication products and software products that may or may not be Year 2000 compliant. Although the Company is currently taking steps to address the impact, if any, of the Year 2000 compliance issue surrounding such third-party products, failure of any critical technology components to be Year 2000 compliant may have an adverse impact on business operations or require the Company to incur unanticipated expenses to remedy any problems. See further discussion below in "Factors That May Affect Future Results". 15 16 The Company believes that existing cash and cash equivalent balances, short-term investment balances, available borrowings under the revolving credit agreement and potential cash flow from operations will satisfy the Company's working capital and capital expenditure requirements for at least the next twelve months. However, any material acquisitions of complementary businesses, products or technologies could require the Company to obtain additional equity or debt financing. There can be no assurance that such financing will be available on acceptable terms, if at all. FACTORS THAT MAY AFFECT FUTURE RESULTS Numerous factors may affect the Company's business and future results of operations. These factors include, but are not limited to, the potential for significant fluctuations in quarterly results; dependence on significant individual sales; competition; management of growth; product concentration; dependence on product line expansion; integration of recent acquisitions; potential future acquisitions; international operations and currency fluctuations; risks associated with strategic relationships; dependence upon key personnel; intellectual property and proprietary rights; use of licensed technology; complexity of software products; rapid technological change and new products; dependence on technical and implementation personnel; Year 2000 compliance issues; product liability claims; and volatility of stock price. The discussion below addresses some of these factors. For a more thorough discussion of these and other factors that may affect the Company's business and future results, see the discussion under the caption "Factors That May Affect Future Results" in Exhibit 99.2 to the Company's Current Report on Form 8-K dated June 19, 1998. POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS; DEPENDENCE ON SIGNIFICANT INDIVIDUAL SALES The Company's quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. Because the purchase of a decision support software solution generally involves a significant commitment of capital, the sales cycle associated with the purchase of the Company's products varies substantially and is subject to a number of significant risks, including customers' budgetary constraints, timing of budget cycles and concerns about the pricing or introduction of new products by the Company or its competitors, factors over which the Company has little or no control. Additional factors include foreign currency exchange rate fluctuations, the mix of direct or indirect sales, changes in joint-marketing relationships and changes in the Company's strategy. Furthermore, purchases of the Company's products may be deferred or canceled in the event of a downturn in any potential customer's business or the economy in general. The amount of revenues associated with particular licenses can vary significantly based upon the number of software modules purchased and the number of sites and users involved in the installation. The Company generally derives a significant portion of its software license revenues in each quarter from a small number of relatively large sales. For example, in the second and third quarters of 1998 and in each quarter of 1997, one or more customers each accounted for at least 15% of total software license revenues. While the Company believes that the loss of any of these particular customers would not have a material adverse effect on the Company's business, operating results or financial condition, an inability to consummate one or more substantial license sales in any future period could have a material adverse effect on the Company's operating results for that period. Moreover, similar to many other software companies, the Company typically realizes a significant portion of its software license revenues in the last month or even the last week of a quarter. The Company also believes that the tendency of customers to delay placing orders for software products until near the end of a quarter has become more pronounced in recent periods. As a result, small delays in customer orders can cause significant variability in the Company's license revenues and results of operations for any particular period. For all of the foregoing reasons, revenues are difficult to forecast. 16 17 The Company intends to continue to invest heavily in its sales and marketing, consulting and research and development organizations, and sets investment and expense levels based on expected future revenues. If revenues are below expectations, operating results and net income are likely to be adversely and disproportionately affected because a significant portion of the Company's expenses are not variable in the short term, and cannot be quickly reduced to respond to decreases in revenues. In addition, the Company may reduce prices or accelerate its investment in research and development efforts in response to competition or to pursue new market opportunities. Any one of these activities may further limit the Company's ability to adjust spending in response to fluctuations in revenue levels. There can be no assurance that revenues will grow in future periods, that they will grow at historical rates, or that the Company will maintain positive operating margins in future quarters. The Company's quarterly results of operations are subject to certain seasonal fluctuations. Historically, the Company's revenues have tended to be strongest in the fourth quarter of the year and to increase only modestly in the first quarter of the following year. The Company believes that this seasonality is due to the calendar year budgeting cycles of many of its customers and to compensation policies that tend to compensate sales personnel for achieving annual revenue quotas. The Company expects that in future periods these seasonal trends may cause first quarter revenues to remain consistent with, or decrease from, the level achieved in the preceding quarter. COMPETITION The markets in which the Company operates are highly competitive. The Company's competitors are diverse and offer a variety of