<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one):
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED MARCH 31, 1999
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________ to __________.
COMMISSION FILE NUMBER 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 02459
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 965-0220
--------------
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 / /
The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of May 12, 1999, was 7,818,087 shares.
<PAGE>
MARCAM SOLUTIONS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999
(unaudited) and September 30, 1998
Consolidated Statements of Operations (unaudited) for
the three and six months ended March 31, 1999 and
1998
Consolidated Statements of Cash Flows (unaudited) for
the six months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and qualitative disclosures about
market risk.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
1
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
MARCAM SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
--------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,191 $ 24,929
Short-term investments 3,769 3,131
Accounts receivable, net of allowances of $2,940 at
March 31, 1999 and $2,235 at September 30, 1998 23,618 29,623
Prepaid expenses and other current assets 4,040 4,335
--------- -------------
Total current assets 42,618 62,018
--------- -------------
Property and equipment, net 5,846 6,372
Computer software costs, net 235 917
Other assets 323 195
--------- -------------
Total assets $ 49,022 $ 69,502
--------- -------------
--------- -------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 6,191 $ 7,379
Accrued expenses and other current liabilities 27,278 28,652
Deferred revenue 19,908 16,051
--------- -------------
Total current liabilities 53,377 52,082
--------- -------------
Capital lease obligations 62 119
Deferred income taxes 100 99
--------- -------------
Total liabilities 53,539 52,300
--------- -------------
Commitments and contingencies (Note 4)
Stockholders' (deficit) equity:
Preferred stock, $.01 par value; 5,000 shares authorized -- --
Common stock, $.01 par value; 30,000 shares authorized; 7,817 78 77
and 7,740 shares issued and outstanding at March 31, 1999 and
September 30, 1998, respectively
Additional paid-in capital 145,001 144,604
Accumulated deficit (147,674) (126,597)
Cumulative translation adjustment (1,645) (882)
Notes receivable from officers (277) --
--------- -------------
Total stockholders' (deficit) equity (4,517) 17,202
--------- -------------
Total liabilities and stockholders' (deficit) equity $ 49,022 $ 69,502
--------- -------------
--------- -------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
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MARCAM SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License $ 8,119 $ 14,171 $ 14,452 $ 25,645
Services 21,000 16,878 40,763 33,512
------ ------ ------ ------
Total revenues 29,119 31,049 55,215 59,157
------ ------ ------ ------
Operating expenses:
Cost of license revenues 775 912 1,691 2,017
Cost of services revenues 15,376 11,667 30,250 23,421
Selling and marketing 10,430 9,312 21,170 18,848
Product development 8,155 7,901 16,103 15,385
General and administrative 1,794 1,568 3,360 3,094
Non-recurring charges 1,777 - 3,237 -
------ ------ ------ ------
Total operating expenses 38,307 31,360 75,811 62,765
------ ------ ------ ------
Operating loss (9,188) (311) (20,596) (3,608)
Interest and other income 258 886 660 1,585
Interest and other expense (738) (55) (666) (200)
------ ------ ------ ------
Income (loss) before income tax expense (9,668) 520 (20,602) (2,223)
Income tax expense (100) (500) (475) (1,100)
------ ------ ------ ------
Net income (loss) $ (9,768) $ 20 $ (21,077) $ (3,323)
------ ------ ------ ------
------ ------ ------ ------
Basic and diluted net income (loss) per share $ (1.25) $ 0.00 $ (2.71) $ (0.44)
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of basic common shares
outstanding 7,801 7,527 7,773 7,505
Weighted average number of diluted common shares
outstanding
7,801 7,621 7,773 7,505
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
MARCAM SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(21,077) $ (3,323)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization 2,587 2,705
Non-recurring charges, non-cash portion 1,296 --
Provision for bad debts 808 792
Deferred income taxes -- (23)
Changes in operating assets and liabilities:
Accounts receivable 3,218 (1,289)
Prepaid expenses and other assets (13) 31
Accounts payable (1,020) 971
Accrued expenses and other current liabilities (756) 298
Deferred revenue 3,744 (3,480)
-------- --------
Net cash used for operating activities (11,213) (3,318)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,453) (2,226)
Purchases of short-term investments (4,260) --
Proceeds from the sale of short-term investments 3,622 3,973
-------- --------
Net cash provided by (used for) investing activities (2,091) 1,747
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (283) (79)
Proceeds from common stock issued under Employee Stock
Purchase Plan 353 177
Loans to officers (277) --
Proceeds from stock option exercises 45 375
-------- --------
Net cash provided by (used for) financing activities (162) 473
-------- --------
Effect of exchange rate changes on cash and cash equivalents (272) (616)
-------- --------
Net decrease in cash and cash equivalents (13,738) (1,714)
Cash and cash equivalents at beginning of period 24,929 26,474
-------- --------
Cash and cash equivalents at end of period $ 11,191 $ 24,760
-------- --------
-------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
Marcam Solutions, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of Marcam
Solutions, Inc. ("Marcam Solutions" or the "Company") in this Form 10-Q have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "Commission"). As permitted by the rules
of the Commission applicable to quarterly reports on Form 10-Q, these notes are
condensed and do not contain all disclosures required by generally accepted
accounting principles. In the opinion of management, these financial statements
contain all adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the Company's financial position, results of
operations and cash flows as of the dates and for the periods indicated. While
management believes the disclosures presented are adequate to make these
financial statements not misleading, these financial statements should be read
in conjunction with Marcam Solutions' audited financial statements and related
notes included in the Marcam Solutions Annual Report on Form 10-K for the fiscal
year ended September 30, 1998.
The results of operations for the three and six months ended March 31, 1999
are not necessarily indicative of the results to be expected for the full year.
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 to revenue recognition for software transactions and
replaces Statement of Position 91-1. SOP 97-2 is effective for transactions
entered into in fiscal periods beginning after December 15, 1997. The Company
adopted the guidelines of SOP 97-2 as of October 1, 1998 and its adoption has
not had a material impact on the Company's financial position and results of
operations.
2) NON-RECURRING CHARGES
During the first quarter of fiscal 1999, the Company's business
operations and assets in Asia Pacific were reviewed to identify opportunities
for cost reductions, and actions were initiated to reduce operating expenses.
As a result of these actions, the Company recorded non-recurring charges
totaling $1.5 million in the quarter ended December 31, 1998. These charges
relate to the closure of certain Asia Pacific facilities and the termination
of the contractual relationship with one of the Company's primary Asia
Pacific affiliates. The charges primarily consist of the write-off of
receivables from such affiliate, which were considered to be uncollectible as
a result of these actions, and to a lesser extent the closure of certain
facilities, including associated write-offs of property and equipment and
lease cancellation costs.
During the second quarter of fiscal 1999, the Company recorded a $1.8
million restructuring charge for actions associated with the effort to reduce
future operating costs. The restructuring charge included approximately $1.6
million for employee severance and other costs related to the termination of
ninety-five employees, principally in North American development,
headquarters and field operations, and other costs of approximately $0.2
million. As of March 31, 1999, eighty of the ninety-five employees to be
terminated have left the Company. The remaining fifteen employees are
expected to leave during the third fiscal quarter of 1999. Payments of $0.4
million had been made in respect of these charges as of March 31, 1999. The
Company anticipates that substantially all of the remaining restructuring
costs will be paid in fiscal 1999.
5
<PAGE>
Marcam Solutions, Inc.
Notes to Consolidated Financial Statements
(unaudited)
3) BASIC AND DILUTED EARNINGS PER SHARE
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
based upon the weighted average number of common shares outstanding during
the period plus additional weighted average common equivalent shares
outstanding during the period. Common equivalent shares result from the
assumed exercise of outstanding stock options, the proceeds of which are then
assumed to have been used to repurchase outstanding common stock using the
treasury stock method. Common equivalent shares have been excluded from the
computation of diluted loss per share for the three-and-six-month periods
ended March 31, 1999 and the six-month period ended March 31, 1998,
respectively, as the effect of their inclusion would have been anti-dilutive.
