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 December 31, 1998
or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from __________ to __________.
Commission File Number 000-22841
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MARCAM SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
Delaware 04-3371621
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<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
95 Wells Avenue
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Newton, Massachusetts 02459
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 965-0220
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</TABLE>
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 February 10, 1999, was 7,817,587 shares.
<PAGE>
MARCAM SOLUTIONS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1998 (unaudited)
and September 30, 1998
Consolidated Statements of Operations (unaudited) for the three
months ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows (unaudited) for the three
months ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
MARCAM SOLUTIONS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 19,156 $ 24,929
Short-term investments 4,212 3,131
Accounts receivable, net of allowances of $2,517 at
December 31, 1998 and $2,235 at September 30, 1998 26,057 29,623
Prepaid expenses and other current assets 3,820 4,335
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Total current assets 53,245 62,018
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Property and equipment, net 6,109 6,372
Computer software costs, net 568 917
Other assets 198 195
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Total assets $ 60,120 $ 69,502
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,916 $ 7,379
Accrued expenses and other current liabilities 26,966 28,652
Deferred revenue 19,308 16,051
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Total current liabilities 54,190 52,082
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Capital lease obligations 6 119
Deferred income taxes 99 99
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Total liabilities 54,295 52,300
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Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized - --
Common stock, $.01 par value; 30,000 shares authorized; 7,747 and 77 77
7,740 shares issued and outstanding at December 31, 1998 and
September 1998, respectively
Additional paid-in capital 144,649 144,604
Accumulated deficit (137,906) (126,597)
Cumulative translation adjustment (995) (882)
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Total stockholders' equity 5,825 17,202
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Total liabilities and stockholders' equity $ 60,120 $ 69,502
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
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MARCAM SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
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<S> <C> <C>
Revenues:
License $ 6,332 $11,474
Services 19,763 16,634
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Total revenues 26,095 28,108
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Operating expenses:
Cost of license revenues 916 1,105
Cost of services revenues 14,873 11,754
Selling and marketing 10,740 9,536
Product development 7,948 7,484
General and administrative 1,567 1,526
Non-recurring charges (Note 2) 1,460 --
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Total operating expenses 37,504 31,405
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Operating loss (11,409) (3,297)
Interest and other income 516 699
Interest and other expense (41) (145)
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Loss before income tax expense (10,934) (2,743)
Income tax expense (375) (600)
-------- -------
Net loss $(11,309) $(3,343)
======== =======
Basic and diluted net loss per share $ (1.46) $ (0.45)
======== =======
Weighted average number of basic and diluted common
shares outstanding (Note 3) 7,746 7,483
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (11,309) $(3,343)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 1,306 1,376
Non-recurring charges, non-cash portion 1,296 --
Provision for bad debts 391 382
Deferred income taxes -- (25)
Changes in operating assets and liabilities:
Accounts receivable 1,830 (1,213)
Prepaid expenses and other assets 483 (48)
Accounts payable 576 391
Accrued expenses and other current liabilities (1,673) 1,828
Deferred revenue 3,223 (6,154)
--------- -------
Net cash used for operating activities (3,877) (6,806)
--------- -------
Cash flows from investing activities:
Purchases of property and equipment (680) (849)
Purchases of short-term investments (2,262) --
Proceeds from the sale of short-term investments 1,181 --
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Net cash used for investing activities (1,761) (849)
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Cash flows from financing activities:
Principal payments on debt and capital lease obligations (132) (70)
Proceeds from stock option exercises 45 252
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Net cash provided by (used for) financing activities (87) 182
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Effect of exchange rate changes on cash and cash equivalents (48) (357)
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Net decrease in cash and cash equivalents (5,773) (7,830)
Cash and cash equivalents at beginning of period 24,929 26,474
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Cash and cash equivalents at end of period $ 19,156 $18,644
========= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<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 months ended December 31, 1998 are
not necessarily indicative of the results to be expected for the full year.
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 of 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.
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 have been excluded from the computation of
diluted loss per share for the three-month periods ended December 31, 1998 and
1997, respectively, as their effect 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 December 31,
-------------------------------------
1998 1997
--------- --------
(In thousands, except per share data)
<S> <C> <C>
BASIC AND DILUTED NET LOSS PER SHARE
Numerator:
Net loss (11,309) $(3,343)
--------- --------
Denominator:
Common shares outstanding 7,746 7,483
--------- --------
Basic and diluted net loss per share $ (1.46) $ (0.45)
========= ========
</TABLE>
Options and warrants to purchase 2,268,171 and 2,107,949 weighted shares of
common stock outstanding at December 31, 1998 and 1997, respectively, were
excluded from the calculation of diluted earnings per share because the effect
of their inclusion would have been anti-dilutive.
6
<PAGE>
Marcam Solutions, Inc.
Notes to Consolidated Financial Statements
(unaudited)
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 adverse effect on the Company's future
financial position or results of operations.
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) Recent Accounting Pronouncements
--------------------------------
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.
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' equity. The Company's
comprehensive earnings were as follows:
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1998 1997
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(In thousands)
<S> <C> <C>
Net loss (11,309) (3,343)
Foreign currency translation adjustment (113) (257)
-------- -------
Total comprehensive loss $(11,422) $(3,600)
========= =======
</TABLE>
7
<PAGE>
PART I.
ITEM 2: MANGEMENT'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 December 31, 1998, the Company recorded a net
loss of $11.3 million. The net loss included an operating loss, excluding
non-recurring charges, of $9.9 million. The Company's revenues for the three
months ended December 31, 1998 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 second fiscal quarter of 1999, the Company intends to take
significant actions to bring expenses in line with historical revenue levels.
These actions will continue to focus on cost cutting measures designed to
increase operational efficiencies. On February 9, 1999, the Company announced a
reduction of up to 20% of its workforce which is expected to result in
restructuring charges being recorded in the second fiscal quarter of 1999 of
$2.0 million to $3.0 million. These actions are expected to result in future
cost savings for the Company.
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 December 31, 1998, license revenues from each of the
Company's product lines decreased compared to license revenues during the three
months ended December 31, 1997. 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 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
EAM implementations.
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 continued to increase
its investment in its distribution channel in North America and Europe, as
evidenced by increased selling and marketing expenses, comparing the three
months ended December 31, 1998 to the same period in 1997. The Company's
aggressive investments in the distribution system have not yet matured, but the
Company still believes
8
<PAGE>
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 continue to
make investments in its distribution system, as its viability going forward will
continue to depend on the success of that system.
During the quarter, the Company continued to undertake a number of other
actions designed to increase revenues, including developing and introducing
enhanced versions of its Protean and Avantis.Pro products that are designed to
make the products more competitive. 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. Given the financial results of this quarter and the fact that the
Company's historical software development spending has been well above the
industry norms, the Company intends to take a number of actions to reduce costs
in this area in the second and third fiscal quarters of 1999.