solutions directed at various segments of the supply chain as well as the enterprise as a whole. Competitors include: (i) enterprise resource application software vendors such as SAP AG ("SAP"), PeopleSoft, Inc., Oracle Corporation and Baan Company N.V., each of which currently offers sophisticated ERP solutions that currently or may in the future incorporate supply chain management modules or advanced planning and scheduling software; (ii) other suppliers of supply chain software including Manugistics Group, Inc. and Logility, Inc.; (iii) other business application software vendors who may broaden their product offerings by internally developing, or by acquiring or partnering with independent developers of, advanced planning and scheduling software; (iv) internal development efforts by corporate information technology departments; and (v) companies offering standardized or customized products for mainframe and/or mid-range computer systems. In connection with specific customer solicitations, a number of ERP vendors have from time to time jointly marketed the Company's products as a complement to their own systems. The Company believes that as its market share increases, and as the ranges of products offered by the Company and these ERP vendors expand and increasingly overlap, relationships which were cooperative in the past will become more competitive, thereby increasing the overall level of competition the Company faces. Specifically, in 1997, the Company and SAP terminated a license and distribution agreement, and SAP announced its intention to develop a suite of advanced planning and scheduling products, which are expected to be directly competitive with RHYTHM. The Company believes that additional ERP vendors are focusing significant resources on increasing the functionality of their own planning and scheduling modules, and at least two ERP vendors have recently acquired independent developers of advanced planning and scheduling software which compete with RHYTHM. Many of the Company's competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater name recognition, a broader range of products to offer and a larger installed base of customers than the Company, each of which could provide them with a significant competitive advantage over the Company. In addition, the Company expects to experience increasing price competition as the Company and its competitors compete for market share. There can be no assurance that the Company will be able to compete successfully with existing or new competitors or that competition will not have a material adverse effect on the Company's business, operating results and financial condition. 17 18 INTEGRATION OF RECENT ACQUISITIONS; POTENTIAL FUTURE ACQUISITIONS In the first nine months of 1998, the Company completed the acquisitions of ITLS and other software companies. The success of these and all of the Company's acquisitions depends primarily on the Company's ability to (i) retain, motivate and integrate the acquired personnel with the Company's operations, (ii) integrate multiple information systems and (iii) integrate acquired software with RHYTHM. No assurance can be given that the Company will not encounter difficulties in integrating the respective operations and products of the Company and the recently acquired companies, or that the benefits expected from such integration will be realized. Failure to successfully integrate the recently acquired companies' operations and products into the Company's operations and products could have a material adverse effect on the Company's business, operating results and financial condition. The Company may in the future pursue additional acquisitions of businesses, products and technologies, or enter into joint venture arrangements, that could complement or expand the Company's business. The negotiation of potential acquisitions or joint ventures as well as the integration of an acquired business, product or technology could cause diversion of management's time and resources. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, amortization of goodwill and other intangibles, research and development write-offs and other acquisition-related expenses. Further, no assurances can be given that any acquired business will be successfully integrated with the Company's operations. If any such acquisition were to occur, there can be no assurance that the Company will receive the intended benefits of the acquisition. Future acquisitions, whether or not consummated, could have a material adverse effect on the Company's business, operating results and financial condition. INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS The Company believes that continued growth and profitability will require expansion of its sales in international markets. Further penetration of international markets will require the Company to expand existing foreign operations, to establish additional foreign operations and to translate its software and manuals into additional foreign languages. This expansion may be costly and time-consuming and may not generate returns for a significant period of time, if at all. To the extent that the Company is unable to expand its international operations or translate its software and manuals into foreign languages in a timely manner, the Company's ability to further penetrate international markets would be adversely affected, which could have a material adverse effect on the Company's business, results of operations and financial condition. The Company's international operations are subject to risks inherent in international business activities, including: difficulty in staffing and managing geographically disparate operations; longer accounts receivable payment cycles in certain countries; compliance with a variety of foreign laws and regulations; unexpected changes in regulatory requirements; overlap of different tax structures; greater difficulty in safeguarding intellectual property; import and export licensing requirements; trade restrictions; changes in tariff rates; and general economic conditions in international markets. In particular, countries in the Asia-Pacific region have recently experienced weaknesses in their currency, banking and equity markets. In the future, these weaknesses could adversely affect the demand for the Company's products, the U.S. dollar value of the Company's foreign currency denominated sales and ultimately the Company's results of operations. There can be no assurance that the Company's business, results of operations or financial condition will