The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computations shown on the Consolidated Statements
of Operations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
------------ ------------ ------------- ------------
BASIC EPS (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (9,768) $ 20 $ (21,077) $ (3,323)
Denominator:
Weighted average common shares outstanding 7,801 7,527 7,773 7,505
Basic EPS $ (1.25) $ 0.00 $ (2.71) $ (0.44)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
DILUTED EPS
Numerator:
Net income (loss) $ (9,768) $ 20 $ (21,077) $ (3,323)
Denominator:
Weighted average common shares outstanding 7,801 7,527 7,773 7,505
Weighted average incremental shares from
assumed conversion of stock options 0 94 0 0
----------- ----------- ----------- ----------
Adjusted weighted average common
shares outstanding 7,801 7,621 7,773 7,505
Diluted EPS $ (1.25) $ 0.00 $ (2.71) $ (0.44)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
Options to purchase 2,298,552, 2,290,413 and 2,291,758 weighted shares
of common stock outstanding during the three and six months ended March 31,
1999 and the six months ended March 31, 1998, respectively, were excluded
from the calculation of diluted earnings per share because the effect of
their inclusion would have been anti-dilutive. Options to purchase 2,189,946
shares of common stock during the three months ended March 31, 1998 were
excluded from the calculation of diluted earnings per share because the
exercise prices of those options and warrants exceeded the average market
price of common stock for the period reported.
4) COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims that 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 and adverse effect on the Company's
future financial position or results of operations.
6
<PAGE>
Marcam Solutions, Inc.
Notes to Consolidated Financial Statements
(unaudited)
Pursuant to the tax sharing agreement between Marcam Solutions and Marcam
Corporation (renamed MAPICS, Inc.) resulting from the spin-off of Marcam
Solutions, Inc. from Marcam Corporation in July 1997 (the "Distribution") (see
Marcam Solutions, Inc. Form 10-K for the year ended September 30, 1998), 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 responsible for all other taxes for such periods,
including any taxes arising out of the Distribution.
5) COMPREHENSIVE INCOME (LOSS)
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income."
This statement establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net loss or stockholders' (deficit) equity. The
Company's comprehensive earnings were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
---------- ------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) $ (9,768) $ 20 $ (21,077) $ (3,323)
Foreign currency translation adjustment (650) (202) (763) (459)
---------- ------- ---------- --------
Total comprehensive loss $ (10,418) $ (182) $ (21,840) $ (3,782)
---------- ------- ---------- --------
---------- ------- ---------- --------
</TABLE>
6) SUBSEQUENT EVENT
In April 1999, the Company entered into a credit facility with a financial
institution that provides a line of credit up to the lesser of $10.0 million
or a percentage of eligible receivables. Borrowings under the facility are
collateralized by all of the assets of the Company. Interest is at prime plus
0.5% (8.25% at April 30, 1999). As of April 30, 1999, the Company had not
borrowed under this facility but was eligible to borrow up to $10 million at
that date.
7
<PAGE>
PART I.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. MARCAM SOLUTIONS MAKES SUCH FORWARD LOOKING
STATEMENTS UNDER THE PROVISIONS OF THE "SAFE HARBOR" SECTION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. IN THIS QUARTERLY REPORT ON FORM 10-Q,
THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS," "FUTURE," "INTENDS," "MAY," AND
SIMILAR WORDS OR EXPRESSIONS (AS WELL AS OTHER WORDS OR EXPRESSIONS REFERENCING
FUTURE EVENTS, CONDITIONS OR CIRCUMSTANCES) IDENTIFY FORWARD LOOKING STATEMENTS.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, FLUCTUATIONS IN QUARTERLY RESULTS, PARTICULARLY
RESULTING FROM LENGTHY SALES CYCLES; THE VARIABLE SIZE AND TIMING OF THE
COMPANY'S TRANSACTIONS WITH CUSTOMERS AND RELATIVELY FIXED EXPENSES IN THE SHORT
TERM; SUCCESSFUL DEVELOPMENT AND ENHANCEMENT OF THE COMPANY'S PRODUCTS; DEMAND
FOR AND MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS; AVAILABILITY OF FUNDS FOR
THE CONTINUED FINANCING OF THE COMPANY'S OPERATIONS AND DEVELOPMENT ACTIVITIES;
THE PROPORTION OF REVENUES ATTRIBUTABLE TO LICENSE FEES VERSUS SERVICES FEES;
AND THE HIGHLY COMPETITIVE NATURE OF THE COMPANY'S MARKETS. FURTHER INFORMATION
ON POTENTIAL FACTORS THAT COULD AFFECT THE COMPANY'S FINANCIAL RESULTS ARE
INCLUDED IN FILINGS MADE BY THE COMPANY FROM TIME TO TIME WITH THE SECURITIES
AND EXCHANGE COMMISSION, INCLUDED IN THE SECTION ENTITLED "FACTORS AFFECTING
FUTURE PERFORMANCE" CONTAINED IN THE MARCAM SOLUTIONS, INC. ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 (FILE NO. 0-22841).
OVERVIEW
For the three months ended March 31, 1999, the Company recorded revenues of
$29.1 million and a net loss of $ 9.8 million. The net loss included an
operating loss, excluding non-recurring charges, of $7.4 million. The Company's
revenues for the three months ended March 31, 1999 were less than the Company
expected. The revenue shortfall, combined with the relatively fixed nature of
expenses over the short term, resulted in the loss.
During the three months ended March 31, 1999, the Company took
significant actions to reduce expenses. These actions were focused on cost
cutting measures designed to increase operational efficiencies. During
February 1999, the Company implemented a staff reduction program primarily
related to the severance of ninety-five employees, principally in North
American development, headquarters and field operations. Accordingly, the
Company recorded a restructuring charge of $1.8 million for the three months
ended March 31, 1999. The Company believes that substantially all of the
impact of the reduction will be seen in the operating results for the third
fiscal quarter of 1999. In addition, the Company continued with its plans to
reduce its Asia Pacific operations. The costs associated with these actions
were taken as a non-recurring charge in the three-month period ended
December 31, 1998.
The Company's revenues have historically been derived from licensing its
Protean, PRISM and Avantis product lines. Each of the Company's product lines
support different customers' technology strategies. The Protean product line,
which utilizes advanced object technology, tools and databases, is platform
independent. The PRISM product line provides 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. During
the three months ended March 31, 1999, license revenues from each of the
Company's product lines decreased compared to license revenues during the three
months ended March 31, 1998. The decrease in license revenues was the result of
the following factors: I) the Company's inability to generate sufficient revenue
from its investments in both its direct and indirect sales channels, in
particular within the North American Process enterprise resource planning (ERP)
geographic segment (described further below) and II) the overall decline in the
ERP software application market, which has in part been caused by a decrease in
customer demand, as many potential customers are focusing their efforts on the
internal resolution of Year 2000 software problems and are consequently not
currently focused on ERP or enterprise asset management (EAM) implementations.
8
<PAGE>
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. The Company has increased its
investment in its distribution channel in North America and Europe, as
evidenced by increased selling and marketing expenses, comparing the three
months ended March 31, 1999 to the same period in 1998. The Company's
aggressive investments in the distribution system have not yet matured, but
the Company still believes that such expenditures, primarily those related to
expanding the direct sales capacity, are critical to generating future
revenue growth. One of the Company's challenges will be to add sufficient
sales personnel and distributors, and then train and deploy them in time to
qualify and close business for the remaining quarters of fiscal 1999.
Therefore, the Company currently intends to maintain investments in its
distribution system, as its viability going forward will depend on the
success of that system.
During the quarter ended March 31, 1999, the Company continued efforts to
develop and enhance versions of its Avantis.Pro and Protean products, aimed at
making the products more competitive. The release of Protean 3.1 is currently
scheduled for release in June 1999. The Company also continued to invest not
only in the translation of its software into additional foreign languages, but
also in the integration of its products with a number of third-party software
packages.
Marcam Solutions also derives revenues from providing customer support and
consulting services. Customer support is offered to license customers generally
based on agreements that are billed annually, with revenues recognized on a
ratable basis during the contract period. Consulting 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. As the Company's
service business continues to be profitable, the Company expects to maintain
current investments in this area.
The Company believes continued increases in license revenues, primarily
Protean and Avantis.Pro, are required to offset the costs of growing the
distribution channel and funding development, translation and integration
activities related to the Protean and Avantis product line. In the event
license revenues are not increased in both the short and long term, the
Company may be required to take additional cost saving measures in order to
reduce the costs of operating the business. There can be no assurance that
the continued development of the distribution channel and the Company's
support and services businesses will result in increased revenues or, when
combined with potential cost control measures, that these actions will result
in operating profitability or positive cash flows from operations. Failure to
achieve operating profitability or to generate positive cash flows from
operations would materially and adversely affect Marcam Solutions' business,
results of operations and financial condition.
