SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one):
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended September 30, 1997
[ ] 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 000-22841
MARCAM SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3371621
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
95 Wells Avenue
Newton, Massachusetts 02159
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 965-0220
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Series A Junior Participating Preferred Stock Purchase Rights, $.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock, $.01 Par Value, of the
registrant held by non-affiliates of the registrant as of December 17, 1997
(computed based on the closing price of such stock in the Nasdaq National Market
System) was $36,642,601.
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The number of shares outstanding of the registrant's Common Stock, $.01
Par Value, as of December 17, 1997 was 7,497,511 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or indicated portions thereof, have been
incorporated herein by reference:
Specifically identified information in the Registrant's definitive
proxy materials for its Annual Meeting of Stockholders to be held on February
25, 1998 is incorporated by reference into Part III hereof.
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PART I
ITEM I. BUSINESS
GENERAL
Marcam Solutions, Inc. was incorporated in 1997. Unless the context
otherwise requires, the terms "Company", "Marcam Solutions" and "Marcam" refer
to Marcam Solutions, Inc. and its subsidiaries. The Company's principal offices
are located at 95 Wells Avenue, Newton, Massachusetts 02159, and its telephone
number is (617) 965-0220. The Company's World Wide Web address is
www.marcam.com.
On July 29, 1997, Marcam Corporation spun off, in a tax-free distribution,
the portion of its business relating to its PRISM, Protean and Avantis product
lines. Prior to the spin-off, Marcam Corporation transferred to Marcam
Solutions, at that time a wholly owned subsidiary of Marcam Corporation,
substantially all of the business, assets and liabilities relating to Marcam
Corporation's PRISM, Protean and Avantis product lines and an aggregate of $39.0
million in cash in exchange for (i) the assumption by Marcam Solutions of
certain liabilities and obligations relating to the business to be conducted by
Marcam Solutions, (ii) a number of shares of common stock of Marcam Solutions
sufficient for Marcam Corporation to make the Distribution and (iii) warrants to
purchase an aggregate of 500,000 shares of common stock of Marcam Solutions.
Marcam Corporation distributed all of its ownership interest in Marcam Solutions
by means of a distribution on July 29, 1997 to its stockholders of record on
July 23, 1997 (the "Distribution"). In connection with the Distribution, Marcam
Corporation changed its name from "Marcam Corporation" to "MAPICS, Inc."
("MAPICS").
Marcam Solutions develops, globally markets, implements, and supports
enterprise resource planning ("ERP") software components designed exclusively
for process plant operations. The Company's mission is to provide process
manufacturing companies with specialized, agile business solutions that enable
them to continuously improve their plant operations while realizing low total
cost of ownership.
Specialized features designed to support a process manufacturer's unique
characteristics are integral to the base design of all Marcam products. As a
result, more meaningful inventory, planning, production, costing, and financial
information enable Marcam's process manufacturing customers to streamline their
plant processes and better monitor and constantly improve the performance of
their operations. Additionally, Marcam's ERP component products integrate with
core applications from other ERP vendors. The process industry expertise of
Marcam employees and the excellent functional fit, agility, and ease of
integration of the Marcam solutions results in faster deployment of software
applications and the ability to support changing business requirements at a
lower total cost of ownership for process manufacturing companies.
PRISM(R) is Marcam Solutions' ERP software application suite for process
companies using IBM's AS/400 computers. Protean(R) is the Company's product line
that provides industry-leading ERP components for process plant operations
requiring an open, client/server environment. Avantis(TM) is the Company's asset
management solution. All of Marcam Solutions' product lines are Year 2000
enabled.
INDUSTRY BACKGROUND
Industrial manufacturing companies can be characterized by the type of
manufacturing conducted: process or discrete. Process companies, such as food,
chemical, steel, pulp and paper, consumer product goods, pharmaceutical, rubber,
glass/plastics and building materials companies, produce products by controlling
chemical reactions, including mixing, separating, heating, forming and refining.
Discrete companies, such as automotive, appliance, electronics and aerospace
companies, produce products by assembling and/or machining.
Process manufacturing has unique characteristics with respect to four
fundamental areas:
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[bullet] Existence of by-products, co-products, recyclables and waste
materials--By-products, co-products, recyclables and waste materials
may be produced at various stages of the manufacturing process, and the
cost, further use and disposal of these by-products, co-products,
recyclables and waste materials is important to the overall efficiency
of a process manufacturing organization;
[bullet] Material and production variability and predictability--Process
manufacturers may use different manufacturing processes for any given
product. The processes depend upon the inherent variability of the
input (often agricultural products or chemicals as opposed to
manufactured components) and on the price, quality and availability of
raw materials and equipment creating unique challenges for process
manufacturers;
[bullet] Product cost characteristics--Process manufacturers have a relatively
large portion of their investment in plant and capital equipment and
rely upon inputs that are normally part of overhead, such as utilities,
equipment maintenance and waste disposal. Accordingly, costs other than
direct labor and material represent a relatively large portion of total
costs for process companies; and
[bullet] Inventory management--Process manufacturers have a small portion of
their assets in inventory because they purposefully limit on-hand
inventories due to storage costs of bulk liquids and gases and do not
keep substantial work-in-progress inventories because production flows
through the plant. Inventory management is further complicated because
of multiple units of measures, a requirement for lot control to
separate out materials of differing quality attributes, and the
challenges of fluctuating costs of commodities.
The manufacturing resource planning ("MRP") systems of the 1980's centered
around streamlining processes within a single manufacturing plant. The success
of these applications led to the integration of other operations, such as
forecasting, costing, quality management and transportation, into the more
streamlined manufacturing systems. Additionally, the reach of MRP systems began
to extend beyond the plant floor. As competition increased, manufacturers
responded by looking for ways to further reduce costs and improve customer
service across their enterprises. MRP systems, with their plant-oriented
features, could not address the needs of increasingly multi-regional or global
enterprises.
MRP systems have now evolved into an enterprise resource planning ("ERP")
model, encompassing features to support an enterprise's complete supply chain
(production, customer service, logistics, and asset management) and financial
business requirements across multiple sites. Today, the majority of process
manufacturers require an ERP system that can support their enterprise-wide
functions and activities. This ERP system may consist of an integrated solution
from a single vendor or may be assembled through a combination of core
applications from one supplier and specialized ERP components from other
suppliers.
According to industry sources, the total worldwide market for ERP systems
on all hardware systems was approximately $5.5 billion in 1996 and will grow at
least 20% this year. Approximately 32% of this market is comprised of software
and software-related services for process manufacturers.
Although current-generation client/server solutions enable companies to be
platform independent, they generally do not allow easy, inexpensive
interoperability of software applications obtained from different vendors.
Object technology allows enterprises to implement business processes more
rapidly. This ability to more rapidly respond to change is increasingly
important as companies are forced to change in response to pressures from
competition, customer expectations, growth and regulation. Applications based on
object technology allow greater ongoing flexibility at a lower cost than
applications built with alternative technologies.
Process manufacturing companies typically manage significant investments in
physical assets, such as plant equipment, fleets of vehicles and facilities.
Process companies typically view asset (maintenance) management applications as
part of an overall ERP solution. Other capital-intensive industries that have
similarly significant investments in physical assets (such as mining, petroleum
refining, petrochemical and utilities industries) may consider an asset
management solution to be the primary mission-critical application in their
operations.
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According to industry sources, the total worldwide market for software and
services for the computerized maintenance management systems market is estimated
to be over $680 million in 1997.
STRATEGY SUMMARY
The Company's approach to addressing the ERP Market includes providing:
[bullet] Specialized application components designed exclusively for process
plant operations
[bullet] A comprehensive set of integrated, horizontal applications, including
financials, asset management and customer order management
[bullet] Platform alternatives including open, client/server and AS/400
environments
[bullet] Attractive migration paths between AS/400 and open, client/server
computing environments
[bullet] Applications based on object-oriented technology that have benefits of
advanced fit agility, and low total cost of ownership
[bullet] High quality service and support through its employee staff and
services partners.
PRODUCTS FOR PROCESS MANUFACTURING COMPANIES
Marcam Solutions offers two product lines for process manufacturers, PRISM
and Protean. PRISM was first introduced in 1987. Protean, Marcam Solutions'
next-generation product, was introduced in 1994. The most significant difference
between the two products is the underlying technology. PRISM is available
exclusively on the IBM AS/400 and is noted for its process application depth and
its strong integration. Protean is an open client/server product line developed
in an object-oriented environment. Marcam Solutions believes Protean is the
first ERP plant operation solution using this technology. Protean is available
on leading UNIX and Microsoft Windows 95 and NT platforms.
Unique Design Features
Marcam Solutions believes that the distinct management challenges faced by
process manufacturers necessitate software applications designed specifically to
address these unique requirements. Marcam Solutions' PRISM and Protean product
lines incorporate design features which differentiate them from traditional
manufacturing application software. Marcam Solutions believes that these design
features provide its customers with business benefits that they would not
typically receive from applications not designed specifically for the process
business environment. The design features are:
Resource Management--permits users to easily model and control all of the
different inputs and outputs of their production process, including materials,
utilities, equipment, facilities, labor and overhead, and multiple outputs,
including multiple finished products, recycled materials, by-products, waste and
grades of material. The inclusion of all of these resources provides for a more
accurate assignment of costs, which in turn leads to a more accurate product
cost picture, better visibility into production requirements during planning
cycles and enhanced performance measurements.
Production Model (U.S. Patent #4,864,507)--permits users to develop
detailed models of (i) processes with multiple outputs, (ii) multiple processes
for the same produced products, (iii) recycled products, (iv) processes where an
accurate definition of time dependencies is necessary and (v) flow and batch
process steps. The alternative modeling method (bill of materials and routing)
was designed to model the products produced in discrete industries and is
utilized in traditional manufacturing software.
Integrated Quality Management--provides users with the ability to integrate
quality control management information within inventory control, sales to
customers and production control. Since the quality of raw materials in process
goods and finished products can fluctuate for process manufacturers from one
time to the next, quality management and the tracking of quality results is a
fundamental requirement. This feature provides customers with strict quality
control overview and access to information that is fundamental to their
business.
Formula Management and Regulatory Compliance--provides reformulation
capabilities to address product quality, variability and seasonality. For the
chemical processing industry in particular, the requirement for Material Safety
Data Sheets must be tied to this reformulation, so that any changes to the
formula will be reflected in updated information about the handling,
transportation and storage of such products.
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Enterprise Management (U.S. Patent #5,493,671)--permits users to address
their business requirements, including supply chain management, multi-regional
or global management models and multiple production sites. Enterprise-enabled
means that each application contains the logic needed to assess whether
information must be processed locally or be communicated to other production
locations. Marcam Solutions' software is able to supervise such communications
automatically, ensuring that all data is communicated accurately and resending
communications as needed.
Activity Based Costing--provides more accurate cost information for
process manufacturers than traditional accounting methods. Overhead items are
charged on the basis of another directly measured activity which varies with the
overhead item, allowing the measurement and control of all resources and
permitting the establishment of many different relationships between direct and
indirect costs. This is particularly important for process companies because of
their high investment in plant and equipment and their use of other inputs which
are normally part of overhead.
PRISM
First released in 1987, PRISM is a comprehensive ERP product line
consisting of numerous integrated production, logistics, financial and asset
management applications. Marcam Solutions believes that while the breadth of the
PRISM offering is similar to competitive product lines, there are significant
differences in the depth of the offering, including PRISM's patented production
model.
PRISM Enhancements and New Applications
PRISM 5.0, released in 1997, added a new Plant Planning application to
PRISM. Plant Planning is a PC-based quick scheduler application that enhances a
process manufacturer's ability to flexibly manage production schedules in
response to changes in inventory availability, capacity, and customer demand.
PRISM 5.0 also included enhancements to the PRISM Activity Costing application
as well as several enhancements that were requested by its customers as part of
Marcam Solutions' customer enhancement voting process. In addition, Info
WorkPlace, PRISM's reporting tool previously released for use with the
International Financial Management applications, will be extended for use across
the entire PRISM product line with plans for availability in the first quarter
of calendar 1998. Info WorkPlace offers users easy access to the rich PRISM
database for improved monitoring of business trends and decision making. The
Company's current plans are to provide enhancements to PRISM based on
customer-voted enhancements and market requirements.
Marcam Solutions' strategy is to enable co-existence of PRISM AS/400 and
Protean applications for its PRISM customers. The Company refers to this
strategy as PRISM.Pro. With PRISM 5.0, Marcam introduced the first deliverable
in its PRISM.Pro strategy, enabling PRISM customers to leverage the business
benefits of Protean's object-oriented technology while protecting their PRISM
investment.
PROTEAN
The first Protean components were released in 1994. Protean offers numerous
integrated ERP components including comprehensive inventory, production,
planning, costing, financial and asset management applications. The available
Protean components deliver robust capabilities that differ from competitive
product lines in that there are significant differences in the depth of the
offering, with capabilities designed to meet the unique characteristics of
process plant operations. This includes, but is not limited to, Marcam's
patented Production Model concept that enables superior capabilities for the
management of complex production and costing processes.
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Protean products are being designed to provide manufacturing, logistics,
financial and asset management capabilities necessary to manage a process
company's plant operations. Marcam Solutions believes that its Protean product
line is the first fully object-oriented, mission-critical set of application
components for the ERP market. Protean's object-oriented, component-based
architecture and design allow Protean to be offered to the market in multiple
ways. Protean applications are designed to meet a user's current business needs
by providing superior fit for process companies, while providing the ability to
rapidly adapt enterprise applications to fit new and evolving requirements
without the time-consuming and costly process of rewriting software code.
Protean Enhancements and New Applications
In February 1997, the Company delivered Protean Release 2.1. This release
broadened Protean's reach in the market and was significant for three reasons.
First, consistent with the Company's open application strategy, Release 2.1
included a Resource Accounting application that enables Protean Production
applications to be easily integrated with financial applications from third
parties such as SAP AG and PeopleSoft, Inc. Protean integration with third-party
financial applications enables process companies to create a full-scale ERP
solution by selecting industry-leading applications that best fit their business
requirements from multiple vendors. Second, Release 2.1 enabled a 3-tier
architecture for improved scalability and performance. Third, with Release 2.1,
the Company began its planned deliveries of Internet-enabled Protean
applications that allow its customers to use the World Wide Web in conjunction
with Protean.
In April 1997, the Company delivered Protean Release 2.1.5 which included
the first release of Product Costing capabilities for Protean. Protean Release
2.1.5 also included enhancements to previously released Protean applications.
With Release 2.1 and 2.1.5, Protean may be regarded as a robust process
operations solution providing plant level components which can function in an
integrated manner with core applications from other ERP solution providers.
At the end of December 1997, the Company plans to ship Protean Release 2.2,
a significant release that includes a comprehensive set of integrated,
international financial applications and enhancements to previously released
Protean applications. In addition, Release 2.2 includes implementation
components to the Protean Customer Order Management application, which will be
released in a comprehensive version currently planned for the second quarter of
calendar 1998.
With the release of Customer Order Management, the Company believes Protean
will provide industry-leading ERP plant operations and logistics components that
can be effectively coupled with ERP core applications from other vendors. For
example, the Company is currently developing standard integrations between its
Protean applications and ERP applications available from PeopleSoft, Inc. and
SAP AG. Additionally, with the release of the Customer Order Management
application, Protean will be available as an integrated ERP solution.
PRODUCTS FOR ASSET MANAGEMENT
AVANTIS
In addition to marketing its asset management applications as part of an
integrated PRISM or Protean solution, the Company markets its asset management
applications separately, under the brand name Avantis. Marcam Solutions believes
that the high level of functionality in the Avantis applications makes them an
appropriate choice for large companies that demand industry-leading solutions.
Avantis.XA
Avantis.XA, a comprehensive asset management product line originally
introduced in 1981, remains available exclusively on the IBM AS/400 and is noted
for its application depth and its large base of satisfied customers.
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Avantis.XA Enhancements and New Applications
During 1997, the Company delivered Avantis.XA Release 11.0 EC 11. This
extensive release included several significant enhancements resulting from
customer requests. During 1997, the Company also conducted a customer
enhancement voting process with its current Avantis.XA customers to prioritize
enhancements to this product in 1998.
Avantis.Pro
Avantis.Pro is a next-generation asset management solution that enables
customers to rapidly and easily reflect business changes within the software.
Avantis.Pro is an open, client/server application developed with an
object-oriented design based on the Protean technology. Objects within the
solution seamlessly integrate to industry-leading solutions for work flow,
document management and imaging. This object-oriented design offers many
advantages to customers that see technology as a key element of their corporate
strategy. Avantis.Pro is available on leading UNIX platforms and runs Microsoft
Windows 95 and Windows NT as its PC client operating systems.
Avantis.Pro Enhancements and New Applications
The Company delivered Avantis.Pro Release 2.1 in January 1997 which
consisted of several enhancements to previously released Avantis.Pro
applications. In July 1997, the Company delivered Avantis.Pro Release 2.2. This
release was significant because it included support for Windows NT 32-bit
technology which enables technology advantages including better leveraging of
Windows 95 features, improved memory utilization, and better performance. Also,
the release included embedded Work Flow technology within the application. Work
Flow technology provides automated support for defining business flow processes
within the Avantis.Pro applications, improving operational consistency and
productivity. Release 2.2 also included features which enabled Avantis.Pro
customers to utilize Crystal Reports, an industry-leading reporting tool, for
all of their Avantis.Pro reporting requirements. Release 2.2 also included
general enhancements.
LICENSE FEES
Marcam Solutions generally licenses its PRISM, Protean and Avantis products
for a one-time fee. The list prices for Marcam Solutions' applications vary
depending on the number of users, size of processor, and local pricing
variations in international markets. Applications are licensed primarily by
application group or on an individual basis allowing customers to select
combinations which best fit their business systems needs. A typical initial
license fee is $150,000 to $1,000,000 depending upon the number of users,
product line and applications licensed. Marcam Solutions receives an additional
license fee when the customer increases the number of users, as well as when
additional applications are licensed.
BUSINESS PARTNERS
Marcam Solutions is working with business partners to leverage the
potential of its Protean technology. The Company has a working relationship with
NEC Corporation ("NEC") designed to complement the business goals of each party.
As a result of this relationship, the parties have focused additional resources
on Protean product development, accelerated delivery of Protean products and
expanded the use of Protean products worldwide. Marcam Solutions and NEC are
parties to a distribution agreement under which NEC has the right to distribute
Marcam Solutions' Protean products generally to customers in Japan and to
Japanese companies located outside Japan. As part of this agreement, NEC has the
right to use Protean to build software for its customers in non-manufacturing
markets. NEC also uses Protean in its system integration and services business.
Additionally, Marcam Solutions and NEC are parties to a technology transfer
agreement under which NEC was granted the right to use certain Protean
technology within NEC. In return, NEC has committed significant financial
resources for continued investment in Protean technology, as well as the joint
development of additional applications.
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Marcam and NEC also formed Obtech LLC, a company which offers object
integration and services in North America. Obtech LLC operates under the
direction of a board of directors from NEC and Marcam Solutions. Marcam
Solutions has provided Protean product and object technology expertise, skills
and training, while NEC has committed certain financial resources in support of
start-up activities. Marcam Solutions believes that Obtech's object integration
services, along with network and system management, project management, training
and consulting services, will assist Marcam Solutions in the implementation of
Protean-based projects in companies of all sizes.
Marcam Solutions has also joined together with MCI Systemhouse, Digital
Equipment Corporation and Microsoft Corporation to offer its Protean products
along with the products and services of the other parties to address the
specialized business requirements of process manufacturers.
CUSTOMER SUPPORT AND SERVICE
Marcam Solutions is committed to providing a high level of customer support
and services which it believes is necessary for customer satisfaction. Marcam
Solutions maintains a telephone response and support program. Upon the payment
of an additional fee, this program is available to customers 24 hours a day,
seven days a week. Through the telephone support program, customers receive
assistance in issue resolution including program corrections and remote
diagnostics.
Marcam Solutions also offers its customers implementation consulting,
education and applications integration services on a project consulting basis.
Marcam Solutions' implementation consulting personnel provide on-site consulting
to assist customers in the installation and use of Marcam Solutions products.
Marcam Solutions has also developed methods for implementing its applications,
including supplemental materials, plans and programs, which guide the customer
through this installation process thus increasing the efficiency of installation
and reducing the cost. Educational materials and instruction are provided both
in a classroom environment and at customer sites. Marcam Solutions' systems and
applications integration personnel provide customization services. These
services generally involve the connection of modules with other applications
used by the customer or the creation of new applications which complement Marcam
Solutions' products. While Marcam Solutions is committed to providing services
directly, it is also taking steps to increase its capacity by partnering with
other service providers.
Marcam Solutions presently maintains three support centers: Newton,
Massachusetts, United States; Burlington, Ontario, Canada; and Eindhoven,
Netherlands.
MARKETING AND SALES
Marcam Solutions markets its products through direct sales and support
offices and affiliates in North America, Europe, Africa, the Middle East, the
Asia Pacific region and Latin America. Marcam Solutions' marketing and sales
organization allows Marcam Solutions to offer a coordinated, standardized,
worldwide approach to multi-site, multinational companies, while providing for
local support of individual sites.
The headquarters for the PRISM and Protean businesses is at Marcam
Solutions' offices in Newton, Massachusetts. Headquarters for the Avantis
business is located at Marcam Solutions' offices in Burlington, Ontario, Canada.
Marcam Solutions' headquarters for its Europe, Middle East and Africa
(EMEA) operations is located in Paris, France. Asia Pacific operations are
currently conducted from locations in Singapore, Tokyo, Japan and Sydney,
Australia. Latin American operations are conducted from locations in Atlanta,
Georgia and Buenos Aires, Argentina.
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CUSTOMERS
Marcam Solutions' target customers range from multi-site, multinational
manufacturers to small and medium-size companies with one or two sites. Marcam
Solutions believes that by creating specialized, agile applications that best
fit the business requirements of specific markets and by offering technology
choices and comprehensive services, Marcam Solutions will deliver solutions that
create significant value for customers. Marcam Solutions believes that its
products and services help customers create value by enabling them to
continuously improve their operations while realizing the lowest total cost of
ownership.
None of Marcam Solutions' customers accounted for more than 10% of total
revenues in fiscal 1997, 1996, and 1995. Marcam Solutions generally ships its
products upon the execution of license agreements. Accordingly, Marcam Solutions
does not believe that its backlog at any particular point in time is indicative
of future sales.
Marcam Solutions' customers include divisions, sites and subsidiaries of
the following enterprises:
Arco Chemical Co. Iron Ore Co. of Canada
Armstrong World Industries, S.A. Kaiser Aluminum
Bausch & Lomb/Pharmaceutical Division LaPorte Chemical
B.F. Goodrich Specialty Chemicals McCormick and Co. Inc.
BHP Copper Co. Minerals Technologies, Inc.
Borden Inc. Molson Breweries
Caledonian Paper Nestle, Inc.
Ciba-Geigy Corp. New Zealand Dairy Foods Ltd.
DB Breweries Novo Nordisk A/S
Engelhard Corp. Repap Enterprises
Falconbridge Ltd. Rhone-Poulenc, Inc.
The Goodyear Tire & Rubber Co. Rockwool-Isolation
J. R. Simplot Co. Rohm and Haas Co.
H. J. Heinz Co. South African Breweries Limited
Harley-Davidson Inc. Sun Chemical Corporation
Heineken Nederland B. V. Tambrands, Inc.
IMC-Agrico Co. Warner-Lambert Co.
Wyeth-Ayerst International, Inc.
PRODUCT DEVELOPMENT
During 1997, Marcam continued its significant investments in PRISM,
Protean, Avantis.XA and Avantis.Pro products. Marcam continued to deliver
subsequent versions of its Protean and Avantis.Pro products for production,
inventory and asset management applications. Marcam Solutions believes that it
is the first provider to deliver mission-critical, object-oriented applications
for the ERP market. Object technology enables Marcam Solutions to deliver
applications that are flexible, open and easy to use and, therefore, Marcam
Solutions believes its use of object technology will enable it to offer
customized applications made from standard reusable objects. The benefits of
this approach to customers include a high level of fit and function with support
costs comparable with those of standard applications.
