10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

o 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: 0-27876

JDA SOFTWARE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 86-0787377
(I.R.S. Employer
Identification No.)

14400 North 87th Street
Scottsdale, Arizona 85260
(480) 308-3000
(Address and telephone number of principal executive offices)

         Indicate by check mark whether 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) had been subject to such filing requirements for the past 90 days.

YES  x        NO  o

         The number of shares outstanding of the Registrant’s Common Stock, $0.01 par value, was 28,414,746 as of November 8, 2002.

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3: Quantitative and Qualitative Disclosures About Market Risk
	Item 4: Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K:
SIGNATURE
FORM 10-Q CERTIFICATIONS
EXHIBIT INDEX
EX-3.1
EX-10.5
EX-10.7
EX-99.1
EX-99.2

JDA SOFTWARE GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page No.
PART I: INTERIM FINANCIAL INFORMATION
Item 1. Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001		3
	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2002 and September 30, 2001		4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2002 and September 30, 2001		5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and September 30, 2001		6
	Notes to Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			42
PART II: OTHER INFORMATION
Item 1. Legal Proceedings			43
Item 2. Changes in Securities and Use of Proceeds			43
Item 3. Defaults Upon Senior Securities			43
Item 4. Submission of Matters to a Vote of Security Holders			43
Item 5. Other Information			43
Item 6. Exhibits and Reports on Form 8-K			43
Signature			44
Certifications			45

2

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

				September 30,			December 31,
				2002			2001
				(Unaudited)
ASSETS
Current Assets:
	Cash and cash equivalents			$	65,485		$	51,865
	Marketable securities				24,341			12,140
	Accounts receivable, net				52,095			60,943
	Income tax receivable				727			3,798
	Deferred tax asset				7,570			6,980
	Prepaid expenses and other current assets				14,801			10,750
		Total current assets			165,019			146,476
Property and Equipment, net					20,330			21,950
Goodwill					59,801			55,192
Other Intangibles, net					58,415			61,670
Promissory Note Receivable					3,036			3,354
Marketable Securities					2,061			—
			Total assets	$	308,662		$	288,642
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable			$	5,644		$	2,857
	Accrued expenses and other liabilities				17,301			32,963
	Deferred revenue				26,196			17,562
			Total current liabilities		49,141			53,382
Deferred Tax Liability					3,222			10,810
Stockholders’ Equity:
	Preferred stock, $.01 par value; authorized 2,000,000 shares; none issued or outstanding				—			—
	Common stock, $.01 par value; authorized, 50,000,000 shares; issued 28,654,053 and 27,035,935 shares, respectively				287			270
	Additional paid-in capital				237,759			214,589
	Retained earnings				26,403			18,423
	Accumulated other comprehensive loss				(5,434	)		(6,138	)
					259,015			227,144
	Less treasury stock, at cost, 239,702 and 239,000 shares, respectively				(2,716	)		(2,694	)
		Total stockholders’ equity			256,299			224,450
			Total liabilities and stockholders’ equity	$	308,662		$	288,642

See notes to condensed consolidated financial statements.

3

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share data)
(unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2002		2001		2002		2001
REVENUES:
	Software licenses		$	10,801	$	15,581	$	48,620	$	47,858
	Maintenance services			14,851		9,996		41,875		28,080
		Product revenues		25,652		25,577		90,495		75,938
	Consulting services			21,825		24,341		69,568		70,507
	Reimbursed expenses			1,935		1,855		6,083		4,572
		Service revenues		23,760		26,196		75,651		75,079
		Total revenues		49,412		51,773		166,146		151,017
COST OF REVENUES:
	Cost of software licenses			140		411		1,264		1,816
	Amortization of acquired software technology			1,069		776		3,178		1,922
	Cost of maintenance services			3,605		2,829		10,453		7,650
		Cost of product revenues		4,814		4,016		14,895		11,388
	Cost of consulting services			15,158		17,382		47,757		51,640
	Reimbursed expenses			1,935		1,855		6,083		4,572
		Cost of service revenues		17,093		19,237		53,840		56,212
		Total cost of revenues		21,907		23,253		68,735		67,600
GROSS PROFIT				27,505		28,520		97,411		83,417
OPERATING EXPENSES:
	Product development			10,370		8,716		31,175		24,374
	Sales and marketing			9,196		8,444		29,851		26,030
	General and administrative			6,395		6,475		21,130		18,202
	Amortization of intangibles			711		1,358		2,137		3,858
	Purchased in-process research and development			—		2,200		800		2,361
	Restructuring, asset disposition and other charges			—		—		1,295		749
		Total operating expenses		26,672		27,193		86,388		75,574
OPERATING INCOME				833		1,327		11,023		7,843
	Other income, net			342		537		1,344		2,223
INCOME BEFORE INCOME TAXES				1,175		1,864		12,367		10,066
	Income tax provision			417		690		4,387		3,716
NET INCOME			$	758	$	1,174	$	7,980	$	6,350
BASIC EARNINGS PER SHARE			$	.03	$	.05	$	.29	$	.26
DILUTED EARNINGS PER SHARE			$	.03	$	.05	$	.27	$	.25
SHARES USED TO COMPUTE:
	Basic earnings per share			28,316		25,334		27,927		24,857
	Diluted earnings per share			28,677		25,967		29,273		25,236

See notes to condensed consolidated financial statements.

4

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2002			2001			2002			2001
NET INCOME		$	758		$	1,174		$	7,980		$	6,350
OTHER COMPREHENSIVE INCOME (LOSS):
	Unrealized holding gain (loss) on marketable securities available for sale, net		18			8			(1	)		30
	Foreign currency translation income (loss)		(1,616	)		(1,874	)		705			(3,147	)
COMPREHENSIVE INCOME (LOSS)		$	(840	)	$	(692	)	$	8,684		$	3,233

See notes to condensed consolidated financial statements.

5

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

				Nine Months
				Ended September 30,
				2002			2001
OPERATING ACTIVITIES:
	Net income			$	7,980		$	6,350
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			11,584			11,754
		Provision for doubtful accounts			2,900			2,891
		Tax benefit – stock options and employee stock purchase plan			6,762			513
		Net loss on disposal of property and equipment			30			114
		Write-off of purchased in-process research and development			800			2,361
		Deferred income taxes			(9,011	)		342
	Changes in assets and liabilities:
		Accounts receivable			5,938			(3,752	)
		Income tax receivable			3,066			(453	)
		Prepaid expenses and other current assets			(4,803	)		900
		Accounts payable			2,782			(1,673	)
		Accrued expenses and other liabilities			(8,901	)		1,814
		Deferred revenue			8,620			281
			Net cash provided by operating activities		27,747			21,442
INVESTING ACTIVITIES:
	Purchase of marketable securities				(31,256	)		—
	Sales of marketable securities				7,641			2,500
	Maturities of marketable securities				9,352			11,809
	Purchase of J•Commerce, Inc.				(4,170	)		—
	Purchase of Zapotec Software, Inc.				—			(1,250	)
	Purchase of Neo Vista Decision Series				—			(4,938	)
	Purchase of E3 Corporation, net of cash acquired				—			(18,348	)
	Payment of direct costs related to the acquisition of E3 Corporation				(8,261	)		(4,175	)
	Issuance of promissory note receivable				—			(3,500	)
	Payments received on promissory note receivable				318			99
	Purchase of property and equipment				(4,998	)		(4,943	)
	Proceeds from disposal of property and equipment				290			552
			Net cash (used in) provided by investing activities		(31,084	)		(22,194	)
FINANCING ACTIVITIES:
	Issuance of common stock — stock option plan				12,275			2,495
	Issuance of common stock — employee stock purchase plan				4,150			3,400
	Purchase of treasury stock				(22	)		(875	)
	Retirement of E3 line of credit, notes payable, and long-term debt				—			(8,166	)
	Payments on capital lease obligations				(239	)		(82	)
			Net cash provided by financing activities		16,164			(3,228	)
Effect of exchange rates on cash					793			(900	)
Net increase (decrease) in cash and cash equivalents					13,620			(4,880	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					51,865			60,794
CASH AND CASH EQUIVALENTS, END OF PERIOD				$	65,485		$	55,914

6

JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

				Nine Months
				Ended September 30,
				2002			2001
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid for:
		Interest		$	39		$	48
		Income taxes		$	3,617		$	2,306
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
	Acquisition of J•Commerce, Inc.:
		Software technology		$	(2,060	)
		In-process research and development			(800	)
		Goodwill			(1,325	)
			Total acquisition cost of J•Commerce, Inc.		(4,185	)
		Accruals for direct costs related to the transaction			15
			Total cash expended to acquire J•Commerce, Inc.	$	(4,170	)
	Acquisition of Zapotec Software, Inc.:
		Fair value of current assets acquired					$	(14	)
		Software technology and other intangibles						(1,293	)
		In-process research and development						(161	)
		Fair value of current liabilities assumed						218
			Cash used to purchase Zapotec Software, Inc.				$	(1,250	)
	Acquisition of Neo Vista Decision Series:
		Fair value of fixed assets acquired					$	(5	)
		Software technology and other intangibles						(2,956	)
		Goodwill						(2,727	)
		Fair value of current liabilities assumed						750
			Cash used to purchase Neo Vista Decision Series				$	(4,938	)
	Acquisition of E3 Corporation:
		Fair value of current assets acquired					$	(14,036	)
		Fair value of fixed assets acquired						(2,402	)
		Goodwill						(35,350	)
		Software technology and other intangibles						(38,000	)
		In-process research and development						(2,200	)
		Fair value of current liabilities assumed						12,868
		Deferred revenue						2,205
		Fair value of long-term debt assumed						1,627
		Deferred tax liability, net						15,164
			Total acquisition cost of E3 Corporation					(60,124	)
		Reserves for direct costs related to the transaction						15,909
		Issuance of common stock						24,215
		Cash acquired						1,652
			Cash used to purchase E3 Corporation				$	(18,348	)

See notes to condensed consolidated financial statements.

7

JDA SOFTWARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except percentages, shares, per share amounts, or as otherwise stated)
(unaudited)

1. Basis of Presentation

         The accompanying unaudited condensed consolidated financial statements of JDA Software Group, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States applicable to interim financial statements. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

         The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

         Certain reclassifications have been made to the September 30, 2001 interim financial statements in order to conform to the September 30, 2002 presentation.

2. New Accounting Standards

         Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”). In addition to requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, SFAS No. 141 also provides guidance on the types of acquired intangible assets that are to be recognized and reported separately from goodwill. We reclassified the unamortized balance of assembled workforce of approximately $905,000 to goodwill on January 1, 2002 pursuant to certain transitional provisions of SFAS No. 141 that apply to the business combinations we completed and accounted for under the purchase method prior to July 1, 2001.

         We also adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) effective January 1, 2002. SFAS No. 142 addresses how intangible assets should be accounted for after they have been initially recognized in the financial statements. SFAS No. 142 also requires that goodwill and certain other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Upon adoption, we ceased amortization of goodwill and certain other intangible assets we recorded in business combinations prior to June 30, 2001.

         The following table reconciles net income and earnings per share as reported for the three and nine month periods ended September 30, 2002 and 2001 to net income and earnings per share as adjusted to exclude amortization expense, net of taxes, related to goodwill and other intangible assets that are no longer being amortized

8

			Three Months				Nine Months
			Ended September 30,				Ended September 30,
			2002		2001		2002		2001
Reconciliation of reported net income:
	Reported net income		$	758	$	1,174	$	7,980	$	6,350
	Pro forma amortization adjustments:
		Goodwill		—		495		—		1,405
		Assembled workforce		—		98		—		397
		Trademarks		—		8		—		23
	Adjusted net income		$	758	$	1,775	$	7,980	$	8,175
Basic earnings per share:
	Reported net income		$	.03	$	.05	$	.29	$	.26
	Pro forma amortization adjustments:
		Goodwill		—		.02		—		.06
		Assembled workforce		—		—		—		.01
		Trademarks		—		—		—		—
		Adjusted net income	$	.03	$	.07	$	.29	$	.33
Diluted earnings per share:
	Reported net income		$	.03	$	.05	$	.27	$	.25
	Pro forma amortization adjustments:
		Goodwill		—		.02		—		.06
		Assembled workforce		—		—		—		.01
		Trademarks		—		—		—		—
		Adjusted net income	$	.03	$	.07	$	.27	$	.32
Shares used to compute:
	Basic earnings per share			28,316		25,334		27,927		24,857
	Diluted earnings per share			28,677		25,967		29,273		25,236

         During the three months ended September 30, 2002 we recorded an additional $903,000 in goodwill as a result of certain final adjustments made to the estimated fair values of assets acquired and liabilities assumed in the acquisition of E3 Corporation (“E3”) in September 2001. The increase results primarily from a reduction in the amount of deferred tax asset recorded on this transaction to reflect our revised estimate of the anticipated future tax benefits from acquisition costs incurred and research and development credits. No goodwill was impaired or written-off during the three months ended September 30, 2002. As of September 30, 2002, goodwill, which includes the unamortized balance of assembled workforce that was reclassified to goodwill effective January 1, 2002, has been allocated to our reporting units as follows: $42.1 million to Retail Enterprise Systems, $1.3 million to In-Store Systems, and $16.4 million to Collaborative Solutions.

         SFAS No. 142 requires that we test goodwill for impairment as of January 1, 2002 and any resulting impairment charge be reflected as a cumulative effect of a change in accounting principle. We completed the initial screening for goodwill impairment during the three-month period ended March 31, 2002 and found no impairment of the goodwill allocated to the individual reporting units. Accordingly, absent future indicators of impairment, the second testing phase described in SFAS No. 142 is not necessary during the remainder of 2002.

         We reassessed the useful lives of intangible assets other than goodwill during the three-month period ended March 31, 2002. Except for trademarks, no adjustments have been made to the useful lives of our intangible assets. Substantially all of our capitalized trademarks were acquired in connection with the acquisition of E3, which are not directly tied to another asset or group of assets; however, we did acquire software technology and customer lists in connection with the E3 acquisition. Although the underlying software technology and customer install-base may change and evolve over time, we intend to indefinitely develop next generation products under the E3 trademark.

9

Beginning January 1, 2002, we assigned indefinite useful lives to our E3 trademarks, and ceased amortization, as we believe that there are no legal, regulatory, contractual, competitive, economic, or other factors that would limit the useful life of our trademarks and we expect the trademarks to contribute to our cash flows indefinitely. In accordance with SFAS 142, we test our trademarks for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We completed an initial impairment test on trademarks during the three-month period ended March 31, 2002 and found no indication of impairment.

                  Intangible assets other than goodwill consist of the following:

		September 30, 2002					December 31, 2001
		Gross Carrying		Accumulated			Gross Carrying		Accumulated
		Amount		Amortization			Amount		Amortization
Amortized intangible assets:
	Customer Lists	$	36,348	$	(5,186	)	$	36,348	$	(3,048	)
	Software technology		31,721		(8,168	)		30,496		(5,826	)
Unamortized intangible assets:
	Trademarks		3,700		—			3,784		(84	)
		$	71,769	$	(13,354	)	$	70,628	$	(8,958	)

                  Amortization of customer lists is computed on a straight-line basis over estimated useful lives ranging from 10 to 13 years. These intangible assets were all acquired in business combinations over the last four years. Our valuation process during the acquisitions, and the third party appraisals we obtained to support our allocation of the purchase price to these assets, were based upon the projected economic life of the customer base which were based on the historical turnover of the customer base. The historical life experiences of the acquired companies that were utilized in the valuations support the economic lives used, as does the Company’s historical experience with similar customer accounts for products that have been developed internally. The Company has reviewed the customer attrition rates for each significant acquired customer group to ensure that the rate of attrition is not increasing and that revisions to our estimates of life expectancy are not required.

                  Amortization of software technology is reported as a cost of product revenues in accordance with Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed (“SFAS No. 86”). We use the amortization amount for each product that is the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future revenues for that product, or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on.

                  Amortization expense for the nine-month period ended September 30, 2002 was $5.3 million. We expect amortization expense for the remainder of 2002 and for the next four years to be as follows:

2002 (3 months)	1,781
2003	7,122
2004	7,122
2005	6,872
2006	6,694

                  We have adopted the guidance of Financial Accounting Standards Board Emerging Issues Task Force Issue No. 01-14 (“EITF No. 01-14”), Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred. EITF No. 01-14 requires the reclassification of reimbursed expenses in both service revenues and cost of service revenues in our consolidated statements of income beginning January 1, 2002. We previously classified reimbursed expenses as a reduction in the cost of consulting services. The adoption of EITF No. 01-14 does not impact our total gross profit or operating income, but it does increase total revenues, and as a result, slightly reduces our gross profit and operating margin percentages. Reimbursed expenses were $1.9 million and $6.1 million in the three and nine-month periods ended September 30, 2002, respectively. In addition, we have reclassified $1.9

10

million and $4.6 million in reimbursed expenses to service revenues and cost of service revenues in the consolidated statements of income for the three and nine-month periods ended September 30, 2001, respectively.

         We adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) effective January 1, 2002. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting Standards No. 121, Accounting of the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 requires that we evaluate long-lived assets based on the net future cash flow expected to be generated from the asset on an undiscounted basis whenever significant events or changes in circumstances occur that indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 144 did not have a significant impact on our operating results or financial position.

         In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 (“EITF No. 94-3”), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under SFAS No. 146, the liability for costs associated with exit or disposal activities is recognized and measured at fair value when the liability is incurred, rather than at the date of a company’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. We intend to adopt SFAS No. 146 effective January 1, 2003.

         In January 2002 the Securities and Exchange Commission adopted new rules for the disclosure of equity compensation plans. The purpose of the new rules is to summarize the potential dilution that could occur from past and future equity grants under all equity compensation plans. The new rules require tabular disclosure of the number of shares issuable under outstanding grants, the weighted average exercise price of outstanding grants, and the number of shares available for future grants aggregated into two categories – plans that have been approved by stockholders and plans that have not. A narrative summary of the material features of equity compensation plans that have not been approved by stockholders must be provided. The new disclosure rules are effective for annual reports filed on Form 10-K for fiscal years ending on or after March 15, 2002 and proxy and information statements for meetings of, or action by, stockholders occurring on or after June 15, 2002.

3. Acquisition of J•Commerce Inc.

         On April 12, 2002 we acquired certain intellectual property of J•Commerce Inc. (“J•Commerce”), a privately held Canadian corporation, for $4 million in cash. J•Commerce develops and markets point-of-sale software solutions that are based on Java™ technology. We intend to combine the J•Commerce point-of-sale software technology, which requires further development and is not ready for commercial release, with our Internet-based Store Portals application to provide a complementary product strategy with Win/DSS for “Tier 1” retail customers that have annual sales in excess of $5 billion and/or a large number of stores and/or registers per store. The acquisition was accounted for as a purchase and accordingly, the operating results of J•Commerce have been included in our consolidated financial statements from the date of acquisition. Pro forma operating results have not been presented as the effect of the acquisition is not material to our consolidated financial statements.

         The total acquisition cost of $4.2 million, which includes the purchase price of $4 million plus $185,000 in direct costs related to the transaction, was allocated to the acquired assets and liabilities based on their estimated fair values and in accordance with SFAS No. 141 and SFAS No. 142. The following summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.

Software technology		$	2,060
In-process research and development			800
Goodwill			1,325
	Total acquisition cost of J•Commerce		4,185
Accruals for direct costs related to the acquisition			(15	)
	Total cash expended to acquire J•Commerce	$	4,170

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The allocated value for in-process research and development of $800,000 was expensed at the date of acquisition.

4. Earnings per Share

         Earnings per share for the three and nine-month periods ended September 30, 2002 and 2001 is calculated as follows:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2002		2001		2002		2001
Net income	$	758	$	1,174	$	7,980	$	6,350
Shares – Basic earnings per share		28,316		25,334		27,927		24,857
Dilutive common stock equivalents		361		633		1,346		379
		28,677		25,967		29,273		25,236
Basic earnings per share	$	.03	$	.05	$	.29	$	.26
Diluted earnings per share	$	.03	$	.05	$	.27	$	.25

5. Restructuring, Asset Disposition and Other Merger Related Charges

         We expect to record a restructuring charge of approximately $4.5 million in fourth quarter 2002 related to the reorganization of the Company to increase its focus on bringing value to its customers, that will result in a net workforce reduction of approximately 170 full-time employees (“FTE”) and certain office closures. The workforce reduction will include certain employees involved in product development (59 FTE), consulting and client support services (57 FTE), sales and marketing (30 FTE), and administrative functions (24 FTE). As part of this reorganization, we also expect to incur approximately $2.6 million in costs to relocate certain product development and customer support employees based in offices around the United States and the United Kingdom to our corporate headquarters during first half 2003. We will recognize these relocation costs in income from continuing operations as they are incurred. We do expect, however, that certain product development and customer support employees will choose not to relocate to our corporate headquarters and as a result, these employees will also receive termination benefits in fourth quarter 2002. The reorganization and workforce reduction will allow us to reallocate our resources in response to a fundamental shift in the way we develop product and bring it to market, as well as to changes in the demand for the various types of products we sell, the length of implementation efforts required and associated skill requirements. In addition, the workforce reduction will enable us to better align our cost structure during the current economic downturn, which has adversely impacted our revenues, elongated our selling cycles, and delayed, suspended or reduced the demand for certain of our products. We expect to reduce our annual operating costs by approximately $10 million to $12 million through this reorganization and restructuring effort. All employees impacted by the reduction in force for this initiative will be notified of their termination and the related benefits during the quarter ending December 31, 2002.

         During second quarter 2002, we recorded a $1.3 million restructuring charge related to a workforce reduction of 53 full-time employees (“FTE”). The workforce reduction included certain employees involved in implementation and maintenance services (32 FTE), product development activities (2 FTE), sales and marketing (16 FTE), and administrative functions (3 FTE). All workforce reductions associated with these charges were made on or before June 30, 2002. We expect all remaining amounts to be paid out on or before June 30, 2003.

Description of the	Initial		Cash			Loss on		Non-cash		Adjustments to		Balance at
charge	Reserve		Charges			disposal of assets		Charges		Expense		September 30, 2002
Severance, benefits and related legal costs	$	1,295	$	(1,062	)	$	—	$	—	$	—	$	233

         During 2001, we recorded restructuring, asset disposition and other merger related charges of $749,000 in first quarter 2001 and an additional $236,000 in fourth quarter 2001. The restructuring initiatives involved a workforce reduction of 41 FTE that included certain employees involved in implementation and maintenance services (17 FTE), product development activities (7 FTE), sales and marketing (10 FTE), and administrative

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functions (7 FTE), related in part to the acquisition of E3. All workforce reductions associated with these charges were made on or before March 31, 2001 or December 31, 2001, as appropriate. Office closure costs pertain to certain European offices that became redundant after the E3 acquisition in September 2001. Other charges consist of the write-off of certain merger and acquisition costs related to a potential acquisition that was abandoned in March 2001.

		Initial		Cash			Loss on		Non-cash			Adjustments to		Balance at
Description of the charge		Reserve		Charges			disposal of assets		Charges			Expense		September 30, 2002
Severance, benefits and related legal costs		$	727	$	(727	)	$	—	$	—		$	—	$	—
Office closure costs			50		(42	)		—		(4	)		—		4
Other Charges			208		(208	)		—		—			—		—
	Total	$	985	$	(977	)	$	—	$	(4	)	$	—	$	4

6. Stock Repurchase Program

         In July 2002, our Board of Directors authorized the repurchase of up to two million shares of our outstanding common stock. Under this repurchase program, we may periodically repurchase common shares during a one-year period ending July 22, 2003 on the open market at prevailing market prices. As of September 30, 2002, we have not repurchased any shares of our common stock under this program.

7. E3 Acquisition Reserves

         In conjunction with the E3 acquisition in September 2001, we recorded initial acquisition reserves of approximately $14.5 million for restructuring charges and other direct costs associated with the acquisition. These costs relate primarily to facility closures, employee severance, investment banker fees, and legal and accounting costs. We subsequently increased the purchase price and the E3 acquisition reserves by $1.4 million during 2002 based on our revised estimates of the restructuring costs to exit the activities of E3 and the other direct costs of the acquisition. The remaining acquisition reserves, which are included in accrued expenses and other liabilities on the balance sheet, were approximately $1.6 million and $8.5 million at September 30, 2002 and December 31, 2001, respectively.

         Cash charges and adjustments recorded against the reserves are as follows:

							Balance at								Balance at
		Initial		Cash			December 31,		Cash			Adjustments			September 30,
Description of charge		Reserve		Charges			2001		Charges			to Reserve			2002
Restructuring charges under EITF 95-3:
Facility termination and sublease costs		$	4,689	$	(305	)	$	4,384	$	(4,562	)	$	1,129		$	951
Employee severance and termination benefits			4,351		(997	)		3,354		(3,065	)		184			473
Termination payments to distributors			500		(95	)		405		—			(305	)		100
E3 user group and trade show cancellation fees			84		(72	)		12		—			(12	)		—
Direct costs under SFAS 141:
Legal and accounting costs			2,344		(2,024	)		320		(594	)		350			76
Investment banker fees			2,119		(2,119	)		—		—			—			—
Due diligence fees and expenses			350		(336	)		14		(40	)		26			—
Filing fees, appraisal services and transfer taxes			110		(100	)		10		—			(10	)		—
	Total	$	14,547	$	(6,048	)	$	8,499	$	(8,261	)	$	1,362		$	1,600

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         The facility termination and sublease costs are costs of a plan to exit an activity of an acquired company as described in Financial Accounting Standards Board Emerging Issues Task Force Issue No. 95-3 (“EITF No. 95-3”), Recognition of Liabilities in Connection with a Purchase Business Combination, and include the estimated costs of management’s plan to shut down nine offices of E3 shortly after the acquisition date. These costs have no future economic benefit to the Company and are incremental to the other costs incurred by the Company or E3. Immediately following the consummation of the E3 acquisition, the Company engaged real estate advisers and began the necessary activities to shut down the offices and sublet the locations or negotiate early termination agreements with the various landlords. The most significant E3 facility (the former Corporate Headquarters) was difficult to sublet and in July 2002 we settled with the landlord by paying a $3.4 million lease termination fee. This resulted in a $950,000 adjustment to the facility termination and sublease costs acquisition reserve. The remaining amounts in this reserve are being paid out as the leases and related subleases run through their remaining terms, ranging from 10 to 13 months.

         Employee severance and termination benefits are costs resulting from a plan to involuntarily terminate employees from an acquired company as described in EITF No. 95-3. As of the consummation date of the acquisition, executive management approved a plan to involuntarily terminate approximately 31% of the 338 full time employees of E3. In the first three months following the consummation of the E3 acquisition, management completed the assessment of which employees would be involuntarily terminated and communicated the termination arrangements to the affected employees in accordance with statutory requirements of the local jurisdictions in which the employees were located. We expect all amounts for these exit costs to be paid out before June 30, 2003.

8. Business Segments and Geographic Data

         We are a leading provider of sophisticated software solutions designed specifically to address the demand and supply chain management, business process, decision support, e-commerce, inventory optimization and collaborative planning and forecasting requirements of the retail industry and its suppliers. Our solutions enable our customers to collect, manage, organize and analyze information throughout their retail enterprise, and to interact with suppliers and customers over the Internet at multiple levels within their organizations. We conduct business in five geographic regions that have separate management teams and reporting structures: the United States, Europe (includes the Middle East and Africa), Asia/Pacific, Canada and Latin America. Similar products and services are offered in each geographic region and local management is evaluated primarily based on total revenues and operating income. Identifiable assets are also managed by geographical region. The geographic distribution of our revenues and identifiable assets is as follows:

				Three Months						Nine Months
				Ended September 30,						Ended September 30,
				2002			2001			2002			2001
Revenues:
	United States			$	29,019		$	27,882		$	95,933		$	84,385
	Europe				12,989			11,725			44,013			32,604
	Asia/Pacific				4,858			8,357			15,494			19,533
	Canada				1,934			1,937			8,226			7,708
	Latin America				1,226			2,685			4,290			8,285
		Total international			21,007			24,704			72,023			68,130
	Sales and transfers among regions				(614	)		(813	)		(1,810	)		(1,498	)
			Total revenues	$	49,412		$	51,773		$	166,146		$	151,017

				September 30,		December 31,
				2002		2001
Identifiable assets:
	United States			$	237,086	$	217,980
	Europe				50,807		48,336
	Asia/Pacific				10,144		9,961
	Canada				6,182		6,093
	Latin America				4,443		6,272
		Total international			71,576		70,662
			Total identifiable assets	$	308,662	$	288,642

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         We have organized our business segments around the distinct requirements of retail enterprises, retail stores, and suppliers to the retail industry:

• Retail Enterprise Systems include corporate level merchandise management, planning and forecasting systems that enable retailers to optimize their inventory control, product mix, pricing and promotional strategies, automate demand forecasting and replenishment, and enhance the productivity and accuracy of warehouse processes. In addition, Retail Enterprise Systems include a comprehensive set of tools for analyzing business results and trends, tracking customer shopping patterns, space management, trade allowance and promotional program management, monitoring strategic plans and tactical decisions.