RESULTS OF OPERATIONS
REVENUES
Total revenues decreased 6.1% to $29.1 million during the three-month
period ended March 31, 1999, as compared to $31.0 million for the three-month
period ended March 31, 1998. For the six-month period ended March 31, 1999,
total revenues decreased 6.8% to $55.2 million, as compared to $59.2 million in
the same period of 1998.
License revenues decreased 43.0% to $8.1 million for the three-month period
ended March 31, 1999, as compared to $14.2 million for the three-month period
ended March 31, 1998. For the six-month period ended March 31, 1999, license
revenues decreased 43.4% to $14.5 million, as compared to $25.6 million in the
same period of 1998. The decrease in license revenues for the
three-and six-month periods ended March 31, 1999, as compared to the same
periods in 1998, resulted from decreases of $4.7 million and $9.1 million in
license revenue from the Company's ERP products, and decreases of $1.4 million
and $2.0 million in license revenues from the Company's EAM products,
respectively. The decrease in license revenues is primarily the result of the
Company's inability to generate sufficient revenue from its investments in both
its direct and indirect sales channels. In addition, the Company believes that a
portion of the decrease in license revenues is attributable to the overall
decline in the ERP software application market, which has in part been caused by
a decrease in customer demand, as many potential customers are focusing their
efforts on the internal resolution of Year 2000 software problems and are
consequently not currently focused on ERP or EAM implementations.
9
<PAGE>
Services revenues increased 24.3% to $21.0 million for the three-month
period ended March 31, 1999, as compared to $16.9 million for the three-month
period ended March 31, 1998. Services revenue for the six-month period ended
March 31, 1999 increased 21.8% to $40.8 million, as compared to $33.5 million
for the same period in 1998. Services revenues include two distinct components:
customer support, including annual software maintenance and support, and
consulting, which includes customization, implementation and integration of
Marcam Solutions products to meet customer requirements. The increase in
services revenues for the three-and six-month periods ended March 31, 1999 as
compared to the same periods in 1998, was due primarily to increases of $3.0
million and $4.9 million, respectively, in consulting revenues, and to a lesser
extent, increases of $1.1 million and $2.4 million, respectively, in customer
support revenues, both resulting from an increase in the Company's customer
base.
COST OF LICENSE REVENUES
Cost of license revenues represented 9.5% and 11.7% of license revenues for
the three-and six-month periods ended March 31, 1999, respectively, as compared
to 6.4% and 7.9% for the same periods in 1998, respectively. The increase in
cost of license revenues as a percentage of license revenues for the
three-and six-month periods ended March 31, 1999, as compared to the same
periods in 1998, was primarily due to amortization of software development
costs and product royalties representing a larger percentage of license
revenues compared to the same periods in 1998, given the smaller revenues in
the three-and six-month periods ended March 31, 1999.
COST OF SERVICES REVENUES
Cost of services revenues represented 73.2% and 74.2% of services
revenues for the three-and six-month periods ended March 31, 1999,
respectively, as compared to 69.1% and 69.9% for the same periods in 1998,
respectively. The increase in cost of services revenues as a percentage of
services revenues for the three-and six-month periods ended March 31, 1999,
as compared to the same periods in 1998, was the result of a decrease in the
proportion of support revenues as a percentage of total services revenues.
Support revenues typically provide better margins than the Company's other
services. In addition, a portion of the increase in cost of services revenues
as a percentage of services revenues is the result of increased headcount and
subsequent training in the services and support businesses.
SELLING AND MARKETING
Selling and marketing expenses for the three-month periods ended March 31,
1999 and 1998, were $10.4 million and $9.3 million, respectively. These expenses
during the six-month periods ended March 31, 1999 and 1998 were $21.2 million
and $18.8 million, respectively. The increase in selling and marketing expenses
from 1998 was primarily related to an increase in headcount in both the
marketing and sales staff as part of the actions taken to grow the Company's
distribution channels. In addition, a portion of this increase is the result of
increased spending on the Company's various marketing programs.
PRODUCT DEVELOPMENT
Product development expenditures during the three months ended March 31,
1999 and 1998 were $8.2 million and $7.9 million, respectively. These
expenditures during the six months ended March 31, 1999 and 1998 were $16.1 and
$15.4, respectively. The $0.3 million and $0.7 million increases for the
three-and six-month periods ended March 31, 1999, as compared to the same
periods in 1998, were due to spending increases on the translation of the
Company's products to various foreign languages and spending on the development
of Protean Release 3.1.
10
<PAGE>
GENERAL AND ADMINISTRATIVE
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, increased slightly for the
three-and six-month periods ended March 31, 1999, as compared to the same
periods in 1998.
NON-RECURRING CHARGES
During the first quarter of fiscal 1999, the Company's business operations
and assets in Asia Pacific were reviewed to identify opportunities for cost
reductions, and actions were initiated to reduce operating expenses. As a result
of these actions, the Company recorded non-recurring charges totaling $1.5
million in the quarter ended December 31, 1998. These charges relate to the
closure of certain Asia Pacific facilities and the termination of the
contractual relationship with one of the Company's primary Asia Pacific
affiliates. The charges primarily consist of the write-off of receivables from
such affiliate, which were considered to be uncollectible as a result of these
actions, and to a lesser extent the closure of certain facilities, including
associated write-offs of property and equipment and lease cancellation costs.
During the second quarter of fiscal 1999, the Company recorded a $1.8
million restructuring charge for actions associated with the effort to reduce
future operating costs. The restructuring charge included approximately $1.6
million for employee severance and other costs related to the termination of
ninety-five employees, principally in North American development,
headquarters and field operations, and other costs of approximately $0.2
million. As of March 31, 1999, eighty of the ninety-five employees to be
terminated have left the Company. The remaining fifteen employees are
expected to leave during the third fiscal quarter of 1999. Payments of $0.4
million had been made in respect of these charges as of March 31, 1999. The
Company anticipates that substantially all of the remaining restructuring
costs will be paid in fiscal 1999.
INTEREST AND OTHER INCOME
Interest and other income decreased $0.6 million and $0.9 million for
the three-and six-month periods ended March 31, 1999, respectively, as
compared to the same periods in 1998. The decreases were primarily related to
less interest earned on lower average cash and short-term investment balances
during the three-and six-months periods ended March 31, 1999, as compared to
the same periods in 1998. In addition, a portion of the decrease from 1998 to
1999 resulted from there being a net gain from changes in currency exchange
rates for the three and six months ended March 31, 1998 versus a net loss for
the three and six months ended March 31, 1999.
INTEREST AND OTHER EXPENSE
Interest and other expense increased $0.7 million and $0.5 million for the
three-and six-month periods ended March 31, 1999, respectively, as compared
to the same periods in 1998. The increase was largely the result of a net
loss from changes in currency exchange rates during the three-and six-month
periods ended March 31, 1999, as compared to a net gain for the same periods
in 1998.
INCOME TAX EXPENSE
The income tax expense for the three-and six-month periods ended March 31,
1999 was $0.1 million and $0.5 million, respectively. The income tax expense for
the three-and six-month periods ended March 31, 1998 was $0.5 million and $1.1
million, respectively. The expense in each period was primarily due to foreign
withholding taxes and taxes on income generated in foreign jurisdictions for
which U.S. tax credit utilization is currently uncertain. There was no tax
benefit recorded in 1999 or 1998 for losses generated in the U.S. due to the
uncertainty of realizing such benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its activities in fiscal 1998 and fiscal 1999 with a
capital contribution received in July 1997 from MAPICS, Inc. in connection with
the spin-off of Marcam Solutions.
Current assets decreased by $19.4 million during the six-month period ended
March 31, 1999, to $42.6 million at March 31, 1999, compared to $62.0 million at
September 30, 1998. This decrease was primarily due to lower cash and cash
equivalents and short-term investment balances and a reduced accounts receivable
balance. Total cash and cash equivalents and short-term investments of $15.0
million as of March 31, 1999 had decreased by $13.1 million from $28.1 million
as of September 30, 1998. Cash and cash equivalents was used during the
six-month period to fund operating losses, settle tax liabilities and make
investments in fixed assets. Accounts receivable as of March 31, 1999
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of $23.6 million had decreased by $6.0 million from $29.6 million as of
September 30, 1998, due principally to decreased revenues in the six-month
period ended March 31, 1999.
Current liabilities increased by $1.3 million during the six-month period
ended March 31, 1999, to $53.4 million as of March 31, 1999, compared to $52.1
million at September 30, 1998. This increase was due to an increase in deferred
revenue, and was partially offset by decreases in accounts payable, accrued
expenses and other current liabilities. As of March 31, 1999, the Company had no
material commitments for capital expenditures. As a result of the changes in
current assets and current liabilities, working capital decreased by $20.7
million, to a working capital deficit of $10.8 million as of March 31, 1999,
compared to a working capital surplus of $9.9 million as of September 30, 1998.