As described under "Business Partners," Marcam Solutions has a working
relationship with NEC which has, in part, focused additional resources on
Protean product development including the joint development of the financial
application of the Protean product available in December 1997, including
accounts payable, general ledger and accounts receivable.
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When appropriate, Marcam Solutions may also enter into development
agreements with current and prospective customers and others as part of its
product development effort. Often, periodic enhancements to products for
subscribers to Marcam Solutions' customer support program are provided. Further,
custom programming services are made available for a fee to customers. During
fiscal years 1997, 1996 and 1995, gross research and product development
expenditures were $41,864,000, $39,913,000, and $41,140,000, respectively.
PROPRIETARY RIGHTS AND LICENSES
Marcam Solutions usually provides its products to end users under
non-exclusive, non-transferable licenses which typically have perpetual terms.
Under Marcam Solutions' current form of license agreement, the licensed software
may be installed on customers' computers and used solely for internal operations
by an agreed-upon number of named or concurrent users. Marcam Solutions protects
many of its software modules as trade secrets and unpublished copyrighted works,
as well as by patents. Because of the size and complexity of its products,
Marcam Solutions typically makes the source code for many of its AS/400-based
modules available to its customers. Although Marcam Solutions takes steps to
protect its trade secrets, there can be no assurance that misappropriation will
not occur. In addition, there can be no assurance that copyright and trade
secret protection will be available in certain countries for the source code or
object code versions of Marcam Solutions' products.
Marcam Solutions currently relies on a combination of patent, trade
secret, copyright and trademark laws and license and non-disclosure agreements
to protect its proprietary rights in its products. Marcam Solutions has obtained
a patent on a method for modeling production processes, which is embodied in the
PRISM and Protean products. Marcam Solutions has also obtained a patent on a
method for managing how computer programs communicate with each other across
dispersed systems and different release levels of software throughout an
enterprise, which is also embodied in the PRISM database. Marcam Solutions is
seeking U.S. and foreign patent protection on key aspects of its Protean product
line. Marcam Solutions believes that, because of the rapid pace of technological
change in the computer software industry, patent, trade secret and copyright
protection are less significant than factors such as the knowledge, ability and
experience of Marcam Solutions' employees, frequent product enhancements and the
timeliness and quality of support services.
Despite the measures taken by Marcam Solutions to protect its proprietary
rights, unauthorized parties may attempt to reverse engineer or copy aspects of
Marcam Solutions' products or to obtain and use information that Marcam
Solutions regards as proprietary. Policing unauthorized use of Marcam Solutions'
products is difficult. Litigation may be necessary in the future to enforce
Marcam Solutions' intellectual property rights, to protect Marcam Solutions'
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on Marcam Solutions' business, operating
results and financial condition. In addition, to the extent Marcam Solutions
desires or is required to obtain licenses to proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to Marcam Solutions, if at all. Any litigation or dispute regarding
proprietary technology which results in a ruling or settlement that is adverse
to Marcam Solutions, could have a material adverse effect on Marcam Solutions'
business, operating results and financial condition. Claims against Marcam
Solutions, with or without merit, as well as claims initiated by Marcam
Solutions against third parties, can be time consuming and expensive to defend,
prosecute or resolve.
COMPETITION
The market for ERP software is highly competitive, changes rapidly and is,
to a significant degree, affected by new product introductions and other market
activities of industry participants. Vendors typically address the market
requirements either by offering a complete ERP core application solution or by
offering specialized ERP applications targeted for specific types of companies
and functions within companies. Marcam Solutions' products are targeted
specifically for the plant operations of a process manufacturer. Marcam
Solutions' primary competition comes from ERP core application providers such as
Baan, N.V., Oracle Corporation, SAP AG and
11
<PAGE>
PeopleSoft, Inc. for the plant operations business. In addition, Marcam
Solutions faces competition from suppliers of specialized ERP applications such
as J.D. Edwards and Company, QAD Inc., Ross Systems, Inc. and System Software
Associates, Inc. In the area of asset management, Marcam Solutions' primary
competition comes from Project Software and Development, Inc., TSW and others.
In the future, Marcam Solutions' competitors could introduce products with more
features and lower prices than Marcam Solutions' products, and could also seek
competitive advantage by bundling existing or new products and services with
other, more established products and services.
The principal competitive factors in the market for ERP plant operations
software and services include product functionality, technology, quality,
performance, reliability, ease-of-use, size of installed base, service, vendor
reputation and financial stability. Marcam Solutions believes that its products
currently compete favorably on the foregoing bases, although in certain
instances, it may be at a competitive disadvantage against companies with
greater financial, marketing, service, support and technological resources, and
greater name recognition. Marcam Solutions believes its competitive strengths
include its process industry expertise, its proven functional leadership,
ability to easily integrate with core ERP applications from other providers,
customer implementation results, and its long-term vision and early leadership
position with object technology.
In order to be successful in the future, Marcam Solutions must continue to
respond promptly and effectively to the challenges of technological change and
its competitors' innovations by continually enhancing its own product offerings.
There can be no assurance, however, that Marcam Solutions' products will
continue to compete favorably or that Marcam Solutions will be successful in the
face of increasing competition from new products and enhancements introduced by
existing competitors or by new companies entering this market. In addition,
because Marcam Solutions relies in part on a network of distribution affiliates
for implementation and other support of its products, there can be no assurance
that these affiliates will maintain high quality standards sufficient to
maintain the reputation and competitive position of Marcam Solutions. Marcam
Solutions must continue to respond effectively to customer needs and properly
select and incorporate those technologies and application functionalities that
will meet the challenges posed by competitors' innovations. To accomplish these
critical objectives, Marcam Solutions must continue to invest in enhancing its
current products and introduce new products to remain competitive.
Information concerning the results of foreign and domestic operations is
located in Note 11 in the Notes to Consolidated Financial Statements.
EMPLOYEES
As of September 30, 1997, the Company employed a total of 701 employees.
None of the Company's employees are represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.
12
<PAGE>
ITEM 2. PROPERTIES
The Company's principal administrative, marketing and product development
and support facilities are located in Newton, Massachusetts, where the Company
leases a total of 121,000 square feet under an agreement that expires in 1999.
The Company also leases office space for its other North American, Latin
American, European and Asian sales, development, and service offices.
The Company believes that its facilities are adequate for its current needs.
See Note 9 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as at December 23, 1997, who are
elected on an annual basis and serve at the discretion of the Board of
Directors, are as follows:
Name Age Position and Offices Served
- ---- --- -------------------- ------
Jonathan C. Crane 48 Chairman of the Board, November 17, 1997 -
President, Chief Executive Present
Officer and Director
Denis E. Liptak 44 Chief Financial Officer August 7, 1997 -
and Vice President of Present
Finance
Thomas D. Ebling 42 Senior Vice President, December 18, 1997 -
Customer Operations Present
Mr. Crane has served as Chairman of the Board of Directors, President and
Chief Executive Officer since November 1997. From October 1995 until July 31,
1997, Mr. Crane was Chief Operating Officer of Geotek Communications, Inc., a
wireless voice and data communications company. From February 1995 to October
1995, Mr. Crane was a consultant in the telecommunications industry. From
January 1994 to January 1995, Mr. Crane was President and Chief Executive
Officer of Lightstream Corporation, a majority owned subsidiary of Bolt, Beranek
& Newman, which developed and marketed ATM switching network products. Prior to
1994, Mr. Crane held a number of management positions with MCI Corporation,
including Executive Vice President, Multi-National Accounts.
Mr. Liptak has served the Company as its Chief Financial Officer since
August 7, 1997. From July 28, 1997 to August 7, 1997, he was Vice President,
Treasurer and Controller of the Company. From December 1996 to July 28, 1997, he
was Vice President, Treasurer and Controller of Marcam Corporation. From
December 1994 to November 1996, Mr. Liptak was Director of Finance of Marcam
Corporation. Prior to joining Marcam Corporation in 1994, Mr. Liptak held a
number of financial management positions at Digital Equipment Corporation.
Mr. Ebling has served as the Company's Senior Vice President, Customer
Operations since December 18, 1997. Mr. Ebling was the Company's Senior Vice
President, Support and Development from July 28, 1997 to December 18, 1997. Mr.
Ebling was Senior Vice President, Protean Development of Marcam Corporation from
September 1996 through August 1997. Mr. Ebling joined Marcam Corporation in
1981, and served as its Vice President, Product Development and Support from
1981 to 1988, Senior Vice President, Product Development and Support from 1988
to 1994 and Senior Vice President, Development from 1994 to August 1996.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under
the symbol "MRCM." The following table sets forth the range of quarterly high
and low sales prices for the Common Stock since July 30, 1997, the first day
of trading of the Company's common stock:
Fourth
1997 Quarter Year
---- ------- ----
High $11-3/8 $11-3/8
Low 5 5
The Company believes that, as of December 17, 1997, there were over 5,000
beneficial holders of the Company's common stock. The Company did not declare or
pay any cash dividends to stockholders in 1997 and does not anticipate any
payment of cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30, 1997(F) 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $163,880 $201,424 $202,332 $172,876 $124,277
Loss before income tax expense and
extraordinary item (38,674)(A) (21,740)(B) (31,723)(C) (1,756) (14,504)(D)
Net loss (46,883)(A) (26,326)(B) (34,357)(C) (1,018) (12,684)(D)
Net loss per share (E) (7.77)(A) (4.63)(B) (6.10)(C) (0.18) (2.50)(D)
Weighted average number of
shares outstanding (E) 6,035 5,692 5,634 5,514 5,087
September 30, 1997(F) 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Total assets $77,869 $132,202 $146,852 $128,948 $97,396
Total long-term obligations 1,012 26,525 26,359 35,483 22,026
Total stockholders' equity 20,862 11,674 26,646 38,126 36,961
</TABLE>
(A) Fiscal 1997 results include restructuring charges of $19,175, or $3.18 per
share, and an extraordinary loss from early extinguishment of debt of
$3,009, or $.50 per share.
(B) Fiscal 1996 results include restructuring charges of $10,600, or $1.86 per
share, and a litigation settlement of $3,250, or $.57 per share.
(C) Fiscal 1995 results include a restructuring charge of $28,756, or $5.10
per share.
(D) Fiscal 1993 results include a charge of $5,568, or $1.09 per share, for
in-process research and development related to the acquisition of the
MAPICS product line.
(E) Historical weighted average shares outstanding and net loss per share
have been restated for the Distribution, which has been presented, in part
for accounting purposes, as a 2-for-1 reverse stock split occurring on
July 29, 1997.
(F) See Note 2 of Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
"Overview" for discussion of the Distribution occurring on July 29, 1997,
which is presented, for accounting purposes, as a disposal of the business,
assets and liabilities of the Company's MAPICS product line.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below under
"Factors Affecting Future Performance," as well as those discussed elsewhere in
this Annual Report on Form 10-K.
Overview
On July 29, 1997, Marcam Corporation spun off in a tax-free distribution
the portion of its business relating to its PRISM, Protean and Avantis product
lines. In connection with the distribution, Marcam Corporation transferred to
Marcam Solutions, Inc. ("Marcam Solutions"), at that time a wholly owned
subsidiary of Marcam Corporation, substantially all of the business, assets and
liabilities relating to its PRISM, Protean and Avantis product lines and an
aggregate of $39.0 million in cash in exchange for (i) the assumption by Marcam
Solutions of certain liabilities and obligations relating to the business to be
conducted by Marcam Solutions, (ii) a number of shares of common stock of Marcam
Solutions sufficient for Marcam Corporation to make the distribution and (iii)
warrants to purchase an aggregate of 500,000 shares of common stock of Marcam
Solutions. Marcam Corporation distributed all of its ownership interest in
Marcam Solutions by means of a distribution on July 29, 1997 to its stockholders
(the "Distribution"). In connection with the Distribution, Marcam Corporation
changed its name from "Marcam Corporation" to "MAPICS, Inc." ("MAPICS").
Although the common stock of Marcam Solutions was distributed to Marcam
Corporation's shareholders, the Distribution was recorded for accounting
purposes as a disposal of the business conducted by MAPICS, due to the relative
significance of the business conducted by Marcam Solutions. The financial
statements of Marcam Solutions for reporting periods after the Distribution
reflect the Distribution as a disposal of the business conducted by MAPICS and
were not restated to remove the effects of the prior operating results of the
MAPICS business. The financial statements of Marcam Solutions for periods prior
to the Distribution correspond to the historical consolidated financial
statements of Marcam Corporation.
Except for the information provided under the caption "Selected Pro Forma
Results of Operations" which gives effect to the Distribution, the following
discussion and analysis includes data relating to the MAPICS product line
through July 1997. Only the pro forma information reflects Marcam Solutions as
if it had been operated as a separate entity.
The Company's revenues have historically been derived from licensing its
Protean, PRISM, Avantis and MAPICS product lines. As described above, the
disposal of the business related to the MAPICS product line was effective as of
July 29, 1997. For the first three quarters of fiscal 1996 and all of fiscal
1995, the Company also derived revenues from its subsidiary, Foresight Software,
Inc. ("Foresight") and its MXP product line, which was divested effective as of
June 30, 1996. Each of the Company's current product lines support different
customers' technology strategies. The Protean product line, which utilizes
advanced object technology, tools and databases, is platform independent. The
PRISM and MAPICS product lines provide customer solutions on the IBM AS/400
platform. The Avantis product line provides customer solutions on both the IBM
AS/400 platform and open systems, utilizing object technology.
Marcam Solutions also derives revenues from the sale of product support and
related services. Product support is offered to licensed customers generally
based on agreements that are billed annually, with revenues recognized on a pro
rata basis during the contract period. Services include assisting with customer
implementation of licensed software, providing custom programming and system
integration services, and providing educational material and instruction in the
use of licensed software.
The Company distributes its products and services primarily through a
direct sales channel in North America and major European markets and through
affiliates in other parts of the world.
For the year ended September 30, 1997, the Company recorded a net loss of
$46,883,000. The net loss included an operating loss, excluding restructuring
and other charges, of $17,392,000. The Company's revenues for the year ended
September 30, 1997 were less than management expected. The expenditures during
the year,
16
<PAGE>
particularly the continued investment in the product development of Protean and
underutilized channel costs, had been based on expected revenues. The revenue
shortfall, combined with the relatively fixed nature of the expenses over the
short term, resulted in the loss. While the Company's AS/400-based businesses
were profitable overall, these profits were insufficient to cover losses in
Protean due to development and underutilized channel costs.
Management believes that the achievement of profitability and positive cash
flows from operations as soon as possible is essential. Management currently
believes that a combination of cost reductions and increased revenues is
necessary to achieve this result. During the third and fourth fiscal quarters of
1997, the Company's business and operating expense structure were reviewed to
identify opportunities for cost reductions, and actions were initiated to reduce
operating expenses. As a result of these actions designed to increase revenues
and management's assessment of capitalized software costs, as well as the costs
associated with the Distribution, the Company recorded restructuring and other
charges totaling $19,175,000 during 1997.
In addition to the cost reduction actions initiated in 1997, the Company
has undertaken a number of actions designed to increase revenues, including
introducing enhanced versions of its Protean and Avantis.Pro products designed
to make them more competitive and refocusing its sales and marketing efforts on
the PRISM product line. Management currently believes that significant increases
in Protean license revenues are required to offset the costs of maintaining the
distribution channel and development activities relating to the Protean product
line. There can be no assurances, however, that these actions will result in
increased revenues or that, when combined with cost reductions, they will result
in Marcam Solutions achieving profitability or positive cash flows from
operations. Failure to achieve profitability or positive cash flows from
operations would materially and adversely affect Marcam Solutions' financial
condition.
As a result of the Distribution and other actions taken in 1997, the
Company made significant progress in increasing working capital and reducing
long-term debt. At September 30, 1997, the Company had $37,977,000 in cash, cash
equivalents and short-term investments. In connection with the Distribution,
MAPICS, Inc. assumed and repaid Marcam Corporation's outstanding $25,000,000
9.82% unsecured Subordinated Notes. At September 30, 1997, the Company had no
debt other than capitalized leases. Working capital was $12,894,000 at September
30, 1997, compared with a working capital deficit of $15,452,000 at September
30, 1996.
17
<PAGE>
Results of Operations
The following table sets forth the percentage of total revenues represented
by items reflected in the Company's consolidated statements of operations.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
License 40.5% 46.2% 52.0%
Services 59.5 53.8 48.0
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of license revenues 8.9 8.3 9.2
Cost of services revenues 34.3 34.5 31.1
Selling and marketing 40.7 41.1 43.1
Product development 20.9 13.7 12.8
General and administrative 5.8 4.9 4.1
Restructuring and other charges 11.7 5.3 14.2
----- ----- -----
Total operating expenses 122.3 107.8 114.5
----- ----- -----
Operating loss (22.3) (7.8) (14.5)
Litigation settlement - (1.6) -
Interest and other income (expense), net (1.3) (1.3) (1.2)
----- ----- -----
Loss before income tax expense and extraordinary item (23.6) (10.7) (15.7)
Income tax expense (3.2) (2.3) (1.3)
----- ----- -----
Loss before extraordinary item (26.8) (13.0) (17.0)
Extraordinary loss (1.8) - -
----- ----- -----
Net loss (28.6)% (13.0)% (17.0)%
===== ===== =====
</TABLE>
1997 Compared to 1996
Results during 1996 include twelve months of results related to the MAPICS
business. Due to the timing of the Distribution, 1997 results include only 10
months of results related to the MAPICS business. MAPICS' revenues historically
occurred predominantly in the third month of each quarter. See "Selected Pro
Forma Results of Operations" for additional discussion of the stand-alone
results of Marcam Solutions. The 1996 and 1995 results include the results of
Marcam Corporation's Foresight subsidiary through June 30, 1996, the date of
divestiture. This divestiture resulted in reductions in revenues and expenses in
the subsequent quarters.
Revenues
Total revenues decreased 18.6% to $163,880,000 in 1997 from $201,424,000 in
1996. License revenues decreased 28.7% to $66,390,000 in 1997 from $93,137,000
in 1996. The decrease in license revenues resulted from a decline of
approximately $13,900,000, or 33.5%, in license revenue for PRISM, Protean and
Avantis products; a decline of approximately $6,400,000, or 14.2%, in MAPICS
license revenue comparing 10 months in 1997 to 12 months in 1996, reflecting
growth over the corresponding ten-month period in 1996 resulting primarily from
an increase in MAPICS license sales to new customers; and a decline of
approximately $6,500,000 due to the divestment of the Foresight subsidiary in
June 1996.
18
<PAGE>
Services revenues decreased 10.0% to $97,490,000 in 1997 from $108,287,000
in 1996. The services revenues decrease, which occurred in all geographies, was
due to decreased implementation consulting and customization revenues for the
PRISM products and a decrease of approximately $4,700,000 due to the divestment
of the Foresight subsidiary in June 1996. MAPICS service revenues were
unchanged, comparing 10 months in 1997 to 12 months in 1996, reflecting growth
over the corresponding ten-month period in 1996 principally as a result of an
increase in the MAPICS installed base of customers.
Cost of License Revenues
Cost of license revenues represented 22.0% and 17.9% of license revenues in
1997 and 1996, respectively. The margin decrease in 1997 primarily related to
the fixed nature of amortization costs of capitalized software and translation
assets included in cost of license revenues. Such costs were consistent on a
year to year basis, and since license revenue decreased, these costs represented
a larger percentage of license revenue. As discussed below in "Restructuring and
Other Charges," during the third quarter of 1997, the Company wrote-off the
capitalized software assets related to the Protean and Avantis.Pro product
lines. As a result of this write-off and the transfer of the MAPICS capitalized
software assets to MAPICS, Inc., management expects amortization costs in fiscal
year 1998 will be lower than such costs in comparable prior periods.
Cost of Services Revenues
Cost of services revenues represented 57.7% and 64.2% of services revenues
in 1997 and 1996, respectively. The decrease in cost of services revenues as a
percentage of services revenues in 1997 was primarily the result of higher
margins realized in the Company's implementation consulting and customization
businesses. This is attributable to the fact that a higher percentage of total
services revenues was being derived from support revenues in 1997 than in 1996.
Support revenues typically have better margins than other types of service
revenues. The Company also realized slightly higher margins on its support
business due to decreased headcount in the support area as a result of the 1996
and 1997 restructuring actions. In addition, the decreased use of external
resources as compared to the prior year has also helped to reduce the cost of
service revenues. External resources, although flexible, are generally more
costly than internal resources. Finally, a portion of the decrease was due to
the service revenues of the Foresight product line having lower gross margins in
1996 than other product lines.
Selling and Marketing
Selling and marketing expenses decreased $16,194,000, or 19.6%, in 1997
from 1996. The decrease in selling and marketing expenses in 1997 was due to
reduced headcount and the decline in license revenues which led to lower
commission expenses. Additionally, the 1996 amounts included costs associated
with the Foresight product line. The decreases were partially offset by
increased marketing program expenditures in 1997 related to the PRISM, Protean
and Avantis product lines. As a percentage of revenues, selling and marketing
expenses decreased to 40.7% in 1997 from 41.1% in 1996.
Product Development
Gross research and product development expenditures in 1997 and 1996 were
$41,864,000 and $39,913,000, respectively. The $1,951,000 increase was primarily
due to the increased investment in the development of the Protean and MAPICS
product lines, partially offset by lower spending to translate and localize
software products for international sale.
The amounts of computer software costs capitalized were $7,563,000 and
$12,233,000 for 1997 and 1996, respectively, representing 18.1% and 30.6% of
gross research and development expenditures. The decrease in capitalization
overall and as a percentage of gross expenditures was due primarily to lower
amounts of software development and translation expenditures qualifying for
capitalization in 1997 including the cessation during the third fiscal quarter
of 1997 of capitalization of Protean and Avantis.Pro development and translation
costs.
Therefore, product development expenses were $34,301,000 and $27,680,000,
representing 20.9% and 13.7% of total revenues in 1997 and 1996, respectively.
The increase of $6,621,000 in 1997 was primarily due to increased development
spending as well as lower amounts of capitalization, as described above. The
increase as a percentage of revenues is also attributable to the decrease in
total revenues in 1997 as compared to 1996.
19
<PAGE>
General and Administrative
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $482,000 in 1997
from 1996. The decrease was due primarily to a $1,000,000 special provision in
1996 for additional contract claims and legal costs, partially offset by
provisions for employee compensation charges related to the Distribution and an
increase in non-income taxes incurred in 1997.
Restructuring and Other Charges
During the third and fourth quarters of fiscal 1997 the Company recorded
restructuring and other charges totaling $19,175,000. Of this amount,
approximately $1,710,000 related principally to reductions in number of
employees, $1,500,000 related to the closure of certain European facilities, and
$1,000,000 related to other restructuring actions. An additional $11,125,000 of
this charge related to the write-off of the capitalized software costs relating
to the Protean and Avantis.Pro product lines. This write-off resulted from lower
than expected revenue from these product lines during fiscal 1997 and the
continuing uncertainty regarding market acceptance of, and significant revenue
generation from, the product lines in the near future. The charge also included
the costs of $3,840,000 associated with the spin-off of Marcam Solutions, Inc.
in connection with the Distribution. Approximately $7,770,000 of the
restructuring and other charges has resulted in or is expected to result in cash
expenditures. At September 30, 1997, $2,379,000 related to these charges
remained in accrued liabilities. Management believes that the remaining balance
will be adequate to cover future expenditures associated with the 1997
restructuring actions and expects that the restructuring actions will be
complete by the end of fiscal 1998.
During fiscal 1996, the Company recorded restructuring charges of
$10,600,000 related to a restructuring of the Company's global operations and
the divestiture of Foresight. At September 30, 1997, the Company had accrued
$1,169,000 related to the 1996 restructuring costs.