• In-Store Systems include point-of-sale, e-commerce and back office applications that enable retailers to capture, analyze and transmit certain sales, store inventory and other operational information to corporate level merchandise management systems using hand-held, radio frequency devices, point-of-sale workstations or via the Internet. In-Store Systems also include Store Portals that provide retailers with the ability to access enterprise information on their merchandise management systems, via the Internet, and execute associated processes to support their store operations.

• Collaborative Solutions include applications that enable business-to-business collaborative planning, forecasting and replenishment between retailers and their suppliers. Collaborative Solutions, which currently include some of our Retail Enterprise Systems applications, when used by suppliers, as well as collaboration specific applications, optimize the sharing of plans and information between trading partners and supply chain decisions in such areas as inventory replenishment, marketing/promotions, sales planning/execution and category management.

         A summary of the revenues, operating income (loss), and depreciation attributable to each of these business segments for the three and nine-month periods ended September 30, 2002 and 2001 is as follows:

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2002			2001			2002			2001
Revenues:
	Retail Enterprise Systems	$	32,063		$	41,303		$	112,907		$	116,532
	In-Store Systems		6,237			5,547			20,473			19,107
	Collaborative Solutions		11,112			4,923			32,766			15,378
		$	49,412		$	51,773		$	166,146		$	151,017
Operating income (loss):
	Retail Enterprise Systems	$	5,437		$	9,381		$	24,331		$	25,123
	In-Store Systems		802			410			5,009			2,939
	Collaborative Solutions		1,700			1,569			7,045			4,951
	Other (see below)		(7,106	)		(10,033	)		(25,362	)		(25,170	)
		$	833		$	1,327		$	11,023		$	7,843
Depreciation:
	Retail Enterprise systems	$	1,432		$	1,628		$	4,394		$	4,695
	In-Store systems		312			314			879			1,045
	Collaborative Solutions		383			117			996			234
		$	2,127		$	2,059		$	6,269		$	5,974
Other:
	Amortization of intangible assets	$	711		$	1,358		$	2,137		$	3,858
	In-process research and development charge		—			2,200			800			2,361
	Restructuring, asset disposition and other charges		—			—			1,295			749
	General and administrative expenses		6,395			6,475			21,130			18,202
		$	7,106		$	10,033		$	25,362		$	25,170

         Operating income in the Retail Enterprise Systems, In-Store Systems and Collaborative Solutions business segments includes direct expenses for software licenses, maintenance services, consulting services, sales and marketing expenses, product development expenses, as well as allocations for occupancy costs and depreciation expense. The “Other” caption includes general and administrative expenses and other charges that are not directly identified with a particular business segment and which management does not consider in evaluating the operating income of the business segment.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

         This Quarterly Report on Form 10-Q contains forward-looking statements reflecting management’s current forecast of certain aspects of our future. It is based on current information that we have assessed but which by its nature is dynamic and subject to rapid and even abrupt changes. Forward-looking statements include statements regarding future operating results, liquidity, capital expenditures, product development and enhancements, numbers of personnel, strategic relationships with third parties, acquisitions and strategy. The forward-looking statements are generally accompanied by words such as “plan,” “estimate,” “expect,” “intend,” “believe,” “should,” “would,” “could,” “anticipate” or other words that convey uncertainty of future events or outcomes. In particular, we provide our belief that consulting services revenue will decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns or until economic conditions improve, that we expect to record a restructuring charge of approximately $4.5 million in fourth quarter 2002 and to incur $2.6 million in relocation costs in the first half of 2003, our belief that the reorganization and restructuring efforts announced in fourth quarter 2002 will result in a $10 million to $12 million reduction in our operating costs, our belief that sales activity with “Tier 1” retail customers will continue to contribute to revenues in future periods, our estimated effective tax rate for 2002,our belief that the current audits of our 1998 and 1999 Federal Income Tax Returns will not result in any material adjustments, the estimated effect the application of the non-amortization provisions of SFAS No. 142 will have on amortization expense, our intentions to combine the J•Commerce point-of-sale software technology with our Internet-based Store Portal applications to provide a complementary product strategy with Win/DSS, and our belief that our consolidation of development activities to our Corporate Headquarters will enhance development timeframes and reduce costs in 2003. Our actual results could differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with our business. These risks are described throughout this Quarterly Report on Form 10-Q, which you should read carefully. We would particularly refer you to the section under the heading “Certain Risks” for an extended discussion of the risks confronting our business. The forward-looking statements in this Quarterly Report on Form 10-Q should be considered in the context of these risk factors.

Overview

         We provide sophisticated software solutions to the retail industry and its suppliers. Our solutions enable our customers to collect, manage, organize and analyze information throughout their retail enterprise, and to interact with suppliers and customers over the Internet at multiple levels within their organizations. We also offer maintenance services to our software customers and enhance and support our software business by offering retail specific services that are designed to enable our clients to rapidly achieve the benefits of our solutions. These services include project management, system planning, system design and implementation, custom configurations, and training services. Demand for our implementation services is driven by, and often trails, sales of our software products. Consulting services revenues are generally more predictable but generate lower gross margins than software license revenues.

Significant Trends and Developments in Our Business

         Economic Conditions. We believe that negative economic conditions, threat of a US war with Iraq and the disruption caused by the September 11 attack have affected the demand for our products and the length of our sales cycles. We continue to be concerned about weak and uncertain economic conditions, consolidations and the disappointing results of retailers in certain of our geographic regions. The retail industry will be adversely impacted if negative economic conditions or fear of a war with Iraq or additional terrorists’ attacks persist for an extended period of time. Weak and uncertain economic conditions have in the past, and may in the future, negatively impact our revenues, elongate our selling cycles, and delay, suspend or reduce the demand for our products. As a result, it is difficult in the current economic environment to predict exactly when specific software licenses will close within a six to nine month time frame. For example, in third quarter 2002 we experienced delays in the execution of nearly all large software license contracts valued at $1 million or higher which caused our reported revenues for the three months ended September 30, 2002 to be below our previously published guidance. We are unable to predict if or when these contracts may be executed. In addition, we believe that pricing pressure has increased in response to the economic downturn, which could cause us to offer more significant discounts, or in some cases to lose potential business to competitors willing to offer what we believe to be overly aggressive discounts. Further, weak and uncertain economic conditions could cause a deterioration of our customers’ creditworthiness in the future and impair our customers’ ability to pay for our products or services or cause an increase in bankruptcy filings in our

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customer base. Any of these factors could adversely impact our business, quarterly or annual operating results and financial condition.

         Impact of the E3 Corporation Acquisition. In September 2001 we completed the acquisition of E3 Corporation (“E3”) for a total cost of $60.1 million, which includes $20 million in cash and the exchange of 1,600,080 shares of our unregistered common stock for all of the outstanding stock of E3 held by the former shareholders of E3, as well as $15.9 million in restructuring costs to exit certain activities of E3, fees and direct costs associated with the acquisition. The E3 product suite consists of inventory optimization systems, including E3Trim, a warehouse and distribution center forecasting and replenishment solution, and E3Slim, a store level forecasting and replenishment solution; advanced analytic solutions such as Consumer Outlook!, a data mining application for consumer behavior patterns, and Pin Point!, an application that refines seasonal profile assignments; and certain collaborative planning, forecasting and replenishment (“CPFR”) solutions, which today include 107 live trading partners and enable manufacturers, distributors and retailers to work from a single, shared demand forecast. By acquiring E3, we believe we immediately gained market share in the inventory replenishment space. Importantly, approximately 80% of E3’s client base is non-retail and we have accelerated our CPFR initiatives by gaining an immediate presence in the wholesale and distribution industries. Total revenues in our Collaborative Solutions business segment have increased 113% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, primarily because of the new products that E3 had developed for this evolving market.

         E3 represented 20% of our total revenues for the nine months ended September 30, 2002 compared to 2% in the nine months ended September 30, 2001. During the nine months ended September 30, 2002, E3 contributed $14.1 million, $24.9 million, $9.2 million and $34 million to our software license revenues, product revenues, service revenues and total revenues, respectively. Excluding E3, software license revenues, product revenues, consulting services revenues, and total revenues decreased 24%, 10%, 11% and 10%, respectively in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.

         New Products and Expanded Markets. We invested $35.4 million in the nine months ended September 30, 2002 and approximately $246 million from 1998 to 2001 in new product development and the acquisition of complementary products while remaining profitable and cash flow positive from operations. We released enhanced versions of our core software products during the past two years and introduced new value-added web-based applications such as Store Portals, Affinity and AdPlan. In addition, the acquisitions of Arthur, Intactix, Zapotec, NeoVista Decision Series and E3 have expanded our product offerings and provided us with collaborative applications that address new vertical market opportunities with the manufacturers and wholesalers who supply our traditional retail customers. The Collaborative Solutions business segment, which includes sales of software license and services to customers outside our historical retail market, provided 20% of our total revenues in the nine months ended September 30, 2002 compared to 10% in the nine months ended September 30, 2001. Although we continue to focus on the “Tier 2” retail market we have experienced increased sales activity with “Tier 1” retail customers with annual sales in excess of $5 billion in the last two years that we expect to continue to contribute to revenue in future periods. We believe our strategy of expanding our product portfolio and increasing the scalability of our products has been the key element in attracting “Tier 1” retail customers and we believe that it has resulted in a steady pattern of new customers licensing multiple products, as well as enhanced back-selling opportunities in our install base.

         On April 12, 2002 we acquired certain intellectual property of J•Commerce Inc. (“J•Commerce”), a privately held Canadian corporation, for $4 million in cash. J•Commerce develops and markets point-of-sale software solutions that are based on Java™ technology. We intend to combine the J•Commerce point-of-sale software technology, which requires further development and is not ready for commercial release, with our Internet-based Store Portals application to provide a complementary product strategy with Win/DSS for “Tier 1” retail customers that have annual sales in excess of $5 billion and/or a large number of stores and/or registers per store. The acquisition, which is not material to our financial statements, was accounted for as a purchase and accordingly, the operating results of J•Commerce have been included in our consolidated financial statements from the date of acquisition. In connection with the J•Commerce acquisition, we expensed $800,000 of purchased in-process research and development in second quarter 2002 and recorded approximately $1.3 million of goodwill, and $2.1 million of developed software technology.

         We Have Lowered Our Consulting Services Revenue Outlook. Consulting services revenue, including the reclassification of reimbursed expenses, was flat in the nine months ended September 30, 2002 compared to the nine

17

months ended September 30, 2001. An $8.6 million increase in consulting services revenue from the E3 product line between the comparable nine-month periods was substantially offset by a decrease in consulting services revenue from implementation of host merchandising systems. Consulting services revenue typically lags the recognition of software revenues by as much as one year. We believe the average implementation times for our software products have declined due to increased training and expertise in our consulting organization, and as a direct result of the investments we have made over the past three years to increase the functionality, stability, scalability, integration and ease of implementation of the products in the JDA Portfolio. Furthermore, much of the demand for our products is associated with our analytic and optimization products that require lower levels of services to implement. As a result of these changes in our business and product revenue mix, our consulting services revenue has declined sequentially in each of the last four quarters and we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until economic conditions improve.

         Consulting services margins, including the reclassification of reimbursed expenses in both service revenues and cost of service revenues, increased to 29% in the nine months ended September 30, 2002 compared to 25% in the nine months ended September 30, 2001. This increase results primarily from lower incentive compensation payments and higher average billing rates in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by lower utilization rates. The lower utilization rates are a result of deteriorating economic conditions which have decreased the overall demand for our services, the shift in demand away from host merchandising systems towards our analytic and optimization products, and improved integration and shorter implementation timeframes of the products in the JDA Portfolio. During second quarter 2002 we reduced our consulting services headcount by approximately 10% in order to preserve our utilization rates, consulting margins and overall profitability with the lower consulting services revenue outlook for 2002. During the fourth quarter of 2002, we will reduce our consulting services headcount by approximately 13% in connection with our reorganization and restructuring of the company (See “We Have and Will Record Restructuring Charges to Reorganize our Company and to Re-align Our Cost Structure”).

         Strong Financial Position. We generated $27.7 million in positive cash flow from operations during the nine months ended September 30, 2002 and we continue to maintain a strong financial position with $92 million in cash, cash equivalents and marketable securities, and no debt.

         We Have and Will Record Restructuring Charges to Reorganize our Company and to Re-Align Our Cost Structure. We recorded a $1.3 million restructuring charge in second quarter 2002. The restructuring initiatives involved a workforce reduction of 53 full-time employees, primarily in the consulting services function in the United States, Europe, Canada and Latin America. All workforce reductions associated with this charge were made on or before June 30, 2002.

         We expect to record a restructuring charge of approximately $4.5 million in fourth quarter 2002 related to the reorganization of the Company to increase its focus on bringing value to its customers, that will result in a net workforce reduction of approximately 170 full-time employees (“FTE”) and certain office closures. The workforce reduction will include certain employees involved in product development (59 FTE), consulting and client support services (57 FTE), sales and marketing (30 FTE), and administrative functions (24 FTE). As part of this reorganization, we also expect to incur approximately $2.6 million in costs to relocate certain product development and customer support employees based in offices around the United States and the United Kingdom to our corporate headquarters during first half 2003. We will recognize these relocation costs in income from continuing operations as they are incurred. We do expect, however, that certain product development and customer support employees will choose not to relocate to our corporate headquarters and as a result, these employees will also receive termination benefits in fourth quarter 2002. The reorganization and workforce reduction will allow us to reallocate our resources in response to a fundamental shift in the way we develop product and bring it to market, as well as to changes in the demand for the various types of products we sell, the length of implementation efforts required and associated skill requirements. In addition, the workforce reduction will enable us to better align our cost structure during the current economic downturn, which has adversely impacted our revenues, elongated our selling cycles, and delayed, suspended or reduced the demand for certain of our products. We expect to reduce our annual operating costs by approximately $10 million to $12 million through this reorganization and restructuring effort. All employees impacted by the reduction in force for this initiative will be notified of their termination and the related benefits during the quarter ending December 31, 2002.

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Critical Accounting Policies

         We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. The preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

•	Revenue recognition. Our revenue recognition policy is significant because our revenue is a key component of our results of operations. In addition, our revenue recognition determines the timing of certain expenses such as commissions and royalties. We follow specific and detailed guidelines in measuring revenue; however, certain judgments affect the application of our revenue policy.
	We license software under non-cancelable agreements and provide related services, including consulting, training and customer support. We recognize revenue in accordance with Statement of Position 97-2 (“SOP 97-2”), Software Revenue Recognition, as amended and interpreted by Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition, with respect to certain transactions, as well as Technical Practice Aids issued from time to time by the American Institute of Certified Public Accountants. We adopted Staff Accounting Bulletin No. 101 (“SAB 101”), Revenue Recognition in Financial Statements, during first quarter 2000. SAB 101 provides further interpretive guidance for public companies on the recognition, presentation, and disclosure of revenue in financial statements. The adoption of SAB 101 did not have a material impact on our licensing or revenue recognition practices.
	Software license revenue is recognized when a license agreement has been signed, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. If a software license contains an undelivered element, the vendor-specific objective evidence (“VSOE”) of fair value of the undelivered element is deferred and the revenue recognized once the element is delivered. The undelivered elements are primarily training, consulting and maintenance services. VSOE of fair value for training and consulting services is based upon standard hourly rates charged when those services are sold separately. VSOE of fair value for maintenance is the price the customer will be required to pay when it is sold separately (that is, the renewal rate). In addition, if a software license contains customer acceptance criteria or a cancellation right, the software revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance period or cancellation right. Payments for our software licenses are typically due in installments within twelve months from the date of delivery. Although infrequent, where software license agreements call for payment terms of twelve months or more from the date of delivery, revenue is recognized as payments become due and all other conditions for revenue recognition have been satisfied.
	Consulting and training services are separately priced, are generally available from a number of suppliers, and are not essential to the functionality of our software products. Consulting services, which include project management, system planning, design and implementation, customer configurations, and training are billed on both an hourly basis and under fixed price contracts. Consulting services revenue billed on an hourly basis is recognized as the work is performed. Training revenues are recognized when the training is provided and is included in consulting revenues in the Company’s consolidated statements of income. Under fixed price contracts, consulting services revenue is recognized using the percentage of completion method of accounting by relating hours incurred to date to total estimated hours at completion.
	We have from time to time provided software and consulting services under fixed price contracts that require the achievement of certain milestones and payment terms in these contracts are generally tied to customer acceptance of the milestones. The revenue under such arrangements is recognized as the milestones are achieved or upon customer acceptance. We believe that milestones are a proper measure of

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	progress under these contracts, as the milestones approximate the percentage of completion method of accounting.
	Customer support services include post contract support and the rights to unspecified upgrades and enhancements. Maintenance revenues from ongoing customer support services are billed on a monthly basis and recorded as revenue in the applicable month, or on an annual basis with the revenue being deferred and recognized ratably over the maintenance period.
	If an arrangement includes multiple elements, the fees are allocated to the various elements based upon VSOE of fair value, as described above.
•	Accounts Receivable. Consistent with industry practice and to be competitive in the retail software marketplace, we typically provide installment payment terms on most software license sales. Software licenses are generally due in installments within twelve months from the date of delivery. All significant customers are reviewed for creditworthiness before the Company licenses its software and we do not sell our software or recognize any license revenue unless we believe that collectibility is probable in accordance with the requirements of paragraph 8 in SOP 97-2. The Company has a history of collecting software payments when they come due without providing refunds or concessions. Consulting services are billed bi-weekly and maintenance services are billed annually or monthly. If a customer becomes significantly delinquent or its credit deteriorates, we put the accounts on hold and do not recognize any further services revenue (and in most cases we withdraw support and/or our implementation staff) until the situation has been resolved
	We do not have significant billing or collection problems. Although infrequent and unpredictable, from time to time certain of our customers have filed bankruptcy and the Company has had to refund the pre-petition amounts collected and settle for less than the face value of its remaining receivable pursuant to a bankruptcy court order. In these situations, as soon as it becomes probable that the net realizable value of the receivable is impaired, the Company provides reserves on the receivable. In addition, the Company monitors economic conditions in the various geographic regions in which it operates to determine if general reserves or adjustments to its credit policy in a region are appropriate for deteriorating conditions that may impact the net realizable value of our receivables.
•	Intangible Assets. Our business combinations typically result in goodwill and other intangible assets, which affect the amount of future period amortization expense and possible impairment expense that we will incur. The determination of the value of such intangible assets requires management to make estimates and assumptions that affect our consolidated financial statements.
•	Stock-Based Compensation. We do not record compensation expense for options granted to our employees as all options granted under our stock option plans have an exercise price equal to the market value of the underlying common stock on the date of grant. As permitted under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), we have elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and provide pro forma disclosure on an annual basis of net income (loss) and net income (loss) per common share for employee stock option grants made as if the fair-value method defined in SFAS No. 123 had been applied.
•	Income Taxes. Our income tax policy records the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the consolidated balance sheets, as well as operating loss and tax credit carry-forwards. We follow specific and detailed guidelines regarding the recoverability of any tax assets recorded on the balance sheet and provide any necessary allowances as required.

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Recent Accounting Pronouncements

         Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS No. 141”). In addition to requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, SFAS No. 141 also provides guidance on the types of acquired intangible assets that are to be recognized and reported separately from goodwill. We reclassified the unamortized balance of assembled workforce of approximately $905,000 to goodwill on January 1, 2002 pursuant to certain transitional provisions of SFAS No. 141 that apply to the business combinations we completed and accounted for under the purchase method prior to July 1, 2001.

         We also adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) effective January 1, 2002. SFAS No. 142 addresses how intangible assets should be accounted for after they have been initially recognized in the financial statements. SFAS No. 142 also requires that goodwill and certain other intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. Upon adoption, we ceased amortization of goodwill and certain other intangible assets we recorded in business combinations prior to June 30, 2001. The application of the non-amortization provisions of SFAS No. 142 will reduce amortization expense by approximately $3.8 million in 2002, increasing net income by approximately $2.5 million.

         During the three months ended September 30, 2002 we recorded an additional $903,000 in goodwill as a result of certain final adjustments made to the estimated fair values of assets acquired and liabilities assumed in the acquisition of E3 in September 2001. The increase results primarily from a reduction in the amount of deferred tax asset recorded on this transaction to reflect our revised estimate of the anticipated future tax benefits from acquisition costs incurred and research and development credits. No goodwill was impaired or written-off during the three months ended September 30, 2002. As of September 30, 2002, goodwill, which includes the unamortized balance of assembled workforce that was reclassified to goodwill effective January 1, 2002, has been allocated to our reporting units as follows: $42.1 million to Retail Enterprise Systems, $1.3 million to In-Store Systems, and $16.4 million to Collaborative Solutions.

         SFAS No. 142 requires that we test goodwill for impairment as of January 1, 2002 and any resulting impairment charge be reflected as a cumulative effect of a change in accounting principle. We completed the initial screening for goodwill impairment during the three month period ended March 31, 2002 and found no impairment of the goodwill allocated to the individual reporting units; accordingly, absent future indicators of impairment, the second testing phase described in SFAS No. 142 is not necessary during the remainder of 2002.

         We reassessed the useful lives of intangible assets other than goodwill during the three-month period ended March 31, 2002. Except for trademarks, no adjustments have been made to the useful lives of our intangible assets. Substantially all of our capitalized trademarks were acquired in connection with the acquisition of E3. We do not believe the expected useful life of the E3 trademarks is directly tied to another asset or group of assets; however, we did acquire software technology and customer lists in connection with the E3 acquisition. Although the underlying software technology and customer install-base may change and evolve over time, we intend to indefinitely develop next generation products under the E3 trademark. Beginning January 1, 2002, we assigned indefinite useful lives to our E3 trademarks, and ceased amortization, as we believe that there are no legal, regulatory, contractual, competitive, economic, or other factors that would limit the useful life of our trademarks and we expect the trademarks to contribute to our cash flows indefinitely. In accordance with SFAS 142, we test our trademarks for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. We completed an initial impairment test on trademarks during the three-month period ended March 31, 2002 and found no indication of impairment.

         We adopted Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”) effective January 1, 2002. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes Statement of Financial Accounting Standards No. 121, Accounting of the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 requires that we evaluate long-lived assets based on the net future cash flow expected to be generated from the asset on an undiscounted basis whenever significant events or changes in circumstances occur that indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS No. 144 did not have a significant impact on our operating results or financial position.

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         In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 (“EITF No. 94-3”), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Under SFAS No. 146, the liability for costs associated with exit or disposal activities is recognized and measured initially at fair value only when the liability is incurred, rather than at the date the Company committed to the exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. We intend to adopt SFAS No. 146 effective January 1, 2003.

         In January 2002 the Securities and Exchange Commission adopted new rules for the disclosure of equity compensation plans. The purpose of the new rules is to summarize the potential dilution that could occur from past and future equity grants under all equity compensation plans. The new rules require tabular disclosure of the number of shares issuable under outstanding grants, the weighted average exercise price of outstanding grants, and the number of shares available for future grants aggregated into two categories – plans that have been approved by stockholders and plans that have not. A narrative summary of the material features of equity compensation plans that have not been approved by stockholders must be provided. The new disclosure rules are effective for annual reports filed on Form 10-K for fiscal years ending on or after March 15, 2002 and proxy and information statements for meetings of, or action by, stockholders occurring on or after June 15, 2002.

Three months ended September 30, 2002 Compared to Three months ended September 30, 2001

         Revenues consist of product revenues and consulting services revenue, including reimbursed expenses, which represented 52% and 48%, respectively, of total revenues in the three months ended September 30, 2002 compared to 49% and 51%, respectively in the three months ended September 30, 2001. Total revenues for the three months ended September 30, 2002 were $49.4 million, a decrease of $2.4 million, or 5%, from the $51.8 million reported in the three months ended September 30, 2001. Total revenues for the three months ended September 30, 2002 include $9.6 million in revenues from the E3 product line, which was acquired in September 2001, compared to $3.4 million in the three months ended September 30, 2001. Excluding E3, product revenues, consulting services revenue including reimbursed expenses, and total revenues decreased 19%, 17%, and 18%, respectively in the three months ended September 30, 2002 compared to the three months ended September 30, 2001.

Product Revenues

         Software Licenses. Software license revenues for the three months ended September 30, 2002 decreased 31% to $10.8 million from $15.6 million in the three months ended September 30, 2001. E3 software license revenues for the three months ended September 30, 2002 increased 37% to $3 million from $2.2 million in the three months ended September 30, 2001. Excluding E3, software license revenues decreased 42% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily as a result of a softening demand for substantially all of the applications in our Retail Enterprise Systems business segment. The retail industry appears to remain cautious with their level of investment in information technology during the current difficult economic cycle, due perhaps to poor macroeconomic conditions and uncertainty related to potential terrorist activities and the threat of a US war with Iraq. In addition, subsequent to the September 11 attack, we believe retailers have changed their buying behavior and that this has resulted in a fundamental shift in the mix of demand for the various types of products we sell. Software license sales in the Retail Enterprise Systems business segment, excluding E3, decreased 70% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Demand for our In-store Systems and Collaborative Solutions software products has remained strong with increases of 37% and 167%, respectively in the three months ended September 30 2002 compared to the three months ended September 30, 2001.

         Domestic software license revenues decreased 25% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily as result of a softening demand for substantially all of the applications in our Retail Enterprise Systems business segment. Domestic E3 software license revenues in the three months ended September 30, 2002 were flat with the three months ended September 30, 2001. International software license revenues decreased 36% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. E3 international software license revenues for the three months ended

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September 30, 2002 increased to $1.8 million from $1.1 million in the three months ended September 30, 2001. Excluding E3, international software license revenues for the three months ended September 30, 2002 decreased 54% compared to the three months ended September 30, 2001, primarily due to decreases in software license sales in Asia/Pacific and Latin America.

         Maintenance Services. Maintenance services revenue for the three months ended September 30, 2002 increased 49% to $14.9 million from $10 million in the three months ended September 30, 2001. E3 maintenance services revenues for the three months ended September 30, 2002 increased to $4.2 million from $672,000 in the three months ended September 30, 2001. Excluding E3, maintenance services revenue increased 14% due to increases in the install base for our other product lines.

Consulting Services

         Consulting services revenue, including the reclassification of reimbursed expenses, for the three months ended September 30, 2002 decreased 9% to $23.8 million from $26.2 million in the three months ended September 30, 2001. E3 consulting services revenues for the three months ended September 30, 2002 increased to $2.3 million from $541,000 in the three months ended September 30, 2001. Excluding E3, consulting services revenue decreased 17% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily as a result of a decrease in consulting services revenue from implementation of host merchandising systems. Consulting services revenue typically lags the recognition of software revenues by as much as one year. We believe the average implementation times for our software products have declined due to increased training and expertise in our consulting organization, and as a direct result of the investments we have made over the past three years to increase the functionality, stability, scalability, integration and ease of implementation of the products in the JDA Portfolio. Furthermore, much of the demand for our products is associated with our analytic and optimization products that require lower levels of services to implement. As a result of these changes in our business and product revenue mix, our consulting services revenue has declined sequentially in each of the last four quarters and we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until economic conditions improve.

Business Segment Revenues

         Total revenues in our Retail Enterprise Systems business segment decreased 22% to $32.1 million in the three months ended September 30, 2002 from $41.3 million in the three months ended September 30, 2001. E3 revenues in this business segment increased 96% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this business segment decreased 31% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, primarily due to a softening demand for substantially all applications in our Retail Enterprise Systems business segment. Sales of host merchandising and merchandise planning systems tend to be more heavily impacted during slow economic periods, as retailers are often reluctant to make substantial investments due to the slower expected return on investment. In addition, these products typically have longer implementation time frames and our services group often performs the implementation services. Thus, the decline in software sales for these products is also having a negative impact on our consulting services revenue. The Retail Enterprise Systems business segment represented 65% of our total revenues in the three months ended September 30, 2002 compared to 80% in the three months ended September 30, 2001.

         Total revenues in our In-Store Systems business segment increased 12% to $6.2 million in the three months ended September 30, 2002 from $5.5 million in the three months ended September 30, 2001, due to increases in software license sales, maintenance services, and consulting services revenues. The In-Store Systems business segment represented 13% of total revenues in the three months ended September 30, 2002 compared to 11% in the three months ended September 30, 2001.

         Total revenues in our Collaborative Solutions business segment increased 126% to $11.1 million in the three months ended September 30, 2002 from $4.9 million in the three months ended September 30, 2001. Revenues from E3 accounted for 57% of the dollar increase in this business segment. Excluding E3, total revenues in this business segment increased 63% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. The Collaborative Solutions business segment represented 22% of total revenues in the three months ended September 30, 2002 compared to 10% in the three months ended September 30, 2001.