It is important to note that the deferred revenue balance of $20.0 million at
March 31, 1999 is a major component of current liabilities and does not
represent a typical cash outflow liability.
During the six-month period ended March 31, 1999, operating activities
used approximately $11.2 million of cash. Investing activities used
approximately $2.1 million of cash, resulting from $0.6 million of net
purchases of short-term investments and $1.5 million used for the purchase of
fixed assets. Financing activities used approximately $0.2 million of cash,
related to loans to officers and principal payments on capital lease
obligations, partially offset by proceeds from the exercise of stock options
and common stock issued under the Employee Stock Purchase Plan.
The Company used cash during the first six months of fiscal 1999 and
fiscal year 1998 to fund strategic investments, in particular, substantial
expenditures for marketing and selling activities and for product
development, and operating losses. For the first six months of fiscal 1999
and for fiscal year 1998, the Company's selling and marketing expenditures
were $21.2 million and $40.5 million, respectively. During the first six
months of fiscal 1999 and for fiscal year 1998, the Company's product
development expenditures were $16.1 million and $32.1 million, respectively.
During the remainder of fiscal 1999, the Company intends to continue to
invest in selling and marketing activities, while as a result of the
restructuring in the quarter ended March 31, 1999 the company expects it will
see a decrease in expenditures related to product development. The Company's
objective is to fund the selling and marketing investments primarily with
cash from improved operations and existing cash resources. Actions currently
being taken to reduce expenses as described in the "Overview" section are
expected to improve the Company's ability to generate cash from operations.
However, 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 selling its current family of
products, reductions in operating expenses, availability of trade credit,
retention of customers and collection of accounts receivable.
There can be no assurance that the Company's operations will generate
sufficient cash to finance its operations. Until operations improve to meet
its cash requirements, the Company will need to rely on existing cash
resources and on borrowings available from its credit facility. The credit
facility provides a line of credit up to the lesser of $10 million or a
percentage of eligible receivables. The Company currently anticipates that
cash from improved operations and its available cash will be sufficient to
fund operations through 1999. If, however, such sources prove insufficient in
1999 or over the longer term, the Company will be required to make changes in
operations or seek additional debt or equity financing. There can be no
assurance that any other additional debt or equity financing will be
available, or available on terms acceptable to the Company. The continued
incurrence of operating losses by Marcam Solutions would have a material and
adverse affect on Marcam Solutions' business, financial condition and results
of operations.
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YEAR 2000 READINESS DISCLOSURE STATEMENT
To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. The
Company estimates it will not incur any material expenditures on this issue
during 1999 to support its compliance initiatives. The Company is in the
process of implementing remedies for all issues identified during its initial
assessment of its year 2000 issues. Most of the expenses incurred have been,
and are expected to be, related to the opportunity costs of employees
evaluating and remedying the Company's financial and accounting software, the
current versions of the Company's products and general year 2000 compliance
matters. The Company believes that it is unlikely to experience a material
and adverse impact on its financial condition or results of operations due to
year 2000 compliance issues. The Company continues to monitor and improve year
2000 related activities and progress and communicate with our vendors and
customers. These activities will continue throughout 1999. However, since the
process is ongoing, year 2000 complications may not fully be known and
potential liability issues are not clear, the full potential impact of year
2000 issues on the Company is not known at this time. See Marcam Solutions,
Inc. Form 10K for the year ended September 30, 1998 for additional
disclosures related to the Company's assessment of its year 2000 readiness.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II.
ITEM 1. 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 other legal matters will have a material and adverse effect on the
Company's future financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on February 24, 1999. Present
in person or by proxy were 6,944,835 shares out of the 7,746,937 shares of the
Company's Common Stock issues and outstanding as of the close of business on the
record date. At such meeting, John Campbell and E. Clark Grimes were elected as
Class II directors to the Board of Directors to each serve a three-year term.
The voting for Mr. Campbell was 6,862,418 shares in favor of his election, and
82,417 abstentions. The voting for Mr. Grimes was 6,862,408 shares in favor of
his election, and 82,427 abstentions. William O. Grabe, Joe M. Henson and
William W. Wyman are all Class I directors whose terms will expire in 2001, and
Jonathan C. Crane, Michael J. Quinlan and Franchon M. Smithson are all Class III
directors whose terms will expire in 2000.
The proposal to amend the Company's 1997 Stock Plan to increase the number
of shares of Common Stock which may be issued pursuant to the plan from
2,750,000 to 3,500,000 was ratified by the stockholders. The vote was 4,313,572
shares to amend the plan, with 706,656 share against and 19,290 abstentions.
The selection of PricewaterhouseCoopers LLP by the Board of Directors as
auditors for the fiscal year ending September 30,1999, was ratified by the
stockholders. The vote was 6,883,772 shares in favor of their selection, with
50,282 share against and 10,781 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Loan and Security Agreement dated April 20, 1999 by and between
Marcam Solutions, Inc. and Greyrock Capital.
27 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARCAM SOLUTIONS, INC.
, 1999 /s/ Harlen B. Plumley
- ------------------------ ---------------------
Date Harlen B. Plumley
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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EXHIBIT INDEX
Exhibit
Number Description
- -------- -----------
10.1 LOAN AND SECURITY AGREEMENT DATED APRIL 20, 1999 BY AND
BETWEEN MARCAM SOLUTIONS, INC. AND GREYROCK CAPITAL.
27 Financial Data Schedule
16
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LOAN AND SECURITY AGREEMENT
BORROWER: MARCAM SOLUTIONS, INC.
ADDRESS: 95 WELLS AVENUE
NEWTON, MASSACHUSETTS 02459
DATE: APRIL 20, 1999
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a Division of NationsCredit Commercial Corporation
("Greyrock"), whose address is 10880 Wilshire Boulevard, Suite 950, Los Angeles,
CA 90024, and the borrower named above ("Borrower"), whose chief executive
office is located at the above address ("Borrower's Address"). The Schedule to
this Agreement (the "Schedule") being signed concurrently is an integral part of
this Agreement. (Definitions of certain terms used in this Agreement are set
forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Greyrock will make loans to Borrower (the "Loans"), in amounts
determined by Greyrock in its * sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, Borrower
shall immediately pay the amount of the excess to Greyrock, without notice or
demand.
*REASONABLE
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by
Greyrock and Borrower. Interest shall be payable monthly, on the last day of the
month. Interest may, in Greyrock's discretion, be charged to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as the
other Loans.
1.3 FEES. Borrower shall pay Greyrock the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Greyrock and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Greyrock a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, all money, all collateral in which Greyrock
is granted a security interest pursuant to any other present or future
agreement, all property now or at any time in the future in Greyrock's
possession, and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products of the
foregoing, and all books and records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Greyrock to enter into this Agreement and to make Loans,
Borrower represents and warrants to Greyrock as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
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3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Greyrock 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Greyrock at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule * .
*AS A LOCATION AT WHICH BORROWER "MAINTAINS ASSETS"
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Greyrock now has, and will
continue to have, a first-priority perfected and enforceable security interest
in all of the Collateral, subject only to the Permitted Liens, and Borrower will
at all times defend Greyrock and the Collateral against all claims of others. So
long as any Loan is outstanding which is a term loan, none of the Collateral now
is or will be affixed to any real property in such a manner, or with such
intent, as to become a fixture. Borrower is not and will not become a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral and no such lease now prohibits, restrains, impairs or
will prohibit, restrain or impair Borrower's right to remove any Collateral from
the leased premises. Whenever any Collateral is located upon premises in which
any third party has an interest (whether as owner, mortgagee, beneficiary under
a deed of trust, lien or otherwise), Borrower shall, whenever requested by
Greyrock, use its best efforts to cause such third party to execute and deliver
to Greyrock, in form acceptable to Greyrock, such waivers and subordinations as
Greyrock shall specify, so as to ensure that Greyrock's rights in the Collateral
are, and will continue to be, superior to the rights of any such third party.
Borrower will keep in full force and effect, and will comply with all the terms
of, any lease of real property where any of the Collateral now or in the future
may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise
Greyrock in writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Greyrock have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and fairly reflect the financial condition of Borrower,
at the times and for the periods therein stated. Between the last date covered
by any such statement provided to Greyrock and the date hereof, there has been
no material adverse change in the financial condition or business of Borrower.
Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. * Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies Greyrock in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid, and shall continue to pay all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or any other governmental
agency. Borrower shall, at all times, utilize the services of an outside payroll
service providing for the automatic deposit of all payroll taxes payable by
Borrower.
*TO THE BEST OF ITS KNOWLEDGE,
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
2
<PAGE>
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Greyrock in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Greyrock as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed, bona fide, existing, unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Greyrock as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall comply
with all applicable laws and governmental rules and regulations. All signatures
and indorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. * Borrower shall deliver
to Greyrock transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Greyrock's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Greyrock's security interest and other rights in all of
Borrower's Receivables, nor shall Greyrock's failure to advance or lend against
a specific Receivable affect or limit Greyrock's security interest and other
rights therein. Together with each such schedule and assignment, or later if **
requested by Greyrock, Borrower shall furnish Greyrock with copies (or, at
Greyrock's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing. Borrower shall also furnish to Greyrock an
aged accounts receivable trial balance in such form and at such intervals as
Greyrock shall request***. In addition, Borrower shall deliver to Greyrock the
originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Receivables, immediately
upon receipt thereof and in the same form as received, with all necessary
indorsements.
*DURING ANY PERIOD THE NON-STREAMLINED FACILITY IS IN EFFECT THE FOLLOWING
PROVISIONS OF THIS SECTION 4.3 SHALL APPLY:
**REASONABLY
***MONTHLY
4.4 COLLECTION OF RECEIVABLES. * Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Greyrock, and Borrower shall deliver all such payments and proceeds to Greyrock,
within one business day after receipt of the same, in their original form, duly
endorsed, to be applied to the Obligations in such order as Greyrock shall
determine.
*DURING ANY PERIOD THE NON-STREAMLINED FACILITY IS IN EFFECT THE FOLLOWING
PROVISIONS OF THIS SECTION 4.4 SHALL APPLY:
4.5 DISPUTES. Borrower shall notify Greyrock promptly of all disputes or
claims relating to Receivables on the regular reports to Greyrock. Borrower
shall not forgive, or settle any Receivable for less than payment in full, or
agree to do any of the foregoing, except that Borrower may do so, provided that:
(i) Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Greyrock on the regular reports provided to Greyrock; (ii) no
Default or Event of Default has occurred and is continuing; and (iii) taking
into account all such settlements and forgiveness, the total outstanding Loans
and other Obligations will not exceed the Credit Limit.
4.6 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Greyrock). In the event any attempted return occurs
after the occurrence * of any Event of Default, Borrower shall (i) not accept
any return without
3
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Greyrock's prior written consent, (ii) hold the returned Inventory in trust for
Greyrock, (iii) segregate all returned Inventory from all of Borrower's other
property, (iv) conspicuously label the returned Inventory as Greyrock's
property, and (v) immediately notify Greyrock of the return of any Inventory,
specifying the reason for such return, the location and condition of the
returned Inventory, and on Greyrock's request deliver such returned Inventory to
Greyrock.
*AND DURING THE CONTINUANCE
4.7 VERIFICATION. Greyrock may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Greyrock or such other name as Greyrock may choose, and Greyrock or
its designee may, at any time, notify Account Debtors that it has a security
interest in the Receivables.
4.8 NO LIABILITY. Greyrock shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Greyrock be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Greyrock from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Greyrock, in such form and amounts as Greyrock
may reasonably require, and Borrower shall provide evidence of such insurance to
Greyrock, so that Greyrock is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Greyrock as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Greyrock. Upon receipt of the proceeds of any such
insurance, Greyrock shall apply such proceeds in reduction of the Obligations as
Greyrock shall determine in its sole discretion, except that, provided no
Default or Event of Default has occurred and is continuing, Greyrock shall
release to Borrower insurance proceeds with respect to Equipment totaling less
than $100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Greyrock may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Greyrock may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Greyrock copies of all reports made to insurance companies.
5.2 REPORTS. Borrower, at its expense, shall provide Greyrock with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Greyrock shall from time to time reasonably
specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times*, and on one
business day's notice, Greyrock, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Greyrock shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Greyrock shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $600 per person per day (or such higher amount as shall represent
Greyrock's then current standard charge for the same), plus reasonable
out-of-pockets expenses. Borrower shall not be charged more than $3,000 per
audit (plus reasonable out-of-pockets expenses), nor shall audits be done more
frequently than ** four times per calendar year, provided that the foregoing
limits shall not apply after the occurrence of a Default or Event of Default,
nor shall they restrict Greyrock's right to conduct audits at its own expense
(whether or not a Default or Event of Default has occurred). Borrower will not
enter into any agreement with any accounting firm, service bureau or third party
to store Borrower's books or records at any location other than Borrower's
Address, without first obtaining Greyrock's written consent, which may be
conditioned upon such accounting firm, service bureau or other third party
agreeing to give Greyrock the same rights with respect to access to books and
records and related rights as Greyrock has under this Agreement.
*DURING REGULAR BUSINESS HOURS
**TWO
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to
Greyrock in the original form in which received by Borrower not later than the
following business day after receipt by Borrower, to be applied to the
Obligations in such order as Greyrock shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, and if no term loan
is outstanding hereunder, then Borrower shall not be obligated to remit to
Greyrock the proceeds of the sale of Equipment which is sold in the ordinary
course of business, in a good-faith arm's length transaction. Except for the
proceeds of the sale of Equipment as set forth above, Borrower shall not
commingle proceeds of Collateral with any of Borrower's other funds or property,
and shall hold such proceeds separate and apart from such other funds and
property and in an express trust for
4
<PAGE>
Greyrock. Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower
shall not, without Greyrock's prior written consent, do any of the following:
(i) merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except that, provided no Default or Event of Default has occurred
and is continuing, Borrower may (a) sell finished Inventory in the ordinary
course of Borrower's business, and (b) if no term loan is outstanding hereunder,
sell Equipment in the ordinary course of business, in good-faith arm's length
transactions; (v) store any Inventory or other Collateral with any warehouseman
or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed
sale, consignment, or other contingent basis; (vii) make any loans of any money
or other assets; (viii) incur any debts, outside the ordinary course of
business, which would have a material, adverse effect on Borrower or on the
prospect of repayment of the Obligations; (ix) guarantee or otherwise become
liable with respect to the obligations of another party or entity*; (x) pay or
declare any dividends on Borrower's stock (except for dividends payable solely
in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of Borrower's stock**; (xii) make any change in
Borrower's capital structure which would have a material adverse effect on
Borrower or on the prospect of repayment of the Obligations; or (xiii) dissolve
or elect to dissolve; or (xiv) agree to do any of the foregoing.
*(OTHER THAN THROUGH THE ENDORSEMENT OF ITEMS FOR COLLECTION IN THE ORDINARY
COURSE OF BUSINESS)
**(OTHER THAN STOCK OF EMPLOYEES OF BORROWER SUBJECT TO REPURCHASE IN ACCORDANCE
WITH STOCK OPTION PLANS OR AGREEMENTS)
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Greyrock with respect to any Collateral or in any
manner relating to Borrower, Borrower shall, without expense to Greyrock, make
available Borrower and its officers, employees and agents, and Borrower's books
and records, without charge, to the extent that Greyrock may deem them
reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify Greyrock in
writing of any change in its officers or directors, the opening of any new bank
account or other deposit account, and any material adverse change in the
business or financial affairs of Borrower.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Greyrock, to execute all documents and take all actions, as Greyrock may deem
reasonably necessary or useful in order to perfect and maintain Greyrock's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
5.9 INDEMNITY. Borrower hereby agrees to indemnify Greyrock and hold Greyrock
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
attorneys' fees), of every nature, character and description, which Greyrock may
sustain or incur based upon or arising out of any of the Obligations, any actual
or alleged failure to collect and pay over any withholding or other tax relating
to Borrower or its employees, any relationship or agreement between Greyrock and
Borrower, any actual or alleged failure of Greyrock to comply with any writ of
attachment or other legal process relating to Borrower or any of its property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by Greyrock relating to Borrower or the Obligations (except
any such amounts sustained or incurred as the result of the gross negligence or
willful misconduct of Greyrock or any of its directors, officers, employees,
agents, attorneys, or any other person affiliated with or representing
Greyrock). Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination of
this Agreement and shall for all purposes continue in full force and effect.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than * sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
*THIRTY
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three business days after written
notice of termination is given to Greyrock; or (ii) by Greyrock at any time
after the occurrence of an Event of Default, * without notice, effective
immediately. If this Agreement is terminated by Borrower or by Greyrock under
this Section 6.2, Borrower shall pay to Greyrock a termination fee (the
"Termination Fee") in the amount shown on the Schedule. The Termination Fee
shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the highest rate applicable to any of the
Obligations.