Litigation Settlement
During the second quarter of 1996, the Company reached an agreement to
settle the shareholder class action litigation which was brought against the
Company in August 1994. Of the $5,750,000 settlement, the Company contributed
$2,750,000 from its own funds, with the remainder provided by insurance. The
Company recorded a charge of $3,250,000 to cover the settlement and other
related expenses.
Interest and Other Income (Expense), Net
The net expense of interest and other income (expense) decreased $588,000
in 1997 from 1996. The decrease was primarily due to lower interest expense
resulting from the July 25, 1997 repayment of the $25 million Subordinated
Notes. See "Overview."
Provision for Income Taxes
The income tax expenses for 1997 of $5,200,000 and 1996 of $4,586,000 were
primarily due to foreign withholding taxes and income taxes on income generated
in foreign jurisdictions for which U.S. tax credit utilization is currently
uncertain. The 1997 provision included foreign tax charges of $1,100,000
incurred in connection with the Distribution. There was no tax benefit recorded
in 1997 or 1996 for losses generated during the periods or for other taxes paid
in connection with the Distribution due to the uncertainty of realizing such
benefits.
Extraordinary Loss from Early Extinguishment of Debt
In connection with the Distribution, MAPICS, Inc. assumed and repaid Marcam
Corporation's outstanding $25,000,000 9.82% unsecured Subordinated Notes due
April 30, 2001. In connection with the repayment, the Company recorded charges
of $3,009,000 associated with prepayment penalties and the write-off of deferred
financing costs.
20
<PAGE>
1996 Compared to 1995
Revenues
Total revenues decreased 0.4% to $201,424,000 in 1996 from $202,332,000 in
1995. Excluding revenues from the Foresight product line, which was divested as
of June 30, 1996, total revenues increased 2.8% to $190,280,000 in 1996 from
$185,030,000 in 1995. The increase in total revenues (excluding revenues from
the MXP product line) was due to the increase in services revenues, which was
partially offset by the decrease in license fee revenues.
License revenues decreased 11.5% to $93,137,000 in 1996 from $105,232,000
in 1995. Excluding revenues from the Foresight product line, license fee
revenues decreased 7.5% to $86,664,000 in 1996 from $93,685,000 in 1995. The
decrease in license revenues resulted from the decline in license revenues for
PRISM and Protean products, which more than offset the continued revenue growth
for MAPICS products.
Services revenues increased 11.5% to $108,287,000 in 1996 from $97,100,000
in 1995. Excluding revenues from MXP related services, services revenues
increased 13.4% to $103,616,000 in 1996 from $91,345,000 in 1995. The services
revenues increase, which occurred in all geographies, was primarily due to
growth in the Company's consulting and support businesses. This was primarily
the result of the growth in the installed customer base.
Cost of License Revenues
Cost of license revenues represented 17.9% and 17.7% of license revenues in
1996 and 1995, respectively. The cost of license revenues as a percentage of
license revenues increased slightly in 1996 primarily due to increased
amortization of capitalized software for the MAPICS and Protean products, and
increased amortization of software translation costs for translating products
into foreign languages.
Cost of Services Revenues
Cost of services revenues represented 64.2% and 64.8% of services revenues
in 1996 and 1995, respectively. The decrease in cost of services revenues as a
percentage of services revenues in 1996 was primarily the result of higher
margins realized in the Company's implementation consulting and customization
businesses. This was due to the decreased use of external resources as compared
to the prior year. External resources, although flexible, are generally more
costly than internal resources.
Selling and Marketing
Selling and marketing expenses decreased $4,284,000, or 4.9%, in 1996 from
1995. The decrease in total selling and marketing expenses was due to decreased
spending on marketing programs as well as reduced headcount and the decline in
license revenues which led to lower commission expense. The decrease was
partially offset by an increase in the provision for doubtful accounts in 1996
due to amounts provided for write-offs of domestic and foreign accounts
receivable in the second half of 1996. As a percentage of revenues, selling and
marketing expenses decreased to 41.1% in 1996 from 43.1% in 1995. The decrease
as a percentage of revenues was primarily due to decreased spending on marketing
programs and reduced headcount.
Product Development
Gross research and product development expenditures in 1996 and 1995 were
$39,913,000 and $41,140,000, respectively. The $1,227,000 decrease was primarily
due to the Company's decision in the fourth quarter of 1995 to cease development
of the PRISM Client/Server products and to the Foresight divestiture. This
decrease was partially offset by the increased investment in the Company's
object technology.
The amounts of software development costs capitalized were $12,233,000 and
$15,210,000 for 1996 and 1995, respectively, representing 30.6% and 37.0% of
gross research and development expenditures.
Therefore, product development expenses were $27,680,000 and $25,930,000,
representing 13.7% and 12.8% of total revenues in 1996 and 1995, respectively.
The increase of $1,750,000 in 1996 was primarily the result of lower amounts
qualifying for capitalization as software development costs under the Company's
policies.
21
<PAGE>
General and Administrative
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, increased by $1,605,000 in
1996 from 1995. The increase was due primarily to a $1,000,000 charge taken in
the second quarter of 1996 for service contract claims and legal costs, as well
as investments in internal information systems.
Restructuring and Other Charges
During the third and fourth quarters of fiscal 1996, the Company recorded
restructuring charges of $8,300,000 and $2,300,000, respectively. The
$10,600,000 of charges related to a restructuring of the Company's global
operations and the divestiture of the Foresight Subsidiary. During 1995, the
Company recorded a restructuring charge of $28,756,000 related to the cessation
of development of the PRISM Client/Server product line, intangible asset
write-offs, staffing reductions, the consolidation of facilities, and
reorganization of the MXP product organization.
Litigation Settlement
During the second quarter of 1996, the Company reached an agreement to
settle the shareholder class action litigation which was brought against the
Company in August 1994. Of the $5,750,000 settlement, the Company contributed
$2,750,000 from its own funds, with the remainder provided by insurance. The
Company recorded a charge of $3,250,000 to cover the settlement and other
related expenses.
Interest and Other Income (Expense), Net
Interest and other income increased $732,000 in 1996 from 1995. The
increase was due to higher average cash balances resulting from the financing
activities undertaken during the quarters ended September 30, 1995 and September
30, 1996, and higher interest rates on invested balances. Interest and other
expense increased $1,075,000 in 1996 from 1995. The increase in 1996 was
primarily due to interest expense from capital leases and other financings, as
well as franchise taxes.
Provision for Income Taxes
The income tax expenses for 1996 of $4,586,000 and 1995 of $2,634,000 were
primarily due to foreign withholding taxes and income taxes on income generated
in foreign jurisdictions for which tax credit utilization is currently
uncertain. There was no tax benefit recorded in 1996 or 1995 for losses
generated during the periods due to the uncertainty of realizing such benefits.
Liquidity and Capital Resources
Prior to the Distribution, the Company funded its activities primarily from
cash generated from operations, from borrowings and from equity financings.
Since the time of the Distribution the Company has funded its activities with
the capital contribution from MAPICS, described below.
Current assets decreased by $9,662,000 during 1997 to $68,889,000 from
$78,551,000. This decrease was primarily due to lower accounts receivable
balances. Total cash and short-term investments of $37,977,000 at September 30,
1997 increased by $16,160,000 from $21,817,000 at September 30, 1996. The
increase in cash is attributable to the $39,000,000 capital contribution from
MAPICS, Inc. related to the Distribution. Cash was used during the fiscal year
to fund operating losses and pay restructuring related items; to make
investments in software development and fixed assets; to pay prepayment
penalties from the early extinguishment of debt; and to pay foreign taxes.
Accounts receivable at September 30, 1997 of $24,273,000 decreased by
$26,329,000 from $50,602,000 at September 30, 1996. The decrease in accounts
receivable is primarily attributable to the transfer of MAPICS accounts
receivable to MAPICS in connection with the Distribution. At September 30, 1997,
accounts receivable DSO was 87 days.
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Current liabilities decreased by $38,008,000 during fiscal 1997 to
$55,995,000. This decrease was due to decreases in accounts payable, accrued
expenses and other current liabilities and deferred revenue. These decreases
were primarily attributable to the transfer of related MAPICS balances to MAPICS
in connection with the Distribution. As of September 30, 1997, the Company had
no material commitments for capital expenditures. As a result of the changes in
current assets and current liabilities, working capital increased by $28,346,000
from a working capital deficit of $15,452,000 at September 30, 1996 to a working
capital surplus of $12,894,000 at September 30, 1997.
During 1997 operating activities used approximately $9,489,000 of cash for
operating expenditures, Distribution related expenditures and penalties related
to the prepayment of debt. These uses of cash more than offset cash received in
advance for support services. Investing activities used approximately
$22,576,000 of cash for the purchase of short-term investments and fixed assets
and expenditures for software development, as well as cash of $3,632,000
divested in the disposal of MAPICS. Financing activities provided $40,092,000 of
cash, primarily related to the $39,000,000 capital contribution from MAPICS in
connection with the Distribution.
In fiscal years 1997 and 1996, the Company recorded restructuring and other
charges totaling $19,175,000 and $10,600,000, respectively. At September 30,
1997, a balance of $3,548,000 associated with these charges remained in accrued
liabilities and is expected to result in cash expenditures in fiscal 1998.
Management believes that this remaining balance will be adequate to cover future
expenditures associated with these restructuring charges and expects that the
restructuring actions will be complete by the end of fiscal 1998.
The Company has used cash during fiscal 1997, 1996 and 1995, to fund
strategic investments, in particular, substantial expenditures for marketing and
selling activities and for new product development, and operating losses. During
fiscal years 1997, 1996 and 1995, the Company's product development expenditures
were $41,864,000, $39,913,000 and $41,140,000, respectively. During 1998, the
Company currently intends to continue to make investments in selling and
marketing activities and product development. The Company's objective is to fund
these investments primarily with cash from improved operations and existing cash
resources. The Company's timely ability to generate cash from operations depends
upon, among other things, revenue growth, completion and market acceptance of
new products, success in enhancing and selling its current AS/400-based families
of products, improvements in operating productivity, and payment terms and
collection of accounts receivable.
There can be no assurance that the Company's operations will generate
sufficient cash to finance these activities. Until operations improve to meet
its cash requirements, the Company will need to rely on existing cash resources.
The Company currently anticipates that cash from operations and its available
cash will be sufficient to fund operations through at least fiscal year 1998.
If, however, such sources prove insufficient in 1998, or over the longer term,
the Company will be required to make changes in operations or seek additional
debt or equity financing. Marcam Solutions currently believes that its potential
borrowing capacity is limited to revolving lines of credit with borrowing
availability based on qualifying accounts receivable. There can be no assurances
that such a revolving line of credit or any other additional debt or equity
financing will be available or available on terms acceptable to Marcam
Solutions. The continued incurrence of operating losses by Marcam Solutions
would have a material adverse affect on Marcam Solutions' business, financial
condition and results of operations.
Selected Pro Forma Results of Operations
The following discussion and analysis relates to Marcam Solutions on a pro
forma basis, giving effect to the Distribution. The unaudited pro forma
financial information for the fiscal years ended September 30, 1997 and 1996 is
presented as if Marcam Solutions had been operated as a separate entity,
principally by deducting the operating results of MAPICS from the historical
consolidated operating results of Marcam Corporation. The pro forma data is for
informational purposes only and may not necessarily reflect future results of
operations or what the actual results of operations would have been had Marcam
Solutions been operating as a separate entity. See Note 2 of Notes to
Consolidated Financial Statements.
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Revenues
Total revenues decreased 24.9% to $92,951,000 in 1997 from $123,822,000 in
1996. Excluding revenues from the Foresight product line, which was divested
effective as of June 30, 1996, total revenues decreased 17.5% in 1997 from
$112,678,000 in 1996. License revenues decreased 42.5% to $27,466,000 in 1997
from $47,796,000 in 1996. Excluding revenues from the Foresight product line,
license revenues decreased 33.5% from $41,323,000 in 1996. The decrease in
license revenues in 1997 was primarily due to lower license revenue from the
PRISM and Avantis product lines. Protean license revenue in 1997 decreased
slightly as compared to 1996.
Services revenues decreased 13.9% to $65,485,000 in 1997 from $76,026,000
in 1996. Excluding revenues from the Foresight product line, services revenues
decreased 8.2% in 1997 from $71,355,000 in 1996. The decrease in services
revenues in 1997 was primarily due to decreased implementation consulting and
customization revenues for the PRISM products.
Cost of License Revenues
Cost of license revenues represented 27.8% and 20.4% of license revenues in
1997 and 1996, respectively. The decrease in license revenue margins was
primarily due to the less than proportional decrease in the amortization of
capitalized software costs relative to the decline in license revenue. As
discussed above, during the third fiscal quarter of 1997, the Company wrote off
the capitalized software assets related to the Protean and Avantis.Pro product
lines and ceased further capitalization. As a result, management expects
amortization costs in fiscal year 1998 will be lower than such costs in
comparable prior periods.
Cost of Services Revenues
Cost of services revenues represented 68.5% and 76.7% of services in 1997
and 1996, respectively. The improvement in cost of services revenues as a
percentage of services revenues in 1997 was primarily due to a higher percentage
of the total service revenues being derived from support revenues in 1997 than
in 1996. Support revenues typically have better margins than other types of
service revenues. The Company also realized higher margins on its support
business due to decreased headcount in the support area as a result of the 1996
and 1997 restructuring actions. In addition, the decreased use of external
resources as compared to the prior year has also helped to reduce the cost of
service revenues. External resources, although flexible, are generally more
costly than internal resources.
Selling and Marketing
Selling and marketing expense decreased $12,351,000, or 23.5%, in 1997 from
1996. The decrease in selling and marketing expenses in 1997 was due to reduced
headcount and the decline in license revenues which led to lower commission
expenses. Additionally, the 1996 amounts included costs associated with the
Foresight product line. The decreases were partially offset by increased
marketing expenditures in 1997 related to the PRISM, Protean and Avantis product
lines.
Product Development
Gross research and product development expenditures in 1997 and 1996 were
$29,171,000 and $27,076,000, respectively. The $2,095,000 increase in gross
research and product development expenses in 1997 was primarily due to increased
development costs for the Protean product line which were partially offset by
lower spending to translate and localize software products for international
sale and no development costs in 1997 related to the divested Foresight product
line.
The amounts of computer software costs capitalized were $3,381,000 and
$5,794,000 for 1997 and 1996, respectively, representing 11.6% and 21.4% of
gross research and development expenditures. The decrease in capitalization
overall and as a percentage of gross expenditures in 1997 was due primarily to
lower translation efforts and a lower amount of software development expenditure
qualifying for capitalization. Additionally, capitalization of Protean and
Avantis.Pro development and translation costs ceased during the third fiscal
quarter of 1997.
Therefore, product development expenses were $25,790,000 in 1997
representing 27.7% of total revenues. In 1996 product development expenses were
$21,282,000 representing 17.2% of total revenues. The increase of $4,508,000 in
1997 was primarily due to the continuing investment in all of the Company's
products and lower
24
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amounts of capitalization, as described above. The increase as a percentage of
revenues is also attributable to the decrease in total revenues in 1997 as
compared to 1996.
General and Administrative
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $675,000 in 1997
from 1996. The decrease was due primarily to a $1,000,000 special provision in
1996 for additional contract claims and legal costs, partially offset by
provisions for employee compensation charges related to the Distribution and an
increase in non-income taxes incurred in 1997.
Restructuring and Other Charges
During the third and fourth quarters of fiscal 1997, the Company recorded
restructuring and other charges totaling $19,175,000. Of this amount,
approximately $1,710,000 related principally to reductions in staffing,
$1,500,000 related to the closure of certain European facilities, and $1,000,000
related to other restructuring actions. An additional $11,125,000 of this
charge related to the write-off of the capitalized software costs
relating to the Protean and Avantis.Pro product lines. This write-off resulted
from lower than expected revenue from these product lines during fiscal 1997 and
the continuing uncertainty regarding market acceptance of, and significant
revenue generation from, the product lines in the near future. The charge also
included the costs of $3,840,000 associated with the spin-off of Marcam
Solutions, Inc. in connection with the Distribution. Approximately $7,770,000 of
the restructuring and other charges has resulted in or is expected to result in
cash expenditures. At September 30, 1997, $2,379,000 related to these charges
remained in accrued liabilities. Management believes that the remaining balance
will be adequate to cover future expenditures associated with the 1997
restructuring actions and expects that the restructuring actions will be
completed by the end of fiscal 1998.
During fiscal 1996, the Company recorded restructuring charges of
$10,600,000 related to a restructuring of the Company's global operations and
the divestiture of Foresight at June 30, 1996. At September 30, 1997, the
Company had accrued $1,169,000 related to the 1996 restructuring costs.
Interest and Other Income (Expense), Net
The net expense of interest and other income (expense) decreased $3,838,000
in 1997 from 1996. In fiscal 1996, the Company reached an agreement in principle
to settle the shareholder class action litigation which was brought against the
Company in August 1994. Of the $5,750,000 settlement, the Company contributed
$2,750,000 from its own funds, with the remainder provided by insurance. The
Company recorded a charge in 1996 of $3,250,000 to cover the settlement and
other related expenses. In addition, the decrease resulted from lower interest
expense caused by the July 25, 1997 repayment of the $25.0 million subordinated
Notes.
Provision for Income Taxes
The income tax expense for the year ended September 30, 1997 was
$3,936,000. The income tax expense for the year ended September 30, 1996 was
$4,160,000. The expense in each period was primarily due to foreign withholding
taxes and income taxes on income generated in foreign jurisdictions for which
U.S. tax credit utilization is currently uncertain. There was no tax benefit
recorded for losses generated in the U.S. during these periods due to the
uncertainty of realizing such benefits.
Extraordinary Loss from Early Extinguishment of Debt
During the fourth quarter of 1997, the Company's outstanding $25,000,000
9.82% unsecured Subordinated Notes due April 30, 2001 were repaid. In connection
with the repayment, the Company recorded charges of $3,009,000 associated with
prepayment penalties and the write-off of deferred financing costs.
25
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Other Matters
To date, management believes inflation has not had a material impact on the
Company's operations.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued which will require the Company to
present basic and diluted earnings per share ("EPS"). Basic EPS, which replaces
primary EPS, excludes dilution and is computed by dividing income applicable to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS under existing rules. SFAS 128 requires restatement of all prior
period earnings per share data presented. The Company will adopt SFAS 128 in the
first quarter of fiscal 1998. The adoption will have limited impact on the
Company's financial statements, since restated EPS amounts will be identical to
historical amounts for the periods presented in the accompanying financial
statements.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), was issued which requires
businesses to disclose comprehensive income and its components in general
purpose financial statements, with reclassification of prior period financial
statements. SFAS 130 is effective for fiscal periods beginning after December
15, 1997 and its adoption is not expected to have a material impact on the
Company's disclosures.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), was issued which redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about a
company's operating segments. SFAS 131 is effective for fiscal periods beginning
after December 15, 1997 and its adoption may require additional disclosure of
the Company's historical financial data.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company will adopt the guidelines of SOP 97-2 as of
October 1, 1998 and has not yet determined the impact of adoption.
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Factors Affecting Future Performance
In addition to other information contained in this Form 10-K, the following
factors should be carefully considered.
Recent Operating Losses; Lack of Liquidity.
The Company has incurred operating losses of $36,567,000 and $15,795,000
for the fiscal years ended September 30, 1997 and 1996, respectively. On a pro
forma basis, Marcam Solutions has incurred operating losses of $52,087,000
and $36,771,000 for the fiscal years ended September 30, 1997 and 1996,
respectively. At September 30, 1997, Marcam Solutions' accumulated deficit was
$121,072,000. It is currently expected that quarterly net losses will continue
for at least the next few quarters. There can be no assurance that Marcam
Solutions will be profitable thereafter or that profitability, if achieved, will
be sustained. In order to support the anticipated growth of its business, Marcam
Solutions expects to continue to invest in its marketing and sales and product
development activities. Marcam Solutions' expenses for these and other
activities are based in significant part on its expectations regarding future
revenue and are fixed to a large extent in the short term. Marcam Solutions may
be unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfalls.
Marcam Solutions' management believes that achievement of profitability and
positive cash flow from operations as soon as possible is essential. Management
currently believes that a combination of cost reductions and increased revenues
is necessary to achieve this result. Marcam Solutions' business and operating
expense structure have been reviewed to identify opportunities for cost
reductions, and actions were initiated to reduce operating expenses. As a result
of these actions as well as an assessment of capitalized software costs and the
costs associated with the Distribution, the Company recorded restructuring and
other charges totaling $19,175,000 in fiscal 1997.
In addition, Marcam Solutions has undertaken a number of actions designed
to increase revenues, including introducing enhanced versions of its Protean and
Avantis.Pro products designed to make them more competitive and refocusing its
sales and marketing efforts on the PRISM product line. Management currently
believes that significant increases in Protean license revenues are required to
offset the costs of maintaining the distribution channel and development
activities relating to the Protean product line. There can be no assurance,
however, that such actions will result in increased revenues or that, when
combined with any cost reductions, will result in Marcam Solutions' achieving
profitability or positive cash flow from operations. Failure to achieve
profitability or positive cash flows from operations would materially and
adversely affect Marcam Solutions' financial condition.
Marcam Solutions has used cash during fiscal years 1997 and 1996 to fund
strategic investments, in particular substantial expenditures for marketing and
selling activities and for new product development, and operating losses. During
1998, Marcam Solutions currently intends to continue to make investments in
selling and marketing activities and product development. Marcam Solutions'
objective is to fund these investments and any losses primarily with cash from
improved operations and existing cash resources. Marcam Solutions' ability to
generate cash from operations depends upon, among other things, revenue growth,
completion and market acceptance of its Protean and Avantis.Pro products,
success in enhancing and selling its current AS/400-based families of products,
improvements in operating productivity, and payment terms and collection of
accounts receivable. There can be no assurance that Marcam Solutions' operations
will generate sufficient cash to finance its activities. Until operations
improve to meet its cash requirements, Marcam Solutions will need to rely on
existing cash resources.
Marcam Solutions currently anticipates that cash from operations and its
available cash will be sufficient to fund its operations and other cash needs
through at least fiscal year 1998. If, however, such sources prove insufficient,
Marcam Solutions will be required to make changes in operations or seek
additional debt or equity financing. Marcam Solutions currently believes that
its potential borrowing capacity is limited to revolving lines of credit with
borrowing availability based on qualifying accounts receivable. There can be no
assurances that such a revolving line of credit or any other additional debt or
equity financing will be available or available on terms acceptable to Marcam
Solutions. The continued incurrence of operating losses by Marcam Solutions
would have a material adverse affect on Marcam Solutions' business, financial
condition and results of operations.
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Variability of Quarterly Results.
Marcam Solutions has experienced fluctuations in its quarterly operating
results and anticipates that such fluctuations will continue and may intensify.
Marcam Solutions' quarterly operating results are affected by a number of
factors that could materially and adversely affect revenues and profitability,
including the relatively long sales cycles for Marcam Solutions' products; the
size and timing of license transactions; the demand for Marcam Solutions'
products; the proportion of revenues attributable to license fees versus
services fees; changes in the level of operating expenses; the potential for
delay or deferral of customer purchases of Marcam Solutions' software; the
timing of the introduction or market acceptance of new or enhanced products
offered by Marcam Solutions or its competitors; changes in customer budgets; and
the general economic and political conditions and other factors affecting
capital expenditures by customers. Marcam Solutions' sales cycle typically
ranges from three to twelve months, and the cost of acquiring its software and
associated computer hardware and of training system users represents a
significant expenditure for customers. The purchase of Marcam Solutions'
products and services may involve a significant commitment of capital and other
resources by its customers with the attendant delays frequently associated with
large capital expenditures and authorization procedures within an organization.
Accordingly, the sales cycles for Marcam Solutions' products and services are
subject to a number of significant risks over which Marcam Solutions has little
or no control, including customers' budgetary constraints and internal
authorization procedures.
Marcam Solutions' revenues occur predominantly in the third month of each
quarter and tend to be concentrated in the latter half of that third month.