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 support and
services businesses have remained profitable, the Company expects to continue to
add necessary resources in these areas.
During the three months ended December 31, 1998, the Company made an
assessment of its operations in Asia Pacific. As a result of the assessment,
management determined that it was not cost effective to continue the current
level of operations in Asia Pacific. Therefore, the Company decided to downsize
operations in Asia Pacific and to close all but one of its Asia Pacific
facilities during the second fiscal quarter. Historically, the Company has
recognized only a small percentage of its revenues from the Asian market, and
the Company does not expect that there will be a significant decrease in
revenues as a result of these actions. The Company believes that these minor
cost reductions will have a minor impact on improving operating income.
The Company believes continued increases in license revenues are required
to offset the costs of growing the distribution channel and funding development,
translation and integration activities related to the Protean product line. In
the event that 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 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 7.2% to $26.1 million during the three-month
period ended December 31, 1998, as compared to $28.1 million for the three-month
period ended December 31, 1997.
License revenues decreased 44.8% to $6.3 million for the three-month period
ended December 31, 1998, as compared to $11.5 million for the three-month period
ended December 31, 1997. The decrease in license revenues resulted from a
decrease of $4.6 million in license revenue from the Company's enterprise
resource planning (ERP) products, and a decrease of $0.6 million in license
revenues from the Company's enterprise asset management (EAM) products. 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
enterprise resource planning software application market, which has in part been
caused by a decrease in customer demand, as
9
<PAGE>
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.
Services revenues increased 18.8% to $19.8 million for the three-month
period ended December 31, 1998, as compared to $16.6 million for the three-month
period ended December 31, 1997. Service 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 was due primarily to a $2.6 million increase in consulting
revenues, and to a lesser extent, to a $0.6 million increase in customer support
revenues, both resulting from an increase in the Company's customer base.
Cost of License Revenues
- ------------------------
Cost of license revenues represented 14.7% of license revenues for the
three-month period ended December 31, 1998, as compared to 9.6% for the
three-month period ended December 31, 1997. The increase in cost of license
revenues as a percentage of license revenues for the three months ended December
31, 1998, as compared to the same period in 1997, was primarily due to an
increase in product royalties as a percentage of license revenues. Additionally,
amortization of software developments costs, though down slightly, represented a
larger percentage of license revenues compared to the same period in 1997 given
the smaller revenues in the three-month period ended December 31, 1998.
Cost of Services Revenues
- -------------------------
Cost of services revenues represented 75.3% of services revenues for the
three-month period ended December 31, 1998, as compared to 70.7% for the same
period in 1997. The increase in cost of services revenues as a percentage of
services revenues for the three months ended December 31, 1998, as compared to
the same period in 1997, 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 a decrease in staff utilization rates during
the quarter ended December 31, 1998. This was the result of increased hiring,
and the subsequent training and downtime associated with new service providers.
Selling and Marketing
- ---------------------
Selling and marketing expenses increased $1.2 million, or 12.6%, for the
three-month period ended December 31, 1998, compared to the same period in 1997.
The increase in selling and marketing expenses in 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 December 31,
1998 and 1997 were $7.9 million and $7.5 million, respectively. The $0.4 million
increase was due to spending increases on the translation of the Company's
products to various foreign languages, spending increases on the development of
the Company's Protean products, and additional costs incurred to integrate the
Company's products with various third-party software products.
General and Administrative
- --------------------------
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, increased slightly for the
three months ended December 31, 1998, compared to the same period in 1997.
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
10
<PAGE>
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.
Interest and Other Income
- -------------------------
Interest and other income decreased $0.2 million, or 26.2%, for the
three-month period ended December 31, 1998, compared to the same period in 1997.
The decrease was primarily related to less interest earned on lower average cash
and short-term investment balances during the three months ended December 31,
1998, as compared to 1997. In addition, a portion of the decrease from 1997 to
1998 resulted from a reduction in the gain from favorable changes in currency
exchange rates.
Interest and Other Expense
- --------------------------
Interest and other expense decreased $0.1 million, or 71.7%, for the
three-month period ended December 31, 1998, compared to the same period in 1997.
The decrease during the three months ended December 31, 1998, compared to the
same period in 1997, was the result of a decrease in capital lease interest and
a decrease in prepayment discounts earned by customers.
Income Tax Expense
- ------------------
The income tax expense for the three-month period ended December 31, 1998
of $0.4 million and $0.6 million for the same period in 1997 were 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 1998 or 1997 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 $8.8 million during the three-month period
ended December 31, 1998, to $53.2 million at December 31, 1998, 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 $23.4 million as of December 31, 1998 had decreased by $4.7
million from $28.1 million as of September 30, 1998. Cash and cash equivalents
was used during the three-month period to fund operating losses and to make
investments in fixed assets. Accounts receivable as of December 31, 1998 of
$26.1 million had decreased by $3.5 million from $29.6 million as of September
30, 1998, due principally to decreased revenues in the three-month period ended
December 31, 1998.
Current liabilities increased by $2.1 million during the three-month period
ended December 31, 1998, to $54.2 million as of December 31, 1998, compared to
$52.1 million at September 30, 1998. This increase was due to increases in
accounts payable and deferred revenue, and was partially offset by a decrease in
accrued expenses and other current liabilities. As of September 30, 1998, 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
$11.0 million, to a working capital deficit of $0.9 million as of December 31,
1998, 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 $19.3 million
at December 31, 1998 is a major component of current liabilities and that this
balance does not represent a typical cash outflow liability.
During the three-month period ended December 31, 1998, operating activities
used approximately $3.9 million of cash. Investing activities used approximately
$1.8 million of cash, resulting from $1.1 million of net purchases of short-term
investments and $0.7 million used for the purchase of fixed assets. Financing
activities used $0.1 million of cash, related to the principal payments on
capital lease obligations, partially offset by proceeds from the exercise of
stock options.
11
<PAGE>
The Company used cash during fiscal 1999, 1998 and 1997 to fund strategic
investments, in particular, substantial expenditures for marketing and selling
activities and for product development, and operating losses. For the first
three months of fiscal 1999 and for fiscal years 1998 and 1997, the Company's
selling and marketing expenditures were $10.7 million, $40.5 million and $66.6
million, respectively. During the first three months of fiscal 1999 and for
fiscal years 1998 and 1997, the Company's product development expenditures were
$7.9 million, $32.1 million, and $41.9 million, respectively. During the
remainder of fiscal 1999, the Company intends to continue to invest in selling
and marketing activities, but intends to decrease 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 bring expenses in line with
historical revenue levels 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, improvements in operating
productivity, and payment terms and collection of accounts receivable.