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Geographic Revenues

         Total revenues in the United States increased 4% to $29 million in the three months ended September 30, 2002 from $27.9 million in the three months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this region decreased 10% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, due to a 31% decrease in software license revenues and a 10% decrease in consulting services revenues, offset in part by a 17% increase in maintenance services revenues.

         Total revenues in Europe increased 11% to $13 million in the three months ended September 30, 2002 from $11.7 million in the three months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this region decreased 12% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, due to a 14% decrease in software license revenue and a 21% decrease in consulting services revenue, offset in part by an 11% increase in maintenance services revenue.

         Total revenues in Asia/Pacific decreased 42% to $4.9 million in the three months ended September 30, 2002 from $8.4 million in the three months ended September 30, 2001 due to a 69% decrease in software license revenues and a 30% decrease in consulting services revenue primarily due to decreases in revenue from ongoing implementations in Australia and Japan.

         Total revenues in Canada were $1.9 million in the three months ended September 30, 2002 compared to $1.9 million in the three months ended September 30, 2001. Total revenues include the favorable impact of an increase in E3 revenues in this region in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Excluding E3, total revenues in this region decreased 10% in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, due to a 27% decrease in software license revenue and a 13% decrease in consulting services revenue, offset in part by a 7% increase in maintenance services revenue.

         Total revenues in Latin America decreased 54% to $1.2 million in the three months ended September 30, 2002 from $2.7 million in the three months ended September 30, 2001 due to an 84% decrease in software license revenues and a 24% decrease in consulting services revenues.

Cost of Product Revenues

         Cost of Software Licenses. Cost of software licenses was $140,000, or 1% of software license revenues in the three months ended September 30, 2002 compared to $411,000, or 3% of software license revenues in the three months ended September 30, 2001. The decrease results from fewer software products sold in the three months ended September 30, 2002 that incorporate functionality from third party software providers and require the payment of royalties.

         Amortization of Acquired Software Technology. Amortization of acquired software technology was $1.1 million in the three months ended September 30, 2002 compared to $776,000 in the three months ended September 30, 2001. The increase results primarily from an increase in amortization on software technology acquired from E3 in September 2001.

         Cost of Maintenance Services. Cost of maintenance services increased 27% to $3.6 million, or 24% of maintenance services revenue, in the three months ended September 30, 2002 from $2.8 million, or 28% of maintenance services revenue, in the three months ended September 30, 2001. The increase results primarily from the acquisition of E3 in September 2001 and the addition of headcount in the customer support function to support our growing installed client base, offset in part by lower incentive compensation costs.

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Cost of Consulting Services

         Cost of consulting services, including the reclassification of reimbursed expenses, decreased 11% to $17.1 million in the three months ended September 30, 2002 from $19.2 million in the three months ended September 30, 2001. This decrease results from an 8% decrease in average consulting services headcount and lower incentive compensation costs in the three months ended September 30 2002 compared to the three months ended September 30, 2001. As of September 30, 2002 there were 516 individuals involved in our consulting services function.

Gross Profit

         Gross profit for the three months ended September 30, 2002 decreased 4% to $27.5 million, or 56% of total revenues, from $28.5 million, or 55% of total revenues, in the three months ended September 30, 2001. The decrease in gross profit dollars results from the 5% decrease in total revenues. The improvement in the gross margin percentage results primarily from higher product revenues as a percentage of total revenues in the three months ended September 30, 2002 compared to the three months ended September 30, 2001. Software licenses and maintenance services revenue have higher margins than service revenues. In addition, consulting services margins, which include the reclassification of reimbursed expenses in both service revenues and cost of service revenues, improved to 28% in the three months ended September 30, 2002 compared to 27% in the three months ended September 30, 2001. This increase results primarily from lower incentive compensation costs and higher average billing rates in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, offset in part by lower utilization rates. The lower utilization rates are a result of deteriorating economic conditions that have decreased the demand for our services, the shift in demand away from host merchandising systems towards analytic and optimization products that have lower implementation requirements, together with improved integration and shorter implementation timeframes of the products in the JDA Portfolio.

Operating Expenses

         Operating expenses, excluding amortization of intangibles, purchased in-process research and development and restructuring, asset disposition, and other merger related charges, increased 10% to $26 million, or 53% of total revenues, in the three months ended September 30, 2002 from $23.6 million, or 46% of total revenues, in the three months ended September 30, 2001. The primary reason for this increase is a 14% increase in average headcount due to the acquisitions of E3 and J• Commerce.

         Product Development. Product development expenses for the three months ended September 30, 2002 increased 19% to $10.4 million from $8.7 million in the three months ended September 30, 2001. Product development expense as a percentage of product revenues was 40% in the three months ended September 30, 2002 compared to 34% in the three months ended September 30, 2001. The increase in product development expense results primarily from the cost of full-time employees added in connection with the acquisitions E3 in September 2001, and J• Commerce in April 2002, and the addition of full-time employees involved in the ongoing enhancement of the JDA Portfolio and the development of further CPFR applications, offset in part by lower incentive compensation costs. Our average product development headcount increased 43% in third quarter 2002 compared to third quarter 2001 and as of September 30, 2002 there were 383 individuals involved in this function. In November 2002, we announced our intent to relocate substantially all product development activities to our Corporate headquarters in order to take advantage of certain synergies and efficiencies available as we migrate our suite of products to Microsoft’s .Net architecture. While this consolidation will result in some near term disruption, we believe that we will experience enhanced development timeframes and reduced costs in 2003 as a result of this change. We also believe development of our software is essentially completed concurrent with the establishment of technological feasibility, and accordingly, no costs have been capitalized.

         Sales and Marketing. Sales and marketing expenses for the three months ended September 30, 2002 increased 9% to $9.2 million from $8.4 million in the three months ended September 30, 2001. Sales and marketing expense as a percentage of total revenues was 19% in the three months ended September 30, 2002 compared to 16% in the three months ended September 30, 2001. The increase in sales and marketing expenses results from an increase in quota carrying sales representatives, due primarily to the acquisition of E3 in September 2001. This increase was offset in part by lower commissions and related benefits due to lower software sales, and lower marketing costs. Our average sales and marketing headcount increased 20% in third quarter 2002 compared to third

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quarter 2001, and as of September 30, 2002 there were 173 individuals involved in this function, including 108 quota carrying sales personnel and related sales management.

         General and Administrative. General and administrative expenses for the three months ended September 30, 2002 were $6.4 million, or 13% of total revenues, which is flat with $6.5 million, or 12% of total revenues, in the three months ended September 30, 2001. During the three months ended September 30, 2002 compared to 2001, increases in legal, insurance and travel costs, due to prevailing economic conditions, were offset by a $741,000 decrease in our bad debt provision and lower incentive compensation costs. The provision for bad debts in the three months ended September 30, 2002 decreased to $500,000, or 1% of total revenues, compared to $1.2 million, or 2% of total revenues in the three months ended September 30, 2001, due to the decreases in total revenues, receivable balances, and days sales outstanding, which resulted from strong cash collections during third quarter 2002. There have been no significant changes in our credit policies or any significant new billing or collection problems with our customers. As of September 30, 2002 there were 153 individuals involved in the general and administrative function.

         Amortization of Intangibles. Amortization of intangibles for the three months ended September 30, 2002 was $711,000 compared to $1.4 million the three months ended September 30, 2001. The non-amortization provisions of SFAS No. 142 for goodwill and trademarks with indefinite useful lives reduced amortization expense by approximately $950,000 in the three months ended September 30, 2002, however, this was offset by new amortization related to the acquisitions of NeoVista in June 2001 and E3 in September 2001.

Operating Income

         Operating income decreased 37% to $833,000 in the three months ended September 30, 2002 from $1.3 million in the three months ended September 30, 2001. The decrease in operating income results primarily from an increase in average headcount and decreases in software licenses and consulting services revenue of 31% and 9%, respectively, in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, which were offset in part by the 49% increase in maintenance services revenue and lower cost of consulting services revenue.

         Operating income in our Retail Enterprise Systems business segment decreased 42% to $5.4 million in the three months ended September 30, 2002 from $9.4 million in the three months ended September 30, 2001. The decrease results primarily from the softening demand for software license sales and consulting services, and reduced consulting service margins, offset in part by increases in maintenance services, and lower sales and marketing costs.

         Operating income in our In-Store Systems business segment increased 96% to $802,000 in the three months ended September 30, 2002 from $410,000 in the three months ended September 30, 2001. The increase results primarily from the increases in software license sales, maintenance services and consulting services revenues and increased consulting service margins in this business segment in the three months ended September 30, 2002 compared to the three months ended September 30, 2001, offset in part by an increases in product development and sales and marketing costs.

         Operating income in our Collaborative Solutions business segment increased 8% to $1.7 million in the three months ended September 30, 2002 from $1.6 million in the three months ended September 30, 2001. The increase results primarily from increases in software license sales, maintenance and consulting services revenues, offset in part by increases in sales and marketing and research and development costs to support our new CPFR initiatives.

Provision for Income Taxes

         Our effective income tax rate reflects statutory federal, state and foreign tax rates, partially offset by reductions for research and development expense tax credits. We currently expect an effective tax rate of 35.5% for 2002. From time to time, we may be subjected to audit by federal, state and/or foreign taxing authorities. The IRS is currently conducting an audit of our 1998 and 1999 Federal Income Tax Returns. We do not expect any material adjustments as a result of these audits.

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Nine months ended September 30, 2002 Compared to Nine months ended September 30, 2001

         Revenues consist of product revenues and consulting services revenue, including reimbursed expenses, which represented 54% and 46%, respectively, of total revenues in the nine months ended September 30, 2002 compared to 50% and 50%, respectively in the nine months ended September 30, 2001. Total revenues for the nine months ended September 30, 2002 were $166.1 million, an increase of $15.1 million, or 10%, over the $151 million reported in the nine months ended September 30, 2001. Total revenues for the nine months ended September 30, 2002 include $34 million in revenues from the E3 product line compared to $3.4 million in the nine months ended September 30, 2001. We owned E3 for the full nine months ended September 30, 2002 as compared to three weeks during the nine months ended September 30, 2001. Excluding E3, product revenues, consulting services revenue, and total revenues, decreased 10%, 11% and 10%, respectively in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.

Product Revenues

         Software Licenses. Software license revenues for the nine months ended September 30, 2002 increased 2% to $48.6 million from $47.9 million in the nine months ended September 30, 2001. E3 software license revenues for the nine months ended September 30, 2002 increased 531% to $14.1 million from $2.2 million in the nine months ended September 30, 2001 due primarily to the ownership of E3 for nine months versus three weeks. Excluding E3, software license revenues decreased 24% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, primarily as a result of a decrease in demand for certain applications in our Retail Enterprise Systems business segment. The retail industry appears to remain cautious with their level of investment in information technology during the current difficult economic cycle, perhaps due to poor macroeconomic conditions, and uncertainty related to potential future terrorist attacks and the threat of a US war with Iraq. In addition, subsequent to the September 11 attack, we believe retailers have changed their buying behavior and that this has resulted in a fundamental shift in the mix of demand for the various types of products we sell. Software license revenues in the Retail Enterprise Systems business segment, excluding E3, decreased 38% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 due primarily to a decrease in demand for our host merchandising and merchandise planning systems. Demand for our In-store Systems and Collaborative Solutions software products has remained strong with increases of 8% and 125%, respectively in the nine months ended September 30 2002 compared to the nine months ended September 30, 2001.

         Domestic software license revenues decreased 9% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, domestic software license revenues for the nine months ended September 30, 2002 decreased 38% compared to the nine months ended September 30, 2001. This decrease results primarily from a decrease in software license revenues related to certain other Retail Enterprise Systems and In-Store Systems applications. International software license revenues increased 16% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. E3 international software license revenues for the nine months ended September 30, 2002 increased to $5.6 million from $1.1 million in the nine months ended September 30, 2001. Excluding E3, international software license revenues for the nine months ended September 30, 2002 decreased 6% compared to the nine months ended September 30, 2001, primarily due to decreases in software license sales in Asia/Pacific and Latin America, offset in part by increases in software license sales in Europe and Canada.

         Maintenance Services. Maintenance services revenue for the nine months ended September 30, 2002 increased 49% to $41.9 million from $28.1 million in the nine months ended September 30, 2001. E3 maintenance services revenues for the nine months ended September 30, 2002 increased to $10.8 million from $672,000 in the three months ended September 30, 2001. Excluding E3, maintenance services revenue increased 13% due to increases in the install base for our other product lines.

Consulting Services

         Consulting services revenue, including the reclassification of reimbursed expenses, for the nine months ended September 30, 2002 were $75.7 million which is flat compared with $75.1 million in the nine months ended September 30, 2001. E3 consulting services revenues for the nine months ended September 30, 2002 increased to $9.2 million from $541,000 in the nine months ended September 30, 2001 primarily due to the longer period of ownership. Excluding E3, consulting services revenue decreased 11% in the nine months ended September 30, 2002

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compared to the nine months ended September 30, 2001, primarily as a result of a decrease in consulting services revenue from implementation of host merchandising systems. Consulting services revenue typically lags the recognition of software revenues by as much as one year. We believe the average implementation times for our software products have declined due to increased training and expertise in our consulting organization, and as a direct result of the investments we have made over the past three years to increase the functionality, stability, scalability, integration and ease of implementation of the products in the JDA Portfolio. Furthermore, much of the growth in demand for our products is associated with our analytic and optimization products that require lower levels of services to implement. As a result of these changes in our business and product revenue mix, our consulting services revenue has declined sequentially in each of the last four quarters and we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until economic conditions improve.

Business Segment Revenues

         Total revenues in our Retail Enterprise Systems business segment decreased 3% to $112.9 million for the nine months ended September 30, 2002 from $116.5 million in the nine months ended September 30, 2001. E3 revenues in this business segment increased 586% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, total revenues in this business segment decreased 17% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, primarily due to a decline in demand for host merchandising and merchandise planning systems. Sales of host merchandising and merchandise planning systems tend to be more heavily impacted during slow economic periods, as retailers are often reluctant to make substantial investments due to the slower expected return on investment. In addition, these products typically have longer implementation time frames and our services group often performs the implementation services. Thus, the decline in software sales for these products is also having a negative impact on our consulting services revenue. The Retail Enterprise Systems business segment represented 68% of our total revenues in the nine months ended September 30, 2002 compared to 77% in the nine months ended September 30, 2001.

         Total revenues in our In-Store Systems business segment increased 7% to $20.5 million in the nine months ended September 30, 2002 from $19.1 million in the nine months ended September 30, 2001. Increased demand for our Internet-based Store Portal applications was partially offset by a decrease in sales of Win/DSS. In-Store Systems such as Win/DSS tend to be heavily impacted during slow economic periods as the implementation of a new point-of-sale system usually requires a substantial hardware investment. The In-Store Systems business segment represented 12% of total revenues in the nine months ended September 30, 2002 compared to 13% in the nine months ended September 30, 2001.

         Total revenues in our Collaborative Solutions business segment increased 113% to $32.8 million in the nine months ended September 30, 2002 from $15.4 million in the nine months ended September 30, 2001. Revenues from E3 accounted for 83% of the dollar increase in this business segment. Excluding E3, total revenues in this business segment increased 20% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 primarily due to an increase in revenues from the Intactix product line to non-retail customers. The Collaborative Solutions business segment represented 20% of total revenues in the nine months ended September 30, 2002 compared to 10% in the nine months ended September 30, 2001.

Geographic Revenues

         Total revenues in the United States increased 14% to $95.9 million in the nine months ended September 30, 2002 from $84.4 million in the nine months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, total revenues in this region decreased 11% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, due to a 38% decrease in software license revenues and a 3% decrease in consulting services revenues, offset in part by an 14% increase in maintenance services revenue.

         Total revenues in Europe increased 35% to $44 million in the nine months ended September 30, 2002 from $32.6 million in the nine months ended September 30, 2001. The increase includes the favorable impact of an increase in E3 revenues in this region in the nine months ended September 30, 2002 compared to the nine months

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ended September 30, 2001. Excluding E3, total revenues in this region increased 5% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, due to a 24% increase in software license revenues and a 7% increase in maintenance services revenue, offset in part by a 7% decrease in consulting services revenue.

         Total revenues in Asia/Pacific decreased 21% to $15.5 million in the nine months ended September 30, 2002 from $19.5 million in the nine months ended September 30, 2001 due to a 34% decrease in software license revenues and a 24% decrease in consulting services revenue primarily due to decreases in revenues from ongoing implementations in Australia and Japan.

         Total revenues in Canada increased 7% to $8.2 million in the nine months ended September 30, 2002 from $7.7 million in the nine months ended September 30, 2001. Total revenues include the favorable impact of an increase in E3 revenues in this region in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Excluding E3, total revenues in this region increased 2% in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, due to a 64% increase in software license revenues and a 4% increase in maintenance services revenue, offset in part by a 22% decrease in consulting services revenue.

         Total revenues in Latin America decreased 48% to $4.3 million in the nine months ended September 30, 2002 from $8.3 million in the nine months ended September 30, 2001, due to a 69% decrease in software license revenues and a 44 % decrease in consulting services revenue.

Cost of Product Revenues

         Cost of Software Licenses. Cost of software licenses was $1.3 million, or 3% of software license revenues in the nine months ended September 30, 2002 compared to $1.8 million, or 4% of software license revenues in the nine months ended September 30, 2001. The decrease results from fewer software products sold in the nine months ended September 30, 2002 that incorporate functionality from third party software providers and require the payment of royalties.

         Amortization of Acquired Software Technology. Amortization of acquired software technology was $3.2 million in the nine months ended September 30, 2002 compared to $1.9 million in the nine months ended September 30, 2001. The increase results primarily from an increase in amortization on software technology acquired from E3 in September 2001.

         Cost of Maintenance Services. Cost of maintenance services increased 37% to $10.5 million, or 25% of maintenance services revenue, in the nine months ended September 30, 2002 from $7.6 million, or 27% of maintenance services revenue, in the nine months ended September 30, 2001. The increase results primarily from the acquisition of E3 in September 2001 and the addition of headcount in the customer support function to support our growing installed client base, offset in part by lower incentive compensation costs.

Cost of Consulting Services

         Cost of consulting services, including the reclassification of reimbursed expenses, decreased 4% to $53.8 million in the nine months ended September 30, 2002 from $56.2 million in the nine months ended September 30, 2001. This decrease results from a decrease in average consulting services headcount and lower incentive compensation costs in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.

Gross Profit

         Gross profit for the nine months ended September 30, 2002 increased 17% to $97.4 million, or 59% of total revenues, from $83.4 million, or 55% of total revenues, in the nine months ended September 30, 2001. The increase in gross profit dollars results primarily from the 10% increase in total revenues. The improvement in the gross margin percentage results primarily from higher product revenues as a percentage of total revenues in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001. Software licenses and maintenance services revenue have higher margins than service revenues. In addition, consulting services margins,

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which include the reclassification of reimbursed expenses in both service revenues and cost of service revenues, improved to 29% in the nine months ended September 30, 2002 compared to 25% in the nine months ended September 30, 2001. This increase results primarily from lower incentive compensation costs and higher average billing rates in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by lower utilization rates. The lower utilization rates are a result of deteriorating economic conditions that have decreased the demand for our services, the shift in demand away from host merchandising systems towards analytic and optimization products that have lower implementation requirements, together with improved integration and shorter implementation timeframes of the products in the JDA Portfolio. During second quarter 2002 we reduced our consulting services headcount by approximately 10% in order to preserve our utilization rates, consulting margins and overall profitability with the lower consulting services revenue outlook for 2002. During the fourth quarter 2002 we will reduce our consulting services headcount by another 13% (See “We Have and Will Record Restructuring Charges to Reorganize our Company and to Re-align Our Cost Structure”).

Operating Expenses

         Operating expenses, excluding amortization of intangibles, purchased in-process research and development and restructuring, asset disposition, and other merger related charges, increased 20% to $82.2 million, or 49% of total revenues, in the nine months ended September 30, 2002 from $68.6 million, or 45% of total revenues, in the nine months ended September 30, 2001. The increase in operating expenses results primarily from the cost of full-time employees added in connection with the acquisitions of Zapotec in February 2001, NeoVista in June 2001, E3 in September 2001, and J• Commerce in April 2002.

         Product Development. Product development expenses for the nine months ended September 30, 2002 increased 28% to $31.2 million from $24.4 million in the nine months ended September 30, 2001. Product development expense as a percentage of product revenues was 34% in the nine months ended September 30, 2002 compared to 32% in the nine months ended September 30, 2001. The increase in product development expense results primarily from the cost of full-time employees added in connection with the acquisitions of Zapotec in February 2001, NeoVista in June 2001, E3 in September 2001, and J• Commerce in April 2002, and the addition of full-time employees involved in the ongoing enhancement of the JDA Portfolio and the development of further CPFR applications, offset in part by lower incentive compensation costs.

         Sales and Marketing. Sales and marketing expenses for the nine months ended September 30, 2002 increased 15% to $29.9 million from $26 million in the nine months ended September 30, 2001. Sales and marketing expense as a percentage of total revenues was 18% in the nine months ended September 30, 2002 compared to 17% in the nine months ended September 30, 2001. The increase in sales and marketing expenses results from an increase in quota carrying sales representatives, due primarily to the acquisition of E3 in September 2001, and higher marketing costs, offset in part by lower commissions and related benefits.

         General and Administrative. General and administrative expenses for the nine months ended September 30, 2002 increased 16% to $21.1 million from $18.2 million in the nine months ended September 30, 2001. General and administrative expense, as a percentage of total revenues, was 13% in the nine months ended September 30, 2002 compared to 12% in the nine months ended September 30, 2001. The increase in general and administrative expense results from the acquisition of E3 in September 2001, additional full-time employees and outside contractors involved in the development and maintenance of our internal information systems, and higher legal, accounting, insurance and travel costs due to prevailing economic conditions, offset in part by lower incentive compensation costs. The provision for bad debts was $2.9 million, or 2% of total revenues, in each of the comparable nine-month periods.

         Amortization of Intangibles. Amortization of intangibles was $2.1 million in the nine months ended September 30, 2002 compared to $3.9 million in the nine months ended September 30, 2001. The non-amortization provisions of SFAS No. 142 for goodwill and trademarks with indefinite useful lives reduced amortization expense by approximately $2.9 million in the nine months ended September 30, 2002, however, this was offset by new amortization related to the acquisitions of NeoVista in June 2001 and E3 in September 2001.

         Purchased In-process Research and Development. We expensed $800,000 of purchased in-process research and development in the nine months ended September 30, 2002 in connection with the acquisition of

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J•Commerce in April 2002. We expensed $2.4 million of purchased in-process research and development in the nine months ended September 30, 2001 in connection with the acquisitions of Zapotec in February 2001 ($161,000) and E3 in September 2001 ($2.2 million).

         Restructuring, Asset Disposition and Other Merger Related Charges. We recorded a $1.3 million restructuring charge in second quarter 2002. The restructuring initiatives involved a workforce reduction of 53 full-time employees, primarily in the consulting services function in the United States, Europe, Canada and Latin America. All workforce reductions associated with this charge were made on or before June 30, 2002. We recorded restructuring, asset disposition and other merger related charges of $749,000 in first quarter 2001. The restructuring initiatives involved a workforce reduction of 32 full-time employees certain implementation service groups, product development activities, sales and marketing, and administrative functions in the United States, Europe, Canada and Latin America. All workforce reductions associated with these charges were made on or before June 30, 2001. The first quarter 2001 charges also include other merger related charges of $208,000 for the write-off of certain merger and acquisition costs related to a potential acquisition that was abandoned.

Operating Income

         Operating income increased 41% to $11 million in the nine months ended September 30, 2002 from $7.8 million in the nine months ended September 30, 2001. The increase in operating income results from increases in software licenses and maintenance services revenues of 2% and 49%, respectively in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by the $13.6 million, or 20% increase in operating expenses, excluding amortization of intangibles, purchased in-process research and development and restructuring charges.

         Operating income in our Retail Enterprise Systems business segment decreased 3% to $24.3 million for the nine months ended September 30, 2002 from $25.1 million in the nine months ended September 30, 2001. The decrease results from lower total revenues and increases in product development costs and costs of maintenance services in this business segment in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by decreases in sales and marketing costs and costs of consulting services due to reduced headcounts and lower incentive compensation.

         Operating income in our In-Store Systems business segment increased 70% to $5 million in the nine months ended September 30, 2002 from $2.9 million in the nine months ended September 30, 2001. The increase results primarily from increases in software license sales, maintenance services and consulting services revenues and increased consulting service margins in this business segment in the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001, offset in part by an increases in product development costs.

         Operating income in our Collaborative Solutions business segment increased 42% to $7 million in the nine months ended September 30, 2002 from $5 million in the nine months ended September 30, 2001. The increase results primarily from increases in software license sales, maintenance services and consulting services revenues related to the E3 and Intactix product lines, offset in part by increases in sales and marketing and research and development costs to support our new CPFR initiatives.

Provision for Income Taxes

         Our effective income tax rate reflects statutory federal, state and foreign tax rates, partially offset by reductions for research and development expense tax credits. We currently expect an effective tax rate of 35.5% for 2002. From time to time, we may be subjected to audit by federal, state and/or foreign taxing authorities. The IRS is currently conducting an audit of our 1998 and 1999 Federal Income Tax Returns. We do not expect any material adjustments as a result of these audits.

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Liquidity and Capital Resources

         We continue to finance our operations through cash generated from operations and the issuance of common stock under our employee stock option and employee stock ownership plans as noted below. We had working capital of $115.9 million at September 30, 2002 compared with $93.1 million at December 31, 2001. Cash and marketable securities at September 30, 2002 were $91.9 million, an increase of $27.9 million from the $64.0 million reported at December 31, 2001. Working capital and our cash and marketable securities balances increased in the nine months ended September 30, 2002 primarily as a result of cash provided by operating activities and the cash received from the issuance of common stock under our stock option and employee stock purchase plans.

         Operating activities provided cash of $27.7 million and $21.4 million in the nine months ended September 30, 2002 and 2001, respectively. Cash provided from operating activities in the nine months ended September 30, 2002 results primarily from net income of $8 million, $11.6 million of depreciation and amortization, a $2.9 million provision for doubtful accounts, a $6.8 million tax benefit from the exercise of stock options and shares purchased under the employee stock purchase plan, an $8.6 million increase in deferred revenues, and decreases in accounts receivable and income tax receivable, offset in part by a $9 million decrease in deferred income taxes, an increase in prepaid expenses and other current assets related to escrow amounts due from the E3 acquisition, refundable deposits for tenant improvements and normal seasonal fluctuations for payments, and an $8.9 million decrease in accrued expenses and other liabilities due primarily to lower sales commissions and incentive compensation payments. The $9 million decrease in deferred income taxes results from the reclassification of $6.6 million in foreign tax and research and development credit carry-forwards out of the income tax receivable accounts and into the deferred tax accounts as we do not expect them to be realized this year as a result of the downturn in demand for our software products in the second half of 2002 and the related reduced expectations for taxable income in 2002. In addition, we reclassified $2.3 million from the income tax receivable accounts to current deferred tax assets as we expect our anticipated tax losses for 2002 to be carried forward to 2003 due to reduced expectations for taxable income in 2002. Cash provided from operating activities in the nine months ended September 30, 2001 results primarily from net income of $6.3 million, $11.8 million of depreciation and amortization, a $2.9 million provision for doubtful accounts, and the $2.4 million write-off of purchased in-process research and development, offset in part by a $3.8 increase in accounts receivable. We had net receivables of $52.1 million, or 95 days sales outstanding (“DSOs”) at September 30, 2002 compared to $60.9 million, or 91 DSOs at December 31, 2001. The four-day increase in DSOs since year-end results primarily from the increase in deferred revenue during the nine months ended September 30, 2002 related to annual maintenance billings on the E3, Arthur and Intactix products. DSOs may fluctuate significantly on a quarterly basis due to a number of factors including seasonality, shifts in customer buying patterns, lengthened contractual payment terms in response to competitive pressures, the underlying mix of products and services, and the geographic concentration of revenues.

         Investing activities utilized cash of $31.1 million in the nine months ended September 30, 2002 and $22.2 million in the nine months ended September 30, 2001. Cash utilized by investing activities in the nine months ended September 30, 2002 results primarily from the net purchase of $14.3 million of marketable securities, the payment of $8.3 million in direct costs related to the acquisition of E3, a $4.2 million cash payment for the acquisition of J•Commerce, and $5 million in capital expenditures. Cash utilized by investing activities during the nine months ended September 30, 2001 results primarily from cash payments of $18.3 million, $4.9 million and $1.3 million for the acquisitions of E3, NeoVista and Zapotec, respectively, the payment of $4.2 million in direct costs related to the acquisition of E3, the issuance of a $3.5 million promissory note receivable, and $4.9 million in capital expenditures, offset in part by $14.3 million in sales and maturities of marketable securities.