not be adversely affected by these or other factors related to international operations. To date, the Company's revenues from international operations have primarily been denominated in United States dollars. As a result, the Company's sales in international markets may be adversely affected by a strengthening United States dollar. Certain sales and the majority of the expenses incurred by the Company's international operations are denominated in currencies other than the United States dollar. In addition, with the expansion of international operations, the number of foreign currencies in which the Company must operate will increase, resulting in increased exposure to exchange rate fluctuations. The Company has implemented limited hedging programs to mitigate its exposure to currency fluctuations. Notwithstanding these hedging programs, exchange rate fluctuations have caused and will continue to cause currency transaction gains and losses. While such currency transaction gains and losses have not been material to date, there can be no assurance that currency transaction losses will not have a material adverse effect on the Company's business, results of operations or financial condition in future periods. 18 19 COMPLEXITY OF SOFTWARE PRODUCTS; RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS RHYTHM is a client/server solution which can operate on hardware platforms from Digital Equipment, Hewlett-Packard, IBM and Sun Microsystems and operating systems from Sun Microsystems and Microsoft, and can access data from most widely used SQL (structured query language) databases, including Informix, Oracle and Sybase. To the extent that additional hardware or software platforms gain significant market acceptance, the Company may be required to port RHYTHM to such platforms in order to remain competitive. Such platforms may not be architecturally compatible with RHYTHM's software product design, and there can be no assurance that the Company will be able to port RHYTHM to such additional platforms on a timely basis or at all. Any failure to maintain compatibility with existing platforms or to port to new platforms that achieve significant market acceptance would have a material adverse effect on the Company's business, operating results and financial condition. As a result of the complexities inherent in client/server computing environments and the broad functionality and performance demanded by customers for supply chain management products, major new products and product enhancements can require long development and testing periods. In addition, software programs as complex as those offered by the Company may contain undetected errors or "bugs" when first introduced or as new versions are released that, despite testing by the Company, are discovered only after a product has been installed and used by customers. While the Company has on occasion experienced delays in the scheduled introduction of new and enhanced products and products containing bugs, to date the Company's business has not been materially adversely affected by delays or the release of products containing errors. There can be no assurance, however, that errors will not be found in future releases of the Company's software, or that any such errors will not impair the market acceptance of these products and adversely affect the Company's business, operating results and financial condition. While the Company generally takes steps to avoid interruptions of sales often associated with the pending availability of new products, customers may delay their purchasing decisions in anticipation of the general availability of new or enhanced RHYTHM products, which could have a material adverse effect on the Company's business and operating results. Moreover, significant delays in the general availability of such new releases, significant problems in the installation or implementation of such new releases, or customer dissatisfaction with such new releases, could have a material adverse effect on the Company's business, operating results and financial condition. The Company also continues to heavily invest resources in developing new products, such as the recently announced eBPO solutions. eBPO is a new layer of intelligent decision support software that is expected to optimize and integrate the workflows of key business processes, such as supply chain management, customer service, financial optimization, product portfolio management, sales and marketing and others. eBPO solutions support e-business initiatives, such as collaboration with suppliers, partners and customers through the Internet, to improve a company's ability to respond to changes and opportunities in its business environment. To date, only a limited number of customers have licensed these solutions, and the market for these products is new and evolving. If the market for these eBPO solutions fails to develop, develops more slowly than expected, or if the Company's products do not achieve market acceptance, the Company's business, operating results and financial condition could be adversely affected. YEAR 2000 COMPLIANCE Many older computer systems and software products currently in use are coded to accept only two-digit entries in the date code field. These date code fields will need to accept four-digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists in the software industry concerning the potential effects associated with such compliance. Based on the Company's assessment, the Company believes that its current versions of its software products are Year 2000 compliant. However, the Company believes some customers are running earlier versions of the software products developed by acquired companies that are not Year 2000 compliant, and the Company has been encouraging such customers to migrate to current product versions. Moreover, the Company's products are generally integrated into enterprise systems involving complicated software products developed by other vendors. Year 2000 problems inherent in a customer's transactional software programs might significantly limit that customer's ability to realize the intended benefits offered by RHYTHM. The Company may in the future be subject to claims based on Year 2000 problems in others' products, custom scripts created by third parties to interface with the Company's products or issues arising from the integration of multiple products within an 19 20 overall system. Although the Company has not been a party to any litigation or arbitration proceeding to date involving its products or services and related