Accordingly, Marcam Solutions' quarterly operating results are difficult to
predict and delays in product delivery or in closings of sales near the end of a
quarter could cause quarterly revenues and, to a greater degree, net income to
fall substantially short of anticipated levels. Marcam Solutions' relatively
long sales cycle and variable average revenue per transaction, together with
fixed short-term expenses, such as marketing, sales and product development
expenditures, can cause significant variations in operating results from quarter
to quarter, if projected revenues are not realized in the expected period.
There can be no assurance that Marcam Solutions will be able to achieve or
maintain profitability in the future or that its levels of profitability will
not vary significantly between quarterly periods. Further, it is possible that
Marcam Solutions' operating results could fail to meet the expectations of
securities analysts or investors. In such event, or in the event that adverse
conditions in the manufacturing or enterprise resource planning ("ERP")
marketplace prevail or are perceived to prevail, the price of Marcam Solutions
Common Stock and Marcam Solutions' business, financial condition and results of
operations would likely be materially adversely affected.
New Products and Technological Change.
The market for Marcam Solutions' ERP software products is characterized by
rapid technological advances, evolving industry standards in computer hardware
and software technology, changes in customer requirements and frequent new
product line introductions and enhancements. Marcam Solutions' future success
will depend on its ability to continue to enhance its current product lines and
to develop and introduce new products that keep pace with technological
developments, satisfy increasingly sophisticated customer requirements and
achieve market acceptance. Marcam Solutions must continue to anticipate and
respond adequately to advances in standard business applications software and
client/server solutions, as well as object-oriented technology. There can be no
assurance that Marcam Solutions will be successful in developing and marketing,
on a timely and cost-effective basis, functioning product enhancements or new
products that respond to technological advances by its competitors or that its
new products will achieve market acceptance.
Marcam Solutions is currently facing the challenges of a product and
technology transition. In particular, many of Marcam Solutions' software
products (such as PRISM and Avantis.XA products) are designed to operate on
International Business Machines Corporation's ("IBM") proprietary hardware,
including IBM's AS/400 computer systems. Marcam Solutions must continue to
invest in enhancements and support for these products in a cost-effective
manner. Marcam Solutions' newest products (such as Protean and Avantis.Pro) are
designed to be platform independent and utilize object technology. Products
embodying this technology are just beginning to be introduced into the existing
ERP marketplace. There can be no assurance that such products will be accepted
by users to a significant degree or at all. As a result of the complexities
inherent in the functionality and performance demanded by ERP software
customers, major new product enhancements and new products can require long
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development and testing periods to achieve market acceptance. In addition, ERP
software programs as complex as those offered by Marcam Solutions may contain
errors which are discovered only after a product has been installed and used by
customers despite testing by Marcam Solutions. There can be no assurance that
undetected errors will not impair the market acceptance of these products or
adversely affect Marcam Solutions' operating results. Marcam Solutions has from
time to time experienced problems with customers not being able to install or
implement certain of its new product releases and with product performance,
including problems related to product functionality, scalability, product
response time and program errors. Currently, Marcam Solutions is not aware of
any product implementation issues which have not been addressed or are not
currently being addressed by it. There can be no assurance that the problems
encountered by customers installing and implementing new releases or with the
performance of Marcam Solutions' products will not arise in the future, and if
such problems arise, that such problems will not have a material adverse effect
on Marcam Solutions' business, financial condition and results of operations.
Dependence on IBM's AS/400.
Substantially all of Marcam Solutions' revenues have been derived from
products designed to operate primarily on IBM's AS/400 series of computers.
Therefore, until Marcam Solutions' Protean and Avantis.Pro products, which are
designed to be platform independent, achieve full market acceptance, if at all,
Marcam Solutions' future revenues will be primarily derived from and dependent
upon the continued widespread use of the AS/400 and the continued support of the
AS/400 by IBM. While Marcam Solutions believes that customers will continue to
use, and IBM will continue to support, the AS/400, there can be no assurance of
such continued use or support and the loss of either would have a material
adverse effect on Marcam Solutions' operating results. Marcam Solutions will be
required and intends to continue to devote resources to supporting its installed
base of AS/400 customers. In addition, in order to retain its AS/400 customers,
Marcam Solutions may be required to adapt its products to any changes made in
the AS/400 operating system in the future. Marcam Solutions' inability to adapt
to future changes in the AS/400 operating system, or delays in doing so, could
have a material adverse effect on Marcam Solutions' business, financial
condition and results of operations.
Limited Relevance of Certain Historical Financial Information.
Although the Marcam Solutions Common Stock was distributed to the Marcam
stockholders, because of the relative significance of Marcam's business relating
to the PRISM, Protean and Avantis product lines, the Distribution was recorded
for accounting purposes as a disposal of the business relating to the MAPICS
product line. Accordingly, the consolidated financial statements of Marcam
Corporation have become the historical consolidated financial statements of
Marcam Solutions. Marcam Solutions' financial statements reflect the
Distribution as a disposal of the MAPICS product line as of the Distribution
Date and have not been restated to remove the effects of the prior operating
results of the MAPICS business. The historical financial statements of Marcam
Solutions do not reflect what the financial position, results of operations or
cash flows would have been had Marcam Solutions been a separate, stand-alone
entity during the periods presented, because they include financial information
relating to the MAPICS product line. In addition, the unaudited pro forma
financial information of Marcam Solutions included elsewhere in this Annual
Report on Form 10-K is for informational purposes only and may not necessarily
reflect future results of operations and financial position or what the results
of operations or financial position would have been had Marcam Solutions been
operating as a separate entity. See Note 2 to the Consolidated Financial
Statements.
Competition.
The market for business software within the process manufacturing industry
is highly competitive, changes rapidly and is to a significant degree affected
by new product introductions and other market activities of industry
participants. Marcam Solutions' products and related services and in particular
the PRISM and Avantis.XA product lines are targeted at the market for business
applications software for use with the IBM AS/400 platform. Marcam Solutions'
Protean and Avantis.Pro product lines are designed to be platform independent.
Marcam Solutions' current and prospective competitors offer a variety of
products which address these and similar markets. Marcam Solutions' primary
competition comes from ERP core application providers, including Baan, N.V.,
Oracle Corporation, SAP AG and PeopleSoft, Inc. for the plant operations
business. In addition, Marcam Solutions faces competition from suppliers of
specialized ERP applications, such as J.D. Edwards and Company, QAD, Inc., Ross
Systems, Inc. and System Software Associates, Inc.
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The principal competitive factors in the market for ERP plant operations
software and services include product functionality, technology, quality,
performance, reliability, ease-of-use, size of installed base, service, vendor
reputation and financial stability. Marcam Solutions believes that its products
currently compete favorably on the foregoing bases, although in certain
instances, it may be at a competitive disadvantage against companies with
greater financial, marketing, service, support and technological resources, and
greater name recognition. Marcam Solutions believes its competitive strengths
include its process industry expertise, its proven functional leadership, the
ability to easily integrate its Protean products with core ERP applications from
other providers, customer implementation results, and its long-term vision and
early leadership position with object technology.
Certain of Marcam Solutions' competitors have a full ERP suite and
significantly greater financial, marketing, service, support and technical
resources, and greater name recognition than Marcam Solutions. In order to be
successful in the future, Marcam Solutions must continue to respond promptly and
effectively to the challenges of technological change and its competitors'
innovations. Marcam Solutions' competitors may be able to respond more quickly
to new or emerging technologies or changes in customer requirements or devote
greater resources to the development, promotion and sale of their products than
Marcam Solutions. Marcam Solutions also expects to face additional competition
as other established and emerging companies enter the market for business
software and new technologies are introduced for alternative platforms. In
addition, current and potential competitors may make acquisitions or establish
alliances among themselves or with third parties, thereby increasing the ability
of their products to address the needs of Marcam Solutions' prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share, resulting in price or fee rate reductions, fewer customer orders and
reduced gross margin, any one of which could have a material adverse effect on
Marcam Solutions' business, financial condition and results of operations. There
can be no assurance that Marcam Solutions will be able to compete successfully
with existing or new competitors or that competition will not have a material
adverse effect on Marcam Solutions' business, financial condition and results of
operations. In addition, because Marcam Solutions relies in part on a network of
distribution affiliates for implementation and other support of its products,
there can be no assurance that these affiliates will maintain sufficiently high
quality standards so that Marcam Solutions' reputation and competitive position
will not be adversely affected.
Dependence on Key Personnel; Ability to Attract and Retain Skilled Personnel.
Marcam Solutions' future performance depends to a significant extent upon
the continued service of a number of senior management and key technical
personnel. None of Marcam Solutions' employees is bound by an employment
agreement. The loss of the services of one or more key employees could have a
material adverse effect on Marcam Solutions. Marcam Solutions' future financial
results also will depend in large part upon its ability to attract on a timely
basis and retain highly skilled technical, managerial and marketing personnel
and the ability of its officers and key employees to manage growth successfully
and to continue successful development of new products and enhancements to
existing products. Competition for such personnel is intense and is likely to
intensify further as companies compete to hire personnel. Marcam Solutions
competes in the market for such personnel against numerous companies, including
larger, more established companies with significantly greater financial
resources than Marcam Solutions. There can be no assurance that Marcam Solutions
will be successful in attracting and retaining the personnel it requires to
develop successfully new and enhanced products. The inability of Marcam
Solutions to attract or retain key personnel could have a material adverse
effect on Marcam Solutions' business, financial condition and results of
operations.
Dependence on Worldwide Manufacturing Industry.
Marcam Solutions' business depends substantially upon the capital
expenditures of manufacturers, which expenditures depend in part upon the demand
for such manufacturers' products. A recession or other adverse events affecting
the worldwide manufacturing industry served by Marcam Solutions could affect
such demand, forcing manufacturers in Marcam Solutions' target market to curtail
or postpone capital expenditures on business information systems. Any such
change in the amount or timing of capital expenditures in its target market
could have a material adverse effect on Marcam Solutions' business, financial
condition and results of operations.
30
<PAGE>
Uncertain Protection of Proprietary Technology.
Marcam Solutions' success is heavily dependent upon protection of its
proprietary software. Marcam Solutions relies on a combination of patent,
copyright, trademark and trade secret laws and license and non-disclosure
agreements to establish and protect its proprietary rights in its products.
Marcam Solutions has obtained a patent on a method for modeling production
processes, which is embodied in the PRISM and Protean products. Marcam Solutions
has also obtained a patent on a method for managing how computer programs
communicate with each other across dispersed systems and different release
levels of software throughout an enterprise, which is also embodied in the PRISM
database. Marcam Solutions is seeking U.S. and foreign patent protection on key
aspects of its Protean product line. Marcam Solutions protects many of its
software modules as trade secrets and unpublished copyrighted works. Marcam
Solutions enters into confidentiality and/or license agreements with its
employees, distributors, customers and potential customers, and limits access to
and distribution of its software, documentation and other proprietary
information. There can be no assurance, however, that despite these precautions,
an unauthorized third party will not copy or reverse-engineer certain portions
of Marcam Solutions' products or obtain and use information that Marcam
Solutions regards as proprietary. Marcam Solutions typically makes the source
code for many of its AS/400-based modules available to its customers. In
addition, the laws of some foreign countries do not protect Marcam Solutions'
proprietary rights to the same extent as do the laws of the U.S. There can be no
assurance that the mechanisms used by Marcam Solutions to protect its software
will be adequate or that Marcam Solutions' competitors will not independently
develop software products that are substantially equivalent or superior to
Marcam Solutions' software products.
In the future, Marcam Solutions may receive notices claiming that it is
infringing the proprietary rights of third parties and there can be no assurance
that Marcam Solutions will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, Marcam Solutions may initiate claims or litigation against third
parties for infringement of Marcam Solutions' proprietary rights or to establish
the validity of Marcam Solutions' proprietary rights. Any such claim could be
time consuming, result in costly litigation, cause product shipment delays or
force Marcam Solutions to enter into royalty or license agreements rather than
dispute the merits of such claims. Moreover, an adverse outcome in litigation or
similar adversarial proceedings could subject Marcam Solutions to significant
liabilities to third parties, require the expenditure of significant resources
to develop non-infringing technology, require disputed rights to be licensed
from others or require Marcam Solutions to cease the marketing or use of certain
products, any of which could have a material adverse effect on Marcam Solutions'
business, financial condition and results of operations. To the extent Marcam
Solutions desires or is required to obtain licenses to proprietary rights of
others, there can be no assurance that any such licenses will be made available
on terms acceptable to Marcam Solutions, if at all. Claims against Marcam
Solutions, with or without merit, as well as claims initiated by Marcam
Solutions against third parties, can be time consuming and expensive to defend,
prosecute or resolve. The inability to effectively protect its proprietary
technology or the necessity of prosecuting or defending infringement claims
could have a material adverse affect on the business, financial condition or
results of operations of Marcam Solutions.
Risks Associated with International Operations and Currency Fluctuations.
A material portion of Marcam Solutions' business comes from outside the
U.S. Marcam Solutions derived approximately 59%, 50% and 53% of its total
revenues from customers located outside of the U.S. in fiscal years 1997, 1996
and 1995, respectively. Marcam Solutions believes that its growth and
profitability will require continued expansion of its sales in international
markets. To successfully expand international sales, Marcam Solutions has
utilized, and will continue to utilize, substantial resources to enlarge
existing foreign operations, establish additional foreign operations and hire
additional personnel. International expansion of Marcam Solutions' operations
has required, and will continue to require, Marcam Solutions to translate and
localize its software modules. To the extent Marcam Solutions is unable to
expand its international operations or translate and localize its application
modules in a timely manner, it is likely to adversely impact Marcam Solutions'
operating results. In addition, even if international operations are
successfully expanded, there can be no assurance that Marcam Solutions will be
able to maintain or increase international market presence or demand for its
products.
31
<PAGE>
Risks inherent in Marcam Solutions' international business activities
include imposition of government controls, restrictions on the export of
critical technology, political and economic instability (including fluctuations
in foreign currency exchange rates), trade restrictions, difficulties in
staffing international offices, longer accounts receivable payment collection
cycles in certain countries, burdens of complying with a wide variety of foreign
laws and regulations, management of an organization spread over various
countries, unexpected changes in regulatory requirements and overlap of
different tax structures. In addition, effective copyright, trademark and trade
secret protection may not be available in every foreign country in which Marcam
Solutions sells its products. As a result of the continued expansion of Marcam
Solutions' international operations, the fluctuations in the value of foreign
currencies in which Marcam Solutions conducts its business may cause currency
transaction gains and losses. To date, currency transaction gains and losses
have not been material. However, due to the number of foreign currencies
involved, the constantly changing currency exposures and volatility of currency
exchange rates, Marcam Solutions cannot predict the effect of exchange rate
fluctuations upon future operating results. Marcam Solutions' business,
financial condition and results of operations could be materially adversely
affected by any of these factors.
Risks of Product Liability.
Marcam Solutions' products are generally used to manage data critical to
large organizations. As a result, the sale and support of products by Marcam
Solutions may entail the risk of product liability claims. While Marcam
Solutions' license agreements with its customers typically contain provisions
designed to limit Marcam Solutions' exposure to potential product liability
claims, it is possible that such limitations of liability provisions may not be
effective under the laws of all jurisdictions. In addition, Marcam Solutions is
insured for product liability protection against claims for personal injury or
damage to property, as well as for customer losses for which Marcam Solutions is
liable, although such insurance may not be sufficient to cover all claims in the
event the limitation of liability provisions contained in Marcam Solutions'
license agreements are not effective. Although Marcam Solutions has not
experienced any significant product liability claims to date, there can be no
assurance that Marcam Solutions will not be subject to such claims in the
future. A successful product liability claim brought against Marcam Solutions
could have a material adverse effect on Marcam Solutions' business, financial
condition and results of operations. Moreover, defending such a suit, regardless
of its merits, could entail substantial expense and require the time and
attention of key management personnel, either of which could have a material
adverse effect on Marcam Solutions' business, financial condition and results of
operations.
Absence of History as a Stand-Alone Public Company.
Marcam Solutions has operated as a stand-alone company for a relatively
short period of time. Certain of Marcam Solutions' senior executive officers
have had limited management experience as senior executives in public companies.
In anticipation of being established as a stand-alone entity, Marcam Solutions
reviewed its business and operations and is implemented certain organizational
changes. However, there can be no assurance that these changes or that the
separation from MAPICS will not have an adverse impact on Marcam Solutions'
business, financial condition and results of operations. In fiscal years 1997,
1996 and 1995 prior to the Distribution, MAPICS made net cash transfers to
Marcam Solutions of $6.6 million, $15.2 million and $16.5 million, respectively.
In connection with the Distribution in 1997, Marcam Solutions received a
capital contribution of $39.0 million from MAPICS.
Possible Volatility of Stock Price
The stock market from time to time experiences extreme price and volume
fluctuations, particularly in the high technology sector. In addition, factors
such as announcements of technological innovations or new products by Marcam
Solutions or its competitors, quarterly financial releases, as well as market
conditions in the computer software or hardware industries, may have a
significant impact on the market price of Marcam's common stock. Marcam's common
stock has experienced, and may in the future exhibit, price volatility because
of factors related, as well as unrelated, to the Company's operating
performance.
Anti-Takeover Provisions; Rights Plan; Issuance of Preferred Stock.
Marcam Solutions' certificate of incorporation and by-laws contain
provisions that may make it more difficult for a third party to acquire, or
discourage acquisition bids for, or discourage changes in management of, Marcam
Solutions. These provisions could limit the price that certain investors might
be willing to pay in the future for
32
<PAGE>
shares of Marcam Solutions Common Stock. Also, Marcam Solutions has adopted a
Shareholder Rights Plan, pursuant to which Marcam Solutions has distributed to
its stockholders rights to purchase shares of junior participating preferred
stock (the "Rights Plan"). Upon certain triggering events, such rights become
exercisable to purchase Marcam Solutions Common Stock at a price substantially
discounted from the then applicable market price of Marcam Solutions Common
Stock. The Marcam Solutions Rights Plan could generally discourage a merger or
tender offer involving the securities of Marcam Solutions that is not approved
by the Marcam Solutions Board by increasing the cost of effecting any such
transaction and, accordingly, could have an adverse impact on stockholders who
might want to vote in favor of such merger or participate in such tender offer.
The issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of the outstanding voting
stock of Marcam Solutions. Marcam Solutions has no present plans to issue any
shares of Preferred Stock. The Marcam Solutions Board is divided into three
classes, each of which serves for a staggered three-year term. Such staggered
Board may make it more difficult for a third party to gain control of the Marcam
Solutions Board. The by-laws impose various procedural and other requirements
that could make it more difficult for stockholders to effect certain corporate
actions.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
internal-use computer programs that have data-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. The Company
presently believes that with modifications to existing software and conversions
to new software, the Year 2000 Issues can be mitigated. The Company currently
expects to implement successfully the systems and programming changes necessary
to address the Year 2000 Issue and does not believe that the cost of such
actions will have a material effect on the Company's results of operations or
financial condition. There can be no assurance, however, that there will not be
a delay in, or increased costs associated with, the implementation of such
changes. If such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
33
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following is a list of the Consolidated Financial Statements and
Supplementary Data appearing herein:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................................35
Consolidated Balance Sheets, September 30, 1997 and 1996.................................36
Consolidated Statements of Operations for each of the three years in the period
ended September 30, 1997.................................................................37
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended September 30, 1997......................................................38
Consolidated Statements of Cash Flows for each of the three years in
the period ended September 30, 1997......................................................39
Notes to Consolidated Financial Statements...............................................40
Supplemental Financial Information.......................................................60
</TABLE>
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Marcam Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Marcam
Solutions, Inc. as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Marcam Solutions,
Inc. as of September 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 24, 1997
35
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30,
Assets 1997 1996
---------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 26,474 $ 21,817
Short-term investments (Note 3) 11,503 -
Accounts receivable, net of allowances of $2,037 in 1997
and $2,472 in 1996 (Note 4) 24,273 50,602
Prepaid expenses and other current assets 6,639 6,132
---------- ---------
Total current assets 68,889 78,551
---------- ---------
Property and equipment, net (Notes 3 and 5) 6,224 10,954
Computer software costs, net (Note 3) 2,475 31,292
MAPICS intangible costs, net (Notes 3 and 14) - 5,325
Other assets 281 6,080
---------- ---------
Total assets $ 77,869 $ 132,202
========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,142 $ 13,496
Accrued expenses and other current liabilities (Note 6) 29,457 41,272
Deferred revenue 22,396 39,235
---------- ---------
Total current liabilities 55,995 94,003
---------- ---------
Long-term debt (Note 7) 318 25,764
Deferred income taxes (Note 8) 694 761
---------- ---------
Total liabilities 57,007 120,528
---------- ---------
Commitments and contingencies (Note 9)
Stockholders' equity (Notes 7 and 10):
Preferred stock, $0.01 par value; 5,000 shares authorized
at September 30, 1997 - -
Preferred stock, $1.00 par value; 1,000 shares authorized
at September 30, 1996
Series D Convertible Preferred Stock, 225 shares issued and
outstanding at September 30, 1996 (liquidation
preference of $22,500) - 225
Series E Convertible Preferred Stock, 100 shares issued and
outstanding at September 30, 1996 (liquidation preference of $10,000) - 100
Common stock, $.01 par value; 30,000 shares authorized
at September 30, 1997 and 1996; 7,457 and 11,431 shares issued and
outstanding at September 30, 1997 and 1996 75 114
Additional paid-in capital 142,766 76,602
Accumulated deficit (121,072) (62,795)
Unamortized deferred compensation - (585)
Cumulative translation adjustment (907) (1,987)
---------- ---------
Total stockholders' equity 20,862 11,674
---------- ---------
Total liabilities and stockholders' equity $ 77,869 $ 132,202
========== ==========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
36
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
License $ 66,390 $ 93,137 $ 105,232
Services 97,490 108,287 97,100
---------- ---------- ----------
Total revenues 163,880 201,424 202,332
---------- ---------- ----------
Operating expenses:
Cost of license revenues 14,636 16,669 18,657
Cost of services revenues 56,234 69,493 62,904
Selling and marketing (Note 4) 66,596 82,790 87,074
Product development 34,301 27,680 25,930
General and administrative 9,505 9,987 8,382
Restructuring and other charges (Note 6) 19,175 10,600 28,756
---------- ---------- ----------
Total operating expenses 200,447 217,219 231,703
---------- ---------- ----------
Operating loss (36,567) (15,795) (29,371)
Litigation settlement (Note 9) - (3,250) -
Interest and other income 1,411 1,443 711
Interest and other expense (3,518) (4,138) (3,063)
---------- ---------- ----------
Loss before income tax expense and extraordinary item (38,674) (21,740) (31,723)
Income tax expense (Note 8) (5,200) (4,586) (2,634)
---------- ---------- ----------
Loss before extraordinary item (43,874) (26,326) (34,357)
Extraordinary loss from early extinguishment
of debt, net of $0 of income taxes (Note 7) (3,009) - -
---------- ---------- ----------
Net loss $ (46,883) $ (26,326) $ (34,357)
========== ========== ==========
Loss per share before extraordinary item $ (7.27) $ (4.63) $ (6.10)
Extraordinary loss per share (0.50) - -
---------- ---------- ----------
Net loss per share $ (7.77) $ (4.63) $ (6.10)
========== ========== ==========
Weighted average number of
shares outstanding (Note 3) 6,035 5,692 5,634
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
37
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Series D and E
Convertible Additional Unamortized Cumulative Total
Preferred Stock Common Stock Paid-in Accumulated Deferred Translation Stockholders'
Shares Par Value Shares Par Value Capital Deficit Compensation Adjustment Equity
------ --------- ------ --------- ------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1994 11,119 $ 111 $ 42,043 $ (2,112) $ (876) $ (1,040) $ 38,126
Sale of convertible
preferred stock
(Note 10) 225 $225 - - 22,275 - - - 22,500
Exercise of stock
options - - 11 - 108 - - - 108
Sale of common stock
under the Employee
Stock Purchase Plan - - 101 1 788 - - - 789
Stock grants issued
and compensation
expense (Note 10) - - 40 1 458 - (224) - 235
Effect of foreign
currency translation - - - - - - - (755) (755)
Net loss - - - - - (34,357) - - (34,357)
------ ------ ------ -------- ---------- -------- ------ --------- ---------
Balance at September
30, 1995 225 225 11,271 113 65,672 (36,469) (1,100) (1,795) 26,646
------ ------ ------ -------- ---------- -------- ------ --------- ---------
Sale of convertible
preferred stock
(Note 10) 100 100 - - 9,400 - - - 9,500
Issuance of warrants
with preferred stock
(Note 10) - - - - 500 - - - 500
Exercise of stock
options - - 113 1 566 - - - 567
Sale of common stock
under the Employee Stock
Purchase Plan - - 86 - 791 - - - 791
Stock grants canceled and
compensation expense
(Note 10) - - (39) - (327) - 515 - 188
Effect of foreign
currency translation - - - - - - - (192) (192)
Net loss - - - - - (26,326) - - (26,326)
------ ------ ------ -------- ---------- -------- ------ --------- ---------
Balance at September
30, 1996 325 325 11,431 114 76,602 (62,795) (585) (1,987) 11,674
------ ------ ------ -------- ---------- -------- ------ --------- ---------
Exercise of stock
options - - 102 1 704 - - - 705
Sale of common stock
under the Employee
Stock Purchase Plan - - 81 1 822 - - - 823
Stock grants
canceled and
compensation
expense (Note 10) - - (10) - (106) - 585 - 479
Compensation related
to unexercised stock
options - - - - 378 - - - 378
The Distribution
(Notes 2 and 7):
Effect of the
Distribution on
shares outstanding (325) (325) (4,147) (41) 366 - - - -
Disposal of
MAPICS, Inc. - - - - - (11,394) - - (11,394)
Capital
contributed
and Subordinated
Notes assumed by
MAPICS, Inc. - - - - 64,000 - - - 64,000
Effect of foreign
currency translation - - - - - - - 1,080 1,080
Net loss - - - - - (46,883) - - (46,883)
------ ------ ------ -------- ---------- -------- ------ --------- ---------
Balance at September
30, 1997 - $ - 7,457 $ 75 $ 142,766 $(121,072) $ - $ (907) $ 20,862
====== ======= ====== ======== ========== ========= ======= ========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
38
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (46,883) $ (26,326) $ (34,357)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 15,093 15,877 12,743
Provision for restructuring and other charges, non-cash portion 11,743 3,730 20,680
Extraordinary loss from extinguishment of debt, non-cash portion 1,259 - -
Provision for bad debts 3,820 3,828 1,449
Deferred income taxes 49 (459) (1,128)
Changes in operating assets and liabilities, net of
effects of acquisitions and divestitures:
Accounts receivable 2,984 1,779 (9,957)
Prepaid expenses and other assets (1,446) (2,648) (3,506)
Accounts payable (3,324) 2,748 (5,969)
Accrued expenses and other current liabilities 2,944 (148) 30,866
Deferred revenue 4,272 2,220 7,435
---------- ---------- ----------
Net cash provided by (used for) operating activities (9,489) 601 18,256
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (3,510) (6,114) (3,946)
Additions to computer software costs (7,563) (12,233) (15,210)
Purchases of short-term investments (11,503) (6,909) (2,019)
Proceeds from the sale of short-term investments - 8,928 -
Payments for acquisitions, net of cash acquired - - (1,282)
Net cash divested in disposal of subsidiaries (3,632) (461) -
---------- ---------- ----------
Net cash used for investing activities (26,208) (16,789) (22,457)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock - 9,500 22,500
Proceeds from issuance of warrants - 500 -
Principal borrowings on debt - - 5,305
Principal payments on debt and capital lease obligations (436) (379) (7,719)
Capital contributed by MAPICS, Inc. 39,000 - -
Common stock issued under Employee Stock Purchase Plan 823 791 789
Proceeds from stock option exercises 705 567 108
Repayment of notes receivable from shareholders - - 14
---------- ---------- ----------
Net cash provided by financing activities 40,092 10,979 20,997
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents 262 (286) 53
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 4,657 (5,495) 16,849
Cash and cash equivalents at beginning of year 21,817 27,312 10,463
---------- ---------- ----------
Cash and cash equivalents at end of year $ 26,474 $ 21,817 $ 27,312
========== ========== ==========
</TABLE>
See supplemental disclosure of cash flow information at Note 12.