There can be no assurance that the Company's operations will generate
sufficient cash to finance its operations. Until operations improve to meet its
cash requirements, the Company will need to rely on existing cash resources. The
Company currently anticipates that cash from improved operations and its
available cash will be sufficient to fund operations through at least the next
twelve months. 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. Marcam Solutions currently believes that
its potential borrowing capacity is limited to revolving lines of credit with
borrowing availability based on qualifying accounts receivable. The Company is
currently in negotiations to secure funding of this nature. There can be no
assurance that such a revolving line of credit or any other additional debt or
equity financing will be available or available on terms acceptable to Marcam
Solutions. The continued incurrence of operating losses by Marcam Solutions
would have a material adverse affect on Marcam Solutions' business, financial
condition and results of operations.
Year 2000 Readiness Disclosure Statement
- ----------------------------------------
To date, the Company has not incurred any material expenditure 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 has completed its
initial assessment of its year 2000 issues and is in the process of implementing
remedies for all issues identified. Most of the expenses incurred have been, and
in the future are expected to be, related to the opportunity costs of employees
evaluating the Company's financial and accounting software, the current versions
of the Company's products and year 2000 compliance matters generally. The
Company believes that it is unlikely to experience a material adverse impact on
its financial condition or results of operations due to year 2000 compliance
issues. However, since the assessment process is ongoing, year 2000
complications are not fully known, and potential liability issues are not clear,
the full potential impact of the year 2000 issue on the Company is not known at
this time. See Marcam Solutions, Inc. Form 10-K 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
12
<PAGE>
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 adverse effect on the Company's
future financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement dated December 22, 1998 by and between Marcam
Solutions, Inc. and Jonathan C. Crane
10.2 Loan agreement dated December 22, 1998 by and between Marcam Solutions,
Inc. and Jonathan C. Crane
10.3 Promissory Note dated December 22, 1998 by and between Marcam Solutions,
Inc. and Jonathan C. Crane
10.4 Letter Agreement dated October 20, 1998 by and between Marcam Solutions,
Inc. and Stephen R. Quehl
27 Financial Data Schedule
13
<PAGE>
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.
February 12, 1999 /s/ Denis E. Liptak
- ----------------- -------------------------
Date Denis E. Liptak
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
10.1 Employment Agreement dated December 22, 1998 by and between Marcam
Solutions, Inc. and Jonathan C. Crane
10.2 Loan agreement dated December 22, 1998 by and between Marcam Solutions,
Inc. and Jonathan C. Crane
10.3 Promissory Note dated December 22, 1998 by and between Marcam Solutions,
Inc. and Jonathan C. Crane
10.4 Letter Agreement dated October 20, 1998 by and between Marcam Solutions,
Inc. and Stephen R. Quehl
27 Financial Data Schedule
15
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of December 22, 1998 (the "Agreement")
by and between Marcam Solutions, Inc., a Delaware corporation (the "Company"),
and Jonathan C. Crane (the "Executive"):
WITNESSETH:
WHEREAS, the Executive is the Chairman of the Board, Chief Executive
Officer and President of the Company and has made and is expected to continue to
make major contributions to the profitability, growth and financial strength of
the Company;
WHEREAS, the Company desires to continue to employ the Executive, and the
Executive desires to continue to be employed by the Company, to render services
to the Company on the terms and subject to the conditions set forth in this
Agreement; and
NOW, THEREFORE, in consideration of these premises and of the covenants and
agreements set forth in this Agreement, the parties hereto hereby agree as
follows:
1. Employment. The Company shall continue to employ the Executive, and the
Executive agrees to continue to serve the Company, as its Chairman of the Board,
Chief Executive Officer and President upon the terms and subject to the
conditions set forth in this Agreement.
2. Term. Unless earlier terminated in accordance with this Agreement, the
term of the Executive's employment under this Agreement (the "Term") shall
commence on the date hereof and shall expire on September 30, 1999; provided,
however, that upon expiration of such term, this Agreement shall be extended
from year to year without further action on the part of the parties hereto,
unless either party hereto gives written notice of termination to the other
party at least 30 days prior to the expiration of the then current term.
3. Duties and Responsibilities. (a) During the Term, the Executive shall
serve as the Chairman of the Board, Chief Executive Officer and President of the
Company. In the performance of his responsibilities as the Chairman of the
Board, Chief Executive Officer and President, the Executive shall be subject to
all of the Company's policies, rules and regulations applicable to its
executives of comparable status and shall report directly to, and shall be
subject to the direction and control of, the Board of Directors of the Company
(the "Board"), and shall perform such duties as shall be assigned to him by the
Board. In performing such duties, the Executive will be subject to and will
substantially abide by, and will use reasonable efforts to cause employees of
the Company to be subject to and substantially abide by, all policies and
procedures developed by the Company.
<PAGE>
Employment Agreement--Page 2
(b) During the Term, the Executive shall devote all of his business
time, energies, skills and attention to the affairs and activities of the
Company and any corporation, partnership or other entity controlled by the
Company (each, a "Subsidiary"). The Executive shall provide these services to
the Company and its Subsidiaries described in this Agreement in a professional
and diligent manner and in a manner consistent with the highest standards of
performance in the health care field. During the Term, the Executive shall not
devote any of his business time, energies, skills or attention to the affairs or
activities of any other business or organization, without the prior approval of
the Board (which approval shall not be unreasonably withheld).
4. Compensation. (a) For all services rendered by the Executive under this
Agreement, the Company shall pay or cause to be paid to the Executive, and the
Executive shall accept, the Base Salary and Bonus, if any (as such terms are
hereinafter defined in this Section 4), all in accordance with and subject to
the terms of this Agreement. For the purposes of this Agreement, the term
"Compensation" shall mean the Base Salary and Bonus, if any. The Executive shall
have the right to elect to defer in accordance with applicable Internal Revenue
Service requirements for a reasonable time the Compensation payable to him, such
deferral to be evidenced by appropriate documentation at the time of such
deferral. In addition, to the Base Salary and Bonus, the Executive shall be
entitled to receive such other bonuses, options and other remuneration as the
Board may from time to time approve, in its sole discretion.
(b) During the Term, the Company shall pay the Executive a base salary
(the "Base Salary") at an annual rate of $398,000 from the date of this
Agreement through September 30, 1999. The Executive's Base Salary shall be
reviewed at least annually by the Compensation Committee of the Board (the
"Compensation Committee") and may be increased or decreased by the Compensation
Committee in its sole discretion. The Base Salary shall be payable in
installments in accordance with the Company's regular practices, as such
practices may be modified from time to time, but in no event less often than
monthly.
(c) During the Term, the Executive shall be eligible to earn an annual
performance bonus (the "Bonus") if the Company meets the performance objectives
established by the Compensation Committee for purposes of this Agreement for the
applicable period during the Term. The Bonus (including the amount thereof)
shall be reviewed at least annually by the Compensation Committee and shall be
payable as determined by the Compensation Committee in its sole discretion.