to Year 2000 compliance issues, there can be no assurance that the Company will not in the future be required to defend its products or services in such proceedings, or to negotiate resolutions of claims based on Year 2000 issues. The costs of defending and resolving Year 2000-related disputes, and any liability of the Company for Year 2000-related damages, including consequential damages, could have a material adverse effect on the Company's business, operating results and financial condition. The Company believes that Year 2000 issues may affect the purchasing patterns of customers and potential customers in a variety of ways. Many companies are expending significant resources to correct, patch or replace their current software systems to achieve Year 2000 compliance. These expenditures may result in reduced funds available to purchase products such as those offered by the Company. Any of the foregoing could result in a material adverse effect on the Company's business, operating results and financial condition. In addition, an inventory and analysis of internal management and other information systems has been performed and the Company has determined that it will be required to modify certain portions of its internal infrastructure so that its computer systems will be Year 2000 compliant. These modifications and replacements are being and will continue to be made in conjunction with the Company's overall information systems initiatives. Areas being addressed include reviews of the Company's telephone and voice mail systems, security systems and other office support systems. No information technology initiatives have been deferred by the Company as a result of its Year 2000 project. The Company expects to complete its Year 2000 by June 1999. The Company currently expects to incur pre-tax expenses of less than $100,000 during 1998 and 1999 in connection with correction of Year 2000 issues. Such expenses are being funded through operating cash flows, and are expected to be less than 1% of the Company's information technology budgets for both 1998 and 1999. Based on available information, the Company does not believe any material exposure to significant business interruption exists as a result of Year 2000 compliance issues, or that the cost of remedial actions will have a material adverse effect on its business, financial condition or results of operations. Accordingly, the Company has not adopted any formal contingency plan in the event its Year 2000 project is not completed in a timely manner. 20 21 i2 TECHNOLOGIES, INC. PART II ITEM 2. CHANGES IN SECURITIES. From July 1 through September 30, 1998, the Company issued approximately 0.7 million shares of its common stock to employees pursuant to exercises of stock options (with exercise prices ranging from $0.01 to $6.06 per share) under the Company's stock plans. These issuances were deemed exempt from registration under Section 5 of the Securities Act of 1933 in reliance upon Rule 701 thereunder. In addition, the recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof and appropriate restrictive transfer legends were affixed to the share certificates issued in each such transaction. ITEM 5. OTHER INFORMATION Submission of Stockholder Proposals. Pursuant to the Company's Bylaws as amended by the Board of Directors in October 1998, stockholder proposals intended to be presented at the Company's 1999 annual meeting of stockholders must be received by the Secretary of the Company at its principal executive offices (909 E. Las Colinas Blvd., 16th Floor, Irving, Texas 75039) not later than December 25, 1998 in order to be included in the Company's proxy statement and form of proxy relating to the 1999 annual meeting. Notice must include (i) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; (ii) a representation that the stockholder is a holder of record of stock of the Company entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected. Stockholder proposals for which such notice is not timely given may not be brought before the meeting. Management's Discretionary Voting Authority. Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange Act of 1934, as amended, and amendments to the Company's Bylaws adopted by its Board of Directors in October 1998, if a stockholder who intends to present a proposal at the 1999 annual meeting of stockholders does not notify the Company of such proposal on or prior to the 120th day (December 25, 1998) and on or after the 150th day (November 25, 1998) prior to the first anniversary of the date of the proxy statement delivered to stockholders in connection with the 1998 annual meeting, then management proxies would be allowed to use their discretionary voting authority to vote on the proposal when the proposal is raised at the 1999 annual meeting, even though there is no discussion of the proposal in the 1999 proxy statement. 21 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit Index -------------- Number Exhibit Description ------ ------------------- 3.1 Amended and Restated Bylaws of the Company 3.2 Restated Certificate of Incorporation of the Company 27.1 Financial Data Schedule (b) Reports on Form 8-K ------------------- None. 22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. i2 TECHNOLOGIES, INC. -------------------------------------------- November 12, 1998 /s/ Sanjiv S. Sidhu ----------------- -------------------------------------------- (Date) Sanjiv S. Sidhu Chairman of the Board and Chief Executive Officer (Principal executive officer) November 12, 1998 /s/ David F. Cary ----------------- -------------------------------------------- (Date) David F. Cary Vice President and Chief Financial Officer (Principal finance and accounting officer) 23 24 Index to Exhibits Number Exhibit Description ------ ------------------- 3.1 Amended and Restated Bylaws of the Company 3.2 Restated Certificate of Incorporation of the Company 27.1 Financial Data Schedule EX-3.1 2 AMENDED & RESTATED BYLAWS OF THE COMPANY 1 EXHIBIT 3.1 AMENDED AND RESTATED BYLAWS OF i2 TECHNOLOGIES, INC. (a Delaware corporation) (AS AMENDED THROUGH OCTOBER 21, 1998) 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3 SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . 2 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS . . . . . . . . . 2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . . . . . . 4 2.7 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.8 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.9 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . . . . 5 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS . . . . . . . . . . . 5 2.13 PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE . . . . . . . . . . . . . . . . . . . . . . 6 2.15 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.2 NUMBER OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.3 ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . . . 7 3.4 RESIGNATION AND VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . . . . . . 8 3.6 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.7 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.8 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.9 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.10 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.11 ADJOURNED MEETING; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.12 CONDUCT OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ii 3 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING . . . . . . . . . . . . . . . . 10 3.14 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . 10 3.15 APPROVAL OF LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.16 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.1 COMMITTEES OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 COMMITTEE MINUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.3 MEETINGS AND ACTION OF COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.1 NUMBER OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.3 REMOVAL AND RESIGNATION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . 13 5.4 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.5 VICE CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.6 CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.7 PRESIDENTS AND VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.8 SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.9 CHIEF FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.10 ASSISTANT SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 5.11 CONTROLLER AND ASSISTANT FINANCIAL OFFICER . . . . . . . . . . . . . . . . . . . 15 5.12 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE VI INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . 16 6.2 INDEMNIFICATION OF OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.3 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.1 MAINTENANCE AND INSPECTION OF RECORDS . . . . . . . . . . . . . . . . . . . . . . 17 7.2 INSPECTION BY DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . . . . . . . . . . 18 ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8.1 STOCK CERTIFICATES; PARTLY PAID SHARES . . . . . . . . . . . . . . . . . . . . . 18 8.2 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8.3 CONSTRUCTION; DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.4 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.5 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.6 SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
iii 4 8.7 TRANSFER OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 8.8 STOCK TRANSFER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8.9 REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE X DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE XI CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES . . . . . . . . . . . . . . . . . . . 21 11.2 DUTIES OF CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
iv 5 ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is Corporation Trust Company. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at the principal executive offices of the corporation, or at any other place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the principal executive offices of the corporation. 2.2 ANNUAL MEETING An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the board of directors from time to time. Any other proper business may be transacted at the annual meeting. 2.3 SPECIAL MEETINGS A special meeting of the stockholders may be called at any time by the board of directors, or by the chairman of the board, by the president or by the chief executive officer, or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting (the "10% Stockholders"); provided that, notwithstanding the above and any provision contained in these Bylaws to the contrary, effective upon the closing of a public offering of the corporation's Capital Stock pursuant to an effective registration statement filed 6 under the Securities Act of 1933, as amended (a "Public Offering"), the 10% Stockholders shall no longer be entitled to call such meeting. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, chief executive officer, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder, such stockholder must have given timely notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder's notice must be delivered to or mailed and received by the secretary of the corporation not later than the close of business on the one hundred twentieth (120th) day nor earlier than the close of business on the one hundred fiftieth (150th) day prior to the first anniversary of the date of the proxy statement delivered to stockholders in connection with the preceding year's annual meeting; provided, however, that if either (i) the date of the annual meeting is advanced more than thirty (30) days or delayed (other than as a result of adjournment) more than sixty (60) days from such an anniversary date or (ii) no proxy statement was delivered to stockholders in connection with the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first 2 7 made by the corporation. To be in proper form, a stockholder's notice to the secretary shall set forth: (i) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; (ii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the stockholders has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for stockholder action at the meeting. For purposes of this Section 2.5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Notwithstanding any provision in this Section 2.5 to the contrary, requests for inclusion of proposals in the corporation's proxy statement made pursuant to Rule 14a-8 under the Exchange Act shall be deemed to have been delivered in a timely manner if delivered in accordance with such Rule. Notwithstanding compliance with the requirements of this Section 2.5, the chairman presiding at any meeting of the stockholders may, in his sole discretion, refuse to allow a stockholder or stockholder representative to present any proposal which the corporation would not be required to include in a proxy statement under any rule promulgated by the Securities and Exchange Commission. 