The accompanying notes are an integral part of
the consolidated financial statements.
39
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements
(1) NATURE OF BUSINESS
Marcam Solutions, Inc. and subsidiaries ("Marcam Solutions" or the
"Company") develops, globally markets, implements, and supports enterprise
resource planning software applications designed exclusively for process plant
operations. The Company's mission is to provide process manufacturing companies
with specialized, agile, business solutions that enable them to continuously
improve their plant operations while realizing low total cost of ownership. The
Company also provides product support, implementation consulting, education, and
programming services to its customers. The Company's products offer
comprehensive business planning and control solutions to customers' production,
logistics, asset management and financial requirements. The Company's primary
geographic markets include North America, Europe, Latin America, Asia Pacific,
Africa and the Middle East.
(2) THE DISTRIBUTION
On July 29, 1997, Marcam Corporation spun off in a tax-free distribution
the portion of its business relating to its PRISM, Protean and Avantis product
lines. In connection with the distribution, Marcam Corporation transferred to
Marcam Solutions, Inc., at that time a new wholly owned subsidiary of Marcam
Corporation, substantially all of the business, assets and liabilities relating
to its PRISM, Protean and Avantis product lines and an aggregate of $39.0
million in cash in exchange for (i) the assumption by Marcam Solutions of
certain liabilities and obligations relating to the business to be conducted by
Marcam Solutions, (ii) a number of shares of common stock of Marcam Solutions
sufficient for Marcam Corporation to make the distribution and (iii) warrants to
purchase an aggregate of 500,000 shares of common stock of Marcam Solutions.
Marcam Corporation distributed all of its ownership interest in Marcam Solutions
by means of a distribution on July 29, 1997 to its stockholders of record on
July 23, 1997 (the "Distribution"). In the Distribution, each stockholder of
Marcam Corporation received one share of Marcam Solutions common stock for each
two shares of Marcam Corporation common stock held and five shares of Marcam
Solutions common stock for each share of Marcam Corporation preferred stock
held. In connection with the Distribution, Marcam Corporation changed its name
from "Marcam Corporation" to "MAPICS, Inc." ("MAPICS").
Although the common stock of Marcam Solutions was distributed to Marcam
Corporation's shareholders, the Distribution was recorded for accounting
purposes as a disposal of the business conducted by MAPICS, due to the relative
significance of the business conducted by Marcam Solutions. The financial
statements of Marcam Solutions for reporting periods after the Distribution
reflect the Distribution as a disposal of the business conducted by MAPICS and
have not been restated to remove the effects of the prior operating results of
the MAPICS business. The financial statements of Marcam Solutions for periods
prior to the Distribution correspond to the historical consolidated financial
statements of Marcam Corporation.
For accounting purposes, in connection with the Distribution, MAPICS
assumed and repaid Marcam Corporation's outstanding $25,000,000 9.82% unsecured
Subordinated Notes. The repayment resulted in an extraordinary loss to Marcam
Solutions of $3,009,000 related to the early extinguishment of this debt. The
extraordinary loss included prepayment penalties of $1,750,000 and the write-off
of deferred financing costs approximating $1,259,000. No tax benefit was
recognized for the extraordinary loss due to the uncertainty of realizing that
benefit. At September 30, 1997 the Company had no debt other than capitalized
leases (See Note 7).
Marcam Corporation and Marcam Solutions entered into various agreements
providing for the separation of the product lines and governing various ongoing
relationships between MAPICS and Marcam Solutions after the Distribution,
including a distribution agreement, a general services agreement and a tax
sharing agreement.
40
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
The following unaudited pro forma financial information for the years ended
September 30, 1997 and 1996 reflects how the disposition of the MAPICS business
might have affected the statements of operations of Marcam Solutions if the
disposition had occurred on October 1, 1995. The pro forma financial information
is presented as if Marcam Solutions had been operated as a separate entity,
principally by deducting the operating results of MAPICS from the historical
consolidated operating results of Marcam Corporation. The pro forma data is for
informational purposes only and may not necessarily reflect future results of
operations or what the results of operations would have been had Marcam
Solutions been operating as a separate entity.
Pro Forma Results of Operations
(In Thousands, Except Per Share Data)
Year Ended September 30,
1997 1996
----------------------------
Revenues:
License $ 27,466 $ 47,796
Services 65,485 76,026
---------- ----------
Total revenues 92,951 123,822
---------- ----------
Operating expenses:
Cost of license revenues 7,628 9,756
Cost of services revenues 44,857 58,341
Selling and marketing 40,298 52,649
Product development 25,790 21,282
General and administrative 7,290 7,965
Restructuring and other charges 19,175 10,600
---------- ----------
Total operating expenses 145,038 160,593
---------- ----------
Operating loss (52,087) (36,771)
Other income (expense), net (2,107) (5,945)
Income tax expense (3,936) (4,160)
---------- ----------
Loss before extraordinary item (58,130) (46,876)
Extraordinary item (3,009) -
---------- ----------
Net loss $ (61,139) $ (46,876)
========== ==========
Net loss per share before extraordinary item $ (9.63) $ (8.24)
Extraordinary loss per share (.50) -
---------- ----------
Net loss per share $ (10.13) $ (8.24)
========== ==========
Weighted average number
of shares outstanding 6,035 5,692
41
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(3) SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of Marcam
Solutions, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts in the prior
year financial statements have been reclassified to conform with the current
year presentation. See Note 2 for basis of presentation of the Distribution.
(b) Use of Estimates by Management
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. The most significant
estimates included in these financial statements are the valuation of accounts
receivable, deferred tax assets, capitalized software and intangible assets.
Actual results may differ from estimates.
(c) Revenue Recognition
The Company recognizes revenues from the sale of its software licenses upon
the signing of license agreements, delivery of the software and determination
that collection of the related receivable is probable. Under the terms of the
Company's license agreements, the customer is responsible for installation and
training. At the time the Company recognizes revenues from the sale of software
licenses, no significant vendor obligations remain, and the costs of
insignificant support obligations are accrued.
The Company recognizes revenues from license renewals (which typically
include some customer support obligation) and post-contract customer support
agreements as services revenues ratably over the terms of the agreements.
Revenues from consulting and custom programming services are recognized as
services are performed. Related expenses are included in cost of services
revenues.
Generally, revenues from sales through third-party representatives are
included in revenues, and related commissions are included in selling and
marketing expenses. In certain situations, revenues from affiliates are recorded
as royalties in license revenues (See Note 15).
(d) Cash and Short-Term Investments
Cash equivalents consist of highly liquid investments with maturities of
three months or less from the date of purchase. Investments with maturities
greater than three months and less than twelve months are considered to be
short-term investments. Cash equivalents and short-term investments consist
primarily of commercial paper, corporate and municipal bonds, time deposits and
money market investments.
The Company classifies all securities that mature in less than one year as
"held to maturity" securities. At September 30, 1997, held to maturity
securities consisted of corporate bonds of $7,556,000, government and agency
obligations of $2,000,000, and commercial paper of $1,947,000. Held to maturity
securities are recorded at amortized cost, which approximated fair value at
September 30, 1997. No unrealized gains or losses have been recognized on these
investments. At September 30, 1996, the Company held no securities.
42
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(e) Concentrations of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company provides credit, in the normal course of business, to various types
and sizes of manufacturers located throughout the world. Management does not
believe significant credit risk exists at September 30, 1997 and 1996.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method based upon the following estimated useful lives:
Furniture and fixtures 5 to 7 years
Computer equipment 3 to 5 years
Leasehold improvements Shorter of lease term or useful life of asset
(g) Computer Software Costs
The Company charges all costs of establishing technological feasibility of
computer software products to product development expense as they are incurred.
Thereafter, computer software costs are capitalized and reported at the lower of
unamortized cost or net realizable value. Computer software costs include
in-house software development costs and the costs incurred to translate software
into various foreign languages. Amortization of computer software costs
commences upon general release of the product to customers and is computed on a
product-by-product basis using the greater of the amount determined using (a)
the ratio that current period gross revenues bear to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
estimated economic life of the product (generally five years). Amortization of
capitalized software costs is generally charged to cost of license revenues.
Computer software costs capitalized during 1997, 1996 and 1995 amounted to
approximately $7,563,000, $12,233,000 and $15,210,000, respectively.
Amortization of computer software costs during those periods was approximately
$8,991,000, $9,034,000 and $8,453,000, respectively. In fiscal 1997, capitalized
software and translation costs related to the Protean and Avantis.Pro product
lines with a net book value of $11,125,000 were written off as a result of
management's assessment of net realizable value (See Note 6). Additionally in
fiscal 1997, capitalized software and translation costs with a net book value of
$15,863,000 were transferred to MAPICS, Inc. in connection with the Distribution
described in Note 2. In fiscal 1996, capitalized software and translation costs
with a net book value of $2,090,000 were written off as part of the 1996
restructuring charges described in Note 6. In fiscal 1995, capitalized software
and translation costs with a net book value of $18,253,000 were written-off as
part of the 1995 restructuring charge described in Note 6, and computer software
valued at $9,391,000 was recorded in connection with the acquisition of Mapics,
Inc., as described in Note 14. Accumulated amortization at September 30, 1997
and 1996 totaled $21,491,000 and $23,581,000, respectively.
(h) MAPICS Intangible Costs
MAPICS intangible costs represent acquired intangible assets that were
being amortized to cost of license revenues using the straight-line method over
the estimated lives of the intangibles, ranging from 5 to 15 years. The balance
of MAPICS intangible costs was transferred to MAPICS, Inc. during fiscal 1997 in
connection with the Distribution (See Notes 2 and 14).
43
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(i) Goodwill
The excess of the cost of businesses acquired over the fair market value of
net assets acquired is being amortized to expense on a straight-line basis over
eight years.
(j) Intangible Assets
The Company evaluates the net realizable value of capitalized software and
other intangibles on a quarterly basis using undiscounted cash flows. The
Company's review of intangible assets includes an analysis of past operating
results, business plans and budgets related to recoverability of the specific
assets.
(k) Foreign Currency Translation
The functional currency for each of the Company's foreign operations is
generally its local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at year-end rates of exchange. Revenues and
expenses are translated into U.S. dollars at the average rates for the periods.
The resultant translation adjustments are reflected as a separate component of
stockholders' equity on the consolidated balance sheets.
(l) Income Taxes
The Company accounts for income taxes using the asset and liability method,
pursuant to which deferred income taxes are recognized for the tax consequences
of differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on deferred income taxes of
a change in tax rates is recognized in the period that includes the enactment
date. Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized.
The Company does not provide for U.S. income taxes on the undistributed
earnings of foreign subsidiaries, which the Company considers to be permanent
investments.
(m) Net Loss Per Share
Net loss per share is based upon the weighted average number of common
shares outstanding during the period. Common equivalent shares have been
excluded from the computation of net loss per share, as their effect would have
been anti-dilutive. Common equivalent shares result from the assumed exercise of
outstanding stock options, warrants and convertible preferred stock, the
proceeds of which are then assumed to have been used to repurchase outstanding
common stock using the treasury stock method.
For purposes of computations of net loss per share, the distribution of one
share of Marcam Solutions common stock for each two shares of Marcam Corporation
common stock in connection with the Distribution was reflected as a 2-for-1
reverse stock split occurring on July 29, 1997. Accordingly, historical net loss
per share and weighted average shares outstanding have been restated to present
this stock split.
(n) New Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued which will require the Company to
present basic and diluted earnings per share ("EPS"). Basic EPS, which replaces
primary EPS, excludes dilution and is computed by dividing income applicable to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the
44
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
entity. Diluted EPS is computed similarly to fully diluted EPS under
existing rules. SFAS 128 requires restatement of all prior period earnings per
share data presented. The Company will adopt SFAS 128 in the first quarter of
fiscal 1998. The adoption will have limited impact on the Company's financial
statements, since restated EPS amounts will be identical to historical amounts
for the periods presented in the accompanying Financial Statements.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), was issued which requires
businesses to disclose comprehensive income and its components in general
purpose financial statements, with reclassification of prior period financial
statements. SFAS 130 is effective for fiscal periods beginning after December
15, 1997 and its adoption is not expected to have a material impact on the
Company's disclosures.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), was issued which redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about a
company's operating segments. SFAS 131 is effective for fiscal periods beginning
after December 15, 1997 and its adoption may require additional disclosure of
the Company's historical financial data.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company will adopt the guidelines of SOP 97-2 as of
October 1, 1998 and has not yet determined the impact of adoption.
(4) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides reserves for customer receivable balances which are
considered potentially uncollectible. The Company's allowance for doubtful
accounts amounted to $2,037,000, $2,472,000 and $3,005,000 at September 30,
1997, 1996 and 1995, respectively. The provision charged to bad debt expense,
which is generally included in selling and marketing expenses, was $3,820,000,
$3,828,000 and $1,449,000 for fiscal 1997, 1996 and 1995, respectively, and
write-offs against the allowance were $2,598,000, $4,361,000 and $1,374,000 for
fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, $1,657,000 of the
allowance was transferred to MAPICS, Inc. in connection with the Distribution
described in Note 2.
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30,
1997 1996
-----------------------
(In thousands)
Furniture and fixtures $ 2,742 $ 3,198
Computer equipment and software 18,635 23,523
Leasehold improvements 1,431 2,033
--------- --------
22,808 28,754
Accumulated depreciation and amortization (16,584) (17,800)
--------- --------
$ 6,224 $ 10,954
========= ========
45
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
The carrying value of assets under capital leases included in the above was
$612,000 and $973,000 at September 30, 1997 and 1996, respectively, which was
net of accumulated amortization of $586,000 and $415,000 at September 30, 1997
and 1996, respectively. In connection with the Distribution described in Note 2,
property and equipment with a net book value of $3,188,000 was transferred to
MAPICS during fiscal 1997.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of:
September 30,
1997 1996
--------------------
(In thousands)
Accrued commissions and royalties $ 3,892 $ 13,938
Accrued payroll and related expenses 6,468 7,376
Accrued restructuring cost 3,548 4,577
Accrued taxes 5,747 5,894
Other 9,802 9,487
-------- --------
$ 29,457 $ 41,272
======== ========
In connection with the Distribution described in Note 2, accrued expenses
and other current liabilities of $13,691,000 were transferred to MAPICS in
fiscal 1997.
Restructuring and other charges reflected in the statements of operations
consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
----------------------------------
(In thousands)
<S> <C> <C> <C>
Restructuring charges $ 4,210 $ 10,600 $ 28,756
Write-off of capitalized software costs 11,125 - -
Spin-off costs incurred in the Distribution 3,840 - -
-------- -------- --------
$ 19,175 $ 10,600 $ 28,756
======== ======== ========
</TABLE>
1997 Charges
During the third quarter of 1997, the Company's business and operating
expense structure were reviewed to identify opportunities for cost reductions,
and actions were initiated to reduce operating expenses. As a result of these
actions as well as an assessment of capitalized software costs and the costs
associated with the Distribution, the Company recorded restructuring and other
charges in the third and fourth quarters of 1997 totaling $19,175,000. Of this
amount, approximately $1,710,000 related principally to reductions in staffing
(approximately 100 employees) throughout the business, except the Protean and
Avantis development organizations; $1,500,000 related to the closure of certain
European facilities, including associated write-offs of property and equipment
and lease cancellation costs; and $1,000,000 related to other restructuring
actions.
An additional $11,125,000 of the fiscal 1997 charge related to the
write-off of the capitalized software development costs related to the Protean
and Avantis.Pro product lines. This write-off resulted from lower than expected
revenue from these product lines during fiscal 1997 and the continuing
uncertainty regarding market acceptance of, and significant revenue generation
from, these product lines in the near future.
46
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
The charge also included costs of $3,840,000 incurred in connection with
the Distribution. See Note 2.
Approximately $7,770,000 of the 1997 charges has resulted or is expected to
result in cash expenditures. As of September 30, 1997, $2,379,000 related to the
restructuring charges remained in accrued liabilities. Management believes that
this remaining balance will be adequate to cover future expenditures associated
with the 1997 restructuring actions and expects that nearly all of the
restructuring actions will be completed by the end of fiscal 1998.
1996 Charges
In the third and fourth quarters of 1996, the Company recorded
restructuring charges of $8,300,000 and $2,300,000, respectively. These charges
resulted from the Company's completion of a review of its operating expenses and
overall operations. As a result, the Company divested its MXP product line and
committed to the restructuring of global operations. Approximately $6,870,000 of
the total 1996 restructuring charges has resulted in or is expected to result in
cash expenditures. At September 30, 1997, $1,169,000 related to these charges
remained in accrued liabilities. Management believes that this remaining balance
will be adequate to cover future expenditures associated with the 1996
restructuring actions and expects that the restructuring actions will be
completed by the end of fiscal 1998.
Included in the 1996 restructuring charges was $5,500,000 associated with
the Company's decision to divest itself of the MXP product line, represented by
its Foresight Software, Inc. subsidiary. This charge represented the net loss
incurred in connection with the disposition of the stock of Foresight Software,
Inc. in a sale effective as of June 30, 1996, as well as additional costs of
divestiture. The Company received a promissory note, as revised, in the amount
of $1,847,000 from Foresight Software, Inc. and may be entitled to future
royalties. The Company will recognize the proceeds from the note and any future
royalties as cash payments are received, due to the uncertainty of collection.
The results of operations for fiscal 1996 and 1995 of Foresight Software, Inc.
and the net assets divested were immaterial to the Company's consolidated
results of operations and financial position.
The remaining $5,100,000 of the 1996 restructuring charges related to the
conversion of certain direct sales operations in the Asia Pacific region and in
Latin America to affiliate distribution channels and a headcount reduction in
Europe and North America. Of this amount, $570,000 related to the cost of
customer commitments, $1,990,000 related to employee severance payments for
approximately ninety employees, $1,370,000 related to lease cancellations and
other costs, and $1,170,000 related to the write-off of certain related fixed
assets and intangible assets.
1995 Charges
In September 1995, the Company recorded a restructuring charge of
$28,756,000 related to the cessation of development of the PRISM Client/Server
product line, intangible asset write-offs, staffing reductions, the
consolidation of certain facilities and reorganization of the MXP product
organization. This charge reflected costs of approximately $9,100,000 associated
with the decision to discontinue PRISM Client/Server development, including
resulting customer commitments and the write-off of previously capitalized
software. The charge also reflected costs of $16,300,000 associated with the
write-off of capitalized software and other intangible assets, the future values
of which were impaired by restructuring actions or were not supported due to
changes in business outlook. The charge includes $2,300,000 related to the
closure or consolidation of certain European facilities, including related
write-offs of property and equipment, and $1,100,000 related to the headcount
reduction of forty employees. As of September 30, 1997, no amounts remained in
accrued liabilities related to this charge and expenditures associated with the
1995 restructuring actions are complete.
47
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(7) LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
1997 1996
----------------------
(In thousands)
<S> <C> <C>
9.82% unsecured Subordinated Notes due April 30, 2001,
interest only payments of $1,227,500 due semi-annually
on April 30 and October 31 of each year until maturity $ - $ 25,000
Capital leases 624 1,156
------ ----------
Total debt 624 26,156
Less current maturities 306 392
------ ----------
Long-term debt $ 318 $ 25,764
====== ==========
</TABLE>
In May 1994, the Company issued to institutional investors $25,000,000 of
9.82% unsecured Subordinated Notes due April 30, 2001 (the "Subordinated Notes")
and warrants to purchase 383,333 shares of the Company's common stock. See Note
10.
In July 1997, in connection with the Distribution, MAPICS assumed and
repaid the Subordinated Notes. The repayment resulted in an extraordinary loss
to Marcam Solutions of $3,009,000 related to the early extinguishment of this
debt. The extraordinary loss included prepayment penalties of $1,750,000 and the
write-off of deferred financing costs approximating $1,259,000. No tax benefit
was recognized for the extraordinary loss due to the uncertainty of realizing
that benefit.