(d) The Executive shall be eligible to participate in qualified
retirement, deferred compensation, group medical, accident, disability and
health benefit plans of the Company as may be provided by the Company from time
to time to Company executives of comparable status, subject to, and to the
extent that, the Executive is eligible under such benefit plans in accordance
with their respective terms. The Company shall pay the expenses associated with
the Executive's participation in such benefit plans to the same extent the
Company pays the expenses associated with participation by other employees. In
addition, the Executive shall be entitled to reasonable periods of paid
vacation, personal and sick leave during the Term in accordance with the
Company's policies regarding such vacation and leaves.
<PAGE>
Employment Agreement--Page 3
(e) The Executive is authorized to incur reasonable expenses in the
performance of his duties hereunder during the Term. The Company shall reimburse
the Executive for all such expenses in accordance with the Company's procedures
and policies as adopted and in effect from time to time and applicable to its
executives of comparable status.
5. Termination. (a) During the Term (regardless of whether or not the
Company experiences a Change in Control (as defined below)), the Company may
terminate the employment of the Executive for "Cause." For purposes of this
Agreement, "Cause" means: (i) the Executive's conviction of any crime (whether
or not involving the Company) which constitutes a felony in the jurisdiction
involved (other than unintentional motor vehicle felonies); (ii) any intentional
act of theft, fraud or embezzlement by the Executive in connection with his work
with the Company; (iii) the Executive's continuing, repeated and willful failure
or refusal to perform his duties and services under this Agreement (other than
due to his incapacity due to illness or injury), provided that such failure or
refusal continues uncorrected for a period of 30 days after the Executive shall
have received written notice from the Board stating with specificity the nature
of such failure or refusal; or (iv) the Executive's violation of Section 7.
(b) During the Term (regardless of whether or not the Company
experiences a Change in Control), the Company may terminate the Executive's
employment at any time without Cause. For purposes of this Agreement, if the
Company gives written notice of termination to the Executive at least 30 days
prior to the expiration of the then current Term, such action shall be
considered termination of the Executive's employment without Cause pursuant to
this Section 5(b).
(c) The Company may terminate the Executive's employment if, as a result
of the Executive's incapacity due to physical or mental illness, the Executive
is unable to perform the essential functions of his job for any period of at
least 90 days (whether or not consecutive) during any 12-month period, and no
reasonable accommodation can be made that will allow the executive to perform
his essential functions (a "Disability").
(d) The Executive may voluntarily terminate his employment at any time
by giving the Board at least six months' prior written notice; provided,
however, that, at any time after receiving such written notice, the Board may
terminate the Executive's employment on shorter notice or with no prior notice
(which termination shall not be deemed a termination without Cause under this
Agreement).
(e) Within one year following a Change in Control (as defined below) of
the Company, the Executive may voluntarily terminate his employment at any time
for Good Reason (as defined below).
(f) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) "Change in Control" means the occurrence of any of the following
events during the Term:
<PAGE>
Employment Agreement--Page 4
(A) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of the combined corporation or person
immediately after such transaction are held in the aggregate by the holders of
the combined voting power of the then-outstanding securities entitled to vote
generally in the election of directors of the Company ("Voting Stock")
immediately prior to such transaction;
(B) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of the Voting Stock of the Company
immediately prior to such sale or transfer;
(C) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended (the "1934 Act"), disclosing that
any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2)
or the 1934 Act) has become the beneficial owner (as the term "beneficial owner"
is defined under Rule 13d-3 or any successor rule or regulation promulgated
under the 1934 Act) of securities representing 25% or more of the Voting Stock;
(D) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the 1934 Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(E) If during any period of two consecutive years, individuals
who at the beginning of any such period constitute the directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's stockholders, of each
director of the Company first elected during such period was approved by a vote
of at least two-thirds of the directors then still in office who were directors
of the Company at the beginning of any such period;
provided, however, that notwithstanding the foregoing provisions (C) and (D) of
this Section 5(f)(i), a "Change in Control" shall not be deemed to have occurred
for purposes of this Plan solely because (i) the Company, (ii) an entity in
which the Company directly or indirectly beneficially owns 50% or more of the
voting securities, or (iii) any Company-sponsored employee stock ownership plan
or any other employee benefit plan of the Company, either files or becomes
obligated to file a report or a proxy statement under or in response to Schedule
13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form
or report or item therein) under the 1934 Act, disclosing beneficial ownership
by it of shares of Voting Stock, whether in excess of 25% or otherwise, or
because the Company reports that a change in control of the
<PAGE>
Employment Agreement--Page 5
Company has or may have occurred or will or may occur in the future by reason of
such beneficial ownership.
(ii) "Good Reason" means the occurrence of one or more of the
following events following a Change in Control:
(A) Failure to elect, reelect or otherwise maintain the
Executive in the office or position in the Company which the Executive held
immediately prior to a Change in Control, or the removal of the Executive as a
director of the Company (or any successor thereto) if the Executive shall have
been a director of the Company immediately prior to the Change in Control;
(B) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Executive held immediately prior to the
Change in Control, a reduction in the aggregate of the Executive's Compensation
received from the Company, or the termination of the Executive's rights to any
benefits to which he was entitled immediately prior to the Change in Control or
a reduction in scope or value thereof without the prior written consent of the
Executive, any of which is not remedied within 20 calendar days after receipt by
the Company of written notice from the Executive of such change, reduction or
termination, as the case may be;
(C) A determination by the Executive made in good faith that as
a result of a Change in Control and a change in circumstances thereafter
significantly affecting his position, including a change in the scope of the
business or other activities for which he was responsible immediately prior to
the Change in Control, he has been rendered substantially unable to carry out,
has been substantially hindered in the performance of, or has suffered a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the Executive
immediately prior to the Change in Control, which situation is not remedied
within 20 calendar days after written notice to the Company from the Executive
of such determination;
(D) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or a significant portion of its
business or assets, unless the successor or successors (by liquidation, merger,
consolidation, reorganization or otherwise) to which all or a significant
portion of its business or assets have been transferred (directly or by
operation of law) shall have assumed all duties and obligations of the Company
under this Agreement pursuant to Section 10(c); or
(E) The Company shall relocate its principal executive offices,
or require the Executive to have his principal location of work changed, to any
location which is in excess of 30 miles from the location thereof immediately
prior to the Change in Control or the Company shall require the Executive to
travel away from his office in the course of discharging his responsibilities or
duties thereunder significantly more (in terms of either consecutive days or
aggregate days in any calendar year) than was required of him prior to the
Change in Control without, in either case, his prior written consent.
<PAGE>
Employment Agreement--Page 6
6. Effects of Termination. (a) If the Company terminates the Executive's
employment pursuant to Section 5(a) (for Cause), or the Executive voluntarily
terminates his employment with the Company pursuant to Section 5(d) for any
reason, at any time (regardless of whether or not the Company has experienced a
Change of Control prior to such termination), the Executive shall not be
entitled to any Compensation or benefits following the date of such termination,
other than Compensation and benefits required to be paid or provided by law and
payment of the Executive's normal post-termination benefits in accordance with
the Company's retirement, insurance and other benefit plans and arrangements.