         Financing activities provided cash of $16.2 million in the nine months ended September 30, 2002 and utilized cash of $3.2 million in the nine months ended September 30, 2001. Cash provided by financing activities in the nine months ended September 30, 2002 results primarily from the proceeds from the issuance of common stock under our stock option and employee stock purchase plans. Cash utilized by financing activities in the nine months ended September 30, 2001 results primarily from the re-payment of the acquired E3 line of credit, notes payable and long-term debt and the repurchase of 76,500 shares of our outstanding stock under our stock repurchase program, offset in part by proceeds from the issuance of common stock under our stock option and employee stock purchase plans.

         Changes in the currency exchange rates of our foreign operations had the effect of increasing cash by $793,000 million in the nine months ended September 30, 2002 and reducing cash by $900,000 in the nine months

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ended September 30, 2001. We did not enter into any foreign exchange contracts or engage in similar hedging strategies during the nine months ended September 30, 2002 or 2001.

         We believe there are opportunities to grow our business through the acquisition of complementary and synergistic companies, products and technologies. We look for acquisitions that can be readily integrated and accretive to earnings, although we may pursue smaller non-accretive acquisitions that will shorten our time to market with new technologies. We believe the general size of cash acquisitions we would currently consider to be in the $5 million to $30 million range. Any material acquisition could result in a decrease to our working capital depending on the amount, timing and nature of the consideration to be paid. In addition, any material acquisitions of complementary or synergistic companies, products or technologies could require that we obtain additional equity financing. There can be no assurance that such additional financing will be available or that, if available, such financing will be obtained on terms favorable to us and would not result in additional dilution to our stockholders.

         In July 2002, our Board of Directors authorized the repurchase of up to two million shares of our outstanding common stock. Under this repurchase program, we may periodically repurchase common shares during a one-year period ending July 22, 2003 on the open market at prevailing market prices. As of September 30, 2002, we have not repurchased any shares of our common stock under this program.

         We believe that our cash and cash equivalents, investments in marketable securities, and funds generated from operations will provide adequate liquidity to meet our normal operating requirements for at least the next twelve months.

Certain Risks

         Our Operating Results May Fluctuate Significantly, Which Could Adversely Affect the Price of Our Stock. Our quarterly operating results have varied and are expected to continue to vary in the future. If our quarterly operating results fail to meet management’s projections or analysts’ expectations, the price of our stock could decline. Many factors may cause these fluctuations, including:

• demand for our software products and services, including the size and timing of individual contracts and our ability to recognize revenue with respect to contracts signed in the quarter, particularly with respect to our significant customers;

• changes in the length of our sales cycle;

• competitive pricing pressures;

• customer order deferrals resulting from the anticipation of new products, economic uncertainty, disappointing operating results by the customer, or otherwise;

• the timing of new software product introductions and enhancements to our software products or those of our competitors, and market acceptance of our new software products;

• changes in our operating expenses;

• changes in the mix of domestic and international revenues, or expansion or contraction of international operations;

• our ability to complete fixed price consulting contracts within budget;

• foreign currency exchange rate fluctuations;

• integration issues associated with newly acquired businesses;

• Operational issues resulting from corporate reorganizations (see “We May Encounter Difficulties Successfully Implementing the Corporate Reorganization We Announced in Fourth Quarter 2002”);

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• lower-than-anticipated utilization in our consulting services group as a result of reduced levels of software sales, reduced implementation times for our products, changes in the mix of demand for our software products, or other reasons; and

• general industry and economic conditions, the September 11 terrorist attack, and the uncertainty related to potential future terrorist attacks or the threat of a US war with Iraq, which could negatively impact the industry, our customers’ ability to pay for our products and services, and which could potentially lead to an increased number of bankruptcy filings and/or bad debt charges.

         We believe it is likely that in some future quarter our operating results will vary from the expectations of public market analysts or investors. If this happens, or if adverse conditions prevail, or are perceived to prevail, with respect to our business, or generally, the price of our common stock may decline. Significant fluctuations have included, or may include in the future, the following:

• A Decline in Overall Demand for Our Products or Services. We have in the past experienced a decline in overall demand for our products we believe as a result of:

»	cancelled or delayed purchasing decisions related to the September 11 terrorist attack and the uncertainty related to potential future terrorist attacks or the threat of a US war with Iraq;
»	the millennium change;
»	conversion to the Euro currency;
»	external and internal marketing issues;
»	increased competition;
»	elongated sales cycles;
»	a limited number of referenceable implementations in the early years of product release;
»	certain design and stability issues we may experience in earlier versions of our products; and/or
»	lack of desired features and functionality.

The retail industry appears to remain cautious with their level of investment in information technology during the current difficult economic cycle, perhaps due to poor macroeconomic conditions. We continue to be concerned about weak and uncertain economic conditions, consolidations and the disappointing results of retailers in certain of our geographic regions. The retail industry will be negatively impacted if negative economic conditions or fear of additional terrorists’ attacks or the threat of a US war with Iraq persists for an extended period of time. Weak and uncertain economic conditions have in the past, and may in the future, negatively impact our revenues, elongate our selling cycles, and delay, suspend or reduce the demand for our products. As a result, it is difficult in the current economic environment to predict exactly when specific software licenses will close within a six to nine month time frame. In addition, weak and uncertain economic conditions could impair our customers’ ability to pay for our products or services and we may experience an increased number of bankruptcy filings in our customer base. Any of these factors could adversely impact our business, quarterly or annual operating results and financial condition.

• Our Gross Margins May Vary Significantly or Decline. Because the gross margins on product revenues (software licenses and maintenance services) are significantly greater than the gross margins on consulting services, our combined gross margin has fluctuated from quarter to quarter, and it may continue to fluctuate significantly based on revenue mix. Subsequent to the September 11 attack, we believe retailers have changed their buying behavior and that this has resulted in a fundamental shift in the mix of demand for the various types of products we sell. Demand for our host merchandising systems has declined and customers

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	now appear to be more interested in buying analytic and optimization solutions that require lower levels of services to implement, enable lower inventory levels without reducing sales, and provide a quicker return on investment. The decline in software sales of host merchandising systems is having a corollary negative impact on our service revenues as consulting services revenue typically lags the performance of software revenues by as much as one year. As a result of this change in revenue mix, we expect that our consulting services revenue will continue to decline sequentially each quarter until the demand for host merchandising systems and the related implementation services returns, or until underlying economic conditions improve. In addition, our gross margins on consulting services revenue vary significantly with the rates at which we utilize our consulting personnel, and as a result, our overall gross margins will be adversely affected when there is not enough work to keep our consultants busy.
•	We May Misjudge When Software Sales Will Be Realized. Software license revenues in any quarter depend substantially upon contracts signed and the related shipment of software in that quarter. It is therefore difficult for us to accurately predict software license revenues. Because of the timing of our sales, we typically recognize the substantial majority of our software license revenues in the last weeks or days of the quarter, and we may derive a significant portion of our quarterly software license revenues from a small number of relatively large sales. In addition, it is difficult to forecast the timing of large individual software license sales with a high degree of certainty due to the extended length of the sales cycle and the generally more complex contractual terms that may be associated with such licenses that could result in the deferral of some or all of the revenue to future periods. Accordingly, large individual sales have sometimes occurred in quarters subsequent to when we anticipated. For example, in third quarter 2002 we experienced delays in the execution of nearly all large software license contracts valued at $1 million or higher which caused our reported revenues for the three months ended September 30, 2002 to be below our previously published guidance. We are unable to predict if or when these contracts may be executed. We expect these aspects of our business to continue. If we receive any significant cancellation or deferral of customer orders, or we are unable to conclude license negotiations by the end of a fiscal quarter, our operating results may be lower than anticipated. In addition, any weakening or uncertainty in the economy may make it more difficult for us to predict quarterly results in the future, and could negatively impact our business, operating results and financial condition for an indefinite period of time.
•	We May Not Be Able to Reduce Expense Levels If Our Revenues Decline. Our expense levels are based on our expectations of future revenues. Since software license sales are typically accompanied by a significant amount of consulting and maintenance services, and in addition to our sales and marketing staff, the size of our services organization must be managed to meet our anticipated software license revenues. As a result, we hire and train service personnel and incur research and development costs in advance of anticipated software license revenues. If software license revenues fall short of our expectations, or if we are unable to fully utilize our service personnel, our operating results are likely to decline because a significant portion of our expenses cannot be quickly reduced to respond to any unexpected revenue shortfall.
•	We May Encounter Difficulties Successfully Implementing the Corporate Reorganization We Announced in Fourth Quarter 2002. The reorganization to enable JDA become a more customer-focused company and to reduce our cost structure to better fit the current economic environment involves terminating a significant number of personnel both domestically and internationally, reassigning certain existing personnel and adding a number of new personnel. Because of the magnitude and complexity of this reorganization, we will likely encounter difficulties implementing the reorganization. Potential risks include, but are not limited to: (i) the possibility that we may not be able to successfully persuade enough key E3 and Arthur product development and support personnel to relocate to our corporate headquarters in Scottsdale, Arizona; (ii) the possible disruption in our operations caused by such a large and complex reorganization; (iii) the difficulty of accurately forecasting the timing, amount, and the nature of costs that we will incur in implementing the reorganization; and (iv) the possibility that we will not be able to successfully recruit appropriately skilled and experienced personnel to fill new positions.

         We Are Dependent Upon the Retail Industry. Historically, we have derived 80% or more of our revenues from the license of software products and the performance of related services to retail customers. Although the acquisitions of Arthur, Intactix, Zapotec, NeoVista Decision Series and E3 have expanded our product offerings to provide collaborative applications that address new vertical market opportunities with the manufacturers and

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wholesalers who supply our traditional retail customers, our future growth is critically dependent on increased sales to retail customers. The success of our customers is directly linked to economic conditions in the retail industry, which in turn are subject to intense competitive pressures and are affected by overall economic conditions. In addition, we believe that the licensing of certain of our software products involves a large capital expenditure, which is often accompanied by large-scale hardware purchases or other capital commitments. As a result, demand for our products and services could decline in the event of instability or potential downturns such as that currently being experienced by certain sectors in the retail industry. Such downturns may cause customers to delay, cancel or reduce any planned expenditure for information management systems and software products.

         We also believe that the retail industry may be consolidating, and that the industry is currently experiencing increased competition and weakening economic conditions in certain geographical regions that could negatively impact the industry and our customers’ ability to pay for our products and services. Such consolidation and weakening economic conditions have in the past, and may in the future, negatively impact our revenues, reduce the demand for our products and may negatively impact our business, operating results and financial condition.

         There May Be An Increase in Customer Bankruptcies Due to Weak Economic Conditions. While we do perform credit checks before we enter into software license agreements, we have in the past and may in the future be impacted by customer bankruptcies that occur in periods subsequent to the software license sale. During weak economic conditions, such as those currently being experienced in many geographic regions around the world, there is an increased risk that certain of our customers will file bankruptcy. When our customers file bankruptcy, we may be required to forego collection of pre-petition amounts owed and to repay amounts remitted to us during the 90-day preference period preceding the filing. Accounts receivable balances related to pre-petition amounts may in certain of these instances be large due to extended payment terms for software license fees, and significant billings for consulting and implementation services on large projects. The bankruptcy laws, as well as the specific circumstances of each bankruptcy, may severely limit our ability to collect pre-petition amounts, and may force us to disgorge payments made during the 90-day preference period. We also face risk from international customers which file for bankruptcy protection in foreign jurisdictions, in that the application of foreign bankruptcy laws may be less certain or harder to predict. Although we believe that we have sufficient reserves to cover anticipated customer bankruptcies, there can be no assurance that such reserves will be adequate, and if they are not adequate, our business, operating results and financial condition would be adversely affected.

         We May Have Difficulty Attracting and Retaining Skilled Personnel. Our success is heavily dependent upon our ability to attract, hire, train, retain and motivate skilled personnel, including sales and marketing representatives, qualified software engineers involved in ongoing product development, and consulting personnel who assist in the implementation of our products and services. The market for such individuals is competitive. For example, it may be particularly difficult to attract and retain product development personnel experienced in the Microsoft.Net platform since the .Net platform is a new and evolving technology. Given the critical roles of our sales, product development and consulting staffs, our inability to recruit successfully or any significant loss of key personnel would hurt us. The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. We cannot guarantee that we will be able to retain our current personnel, attract and retain other highly qualified technical and managerial personnel in the future, or be able to assimilate the employees from any acquired businesses. We will continue to adjust the size and composition of the workforce in our services organization to match the different product and geographic demand cycles. If we are unable to attract and retain the necessary technical and managerial personnel, or assimilate the employees from any acquired businesses, our business, operating results and financial condition would be adversely affected.

         We Have Only Deployed Certain of Our Software Products On a Limited Basis, and Have Not Yet Deployed Some Software Products that are Important to our Future Growth. Certain of our software products, including MMS.com, Internet Portals, the UNIX/Oracle version of E3Trim, and certain modules of Affinity and Intellect, have been commercially released within the last two years. Other modules of our Affinity and Intellect products, as well as the UNIX/Oracle version of the E3Slim product and the point-of-sale product that we purchased from J•Commerce, are still in beta or under development. In addition, we have only recently announced our intentions to develop or acquire a series of business-to-business e-commerce solutions, including products in furtherance of our pursuit of the market for Collaborative Solutions. The markets for these products are new and evolving, and we believe that retailers and their suppliers may be cautious in adopting web-based and other new technologies. Consequently, we cannot predict the growth rate, if any, and size of the markets for our e-commerce products or that these markets will continue to develop. Potential and existing customers may find it difficult, or be

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unable, to successfully implement our e-commerce products, or may not purchase our products for a variety of reasons, including their inability or unwillingness to deploy sufficient internal personnel and computing resources for a successful implementation. In addition, we must overcome significant obstacles to successfully market our newer products, including limited experience of our sales and consulting personnel. If the markets for our newer products fail to develop, develop more slowly or differently than expected or become saturated with competitors, or if our products are not accepted in the marketplace or are technically flawed, our business, operating results and financial condition will decline.

         We Are Re-Writing Many of Our Products Onto The Microsoft .Net Platform, Which Has a Number of Significant Risks Given The Substantial Effort and Investment Involved in This Re-Write. We currently plan to migrate Portfolio Merchandise Management and Store Portals, as well as re-write E3Trim, E3Slim and our Arthur products using the Microsoft .Net development platform (“.Net Platform”). The first .Net products are not scheduled for commercial release until the end of 2003. We also plan to develop new products as well as shared code components using the .Net Platform. The risks of our commitment to the .Net Platform include, but are not limited to, the following: (i) the possibility that prospective customers will refrain from purchasing the current versions of products to be re-written because they are waiting for the .Net Platform versions; (ii) the possibility that our .Net Platform beta customers will not become favorable reference sites; (iii) adequate scalability of the .Net Platform for our largest customers; (iv) the ability of our development staff to learn how to efficiently and effectively develop products using the ..Net Platform; (v) successfully transitioning our installed base onto the .Net Platform when it is available; (vi) Microsoft’s ability to achieve market acceptance of the .Net platform; and (vii) Microsoft’s continued commitment to enhancing and marketing the .Net platform. We are attempting to mitigate some of the foregoing risks with the following strategies: (a) customers who are current on maintenance will receive .Net version of products as part of maintenance; (b) use of large beta customers to test and to demonstrate scalability; (c) use of the inherent component-based architecture that will enable us to manage changes to the code more efficiently; (d) business process programmers will focus on only certain components, which will isolate them from the overall complexity of the technology; and (e) use of a development methodology whereby we conduct a series of performance benchmarks throughout the development effort so that performance enhancements are made continuously throughout the project. Despite these efforts to mitigate the risks of the .Net Platform project, there can be no assurances that our efforts to re-write many of our current products and to develop new products using the .Net Platform will be successful. If the .Net Platform project is not successful, it likely will have a material adverse effect on our business, operating results and financial condition.

         There Are Risks Associated With Introducing New Lines of Business. We may introduce new lines of business that are outside our traditional focus on software licenses and related maintenance and implementation services. Introducing new lines of business involves a number of uncertainties, including a lack of internal resources and expertise to operate and grow such new lines of business, immature internal processes and controls, inexperience predicting revenues and expenses for the new lines of business, and the possibility that such new lines of business will divert management attention and resources from our traditional business. The inability of management to effectively develop and operate these new lines of business could have a material adverse effect on our business, operating results and financial condition. Moreover, we may not be able gain acceptance of any new lines of business in our markets, penetrate new markets successfully, or obtain the anticipated or desired benefits of such new lines of business.

         There Are Many Risks Associated with International Operations. Our international revenues represented 43% of total revenues in the nine months ended September 30, 2002 as compared to 44% and 48% in 2001 and 2000, respectively. If our international operations grow, we must recruit and hire a number of new consulting, sales and marketing and support personnel in the countries we have or will establish offices. Our entry into new international markets typically requires the establishment of new marketing and distribution channels as well as the development and subsequent support of localized versions of our software. International introductions of our products often require a significant investment in advance of anticipated future revenues. The opening of our new offices typically results in initial recruiting and training expenses and reduced labor efficiencies associated with the introduction of products to a new market. If we are less successful in a new market than we expect, we may not be able to realize an adequate return on our initial investment and our operating results could suffer. We cannot guarantee that the countries in which we operate will have a sufficient pool of qualified personnel from which to hire, that we will be successful at hiring, training or retaining such personnel, or that we can expand our international operations in a timely manner.

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         Our international business operations are subject to risks associated with international activities, including:

»	currency fluctuations;
»	unexpected changes in employment and other regulatory requirements;
»	tariffs and other trade barriers;
»	costs and risks of localizing products for foreign countries;
»	longer accounts receivable payment cycles in certain countries;
»	potentially negative tax consequences;
»	difficulties in staffing and managing geographically disparate operations;
»	greater difficulty in safeguarding intellectual property, licensing and other trade restrictions;
»	repatriation of earnings;
»	the burdens of complying with a wide variety of foreign laws; and
»	general economic conditions in international markets.

         Consulting services in support of certain international software licenses typically have lower gross margins than those achieved domestically due to generally lower billing rates and/or higher costs in certain of our international markets. Accordingly, any significant growth in our international operations may result in declines in gross margins on consulting services. We expect that an increasing portion of our international software license, consulting services and maintenance services revenues will be denominated in foreign currencies, subjecting us to fluctuations in foreign currency exchange rates. As we continue to expand our international operations, exposures to gains and losses on foreign currency transactions may increase. We may choose to limit such exposure by entering into forward foreign currency exchange contracts or engaging in similar hedging strategies. We cannot guarantee that any currency exchange strategy would be successful in avoiding exchange-related losses. In addition, revenues earned in various countries where we do business may be subject to taxation by more than one jurisdiction, which would reduce our earnings.

         We May Face Difficulties In Our Highly Competitive Markets, Particularly if the Current Weak Economic Conditions Persist. The markets for our software products are highly competitive. We believe the principal competitive factors are feature and functionality, product reputation and referenceable accounts, retail industry expertise, total solution cost, e-commerce capabilities and quality of customer support. We believe that pricing pressure has increased in response to the economic downturn, which could cause us to offer more significant discounts, or in some cases to lose potential business to competitors willing to offer what we believe to be overly aggressive discounts. We encounter competitive products from a different set of vendors in each of our primary product categories. Our Retail Enterprise Systems compete with internally developed systems, and with third-party developers such as Essentus, Inc., GERS, Inc., Marketmax, Inc., Micro Strategies Incorporated, NONSTOP Solutions, nsb Retail Systems PLC, Radius PLC, Retek, Inc., SAP AG, SVI Holdings, Inc., and others. In addition, new competitors may enter our markets and offer merchandise management systems or analytic and optimization applications that target the retail industry.

         The competition for our In-Store Systems is more fragmented than the competition for our Retail Enterprise Systems. We compete with major hardware equipment manufacturers such as ICL, NCR and IBM, as well as software companies such as 360 Commerce, CRS Business Computers, Datavantage, Inc., nsb Retail Systems PLC, Triversity, and others.

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         Our current Collaborative Solutions compete with products from Marketmax, Inc., NONSTOP Solutions, AC Nielsen Corporation, i2 Technologies, Manugistics Group, Inc., Information Resources, Inc., Synchra Systems, and others.

         In the market for consulting services, we have pursued a strategy of forming informal working relationships with leading retail systems integrators such as Accenture, Cap Gemini Ernst & Young, Kurt Salmon Associates and PriceWaterhouseCoopers. These integrators, as well as independent consulting firms such as IBM Global Services, AIG Netplex, CFT Consulting, Lakewest Consulting, SPL and ID Applications, also represent competition to our consulting services group. Moreover, because many of these consulting firms are involved in advising our prospective customers in the software selection process, they may successfully encourage a prospective customer to select software from a software company with whom they have a relationship. Examples of such relationships between consulting firms and software companies include the relationships between Retek, Inc. and Accenture, and between Retek, Inc. and IBM Global Services.

         As we continue to develop or acquire e-commerce products and expand our business in the Collaborative Solutions area, we expect to face potential competition from business-to-business e-commerce application providers, including Ariba, Commerce One, Commercialware, i2 Technologies, Manugistics Group, Inc., Microsoft, Inc., Retek, Inc., SAP AG, Synchra Systems, Ecometry Corporation, and others. Some of our existing competitors, as well as a number of potential new competitors, have significantly greater financial, technical, marketing and other resources than we do, which could provide them with a significant competitive advantage over us. We cannot guarantee that we will be able to compete successfully against our current or future competitors, or that competition will not have a material adverse effect on our business, operating results and financial condition.

         It May Be Difficult to Identify, Adopt and Develop Product Architecture That is Compatible With Emerging Industry Standards. The markets for our software products are characterized by rapid technological change, evolving industry standards, changes in customer requirements and frequent new product introductions and enhancements. If we fail in our product development efforts to accurately address evolving industry standards or important third-party interfaces or product architectures, sales of our products and services will suffer.

         Our software products can be licensed with a variety of popular industry standard platforms, and are authored in various development environments using different programming languages and underlying databases and architectures. There may be future or existing platforms that achieve popularity in the marketplace that may not be compatible with our software product design. Developing and maintaining consistent software product performance across various technology platforms could place a significant strain on our resources and software product release schedules, which could adversely affect our results of operations.

         We May Have Difficulty Implementing Our Products. Our software products are complex and perform or directly affect mission-critical functions across many different functional and geographic areas of the enterprise. Consequently, implementation of our software products can be a lengthy process, and commitment of resources by our clients is subject to a number of significant risks over which we have little or no control. Although average implementation times have recently declined, we believe the implementation of the UNIX/Oracle versions of our products can be longer and more complicated than our other applications as they typically (i) appeal to larger retailers who have multiple divisions requiring multiple implementation projects, (ii) require the execution of implementation procedures in multiple layers of software, (iii) offer a retailer more deployment options and other configuration choices, and (iv) may involve third party integrators to change business processes concurrent with the implementation of the software. Delays in the implementations of any of our software products, whether by us or our business partners, may result in client dissatisfaction, disputes with our customers, or damage to our reputation. Significant problems implementing our software therefore, can cause delays or prevent us from collecting license fees for our software and can damage our ability to get new business.

         Our Fixed-Price Service Contracts May Result In Losses. We offer a combination of software products, consulting and maintenance services to our customers. Typically, we enter into service agreements with our customers that provide for consulting services on a “time and expenses” basis. Certain clients have asked for, and we have from time to time entered into, fixed-price service contracts, which link services payments, and occasionally software payments, to implementation milestones. We believe fixed-price service contracts may increasingly be offered by our competitors to differentiate their product and service offerings. As a result, we may need to enter into

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more fixed-price contracts in the future. If we are unable to meet our contractual obligations under fixed-price contracts within our estimated cost structure, our operating results could suffer.

         Our Success Depends Upon Our Proprietary Technology. Our success and competitive position is dependent in part upon our ability to develop and maintain the proprietary aspect of our technology. The reverse engineering, unauthorized copying, or other misappropriation of our technology could enable third parties to benefit from our technology without paying for it.

         We rely on a combination of trademark, trade secret, copyright law and contractual restrictions to protect the proprietary aspects of our technology. We seek to protect the source code to our software, documentation and other written materials under trade secret and copyright laws. To date, we have not protected our technology with patents. Effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. We license our software products under signed license agreements that impose restrictions on the licensee’s ability to utilize the software and do not permit the re-sale, sublicense or other transfer of the source code. Finally, we seek to avoid disclosure of our intellectual property by requiring employees and independent consultants to execute confidentiality agreements with us and by restricting access to our source code.

         We license and integrate technology from third parties in certain of our software products. For example, we license the Uniface client/server application development technology from Compuware, Inc. for use in ODBMS, certain applications from Silvon Software, Inc. for use in Retail IDEAS, IBM’s Net.commerce merchant server software for use in MMS.com, and the Syncsort application for use in the Arthur Suite. These third party licenses generally require us to pay royalties and fulfill confidentiality obligations. If we are unable to continue to license any of this third party software, or if the third party licensors do not adequately maintain or update their products, we would face delays in the releases of our software until equivalent technology can be identified, licensed or developed, and integrated into our software products. These delays, if they occur, could harm our business, operating results and financial condition. It is also possible that intellectual property acquired from third parties through acquisitions, mergers, licenses or otherwise may not have been adequately protected.

         There has been a substantial amount of litigation in the software and Internet industries regarding intellectual property rights. It is possible that in the future third parties may claim that we or our current or potential future software solutions infringe on their intellectual property. We expect that software product developers and providers of e-commerce products will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlap. Moreover, as software patents become more common, the likelihood increases that a patent holder will bring an infringement action against us, or against our customers, to whom we have indemnification obligations. In addition, we may find it necessary to initiate claims or litigation against third parties for infringement of our proprietary rights or to protect our trade secrets. Since we now plan to resell hardware we may also become subject to claims from third parties that the hardware, or the combination of hardware and software, infringe their intellectual property. Although we may disclaim certain intellectual property representations to our customers, these disclaimers may not be sufficient to fully protect us against such claims. Any claims, with or without merit, could be time consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or license agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could have a material adverse effect on our business, operating results and financial condition.

         We May Face Liability If Our Products Are Defective Or If We Make Errors Implementing Our Products. Our software products are highly complex and sophisticated. As a result, they may occasionally contain design defects or software errors that could be difficult to detect and correct. In addition, implementation of our products may involve customer-specific configuration by us or third parties, and may involve integration with systems developed by third parties. In particular, it is common for complex software programs, such as our UNIX/Oracle and e-commerce software products, to contain undetected errors when first released. They are discovered only after the product has been implemented and used over time with different computer systems and in a variety of applications and environments. Despite extensive testing, we have in the past discovered defects or errors in our products or custom configurations only after our software products have been used by many clients. In addition, our clients may occasionally experience difficulties integrating our products with other hardware or software in their environment that are unrelated to defects in our products. Such defects, errors or difficulties may cause future delays in product introductions and shipments, result in increased costs and diversion of development resources, require design modifications or impair customer satisfaction with our products.

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         We believe that significant investments in research and development are required to remain competitive, and that speed to market is critical to our success. Our future performance will depend in large part on our ability to enhance our existing products through internal development and strategic partnering, internally develop new products which leverage both our existing customers and sales force, and strategically acquire complementary retail point solutions that add functionality for specific business processes to an enterprise-wide system. If clients experience significant problems with implementation of our products or are otherwise dissatisfied with their functionality or performance or if they fail to achieve market acceptance for any reason, our business, operating results and financial condition would suffer.

         We Are Dependent on Key Personnel. Our performance depends in large part on the continued performance of our executive officers and other key employees, particularly the performance and services of James D. Armstrong our Chief Executive Officer and Hamish N. Brewer our President. We do not have in place “key person” life insurance policies on any of our employees. The loss of the services of Mr. Armstrong, Mr. Brewer, or other key executive officers or employees could negatively affect our financial performance.

         We May Have Difficulty Integrating Acquisitions. We continually evaluate potential acquisitions of complementary businesses, products and technologies, including those that are significant in size and scope. In pursuit of our strategy to acquire complementary products, we completed the acquisition of the assets of Zapotec Software, Inc. in February 2001, and the NeoVista Decision Series from Accrue Software, Inc. in June 2001, and the acquisition of all the common stock of E3 in September 2001. The E3 acquisition was our largest to date, and involves the integration of E3’s products and operations in 12 countries. In addition we acquired certain intellectual property from J•Commerce on April 12, 2002. Acquisitions involve a number of special risks, including the inability to obtain, or meet conditions imposed for governmental approvals for the acquisition, diversion of management’s attention to the assimilation of the operations and personnel of acquired businesses, the predictability of costs related to the acquisition and the integration of acquired businesses, products, technologies and employees into our business and product offerings. Achieving the anticipated benefits of any acquisition will depend, in part, upon whether integration of the acquired business, products, technology, or employees is accomplished in an efficient and effective manner, and there can be no assurance that this will occur. The difficulties of such integration may be increased by the necessity of coordinating geographically disparate organizations, the complexity of the technologies being integrated, and the necessity of integrating personnel with disparate business backgrounds and combining different corporate cultures. The inability of management to successfully integrate any acquisition that we may pursue, and any related diversion of management’s attention, could have a material adverse effect on our business, operating results and financial condition. Moreover, there can be no assurance that any products acquired will gain acceptance in our markets, that we will be able to penetrate new markets successfully or that we will obtain the anticipated or desired benefits of such acquisitions. Also, acquired products may contain defects of which we are unaware. Any acquisition that we pursue or consummate could result in the incurrence of debt and contingent liabilities, purchased research and development expense, other acquisition-related expenses and the loss of key employees, any of which could have a material adverse effect on our business, operating results and financial condition.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

         We are exposed to certain market risks in the ordinary course of our business. These risks result primarily from changes in foreign currency exchange rates and interest rates. In addition, our international operations are subject to risks related to differing economic conditions, changes in political climate, differing tax structures, and other regulations and restrictions.