On July 25, 1997, Marcam Corporation's $20,000,000 credit facility was
terminated.
48
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(8) INCOME TAXES
The components of the provision for income taxes are as follows:
Year Ended September 30,
1997 1996 1995
------- ------ -------
(In thousands)
Federal:
Current $ - $ - $ -
Deferred - - (390)
------- ------ -------
Total - - (390)
------- ------ -------
State:
Current 33 - -
Deferred - - -
------- ------ -------
Total - - -
------- ------ -------
Foreign:
Current 5,234 4,975 3,344
Deferred (67) (389) (320)
------- ------ -------
Total 5,167 4,586 3,024
------- ------ -------
Total: $ 5,200 $4,586 $ 2,634
======= ====== =======
The components of income (loss) from domestic and foreign operations before
provision for income taxes are as follows:
Year Ended September 30,
1997 1996 1995
------- ------ -------
(In thousands)
Domestic $(41,863) (25,593) $(31,173)
Foreign 180 3,853 (550)
-------- -------- --------
Total $(41,683) $(21,740) $(31,723)
======== ======== ========
The Company's effective income tax rates of 12.5%, 21.1% and 8.3% for the
years ended September 30, 1997, 1996 and 1995, respectively, differ from the
expected income taxes for those years calculated by applying the Federal
statutory rate of 34% to loss before income taxes as follows:
49
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
---------- ---------- -----------
(In thousands)
<S> <C> <C> <C>
Expected tax benefit $ (14,172) $ (7,392) $ (10,786)
Losses not benefited 12,723 8,503 9,078
Tax effect of foreign activities 4,006 3,272 4,131
Foreign taxes incurred in the Distribution 1,100 - -
Non-deductible expenses 1,489 - -
Other 54 203 211
--------- ---------- -----------
$ 5,200 $ 4,586 $ 2,634
========= ========== ===========
</TABLE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the net deferred income tax liability at September 30, 1997 and 1996 relate to
the following:
September 30,
1997 1996
---------------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 101 $ 16,879
Foreign, research and experimentation
and other tax credits 532 6,903
Deferred revenue 2,391 3,572
Restructuring reserves 860 2,946
Other reserves 156 1,046
Intangible assets - 593
Accrued vacation 345 358
Other 1,832 1,804
------- --------
6,217 34,101
Less: Valuation reserve (5,831) (25,639)
------- --------
Net deferred tax assets 386 8,462
Deferred tax liabilities:
Capitalized software (731) (8,813)
Other (349) (410)
------- --------
(1,080) (9,223)
------- --------
Net deferred tax liabilities $ (694) $ (761)
======= ========
In assessing the realizability of deferred assets, management considers
whether it is more likely than not that some or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and other matters in making this assessment. As a result of its evaluation of
these factors, at September 30, 1997, management recorded a valuation reserve
for deferred tax assets of $5,831,000. The decrease in 1997 of gross deferred
tax assets resulted from the transfer of deferred tax assets, principally
consisting of the net tax operating losses, foreign tax credits, and other tax
credit carryforwards to MAPICS in connection with the
50
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
Distribution (See Note 2). The decrease in the deferred tax liability arose from
the write-off of previously capitalized software costs related to restructuring
activities and the transfer of assets for book purposes to MAPICS in connection
with the Distribution (Note 6).
At September 30, 1997, the Company had operating loss carryforwards of
approximately $250,000, foreign tax credit carryforwards of approximately
$360,000, and research and experimentation credit carryforwards of approximately
$170,000, expiring between 2002 and 2012. The current year net operating loss
includes amounts related to stock option exercises, the benefit of which will be
allocated to additional paid-in capital when realized.
Pursuant to the tax sharing agreement between Marcam Solutions and MAPICS,
Marcam Solutions is generally responsible for certain state and local non-income
taxes and certain foreign income taxes for periods ending on or before the date
of the Distribution. MAPICS is generally responsible for all other taxes for
such periods, including any tax payments arising out of the Distribution. The
Company's tax provision for the year ended September 30, 1997 includes foreign
income taxes of $1,100,000 related to the sale for tax purposes of foreign
assets in connection with the Distribution.
A provision has not been made for U.S. or additional foreign taxes on
$4,400,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S., because the Company plans to keep
these amounts permanently reinvested overseas.
(9) COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain equipment and office space under noncancelable
agreements and leases which expire at various dates through 2004. At September
30, 1997, future minimum lease payments under noncancelable operating and
capital leases were as follows:
<TABLE>
<CAPTION>
Operating leases Capital leases
---------------- --------------
(In thousands)
<S> <C> <C>
Year ending September 30:
1998 $6,256 $ 385
1999 3,547 209
2000 1,299 53
2001 991 49
2002 691 -
Thereafter 629 -
------- -----
Total minimum lease payments $13,413 $ 696
=======
less amounts representing interest (annual rates
ranging from 6% to 12%) (72)
-----
Present value of minimum capital lease obligations 624
less current maturities (306)
-----
Capital lease obligations, less current maturities $ 318
=====
</TABLE>
Total rental expense charged to operations was $6,934,000, $9,087,000 and
$13,998,000 for 1997, 1996 and 1995, respectively.
51
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
Litigation
On May 20, 1996, the Company entered into a definitive agreement to settle
the shareholder class action litigation brought against the Company and certain
of its former officers. An order of Final Approval and Final Judgment and an
Order of Dismissal was issued by the Federal District Court in Massachusetts.
The litigation, which was brought in August 1994, alleged violations of federal
securities law. Of the $5,750,000 settlement, the Company contributed $2,750,000
from its own funds, with the remainder provided by insurance. The Company
recorded a charge of $3,250,000 in the second quarter of fiscal 1996 to cover
the settlement and other expenses incurred in connection therewith.
The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. While the outcome of these matters
cannot be predicted with certainty, management does not believe the outcome of
any of these other legal matters will have a material adverse effect on the
Company's financial position or results of operations.
(10) STOCKHOLDERS' EQUITY
As described in Note 2, on July 29, 1997, Marcam Corporation spun off in a
tax free distribution to its stockholders the stock of Marcam Solutions, Inc.,
representing its business related to its PRISM, Protean and Avantis product
lines. In the Distribution, each stockholder of Marcam Corporation received one
share of Marcam Solutions common stock shares for each two shares of Marcam
Corporation common stock held and five shares of Marcam Solutions common stock
for each share of Marcam Corporation preferred stock held. Each holder of an
outstanding stock option to purchase shares of Marcam Corporation common stock
retained such Marcam Corporation option, which after the Distribution became an
option to purchase the same number of shares of MAPICS common stock, and was
granted an option to purchase shares of Marcam Solutions common stock equal to
one-half of the number of shares of Marcam Corporation common stock subject to
such Marcam Corporation option. Warrants outstanding at the Distribution date
were similarly modified or were transferred to MAPICS, Inc.
(a) Preferred Stock
In September 1995, Marcam Corporation issued and sold 225,000 shares of
Series D Convertible Preferred Stock, par value $1.00 per share, for an
aggregate purchase price of $22,500,000. In July 1996, Marcam Corporation issued
and sold 100,000 shares of Series E Convertible Preferred Stock, par value $1.00
per share, for an aggregate purchase price of $9,500,000, and warrants to
purchase an aggregate of 1,000,000 shares Marcam Corporation common stock for an
aggregate purchase price of $500,000. In connection with the Distribution in
Note 2, 325,000 shares of Series D and Series E preferred stock were converted
into 1,625,000 shares of Marcam Solutions common stock (See Note 10(e) regarding
warrants).
Marcam Solutions is authorized to issue 5,000,000 shares of Preferred
Stock, $0.01 par value per share.
(b) Stock Option Plans
The 1987 Marcam Corporation Stock Plan (the "1987 Plan") provided that the
Board of Directors may grant incentive options to key employees and
non-qualified options and stock awards to officers, employees, and consultants
to purchase up to 1,750,000 shares of the Company's common stock. Incentive
stock options were granted at not less than the fair market value of the common
stock at the time of the grant. Non-qualified options were granted at not less
than the lesser of the book value per share of common stock as of the end of the
fiscal year
52
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
of Marcam Corporation immediately preceding the date of such grant or 50%
of the fair market value of the common stock at the time of the grant. Under the
1987 Plan, an aggregate of 120,000 shares of restricted common stock were
granted to various individuals; 10,000 of which were issued in fiscal 1995.
These grants became 50% vested in 4-1/2 years and 100% vested in 5-1/2 years
according to their original vesting schedules. In fiscal 1997 and 1996, grants
representing 10,000 and 45,000 shares of restricted common stock were canceled,
respectively. The Company's ability to grant additional options under the 1987
Plan expired on December 31, 1996.
The Marcam Corporation 1991 Non-Employee Director Stock Option Plan, as
amended, provided for the issuance of options to purchase up to 210,000 shares
of common stock to eligible members of Marcam Corporation's Board of Directors
who were neither employees nor officers of Marcam Corporation.
The Marcam Corporation 1994 Stock Plan (the "1994 Plan"), as amended,
provided that the Board of Directors may grant incentive options to key
employees and non-qualified options and stock awards to officers, employees and
consultants to purchase up to 2,000,000 shares of Marcam Corporation common
stock. Incentive stock options were granted at not less than the fair market
value of the common stock at the time of the grant. Non-qualified options were
granted at not less than the lesser of the book value per share of common stock
as of the end of the fiscal year of Marcam Corporation immediately preceding the
date of such grant or 50% of the fair market value of the common stock at the
time of the grant. Under the 1994 Plan, an aggregate of 6,000 and 30,000 shares
of restricted common stock were granted to various individuals in fiscal years
1996 and 1995, respectively. These grants became 50% vested in 4-1/2 years and
100% vested in 5-1/2 years, according to their original vesting schedules.
In a prior fiscal year, the Marcam Corporation Board of Directors
authorized options to purchase 25,260 shares of Marcam Corporation common stock
which were granted outside of the three then-existing stock option plans.
In June 1997, the Marcam Solutions Board of Directors adopted the Marcam
Solutions 1997 Stock Plan (the "1997 Plan"). The 1997 Plan provides that the
Board of Directors may grant incentive options to key employees and
non-qualified options and stock awards to officers, employees and consultants to
purchase up to 2,500,000 shares of the Company's common stock. Incentive stock
options must be granted at not less than the fair market value of the common
stock at the time of the grant. The exercise price of non-qualified stock
options may be less than the fair market value of the common stock on the date
of grant, but in no case may the exercise price be less than the statutory
minimum. Options under the 1997 Plan generally vest over a 4 or 5 year period
and expire ten years from the date of grant.
In June 1997, the Marcam Solutions Board of Directors adopted the Marcam
Solutions Inc. 1997 Non-Employee Director Stock Option Plan (the "Directors
Plan"). The Directors Plan provides for the issuance of options to purchase up
to 160,000 shares of common stock to eligible members of the Company's Board of
Directors who are neither employees nor officers of the Company. The options
must be granted at not less than the fair market value of the common stock on
the date of grant. Options under the Directors Plan vest over a 4 year period
and expire ten years from the date of grant.
Immediately prior to the Distribution, on July 29, 1997 options to purchase
an aggregate of 2,601,561 shares of Marcam Corporation common stock were held by
employees, consultants and directors of Marcam Corporation under the stock
option plans. In connection with the Distribution, each holder of an outstanding
stock option to purchase shares of Marcam Corporation common stock (i) retained
such Marcam Corporation option, which after the Distribution became an option to
purchase the same number of shares of MAPICS common stock (the "Adjusted MAPICS
Options"), and (ii) was granted an option to purchase shares of Marcam Solutions
common stock equal to one-half of the number of shares of Marcam Corporation
common stock subject to such Marcam Corporation option (the "Adjusted Marcam
Solutions Option"). The current exercise price of the Marcam Corporation options
was allocated between the Adjusted MAPICS Options and the Adjusted Marcam
Solutions options on a basis intended to preserve the "spread" value of the
existing Marcam Corporation options. As adjusted, each of the two options had
53
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
the same ratio of exercise price per option to the market value per share, the
same vesting provisions, option periods and other terms and conditions and,
in the aggregate, the same difference between the market value and exercise
price as reflected in the original Marcam Corporation option. Generally, each
adjusted stock option vests based on years of service with either Marcam
Solutions or MAPICS, Inc. pursuant to the Distribution agreement. Certain
modifications made by MAPICS, Inc. to an Adjusted MAPICS Option may require the
Company to make similar modifications to the related Marcam Solutions Option.
The table presented below reflects the activity and historical prices of
Marcam Corporation stock options for the periods from September 30, 1994 through
July 29, 1997, the date of the Distribution. As of July 29, 1997, the Marcam
Corporation stock options were modified and options in Marcam Solutions, Inc.
were issued as described above. The table reflects activity and adjusted prices
of stock options for the period following the Distribution through September 30,
1997:
Weighted
Number of Shares Average
Under Options Exercise Price($)
---------------- -----------------
Balance, September 30, 1994 1,436,081 16.23
Granted 577,289 10.47
Exercised (11,395) 9.48
Canceled (64,040) 15.44
----------
Balance, September 30, 1995 1,937,935 14.58
Granted 739,704 14.32
Exercised (112,789) 5.17
Canceled (455,371) 13.23
----------
Balance, September 30, 1996 2,109,479 15.28
Granted 783,870 12.50
Exercised (43,803) 8.80
Canceled (247,985) 13.37
----------
Balance, July 29, 1997 2,601,561 14.74
Modification of Marcam Corporation
Stock Options (1,313,280) 7.21
Granted 778,070 8.21
Exercised (58,270) 5.45
Canceled (35,596) 6.37
----------
Balance, September 30, 1997 1,972,485 7.76
==========
At September 30, 1997 and 1996, 605,881 and 623,254 options, respectively,
were exercisable under the Marcam Solutions stock option plans. Options for
578,745 shares were available for grant at September 30, 1997.
The following table summarizes information regarding stock options
outstanding at September 30, 1997:
54
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- -----------------------------
Weighted-
Average
Remaining Weighted Weighted
Number Contractual Average Number Average
Range of exercise prices Outstanding Life (years) Exercise Price Outstanding Exercise Price
- ------------------------ ----------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$0.50 750 1.6 $ 0.50 750 $ 0.50
$4.36 - $5.98 353,104 7.6 5.42 126,173 5.20
$6.10 - $7.62 576,783 8.1 6.98 161,780 6.74
$8.10 - $9.96 802,380 9.2 8.36 90,010 9.13
$10.00 - $11.58 238,018 5.2 11.09 225,718 11.10
$13.14 - $14.57 1,450 6.9 14.13 1,450 14.13
--------- -------
1,972,485 8.1 $ 7.76 605,881 $ 8.40
========= =======
</TABLE>
(c) Stock Purchase Plan
The 1990 Marcam Corporation Employee Stock Purchase Plan ("1990 Plan")
permitted each full-time employee, excluding those owning 5% or more of the
Company's stock, to purchase, at 85% of the lesser of beginning or end of period
fair market value, up to 500 shares of common stock for each six-month
period. A total of 600,000 shares of common stock were authorized for issuance
under the 1990 Plan. In fiscal years 1997, 1996 and 1995, 81,246, 86,440 and
100,638 shares were issued, respectively.
In June 1997, the Marcam Solutions Board of Directors adopted the 1997
Marcam Solutions Employee Stock Purchase Plan ("1997 Stock Purchase Plan") which
permits each full-time employee, excluding those owning 5% or more of the
Company's stock, to purchase, at 85% of the lesser of beginning or end of period
fair market value, up to 250 shares of common stock for each six-month period.
A total of 300,000 shares of common stock are authorized for issuance under the
1997 Stock Purchase Plan. No shares have been issued under this plan.
(d) Accounting for Stock Based Compensation
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("FAS 123"), was issued which required
the Company to elect either expense recognition under FAS 123 or its
disclosure-only alternative for stock-based employee compensation. No expense
for stock-based compensation was recorded during 1997 or 1996. The expense
recognition provision encouraged by FAS 123 requires fair-value based financial
accounting to recognize compensation expense for employee stock compensation
plans. The Company adopted FAS 123 in 1997 and elected the disclosure-only
alternative provisions. Had compensation costs for stock-based compensation
plans related to employees of Marcam Corporation prior to the Distribution and
employees of Marcam Solutions subsequent to the Distribution been determined
based on the fair value at the grant date as calculated in accordance with FAS
123, the Company's net loss and loss per share for the years ended September 30,
1997 and 1996 would have been as follows (in thousands except per share data).
Year Ended Year Ended
September 30, 1997 September 30, 1996
---------------------- ----------------------
As reported Pro forma As reported Pro forma
----------- --------- ----------- ---------
Net loss $(46,883) $(52,671) $(26,326) $(27,667)
Net loss per share $(7.77) $(8.73) $(4.63) $(4.86)
55
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
The fair value of stock-based compensation awards is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 1997 and 1996,
respectively: dividend yield of 0% and 0%; expected volatility of 55% prior to
the Distribution and 65% subsequent to the Distribution in 1997 and 55% in 1996;
risk-free interest rates of 6.23% and 5.68%; and expected lives of 5 years and 5
years. The weighted-average fair value of options granted during fiscal 1997 and
fiscal 1996 was $5.80 and $7.66, respectively. The weighted-average fair values
on the grant date of shares issued in connection with employee stock plans in
fiscal 1997 and fiscal 1996 was $4.38 and $3.70, respectively. The effects of
applying FAS 123 in this pro forma disclosure are not likely to be
representative of the effects on reported net income in future years. Additional
awards in future years are anticipated. FAS 123 does not apply to awards prior
to fiscal 1996. The 1997 pro forma compensation charge under FAS 123 included a
one-time charge of $3,034,000 related to the modification of options in
connection with the Distribution.
(e) Warrants
Warrants to purchase an aggregate of 383,333 shares of Marcam Corporation
common stock issued in connection with the Subordinated Notes were valued in May
1994 at $1,300,000 and were recorded as other assets and additional paid-in
capital. The asset was being amortized over the term of the subordinated debt.
The asset was expensed upon the prepayment of the Subordinated Notes (see Note
7). In connection with the Distribution, these warrants were transferred to
MAPICS, Inc. in fiscal 1997.
Warrants to purchase an aggregate of 1,000,000 shares of Marcam Corporation
Common Stock issued in connection with the issuance of the Series E Convertible
Preferred Stock (the "GA Warrants") were recorded as additional paid-in capital
in the amount of $500,000. The warrants may be exercised anytime between July
23, 1996 and July 23, 2003 and were originally priced at $15.36 per share. In
connection with the Distribution, the holders of the GA Warrants (i) retained
such GA Warrants, which after the Distribution became warrants to purchase
MAPICS common stock (the "MAPICS GA Warrants"), and (ii) received warrants to
purchase 500,000 shares of Marcam Solutions common stock (the "Marcam Solutions
GA Warrants"). The exercise price of the GA Warrants was allocated between the
MAPICS GA Warrants and the Marcam Solutions GA Warrants on a basis intended to
preserve the spread value of the original GA Warrants. The resulting exercise
price for the Marcam Solutions GA Warrants is $7.66 per share. No warrants have
been exercised as of September 30, 1997.
(f) Stockholder Rights Plan
On July 17, 1997, the Company's Board of Directors adopted a Stockholder
Rights Agreement. The new plan declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of common stock to
stockholders of record at the close of business on July 21, 1997. Each Right
entitles holders to purchase one one-thousandth of a share (a "Unit") of a new
series of junior participating preferred stock, par value $0.01 per share, at an
exercise price of $25 per Unit, subject to adjustment. The Rights become
exercisable for common stock only under certain circumstances and in the event
of particular events relating to a change in control of the Company. The Rights
may be redeemed by the Company under certain circumstances pursuant to the Plan.
The Rights expire on July 17, 2007 unless earlier redeemed or exchanged. The
Rights have certain anti-takeover effects, in that they would cause substantial
dilution to a person or group that attempts to acquire a significant interest in
the Company on terms not approved by the Board of Directors.
56
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(11) MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company had no customers which accounted for 10% or more of total
revenues in 1997, 1996 and 1995.
The Company markets its products worldwide. Revenues are grouped into three
main geographic segments: U.S., Europe and All Other. Financial data by
geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
U.S. Europe All Other Elimination Total
1997 -------- -------- --------- ----------- --------
- ----
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers $ 90,533 $ 44,227 $ 29,120 $ - $163,880
Transfers between geographic areas 3,248 - 2,298 (5,546) -
-------- -------- -------- ---------- --------
Total revenues 93,781 44,227 31,418 (5,546) 163,880
-------- -------- -------- ---------- --------
Net income (loss) (42,536) 1,908 3,006 (9,261) (46,883)
Identifiable assets 50,356 16,760 10,753 - 77,869
1996
Net sales to unaffiliated customers $119,021 $ 51,990 $ 30,413 $ - $201,424
Transfers between geographic areas 6,169 - 6,493 (12,662) -
-------- -------- -------- ---------- --------
Total revenues 125,190 51,990 36,906 (12,662) 201,424
-------- -------- -------- ---------- --------
Net income (loss) (24,662) 7,804 6,016 (15,484) (26,326)
Identifiable assets 94,135 28,399 9,668 - 132,202
1995
Net sales to unaffiliated customers $113,061 $ 48,102 $ 41,169 $ - $202,332
Transfers between geographic areas 7,637 - 6,811 (14,448) -
-------- -------- -------- ---------- --------
Total revenues 120,698 48,102 47,980 (14,448) 202,332
-------- -------- -------- ---------- --------
Net income (loss) (20,133) 1,485 11,128 (26,837) (34,357)
Identifiable assets 114,082 25,650 7,120 - 146,852
</TABLE>
(12) SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for income taxes and interest and non-cash investing and
financing activities for the years ended September 30, 1997, 1996 and 1995 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Cash paid during the years for:
Income taxes $ 3,645 $ 1,241 $ 159
Interest $ 2,256 $ 2,793 $ 2,295
Capital lease obligations incurred $ - $ 1,388 $ -
Assumption of Subordinated Notes by MAPICS, Inc. $ 25,000 $ - $ -
Increase in MAPICS software and intangible costs $ - $ - $ 1,184
Installment purchase of MAPICS product line $ - $ - $ 4,673
Assumption of obligation - - (4,673)
--------- ------- -------
Net cash paid $ - $ - $ -
========= ======= =======
</TABLE>
57
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(13) EMPLOYEE BENEFIT PLAN
In fiscal 1995, Marcam Corporation began to sponsor for eligible employees
a profit sharing retirement plan, and in fiscal 1997 Marcam Solutions began to
sponsor a similar plan (the "Plans"). In connection with the Distribution
described in Note 2, the Marcam Corporation plan was transferred to MAPICS, Inc.
The Plans were established under the provisions of Internal Revenue Code Section
401(k). Participants may defer a portion of their annual compensation on a
pre-tax basis. The Company may elect to make matching contributions based on a
percentage of employees' contributions, subject to limitations as defined in the
Plans. Company matching contributions amounted to $877,000, $431,000 and
$295,000 for the years ended September 30, 1997, 1996 and 1995, respectively.
(14) ACQUISITIONS
On February 26, 1993, the Company acquired from International Business
Machines Corporation ("IBM") the exclusive worldwide marketing rights to the
MAPICS product line for 25 years. The Company also acquired the option to
purchase the MAPICS product line and certain related intellectual property
rights. As part of the acquisition of the marketing rights, the Company expensed
$5,568,000 of in-process research and development costs and recorded $10,699,000
of intangible assets acquired, consisting principally of installed customer base
and affiliation networks, trade names and trademarks, and software technology.
The intangible assets were being amortized over their estimated useful lives of
5 to 15 years. At September 30, 1996, accumulated amortization related to MAPICS
intangible costs totaled $2,707,000. In connection with the Distribution, MAPICS
intangible costs with a net book value of $4,895,000 were transferred to MAPICS,
Inc.