(b) If the Company terminates the Executive's employment pursuant to
Section 5(b) (without Cause) at any time either (i) prior to a Change in Control
or (ii) after the first anniversary of a Change in Control, then (x) the
Executive shall receive an aggregate amount equal to 12 months of Base Salary at
the rate being paid to the Executive immediately prior to such termination; (y)
the Executive shall have 12 months following such termination to exercise any
options to purchase shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), which are exercisable at the time of such
termination; and (z) the Company shall pay the Executive's normal
post-termination benefits in accordance with the Company's retirement, insurance
and other benefit plans and arrangements and as contemplated by this Agreement;
provided, however, that the date of such termination shall be treated as a
"qualifying event" under the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and if the Executive elects to continue coverage under the
Company's health benefit plans in accordance with COBRA, the Company shall pay
COBRA payments for a period of one (1) year from such termination date.
(c) If either (i) the Company terminates the Executive's employment
pursuant to Section 5(b) (without Cause) or (ii) the Executive terminates his
employment pursuant to Section 5(e) (for Good Reason), in the case of either (i)
or (ii) at any time during a period commencing with a Change in Control and
ending on the first anniversary of a Change in Control, then (x) the Executive
shall receive an amount equal to the sum of (I) 24 months of Base Salary at the
rate being paid to the Executive immediately prior to such termination plus (II)
the average of the annual bonuses paid to the Executive by the Company with
respect to the most recently completed three fiscal years (or such shorter
period as the Executive shall have been employed by the Company); (y)
notwithstanding any provisions of the Company's 1997 Stock Plan, or of any other
incentive stock option plans or non-qualified stock option plans which may
subsequently be adopted (collectively, the "Stock Plans") or any agreements
thereunder, all stock options granted to the Executive under the Stock Plans and
not then vested shall in such event and at such time become immediately vested
and exerciseable as of the date of termination and the Executive shall have 12
months following such termination to exercise any options to purchase shares of
the Common Stock which are exercisable at the time of such termination; and (z)
the Company shall pay the Executive's normal post-termination benefits in
accordance with the Company's retirement, insurance and other benefit plans and
arrangements and as contemplated by this Agreement; provided, however, that the
date of such termination shall be treated as a "qualifying event" under the
COBRA and if the Executive elects to continue coverage under the Company's
<PAGE>
Employment Agreement--Page 7
health benefit plans in accordance with COBRA, the Company shall pay COBRA
payments for a period of one (1) year from such termination date.
(d) If the Executive dies, the Executive shall not be entitled to
receive any Compensation or benefits following the date of his death, other than
Compensation and benefits required to be paid or provided by law and payment of
the Executive's normal post-termination benefits in accordance with the
Company's retirement, insurance and other benefit plans and arrangements;
provided, however, that the Company shall pay to the Executive's estate an
amount equal to six months of Base Salary at the rate being paid to the
Executive immediately prior to his death; and further provided, notwithstanding
any provisions of the Company's Stock Plans or any agreements thereunder, with
respect to any stock options to purchase shares of the Common Stock granted to
Executive after the date of this Agreement, the Executive's estate shall have 12
months following such termination to exercise any stock options which are
exercisable at the date of the Executive's death in accordance with the
applicable Stock Plans and agreements thereunder.
(e) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to a Disability (the
"Disability Period"), the Executive shall continue to receive his full Base
Salary at the rate then in effect for such period until the Company terminates
the Executive's employment pursuant to Section 5(c) because of his Disability;
provided, however, that the payments to be made to the Executive during the
Disability Period shall be reduced by the amounts, if any, payable to the
Executive with respect to such Disability Period under disability benefit plans
of the Company or under the Social Security disability insurance program, which
amounts were not previously applied to reduce any such payment. If the Company
terminates the Executive's employment pursuant to Section 5(c) because of his
Disability, the Executive shall not be entitled to receive any Compensation or
benefits following the date of such termination or death, other than
Compensation and benefits required to be paid or provided by law and payment of
the Executive's normal post-termination benefits in accordance with the
Company's retirement, insurance and other benefit plans and arrangements;
provided, however, that the Company shall pay to the Executive an amount equal
to six months of Base Salary at the rate being paid to the Executive immediately
prior to such termination; and further provided, notwithstanding any provisions
of the Company's Stock Plans or any agreements thereunder, with respect to any
stock options to purchase shares of the Common Stock granted to Executive after
the date of this Agreement, the Executive shall have 12 months following such
termination to exercise any stock options which are exercisable at the time of
such termination in accordance with the applicable Stock Plans and agreements
thereunder.
(f) Any severance payments to be made to the Executive shall be payable
in a lump sum within 30 days after such termination.
(g) Notwithstanding anything to the contrary in this Agreement, if the
Executive is a "Disqualified Individual" (as defined in Section 280G of the
Internal Revenue Code of 1986 as amended (the "Code")) and if any portion of the
payments to be made to the Executive pursuant to this Section 6 would be an
"Excess Parachute Payment" (as is defined in Section 280G of the
<PAGE>
Employment Agreement--Page 8
Code), then the amount of such payments otherwise payable to the Executive
pursuant to this Agreement shall be reduced to the minimum extend necessary so
that no portion of such payments, as so reduced, constitutes an Excess Parachute
Payment.
7. Restrictive Covenants. (a) Executive acknowledges that he has entered
into an Employee Agreement on Ideas, Inventions, Confidential Information, and
Non-Competition dated as of October 28, 1998 with the Company (the "Employee
Agreement"). Notwithstanding anything to the contrary in this Agreement, the
Employee Agreement shall remain in full force and effect and shall not be deemed
modified in any way by this Agreement, except that the Company shall not be
obligated to pay amounts to the Executive pursuant to the Employee Agreement for
the agreements and covenants of the Executive set forth in Paragraph 10 of the
Employee Agreement to remain applicable to the Executive for the periods
specified in the Employee Agreement.
(b) In addition to the agreements and covenants of the Executive set
forth in the Employee Agreement, during the Term and until the first anniversary
of the date of termination of Executive's employment with the Company for any
reason (the "Termination Period"), the Executive shall not, directly or
indirectly, (i) induce or attempt to influence any employee of the Company or
its subsidiaries to leave its employ, (ii) aid or agree to aid any competitor,
customer or supplier of the Company or its subsidiaries in any attempt to hire
any person who shall have been employed by the Company or its subsidiaries
within the one-year period preceding such requested aid, or (iii) induce or
attempt to influence any person or business entity who was a customer of the
Company or its subsidiaries during any portion of the Term or the Termination
Period to transact business with a competitor of the Company in the Company's
business.