*UPON
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<PAGE>
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of Greyrock, then on such date Borrower shall provide to
Greyrock cash collateral in an amount equal to *110% of the face amount of all
such letters of credit plus all interest, fees and costs due or (in Greyrock's
estimation) likely to become due in connection therewith, to secure all of the
Obligations relating to said letters of credit, pursuant to Greyrock's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Greyrock's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Greyrock, Greyrock may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Greyrock, nor shall any such termination relieve Borrower of any
Obligation to Greyrock, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the Obligations
and termination of this Agreement, Greyrock shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be reasonably required to terminate Greyrock's security interests.
*100%
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Greyrock immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Greyrock by Borrower or
any of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect*; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to perform any non-monetary
Obligation which by its nature cannot be cured; or (e) Borrower shall fail to
perform any other non-monetary Obligation, which failure is not cured within **
5 business days after the date performance is due; or (f) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower or any Guarantor; or appointment of a receiver,
trustee or custodian, for all or any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding by Borrower or
any Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any Guarantor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
which is not cured by the dismissal thereof within *** 45 days after the date
commenced; or (k) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing; or (l) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits or
terminates its subordination agreement; or (n) there shall be a change in the
record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Greyrock; or (o) Borrower
shall generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (p) there shall be a material adverse change in Borrower's business or
financial condition. Greyrock may cease making any Loans hereunder during any of
the above cure periods, and thereafter if an Event of Default has occurred.
*WHEN MADE
**SEVEN
***SIXTY
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<PAGE>
7.2 REMEDIES. Upon the occurrence of any Event of Default, and * at any time
thereafter, Greyrock, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following**: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Greyrock without judicial process to enter onto any
of Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Greyrock deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Greyrock seek to take possession of
any of the Collateral by Court process, Borrower hereby irrevocably waives***:
(i) any bond and any surety or security relating thereto required by any
statute, court rule or otherwise as an incident to such possession; (ii) any
demand for possession prior to the commencement of any suit or action to recover
possession thereof; and (iii) any requirement that Greyrock retain possession
of, and not dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make it
available to Greyrock at places designated by Greyrock which are reasonably
convenient to Greyrock and Borrower, and to remove the Collateral to such
locations as Greyrock may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Greyrock shall have the right
to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all
other property without charge; (f) Sell, lease or otherwise dispose of any of
the Collateral, in its condition at the time Greyrock obtains possession of it
or after further manufacturing, processing or repair, at one or more public
and/or private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without notice
other than oral announcement at the time scheduled for sale. Greyrock shall have
the right to conduct such disposition on Borrower's premises without charge, for
such time or times as Greyrock deems reasonable, or on Greyrock's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Greyrock may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private disposition. Any sale or other disposition of Collateral
shall not relieve Borrower of any liability Borrower may have if any Collateral
is defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Greyrock to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Greyrock's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables,
General Intangibles and the like for less than face value; and (h) Demand and
receive possession of any of Borrower's federal and state income tax returns and
the books and records utilized in the preparation thereof or referring thereto.
All reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Greyrock with respect to the foregoing shall be added to and become
part of the Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.
*DURING THE CONTINUANCE THEREOF
**IN ACCORDANCE WITH APPLICABLE LAW
***TO THE EXTENT PERMITTED BY APPLICABLE LAW
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Greyrock agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least * seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Greyrock, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in
cash or by cashier's check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Greyrock may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Greyrock shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
*TEN
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Greyrock's other rights and remedies, Borrower grants to Greyrock an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Greyrock (acting through any of its employees, attorneys or agents) *
at any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of
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<PAGE>
the following, in Borrower's name or otherwise, but Greyrock agrees to exercise
the following powers in a commercially reasonable manner: (a) Execute on behalf
of Borrower any documents that Greyrock may, in its sole discretion, deem
advisable in order to perfect and maintain Greyrock's security interest in the
Collateral, or in order to exercise a right of Borrower or Greyrock, or in order
to fully consummate all the transactions contemplated under this Agreement, and
all other present and future agreements; (b) Execute on behalf of Borrower any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or to lease (as lessor or lessee) any real or personal
property which is part of Greyrock's Collateral or in which Greyrock has an
interest; (c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
Borrower upon any instruments, or documents, evidence of payment or Collateral
that may come into Greyrock's possession; (e) Endorse all checks and other forms
of remittances received by Greyrock; (f) Pay, contest or settle any lien,
charge, encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle Receivables and General Intangibles for less than face value
and execute all releases and other documents in connection therewith; (h) Pay
any sums required on account of Borrower's taxes or to secure the release of any
liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Greyrock the same rights
of access and other rights with respect thereto as Greyrock has under this
Agreement; and (k) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and reasonable attorneys' fees incurred by Greyrock with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall Greyrock's
rights under the foregoing power of attorney or any of Greyrock's other rights
under this Agreement be deemed to indicate that Greyrock is in control of the
business, management or properties of Borrower.
*DURING THE CONTINUANCE OF THE EVENT OF DEFAULT
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by Greyrock first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Greyrock in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Greyrock shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Greyrock for any deficiency.
If, Greyrock, in its sole discretion, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Greyrock shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Greyrock of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Greyrock shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Greyrock and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Greyrock of one or more of its rights or remedies shall not be deemed an
election, nor bar Greyrock from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Greyrock to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Greyrock is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
8
<PAGE>
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Greyrock, in its * sole judgment, shall deem eligible for borrowing, based on
such considerations as Greyrock may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Greyrock's discretion, the following (the "MINIMUM
ELIGIBILITY REQUIREMENTS") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more than
90 ** days from its invoice date, (ii) the Receivable must not represent
progress billings, or be due under a fulfillment or requirements contract with
the Account Debtor, (iii) the Receivable must not be subject to any
contingencies (including Receivables arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional), (iv) the Receivable must not be owing from an Account
Debtor with whom the Borrower has any dispute (whether or not relating to the
particular Receivable), (v) the Receivable must not be owing from an Affiliate
of Borrower, (vi) the Receivable must not be owing from an Account Debtor which
is subject to any insolvency or bankruptcy proceeding, or whose financial
condition is not *** acceptable to Greyrock, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Greyrock's satisfaction, with the United States
Assignment of Claims Act), (viii) the Receivable must not be owing from an
Account Debtor located outside the United States or Canada **** [INTENTIONALLY
DELETED] (ix) the Receivable must not be owing from an Account Debtor to whom
Borrower is or may be liable for goods purchased from such Account Debtor or
otherwise. If more than ***** 25% of the Receivables owing from an Account
Debtor are outstanding more than ** 90 days from their invoice date (without
regard to unapplied credits) or are otherwise not Eligible Receivables, then all
Receivables owing from that Account Debtor will be deemed ineligible for
borrowing. Greyrock may, from time to time, in its discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
*REASONABLE
**120
***REASONABLY
****UNLESS IT IS BY ITS TERMS PAYABLE IN U.S. DOLLARS IN THE UNITED STATES OR IN
THE UNITED KINGDOM, PROVIDED THAT A RECEIVABLE PAYABLE IN THE UNITED KINGDOM
SHALL NOT BE DEEMED AN ELIGIBLE RECEIVABLE TO THE EXTENT THAT DOING SO WOULD
RESULT IN ELIGIBLE RECEIVABLES PAYABLE IN THE UNITED KINGDOM TO EXCEED
$4,000,000 IN THE AGGREGATE UNLESS GREYROCK SHALL CONSENT THERETO IN WRITING
*****50%
"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Greyrock, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance),
tax refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
"GUARANTOR" means any Person who has guaranteed any of the Obligations.
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"LIBOR RATE" means [INTENTIONALLY OMITTED]
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"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Greyrock, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Greyrock in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, loan fees,
termination fees, minimum interest charges and any other sums chargeable to
Borrower under this Agreement or under any other present or future instrument or
agreement between Borrower and Greyrock.
"PERMITTED LIENS" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens which are subordinate to the security interest in favor of Greyrock and
are consented to in writing by Greyrock (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Greyrock will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Greyrock's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Greyrock,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Greyrock
(including proceeds of Receivables and payment of the Obligations in full) shall
be deemed applied by Greyrock on account of the Obligations * three Business
Days after receipt by Greyrock of immediately available funds. Greyrock shall
not, however, be required to credit Borrower's account for the amount of any
item of payment which is unsatisfactory to Greyrock in its discretion, and
Greyrock may charge Borrower's Loan account for the amount of any item of
payment which is returned to Greyrock unpaid.