3 8 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 and Section 2.14 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may otherwise be provided in the certificate of incorporation or the last paragraph of this Section 2.9, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 4 9 At a stockholders' meeting at which directors are to be elected, or at elections held under special circumstances, a stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast). Each holder of stock of any class or series who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes; provided that, except as may otherwise be provided in the certificate of incorporation, effective upon a Public Offering the cumulative voting rights set forth in this Section 2.9 shall terminate. 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time Stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Effective upon a Public Offering, the stockholders of the corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to express consent or dissent to corporate action in writing without a meeting (it otherwise permitted by these bylaws and the corporation's certificate of incorporation), or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall be not more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. 5 10 If the board of directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.13 PROXIES Each stockholder entitled to vote at a meeting of stockholders or entitled to express consent or dissent to corporate action in writing without a meeting (if otherwise permitted by these bylaws and the corporation's certificate of incorporation) may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder. 2.15 CONDUCT OF BUSINESS Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business. 6 11 ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS The number of directors of the corporation is fixed at five (5). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws, at each annual meeting of stockholders, directors of the corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Delaware General Corporation Law. At the annual meeting of stockholders following a Public Offering, the directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of stockholders. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the first annual meeting of stockholders following a Public Offering. At each annual meeting after the annual meeting of stockholders scheduled to be held thereafter, directors to replace those of a Class office whose terms, expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Election of directors need not be by written ballot. 7 12 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the corporation. Stockholders may remove directors with or without cause. Any vacancy occurring in the board of directors with or without cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced. Unless otherwise provided in the certificate of incorporation or these bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 8 13 3.6 FIRST MEETINGS The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. 3.7 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place, within or without the State of Delaware, as shall from time to time be determined by the board. 3.8 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors may be held at such time and at such place, within or without the State of Delaware, whenever called by the chairman of the board, the president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone or facsimile to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, facsimile or by telegram, it shall be delivered personally or by telephone, facsimile or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.9 QUORUM At all meetings of the board of directors, a majority of the number of authorized directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be 9 14 deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 3.11 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.12 CONDUCT OF BUSINESS Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his absence by the president, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting. 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.14 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.15 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be 10 15 unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.16 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire board of directors. If at any time a class or series of shares is entitled to elect one or more directors, the provisions of this Article 3.16 shall apply to the vote of that class or series and not to the vote of the outstanding shares as a whole. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares or any other class or classes or any other series of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or 11 16 consolidation under Section 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), Section 3.12 (conduct of business) and Section 3.13 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 NUMBER OF OFFICERS The officers of the corporation shall be a chief executive officer, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, a vice chairman of the board, one or more presidents of designated function, one or more vice presidents, assistant vice presidents, assistant secretaries, controllers, assistant financial officers, and any such other officers as may be appointed in accordance with the provisions of Section 5.2 of these bylaws. Any number of offices may be held by the same person. 12 17 5.2 ELECTION OF OFFICERS Except as otherwise provided in this Section 5.2, the officers of the corporation shall be chosen by the board of directors, subject to the rights, if any, of an officer under any contract of employment. The board of directors may appoint, or empower the chief executive officer to appoint (whether or not such officer is described in this Article V), such officers and agents of the business as the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. Any vacancy occurring in any office of the corporation shall be filled by the board of directors or may be filled by the chief executive officer (if the chief executive officer appointed such officer). 5.3 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors or, in the case of an officer appointed by the chief executive officer, by the chief executive officer. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.4 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no chief executive officer, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.5 of these bylaws. 