On September 29, 1995, the Company acquired all of the outstanding stock of
Mapics, Inc. ("Mapics"), the company which owned the MAPICS product line. This
transaction was accounted for using the purchase method of accounting;
accordingly, the purchase price, which was immaterial, was allocated to assets
and liabilities based on their estimated fair values as of the date of
acquisition. As a result of the acquisition, no adjustment was recorded related
to the value of MAPICS intangible costs.
Prior to the acquisition of Mapics, Inc., the Company (i) recorded Mapics'
customer license renewal revenues as related party revenues; (ii) paid royalties
to Mapics generally based on license and maintenance revenues relating to the
MAPICS product line; and (iii) received from Mapics management fees based, in
part, on the operating results of Mapics. For financial reporting purposes, the
management fees were not recognized as revenue by the Company but instead were
treated as a reduction of the royalties the Company paid to Mapics. The net
royalties were recorded as product development expense to the extent Mapics
incurred such expenses, and the balance was recorded as cost of services
revenue. The amounts recorded for fiscal 1995 are as follows (in thousands):
Net payments by the Company to Mapics:
Royalties $24,682
Management fees (9,893)
-------
$14,789
=======
58
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
Expenses recorded by the Company:
Cost of services revenue $ 5,986
Product development 8,803
-------
$14,789
=======
The Company also incurred expenses in connection with certain management
services provided to Mapics which are not included in the table above.
(15) RELATED PARTY TRANSACTIONS
The Company has a number of marketing and product development relationships
with IBM. IBM has also purchased licenses for the Company's product for internal
use, as well as for marketing purposes. The Company has purchased certain
services, equipment and software licenses from IBM.
Under various agreements with the Company and its representatives, IBM
marketed the Company's products in cooperation with the Company and its
subsidiaries or representatives in several countries. In each case, the Company
or its representative paid IBM a fee for marketing the Company's products when a
sale was made with IBM's assistance. The fee was calculated as a percentage of
the license fees received by the Company and varied based on the agreement's
specific territories. The Company paid IBM aggregate fees of $547,000 in fiscal
1995.
IBM also markets and distributes some Marcam products on the Company's
behalf in certain geographies, including Europe, Latin America and Asia Pacific.
In fiscal years 1996 and 1995, the Company recorded royalties from IBM of
approximately $604,000 and $5,020,000, respectively, relating to sales of the
Company's products.
The Company also licenses products and provides services to IBM in the
ordinary course of business. During fiscal years 1996 and 1995, the Company
recognized an aggregate of approximately $409,000 and $185,000, respectively,
from licensing products and providing services to IBM. IBM also sells products
and provides services, including distribution and translation services, to the
Company in the ordinary course of business.
The Company's total revenues that were derived from transactions with IBM
were $1,100,000 and $5,364,000 for fiscal 1996 and 1995, respectively.
Transaction with IBM in 1997 were immaterial.
59
<PAGE>
Supplemental Financial Information
The following quarterly information is unaudited and, in the opinion of
management, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the operating results for each quarter.
The length of the Company's sales cycle, which typically ranges from three to
twelve months, and the timing of major contracts are factors in the variability
in quarterly results.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1997(G):
Revenues $45,747 $43,804 $44,042 $30,287 $163,880
Operating loss (1,394) (3,601) (24,817)(A) (6,755)(B) (36,567)
Loss before extraordinary item (3,095) (5,321) (26,977)(A) (8,481)(B) (43,874)
Net loss (3,095) (5,321) (26,977)(A) (11,490)(B) (46,883)
Loss per share before extraordinary item (.54) (.92) (4.70)(A) (1.23)(B) (7.27)
Net loss per share (F) (.54) (.92) (4.70)(A) (1.66)(B) (7.77)
1996:
Revenues $50,003 $47,426 $51,184 $52,811 $201,424
Operating income (loss) (1,433) (5,882)(C) (8,779)(D) 299 (E) (15,795)
Net loss (2,849) (10,759)(C) (10,582)(D) (2,136)(E) (26,326)
Net loss per share (F) (.50) (1.88)(C) (1.86)(D) (.39)(E) (4.63)
</TABLE>
(A) The Third Quarter 1997 results include restructuring and other charges of
$18,535, or $3.22 per share.
(B) Fourth Quarter 1997 results include other charges of $640, or $.09 per
share, and an extraordinary loss of $3,009, or $.43 per share.
(C) Second Quarter 1996 results include a litigation settlement charge of
$3,250, or $.58 per share.
(D) Third Quarter 1996 results include a restructuring charge of $8,300, or
$1.46 per share.
(E) Fourth Quarter 1996 results include a restructuring charge of $2,300, or
$.40 per share.
(F) Historical weighted average shares outstanding and net loss per share
have been restated for the Distribution, which has been presented, for
accounting purposes, as a 2-for-1 reverse stock split occurring on
July 29, 1997.
(G) See Note 2 of the Notes to Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Condition and Results
of Operations "Overview" for discussion of the Distribution occurring
on July 29, 1997, which is presented, in part for accounting purposes, as a
disposal of the business, assets and liabilities of the Company's
MAPICS product line.
Supplemental Pro Forma Financial Information
The following unaudited pro forma financial information for the fiscal
quarters during 1997 reflects how the disposition of the MAPICS business might
have affected the statements of operations if the disposition had occurred on
October 1, 1996. The pro forma financial information is presented as if Marcam
Solutions had been operated as a separate entity, principally by deducting the
operating results of MAPICS from the historical consolidated operating results
of Marcam Corporation. The pro forma data is for informational purposes only and
may not necessarily reflect future results of operations or what the results of
operations would have been had Marcam Solutions been operating as a separate
entity.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1997(D):
Revenues $22,368 $23,018 $22,045 $25,520 $92,951
Operating loss (7,187) (8,380) (29,678)(A) (6,842)(B) (52,087)
Loss before extraordinary item (8,767) (9,932) (31,698)(A) (7,733)(B) (58,130)
Net loss (8,767) (9,932) (31,698)(A) (10,742)(B) (61,139)
Net loss per share before extraordinary item (1.53) (1.73) (5.51)(A) (1.12)(B) (9.63)
Net loss per share (C) (1.53) (1.73) (5.51)(A) (1.55)(B) (10.13)
</TABLE>
(A) The Third Quarter 1997 results include restructuring and other charges of
$18,535, or $3.22 per share.
(B) Fourth Quarter 1997 results include other charges of $640, or $.09 per
share, and an extraordinary loss of $3,009, or $.43 per share.
(C) Historical weighted average shares outstanding and net loss per share
have been restated for the Distribution, which has been presented, for
accounting purposes, as a 2-for-1 reverse stock split occurring on
July 29, 1997.
(D) See Note 2 of the Notes to Consolidated Financial Statements and
Managements Discussion and Analysis of Financial Condition and Results
of Operations "Overview" for discussion of the Distribution occurring
on July 29, 1997, which is presented, in part for accounting purposes, as a
disposal of the business, assets and liabilities of the Company's
MAPICS product line.
60
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
61
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors will be set forth under the
captions "Election of Directors" and "The Board of Directors and its Committees"
in the Company's definitive proxy statement for its annual meeting of
stockholders to be held on February 25, 1998 which will be filed with the
Securities and Exchange Commission within 120 days of September 30, 1997, and is
incorporated herein by reference.
Information regarding the Company's executive officers is contained in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will appear under the caption "Executive
Compensation" in the Company's definitive proxy statement for its annual meeting
of stockholders to be held on February 25, 1998 which will be filed with the
Securities and Exchange Commission within 120 days of September 30, 1997, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will appear under the caption "Securities
Ownership of Certain Beneficial Owners and Management" in the Company's
definitive proxy statement for its annual meeting of stockholders to be held on
February 25, 1998 which will be filed with the Securities and Exchange
Commission within 120 days of September 30, 1997, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will appear under the caption "Certain
Relationships and Related Transactions" in the Company's definitive proxy
statement for its annual meeting of stockholders to be held on February 25, 1998
which will be filed with the Securities and Exchange Commission within 120 days
of September 30, 1997, and is incorporated herein by reference.
62
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements
The following are the consolidated financial statements of Marcam
Solutions, Inc. and its subsidiaries appearing elsewhere herein:
Report of Independent Accountants
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Operations for the Years Ended September
30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended September
30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(a)(2) List of Schedules
All other schedules to the consolidated financial statements are
omitted as the required information is either inapplicable or presented
in the consolidated financial statements or related notes.
(a)(3) List of Exhibits
The Exhibits which are filed with this report or which are
incorporated by reference are set forth in the Exhibit Index hereto.
(b) Reports on Form 8-K:
None
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 23rd day of December,
1997.
MARCAM SOLUTIONS, INC.
/s/ Jonathan C. Crane
---------------------
Jonathan C. Crane
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
on this 23rd day of December, 1997 in the capacities indicated.
Signature Title(s)
- --------- --------
/s/ Jonathan C. Crane Chairman of the Board of Directors,
- ---------------------------- President and Chief Executive Officer
Jonathan C. Crane and Director (principal executive
officer)
/s/ Denis E. Liptak Chief Financial Officer (principal
- ---------------------------- financial and accounting officer)
Denis E. Liptak
/s/ John Campbell Director
- ----------------------------
John Campbell
/s/ William O. Grabe Director
- ----------------------------
William O. Grabe
/s/ Joseph M. Henson Director
- ----------------------------
Joseph M. Henson
/s/ Richard S. Hickok Director
- ----------------------------
Richard S. Hickok
/s/ Paul A. Margolis Director
- -----------------------------
Paul A. Margolis
/s/ Michael J. Quinlan Director
- -----------------------------
Michael J. Quinlan
/s/ Franchon M. Smithson Director
- -----------------------------
Franchon M. Smithson
64
<PAGE>
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.
<TABLE>
<CAPTION>
Exhibit No. Description SEC Document Reference
----------- ----------- ----------------------
<S> <C> <C>
2 Revised form of Distribution Agreement between the 000-22841
Registrant and MAPICS, Inc. Exhibit 2 to Form 10 dated July
15, 1997 as amended on July 22,
1997
3.1, 4.1 Certificate of Incorporation of the Registrant 333-29285
Exhibit 3.1
3.2, 4.2 By-laws of the Registrant 333-29285
Exhibit 3.2
4.3 Specimen certificate representing the Common Stock 333-29285
Exhibit 4.1
4.4 Form of Rights Agreement dated July 17, 1997, between the 000-22841
Registrant and The First National Bank of Boston, which Exhibit 4.2 to Form 10 dated
includes as Exhibit A the form of Certificate of July 15, 1997 as amended on
Designation of Preferred Stock, as Exhibit B the Form of July 22, 1997
Rights Certificate, and as Exhibit C the Summary of
Rights to Purchase Preferred Stock
4.5 Form of Warrant 000-22841
Exhibit 4.3 to Form 10 dated
July 15, 1997 as amended on
July 22, 1997
10.1 Revised form of General Services Agreement between 000-22841
MAPICS, Inc. and the Registrant Exhibit 10.1 to Form 10 dated
July 15, 1997 as amended on
July 22, 1997
10.2 Revised form of Tax Sharing between MAPICS, Inc. and the 000-22841
Registrant Exhibit 10.2 to Form 10 dated
July 15, 1997 as amended on
July 22, 1997
10.3 Marcam Solutions, Inc. 1997 Stock Plan 333-29285
Exhibit 10.5
10.4 Marcam Solutions, Inc. 1997 Non-Employee Director Stock 333-29285
Option Plan Exhibit 10.6
10.5 Lease by and between the Registrant and Dominic J. 33-3566
Saraceno, as amended, dated June 13, 1988 Exhibit 10.7
<PAGE>
10.6 Second and Third Amendments, each dated as of August 29, 0-18674
1990,to Lease by and between Registrant and Dominic J. Exhibit 10.17 to Annual Report
Saraceno, as amended, dated June 13, 1988 on Form 10-K for the fiscal
year ended September 30, 1990
10.7 Fourth Amendment, dated June 30, 1992, to Lease by and 0-18674
between Registrant and Dominic J. Saraceno, as amended, Exhibit 10.19 to Annual Report
dated June 13, 1988 on Form 10-K for the fiscal
year ended September 30, 1992
10.8 Fifth Amendment, dated May 19, 1993, to Lease by and 0-18674
between Registrant and Dominic J. Saraceno, as amended, Exhibit 10.27 to Annual Report
dated June 13, 1988 on Form 10-K for the fiscal
year ended September 30, 1993
10.9 Letter Agreement dated June 10, 1997 by and among Marcam 000-22841
Corporation, the Registrant and Michael J. Quinlan Exhibit 10.1 to Quarterly
Report on Form 10-Q dated
August 22, 1997
10.10* Marcam/NEC Distribution Agreement between Marcam World 0-18674
Trade Corporation and NEC Corporation dated as of Exhibit 10.33 to Annual Report
March 31, 1995 on Form 10-K for the fiscal year ended September 30, 1995,
as amended
10.11* Marcam/NEC Technology Transfer and License Agreement by 0-18674
and between the Registrant and NEC Corporation dated as Exhibit 10.34 to Annual Report
of March 31, 1995 on Form 10-K for the fiscal
year ended September 30, 1995,
as amended
10.12 Form of Letter Agreement dated June 10, 1997 by and 000-22841
among Marcam Corporation, the Registrant and Messrs. Exhibit 10.2 to Quarterly
Ebling and Liptak and Ms. Clark Report on Form 10-Q dated
August 22, 1997
10.13 Letter Agreement dated October 23, 1997 by and between
the Registrant and Michael J. Quinlan
10.14 Memorandum dated November 17, 1997 regarding Compensation
Plan for fiscal year 1998 from the Registrant to
Mr. Ebling
10.15 1997 Employee Stock Purchase Plan, as amended.
11 Statement re: Computation of Earnings (Loss) Per Share
21 Subsidiaries of the Registrant
23 Consent of Coopers & Lybrand L.L.P.
<PAGE>
25 Power of Attorney
27 Financial Data Schedule
</TABLE>
- ----------------
* Confidential Treatment Granted
EXHIBIT 10.13
October 23, 1997
Mr. Michael J. Quinlan
755 Boylston Street
Boston, MA 02116
Dear Mike:
This letter sets forth our agreement regarding your resignation from Marcam
Solutions, Inc. (the "Company").
1. You will step down as President and Chief Executive Officer and an
officer of the Company, as well as an officer or director of any subsidiary of
the Company, effective November 17, 1997. You will remain an employee of the
Company through January 27, 1998 at which time you will resign as an employee of
the Company (the "Resignation Date"). You will remain a director of the Board of
the Company through a period to be mutually agreed.
2. From November 17, 1997 through the Resignation Date, you will
receive a base salary of $9,230.77 bi-weekly and remain eligible to participate
in the Company's then current benefits. You will not be eligible for any bonus
for performance during the Company's 1998 fiscal year. As of the Resignation
Date, your salary will cease and any entitlement you have or might have had
under any Company-provided bonus plan or benefit plan, program or practice will
terminate, except as required by federal or state law or as otherwise described
in this letter. The Resignation Date shall be treated as your "qualifying event"
under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and
you will receive COBRA information under separate cover.
3. On the date you sign this letter agreement, you will be granted an
incentive stock option to purchase 25,000 shares of Common Stock of the Company
under the Company's 1997 Stock Plan, at an exercise price equal to the fair
market value of the Common Stock on the date of the grant, and which will be
100% vested immediately.
4. As of the Resignation Date, all stock options (the "Options")
granted to you during your employment but not yet vested will be forfeited in
accordance with their terms. Any options granted to you during your employment
and vested as of the Resignation Date shall be governed by paragraph 5 of the
letter agreement dated June 10,
<PAGE>
1997 by and among you, Marcam Corporation and the Company (the "Letter
Agreement").
5. As of the Resignation Date, as a non-employee director, you will be
eligible to receive the then current cash compensation for each Board meeting
attended (currently $1000 per meeting) and to participate in the Company's
Non-Employee Director Stock Option Plan (the "Directors' Plan") under which you
will (i) automatically be granted an option to purchase 10,000 shares of Common
Stock of the Company in accordance with the Directors' Plan and (ii) be eligible
to automatically be granted an option to purchase 1,500 shares of Common Stock
of the Company on January 1 of each year as long as you are a current
non-employee director of the Company on such date.
6. Release by You. As a material inducement to the Company to enter
into this Resignation Agreement, you, for yourself and for your representatives,
agents, servants, executors, administrators, estates, heirs, successors and
assigns, except as otherwise provided herein, hereby fully, forever, irrevocably
and unconditionally release, remise and discharge the Company and its corporate
affiliates, the Company's officers, directors, stockholders, agents and
employees, both individually and in their official capacities, from any and all
claims, charges, complaints, money, costs, accounts, reckonings, covenants,
contracts, agreements, promises, doings, omissions, damages, executions,
obligations, liabilities, and expenses (including attorneys' fees and costs) of
every kind and nature which you ever had or now have against the Company and its
corporate affiliates, the Company's officers, directors, stockholders, agents
and employees, both individually and in their official capacities, whether based
on any federal or state law or regulation regarding either employment or
employment discrimination, including, but not limited to, all claims under Title
VII of the Civil Rights Act of 1964, 42 U.S.C. 12000e et seq.; the Age
Discrimination in Employment Act, 29 U.S.C. 1621 et seq.; M.G.L. c.151B, the
Americans with Disabilities Act, 29 U.S.C. 1706 et seq.; The Massachusetts Equal
Rights Act or the Massachusetts Civil Rights Act; wrongful discharge claims; any
contract claims, whether oral or written, express or implied; any claims for
back wages, salary, draws, commissions, bonuses, vacation pay, expenses,
compensation, or severance pay, or any other statutory or common law claims and
damages.
Release by the Company. As a material inducement to you to enter into
this Resignation Agreement, the Company, for itself and for its officers,
directors, stockholders, corporate affiliates, agents, employees, successors and
assigns, both individually and in their official capacities, except as otherwise
provided herein, hereby fully, forever, irrevocably and unconditionally
releases, remises and discharges you and your representatives, agents, servants,
executors, administrators, estates, heirs, successors and assigns from any and
all claims, charges complaints, money, costs, accounts, reckonings, covenants,
contracts, agreements, promises, doings, omissions, damages, executions,
obligations, liabilities, and expenses (including attorneys' fees and costs) of
every kind and nature which it or they ever had or now has against you or your
representatives, agents, servants, executors, administrators, estates, heirs,
successors and assigns, whether based on any federal or state law or regulation
or common law including
<PAGE>
without limitation any claims arising from any of your acts while you are or
were an officer, director or employee of the Company; any contract claims,
whether oral or written, express or implied; any claims for contribution or
indemnification, or any other statutory or common law claims and damages,
provided however, this release does not apply to the terms and conditions of the
Marcam Solutions Employee Agreement on Ideas, Inventions, Confidential
Information and Non-Competition (the "Employee Agreement") which you signed upon
the commencement of employment, a copy of which is attached to this Agreement,
and which shall survive the termination of your employment.
7. In addition, by your acceptance hereof, you acknowledge and
agree that:
(a) You have been informed that, since you are 40 years of age
or older, you have or might have specific rights and/or claims under the Age
Discrimination and Employment Act of 1967. In consideration of the compensation
described in this letter agreement, you specifically waive such rights and/or
claims to the extent such rights and/or claims arose prior to the date this
letter agreement was executed.
(b) You were advised by the Company of your right to consult
with an attorney prior to executing this Agreement.
(c) You were further advised when you were presented by the
Company with the original draft of this Agreement that you had at least 21 days
within which to consider its terms and consult with or seek advice from an
attorney or any other person of your choosing.
(d) By initialing below, you hereby acknowledge that you were
informed and understand that you had at least 21 days within which to consider
this letter agreement, have consulted with an attorney regarding this letter
agreement or have chosen not to consult with an attorney, and have considered
carefully every provision of this letter agreement, and that after having
engaged in those actions, prefer to and have requested that you enter into this
letter agreement prior to the expiration of the 21-day period discussed above.
/s/ MJQ 10/23/97
---------- ----------
Initial Date
8. The Company acknowledges (i) the exculpation and indemnification
granted to you as a director, officer and employee of the Company under the
Company's Certificate of Incorporation and (ii) that the Company agrees to
provide you with indemnification against any claims arising from your employment
as an officer or director of the Company in a manner consistent with and to the
maximum extent provided by the Company's Certificate of Incorporation and
By-Laws; and such indemnification provisions shall survive the termination of
your employment with the Company and after the
<PAGE>
termination of your service to the Company as an officer and/or director of the
Company or as a fiduciary of an employee benefit plan to the extent that such
indemnification provisions are applicable. The Company shall provide you with
full insurance coverage under such directors and officers liability insurance
policies as the Company shall maintain from time to time to the extent and for
the period of time that you serve or have previously served as a director and/or
officer of the Company.
9. You agree that you will not disclose or deliver to anyone, including
employees of the Company, except as authorized by the Company, or use in any way
other than in the Company's business as you are involved as a director of the
Company, any information or material relating to the business of the Company
(including information or materials received by the Company or its subsidiaries
from others) and intended by the Company to be kept in confidence by its
recipients. As used in this Agreement, the term "information" includes all
information concerning technical, administrative, management, financial, or
marketing activities (such as design, manufacturing and procurement
specifications, procedures, manufacturing processes, information processing
processes or programs, marketing plans and strategies, plans for future
development, customer and employee names or other data, and cost and financial
data) and the term "material" includes all physical embodiments of information
(such as drawings, specification sheets, recording media for machine information
processing systems, documentation of all types, contracts, reports, customer
lists, manuals, quotations, proposals, correspondence, and samples).
10. You acknowledge that irreparable injury might result to the
business and property of the Company in the event of your breach of any of the
agreements contained in this Agreement. You recognize further that, in the event
of such a breach, or the substantial likelihood that such a breach will occur,
the Company intends to take legal action, and to seek injunctive relief if
available, in accordance with the language and spirit of this Agreement, in
order to protect fully its interests and property.
11. The invalidity or unenforceability of any provision hereof or the
invalidity or unenforceability or any provision hereof as applied to a
particular occurrence or circumstance shall not affect the validity or
enforceability of any other provision hereof or any other application of any
such provision. If one or more of the provisions contained herein shall for any
reason be held to be excessively broad as to scope, activity, or subject matter
so as to be unenforceable at law, such provision(s) shall be construed and
reformed by the appropriate judicial body by limiting and reducing it (or them)
so as to be enforceable to the maximum extent compatible with the applicable law
as it shall then appear.
12. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts of the United States of
America, without giving effect to the principles of conflicts of law thereof.
<PAGE>
13. This letter agreement represents the complete and exclusive
agreement and understanding relating to the termination of your employment and
supersedes any and all prior agreement of understanding, written or oral,
between the Company and you with respect to the subject matter.
14. You represent that you have read this letter agreement, fully
understand the terms and conditions of this letter agreement, and are
voluntarily executing this letter agreement. In entering this letter agreement,
you do not rely on any representation, promise or inducement made by the
Company, with the exception of the consideration described in this letter
agreement.
15. This letter agreement may be executed in any number of
counterparts, each of which shall constitute an original, but which taken
together shall constitute one instrument.
16. You may revoke this letter agreement for a period of seven days
following its execution, and this letter agreement shall not become effective or
enforceable until this revocation period has expired.
Sincerely,
MARCAM SOLUTIONS, INC.
By: /s/ Paul A. Margolis
---------------------
Paul A. Margolis
Chairman of the Board
AGREED TO AND ACCEPTED:
By: /s/ Michael J. Quinlan
----------------------
Michael J. Quinlan
MEMORANDUM
DATE: November 17, 1997
TO: Tom Ebling
FROM: Jonathan Crane
RE: Fiscal 1998 Compensation
This memo describes your plan for Fiscal 1998. The term of your Plan is for the
period October 1, 1997 to September 30, 1998.
I. Base Salary
Your base salary will be US$175,000.00 annually paid in accordance with Marcam's
payroll policies.