*ON THE DATE OF
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Greyrock's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Greyrock shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNT. Greyrock may, in its discretion, require that
Borrower pay monetary Obligations in cash to Greyrock, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans.
9.4 MONTHLY ACCOUNTINGS. Greyrock shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Greyrock), unless Borrower
notifies Greyrock in writing to the contrary within sixty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Greyrock or Borrower at the addresses shown in the heading to this
Agreement, or at
10
<PAGE>
any other address designated in writing by one party to the other party. All
notices shall be deemed to have been given upon delivery in the case of notices
personally delivered, or at the expiration of one business day following
delivery to the private delivery service, or two business days following the
deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Greyrock and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Greyrock at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Greyrock shall not waive or
diminish any right of Greyrock later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Greyrock shall be deemed to have been
waived by any act or knowledge of Greyrock or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Greyrock and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Greyrock on which Borrower is or may in any way be liable, and notice of any
action taken by Greyrock, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Greyrock.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.11 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Greyrock for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Greyrock, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Greyrock incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Greyrock's security interest in, the Collateral; and otherwise represent
Greyrock in any litigation relating to Borrower. If either Greyrock or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys' fees, including (but not limited to) reasonable attorneys'
fees and costs incurred in the enforcement of, execution upon or defense of any
order, decree, award or judgment. All attorneys' fees and costs to which
Greyrock may be entitled pursuant to this Paragraph shall immediately become
part of Borrower's Obligations, shall be due on demand, and shall bear interest
at a rate equal to the highest interest rate applicable to any of the
Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Greyrock; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Greyrock, and any prohibited assignment
shall be void. No consent by Greyrock to any assignment shall release Borrower
from its liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Greyrock, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Greyrock,
its directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within
11
<PAGE>
* one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Greyrock, or on any other person
authorized to accept service on behalf of Greyrock, within thirty (30) days
thereafter. Borrower agrees that such ** one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Greyrock in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
*TWO YEARS
**TWO-YEAR
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Greyrock acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Greyrock or Borrower under any
rule of construction or otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Greyrock and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Greyrock to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Greyrock's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GREYROCK EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GREYROCK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
BORROWER:
MARCAM SOLUTIONS, INC.
BY /s/ Harlan Plumley
-----------------------------
VICE PRESIDENT and TREASURER
BY /s/ Diane R. Tormey
-----------------------------
SECRETARY
GREYROCK:
GREYROCK CAPITAL,
A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
BY /s/ Lisa Nagano
-------------------------
TITLE Senior Vice President
---------------------
12
<PAGE>
[OBJECT OMITTED]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: MARCAM SOLUTIONS, INC.
ADDRESS: 95 WELLS AVENUE
NEWTON, MASSACHUSETTS 02459
DATE: APRIL 20, 1999
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK CAPITAL, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
("Greyrock") and the above-borrower ("Borrower") of even date.
1. CREDIT LIMIT
(Section 1.1): NON-STREAMLINED: During any period the
Non-Streamlined Facility (as defined
below) is in effect, the Credit Limit
shall be an amount not to exceed the
lesser of: (i) $10,000,000 at any one
time outstanding; or (ii) 80% of the
amount of Borrower's Eligible
Receivables (as defined in Section 8
above).
STREAMLINED: During any period the
Streamlined Facility (as defined below)
is in effect, the Credit Limit shall be
an amount not to exceed the lesser of:
(i) $10,000,000 at any one time
outstanding; or (ii) 60% of the amount
of Borrower's Eligible Receivables (as
defined in Section 8 above).
MARCAM CANADA CORPORATION: For purposes
of the foregoing, and notwithstanding
subpart "v" of the definition of
"Eligible Receivables" contained in
Section 8 of the Loan and Security
Agreement, Receivables of Borrower's
wholly owned Canadian subsidiary, Marcam
Canada Corporation, may be included as
Eligible Receivables, provided that (i)
they meet the other requirements for
Eligible Receivables and (ii) the
Guaranty and Security Agreement referred
to in Section 7.2 below have been
executed and delivered and are in full
force and effect, and (iii) Greyrock has
a first-priority, perfected security
interest in all such Receivables.
<PAGE>
2. INTEREST.
INTEREST RATE (Section 1.2):
All Loans shall bear interest at a rate
equal to the "Prime Rate" (as
hereinafter defined), plus 0.50% per
annum, calculated on the basis of a
360-day year for the actual number of
days elapsed. The interest rate
applicable to all Loans shall be
adjusted monthly as of the first day of
each month, and the interest to be
charged for that month shall be based on
the highest "Prime Rate" in effect
during said month, but in no event shall
the rate of interest charged on any
Loans in any month be less than 7% per
annum. "Prime Rate" shall mean the
actual "Reference Rate" or the
substitute therefor of the Bank of
America NT & SA ("B of A") whether or
not that rate is the lowest interest
rate charged by B of A. If the Prime
Rate, as defined, is unavailable, "Prime
Rate" shall mean the highest of the
prime rates published in the Wall Street
Journal on the first business day of the
month, as the base rate on corporate
loans at large U.S. money center
commercial banks. Interest shall be
payable monthly, on the last day of the
month. Interest may, in Greyrock's
discretion, be charged to Borrower's
loan account, and the same shall
thereafter bear interest at the same
rate as the other Loans.
3. FEES (Section 1.3/Section 6.2):
Loan Fee: $150,000, payable concurrently herewith.
Termination Fee: NONE.
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
4. MATURITY DATE
(Section 6.1): APRIL 30, 2000, subject to automatic
renewal as provided in Section 6.1
above, and early termination as
provided in Section 6.2 above.
5. REPORTING
(Section 5.2):
Borrower shall provide Greyrock with the
following:
1. Annual financial statements, as soon
as available, and in any event
within 90 days following the end of
Borrower's fiscal year,
2
<PAGE>
certified by independent certified
public accountants acceptable to
Greyrock.
2. Quarterly unaudited financial
statements, as soon as available,
and in any event within 45 days
after the end of each fiscal quarter
of Borrower.
3. Monthly unaudited financial
statements, as soon as available,
and in any event within 30 days
after the end of each month.
4. Monthly Receivable agings, aged by
invoice date, within 15 days after
the end of each month.
5. Monthly accounts payable agings,
aged by invoice date, and
outstanding or held check registers
within 15 days after the end of each
month.
================================================================================
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Exhibit A hereto
MATERIAL ADVERSE
LITIGATION (Section 3.10): None, except as listed on Exhibit B hereto
================================================================================
7.POST-CLOSING: 7.1 COPYRIGHT REGISTRATIONS. Borrower
represents and warrants to Greyrock that
it estimates that at least 39% of its
Receivables generated in its current
fiscal year will be from Prism software,
which has been registered with the
United States Copyright Office. Borrower
also represents and warrants that it
estimates that 33% and 28% of its
Receivables generated in its current
fiscal year will be from its Protean and
Avantis software, respectively, and that
all such software has been registered,
or applications for registration have
been filed, with the United States
Copyright Office, except for (i) the
enhancements to said software
represented by the Avantis.Pro Release
3.0 (the "Avantis Enhancements") and
(ii) interim versions of the Prism,
Protean and Avantis software which have
been superseded by subsequent releases,
which interim versions have
3
<PAGE>
not generated any Receivables for over
120 days. Within 90 days after the date
hereof, Borrower shall cause appropriate
applications for copyright registrations
to be filed with the United States
Copyright Office with respect to the
Avantis Enhancements, and shall provide
copies thereof to Greyrock together with
a Security Agreement in Copyrighted
Works in such form as Greyrock shall
specify with respect thereto, in form
suitable for filing in the Copyright
Office.
7.2. GUARANTY AND SECURITY INTEREST.
Within 30 days after the date hereof,
Borrower shall cause Marcam Canada
Corporation to execute and deliver to
Greyrock, all in such form as Greyrock
shall specify, (i) a Continuing
Guaranty, with respect to all the
Obligations, and (ii) a Security
Agreement granting Greyrock a
first-priority security interest in all
of the assets of Guarantor, securing the
Guaranty, and (iii) such documents and
instruments as Greyrock shall deem
necessary or appropriate to perfect and
maintain its first-priority, perfected
security interest, and Borrower shall
cause such Guaranty, Security Agreement
and other documents and instruments to
continue in full force and effect
throughout the term of this Loan
Agreement and so long as any portion of
the Obligations remains outstanding.