         Foreign currency exchange rates. Our international operations expose us to foreign currency exchange rate changes that could impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. International revenues represented 43% of our total revenues in the nine months ended September 30, 2002, as compared with 44% in 2001. In addition, the identifiable net assets of our foreign operations totaled 23% of consolidated assets at September 30, 2002 as compared to 24% at December 31, 2001. Our exposure to currency exchange rate changes is diversified due to the number of different countries in which we conduct business. We operate outside the United States primarily through wholly owned subsidiaries in Europe, Asia/Pacific, Canada and Latin America. We have determined that the functional currency of each of our foreign subsidiaries is the local currency and as such, foreign currency

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translation adjustments are recorded as a separate component of stockholders’ equity. Changes in the currency exchange rates of our foreign subsidiaries resulted in our reporting unrealized foreign currency exchange gain of $705,000 in the nine months ended September 30, 2002, as compared with unrealized foreign currency exchange loss of $3.1 million in the nine months ended September 30, 2001. To date, we have not engaged in foreign currency hedging transactions. Foreign currency gains and losses will continue to result from fluctuations in the value of the currencies in which we conduct operations as compared to the U.S. Dollar, and future operating results will be affected to some extent by gains and losses from foreign currency exposure. We prepared sensitivity analyses of our exposures from foreign net assets as of September 30, 2002, to assess the impact of hypothetical changes in foreign currency rates. Based upon the results of these analyses, a 10% adverse change in all foreign currency rates from the September 30, 2002 rates would result in a currency translation loss of $2.4 million before tax.

         Interest rates. We invest our cash in a variety of financial instruments, including bank time deposits, and variable and fixed rate obligations of the U.S. Government and its agencies, states, municipalities, commercial paper and corporate bonds. These investments are denominated in U.S. dollars. We classify all of our investments as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Cash balances in foreign currencies overseas are operating balances and are invested in short-term deposits of the local operating bank. Interest income earned on our investments is reflected in our financial statements under the caption “Other income, net.” Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have seen a decline in market value due to a change in interest rates. We hold our investment securities for purposes other than trading. The fair value of securities held at September 30, 2002 was $26.4 million, which is approximately the same as amortized cost, with interest rates generally ranging between 2% and 4%.

Item 4: Controls and Procedures

         Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of a date (the “Evaluation Date”) within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and principal accounting officer have concluded that our disclosure controls and procedures are effective, but also concluded that there are certain weaknesses in our Information Technology area (“IT”), including access security and change control. We have dedicated resources to correcting these issues, and the corrections are expected to be completed by the end of next quarter. These weaknesses did not have a material impact on the accuracy of our financial statements.

         Changes in Internal Controls. There have been no significant changes in our internal controls, as such term is defined under Section 13(b) of the Exchange Act, or to our knowledge, in other factors that could significantly affect these controls subsequent to the Evaluation Date, including corrective actions with regard to significant deficiencies and material weaknesses.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

         We are involved in legal proceedings and claims arising in the ordinary course of business. Although there can be no assurance, management does not believe that the disposition of these matters will have a material adverse effect on our business, financial positions, results of operations or cash flows.

Item 2. Changes in Securities and Use of Proceeds

         Not applicable

Item 3. Defaults Upon Senior Securities

         Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

         Not applicable

Item 5. Other Information

         Not applicable

Item 6. Exhibits and Reports on Form 8-K:

(a)	Exhibits: See Exhibit Index
(b)	Reports on Form 8-K
	Not applicable

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JDA SOFTWARE GROUP, INC.

SIGNATURE

         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.

	JDA SOFTWARE GROUP, INC.
Dated: November 11, 2002	By:	/s/ Kristen L. Magnuson
	Kristen L. Magnuson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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FORM 10-Q CERTIFICATIONS

I, James D. Armstrong, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of JDA Software Group, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002 By:      /s/ James D. Armstrong
     James D. Armstrong
     Chairman and Chief Executive Officer

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I, Kristen L. Magnuson, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of JDA Software Group, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 11, 2002	By:	/s/ Kristen L. Magnuson
		Kristen L. Magnuson      Executive Vice President and Chief Financial Officer      (Principal Financial and Accounting Officer)

46

EXHIBIT INDEX

Exhibit #	Description of Document
2.1**	— Asset Purchase Agreement dated as of June 4, 1998, by and among JDA Software Group, Inc., JDA Software, Inc. and Comshare, Incorporated.
2.2##	— Asset Purchase Agreement dated as of February 24, 2000, by and among JDA Software Group, Inc., Pricer AB, and Intactix International, Inc.
2.3###	— Agreement and Plan of Reorganization dated as of September 7, 2001, by and among JDA Software Group, Inc., E3 Acquisition Corp., E3 Corporation and certain shareholders of E3 Corporation.
3.1	— Third Restated Certificate of Incorporation of the Company together with Certificate of Amendment dated July 23, 2002.
3.2***	— First Amended and Restated Bylaws.
4.1*	— Specimen Common Stock certificate.
4.2*(1)	— Stock Redemption Agreement among the Company, James D. Armstrong and Frederick M. Pakis dated March 30, 1995.
10.1*(1)	— Form of Indemnification Agreement.
10.2*(1)	— 1995 Stock Option Plan, as amended, and form of agreement thereunder.
10.3••(1)	— 1996 Stock Option Plan, as amended.
10.4*(1)	— 1996 Outside Directors Stock Option Plan and forms of agreement thereunder.
10.5 (1)	— Executive Employment Agreement between James D. Armstrong and JDA Software Group, Inc. dated July 23, 2002.
10.7 (1)	— Employment Agreement between Kristen L. Magnuson and JDA Software Group, Inc. dated July 23, 2002.
10.8#(1)	— 1998 Nonstatutory Stock Option Plan.
10.9#(1)	— 1998 Employee Stock Purchase Plan.
10.10†	— 1999 Employee Stock Purchase Plan.
10.11***	— Lease Agreement between Opus West Corporation and JDA Software Group, Inc. dated April 30, 1998, together with First Amendment dated June 30, 1998.
10.12**	— Software License Agreement dated as of June 4, 1998 by and between Comshare, Incorporated and JDA Software, Inc.
10.14••••(2)	— Value-Added Reseller License Agreement for Uniface Software between Compuware Corporation and JDA Software Group, Inc. dated April 1, 2000, together with Product Schedule No. Two dated September 28, 2001.
10.15*(1)	— JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as amended effective January 1, 1995.
10.17***(1)	— Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and Kristen L. Magnuson, amending certain stock options granted to Ms. Magnuson pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan on September 11, 1997 and January 27, 1998.
10.18††(1)	— Form of Rights Agreement between the Company and ChaseMellon Shareholder Services, as Rights Agent (including as Exhibit A the Form of Certificate of Designation, Preferences and Rights of the Terms of the Series A Preferred Stock, as Exhibit B the From of Right Certificate, and as Exhibit C the Summary of Terms and Rights Agreement).
10.19†††(1)	— Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and Kristen L. Magnuson to be used in connection with stock option grants to Ms Magnuson pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.

47

Exhibit #	Description of Document
10.20•(1)(3)	— Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.
10.21•(1)(3)	— Form of Nonstatutory Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.
10.22•(1)(4)	— Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and certain Senior Executive Officers, amending certain stock options granted pursuant to the JDA Software Group, Inc. 1995 Stock Option Plan.
10.23•(1)(5)	— Form of Amendment of Stock Option Agreement between JDA Software Group, Inc and certain Senior Executive Officers, amending certain stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.
10.24•(1)(6)	— Form of Incentive Stock Option Agreement between JDA Software Group, Inc. and certain Senior Executive Officers to be used in connection with stock options granted pursuant to the JDA Software Group, Inc. 1996 Stock Option Plan.
10.25••••	— Secured Loan Agreement between JDA Software Group, Inc. and Silvon Software, Inc. dated May 8, 2001, together with Secured Promissory Note and Security Agreement.
99.1	— Certification of Chief Executive Officer
99.2	— Certification of Chief Financial Officer

*	Incorporated by reference to the Company’s Registration Statement on Form S-1 (File No. 333-748), declared effective on March 14, 1996.
**	Incorporated by reference to the Company’s Current Report on Form 8-K dated June 4, 1998, as filed on June 19, 1998.
***	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998, as filed on August 14, 1998.
†	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999, as filed on August 19, 1999.
††	Incorporated by reference to the Company’s Current Report on Form 8-K dated October 2, 1998, as filed on October 28, 1998.
†††	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, as filed on November 13, 1998.
#	Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, as filed on March 31, 1998.
##	Incorporated by reference to the Company’s Current Report on Form 8-K dated February 24, 2000, as filed on March 1, 2000.
###	Incorporated by reference to the Company’s Current Report on Form 8-K dated September 7, 2001, as filed on September 21, 2001.
•	Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, as filed on March 16, 2000.
••	Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, as filed on April 2, 2001.
•••	Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001, as filed on August 14, 2001.
••••	Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, as filed on March 29, 2002.
(1)	Management contracts or compensatory plans or arrangements covering executive officers or directors of the Company.
(2)	Confidential treatment has been granted as to part of this exhibit.
(3)	Applies to James D. Armstrong.
(4)	Applies to Hamish N. Brewer and Gregory L. Morrison.
(5)	Applies to Hamish N. Brewer, Peter J. Charness, Scott D. Hines, Gregory L. Morrison and David J. Tidmarsh.
(6)	Applies to Senior Executive Officers with the exception of James D. Armstrong and Kristen L. Magnuson.