II. Variable Bonus
Quarterly Measurement Factor
Your budgeted annual executive bonus is US$125,000.00 (US$31,250.00 per quarter)
for Fiscal 1998. In Fiscal 1998 your Executive Bonus will be paid as follows:
30% on the basis of APPROVED EXPENSE BUDGET ("Expenses"); 30% based on achieving
corporate EPS target,(as reported publicly); 40% on Deliverables. Calculation
and payment of your variable bonus will be on a quarterly basis. Your plan
consists of separate Quarterly Plans. Each Quarter's Plan stands alone. This
means that results from a quarter cannot be carried forward or backwards to
count toward another Quarter's Plan.
You are eligible to receive the quarterly portion of your executive bonus based
upon the quarterly achievement of the measurement factors (Exhibit 1) as
follows:
% of Budget Attainment % of Incentive per % of
Budget
0% - 49.99% 0%
50% - 99.99% 2.0% per 1.0%
100% - 150% 2.0% per 1.0%
Achievements over 150% of assigned targets will be rewarded by consideration for
additional Stock Option Grants at the conclusion of the Fiscal Year.
MARCAM CONFIDENTIAL
<PAGE>
III. Other
Termination/Resignation:
In the case of termination of employment your incentive compensation will be
payable as follows:
If termination/resignation occurs prior to the last day of the quarter, your
quarterly incentive bonus will be forfeited.
Marcam reserves the right to change this plan at any time within Marcam's sole
discretion.
Please sign both copies of this plan and return one signed copy to Melissa
Basteri, Newton Human Resources, for our records.
/s/ Tom Ebling
- -------------------------------
Tom Ebling
MARCAM CONFIDENTIAL
EXHIBIT 10.15
MARCAM SOLUTIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
Article 1 - Purpose.
This 1997 Employee Stock Purchase Plan (the "Plan") is intended as an
incentive to, and to encourage stock ownership by, all eligible employees of
Marcam Solutions, Inc., a Delaware corporation (the "Company"), and its
participating subsidiaries (as defined in Article 17) so that they may share in
the growth of the Company by acquiring or increasing their proprietary interest
in the Company. The Plan is designed to encourage eligible employees to remain
in the employ of the Company. It is intended that options issued pursuant to
this Plan will constitute options issued pursuant to an "employee stock purchase
plan" within the meaning of Section 423(b) of the Internal Revenue Code of 1986
(the "Code").
Article 2 - Administration of the Plan.
The Plan may be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee may select one of its members as Chairman, and
shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.
<PAGE>
Article 3 - Eligible Employees.
All employees of the Company or any of its participating subsidiaries
shall be eligible to receive options under this Plan to purchase the Common
Stock, and all eligible employees shall have the same rights and privileges
hereunder. Persons who are employed on the first day of any Payment Period (as
defined in Article 5) shall receive their options as of such day. Persons who
are employed after any date on which options are granted under this Plan shall
be granted options on the first date of the next succeeding Payment Period on
which options are granted to all eligible employees. Directors who are not
employees of the Company shall not be eligible to receive options under this
Plan. In no event may an employee be granted an option if such employee,
immediately after the option is granted, owns stock possessing five percent (5%)
or more of the total combined voting power or value of all classes of stock of
the Company or of any parent corporation or subsidiary corporations, as the
terms "parent corporation" and "subsidiary corporation" are defined in Section
424(e) and (f) of the Code. For purposes of determining stock ownership under
this paragraph, the rules of Section 424(d) of the Code shall apply, and stock
which the employee may purchase under outstanding options shall be treated as
stock owned by the employee.
For purposes of this Article 3, the term "employee" shall not include
an employee whose customary employment is twenty (20) hours or less per week or
whose customary employment is for not more than five (5) months in any calendar
year.
Article 4 - Stock Subject to the Plan.
The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued Common Stock, par value $.01 per share (the
"Common Stock"), or shares of such Common Stock reacquired by the Company,
including shares purchased in the open market. The aggregate number of shares
which may be issued pursuant to the Plan is 300,000, subject to adjustment as
provided in Article 12. In the event any option granted under the Plan shall
expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject thereto shall again be available under the Plan.
Article 5 - Payment Periods and Stock Options.
The six-month periods, commencing and ending on or about February 1 to
July 31 and August 1 to January 31, respectively, are Payment Periods during
which payroll deductions will be accumulated under the Plan. Payroll deductions
made from bonus and commission payments will be deemed accumulated under the
Plan during the Payment Period during which such payments are made. All other
payroll deductions will be deemed accumulated under the Plan during the Payment
Period during which the regular payroll
<PAGE>
period to which it relates ends. The first Payment Period under the Plan will
commence on August 25, 1997 and expire on January 31, 1998. For subsequent
Payment Periods, the Committee shall fix the commencement and termination dates
of each Payment Period at least fifteen (15) days prior to the commencement of
such Payment Period.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, a maximum of Five Hundred (500) shares, on
condition that such employee remains eligible to participate in the Plan
throughout such Payment Period. The participant shall be entitled to exercise
such option so granted only to the extent of the participant's accumulated
payroll deductions on the last day of such Payment Period. If the participant's
accumulated payroll deductions on the last day of the Payment Period would
enable the participant to purchase more than 500 shares except for the 500-share
limitation, the excess of the amount of the accumulated payroll deductions over
the aggregate purchase price of the 500 shares shall be promptly refunded to the
participant by the Company, without interest. The Option Price for each Payment
Period shall be the lesser of (i) 85% of the average market price of the Common
Stock on the first business day of the Payment Period, or (ii) 85% of the
average market price of the Common Stock on the last business day of the Payment
Period, in either event rounded up to avoid fractions of a dollar other than
1/4, 1/2 and 3/4. The foregoing limitation on the number of shares which may be
granted in any Payment Period and the Option Price per share shall be subject to
adjustment as provided in Article 12.
For purposes of this Plan, the term "average market price" on any date
means (i) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities exchange; or
(ii) the last reported sale price (on that date) of the Common Stock on the
Nasdaq National Market List, if the Common Stock is not then traded on a
national securities exchange; or (iii) the average of the closing bid and asked
prices last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market List. If the Common Stock is not publicly traded at the time an
option is granted under this Plan, "average market price" shall mean the fair
market value of the Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
For purposes of this Plan, the term "business day" means a day on which
there is trading on the Nasdaq National Market or on the aforementioned national
securities exchange, whichever is applicable pursuant to the preceding paragraph
and if neither is applicable, a day that is not a Saturday, Sunday or legal
holiday in The Commonwealth of Massachusetts.
No employee shall be granted an option which permits the employee's
right to
<PAGE>
purchase Common Stock under this Plan, and under all other Section 423(b)
employee stock purchase plans of the Company or any parent or subsidiary
corporations, to accrue at a rate which exceeds $25,000 of fair market value of
such stock (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time. The purpose of the
limitation in the preceding sentence is to comply with Section 423(b)(8) of the
Code. If the participant's accumulated payroll deductions on the last day of the
Payment Period would otherwise enable the participant to purchase Common Stock
in excess of the Section 423(b)(8) limitation described in this paragraph, the
excess of the amount of the accumulated payroll deductions over the aggregate
purchase price of the shares actually purchased shall be promptly refunded to
the participant by the Company, without interest.
Article 6 - Exercise of Option.
Each eligible employee who continues to be a participant in the Plan on
the last business day of a Payment Period shall be deemed to have exercised
his/her option on such date and shall be deemed to have purchased from the
Company such number of full shares of Common Stock reserved for the purpose of
the Plan as his/her accumulated payroll deductions on such date will pay for at
the Option Price, subject to the 500-share limit of the option and the Section
423(b)(8) limitation described in Article 5. If a participant is not an employee
on the last business day of a Payment Period, he/she shall not be entitled to
exercise his/her option. Only full shares of Common Stock may be purchased under
the Plan. Unused payroll deductions remaining in a participant's account at the
end of a Payment Period by reason of the inability to purchase a fractional
share will be carried forward to the succeeding Payment Period.
Article 7 - Authorization for Entering the Plan.
An employee may elect to enter the Plan by filling out, signing and
delivering to the Company an authorization:
A. Stating the percentage to be deducted regularly from the
employee's pay;
B. Authorizing the purchase of stock for the employee in each
Payment Period in accordance with the terms of the Plan; and
C. Specifying the exact name or names in which stock purchased
for the employee is to be issued as provided under Article 11 hereof.
Such authorization must be received by the Company at least ten (10)
days before the beginning date of the next succeeding Payment Period and shall
take effect only if the employee is an eligible employee on the beginning date
of such Payment Period.
<PAGE>
Unless an employee files a new authorization or withdraws from the
Plan, the deductions and purchases under the authorization the employee has on
file under the Plan will continue from one Payment Period to succeeding Payment
Periods as long as the Plan remains in effect.
The Company will accumulate and hold for the employee's account the
amounts deducted from his/her pay. No interest will be paid on these amounts.
Article 8 - Maximum Amount of Payroll Deductions.
An employee may authorize payroll deductions in an amount (expressed as
a whole percentage) not less than one percent (1%) but not more than ten percent
(10%) of the employee's total compensation, including base pay or salary and any
overtime, bonuses or commissions.
Article 9 - Change in Payroll Deductions.
Deductions may not be increased or decreased during a Payment Period.
However, an employee may withdraw in full from the Plan.
Article 10 - Withdrawal from the Plan.
An employee may withdraw from the Plan in whole but not in part, at any
time prior to the last business day of each Payment Period by delivering a
withdrawal notice to the Company, in which event the Company will promptly
refund the entire balance of the employee's deductions not previously used to
purchase stock under the Plan.
To re-enter the Plan, an employee who has previously withdrawn must
file a new authorization at least ten (10) days before the beginning date of the
next Payment Period in which he/she wishes to participate. The employee's
re-entry into the Plan cannot, however, become effective before the beginning of
the Payment Period following his/her withdrawal.
Article 11 - Issuance of Stock.
Certificates for stock issued to participants will be delivered as soon
as practicable after each Payment Period by the Company's transfer agent.
Stock purchased under the Plan will be issued only in the name of the
employee, or if his/her authorization so specifies, in the name of the employee
and another person of
<PAGE>
legal age as joint tenants with rights of survivorship.
Article 12--Adjustments.
Upon the happening of any of the following described events, an
optionee's rights under options granted under the Plan shall be adjusted as
hereinafter provided:
A. In the event shares of Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if, upon a
reorganization, split-up, liquidation, recapitalization or the like of the
Company, the shares of Common Stock shall be exchanged for other securities of
the Company, each participant shall be entitled, subject to the conditions
herein stated, to purchase such number of shares of Common Stock or amount of
other securities of the Company as were exchangeable for the number of shares of
Common Stock which such participant would have been entitled to purchase except
for such action, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or exchange; and
B. In the event the Company shall issue any of its shares as a
stock dividend upon or with respect to the shares of stock of the class which
shall at the time be subject to option hereunder, each participant upon
exercising such an option shall be entitled to receive (for the purchase price
paid upon such exercise) the shares as to which he/she is exercising his/her
option and, in addition thereto (at no additional cost), such number of shares
of the class or classes in which such stock dividend or dividends were declared
or paid, and such amount of cash in lieu of fractional shares, as is equal to
the number of shares thereof and the amount of cash in lieu of fractional
shares, respectively, which he/she would have received if he/she had been the
holder of the shares as to which he/she is exercising his/her option at all
times between the date of the granting of such option and the date of its
exercise.
Upon the happening of any of the foregoing events, the class and
aggregate number of shares set forth in Article 4 hereof which are subject to
options which have been or may be granted under the Plan and the limitations set
forth in the second paragraph of Article 5 shall also be appropriately adjusted
to reflect the events specified in paragraphs A and B above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A or B shall be made only
after the Committee, based on advice of counsel for the Company, determines
whether such adjustments would constitute a "modification" (as that term is
defined in Section 424 of the Code). If the Committee determines that such
adjustments would constitute a modification, it may refrain from making such
adjustments.
If the Company is to be consolidated with or acquired by another entity
in a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to
<PAGE>
options then outstanding under this Plan, either (i) make appropriate provision
for the continuation of such options by arranging for the substitution on an
equitable basis for the shares then subject to such options either (a) the
consideration payable with respect to the outstanding shares of the Common Stock
in connection with the Acquisition, (b) shares of stock of the successor
corporation, or a parent or subsidiary of such corporation, or (c) such other
securities as the Successor Board deems appropriate, the fair market value of
which shall not materially exceed the fair market value of the shares of Common
Stock subject to such options immediately preceding the Acquisition; or (ii)
terminate each participant's options in exchange for a cash payment equal to the
excess of (a) the fair market value on the date of the Acquisition, of the
number of shares of Common Stock that the participant's accumulated payroll
deductions as of the date of the Acquisition could purchase, at an option price
determined with reference only to the first business day of the applicable
Payment Period and subject to the 500-share, Code Section 423(b)(8) and
fractional share limitations on the amount of stock a participant would be
entitled to purchase, over (b) the result of multiplying such number of shares
by such option price.
The Committee or Successor Board shall determine the adjustments to be
made under this Article 12, and its determination shall be conclusive.
Article 13 - No Transfer or Assignment of Employee's Rights.
An employee's rights under the Plan are the employee's alone and may
not be transferred or assigned to, or availed of by, any other person other than
by will or the laws of descent and distribution. Any option granted under the
Plan to an employee may be exercised, during the employee's lifetime, only by
the employee.
Article 14 - Termination of Employee's Rights.
Whenever a participant ceases to be an eligible employee because of
retirement, voluntary or involuntary termination, resignation, lay-off,
discharge, death or for any other reason, his or her rights under the Plan shall
immediately terminate, and the Company shall promptly refund, without interest,
the entire balance of his or her payroll deduction account under the Plan.
Notwithstanding the foregoing, eligible employment shall be treated as
continuing intact while a participant is on military leave, sick leave or other
bona fide leave of absence, for up to 90 days, or for so long as the
participant's right to re-employment is guaranteed either by statute or by
contract, if longer than 90 days.
If an employee's payroll deductions are interrupted by any legal
process, a withdrawal notice will be considered as having been received from the
employee on the day the interruption occurs.
Article 15 - Termination and Amendments to Plan.
Unless terminated sooner as provided below, the Plan shall terminate on
June 12,
<PAGE>
2007. The Plan may be terminated at any time by the Company's Board of Directors
but such termination shall not affect options then outstanding under the Plan.
The Plan will terminate in any case when all or substantially all of the
unissued shares of stock reserved for the purposes of the Plan have been
purchased. If at any time shares of stock reserved for the purpose of the Plan
remain available for purchase but not in sufficient number to satisfy all then
unfilled purchase requirements, the available shares shall be apportioned among
participants in proportion to the amount of payroll deductions accumulated on
behalf of each participant that would otherwise be used to purchase stock, and
the Plan shall terminate. Upon such termination or any other termination of the
Plan, all payroll deductions not used to purchase stock will be refunded,
without interest.
The Committee or the Board of Directors may from time to time adopt
amendments to the Plan provided that, without the approval of the stockholders
of the Company, no amendment may (i) increase the number of shares that may be
issued under the Plan; (ii) change the class of employees eligible to receive
options under the Plan, if such action would be treated as the adoption of a new
plan for purposes of Section 423(b) of the Code; or (iii) cause Rule 16b-3 under
the Securities Exchange Act of 1934 to become inapplicable to the Plan.
Article 16 - Limits on Sale of Stock Purchased Under the Plan.
The Plan is intended to provide shares of Common Stock for investment
and not for resale. The Company does not, however, intend to restrict or
influence any employee in the conduct of his/her own affairs. An employee may,
therefore, sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable federal or state securities laws and
subject to any restrictions imposed under Article 21 to ensure that tax
withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY
MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
Article 17 - Participating Subsidiaries.
The term "participating subsidiary" shall mean any present or future
subsidiary of the Company, as that term is defined in Section 424(f) of the
Code, which is designated from time to time by the Board of Directors to
participate in the Plan. The Board of Directors shall have the power to make
such designation before or after the Plan is approved by the stockholders.
Article 18 - Optionees Not Stockholders.
Neither the granting of an option to an employee nor the deductions
from his/her pay shall constitute such employee a stockholder of the shares
covered by an option until
<PAGE>
such shares have been actually purchased by the employee.
Article 19 - Application of Funds.
The proceeds received by the Company from the sale of Common Stock
pursuant to options granted under the Plan will be used for general corporate
purposes.
Article 20 - Notice to Company of Disqualifying Disposition.
By electing to participate in the Plan, each participant agrees to
notify the Company in writing immediately after the participant transfers Common
Stock acquired under the Plan, if such transfer occurs within two years after
the first business day of the Payment Period in which such Common Stock was
acquired. Each participant further agrees to provide any information about such
a transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to participants and to the Company and
its participating subsidiaries.
Article 21 - Withholding of Additional Income Taxes.
By electing to participate in the Plan, each participant acknowledges
that the Company and its participating subsidiaries are required to withhold
taxes with respect to the amounts deducted from the participant's compensation
and accumulated for the benefit of the participant under the Plan, and each
participant agrees that the Company and its participating subsidiaries may
deduct additional amounts from the participant's compensation, when amounts are
added to the participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each participant further
acknowledges that when Common Stock is purchased under the Plan the Company and
its participating subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each participant agrees that such
taxes may be withheld from compensation otherwise payable to such participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the participant under Article 8
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any participant, then, notwithstanding any other provision
of the Plan, the Company may withhold such taxes from the participant's
accumulated payroll deductions and apply that net amount to the purchase of
Common Stock, unless the participant pays to the Company, prior to the exercise
date, an amount sufficient to satisfy such withholding obligations. Each
participant further acknowledges that the Company and its participating
subsidiaries may
<PAGE>
be required to withhold taxes in connection with the disposition of stock
acquired under the Plan and agrees that the Company or any participating
subsidiary may take whatever action it considers appropriate to satisfy such
withholding requirements, including deducting from compensation otherwise
payable to such participant an amount sufficient to satisfy such withholding
requirements or conditioning any disposition of Common Stock by the participant
upon the payment to the Company or such subsidiary of an amount sufficient to
satisfy such withholding requirements.
Article 22 - Governmental Regulations.
The Company's obligation to sell and deliver shares of the Common Stock
under this Plan is subject to the approval of any governmental authority
required in connection with the authorization, issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the Company
with respect to the Plan. For example, the Company may be required to identify
shares of Common Stock issued under the Plan on its stock ownership records and
send tax information statements to employees and former employees who transfer
title to such shares.
Article 23 - Approval of Stockholders; Effectiveness.
The Plan was adopted by the Board of Directors on June 13, 1997 and
was approved by the stockholders of the Company on July 17, 1997.
Article 24 - Governing Law.
The validity and construction of this Plan shall be governed by the
laws of the State of Delaware, without giving effect to the principles of
conflicts of law thereof.
<PAGE>
Date Plan adopted by Board of Directors: June 13, 1997
Date Plan approved by Stockholders: July 17, 1997
Amended by Board of Directors: December 4, 1997
Exhibit 11
Marcam Solutions, Inc.
Statement re Computation of Earnings (Loss) Per Share
In thousands (except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Loss $ (46,883) $ (26,326) $ (34,357)
--------- --------- ---------
PRIMARY LOSS PER SHARE
Common Stock:
Shares outstanding from beginning of period 5,716 5,636 5,560
Pro rata shares:
Exercise of stock options 15 44 5
Sales of common stock under employee stock
purchase plan 20 18 49
Stock grants issued/(canceled) (1) (6) 20
Preferred stock conversion 285 - -
--------- --------- ---------
Weighted average number of share outstanding 6,035 5,692 5,634
========= ========= =========
Net loss per share $ (7.77) $ (4.63) $ (6.10)
========= ========= =========
FULLY DILUTED LOSS PER SHARE
Common Stock:
Shares outstanding from beginning of period 5,716 5,636 5,560
Pro rata shares:
Exercise of stock options 15 44 5
Sales of common stock under employee stock
purchase plan 20 18 49
Stock grants issued/(canceled) (1) (6) 20
Preferred stock conversion 285 - -
--------- --------- ---------
Weighted average number of share outstanding 6,035 5,692 5,634
========= ========= =========
Net loss per share $ (7.77) $ (4.63) $ (6.10)
========= ========= =========
Note: Historical weighted average shares outstanding and net
loss per share have been restated for the Distribution,
which has been presented, in part for accounting purposes, as
a 2-for-1 reverse stock split occurring on July 29, 1997.
</TABLE>
Exhibit 21
Subsidiaries of Marcam Solutions, Inc.
Unless otherwise noted, the Company owns, directly or indirectly, 100%
of the outstanding voting securities of the following corporations
Jurisdiction of
Name Incorporation
---- ---------------
GmbH Holdings Corporation Delaware
MaCam K.K. Japan
Maincor Consulting Inc. Canada
Marcam Argentina S.A.(1) Argentina
Marcam Asia Pacific Pte. Ltd. Singapore
Marcam Australia Pty Limited Australia
Marcam do Brazil Sistemas Ltda. Brazil
Marcam Canada Corporation Canada
Marcam Canada Holding Corporation Canada
Marcam Europe Limited United Kingdom
Marcam Europe Middle East & Africa S.a.r.l. France
Marcam France S.a.r.l. France
Marcam GmbH Germany
Marcam International Sales Corporation Virgin Islands
Marcam Nederland B.V. Holland
Marcam Securities Corporation Massachusetts
Marcam Solutions Ltd. United Kingdom
Marcam UK Company United Kingdom
ShawWare, Inc. Oregon
- ------------------
(1) 1% owned by Gonzalo E. Caceres
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the Post-effective
Amendment No. 1 to the registration statement on Form S-4 of Marcam Solutions,
Inc. filed on Form S-8 of our report, dated October 24, 1997, on our audits of
the consolidated financial statements of Marcam Solutions, Inc. as of September
30, 1997 and 1996, and for each of the three years in the period ended
September 30, 1997, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 23, 1997
EXHIBIT 25
Marcam Solutions, Inc.
Annual Report of Form 10-K
Director and Officer Power of Attorney
The undersigned hereby constitutes and each appoints Jonathan C. Crane
and Diane R. Tormey, and each of them, with full power to act without the other,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead in any and all
capacities (until revoked in writing) to sign the Annual Report on Form 10-K for
the fiscal year ended September 30, 1997, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes as
he might or could do in person thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute, may
lawfully do or cause to be done by virtue hereof.
EXECUTED as of this 4th day of December, 1997.
/s/ Jonathan C, Crane /s/ John Campbell
- --------------------- -----------------
Jonathan C. Crane John Campbell
Chairman of the Board of Directors, President, Executive Vice President
Chief Executive Officer and Director and Director
/s/ William O. Grabe /s/ Joseph Henson
- -------------------- -----------------
William O. Grabe Joseph Henson
Director Director
/s/ Richard S. Hickok /s/ Paul A. Margolis
- --------------------- --------------------
Richard S. Hickok Paul A. Margolis
Director Director
/s/ Michael J. Quinlan /s/ Franchon Smithson
- ---------------------- ---------------------
Michael J. Quinlan Franchon Smithson
Director Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,474
<SECURITIES> 11,503
<RECEIVABLES> 26,310
<ALLOWANCES> 2,037
<INVENTORY> 0
<CURRENT-ASSETS> 68,889
<PP&E> 22,808
<DEPRECIATION> 16,584
<TOTAL-ASSETS> 77,869
<CURRENT-LIABILITIES> 55,995
<BONDS> 318
0
0
<COMMON> 75
<OTHER-SE> 20,787
<TOTAL-LIABILITY-AND-EQUITY> 77,869
<SALES> 66,390
<TOTAL-REVENUES> 163,880
<CGS> 14,636
<TOTAL-COSTS> 70,870
<OTHER-EXPENSES> 53,476
<LOSS-PROVISION> 3,820
<INTEREST-EXPENSE> 3,518
<INCOME-PRETAX> (38,674)
<INCOME-TAX> 5,200
<INCOME-CONTINUING> (43,874)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,009)
<CHANGES> 0
<NET-INCOME> (46,883)
<EPS-PRIMARY> (7.77)
<EPS-DILUTED> (7.77)
</TABLE>