8. No Mitigation Obligation. The Company hereby acknowledges that it will
be difficult, and may be impossible, for the Executive to find reasonably
comparable employment in the event of his termination pursuant to Section 5(b)
(without Cause), Section 5(d) because of a Material Breach or Section 5(e) (for
Good Reason), and that the noncompetition covenant contained in Section 7 will
further limit the employment opportunities for the Executive. Accordingly, the
parties hereto expressly agree that the payment of the severance benefits by the
Company to the Executive in accordance with this Agreement will be liquidated
damages, and that the Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise.
9. Legal Fees and Expenses. Except as provided in Section 9(b), each party
shall pay or cause to be paid and shall be solely responsible for any and all
attorneys' and related fees and expenses incurred by it in connection with any
dispute arising with respect to this Agreement; provided, however, that if the
Executive prevails in any such dispute, the Company shall reimburse the
Executive for any and all such fees and expenses incurred by the Executive in
connection with such dispute.
<PAGE>
Employment Agreement--Page 9
10. Miscellaneous. (a) The Company may, from time to time apply for and
take out, in its own name and at its own expense, life, health, accident,
disability or other insurance upon the Executive in any sum or sums that it may
deem necessary to protect its interests, and the Executive agrees to aid and
cooperate in all reasonable respects with the Company in procuring any and all
such insurance, including without limitation, submitting to the usual and
customary medical examinations, and by filling out, executing and delivering
such applications and other instruments in writing as may be reasonably required
by an insurance company or companies to which an application or applications for
such insurance may be made by or for the Company.
(b) This Agreement is a personal contract, and the rights and interests
of the Executive hereunder may not be sold, transferred, assigned, pledged or
hypothecated, except as otherwise expressly permitted by the provisions of this
Agreement. Except as otherwise expressly provided herein, the Executive shall
not have any power of anticipation, alienation or assignment of payments
contemplated hereunder, and all rights and benefits of the Executive shall be
for the sole personal benefit of the Executive, and no other person shall
acquire any right, title or interest hereunder by reason of any sale,
assignment, transfer, claim or judgment or bankruptcy proceedings against the
Executive; provided, however, that in the event of the Executive's death, the
Executive's estate, legal representative or beneficiaries (as the case may be)
shall have the right to receive all of the benefits that accrued to the
Executive pursuant to, and in accordance with, the terms of this Agreement prior
to the date of the Executive's death.
(c) The Company shall have the right to assign this Agreement to any
successor of substantially all of its business or assets, and any such successor
shall be bound by all of the provisions hereof; provided, however, that such
assignment shall not preclude the exercise of the Executive's rights, if any,
pursuant to Section 5(d).
(d) Any notice required or permitted to be given pursuant to this
Agreement shall be in writing, and sent to the party for whom or which it is
intended, at the address of such party set forth below, by registered or
certified mail, return receipt requested, or at such other address as either
party shall designate by notice to the other in the manner provided herein for
giving notice.
If to the Company:
Marcam Solutions, Inc.
95 Wells Avenue
Newton, MA 02459
Attention: Chairman of the Compensation Committee
of the Board of Directors
with copies to:
Marcam Solutions, Inc.
95 Wells Avenue
Newton, MA 02459
Attention: General Counsel
<PAGE>
Employment Agreement--Page 10
If to the Executive:
Jonathan C. Crane
Leonard Lane Spur
Woodstock, VT 05091
(e) This Agreement may not be changed, amended, terminated or superseded
orally, but only by an agreement in writing, nor may any of the provisions
hereof be waived orally, but only by an instrument in writing, in any such case
signed by the party against whom enforcement of any change, amendment,
termination, waiver, modification, extension or discharge is sought.
(f) Except as otherwise provided herein, this Agreement shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to the principles of
conflict of laws thereof.
(g) All descriptive headings of the several Sections of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(h) If any provision of this Agreement, or part thereof, is held to be
unenforceable, the remainder of this Agreement and provision, as the case may
be, shall nevertheless remain in full force and effect.
(i) Each of the parties hereto shall, at any time and from time to time
hereafter, upon the reasonable request of the other, take such further action
and execute, acknowledge and deliver all such instruments of further assurance
as necessary to carry out the provisions of this Agreement.
(j) This Agreement contains the entire agreement and understanding
between the Company and the Executive with respect to the subject matter hereof.
(k) Right of Offset. The Company shall have the right to offset any
amounts owing by the Company to the Executive pursuant to this Agreement against
any amounts owing by Executive to the Company, including those owing pursuant to
the Loan Agreement dated as of December __, 1998 by and between the Company and
the Executive (the "Loan Agreement") and the Promissory Note made by the
Executive thereunder (the "Note"). To the extent that the Executive owes money
to the Company pursuant to the Loan Agreement or the Note and such payment is
not then due, the Company may exercise its offset rights by paying any amounts
owing by the Company to the Executive at the time to a responsible escrow agent
to be held in escrow until the Executive's obligations under the Loan Agreement
and the Note are performed or satisfied in full.
<PAGE>
Employment Agreement--Page 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MARCAM SOLUTIONS, INC.
By: /s/ Joe M. Henson
---------------------
Joe M. Henson
Director
/s/ Jonathan C. Crane
---------------------
Jonathan C. Crane
LOAN AGREEMENT
This Loan Agreement dated as of December 22, 1998 (the "Agreement") by and
between Marcam Solutions, Inc., a Delaware corporation (the "Company"), and
Jonathan C. Crane (the "Executive"):
WITNESSETH:
WHEREAS, the Company and the Executive have entered into an Employment
Agreement dated as of December 22, 1998 (the "Employment Agreement"); and
WHEREAS, the Executive desires to borrow from the Company, and the Company
is willing to lend to the Executive, up to $700,000 on the terms and subject to
the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of these premises and of the covenants and
agreements set forth in this Agreement, the parties hereto hereby agree as
follows:
1. Certain Definitions. Unless otherwise defined in this Agreement,
capitalized terms used in this Agreement that are defined in the Employment
Agreement shall have the meanings assigned to them in the Employment Agreement,
and the rules of construction and documentary convention set forth in the
Employment Agreement shall apply to this Agreement.
2. Loan. In addition to any other amounts the Company has been or is
subsequently authorized to lend to the Executive, the Company shall lend to the
Executive up to an aggregate principal amount of $700,000 (the "Loan") from time
to time as requested by the Executive. The Loan shall be represented by a
Promissory Note in the form set forth as Exhibit A (the "Note"). Prior to
receiving the first advance under the Loan, the Executive shall duly execute and
deliver the Note to the Company.