48 EX-3.1 3 p67194exv3w1.txt EX-3.1 Exhibit 3.1 THIRD RESTATED CERTIFICATE OF INCORPORATION OF JDA SOFTWARE GROUP, INC., a Delaware Corporation JDA SOFTWARE GROUP, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), hereby certifies as follows: ONE: The name of this Corporation is JDA SOFTWARE GROUP, INC. TWO: The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Delaware on the 14th day of March, 1995. THREE: This Third Restated Certificate of Incorporation only restates and integrates and does not further amend provisions of the Certificate of Incorporation as heretofore in effect, and there is no discrepancy between those provisions and the provisions of this Third Restated Certificate of Incorporation. This Third Restated Certificate of Incorporation has been adopted by the Board of Directors in the manner and by the vote prescribed by Section 245 of the General Corporation Law of the State of Delaware, and is as follows: ARTICLE I The name of this Corporation is JDA SOFTWARE GROUP, INC. (the "Corporation"). ARTICLE II The address of the registered office of this Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV This Corporation is authorized to issue two classes of stock to be designated, respectively, the "Preferred Stock" and the "Common Stock." The total number of shares of capital stock which this Corporation is authorized to issue is Fifty-Two Million (52,000,000) shares. Fifty Million (50,000,000) shares shall be common stock, par value $0.01 per share (the 1 "Common Stock"), and Two Million (2,000,000) shares shall be Preferred Stock, par value $1.00 per share (the "Preferred Stock"). The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in this Restated Certificate of Incorporation, to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them, and to increase or decrease the number of shares of any series subsequent to the issue of shares of that series but not below the number of shares of such series then outstanding. 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. ARTICLE V The rights, preferences, privileges, restrictions and other matters relating to the Common Stock are as follows: 1. Dividends. If the Board of Directors shall elect to declare dividends out of funds legally available therefor, such dividends shall be declared in equal amounts per share on all shares of Common Stock and Series A Preferred Stock then outstanding (on an as-converted to Common Stock basis), subject to Article VI. 2. Liquidation Rights. In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary, and after the payment of any preferential liquidating distribution, if any, to the holders of the Preferred Stock as provided in Article VI, any remaining assets shall be distributed ratably among the holders of this Corporation's Common Stock and Series A Preferred Stock (on an as-converted to Common Stock basis). 3. Voting Rights. The holder of each share of Common Stock shall be entitled to one vote for each such share as determined on the record date for the vote or consent of stockholders and shall vote together with the holders of the Preferred Stock upon any items submitted to a vote of stockholders and those matters required by law to be submitted to a class vote. ARTICLE VI Five Hundred Thousand (500,000) shares of the Preferred Stock are hereby designated "Series A Preferred Stock" $1.00 par value per share, with the rights, preferences and privileges specified herein. The rights, preferences, privileges, restrictions and other matters relating to the Series A Preferred Stock are as follows: 2 1. Dividends and Distributions. (A) The dividend rate on the shares of Series A Preferred Stock shall be for each quarterly dividend (hereinafter referred to as a "quarterly dividend period"), which quarterly dividend periods shall commence on January 1, April 1, July 1 and October 1 each year (each such date being referred to herein as a "Quarterly Dividend Payment Date") (or in the case of original issuance, from the date of original issuance) and shall end on and include the day next preceding the first date of the next quarterly dividend period, at a rate per quarterly dividend period (rounded to the nearest cent) equal to the greater of (a) $250.00 or (b) subject to the provisions for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, plus 100 times the aggregate per share amount (payable in cash, based upon the fair market value at the time the non-cash dividend or other distribution is declared as determined in good faith by the Board of Directors) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared (but not withdrawn) on the Common Stock during the immediately preceding quarterly dividend period, or, with respect to the first quarterly dividend period, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event this Company shall at any time after October 2, 1998 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 45 days prior to the date fixed for the payment thereof. 3 2. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, in the Certificate of Incorporation and in the Bylaws, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 3. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 4. Liquidation, Dissolution or Winding Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Series A Preferred Stock shall be entitled to receive the greater of (a) $10,000.00 per share, plus accrued dividends to the date of distribution, whether or not earned or declared, or (b) an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event pursuant to clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the 4 number of shares of Common Stock that were outstanding immediately prior to such event. 5. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 6. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. 7. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series A Preferred Stock. All payments made with respect to fractional shares hereunder shall be rounded to the nearest whole cent. 8. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Article VI, Section 1, are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; 5 (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 8, purchase or otherwise acquire such shares at such time and in such manner. 9. Ranking. The Series A Preferred Stock shall be junior to all other Series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets, unless the terms of any series shall provide otherwise. 10. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock voting together as a single class. ARTICLE VII The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: 1. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. 2. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. 6 3. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. 4. Special meetings of stockholders of the Corporation may be called only (1) by the Board of Directors pursuant to a resolution adopted by at least one-third of the total number of directors then in office or (2) by the Corporation's President or Chief Executive Officer. ARTICLE VIII 1. The number of directors shall be set at four (4) and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). The directors shall be divided into three classes with the term of office of the first class (Class I) to expire at the first annual meeting of the stockholders following the closing of the first sale of the Corporation's Common Stock, pursuant to a firmly underwritten registered public offering (the "IPO"); the term of office of the second class (Class II) to expire at the second annual meeting of stockholders held following the IPO; the term of office of the third class (Class III) to expire at the third annual meeting of stockholders; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. All directors shall hold office until the expiration of the term for which elected, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. 2. Newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 3. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by a majority of the directors then in office, though less than a quorum. Directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders at which the term of office of the class to which they have been elected expires, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director. 7 ARTICLE IX The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of at least two-thirds (2/3) of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE X A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing provisions of this Article X by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ARTICLE XI The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, notwithstanding any other provision 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 vote of the holders of any class or series of the stock of this Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article XI, Article VII, Article VIII, Article IX or Article X. 8 IN WITNESS WHEREOF, JDA SOFTWARE GROUP, INC. has caused this Third Restated Certificate of Incorporation to be signed by its President and attested to by its Secretary this 23 day of July, 2002. JDA SOFTWARE GROUP, INC. By: /s/ Hamish N. Brewer --------------------------- Hamish N. Brewer, President ATTEST By: /s/ Kristen L. Magnuson ------------------------------- Kristen L. Magnuson, Secretary 9 EX-10.5 4 p67194exv10w5.txt EX-10.5 Exhibit 10.5 EXECUTIVE EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into and shall be effective as of July 23, 2002 (the "EFFECTIVE DATE"), by and among JDA SOFTWARE GROUP, INC., a Delaware corporation ("COMPANY") and JAMES D. ARMSTRONG ("EXECUTIVE"). RECITALS A. Company, Executive and JDA Software, Inc., an Arizona corporation and wholly-owned subsidiary of Company, are parties to an Employment Agreement entered into effective as of January 1, 1998 (the "EMPLOYMENT AGREEMENT"), pursuant to which Executive has been employed as Co-Chairman of the Board of Directors of Company. B. Company's former Co-Chief Executive Officer resigned effective as of January 4, 1999, and Executive has served as Company's Chief Executive Officer since such resignation. C. Company's former Co-Chairman of the Board of Directors resigned effective June 23, 2000, and Executive has served as Company's sole Chairman of the Board of Directors since such resignation. D. Company and Executive desire to amend and restate the Employment Agreement in its entirety in accordance with Section 9(i) thereof as hereafter set forth. NOW, THEREFORE, in consideration of the mutual premises herein contained, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: AGREEMENT The Employment Agreement is hereby amended and restated in its entirety as of the Effective Date. 1. Employment. Company hereby employs Executive, and Executive hereby accepts such employment, upon the terms and conditions set forth herein. 2. Duties. 2.1 Position. Executive is employed as Chairman of the Board of Directors ("CHAIRMAN") and Chief Executive Officer ("CEO") of Company. Executive shall perform faithfully and diligently all duties assigned to Executive. The Board of Directors of Company ("BOARD") reserves the right to modify Executive's position and duties at any time in its sole and absolute discretion, provided that the duties assigned are consistent with the position of Chairman and CEO. 2.2 Standard of Conduct/Full-time. During the term of this Agreement, Executive will act loyally and in good faith to discharge the duties of Chairman and CEO, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances. Executive will act solely on behalf of Company at all times. Executive shall devote Executive's full business time and efforts to the performance of Executive's assigned duties for Company, unless Executive notifies the Board in advance of Executive's intent to engage in other paid work and receives the Board's express written consent to do so. 2.3 Work Location. Executive's principal place of work shall be located in Scottsdale, Arizona or such other location as the parties may agree upon from time to time. 3. Term. The employment relationship pursuant to this Agreement shall commence on the Effective Date set forth above and continue until terminated in accordance with the terms of this Agreement (the "EMPLOYMENT TERM"). 4. Compensation. 4.1 Base Salary. As compensation for Executive's performance of Executive's duties hereunder, Company shall pay to Executive a salary of $400,000 per year, payable in equal semi-monthly installments of $16,666.67 and in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and authorized payroll deductions. Executive's Base Salary will be reviewed by the parties on or before each anniversary of the Effective Date and may be increased or decreased from time to time during the Employment Term by such amount(s) as Company and Executive may agree to in writing. 4.2 Incentive Compensation. In addition, Executive will also be eligible to receive incentive compensation subject to the terms and conditions as the Board may from time to time deem appropriate in its sole and absolute discretion ("BONUS"). Unless otherwise provided herein, the payment of any Bonus pursuant to this Section 4.2 shall be made in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and authorized payroll deductions. 4.3 Performance and Salary Review. The Board will periodically review Executive's performance on no less than an annual basis. Adjustments to salary or other compensation, if any, will be made by the Board in its sole and absolute discretion. 5. Benefits. 5.1 Fringe Benefits and Facilities. Executive will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company's benefit plan documents. Company reserves the right to change or eliminate the fringe benefits on a prospective basis, at any time, effective upon notice to Executive; provided, however, that during the period of employment under this Agreement, Executive (and his spouse and eligible dependents) shall be entitled to receive all benefits of employment generally available to other members of Company's management and those benefits for which key executives are or shall become eligible, when and as Executive becomes eligible therefore, including, without limitation, group health, life and disability insurance benefits and participation in Company's 401(k) plan. Company further agrees to furnish Executive with such assistance and accommodations (i.e., an office in the size, type and quality as provided to Executive prior to the Effective Date) as shall be suitable to the character of Executive's position with Company and adequate for the performance of Executive's duties hereunder. 5.2 Benefits Payable Upon Disability or Death. If Executive shall be prevented during the term of this Agreement from properly performing services hereunder by -2- reason of illness or other physical or mental incapacity ("DISABILITIES"), Company shall continue to pay Executive the then current salary hereunder for a period of twelve (12) months, following the onset of such disability. In the event of the death of Executive during the term of this Agreement, Executive's then current salary payable hereunder shall continue to be paid, as a death benefit, to Executive's surviving spouse, or if there is no spouse surviving, then to Executive's personal representative (as the case may be) for a period of twelve (12) months following Executive's death. 6. Business Expenses. Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of Executive's duties on behalf of Company. To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company's policies. 7. Termination of Executive's Employment. 7.1 Termination for Cause by Company. The Board may terminate Executive's employment immediately at any time for Cause by delivering written notice specifying the cause to Executive; provided, however, that such written notice shall not be delivered until after the Board shall have given Executive written notice specifying the conduct alleged to have constituted such cause, and Executive has failed to cure such conduct within thirty (30) days following receipt of such notice. For purposes of this Agreement, "CAUSE" is defined as: (a) theft, dishonesty, or intentional falsification of any employment or Company records; improper disclosure of Company's confidential or proprietary information; (b) Executive's conviction (including any plea of guilty or nolo contendere) for any criminal act that materially impairs his ability to perform his duties for Company; or (c) a material breach of this Agreement by Executive which is not cured within thirty (30) days of receipt by Executive of reasonably detailed written notice from Company. In the event Executive's employment is terminated in accordance with this Section 7.1, Executive shall be entitled to receive only unpaid Base Salary then in effect, prorated to the date of termination, together with any amounts to which Executive is entitled pursuant to Sections 5 or 6 hereof. All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished. Executive will not be entitled to receive the Severance Payments described in Section 7.2, below. 7.2 Termination Without Cause by Company/Severance. Company may terminate Executive's employment under this Agreement without Cause at any time on sixty (60) days' advance written notice to Executive. In the event of such termination, Executive will receive in one lump sum payment (i) the unpaid Base Salary then in effect, prorated to the effective date of termination; (ii) his Base Salary for thirty-six (36) months from the termination date; and (iii) any amounts to which Executive is entitled pursuant to Sections 5 or 6 hereof (the "SEVERANCE PAYMENTS"), provided that Executive: (a) complies with all surviving provisions of this Agreement, including without limitation those provisions specified in Section 14.8, below; and (b) executes a full general release, releasing all claims, known or unknown, that Executive may have against Company arising out of or any way related to Executive's employment or termination of employment with Company, in substantially the form attached hereto as Exhibit A, or in another form that is acceptable to Company in its sole discretion. All other Company obligations to Executive will be automatically terminated and completely extinguished upon termination of employment. 7.3 Termination for Good Reason by Executive/Severance. Executive may terminate Executive's employment under this Agreement for Good Reason (defined below) at -3- any time on five (5) days' advance written notice to Company. In the event of such termination, Executive will be entitled to receive the Severance Payments described in Section 7.2, above, provided that Executive complies with the conditions to receiving the Severance Payments described in Section 7.2(a) - 7.2(b), above. All other Company obligations to Executive will be automatically terminated and completely extinguished upon termination of employment. For purposes of this Agreement, "GOOD REASON" is defined as the occurrence of any of the following conditions: (a) a material, adverse change in Executive's responsibilities or duties, causing Executive's position to be of materially less stature or responsibility; provided, that for purposes of this Agreement and without limiting the generality of the foregoing, a material, adverse change shall be deemed to occur if Executive no longer serves as Chairman and CEO of a publicly-traded company; (b) the relocation of Executive's work place for Company over Executive's written objection to a location more than thirty (30) miles from Scottsdale, Arizona; (c) a failure to pay, or any reduction of Executive's Base Salary or Executive's Bonus without Executive's written consent (subject to applicable performance requirements with respect to the actual amount of Bonus earned by Executive); or (d) any material breach of this Agreement by Company that is not cured within thirty (30) days of Company's receipt of written notice from Executive specifying the material breach of this Agreement. 7.4 Voluntary Resignation by Executive. Executive may voluntarily resign Executive's position with Company for any reason, at any time after the Effective Date, on five (5) days' advance written notice. In the event of Executive's resignation, Executive will be entitled to receive only the Base Salary for the five-day notice period and no other amount for the remaining Employment Term (other than amounts to which Executive is entitled pursuant to Section 5 or 6 hereof). All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished upon termination of employment. In addition, Executive will not be entitled to receive any Severance Payments described in Section 7.2, above. The provisions of this Section 7.4 shall not apply to Executive's resignation for Good Reason. 7.5 Federal Excise Tax Under Section 4999 of the Code. (a) Additional Payment. In the event that any payment or benefit received or to be received by Executive pursuant to this Agreement or otherwise payable to Executive (collectively, the "PAYMENTS") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "CODE"), or any similar or successor provision (the "EXCISE TAX"), Company shall pay to Executive within ninety (90) days of the date Executive becomes subject to the Excise Tax, an additional amount (the "GROSS-UP PAYMENT") such that the net amount retained by Executive from the Payments and the Gross-Up Payment, after deduction of (1) any Excise Tax on the Payments and (2) any federal, state and local income or employment tax and Excise Tax upon the payment provided for by this Section, shall be equal to the Payments. -4- (b) Determination of Excise Tax. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) Any payments or benefits received or to be received by Executive in connection with transactions contemplated by a Change of Control (as defined below) event or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Company), shall be treated as "parachute payments" within the meaning of Section 280G of the Code or any similar or successor provision, and all "excess parachute payments" within the meaning of Section 280G of the Code or any similar or successor provision shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel ("TAX COUNSEL") selected by Company and reasonably acceptable to Executive such payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G of the Code (or any similar or successor provision of the Code) in excess of the base amount within the meaning of Section 280G of the Code (or any similar or successor provision of the Code), or are otherwise not subject to the Excise Tax. (ii) The amount of the Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Payments or (ii) the amount of the excess parachute payments within the meaning of Section 280G of the Code (after applying paragraph (b)(1) above). (iii) The value of any non-cash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of Section 280G of the Code. (iv) Change of Control. A "CHANGE OF CONTROL" is defined as any one of the following occurrences: a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT")), other than a trustee or other fiduciary holding securities of Company under an employee benefit plan of Company, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of the securities of Company representing 50% or more of (A) the outstanding shares of common stock of Company or (B) the combined voting power of Company's then-outstanding securities; or b) the sale or disposition of all or substantially all of Company's assets (or any transaction having similar effect is consummated); or c) Company is party to a merger or consolidation that results in the holders of voting securities of Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of Company or such surviving entity outstanding immediately after such merger or consolidation; or d) a liquidation or dissolution of Company. -5- (c) Determination of Gross-Up Payment. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the date the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (d) Adjustments. (i) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, Executive shall repay to Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. (ii) In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 7.6 Termination for Death or Permanent Disability. Upon Executive's death or permanent disability (a disability which has continued for a period of twelve (12) months from the date of onset of such disability), this Agreement shall terminate; provided that Executive and Executive's spouse (or surviving spouse, as the case may be) and eligible dependents shall be entitled to continuation rights under Company's group health plans as required under COBRA, with the "qualifying event" occurring and minimum required period of coverage to commence upon the termination of this Agreement; and provided further that, in the event of Executive's death, Executive's surviving spouse or personal representative, as the case may be, shall be entitled to the death benefits described in Section 5.2. 8. No Conflict of Interest. During the term of Executive's employment with Company, Executive must not engage in any work, paid or unpaid, that creates an actual or potential conflict of interest with Company. If the Board reasonably believes such a conflict exists during the term of this Agreement, the Board may ask Executive to choose to discontinue the other work or resign employment with Company. 9. Post-Termination Non-Competition. 9.1 Consideration For Promise To Refrain From Competing. Executive agrees that Executive's services are special and unique, that Company's disclosure of confidential, proprietary information and specialized training and knowledge to Executive, and that Executive's level of compensation and benefits, including, without limitation, the severance payments provided for in this Agreement, are partly in consideration of and conditioned upon Executive not competing with Company. Executive acknowledges that such consideration is adequate for Executive's promises contained within this Section 9. -6- 9.2 Promise To Refrain From Competing. Executive understands Company's need for Executive's promise not to compete with Company is based on the following: (a) Company has expended, and will continue to expend, substantial time, money and effort in developing its proprietary information; (b) Executive will in the course of Executive's employment develop, be personally entrusted with and exposed to Company's proprietary information; (c) both during and after the term of Executive's employment, Company will be engaged in the highly competitive enterprise software industry; (d) Company provides products and services nationally and internationally; and (e) Company will suffer great loss and irreparable harm if Executive were to enter into competition with Company. Therefore, in exchange for the consideration described in Section 9.1 above, Executive agrees that for the period of three (3) years following the date Executive ceases to render services to Company (the "COVENANT PERIOD"), Executive will not either directly or indirectly, whether as an owner, director, officer, manager, consultant, agent or employee: (i) work for a competitor of Company, which is defined to include those entities or persons in the business of developing, marketing, selling and supporting software designed for businesses in the retail and consumer packaged goods markets or in the business of helping companies synchronize their inventory decisions with advanced supply chain, inventory management and data mining solutions, in any country in which Company does business (the "RESTRICTED BUSINESS"); or (ii) make or hold any investment in any Restricted Business, whether such investment be by way of loan, purchase of stock or otherwise, provided that there shall be excluded from the foregoing the ownership of not more than 5% of the listed or traded stock of any publicly held corporation. For purposes of this Section 9, the term "COMPANY" shall mean and include Company, any subsidiary or affiliate of Company, any successor to the business of Company (by merger, consolidation, sale of assets or stock or otherwise) and any other corporation or entity of which Executive may serve as a director, officer or employee at the request of Company or any successor of Company. 9.3 Reasonableness of Restrictions. Executive represents and agrees that the restrictions on competition, as to time, geographic area, and scope of activity, required by this Section 9 are reasonable, do not impose a greater restraint than is necessary to protect the goodwill and business interests of Company, and are not unduly burdensome to Executive. Executive expressly acknowledges that Company competes on an international basis and that the geographical scope of these limitations is reasonable and necessary for the protection of Company's trade secrets and other confidential and proprietary information. Executive further agrees that these restrictions allow Executive an adequate number and variety of employment alternatives, based on Executive's varied skills and abilities. Executive represents that Executive is willing and able to compete in other employment not prohibited by this Agreement. 9.4 Reformation if Necessary. In the event a court of competent jurisdiction determines that the geographic area, duration, or scope of activity of any restriction under this Section 9 and its subsections is unenforceable, the restrictions under this section and its subsections shall not be terminated but shall be reformed and modified to the extent required to render them valid and enforceable. Executive further agrees that the court may reform this Agreement to extend the Covenant Period by an amount of time equal to any period in which Executive is in breach of this covenant. 10. Confidentiality. Executive agrees to abide by Company's letter agreement dated as of January 1, 1998, which is incorporated by this reference whereby Executive covenants and agrees to keep confidential that information known by or made available to Executive on account of his relationship with Company (the "LETTER AGREEMENT"). 11. Nonsolicitation. -7- 11.1 Nonsolicitation of Customers or Prospects. Executive acknowledges that information about Company's customers is confidential and constitutes trade secrets. Accordingly, Executive agrees that during the term of this Agreement and for a period of two (2) years after the termination of this Agreement, Executive will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company's relationship with any of its customers or customer prospects by soliciting or encouraging others to solicit any of them for the purpose of diverting or taking away business from Company. 11.2 Nonsolicitation of Company's Employees. Executive agrees that during the term of this Agreement and for a period of three (3) years after the termination of this Agreement, Executive will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company's business by soliciting, encouraging, hiring or attempting to hire any of Company's employees or causing others to solicit or encourage any of Company's employees to discontinue their employment with Company. Notwithstanding the previous sentence, the Executive may give references for employees and tell headhunters the names of employees of Company, in either event, where the Executive is aware that the employee has been identified by Company as not being part of its long-term plans after a Change of Control. 12. Injunctive Relief. Executive acknowledges that Executive's breach of the covenants contained in Sections 9-11 (collectively "COVENANTS") would cause irreparable injury to Company and agrees that in the event of any such breach, Company shall be entitled to seek temporary, preliminary and permanent injunctive relief without the necessity of proving actual damages or posting any bond or other security. 13. Agreement to Arbitrate. To the fullest extent permitted by law, Executive and Company agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, the employment relationship between Company and Executive and any disputes upon termination of employment, including but not limited to breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law. Claims for breach of Company's Employee Innovations and Proprietary Rights Agreement, workers' compensation, unemployment insurance benefits and Company's right to obtain injunctive relief pursuant to Section 12 above are excluded. For the purpose of this agreement to arbitrate, references to "Company" include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this Agreement shall apply to them to the extent Executive's claims arise out of or relate to their actions on behalf of Company. 13.1 Initiation of Arbitration. Either party may exercise the right to arbitrate by providing the other party with written notice of any and all claims forming the basis of such right in sufficient detail to inform the other party of the substance of such claims. In no event shall the request for arbitration be made after the date when institution of legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations. 13.2 Arbitration Procedure. The arbitration will be conducted in Maricopa county, Arizona, by a single neutral arbitrator and in accordance with the then current rules for resolution of employment disputes of the American Arbitration Association ("AAA"). The parties -8- are entitled to representation by an attorney or other representative of their choosing. The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of Arizona, and only such power, and shall follow the law. The parties agree to abide by and perform any award rendered by the arbitrator. Judgment on the award may be entered in any court having jurisdiction thereof. 13.3 Costs of Arbitration. Each party shall bear one half the cost of the arbitration filing and hearing fees, and the cost of the arbitrator. 14. General Provisions. 14.1 Successors and Assigns. The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company. Executive shall not be entitled to assign any of Executive's rights or obligations under this Agreement. 14.2 Waiver. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement. 14.3 Attorneys' Fees. In any dispute relating to this Agreement, the losing party shall pay the attorneys' fees of the prevailing party in addition to its own attorneys' fees. 14.4 Severability. In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby. 14.5 Interpretation; Construction. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 14.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of Arizona. Each party consents to the jurisdiction and venue of the state or federal courts in Maricopa county, Arizona, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement. 14.7 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (a) by personal delivery when delivered personally; (b) by overnight courier upon written verification of receipt; (c) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of -9- receipt. Notice shall be sent to the addresses set forth below, or such other address as either party may specify in writing. 14.8 Survival. Sections 8 ("No Conflict of Interest"), 9 ("Post-Termination Non-Competition"), 10 ("Confidentiality and Proprietary Rights"), 11 ("Nonsolicitation"), 12 ("Injunctive Relief"), 13 ("Agreement to Arbitrate"), 14 ("General Provisions") and 15 ("Entire Agreement") of this Agreement shall survive Executive's employment by Company. 15. Entire Agreement. This Agreement, including the Letter Agreement incorporated herein by reference, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of Executive and the Board. No oral waiver, amendment or modification will be effective under any circumstances whatsoever. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] -10- THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW. EXECUTIVE Dated: 7-23-02 /s/ James D. Armstrong --------------------------- ------------------------------- JAMES D. ARMSTRONG ADDRESS ------------------------ ------------------------ ------------------------ COMPANY Dated: 7-23-02 By: /s/ Kristen L. Magnuson --------------------------- -------------------------- Name: KRISTEN L. MAGNUSON -------------------------- Title: CFO ------------------------- [SIGNATURE PAGE TO ARMSTRONG EMPLOYMENT AGREEMENT] EXHIBIT A Form of Mutual Release See attached. EX-10.7 5 p67194exv10w7.txt EX-10.7 Exhibit 10.7 EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement ("AGREEMENT") is made effective as of July 23, 2002 ("EFFECTIVE DATE"), by and between JDA Software Group, Inc., a Delaware corporation ("COMPANY") and Kristen L. Magnuson ("EXECUTIVE") (either party individually, a "PARTY"; collectively, the "PARTIES"). WHEREAS, Company desires to retain the services of Executive as Chief Financial Officer; WHEREAS, the Parties desire to enter into this Agreement to set forth the terms and conditions of Executive's employment by Company and to address certain matters related to Executive's employment with Company; NOW, THEREFORE, in consideration of the foregoing and the mutual provisions contained herein, and for other good and valuable consideration, the Parties hereto agree as follows: 1. Employment. Company hereby employs Executive, and Executive hereby accepts such employment, upon the terms and conditions set forth herein. 2. Duties. 2.1 Position. Executive is employed as Chief Financial Officer and shall have the duties and responsibilities assigned by Company's Chief Executive Officer ("CEO") both upon initial hire and as may be reasonably assigned from time to time. Executive shall perform faithfully and diligently all duties assigned to Executive. Company reserves the right to modify Executive's position and duties at any time in its sole and absolute discretion, provided that the duties assigned are consistent with the position of Chief Financial Officer and that Executive continues to report directly to the CEO. 2.2 Standard of Conduct/Full-time. During the term of this Agreement, Executive will act loyally and in good faith to discharge the duties of Chief Financial Officer, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances. Executive will act solely on behalf of Company at all times. Executive shall devote Executive's full business time and efforts to the performance of Executive's assigned duties for Company, unless Executive notifies the CEO in advance of Executive's intent to engage in other paid work and receives the CEO's express written consent to do so. 2.3 Work Location. Executive's principal place of work shall be located in Scottsdale, Arizona or such other location as the parties may agree upon from time to time. 3. Term. 3.1 Initial Term. The employment relationship pursuant to this Agreement shall be for an initial term commencing on the Effective Date set forth above and continuing for three (3) years from the Effective Date ("INITIAL TERM"), unless sooner terminated in accordance with the terms of this Agreement. 3.2 Renewal. On completion of the Initial Term specified in Section 3.1 above, this Agreement will automatically renew for subsequent one-year terms unless either party provides ninety (90) days' advance written notice to the other that such party does not wish to renew the Agreement for a subsequent one-year term. In the event either party gives notice of nonrenewal pursuant to this Section 3.2, this Agreement will expire at the end of the then-current term. 4. Compensation. 4.1 Base Salary. As compensation for Executive's performance of Executive's duties hereunder, Company shall pay to Executive a salary of $250,000 per year, payable in equal monthly installments and in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and authorized payroll deductions. 4.2 Stock Options. Subject to approval by Company's Board of Directors (the "BOARD"), Company will from time to time grant to Executive an option to purchase shares of Company's common stock (the "OPTION"). The Option will be subject to the terms and conditions of one of Company's Stock Option Plans as designated by the Board (the "PLAN"). The Option will also be subject to the terms and conditions contained in the special form of option agreement previously adopted by the Board for the position of Chief Financial Officer, a form of which is attached hereto as Exhibit A (the "FORM OPTION AGREEMENT") and shall vest over a period of three (3) years in accordance with the terms of the Form Option Agreement and the Plan. The Option shall be subject to certain acceleration provisions described in the Form Option Agreement and this Agreement. 4.3 Incentive Compensation. In addition, Executive will also be eligible to receive incentive compensation subject to the terms and conditions contained in the Executive Bonus Plan, which is approved by the Board and is subject to amendment from time to time by the Board in its sole and absolute discretion (a "BONUS"). Unless otherwise provided herein, the payment of any Bonus pursuant to this Section 4.3 shall be made in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and authorized payroll deductions. 4.4 Performance and Salary Review. The Board will periodically review Executive's performance on no less than an annual basis. Adjustments to salary or other compensation, if any, will be made by the Board in its sole and absolute discretion. 5. Customary Fringe Benefits and Facilities. Executive will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company's benefit plan documents. Company reserves the right to change or eliminate the fringe benefits on a prospective basis, at any time, effective upon notice to Executive; provided, however, that during the period of employment under this Agreement, Executive and her spouse and eligible dependents shall be entitled to receive all benefits of employment generally available to other members of Company's management and those benefits for which key executives are or shall become eligible, when and as Executive becomes eligible therefore, including, without limitation, group health, life and disability insurance benefits and participation in Company's 401(k) plan. Company further agrees to furnish Executive with such assistance and accommodations (i.e., an office in the size, type and quality as provided to Executive prior to the Effective Date) as shall be suitable to the character -2- of Executive's position with Company and adequate for the performance of Executive's duties hereunder. 6. Business Expenses. Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of Executive's duties on behalf of Company. To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company's policies. 7. Termination of Executive's Employment. 7.1 Termination for Cause by Company. Company may terminate Executive's employment immediately at any time for Cause. For purposes of this Agreement, "CAUSE" is defined as: (a) theft, dishonesty, or intentional falsification of any employment or Company records; improper disclosure of Company's confidential or proprietary information; (b) Executive's conviction (including any plea of guilty or nolo contendere) for any criminal act that materially impairs her ability to perform her duties for Company; or (c) a material breach of this Agreement by Executive which is not cured within thirty (30) days of receipt by Executive of reasonably detailed written notice from Company. In the event Executive's employment is terminated in accordance with this Section 7.1, Executive shall be entitled to receive only unpaid Base Salary then in effect, prorated to the date of termination, together with any amounts to which Executive is entitled pursuant to Sections 5 or 6 hereof. There shall be no additional vesting under Executive's Option. All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished. Executive will not be entitled to receive the Severance Payments described in Section 7.2, below. 7.2 Termination Without Cause by Company/Severance. Company may terminate Executive's employment under this Agreement without Cause at any time on sixty (60) days' advance written notice to Executive. In the event of such termination, Executive will receive in one lump sum payment, (i) the unpaid Base Salary then in effect, prorated to the effective date of termination; (ii) her Base Salary for twenty-four (24) months from the termination date plus one year's base Bonus pursuant to Section 4.3 of this Agreement for the calendar year during which the termination occurs ($125,000 for calendar year 2002), assuming satisfaction of all performance based milestones at the 100% level by both Company and the Executive; and (iii) any amounts to which Executive is entitled pursuant to Sections 5 or 6 hereof (the "SEVERANCE PAYMENTS"), provided that Executive: (a) complies with all surviving provisions of this Agreement, including without limitation those provisions specified in Section 14.8, below; and (b) executes a full general release, releasing all claims, known or unknown, that Executive may have against Company arising out of or any way related to Executive's employment or termination of employment with Company, in substantially the form attached hereto as Exhibit B, or in another form that is acceptable to Company in its sole discretion. All other Company obligations to Executive will be automatically terminated and completely extinguished upon termination of employment. 7.3 Termination for Good Reason by Executive/Severance. Executive may terminate Executive's employment under this Agreement for Good Reason (defined below) at any time on five (5) days' advance written notice to Company. In the event of such termination, Executive will be entitled to receive the Severance Payments described in Section 7.2, above, provided that Executive complies with the conditions to receiving the Severance Payments described in Sections 7.2(a) and 7.2(b), above. All other Company obligations to Executive will be automatically terminated and completely extinguished upon termination of employment. -3- For purposes of this Agreement, "GOOD REASON" is defined as the occurrence of any of the following conditions: (a) a material, adverse change in Executive's responsibilities or duties, causing Executive's position to be of materially less stature or responsibility; provided, that for purposes of this Agreement and without limiting the generality of the foregoing, a material, adverse change shall be deemed to occur if Executive no longer serves as Chief Financial Officer (who shall be the most senior financial officer) of a publicly-traded company reporting directly to the CEO; (b) the relocation of Executive's work place for Company over Executive's written objection, to a location more than thirty (30) miles from Scottsdale, Arizona; (c) a failure to pay, or any reduction of Executive's Base Salary or Executive's Bonus without Executive's written consent (subject to applicable performance requirements with respect to the actual amount of Bonus earned by Executive); or (d) any material breach of this Agreement by Company that is not cured within thirty (30) days of Company's receipt of written notice from Executive specifying the material breach of this Agreement. 7.4 Voluntary Resignation by Executive. Executive may voluntarily resign Executive's position with Company for any reason, at any time after the Effective Date, on five (5) days' advance written notice. In the event of Executive's resignation, Executive will be entitled to receive only the Base Salary for the five-day notice period and no other amount for the remaining months of the current term, whether the Initial Term or a subsequent one-year term (other than amounts to which Executive is entitled pursuant to Section 5 or 6 hereof). All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished upon termination of employment. In addition, Executive will not be entitled to receive any Severance Payments described in Section 7.2, above. The provisions of this Section 7.4 shall not apply to Executive's resignation for Good Reason. 7.5 Federal Excise Tax Under Section 4999 of the Code. (a) Additional Payment. In the event that any payment or benefit received or to be received by Executive pursuant to this Agreement or otherwise payable to Executive (collectively, the "PAYMENTS") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "CODE"), or any similar or successor provision (the "EXCISE TAX"), Company shall pay to Executive within ninety (90) days of the date Executive becomes subject to the Excise Tax, an additional amount (the "GROSS-UP PAYMENT") such that the net amount retained by Executive from the Payments and the Gross-Up Payment, after deduction of (1) any Excise Tax on the Payments and (2) any federal, state and local income or employment tax and Excise Tax upon the payment provided for by this Section, shall be equal to the Payments. (b) Determination of Excise Tax. For purposes of determining whether any of the Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) Any payments or benefits received or to be received by Executive in connection with transactions contemplated by a Change of Control (as defined below) event -4- or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with Company), shall be treated as "parachute payments" within the meaning of Section 280G of the Code or any similar or successor provision, and all "excess parachute payments" within the meaning of Section 280G of the Code or any similar or successor provision shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel ("TAX COUNSEL") selected by Company and reasonably acceptable to Executive such payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G of the Code (or any similar or successor provision of the Code) in excess of the base amount within the meaning of Section 280G of the Code (or any similar or successor provision of the Code), or are otherwise not subject to the Excise Tax. (ii) The amount of the Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Payments or (ii) the amount of the excess parachute payments within the meaning of Section 280G of the Code (after applying paragraph (b)(1) above). (iii) The value of any non-cash benefits or any deferred payment or benefit shall be determined by Tax Counsel in accordance with the principles of Section 280G of the Code. (iv) Change of Control. A "CHANGE OF CONTROL" is defined as any one of the following occurrences: a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT")), other than a trustee or other fiduciary holding securities of Company under an employee benefit plan of Company, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of the securities of Company representing 50% or more of (A) the outstanding shares of common stock of Company or (B) the combined voting power of Company's then-outstanding securities; or b) the sale or disposition of all or substantially all of Company's assets (or any transaction having similar effect is consummated); or c) Company is party to a merger or consolidation that results in the holders of voting securities of Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of Company or such surviving entity outstanding immediately after such merger or consolidation; or d) a liquidation or dissolution of Company. (c) Determination of Gross-Up Payment. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the date the Gross-Up Payment is -5- to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (d) Adjustments. (i) In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, Executive shall repay to Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. (ii) In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), Company shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. 7.6 Termination of Employment Upon Nonrenewal. In the event either party decides not to renew this Agreement for a subsequent one-year term in accordance with Section 3.2 above, the Agreement will expire, Executive's employment with Company will terminate and Executive will only be entitled to Executive's Base Salary paid through the last day of the then-current term. All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished. In addition, Executive will not be entitled to any Severance Payments described in Section 7.2. 8. No Conflict of Interest. During the term of Executive's employment with Company, Executive must not engage in any work, paid or unpaid, that creates an actual or potential conflict of interest with Company. If the Board reasonably believes such a conflict exists during the term of this Agreement, the Board may ask Executive to choose to discontinue the other work or resign employment with Company. 9. Post-Termination Non-Competition. 9.1 Consideration For Promise To Refrain From Competing. Executive agrees that Executive's services are special and unique, that Company's disclosure of confidential, proprietary information and specialized training and knowledge to Executive, and that Executive's level of compensation and benefits, including, without limitation, the severance payments provided for in this Agreement, are partly in consideration of and conditioned upon Executive not competing with Company. Executive acknowledges that such consideration is adequate for Executive's promises contained within this Section 9. 9.2 Promise To Refrain From Competing. Executive understands Company's need for Executive's promise not to compete with Company is based on the following: (a) Company has expended, and will continue to expend, substantial time, money and effort in developing its proprietary information; (b) Executive will in the course of Executive's employment develop, be personally entrusted with and exposed to Company's proprietary information; (c) both during and after the term of Executive's employment, Company will be -6- engaged in the highly competitive enterprise software industry; (d) Company provides products and services nationally and internationally; and (e) Company will suffer great loss and irreparable harm if Executive were to enter into competition with Company. Therefore, in exchange for the consideration described in Section 9.1 above, Executive agrees that for the period of two (2) years following the date Executive ceases to render services to Company (the "COVENANT PERIOD"), Executive will not either directly or indirectly, whether as an owner, director, officer, manager, consultant, agent or employee: (i) work for any of the following companies or any entity that succeeds to any part of the business of any of the following Companies that is in competition with Company: Essentus, Inc., GERS, Inc., Marketmax, Inc., Micro Strategies Incorporated, NONSTOP Solutions, nsb Retail Systems PLC, Radius PLC, Retek, Inc., SAP AG or SVI Holdings, Inc. (each a "RESTRICTED BUSINESS"); or (ii) make or hold any investment in any Restricted Business, whether such investment be by way of loan, purchase of stock or otherwise, provided that there shall be excluded from the foregoing the ownership of not more than 1% of the listed or traded stock of any publicly held corporation. For purposes of this Section 9, the term "COMPANY" shall mean and include Company, any subsidiary or affiliate of Company, any successor to the business of Company (by merger, consolidation, sale of assets or stock or otherwise) and any other corporation or entity of which Executive may serve as a director, officer or employee at the request of Company or any successor of Company. 9.3 Reasonableness of Restrictions. Executive represents and agrees that the restrictions on competition, as to time, geographic area, and scope of activity, required by this Section 9 are reasonable, do not impose a greater restraint than is necessary to protect the goodwill and business interests of Company, and are not unduly burdensome to Executive. Executive expressly acknowledges that Company competes on an international basis and that the geographical scope of these limitations is reasonable and necessary for the protection of Company's trade secrets and other confidential and proprietary information. Executive further agrees that these restrictions allow Executive an adequate number and variety of employment alternatives, based on Executive's varied skills and abilities. Executive represents that Executive is willing and able to compete in other employment not prohibited by this Agreement. 9.4 Reformation if Necessary. In the event a court of competent jurisdiction determines that the geographic area, duration, or scope of activity of any restriction under this Section 9 and its subsections is unenforceable, the restrictions under this section and its subsections shall not be terminated but shall be reformed and modified to the extent required to render them valid and enforceable. Executive further agrees that the court may reform this Agreement to extend the Covenant Period by an amount of time equal to any period in which Executive is in breach of this covenant. 10. Confidentiality and Proprietary Rights. Executive agrees to read, sign and abide by Company's Employee Innovations and Proprietary Rights Assignment Agreement, which was previously executed by Executive and incorporated herein by reference. 11. Nonsolicitation. 11.1 Nonsolicitation of Customers or Prospects. Executive acknowledges that information about Company's customers is confidential and constitutes trade secrets. Accordingly, Executive agrees that during the term of this Agreement and for a period of two (2) years after the termination of this Agreement, Executive will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company's -7- relationship with any of its customers or customer prospects by soliciting or encouraging others to solicit any of them for the purpose of diverting or taking away business from Company. 11.2 Nonsolicitation of Company's Employees. Executive agrees that during the term of this Agreement and for a period of two (2) years after the termination of this Agreement, Executive will not, either directly or indirectly, separately or in association with others, interfere with, impair, disrupt or damage Company's business by soliciting, encouraging, hiring or attempting to hire any of Company's employees or causing others to solicit or encourage any of Company's employees to discontinue their employment with Company. Notwithstanding the previous sentence, the Executive may give references for employees and tell headhunters the names of employees of Company, in either event, where the Executive is aware that the employee has been identified by Company as not being part of its long-term plans after a Change of Control. 12. Injunctive Relief. Executive acknowledges that Executive's breach of the covenants contained in Sections 9-11 (collectively "COVENANTS") would cause irreparable injury to Company and agrees that in the event of any such breach, Company shall be entitled to seek temporary, preliminary and permanent injunctive relief without the necessity of proving actual damages or posting any bond or other security. 13. Agreement to Arbitrate. To the fullest extent permitted by law, Executive and Company agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, the employment relationship between Company and Executive and any disputes upon termination of employment, including but not limited to breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law. Claims for breach of Company's Employee Innovations and Proprietary Rights Agreement, workers' compensation, unemployment insurance benefits and Company's right to obtain injunctive relief pursuant to Section 12 above are excluded. For the purpose of this agreement to arbitrate, references to "Company" include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this Agreement shall apply to them to the extent Executive's claims arise out of or relate to their actions on behalf of Company. 13.1 Initiation of Arbitration. Either party may exercise the right to arbitrate by providing the other party with written notice of any and all claims forming the basis of such right in sufficient detail to inform the other party of the substance of such claims. In no event shall the request for arbitration be made after the date when institution of legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations. 13.2 Arbitration Procedure. The arbitration will be conducted in Maricopa county, Arizona, by a single neutral arbitrator and in accordance with the then current rules for resolution of employment disputes of the American Arbitration Association ("AAA"). The parties are entitled to representation by an attorney or other representative of their choosing. The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of Arizona, and only such power, and shall follow the law. The parties agree to abide by and perform any award rendered by the arbitrator. Judgment on the award may be entered in any court having jurisdiction thereof. -8- 13.3 Costs of Arbitration. Each party shall bear one half the cost of the arbitration filing and hearing fees, and the cost of the arbitrator. 14. General Provisions. 14.1 Successors and Assigns. The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company. Executive shall not be entitled to assign any of Executive's rights or obligations under this Agreement. 14.2 Waiver. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement. 14.3 Attorneys' Fees. In any dispute relating to this Agreement, the losing party shall pay the attorneys' fees of the prevailing party in addition to its own attorneys' fees. 14.4 Severability. In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby. 14.5 Interpretation; Construction. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 14.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of Arizona. Each party consents to the jurisdiction and venue of the state or federal courts in Maricopa county, Arizona, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement. 14.7 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (a) by personal delivery when delivered personally; (b) by overnight courier upon written verification of receipt; (c) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to the addresses set forth below, or such other address as either party may specify in writing. 14.8 Survival. Sections 8 ("No Conflict of Interest"), 9 ("Post-Termination Non-Competition"), 10 ("Confidentiality and Proprietary Rights"), 11 ("Nonsolicitation"), 12 ("Injunctive Relief"), 13 ("Agreement to Arbitrate"), 14 ("General Provisions") and 15 ("Entire Agreement") of this Agreement shall survive Executive's employment by Company. -9- 15. Entire Agreement. This Agreement, including Company Employee Innovations and Proprietary Rights Assignment Agreement incorporated herein by reference and the Form Option Agreement, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral. This Agreement may be amended or modified only with the written consent of Executive and the Board of Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] -10- THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW. EXECUTIVE Dated: 7-23-82 /s/ Kristin L. Magnuson ----------------------- ------------------------------------ KRISTIN L. MAGNUSON ADDRESS COMPANY Dated: 7-23-02 By: /s/ James D. Armstrong ----------------------- ------------------------------------ JAMES D. ARMSTRONG, CEO [SIGNATURE PAGE TO MAGNUSON EMPLOYMENT AGREEMENT] EXHIBIT A Form of Option Agreement See attached. EXHIBIT B Form of Mutual Release See attached. EX-99.1 6 p67194exv99w1.txt EX-99.1 EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, James D. Armstrong, Chief Executive Officer of JDA Software Group, Inc. (the "Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: (1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the "Report"), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: November 11, 2002 /s/ James D. Armstrong ------------------------- James D. Armstrong Chief Executive Officer EX-99.2 7 p67194exv99w2.txt EX-99.2 EXHIBIT 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Kristen L. Magnuson, Executive Vice President and Chief Financial Officer of JDA Software Group, Inc. (the "Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge: (1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the "Report"), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: November 11, 2002 /s/ Kristen L. Magnuson ------------------------------- Kristen L. Magnuson Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-3.1

                                                                     Exhibit 3.1

                   THIRD RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                            JDA SOFTWARE GROUP, INC.,
                             a Delaware Corporation

      JDA SOFTWARE GROUP, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:

      ONE: The name of this Corporation is JDA SOFTWARE GROUP, INC.

      TWO: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on the 14th day of March, 1995.

      THREE: This Third Restated Certificate of Incorporation only restates and
integrates and does not further amend provisions of the Certificate of
Incorporation as heretofore in effect, and there is no discrepancy between those
provisions and the provisions of this Third Restated Certificate of
Incorporation. This Third Restated Certificate of Incorporation has been adopted
by the Board of Directors in the manner and by the vote prescribed by Section
245 of the General Corporation Law of the State of Delaware, and is as follows:

                                   ARTICLE I

      The name of this Corporation is JDA SOFTWARE GROUP, INC. (the
"Corporation").

                                   ARTICLE II

      The address of the registered office of this Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.

                                  ARTICLE III

      The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.

                                   ARTICLE IV

      This Corporation is authorized to issue two classes of stock to be
designated, respectively, the "Preferred Stock" and the "Common Stock." The
total number of shares of capital stock which this Corporation is authorized to
issue is Fifty-Two Million (52,000,000) shares. Fifty Million (50,000,000)
shares shall be common stock, par value $0.01 per share (the



                                       1

"Common Stock"), and Two Million (2,000,000) shares shall be Preferred Stock,
par value $1.00 per share (the "Preferred Stock").