5.5 VICE CHAIRMAN OF THE BOARD In the absence or disability of the chairman of the board, the vice chairman of the board, if such an officer be elected, shall perform all the duties of the chairman of the board. The vice chairman of the board shall have such other powers and perform such other duties as from time to time may be prescribed by the board of directors, these bylaws or the chairman of the board. 5.6 CHIEF EXECUTIVE OFFICER Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the chief executive officer, unless otherwise determined by the board of directors, shall be the senior executive officer of the 13 18 corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business, officers and affairs of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board and a vice chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of a chief executive officer or president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.7 PRESIDENTS AND VICE PRESIDENTS The board of directors may, in its discretion, designate one or more presidents and one or more vice presidents, and furthermore, may identify in such designation the function of such officers. The presidents and vice presidents, if designated, shall have such powers and perform such duties as from time to time may be prescribed for them, respectively, by the board of directors, these bylaws, the chief executive officer or the chairman of the board. 5.8 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one to be adopted, in a safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.9 CHIEF FINANCIAL OFFICER The chief financial officer shall have the power, which may be redelegated in writing, on behalf of the corporation, to borrow funds and to otherwise incur liabilities, to sell or discount bills, receivables and other instruments and rights, to enter into and deliver repurchase, credit, guarantee, surety, loan, interest rate, currency and other agreements, which may contain covenants restricting the corporation's ability to take certain actions or require it to take certain actions, to sign and deliver acceptances, notes and other obligations, to buy and sell foreign exchange, whether for current or future delivery, or options on foreign exchange, to purchase, sell, exchange or otherwise deal in stock or other securities, to procure letters of credit, travelers' 14 19 checks or similar instruments, to open and close accounts with any banking institution or other depository of funds, to sign, manually, by facsimile signature or otherwise, checks, drafts or other orders for the payment of funds (which each such institution is hereby authorized and directed to honor), to issue written, telephonic, electronic or oral instructions for the transfer of funds by wire or other electronic means or otherwise, to enter into agreements or documents with any banking or financial institution with respect to any services, including, without limitation, electronic services, and to do all things in connection with any of these as any of them sees fit. The chief financial officer shall also have the power, which may be redelegated in writing, on behalf of the corporation, to guarantee, or to act as surety with respect to, any of the obligations of any entity of which any of the outstanding stock or securities is owned, directly or indirectly by the corporation. In addition, the chief financial officer shall have the authority to vote all shares or securities in any entity directly or indirectly owned by the corporation and to redelegate that authority in writing to others. The chief financial officer shall have the custody of all of the funds and securities of the corporation. He shall be empowered to endorse on behalf of the corporation all checks, notes or other obligations and evidences of the payment of money, payable to the corporation or coming into his possession, and shall deposit the funds arising therefrom, together with all other funds of the corporation, coming into his possession, in such banks as may be selected as the depositories of the corporation, or properly care for them in such other manner as the board of directors may direct. All checks and other instruments drawn on or payable out of the funds of the corporation and all bills, notes or other evidence of indebtedness shall be signed by such officers and employees as the board of directors may designate. Whenever required by the board of directors so to do, he shall exhibit a complete and true statement of property in his possession, custody or control. He shall provide for the entry regularly, in records belonging to the corporation, a full and accurate account of all money received and paid on account of the corporation, together with all other business transactions. He shall, at all reasonable times within the hours of business, exhibit his records and accounts to any director. He shall perform all duties which are incident to the office of treasurer of a corporation, subject, however, at all times to the direction and control of the board of directors. If the board of directors shall so require, he shall give bond, in such sum and with such securities as the board of directors may direct, for the faithful performance of his duties and for the safe custody of the funds and property of the corporation coming into his possession. 5.10 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. 5.11 CONTROLLER AND ASSISTANT FINANCIAL OFFICER The controller or other assistant financial officer, or, if there is more than one, the controllers and assistant financial officers, in the order determined by the stockholders or the 15 20 board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as the board of directors, the stockholders, the chief executive officer or the chief financial officer may from time to time prescribe. 5.12 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceedings, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceedings, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 16 21 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or aware such other and further relief as the Court may deem just and proper. 17 22 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefore and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.2 LOST CERTIFICATES Except as provided in this Section 8.2, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and 18 23 cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claims that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.3 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.4 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. 