3. Maturity. The Loan shall mature on the earlier of (i) October 27, 2001,
(ii) the date 120 days after the expiration or termination of the Executive's
employment with the Company under the Employment Agreement, or (iii) if the
Executive accepts employment with, or becomes a consultant or advisor to, a
person that the Board of Directors of the Company determines in its sole and
absolute discretion is a competitor of the Company or otherwise competes with or
assists any person in competing with the Company (regardless of whether such
action violates any agreement the Executive has with the Company) (a
"Competitive Activity"), prior to the commencement of the Executive's
Competitive Activity.
4. Mandatory Prepayment. (a) The Company may require repayment of the Loan
(including any interest and other amounts owing thereunder), and may terminate
this Agreement, at any time when the Company's cash and cash equivalents are
less than $10,000,000. The Company may exercise this right by delivering written
notice to the Executive demanding
<PAGE>
Loan Agreement--Page 2
repayment of the Loan (including any interest and other amounts owing
thereunder), terminating this Agreement, or both. If the Company demands
repayment of the Loan (including any interest and other amounts owing
thereunder), terminates this Agreement, or both, the Executive shall repay the
Loan (including any interest and other amounts owing thereunder) within 30 days
of such action by the Company.
(b) If the Executive sells any shares of the Company's common stock, par
value $.01 per share (the "Common Stock"), now or hereafter beneficially owned
by him, the Executive shall use the proceeds received by him from such sale,
less any federal or state taxes and brokerage commissions or underwriting
discounts the Executive is required to pay as a result of such sale, to
permanently repay the amounts outstanding under the Loan. At the time of such
repayment, the Executive shall provide the Company with a statement in
reasonable detail setting forth the terms of such sale, the gross proceeds form
such sale, and the federal and state taxes and brokerage commissions or
underwriting discounts the Executive is required to pay as a result of such
sale. All payments received by the Company hereunder will be applied first to
costs of collection, if any, then to interest and the balance to principal. The
principal amount the Executive is entitled to borrow under this Agreement shall
be permanently reduced by the amount of any principal repaid pursuant to this
Section 4(b).
5. Right of Offset. The Company shall have the right to offset any amounts
owing by the Company to the Executive pursuant to the Employment Agreement
against any amounts owing by Executive to the Company, including those owing
pursuant to this Agreement and the Note. To the extent that the Executive owes
money to the Company pursuant to this Agreement or the Note and such payment is
not then due, the Company may exercise its offset rights by paying any amounts
owing by the Company to the Executive at the time to a responsible escrow agent
to be held in escrow until the Executive's obligations under this Agreement and
the Note are performed or satisfied in full.
6. Miscellaneous. (a) This Agreement may not be changed, amended,
terminated or superseded orally, but only by an agreement in writing, nor may
any of the provisions hereof be waived orally, but only by an instrument in
writing, in any such case signed by the party against whom enforcement of any
change, amendment, termination, waiver, modification, extension or discharge is
sought.
(b) Except as otherwise provided herein, this Agreement shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to the principles of
conflict of laws thereof.
(d) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
<PAGE>
Loan Agreement--Page 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MARCAM SOLUTIONS, INC.
By: /s/ Joe M. Henson
-------------------------
Joe M. Henson
Director
/s/ Jonathan C. Crane
-------------------------
Jonathan C. Crane
Exhibit A
---------
PROMISSORY NOTE
$700,000 December 22, 1998
FOR VALUE RECEIVED, the undersigned, Jonathan C. Crane ("Obligor"), hereby
promises to pay to the order of Marcam Solutions, Inc., a Delaware corporation
(the "Lender"), at its principal office at 95 Wells Avenue, Newton,
Massachusetts 02459 or at such other place as may be designated from time to
time in writing by Lender, up to a maximum principal sum of Seven Hundred
Thousand Dollars ($700,000.00) or such lesser principal amount then outstanding,
together with interest in arrears from and including the date hereof on the
outstanding principal balance hereunder, compounded semiannually, at a rate
equal to [8% per annum][the Applicable Rate (as defined below)]. The principal
balance of this Promissory Note, together with any costs of collection and
interest accrued thereon, shall be paid on the earlier of (i) October 27, 2001,
(ii) the date 120 days after the expiration or termination of Obligor's
employment with Lender under the Employment Agreement, or (iii) if Obligor
accepts employment with, or becomes a consultant or advisor to, a person that
the Board of Directors of Lender determines in its sole and absolute discretion
is a competitor of Lender or otherwise competes with Lender or assists any
person in competing with Lender (regardless of whether such action violates any
agreement the executive has with Lender) (a "Competitive Activity"), prior to
the commencement of Obligor's Competitive Activity. All payments received by
Lender hereunder will be applied first to costs of collection, if any, then to
interest and the balance to principal. Principal and interest shall be payable
in lawful money of the United States of America.
[Each drawdown under this Promissory Note shall bear interest at the
applicable Federal rate in effect on the date of the drawdown under Section
1274(d) of the Internal Revenue Code of 1986, as amended, compounded
semiannually (the "Applicable Rate").] Interest shall be calculated on the basis
of a year of 360 days consisting of twelve 30-day months. Notwithstanding any
other provision of this Promissory Note, Lender does not intend to charge and
Obligor shall not be required to pay any interest or other fees or charges in
excess of the maximum permitted by applicable law; any payments in excess of
such maximum shall be refunded to Obligor or credited to reduce the principal
hereunder. Interest hereunder shall be payable annually in arrears commencing on
December 31, 1999, and continuing on December 31 of each successive year
thereafter with a final payment of all unpaid interest at the time of payment of
the principal.
Lender may require repayment of all amounts due pursuant to this Promissory
Note at any time when Lender's cash and cash equivalents are less than
$10,000,000. Lender may exercise this right by delivering written notice to
Obligor demanding repayment of all amounts due pursuant to this Promissory Note.
If Lender demands repayment of all amounts due pursuant to this Promissory Note,
Obligor shall repay all amounts due pursuant to this Promissory Note within 30
days of such action by Lender.
<PAGE>
Promissory Note--Page 2
If Obligor sells any shares of Lender's common stock, par value $.01 per
share (the "Common Stock"), now or hereafter beneficially owned by him, Obligor
shall use the proceeds received by him from such sale, less any federal or state
taxes and brokerage commissions or underwriting discounts Obligor is required to
pay as a result of such sale, to permanently repay all amounts due pursuant to
this Promissory Note. At the time of such repayment, Obligor shall provide
Lender with a statement in reasonable detail setting forth the terms of such
sale, the gross proceeds from such sale, and the federal and state taxes and
brokerage commissions or underwriting discounts Obligor is required to pay as a
result of such sale. The principal amount Obligor is entitled to borrow under
this Promissory Note shall be permanently reduced by the amount of any principal
repaid pursuant to this paragraph.
All drawdowns under this Promissory Note and all payments on account of
principal and interest hereof (or any portion, installment or drawdown thereon)
shall be recorded by Lender and endorsed on the grid which is part of this
Promissory Note. The entries on the grid which is part of this Promissory Note
shall be prima facie evidence of the amount outstanding hereunder.