      The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Restated Certificate of Incorporation, to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series but not below the number of shares of such series then outstanding.
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.

                                    ARTICLE V

      The rights, preferences, privileges, restrictions and other matters
relating to the Common Stock are as follows:

      1. Dividends. If the Board of Directors shall elect to declare dividends
out of funds legally available therefor, such dividends shall be declared in
equal amounts per share on all shares of Common Stock and Series A Preferred
Stock then outstanding (on an as-converted to Common Stock basis), subject to
Article VI.

      2. Liquidation Rights. In the event of any liquidation, dissolution or
winding up of this Corporation, either voluntary or involuntary, and after the
payment of any preferential liquidating distribution, if any, to the holders of
the Preferred Stock as provided in Article VI, any remaining assets shall be
distributed ratably among the holders of this Corporation's Common Stock and
Series A Preferred Stock (on an as-converted to Common Stock basis).

      3. Voting Rights. The holder of each share of Common Stock shall be
entitled to one vote for each such share as determined on the record date for
the vote or consent of stockholders and shall vote together with the holders of
the Preferred Stock upon any items submitted to a vote of stockholders and those
matters required by law to be submitted to a class vote.

                                   ARTICLE VI

      Five Hundred Thousand (500,000) shares of the Preferred Stock are hereby
designated "Series A Preferred Stock" $1.00 par value per share, with the
rights, preferences and privileges specified herein.

      The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred Stock are as follows:



                                       2

      1.    Dividends and Distributions.

            (A) The dividend rate on the shares of Series A Preferred Stock
shall be for each quarterly dividend (hereinafter referred to as a "quarterly
dividend period"), which quarterly dividend periods shall commence on January 1,
April 1, July 1 and October 1 each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date") (or in the case of original issuance,
from the date of original issuance) and shall end on and include the day next
preceding the first date of the next quarterly dividend period, at a rate per
quarterly dividend period (rounded to the nearest cent) equal to the greater of
(a) $250.00 or (b) subject to the provisions for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, plus 100
times the aggregate per share amount (payable in cash, based upon the fair
market value at the time the non-cash dividend or other distribution is declared
as determined in good faith by the Board of Directors) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared (but not withdrawn) on the Common Stock during the
immediately preceding quarterly dividend period, or, with respect to the first
quarterly dividend period, since the first issuance of any share or fraction of
a share of Series A Preferred Stock. In the event this Company shall at any time
after October 2, 1998 (the "Rights Declaration Date") (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

            (B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 45 days prior to the date fixed
for the payment thereof.


                                       3

      2.    Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:

            (A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

            (B) Except as otherwise provided herein, in the Certificate of
Incorporation or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.

            (C) Except as set forth herein, in the Certificate of Incorporation
and in the Bylaws, holders of Series A Preferred Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.

      3.    Reacquired Shares. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.

      4.    Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of the Series A Preferred Stock shall be entitled to
receive the greater of (a) $10,000.00 per share, plus accrued dividends to the
date of distribution, whether or not earned or declared, or (b) an amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders of Common
Stock. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event pursuant to clause (b) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the



                                       4

number of shares of Common Stock that were outstanding immediately prior to such
event.

      5.    Consolidation, Merger, etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Preferred Stock shall at the same time be similarly exchanged or changed in an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

      6.    No Redemption. The shares of Series A Preferred Stock shall not be
redeemable.

      7.    Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock. All payments made with respect to fractional shares
hereunder shall be rounded to the nearest whole cent.

      8.    Certain Restrictions.

            (A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Article VI, Section 1,
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:

                  (i) declare or pay dividends on, make any other distributions
      on, or redeem or purchase or otherwise acquire for consideration any
      shares of stock ranking junior (either as to dividends or upon
      liquidation, dissolution or winding up) to the Series A Preferred Stock;

                  (ii) declare or pay dividends on or make any other
      distributions on any shares of stock ranking on a parity (either as to
      dividends or upon liquidation, dissolution or winding up) with the Series
      A Preferred Stock, except dividends paid ratably on the Series A Preferred
      Stock and all such parity stock on which dividends are payable or in
      arrears in proportion to the total amounts to which the holders of all
      such shares are then entitled;



                                       5

                  (iii) redeem or purchase or otherwise acquire for
      consideration shares of any stock ranking on a parity (either as to
      dividends or upon liquidation, dissolution or winding up) with the Series
      A Preferred Stock, provided that the Corporation may at any time redeem,
      purchase or otherwise acquire shares of any such parity stock in exchange
      for shares of any stock of the Corporation ranking junior (either as to
      dividends or upon dissolution, liquidation or winding up) to the Series A
      Preferred Stock; or

                  (iv) purchase or otherwise acquire for consideration any
      shares of Series A Preferred Stock, or any shares of stock ranking on a
      parity with the Series A Preferred Stock, except in accordance with a
      purchase offer made in writing or by publication (as determined by the
      Board of Directors) to all holders of such shares upon such terms as the
      Board of Directors, after consideration of the respective annual dividend
      rates and other relative rights and preferences of the respective series
      and classes shall determine in good faith will result in fair and
      equitable treatment among the respective series or classes.

            (B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 8, purchase or otherwise acquire such shares at such time and in
such manner.

      9.    Ranking. The Series A Preferred Stock shall be junior to all other
Series of the Corporation's preferred stock as to the payment of dividends and
the distribution of assets, unless the terms of any series shall provide
otherwise.

      10.   Amendment. The Certificate of Incorporation of the Corporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of two-thirds or more
of the outstanding shares of Series A Preferred Stock voting together as a
single class.

                                  ARTICLE VII

      The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:

      1.    The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.

      2.    The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.



                                       6

      3.    Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.

      4.    Special meetings of stockholders of the Corporation may be called
only (1) by the Board of Directors pursuant to a resolution adopted by at least
one-third of the total number of directors then in office or (2) by the
Corporation's President or Chief Executive Officer.

                                  ARTICLE VIII

      1.    The number of directors shall be set at four (4) and, thereafter,
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption). The directors shall be divided into three classes with the term of
office of the first class (Class I) to expire at the first annual meeting of the
stockholders following the closing of the first sale of the Corporation's Common
Stock, pursuant to a firmly underwritten registered public offering (the "IPO");
the term of office of the second class (Class II) to expire at the second annual
meeting of stockholders held following the IPO; the term of office of the third
class (Class III) to expire at the third annual meeting of stockholders; and
thereafter for each such term to expire at each third succeeding annual meeting
of stockholders after such election. All directors shall hold office until the
expiration of the term for which elected, and until their respective successors
are elected, except in the case of the death, resignation, or removal of any
director.

      2.    Newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause (other than removal from office
by a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
at which the term of office of the class to which they have been elected
expires, and until their respective successors are elected, except in the case
of the death, resignation, or removal of any director. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of any
incumbent director.

      3.    Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, with or without cause, but only by the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class. Vacancies in the Board of Directors resulting from such removal may be
filled by a majority of the directors then in office, though less than a quorum.
Directors so chosen shall hold office for a term expiring at the next annual
meeting of stockholders at which the term of office of the class to which they
have been elected expires, and until their respective successors are elected,
except in the case of the death, resignation, or removal of any director.



                                       7

                                   ARTICLE IX

      The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the Board of Directors shall require the approval of at least
two-thirds (2/3) of the total number of authorized directors (whether or not
there exist any vacancies in previously authorized directorships at the time any
resolution providing for adoption, amendment or repeal is presented to the
Board). The stockholders shall also have power to adopt, amend or repeal the
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the stockholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
this Certificate of Incorporation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.

                                    ARTICLE X

      A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.

      If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.

      Any repeal or modification of the foregoing provisions of this Article X
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.

                                   ARTICLE XI

      The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; provided, however, notwithstanding any
other provision 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
vote of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 66-2/3% of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend or repeal this Article XI, Article VII, Article VIII,
Article IX or Article X.



                                       8

      IN WITNESS WHEREOF, JDA SOFTWARE GROUP, INC. has caused this Third
Restated Certificate of Incorporation to be signed by its President and attested
to by its Secretary this 23 day of July, 2002.


                                                JDA SOFTWARE GROUP, INC.



                                                By:  /s/ Hamish N. Brewer
                                                     ---------------------------
                                                     Hamish N. Brewer, President


ATTEST

By:  /s/ Kristen L. Magnuson
     -------------------------------
     Kristen L. Magnuson, Secretary




                                       9

EX-10.5

                                                                    Exhibit 10.5

                         EXECUTIVE EMPLOYMENT AGREEMENT

      THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "AGREEMENT") is
entered into and shall be effective as of July 23, 2002 (the "EFFECTIVE DATE"),
by and among JDA SOFTWARE GROUP, INC., a Delaware corporation ("COMPANY") and
JAMES D. ARMSTRONG ("EXECUTIVE").

                                    RECITALS

      A. Company, Executive and JDA Software, Inc., an Arizona corporation and
wholly-owned subsidiary of Company, are parties to an Employment Agreement
entered into effective as of January 1, 1998 (the "EMPLOYMENT AGREEMENT"),
pursuant to which Executive has been employed as Co-Chairman of the Board of
Directors of Company.

      B. Company's former Co-Chief Executive Officer resigned effective as of
January 4, 1999, and Executive has served as Company's Chief Executive Officer
since such resignation.

      C. Company's former Co-Chairman of the Board of Directors resigned
effective June 23, 2000, and Executive has served as Company's sole Chairman of
the Board of Directors since such resignation.

      D. Company and Executive desire to amend and restate the Employment
Agreement in its entirety in accordance with Section 9(i) thereof as hereafter
set forth.

      NOW, THEREFORE, in consideration of the mutual premises herein contained,
the sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

                                   AGREEMENT

      The Employment Agreement is hereby amended and restated in its entirety as
of the Effective Date.

      1. Employment. Company hereby employs Executive, and Executive hereby
accepts such employment, upon the terms and conditions set forth herein.

      2. Duties.

         2.1 Position. Executive is employed as Chairman of the Board of
Directors ("CHAIRMAN") and Chief Executive Officer ("CEO") of Company. Executive
shall perform faithfully and diligently all duties assigned to Executive. The
Board of Directors of Company ("BOARD") reserves the right to modify Executive's
position and duties at any time in its sole and absolute discretion, provided
that the duties assigned are consistent with the position of Chairman and CEO.

         2.2 Standard of Conduct/Full-time. During the term of this Agreement,
Executive will act loyally and in good faith to discharge the duties of Chairman
and CEO, and will abide by all policies and decisions made by Company, as well
as all applicable federal, state and local laws, regulations or ordinances.
Executive will act solely on behalf of Company at all times. Executive shall
devote Executive's full business time and efforts to the performance of
Executive's assigned duties for Company, unless Executive notifies the Board in
advance of





Executive's intent to engage in other paid work and receives the Board's express
written consent to do so.

            2.3 Work Location. Executive's principal place of work shall be
located in Scottsdale, Arizona or such other location as the parties may agree
upon from time to time.

      3.    Term. The employment relationship pursuant to this Agreement shall
commence on the Effective Date set forth above and continue until terminated in
accordance with the terms of this Agreement (the "EMPLOYMENT TERM").

      4.    Compensation.

            4.1 Base Salary. As compensation for Executive's performance of
Executive's duties hereunder, Company shall pay to Executive a salary of
$400,000 per year, payable in equal semi-monthly installments of $16,666.67 and
in accordance with the normal payroll practices of Company, less required
deductions for state and federal withholding tax, social security and all other
employment taxes and authorized payroll deductions. Executive's Base Salary will
be reviewed by the parties on or before each anniversary of the Effective Date
and may be increased or decreased from time to time during the Employment Term
by such amount(s) as Company and Executive may agree to in writing.

            4.2 Incentive Compensation. In addition, Executive will also be
eligible to receive incentive compensation subject to the terms and conditions
as the Board may from time to time deem appropriate in its sole and absolute
discretion ("BONUS"). Unless otherwise provided herein, the payment of any Bonus
pursuant to this Section 4.2 shall be made in accordance with the normal payroll
practices of Company, less required deductions for state and federal withholding
tax, social security and all other employment taxes and authorized payroll
deductions.

            4.3 Performance and Salary Review. The Board will periodically
review Executive's performance on no less than an annual basis. Adjustments to
salary or other compensation, if any, will be made by the Board in its sole and
absolute discretion.

      5.    Benefits.

            5.1 Fringe Benefits and Facilities. Executive will be eligible for
all customary and usual fringe benefits generally available to executives of
Company subject to the terms and conditions of Company's benefit plan documents.
Company reserves the right to change or eliminate the fringe benefits on a
prospective basis, at any time, effective upon notice to Executive; provided,
however, that during the period of employment under this Agreement, Executive
(and his spouse and eligible dependents) shall be entitled to receive all
benefits of employment generally available to other members of Company's
management and those benefits for which key executives are or shall become
eligible, when and as Executive becomes eligible therefore, including, without
limitation, group health, life and disability insurance benefits and
participation in Company's 401(k) plan. Company further agrees to furnish
Executive with such assistance and accommodations (i.e., an office in the size,
type and quality as provided to Executive prior to the Effective Date) as shall
be suitable to the character of Executive's position with Company and adequate
for the performance of Executive's duties hereunder.

            5.2 Benefits Payable Upon Disability or Death. If Executive shall be
prevented during the term of this Agreement from properly performing services
hereunder by





                                      -2-

reason of illness or other physical or mental incapacity ("DISABILITIES"),
Company shall continue to pay Executive the then current salary hereunder for a
period of twelve (12) months, following the onset of such disability. In the
event of the death of Executive during the term of this Agreement, Executive's
then current salary payable hereunder shall continue to be paid, as a death
benefit, to Executive's surviving spouse, or if there is no spouse surviving,
then to Executive's personal representative (as the case may be) for a period of
twelve (12) months following Executive's death.

      6. Business Expenses. Executive will be reimbursed for all reasonable,
out-of-pocket business expenses incurred in the performance of Executive's
duties on behalf of Company. To obtain reimbursement, expenses must be submitted
promptly with appropriate supporting documentation in accordance with Company's
policies.

      7. Termination of Executive's Employment.

         7.1 Termination for Cause by Company. The Board may terminate
Executive's employment immediately at any time for Cause by delivering written
notice specifying the cause to Executive; provided, however, that such written
notice shall not be delivered until after the Board shall have given Executive
written notice specifying the conduct alleged to have constituted such cause,
and Executive has failed to cure such conduct within thirty (30) days following
receipt of such notice. For purposes of this Agreement, "CAUSE" is defined as:
(a) theft, dishonesty, or intentional falsification of any employment or Company
records; improper disclosure of Company's confidential or proprietary
information; (b) Executive's conviction (including any plea of guilty or nolo
contendere) for any criminal act that materially impairs his ability to perform
his duties for Company; or (c) a material breach of this Agreement by Executive
which is not cured within thirty (30) days of receipt by Executive of reasonably
detailed written notice from Company. In the event Executive's employment is
terminated in accordance with this Section 7.1, Executive shall be entitled to
receive only unpaid Base Salary then in effect, prorated to the date of
termination, together with any amounts to which Executive is entitled pursuant
to Sections 5 or 6 hereof. All other Company obligations to Executive pursuant
to this Agreement will become automatically terminated and completely
extinguished. Executive will not be entitled to receive the Severance Payments
described in Section 7.2, below.

         7.2 Termination Without Cause by Company/Severance. Company may
terminate Executive's employment under this Agreement without Cause at any time
on sixty (60) days' advance written notice to Executive. In the event of such
termination, Executive will receive in one lump sum payment (i) the unpaid Base
Salary then in effect, prorated to the effective date of termination; (ii) his
Base Salary for thirty-six (36) months from the termination date; and (iii) any
amounts to which Executive is entitled pursuant to Sections 5 or 6 hereof (the
"SEVERANCE PAYMENTS"), provided that Executive: (a) complies with all surviving
provisions of this Agreement, including without limitation those provisions
specified in Section 14.8, below; and (b) executes a full general release,
releasing all claims, known or unknown, that Executive may have against Company
arising out of or any way related to Executive's employment or termination of
employment with Company, in substantially the form attached hereto as Exhibit A,
or in another form that is acceptable to Company in its sole discretion. All
other Company obligations to Executive will be automatically terminated and
completely extinguished upon termination of employment.

         7.3 Termination for Good Reason by Executive/Severance. Executive may
terminate Executive's employment under this Agreement for Good Reason (defined
below) at



                                      -3-

any time on five (5) days' advance written notice to Company. In the event of
such termination, Executive will be entitled to receive the Severance Payments
described in Section 7.2, above, provided that Executive complies with the
conditions to receiving the Severance Payments described in Section 7.2(a) -
7.2(b), above. All other Company obligations to Executive will be automatically
terminated and completely extinguished upon termination of employment.

            For purposes of this Agreement, "GOOD REASON" is defined as the
occurrence of any of the following conditions:

            (a) a material, adverse change in Executive's responsibilities or
duties, causing Executive's position to be of materially less stature or
responsibility; provided, that for purposes of this Agreement and without
limiting the generality of the foregoing, a material, adverse change shall be
deemed to occur if Executive no longer serves as Chairman and CEO of a
publicly-traded company;

            (b) the relocation of Executive's work place for Company over
Executive's written objection to a location more than thirty (30) miles from
Scottsdale, Arizona;

            (c) a failure to pay, or any reduction of Executive's Base Salary or
Executive's Bonus without Executive's written consent (subject to applicable
performance requirements with respect to the actual amount of Bonus earned by
Executive); or

            (d) any material breach of this Agreement by Company that is not
cured within thirty (30) days of Company's receipt of written notice from
Executive specifying the material breach of this Agreement.

            7.4 Voluntary Resignation by Executive. Executive may voluntarily
resign Executive's position with Company for any reason, at any time after the
Effective Date, on five (5) days' advance written notice. In the event of
Executive's resignation, Executive will be entitled to receive only the Base
Salary for the five-day notice period and no other amount for the remaining
Employment Term (other than amounts to which Executive is entitled pursuant to
Section 5 or 6 hereof). All other Company obligations to Executive pursuant to
this Agreement will become automatically terminated and completely extinguished
upon termination of employment. In addition, Executive will not be entitled to
receive any Severance Payments described in Section 7.2, above. The provisions
of this Section 7.4 shall not apply to Executive's resignation for Good Reason.

            7.5 Federal Excise Tax Under Section 4999 of the Code.

            (a) Additional Payment. In the event that any payment or benefit
received or to be received by Executive pursuant to this Agreement or otherwise
payable to Executive (collectively, the "PAYMENTS") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "CODE"), or any similar or successor provision (the "EXCISE TAX"),
Company shall pay to Executive within ninety (90) days of the date Executive
becomes subject to the Excise Tax, an additional amount (the "GROSS-UP PAYMENT")
such that the net amount retained by Executive from the Payments and the
Gross-Up Payment, after deduction of (1) any Excise Tax on the Payments and (2)
any federal, state and local income or employment tax and Excise Tax upon the
payment provided for by this Section, shall be equal to the Payments.



                                      -4-

            (b) Determination of Excise Tax. For purposes of determining whether
any of the Payments will be subject to the Excise Tax and the amount of such
Excise Tax:

                  (i) Any payments or benefits received or to be received by
Executive in connection with transactions contemplated by a Change of Control
(as defined below) event or Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with Company), shall be treated as "parachute payments" within the
meaning of Section 280G of the Code or any similar or successor provision, and
all "excess parachute payments" within the meaning of Section 280G of the Code
or any similar or successor provision shall be treated as subject to the Excise
Tax, unless in the opinion of tax counsel ("TAX COUNSEL") selected by Company
and reasonably acceptable to Executive such payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G of the Code (or any similar or
successor provision of the Code) in excess of the base amount within the meaning
of Section 280G of the Code (or any similar or successor provision of the Code),
or are otherwise not subject to the Excise Tax.

                  (ii) The amount of the Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Payments or (ii) the amount of the excess parachute payments within the
meaning of Section 280G of the Code (after applying paragraph (b)(1) above).

                  (iii) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by Tax Counsel in accordance with the
principles of Section 280G of the Code.

                  (iv) Change of Control. A "CHANGE OF CONTROL" is defined as
any one of the following occurrences:

                        a) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT")), other
than a trustee or other fiduciary holding securities of Company under an
employee benefit plan of Company, becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of the
securities of Company representing 50% or more of (A) the outstanding shares of
common stock of Company or (B) the combined voting power of Company's
then-outstanding securities; or

                        b) the sale or disposition of all or substantially all
of Company's assets (or any transaction having similar effect is consummated);
or

                        c) Company is party to a merger or consolidation that
results in the holders of voting securities of Company outstanding immediately
prior thereto failing to continue to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) at least
50% of the combined voting power of the voting securities of Company or such
surviving entity outstanding immediately after such merger or consolidation; or

                        d) a liquidation or dissolution of Company.



                                      -5-

            (c) Determination of Gross-Up Payment. For purposes of determining
the amount of the Gross-Up Payment, Executive shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and local
income taxes at the highest marginal rate of taxation in the state and locality
of Executive's residence on the date the Gross-Up Payment is to be made, net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.

            (d) Adjustments.

                  (i) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder, Executive
shall repay to Company at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up Payment attributable to
such reduction (plus the portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income and employment taxes imposed on
the Gross-Up Payment being repaid by Executive if such repayment results in a
reduction in Excise Tax and/or a federal, state or local income or employment
tax deduction) plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code.

                  (ii) In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-Up
Payment), Company shall make an additional gross-up payment in respect of such
excess (plus any interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.

            7.6 Termination for Death or Permanent Disability. Upon Executive's
death or permanent disability (a disability which has continued for a period of
twelve (12) months from the date of onset of such disability), this Agreement
shall terminate; provided that Executive and Executive's spouse (or surviving
spouse, as the case may be) and eligible dependents shall be entitled to
continuation rights under Company's group health plans as required under COBRA,
with the "qualifying event" occurring and minimum required period of coverage to
commence upon the termination of this Agreement; and provided further that, in
the event of Executive's death, Executive's surviving spouse or personal
representative, as the case may be, shall be entitled to the death benefits
described in Section 5.2.

      8. No Conflict of Interest. During the term of Executive's employment with
Company, Executive must not engage in any work, paid or unpaid, that creates an
actual or potential conflict of interest with Company. If the Board reasonably
believes such a conflict exists during the term of this Agreement, the Board may
ask Executive to choose to discontinue the other work or resign employment with
Company.

      9. Post-Termination Non-Competition.

            9.1 Consideration For Promise To Refrain From Competing. Executive
agrees that Executive's services are special and unique, that Company's
disclosure of confidential, proprietary information and specialized training and
knowledge to Executive, and that Executive's level of compensation and benefits,
including, without limitation, the severance payments provided for in this
Agreement, are partly in consideration of and conditioned upon Executive not
competing with Company. Executive acknowledges that such consideration is
adequate for Executive's promises contained within this Section 9.



                                      -6-

            9.2 Promise To Refrain From Competing. Executive understands
Company's need for Executive's promise not to compete with Company is based on
the following: (a) Company has expended, and will continue to expend,
substantial time, money and effort in developing its proprietary information;
(b) Executive will in the course of Executive's employment develop, be
personally entrusted with and exposed to Company's proprietary information; (c)
both during and after the term of Executive's employment, Company will be
engaged in the highly competitive enterprise software industry; (d) Company
provides products and services nationally and internationally; and (e) Company
will suffer great loss and irreparable harm if Executive were to enter into
competition with Company. Therefore, in exchange for the consideration described
in Section 9.1 above, Executive agrees that for the period of three (3) years
following the date Executive ceases to render services to Company (the "COVENANT
PERIOD"), Executive will not either directly or indirectly, whether as an owner,
director, officer, manager, consultant, agent or employee: (i) work for a
competitor of Company, which is defined to include those entities or persons in
the business of developing, marketing, selling and supporting software designed
for businesses in the retail and consumer packaged goods markets or in the
business of helping companies synchronize their inventory decisions with
advanced supply chain, inventory management and data mining solutions, in any
country in which Company does business (the "RESTRICTED BUSINESS"); or (ii) make
or hold any investment in any Restricted Business, whether such investment be by
way of loan, purchase of stock or otherwise, provided that there shall be
excluded from the foregoing the ownership of not more than 5% of the listed or
traded stock of any publicly held corporation. For purposes of this Section 9,
the term "COMPANY" shall mean and include Company, any subsidiary or affiliate
of Company, any successor to the business of Company (by merger, consolidation,
sale of assets or stock or otherwise) and any other corporation or entity of
which Executive may serve as a director, officer or employee at the request of
Company or any successor of Company.

            9.3 Reasonableness of Restrictions. Executive represents and agrees
that the restrictions on competition, as to time, geographic area, and scope of
activity, required by this Section 9 are reasonable, do not impose a greater
restraint than is necessary to protect the goodwill and business interests of
Company, and are not unduly burdensome to Executive. Executive expressly
acknowledges that Company competes on an international basis and that the
geographical scope of these limitations is reasonable and necessary for the
protection of Company's trade secrets and other confidential and proprietary
information. Executive further agrees that these restrictions allow Executive an
adequate number and variety of employment alternatives, based on Executive's
varied skills and abilities. Executive represents that Executive is willing and
able to compete in other employment not prohibited by this Agreement.

            9.4 Reformation if Necessary. In the event a court of competent
jurisdiction determines that the geographic area, duration, or scope of activity
of any restriction under this Section 9 and its subsections is unenforceable,
the restrictions under this section and its subsections shall not be terminated
but shall be reformed and modified to the extent required to render them valid
and enforceable. Executive further agrees that the court may reform this
Agreement to extend the Covenant Period by an amount of time equal to any period
in which Executive is in breach of this covenant.

      10. Confidentiality. Executive agrees to abide by Company's letter
agreement dated as of January 1, 1998, which is incorporated by this reference
whereby Executive covenants and agrees to keep confidential that information
known by or made available to Executive on account of his relationship with
Company (the "LETTER AGREEMENT").

      11. Nonsolicitation.



                                      -7-

            11.1 Nonsolicitation of Customers or Prospects. Executive
acknowledges that information about Company's customers is confidential and
constitutes trade secrets. Accordingly, Executive agrees that during the term of
this Agreement and for a period of two (2) years after the termination of this
Agreement, Executive will not, either directly or indirectly, separately or in
association with others, interfere with, impair, disrupt or damage Company's
relationship with any of its customers or customer prospects by soliciting or
encouraging others to solicit any of them for the purpose of diverting or taking
away business from Company.

            11.2 Nonsolicitation of Company's Employees. Executive agrees that
during the term of this Agreement and for a period of three (3) years after the
termination of this Agreement, Executive will not, either directly or
indirectly, separately or in association with others, interfere with, impair,
disrupt or damage Company's business by soliciting, encouraging, hiring or
attempting to hire any of Company's employees or causing others to solicit or
encourage any of Company's employees to discontinue their employment with
Company. Notwithstanding the previous sentence, the Executive may give
references for employees and tell headhunters the names of employees of Company,
in either event, where the Executive is aware that the employee has been
identified by Company as not being part of its long-term plans after a Change of
Control.

      12. Injunctive Relief. Executive acknowledges that Executive's breach of
the covenants contained in Sections 9-11 (collectively "COVENANTS") would cause
irreparable injury to Company and agrees that in the event of any such breach,
Company shall be entitled to seek temporary, preliminary and permanent
injunctive relief without the necessity of proving actual damages or posting any
bond or other security.

      13. Agreement to Arbitrate. To the fullest extent permitted by law,
Executive and Company agree to arbitrate any controversy, claim or dispute
between them arising out of or in any way related to this Agreement, the
employment relationship between Company and Executive and any disputes upon
termination of employment, including but not limited to breach of contract,
tort, discrimination, harassment, wrongful termination, demotion, discipline,
failure to accommodate, family and medical leave, compensation or benefits
claims, constitutional claims; and any claims for violation of any local, state
or federal law, statute, regulation or ordinance or common law. Claims for
breach of Company's Employee Innovations and Proprietary Rights Agreement,
workers' compensation, unemployment insurance benefits and Company's right to
obtain injunctive relief pursuant to Section 12 above are excluded. For the
purpose of this agreement to arbitrate, references to "Company" include all
parent, subsidiary or related entities and their employees, supervisors,
officers, directors, agents, pension or benefit plans, pension or benefit plan
sponsors, fiduciaries, administrators, affiliates and all successors and assigns
of any of them, and this Agreement shall apply to them to the extent Executive's
claims arise out of or relate to their actions on behalf of Company.

            13.1 Initiation of Arbitration. Either party may exercise the right
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims. In no event shall the request for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claims would be barred by the applicable statute of
limitations.