8.5 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.6 SEAL The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.7 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 19 24 8.8 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.9 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws. Notwithstanding any other provision of these bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or by these bylaws, the affirmative vote of at least two-thirds (2/3) of the combined voting power of all of the then-outstanding shares of the corporation entitled to vote shall be required to alter, amend or repeal Article II, Section 2.9 or Section 2.11 of these bylaws or this Article IX or any provision thereof, or to add or amend any other bylaw in order to change or nullify the effect of such provisions, unless such amendment shall be approved by a majority of the directors of the corporation not affiliated or associated with any person or entity holding (or which has announced an intent to obtain) 26% or more of the voting power of the corporation's outstanding capital stock. ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution 20 25 to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. 21 EX-3.2 3 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 RESTATED CERTIFICATE OF INCORPORATION OF i2 TECHNOLOGIES, INC. (A DELAWARE CORPORATION) i2 Technologies, Inc., a corporation organized and existing under the Delaware General Corporation Law, hereby certifies as follows: 1. That this corporation was originally incorporated on January 9, 1992 under the name Intellection, Inc., pursuant to the Delaware General Corporation Law. 2. Pursuant to Section 245 of the Delaware General Corporation Law, this Restated Certificate of Incorporation has been duly adopted and restates and integrates and does not further amend the provisions of the Certificate of Incorporation of this corporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation, except that all references to Articles herein have been revised to reflect the deletion of Article Fifth of the Certificate of Incorporation (Incorporator). 3. The text of the Certificate of Incorporation of this corporation is hereby restated in its entirety to read as follows: FIRST: The name of the corporation is i2 Technologies, Inc. (the "Corporation"). SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: A. The total number of shares which the Corporation shall have authority to issue is TWO HUNDRED AND FIVE MILLION (205,000,000) shares of capital stock. B. Of such authorized shares, TWO HUNDRED MILLION (200,000,000) shares shall be designated "Common Stock", and have a par value of $.00025. C. Of such authorized shares, FIVE MILLION (5,000,000) shares shall be designated "Preferred Stock", and have a par value of $.001. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Corporation is authorized to determine or alter the powers, preferences and rights and the 2 qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limitations or restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issuance of shares of that series, to determine the designation of any series, and to fix the number of shares of any series. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. FIFTH: The Corporation is to have perpetual existence. SIXTH: Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins. SEVENTH: A. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the Delaware General Corporation Law. At the annual meeting of stockholders (the "First Public Company Annual Meeting") following the closing of a public offering of the Corporation's Capital Stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (a "Public offering"), the directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the First Public Company Annual Meeting. At each annual meeting after the First Public Company Annual Meeting, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships 2 3 shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. B. Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at a meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall hold office until the next succeeding annual meeting of stockholders of the Corporation and until his or her successor shall have been duly elected and qualified. EIGHTH: The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation. NINTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation. TENTH: To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ELEVENTH: At the election of directors of the Corporation, each holder of stock of any class of series shall be entitled to as many votes as shall equal the number of votes which (except for such provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes; provided that, notwithstanding the above and any provision contained in this Certificate of Incorporation to the contrary, effective upon a Public Offering, the holders of stock of any class or series shall no longer be entitled to such cumulative voting rights. 3 4 TWELFTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. THIRTEENTH: Effective upon the closing of a Public Offering, stockholders of the Corporation may not take action by written consent in lieu of a meeting but must take any actions at a duly called annual or special meeting. FOURTEENTH: Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds (2/3) of the combined voting power of all of the then-outstanding shares of the Corporation entitled to vote shall be required to alter, amend or repeal Articles SEVENTH, ELEVENTH, THIRTEENTH or FOURTEENTH or any provision thereof, unless such amendment shall be approved by a majority of the directors of the Corporation not affiliated or associated with any person or entity holding (or which has announced an intention to obtain) 26% or more of the voting power of the Corporation's outstanding capital stock. FIFTEENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, i2 Technologies, Inc. has caused this Restated Certificate of Incorporation to be signed by its Chief Financial Officer this 6th day of November, 1998. i2 Technologies, Inc. /s/ David F. Cary -------------------------------------- David F. Cary, Chief Financial Officer 4 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 95,456 67,463 101,341 6,585 0 275,996 43,465 17,828 309,147 91,721 0 0 0 18 217,192 309,147 157,406 249,200 5,677 231,667 (5,163) 3,190 230 22,696 11,450 11,246 0 0 0 11,246 0.16 0.15
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