7.3. MASSACHUSETTS INTEREST RATE NOTICE.
Greyrock is concurrently filing with the
Massachusetts Attorney General, a notice
in accordance with Chapter 271 of the
Massachusetts General Laws, Section 49,
as amended, and, in particular,
subsection (d) thereof. Greyrock shall
have no obligation to make any Loans
until it has filed said notice, which
Greyrock agrees to undertake promptly.
7.4. COPIES OF COPYRIGHT REGISTRATIONS.
Greyrock shall have no obligation to
make any Loans until Borrower has
provided Greyrock with copies of all
copyright registrations and applications
for registration for Borrower's
copyrights which have been registered,
or applied for, as of the date hereof.
7.5. SECURITY INTEREST IN INVESTMENTS.
Without limiting the terms of the Loan
and Security Agreement, Borrower shall
take such actions as Greyrock shall
reasonably request so that Greyrock may
obtain, perfect, maintain and protect a
first-priority security interest
(subject to the following, if any: (i)
Permitted Liens, (ii) a security
interest in favor of Chase Manhattan
Bank ("CMB") securing an amount not
exceeding $2,000,000, (iii) any interest
of CMB which results solely from the
fact that the assets are held in an
account at CMB) in the assets (and any
additions, accessions, substitutions,
replacements, products, and/or proceeds
thereof) described in Exhibit 4.g.ii,
"Schedule of Investments", to the
Representations and Warranties
previously delivered by Borrower to
Greyrock.
4
<PAGE>
7.6. ASSETS OF SUBSIDIARIES. Borrower
represents and warrants that none of its
United States and Canadian subsidiaries,
other than Marcam Canada Corporation,
has assets in excess of $500,000 (except
that Avantis Holding Corporation has
assets in excess of $500,000 only
because it owns the stock of Marcam
Canada Corporation).
7.7. YEAR 2000 CREDIT RISK ASSESSMENT.
Greyrock is concurrently providing
Borrower with a "Year 2000 Credit Risk
Assessment," which Borrower agrees to
complete and return to Greyrock within
60 days of the date hereof.
7.8. GOOD STANDING CERTIFICATE. Within
15 days after the date hereof, Borrower
shall provide Greyrock with a Good
Standing Certificate for Massachusetts.
Until Borrower has provided such Good
Standing Certificate, Greyrock shall
have no obligation to make any Loans to
Borrower.
7.9. FURTHER ASSURANCES. Without
limiting the terms of the Loan and
Security Agreement, if Greyrock shall
ever determine to take any further
actions to perfect or protect its
security interests in any of the
Collateral, including, without
limitation, foreign patents and
trademarks, then Borrower shall
cooperate with Greyrock in doing so.
================================================================================
8. STREAMLINED AND NON-STREAMLINED FACILITIES:
8.1 SELECTING A FACILITY. Throughout
each month, either the "Streamlined
Facility" or the "Non-Streamlined
Facility" shall be in effect, and the
Borrower shall give Greyrock written
notice, at least three business days
before the beginning of each month as to
which Facility shall be in effect during
such month. If the Borrower fails to
give written notice to Greyrock at least
three business days before the beginning
of a month, as to which Facility shall
be in effect, then the Facility in
effect during the prior month shall
continue in effect during the next
month. The Facility in effect as of the
date hereof shall be the Streamlined
Facility. If Borrower desires to change
from a Streamlined Facility to a
Non-Streamlined Facility, then with the
written notice of such change, Borrower
shall provide Greyrock with any
schedules, reports, assignments, agings
and the like which would be required
under the new Facility but were not
required under the old Facility, current
as of the date of the change, and shall
allow Greyrock access to its books and
records for purposes of Greyrock
conducting its standard pre-funding
audit. If the Borrower elects to change
from the Non-Streamlined Facility to the
Streamlined Facility, the Borrower
shall, with the written notice of such
change, make payment to Greyrock to
reduce the Obligations to an amount
which would be within the Credit Limit
applicable to the Streamlined Facility.
5
<PAGE>
8.2 STREAMLINED FACILITY-PROVISIONS. At
all times while the Streamlined Facility
is in effect, the following provisions
shall apply:
(A) SCHEDULES AND REPORTS. Borrower
shall deliver to Greyrock a borrowing
base certificate and an aged accounts
receivable trial balance in such form as
Greyrock shall reasonably specify on a
twice-monthly basis, within 10 days
after the end of each month, and within
10 days after the 15th of each month.
Following the occurrence, and during the
continuance, of an Event of Default or
any event which, with notice or passage
of time or both, would constitute an
Event of Default, without limiting
Greyrock's other rights and remedies,
Borrower shall furnish Greyrock with
copies (or, at Greyrock's request,
originals) of all contracts, orders,
invoices, and other similar documents,
and all original shipping instructions,
delivery receipts, bills of lading, and
other evidence of delivery, for any
goods the sale or disposition of which
gave rise to such Accounts. Borrower
warrants the genuineness of all of the
foregoing. Borrower agrees that Greyrock
may from time to time verify directly
with the respective Account Debtors the
validity, amount and any other matters
relating to the Accounts by means of
mail, telephone or otherwise, either in
the name of Borrower or Greyrock or such
other name as Greyrock may choose. In
addition, Borrower shall deliver to
Greyrock the originals of all
instruments, chattel paper, security
agreements, guarantees and other
documents and property evidencing or
securing any Accounts, not later than
four business days after receipt thereof
by Borrower, in the same form as
received, with all necessary
indorsements all of which shall be with
recourse.
(B) COLLECTION OF ACCOUNTS. Following
the occurrence, and during the
continuance, of an Event of Default or
any event which, with notice or passage
of time or both, would constitute an
Event of Default, without limiting
Greyrock's other rights and remedies:
(i) all monies, checks, notes, drafts,
money orders, acceptances and other
things of value and items of payment,
together with any and all related
vouchers, identifications,
communications and other data, documents
and instruments, collected or received
by Borrower (or by any receiver,
trustee, custodian or successor in
interest of Borrower, or by any person
acting on behalf of Borrower) in payment
of, or in reference to, the Accounts
shall be delivered by the Borrower to
Greyrock at Greyrock's office (or, if so
directed by Greyrock, Borrower shall
deposit the same in Greyrock's account
in a bank designated by Greyrock),
within one day after receipt thereof, in
their original form, duly endorsed, to
be applied to the Obligations in such
order as Greyrock shall determine; (ii)
Borrower shall have no right, and agrees
not to commingle any of the proceeds of
any of the collections of the Accounts
with Borrower's own funds and Borrower
agrees not to use, divert or withhold
any such proceeds; and (iii) Greyrock
may, without notice to Borrower, require
all Account Debtors to pay the Accounts
directly to Greyrock. Greyrock may
charge to Borrower's account all costs
and expenses incurred by Greyrock in
collecting Accounts, including, without
limitation, postage, telephone and
telegraph
6
<PAGE>
charges, salaries of Greyrock personnel,
and attorneys' fees. Borrower agrees
that, after the occurrence of an Event
of Default which is continuing, it will,
upon request by Greyrock and in such
form and at such times as Greyrock shall
request, give notice to the Account
Debtors of the assignment of and the
grant of a security interest in the
Accounts to Greyrock and that Greyrock
may itself give such notice at any time
and from time to time in Greyrock's or
Borrower's name, without notice to
Borrower.
Borrower: Greyrock:
Marcam SOLUTIONS, INC. Greyrock Capital,
a Division of NationsCredit Commercial
Corporation
By /s/ Harlan Plumley
-------------------------------
Vice President and Treasurer
By /s/ Diane R. Tormey By /s/ Lisa Nagaro
------------------------------- -------------------------------
Secretary Title Senior Vice President
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1999
<CASH> 11,191
<SECURITIES> 3,769
<RECEIVABLES> 26,558
<ALLOWANCES> 2,940
<INVENTORY> 0
<CURRENT-ASSETS> 42,618
<PP&E> 26,586
<DEPRECIATION> 20,740
<TOTAL-ASSETS> 49,022
<CURRENT-LIABILITIES> 53,377
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> (4,595)
<TOTAL-LIABILITY-AND-EQUITY> 49,022
<SALES> 8,119
<TOTAL-REVENUES> 29,119
<CGS> 775
<TOTAL-COSTS> 16,151
<OTHER-EXPENSES> 8,155
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</TABLE>