            13.2 Arbitration Procedure. The arbitration will be conducted in
Maricopa county, Arizona, by a single neutral arbitrator and in accordance with
the then current rules for resolution of employment disputes of the American
Arbitration Association ("AAA"). The parties



                                      -8-

are entitled to representation by an attorney or other representative of their
choosing. The arbitrator shall have the power to enter any award that could be
entered by a judge of the trial court of the State of Arizona, and only such
power, and shall follow the law. The parties agree to abide by and perform any
award rendered by the arbitrator. Judgment on the award may be entered in any
court having jurisdiction thereof.

            13.3 Costs of Arbitration. Each party shall bear one half the cost
of the arbitration filing and hearing fees, and the cost of the arbitrator.

      14. General Provisions.

            14.1 Successors and Assigns. The rights and obligations of Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. Executive shall not be entitled to assign any
of Executive's rights or obligations under this Agreement.

            14.2 Waiver. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.

            14.3 Attorneys' Fees. In any dispute relating to this Agreement, the
losing party shall pay the attorneys' fees of the prevailing party in addition
to its own attorneys' fees.

            14.4 Severability. In the event any provision of this Agreement is
found to be unenforceable by an arbitrator or court of competent jurisdiction,
such provision shall be deemed modified to the extent necessary to allow
enforceability of the provision as so limited, it being intended that the
parties shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.

            14.5 Interpretation; Construction. The headings set forth in this
Agreement are for convenience only and shall not be used in interpreting this
Agreement. This Agreement has been drafted by legal counsel representing
Company, but Executive has participated in the negotiation of its terms.
Furthermore, Executive acknowledges that Executive has had an opportunity to
review and revise the Agreement and have it reviewed by legal counsel, if
desired, and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement.

            14.6 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the United States and the State of Arizona. Each
party consents to the jurisdiction and venue of the state or federal courts in
Maricopa county, Arizona, if applicable, in any action, suit, or proceeding
arising out of or relating to this Agreement.

            14.7 Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally; (b) by
overnight courier upon written verification of receipt; (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission; or (d) by certified or registered mail, return receipt requested,
upon verification of



                                      -9-

receipt. Notice shall be sent to the addresses set forth below, or such other
address as either party may specify in writing.

            14.8 Survival. Sections 8 ("No Conflict of Interest"), 9
("Post-Termination Non-Competition"), 10 ("Confidentiality and Proprietary
Rights"), 11 ("Nonsolicitation"), 12 ("Injunctive Relief"), 13 ("Agreement to
Arbitrate"), 14 ("General Provisions") and 15 ("Entire Agreement") of this
Agreement shall survive Executive's employment by Company.

      15. Entire Agreement. This Agreement, including the Letter Agreement
incorporated herein by reference, constitutes the entire agreement between the
parties relating to this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations, and agreements, whether written or
oral. This Agreement may be amended or modified only with the written consent of
Executive and the Board. No oral waiver, amendment or modification will be
effective under any circumstances whatsoever.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]



                                      -10-

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES
HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

                                                 EXECUTIVE

Dated:    7-23-02                                /s/ James D. Armstrong
       ---------------------------               -------------------------------
                                                 JAMES D. ARMSTRONG

                                                 ADDRESS
                                                        ------------------------
                                                        ------------------------
                                                        ------------------------


                                                 COMPANY

Dated:    7-23-02                                By:  /s/  Kristen L. Magnuson
       ---------------------------                    --------------------------
                                                 Name:  KRISTEN L. MAGNUSON
                                                      --------------------------
                                                 Title: CFO
                                                       -------------------------




               [SIGNATURE PAGE TO ARMSTRONG EMPLOYMENT AGREEMENT]

                                    EXHIBIT A

                             Form of Mutual Release

See attached.

EX-10.7

                                                                    Exhibit 10.7

                         EXECUTIVE EMPLOYMENT AGREEMENT

      This Executive Employment Agreement ("AGREEMENT") is made effective as of
July 23, 2002 ("EFFECTIVE DATE"), by and between JDA Software Group, Inc., a
Delaware corporation ("COMPANY") and Kristen L. Magnuson ("EXECUTIVE") (either
party individually, a "PARTY"; collectively, the "PARTIES").

      WHEREAS, Company desires to retain the services of Executive as Chief
Financial Officer;

      WHEREAS, the Parties desire to enter into this Agreement to set forth the
terms and conditions of Executive's employment by Company and to address certain
matters related to Executive's employment with Company;

      NOW, THEREFORE, in consideration of the foregoing and the mutual
provisions contained herein, and for other good and valuable consideration, the
Parties hereto agree as follows:

      1. Employment. Company hereby employs Executive, and Executive hereby
accepts such employment, upon the terms and conditions set forth herein.

      2. Duties.

            2.1 Position. Executive is employed as Chief Financial Officer and
shall have the duties and responsibilities assigned by Company's Chief Executive
Officer ("CEO") both upon initial hire and as may be reasonably assigned from
time to time. Executive shall perform faithfully and diligently all duties
assigned to Executive. Company reserves the right to modify Executive's position
and duties at any time in its sole and absolute discretion, provided that the
duties assigned are consistent with the position of Chief Financial Officer and
that Executive continues to report directly to the CEO.

            2.2 Standard of Conduct/Full-time. During the term of this
Agreement, Executive will act loyally and in good faith to discharge the duties
of Chief Financial Officer, and will abide by all policies and decisions made by
Company, as well as all applicable federal, state and local laws, regulations or
ordinances. Executive will act solely on behalf of Company at all times.
Executive shall devote Executive's full business time and efforts to the
performance of Executive's assigned duties for Company, unless Executive
notifies the CEO in advance of Executive's intent to engage in other paid work
and receives the CEO's express written consent to do so.

            2.3 Work Location. Executive's principal place of work shall be
located in Scottsdale, Arizona or such other location as the parties may agree
upon from time to time.

      3. Term.

            3.1 Initial Term. The employment relationship pursuant to this
Agreement shall be for an initial term commencing on the Effective Date set
forth above and continuing for three (3) years from the Effective Date ("INITIAL
TERM"), unless sooner terminated in accordance with the terms of this Agreement.

            3.2 Renewal. On completion of the Initial Term specified in Section
3.1 above, this Agreement will automatically renew for subsequent one-year terms
unless either party provides ninety (90) days' advance written notice to the
other that such party does not wish to renew the Agreement for a subsequent
one-year term. In the event either party gives notice of nonrenewal pursuant to
this Section 3.2, this Agreement will expire at the end of the then-current
term.

      4. Compensation.

            4.1 Base Salary. As compensation for Executive's performance of
Executive's duties hereunder, Company shall pay to Executive a salary of
$250,000 per year, payable in equal monthly installments and in accordance with
the normal payroll practices of Company, less required deductions for state and
federal withholding tax, social security and all other employment taxes and
authorized payroll deductions.

            4.2 Stock Options. Subject to approval by Company's Board of
Directors (the "BOARD"), Company will from time to time grant to Executive an
option to purchase shares of Company's common stock (the "OPTION"). The Option
will be subject to the terms and conditions of one of Company's Stock Option
Plans as designated by the Board (the "PLAN"). The Option will also be subject
to the terms and conditions contained in the special form of option agreement
previously adopted by the Board for the position of Chief Financial Officer, a
form of which is attached hereto as Exhibit A (the "FORM OPTION AGREEMENT") and
shall vest over a period of three (3) years in accordance with the terms of the
Form Option Agreement and the Plan. The Option shall be subject to certain
acceleration provisions described in the Form Option Agreement and this
Agreement.

            4.3 Incentive Compensation. In addition, Executive will also be
eligible to receive incentive compensation subject to the terms and conditions
contained in the Executive Bonus Plan, which is approved by the Board and is
subject to amendment from time to time by the Board in its sole and absolute
discretion (a "BONUS"). Unless otherwise provided herein, the payment of any
Bonus pursuant to this Section 4.3 shall be made in accordance with the normal
payroll practices of Company, less required deductions for state and federal
withholding tax, social security and all other employment taxes and authorized
payroll deductions.

            4.4 Performance and Salary Review. The Board will periodically
review Executive's performance on no less than an annual basis. Adjustments to
salary or other compensation, if any, will be made by the Board in its sole and
absolute discretion.

      5. Customary Fringe Benefits and Facilities. Executive will be eligible
for all customary and usual fringe benefits generally available to executives of
Company subject to the terms and conditions of Company's benefit plan documents.
Company reserves the right to change or eliminate the fringe benefits on a
prospective basis, at any time, effective upon notice to Executive; provided,
however, that during the period of employment under this Agreement, Executive
and her spouse and eligible dependents shall be entitled to receive all benefits
of employment generally available to other members of Company's management and
those benefits for which key executives are or shall become eligible, when and
as Executive becomes eligible therefore, including, without limitation, group
health, life and disability insurance benefits and participation in Company's
401(k) plan. Company further agrees to furnish Executive with such assistance
and accommodations (i.e., an office in the size, type and quality as provided to
Executive prior to the Effective Date) as shall be suitable to the character


                                      -2-

of Executive's position with Company and adequate for the performance of
Executive's duties hereunder.

      6. Business Expenses. Executive will be reimbursed for all reasonable,
out-of-pocket business expenses incurred in the performance of Executive's
duties on behalf of Company. To obtain reimbursement, expenses must be submitted
promptly with appropriate supporting documentation in accordance with Company's
policies.

      7. Termination of Executive's Employment.

            7.1 Termination for Cause by Company. Company may terminate
Executive's employment immediately at any time for Cause. For purposes of this
Agreement, "CAUSE" is defined as: (a) theft, dishonesty, or intentional
falsification of any employment or Company records; improper disclosure of
Company's confidential or proprietary information; (b) Executive's conviction
(including any plea of guilty or nolo contendere) for any criminal act that
materially impairs her ability to perform her duties for Company; or (c) a
material breach of this Agreement by Executive which is not cured within thirty
(30) days of receipt by Executive of reasonably detailed written notice from
Company. In the event Executive's employment is terminated in accordance with
this Section 7.1, Executive shall be entitled to receive only unpaid Base Salary
then in effect, prorated to the date of termination, together with any amounts
to which Executive is entitled pursuant to Sections 5 or 6 hereof. There shall
be no additional vesting under Executive's Option. All other Company obligations
to Executive pursuant to this Agreement will become automatically terminated and
completely extinguished. Executive will not be entitled to receive the Severance
Payments described in Section 7.2, below.

            7.2 Termination Without Cause by Company/Severance. Company may
terminate Executive's employment under this Agreement without Cause at any time
on sixty (60) days' advance written notice to Executive. In the event of such
termination, Executive will receive in one lump sum payment, (i) the unpaid Base
Salary then in effect, prorated to the effective date of termination; (ii) her
Base Salary for twenty-four (24) months from the termination date plus one
year's base Bonus pursuant to Section 4.3 of this Agreement for the calendar
year during which the termination occurs ($125,000 for calendar year 2002),
assuming satisfaction of all performance based milestones at the 100% level by
both Company and the Executive; and (iii) any amounts to which Executive is
entitled pursuant to Sections 5 or 6 hereof (the "SEVERANCE PAYMENTS"), provided
that Executive: (a) complies with all surviving provisions of this Agreement,
including without limitation those provisions specified in Section 14.8, below;
and (b) executes a full general release, releasing all claims, known or unknown,
that Executive may have against Company arising out of or any way related to
Executive's employment or termination of employment with Company, in
substantially the form attached hereto as Exhibit B, or in another form that is
acceptable to Company in its sole discretion. All other Company obligations to
Executive will be automatically terminated and completely extinguished upon
termination of employment.

            7.3 Termination for Good Reason by Executive/Severance. Executive
may terminate Executive's employment under this Agreement for Good Reason
(defined below) at any time on five (5) days' advance written notice to Company.
In the event of such termination, Executive will be entitled to receive the
Severance Payments described in Section 7.2, above, provided that Executive
complies with the conditions to receiving the Severance Payments described in
Sections 7.2(a) and 7.2(b), above. All other Company obligations to Executive
will be automatically terminated and completely extinguished upon termination of
employment.


                                      -3-

      For purposes of this Agreement, "GOOD REASON" is defined as the occurrence
of any of the following conditions:

                  (a) a material, adverse change in Executive's responsibilities
or duties, causing Executive's position to be of materially less stature or
responsibility; provided, that for purposes of this Agreement and without
limiting the generality of the foregoing, a material, adverse change shall be
deemed to occur if Executive no longer serves as Chief Financial Officer (who
shall be the most senior financial officer) of a publicly-traded company
reporting directly to the CEO;

                  (b) the relocation of Executive's work place for Company over
Executive's written objection, to a location more than thirty (30) miles from
Scottsdale, Arizona;

                  (c) a failure to pay, or any reduction of Executive's Base
Salary or Executive's Bonus without Executive's written consent (subject to
applicable performance requirements with respect to the actual amount of Bonus
earned by Executive); or

                  (d) any material breach of this Agreement by Company that is
not cured within thirty (30) days of Company's receipt of written notice from
Executive specifying the material breach of this Agreement.

            7.4 Voluntary Resignation by Executive. Executive may voluntarily
resign Executive's position with Company for any reason, at any time after the
Effective Date, on five (5) days' advance written notice. In the event of
Executive's resignation, Executive will be entitled to receive only the Base
Salary for the five-day notice period and no other amount for the remaining
months of the current term, whether the Initial Term or a subsequent one-year
term (other than amounts to which Executive is entitled pursuant to Section 5 or
6 hereof). All other Company obligations to Executive pursuant to this Agreement
will become automatically terminated and completely extinguished upon
termination of employment. In addition, Executive will not be entitled to
receive any Severance Payments described in Section 7.2, above. The provisions
of this Section 7.4 shall not apply to Executive's resignation for Good Reason.

            7.5 Federal Excise Tax Under Section 4999 of the Code.

            (a) Additional Payment. In the event that any payment or benefit
received or to be received by Executive pursuant to this Agreement or otherwise
payable to Executive (collectively, the "PAYMENTS") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "CODE"), or any similar or successor provision (the "EXCISE TAX"),
Company shall pay to Executive within ninety (90) days of the date Executive
becomes subject to the Excise Tax, an additional amount (the "GROSS-UP PAYMENT")
such that the net amount retained by Executive from the Payments and the
Gross-Up Payment, after deduction of (1) any Excise Tax on the Payments and (2)
any federal, state and local income or employment tax and Excise Tax upon the
payment provided for by this Section, shall be equal to the Payments.

            (b) Determination of Excise Tax. For purposes of determining whether
any of the Payments will be subject to the Excise Tax and the amount of such
Excise Tax:

                  (i) Any payments or benefits received or to be received by
Executive in connection with transactions contemplated by a Change of Control
(as defined below) event


                                      -4-

or Executive's termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with Company), shall be
treated as "parachute payments" within the meaning of Section 280G of the Code
or any similar or successor provision, and all "excess parachute payments"
within the meaning of Section 280G of the Code or any similar or successor
provision shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("TAX COUNSEL") selected by Company and reasonably acceptable to
Executive such payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of Section 280G of the Code (or any similar or successor provision of
the Code) in excess of the base amount within the meaning of Section 280G of the
Code (or any similar or successor provision of the Code), or are otherwise not
subject to the Excise Tax.

                  (ii) The amount of the Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the Payments or (ii) the amount of the excess parachute payments within the
meaning of Section 280G of the Code (after applying paragraph (b)(1) above).

                  (iii) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by Tax Counsel in accordance with the
principles of Section 280G of the Code.

                  (iv) Change of Control. A "CHANGE OF CONTROL" is defined as
any one of the following occurrences:

                        a) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT")), other
than a trustee or other fiduciary holding securities of Company under an
employee benefit plan of Company, becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of the
securities of Company representing 50% or more of (A) the outstanding shares of
common stock of Company or (B) the combined voting power of Company's
then-outstanding securities; or

                        b) the sale or disposition of all or substantially all
of Company's assets (or any transaction having similar effect is consummated);
or

                        c) Company is party to a merger or consolidation that
results in the holders of voting securities of Company outstanding immediately
prior thereto failing to continue to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) at least
50% of the combined voting power of the voting securities of Company or such
surviving entity outstanding immediately after such merger or consolidation; or

                        d) a liquidation or dissolution of Company.

                  (c) Determination of Gross-Up Payment. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to pay
federal income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Executive's residence on the date the Gross-Up Payment is


                                      -5-

to be made, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and local taxes.

                  (d) Adjustments.

                        (i) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder, Executive
shall repay to Company at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up Payment attributable to
such reduction (plus the portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income and employment taxes imposed on
the Gross-Up Payment being repaid by Executive if such repayment results in a
reduction in Excise Tax and/or a federal, state or local income or employment
tax deduction) plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code.

                        (ii) In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder (including by reason of any
payment the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), Company shall make an additional gross-up payment in respect
of such excess (plus any interest payable with respect to such excess) at the
time that the amount of such excess is finally determined.

            7.6 Termination of Employment Upon Nonrenewal. In the event either
party decides not to renew this Agreement for a subsequent one-year term in
accordance with Section 3.2 above, the Agreement will expire, Executive's
employment with Company will terminate and Executive will only be entitled to
Executive's Base Salary paid through the last day of the then-current term. All
other Company obligations to Executive pursuant to this Agreement will become
automatically terminated and completely extinguished. In addition, Executive
will not be entitled to any Severance Payments described in Section 7.2.

      8. No Conflict of Interest. During the term of Executive's employment with
Company, Executive must not engage in any work, paid or unpaid, that creates an
actual or potential conflict of interest with Company. If the Board reasonably
believes such a conflict exists during the term of this Agreement, the Board may
ask Executive to choose to discontinue the other work or resign employment with
Company.

      9. Post-Termination Non-Competition.

            9.1 Consideration For Promise To Refrain From Competing. Executive
agrees that Executive's services are special and unique, that Company's
disclosure of confidential, proprietary information and specialized training and
knowledge to Executive, and that Executive's level of compensation and benefits,
including, without limitation, the severance payments provided for in this
Agreement, are partly in consideration of and conditioned upon Executive not
competing with Company. Executive acknowledges that such consideration is
adequate for Executive's promises contained within this Section 9.

            9.2 Promise To Refrain From Competing. Executive understands
Company's need for Executive's promise not to compete with Company is based on
the following: (a) Company has expended, and will continue to expend,
substantial time, money and effort in developing its proprietary information;
(b) Executive will in the course of Executive's employment develop, be
personally entrusted with and exposed to Company's proprietary information; (c)
both during and after the term of Executive's employment, Company will be


                                      -6-

engaged in the highly competitive enterprise software industry; (d) Company
provides products and services nationally and internationally; and (e) Company
will suffer great loss and irreparable harm if Executive were to enter into
competition with Company. Therefore, in exchange for the consideration described
in Section 9.1 above, Executive agrees that for the period of two (2) years
following the date Executive ceases to render services to Company (the "COVENANT
PERIOD"), Executive will not either directly or indirectly, whether as an owner,
director, officer, manager, consultant, agent or employee: (i) work for any of
the following companies or any entity that succeeds to any part of the business
of any of the following Companies that is in competition with Company: Essentus,
Inc., GERS, Inc., Marketmax, Inc., Micro Strategies Incorporated, NONSTOP
Solutions, nsb Retail Systems PLC, Radius PLC, Retek, Inc., SAP AG or SVI
Holdings, Inc. (each a "RESTRICTED BUSINESS"); or (ii) make or hold any
investment in any Restricted Business, whether such investment be by way of
loan, purchase of stock or otherwise, provided that there shall be excluded from
the foregoing the ownership of not more than 1% of the listed or traded stock of
any publicly held corporation. For purposes of this Section 9, the term
"COMPANY" shall mean and include Company, any subsidiary or affiliate of
Company, any successor to the business of Company (by merger, consolidation,
sale of assets or stock or otherwise) and any other corporation or entity of
which Executive may serve as a director, officer or employee at the request of
Company or any successor of Company.

            9.3 Reasonableness of Restrictions. Executive represents and agrees
that the restrictions on competition, as to time, geographic area, and scope of
activity, required by this Section 9 are reasonable, do not impose a greater
restraint than is necessary to protect the goodwill and business interests of
Company, and are not unduly burdensome to Executive. Executive expressly
acknowledges that Company competes on an international basis and that the
geographical scope of these limitations is reasonable and necessary for the
protection of Company's trade secrets and other confidential and proprietary
information. Executive further agrees that these restrictions allow Executive an
adequate number and variety of employment alternatives, based on Executive's
varied skills and abilities. Executive represents that Executive is willing and
able to compete in other employment not prohibited by this Agreement.

            9.4 Reformation if Necessary. In the event a court of competent
jurisdiction determines that the geographic area, duration, or scope of activity
of any restriction under this Section 9 and its subsections is unenforceable,
the restrictions under this section and its subsections shall not be terminated
but shall be reformed and modified to the extent required to render them valid
and enforceable. Executive further agrees that the court may reform this
Agreement to extend the Covenant Period by an amount of time equal to any period
in which Executive is in breach of this covenant.

      10. Confidentiality and Proprietary Rights. Executive agrees to read, sign
and abide by Company's Employee Innovations and Proprietary Rights Assignment
Agreement, which was previously executed by Executive and incorporated herein by
reference.

      11. Nonsolicitation.

            11.1 Nonsolicitation of Customers or Prospects. Executive
acknowledges that information about Company's customers is confidential and
constitutes trade secrets. Accordingly, Executive agrees that during the term of
this Agreement and for a period of two (2) years after the termination of this
Agreement, Executive will not, either directly or indirectly, separately or in
association with others, interfere with, impair, disrupt or damage Company's


                                      -7-

relationship with any of its customers or customer prospects by soliciting or
encouraging others to solicit any of them for the purpose of diverting or taking
away business from Company.

            11.2 Nonsolicitation of Company's Employees. Executive agrees that
during the term of this Agreement and for a period of two (2) years after the
termination of this Agreement, Executive will not, either directly or
indirectly, separately or in association with others, interfere with, impair,
disrupt or damage Company's business by soliciting, encouraging, hiring or
attempting to hire any of Company's employees or causing others to solicit or
encourage any of Company's employees to discontinue their employment with
Company. Notwithstanding the previous sentence, the Executive may give
references for employees and tell headhunters the names of employees of Company,
in either event, where the Executive is aware that the employee has been
identified by Company as not being part of its long-term plans after a Change of
Control.

      12. Injunctive Relief. Executive acknowledges that Executive's breach of
the covenants contained in Sections 9-11 (collectively "COVENANTS") would cause
irreparable injury to Company and agrees that in the event of any such breach,
Company shall be entitled to seek temporary, preliminary and permanent
injunctive relief without the necessity of proving actual damages or posting any
bond or other security.

      13. Agreement to Arbitrate. To the fullest extent permitted by law,
Executive and Company agree to arbitrate any controversy, claim or dispute
between them arising out of or in any way related to this Agreement, the
employment relationship between Company and Executive and any disputes upon
termination of employment, including but not limited to breach of contract,
tort, discrimination, harassment, wrongful termination, demotion, discipline,
failure to accommodate, family and medical leave, compensation or benefits
claims, constitutional claims; and any claims for violation of any local, state
or federal law, statute, regulation or ordinance or common law. Claims for
breach of Company's Employee Innovations and Proprietary Rights Agreement,
workers' compensation, unemployment insurance benefits and Company's right to
obtain injunctive relief pursuant to Section 12 above are excluded. For the
purpose of this agreement to arbitrate, references to "Company" include all
parent, subsidiary or related entities and their employees, supervisors,
officers, directors, agents, pension or benefit plans, pension or benefit plan
sponsors, fiduciaries, administrators, affiliates and all successors and assigns
of any of them, and this Agreement shall apply to them to the extent Executive's
claims arise out of or relate to their actions on behalf of Company.

            13.1 Initiation of Arbitration. Either party may exercise the right
to arbitrate by providing the other party with written notice of any and all
claims forming the basis of such right in sufficient detail to inform the other
party of the substance of such claims. In no event shall the request for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claims would be barred by the applicable statute of
limitations.

            13.2 Arbitration Procedure. The arbitration will be conducted in
Maricopa county, Arizona, by a single neutral arbitrator and in accordance with
the then current rules for resolution of employment disputes of the American
Arbitration Association ("AAA"). The parties are entitled to representation by
an attorney or other representative of their choosing. The arbitrator shall have
the power to enter any award that could be entered by a judge of the trial court
of the State of Arizona, and only such power, and shall follow the law. The
parties agree to abide by and perform any award rendered by the arbitrator.
Judgment on the award may be entered in any court having jurisdiction thereof.


                                      -8-

            13.3 Costs of Arbitration. Each party shall bear one half the cost
of the arbitration filing and hearing fees, and the cost of the arbitrator.

      14. General Provisions.

            14.1 Successors and Assigns. The rights and obligations of Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Company. Executive shall not be entitled to assign any
of Executive's rights or obligations under this Agreement.

            14.2 Waiver. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.

            14.3 Attorneys' Fees. In any dispute relating to this Agreement, the
losing party shall pay the attorneys' fees of the prevailing party in addition
to its own attorneys' fees.

            14.4 Severability. In the event any provision of this Agreement is
found to be unenforceable by an arbitrator or court of competent jurisdiction,
such provision shall be deemed modified to the extent necessary to allow
enforceability of the provision as so limited, it being intended that the
parties shall receive the benefit contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.

            14.5 Interpretation; Construction. The headings set forth in this
Agreement are for convenience only and shall not be used in interpreting this
Agreement. This Agreement has been drafted by legal counsel representing
Company, but Executive has participated in the negotiation of its terms.
Furthermore, Executive acknowledges that Executive has had an opportunity to
review and revise the Agreement and have it reviewed by legal counsel, if
desired, and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement.

            14.6 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the United States and the State of Arizona. Each
party consents to the jurisdiction and venue of the state or federal courts in
Maricopa county, Arizona, if applicable, in any action, suit, or proceeding
arising out of or relating to this Agreement.

            14.7 Notices. Any notice required or permitted by this Agreement
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (a) by personal delivery when delivered personally; (b) by
overnight courier upon written verification of receipt; (c) by telecopy or
facsimile transmission upon acknowledgment of receipt of electronic
transmission; or (d) by certified or registered mail, return receipt requested,
upon verification of receipt. Notice shall be sent to the addresses set forth
below, or such other address as either party may specify in writing.

            14.8 Survival. Sections 8 ("No Conflict of Interest"), 9
("Post-Termination Non-Competition"), 10 ("Confidentiality and Proprietary
Rights"), 11 ("Nonsolicitation"), 12 ("Injunctive Relief"), 13 ("Agreement to
Arbitrate"), 14 ("General Provisions") and 15 ("Entire Agreement") of this
Agreement shall survive Executive's employment by Company.


                                      -9-

            15. Entire Agreement. This Agreement, including Company Employee
Innovations and Proprietary Rights Assignment Agreement incorporated herein by
reference and the Form Option Agreement, constitutes the entire agreement
between the parties relating to this subject matter and supersedes all prior or
simultaneous representations, discussions, negotiations, and agreements, whether
written or oral. This Agreement may be amended or modified only with the written
consent of Executive and the Board of Company. No oral waiver, amendment or
modification will be effective under any circumstances whatsoever.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]


                                      -10-

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES
HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

                                          EXECUTIVE


Dated:  7-23-82                           /s/ Kristin L. Magnuson
       -----------------------            ------------------------------------
                                          KRISTIN L. MAGNUSON

                                          ADDRESS


                                          COMPANY


Dated: 7-23-02                      By:   /s/ James D. Armstrong
       -----------------------            ------------------------------------
                                          JAMES D. ARMSTRONG, CEO









                [SIGNATURE PAGE TO MAGNUSON EMPLOYMENT AGREEMENT]

                                    EXHIBIT A

                            Form of Option Agreement

See attached.

                                    EXHIBIT B

                             Form of Mutual Release

See attached.

EX-99.1

                                                                    EXHIBIT 99.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, James D. Armstrong, Chief Executive Officer of JDA Software Group, Inc. (the
"Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my
knowledge:

      (1) the Quarterly Report on Form 10-Q of the Registrant, to which this
      certification is attached as an exhibit (the "Report"), fully complies
      with the requirements of section 13(a) of the Securities Exchange Act of
      1934 (15 U.S.C. 78m); and

      (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Registrant.

Dated: November 11, 2002                        /s/  James D. Armstrong
                                                -------------------------
                                                James D. Armstrong
                                                Chief Executive Officer

EX-99.2

                                                                    EXHIBIT 99.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Kristen L. Magnuson, Executive Vice President and Chief Financial Officer of
JDA Software Group, Inc. (the "Registrant"), do hereby certify in accordance
with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, based on my knowledge:

      (1) the Quarterly Report on Form 10-Q of the Registrant, to which this
      certification is attached as an exhibit (the "Report"), fully complies
      with the requirements of Section 13(a) of the Securities Exchange Act of
      1934 (15 U.S.C. 78m); and

      (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Registrant.

Dated: November 11, 2002                        /s/  Kristen L. Magnuson
                                                -------------------------------
                                                Kristen L. Magnuson
                                                Executive Vice President and
                                                Chief Financial Officer