If any day on which a payment is due pursuant to the terms of this
Promissory Note is not a day on which banks in the Commonwealth of Massachusetts
are generally open (a "Business Day"), such payment shall be due on the next
Business Day following.
This Promissory Note may be prepaid at any time, without premium or
penalty, in whole or in part.
This Promissory Note shall, at the option of the holder hereof, become due
and payable without notice or demand, upon the occurrence of the failure of
Obligor to pay any principal or interest after such principal or within three
(3) Business Days after such interest becomes due hereunder.
If this Promissory Note is not paid in accordance with its terms, Obligor
shall pay to Lender, in addition to principal and accrued interest thereon, all
costs of collection of the principal and accrued interest, including reasonable
attorneys' fees, court costs and other costs for the enforcement of payment of
this Promissory Note.
No waiver of any obligation of Obligor under this Promissory Note shall be
effective unless it is in a writing signed by Lender. A waiver by Lender of any
right or remedy under this Promissory Note on any occasion shall not be a bar to
exercise of the same right or remedy on any subsequent occasion or of any other
right or remedy at any time.
Any notice required or permitted under this Promissory Note shall be in
writing and shall be deemed to have been given on the date of delivery, if
personally delivered to the party to whom notice is to be given, or on the fifth
business day after mailing, if mailed to the party to whom notice is to be
given, by certified mail, return receipt requested, postage prepaid, and
addressed to the addressee at the address of the addressee set forth herein, or
to the most recent address, specified by written notice, given to the sender
pursuant to this paragraph.
<PAGE>
Promissory Note--Page 3
This Promissory Note is delivered in and shall be enforceable in accordance
with the laws of the Commonwealth of Massachusetts, and shall be construed in
accordance therewith, in each case without giving effect to the principles of
conflicts of laws thereof, and shall have the effect of a sealed instrument.
Obligor hereby expressly waives presentment, demand, and protest, notice of
demand, dishonor and nonpayment of this Promissory Note, and all other notices
or demands of any kind in connection with the delivery, acceptance, performance,
default or enforcement hereof, and hereby consents to any delays, extensions of
time, renewals, waivers or modifications that may be granted or consented to by
the holder hereof with respect to the time of payment or any other provision
hereof.
In the event any one or more of the provisions of this Promissory Note
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part or in any respect, or in the event that any one or more of the
provisions of this Promissory Note operate or would prospectively operate to
invalidate this Promissory Note, then and in any such event, such provision(s)
only shall be deemed null and void and shall not affect any other provision of
this Promissory Note and the remaining provisions of this Promissory Note shall
remain operative and in full force and effect and in no way shall be affected,
prejudiced, or disturbed thereby.
IN WITNESS WHEREOF the undersigned has executed this Promissory Note under
seal on the date first above written.
/s/ Jonathan C. Crane
---------------------------
Jonathan C. Crane
Address:
Leonard Lane Spur
Woodstock, VT 05901
<PAGE>
Promissory Note--Page 4
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Amount of Applicable Amount of Amount of Outstanding
Drawdown or Interest Principal Interest Principal Notation
Date Advance Rate Paid Paid Balance Made By
---- ----------- ------------- -------------- --------- ----------- --------
</TABLE>
October 20, 1998
Stephen R. Quehl
3 Wingate Lane
Acton, MA 01720
Dear Steve:
I am pleased to offer you the position of Executive Vice President,
Worldwide Sales and Services at Marcam Solutions, Inc. (" Marcam Solutions"),
located at 95 Wells Avenue, Newton, MA. Effective November 16th, 1998, upon your
commencement of employment, your salary will be $9,615.39 bi-weekly, which
equates to $250,000 on an annual basis.
Additionally, you will be eligible for an annual incentive opportunity of
up to $200,000 for the accomplishment of key objectives that we will determine
upon your arrival. There is also an opportunity for you to earn an incremental
annual incentive of up to $150,000 for performance that exceeds your objectives,
which will be mutually agreed upon by you and me.
You will receive a signing bonus in the amount required to satisfy your
obligation to your current employer - up to a maximum of $100,000, plus
interest. The amount of the signing bonus will be equal to the principle and
interest that you owe at the time of your termination. This bonus will be
payable to you upon receipt of written documentation from Gensym that specifies
the amount due. $50,000 of this amount will vest immediately, effective with
your date of hire. The remainder of the signing bonus will vest at the rate of
1/12 per month, and is repayable to Marcam should you resign voluntarily during
your first twelve (12) months of employment.
Subject to the approval of the Company's Compensation Committee of the
Board of Directors, Marcam will grant you an option to purchase 125,000 shares
of Marcam Common Stock. However, given the critical nature of this position for
our Company, Marcam will grant you an option to purchase 150,000 shares of
Marcam Common Stock if you begin employment on or before November 16, 1998.
Twenty-five per cent (25%) of the options will vest immediately upon the date of
grant. The remainder will vest at 25% per year. As a condition of this option
grant, there will be accelerated vesting of all options in the event of a change
in control of the ownership of the Company.
If you are terminated within the first year of employment for any reason
other than gross misconduct, you will receive a lump sum payment in the amount
of your current annual base salary. Additionally, in the event of a change in
control, you will be entitled to 12 months' severance if your position is
reduced, you are forced to move, or if the acquiring company does not have a
position for you.
As a full-time Marcam Solutions employee, you will be eligible for current
benefits as described in the enclosed Benefit Summary. These benefits are
subject to change from time to time and in some cases may be subject to waiting
and/or enrollment periods. You will also be entitled to 20 days of vacation per
year and two flexible holidays for calendar year 1999.
<PAGE>
As a Marcam Solutions employee, you will be exposed to confidential and
proprietary information. All employees are therefore required to sign the Marcam
Solutions Employee Agreement on Ideas, Inventions, Confidential Information and
Non-Competition ("the Agreement") prior to the commencement of their employment.
I have enclosed a copy of the Agreement for your review. On your first day you
will be required to sign two copies of the Agreement in our witness. One signed
copy will be returned to you for your personal files. If you have any questions
or conflicts with the Agreement please contact me immediately.
All Marcam Solutions employees must also complete an employment application
for inclusion in our files. I have enclosed an application for you to complete
and bring to us on your first day of work. Please also remember to bring either
your passport or birth certificate with two other forms of identification for
I-9 (Immigration) compliance.
Please review this letter and contact me if any of the terms and conditions
are unclear. As a formality to making this employment offer, a signed copy of
this letter must be returned to my attention for our records by no later than
October 23, 1998.
There is a meeting with the Board of Directors this Friday, October 23 from
9:00am until 2:00pm. Please accept my invitation to join us at 12:00 noon for
lunch, if you can, so that I could introduce you to our team.
This offer is contingent upon completing a satisfactory review of your
references.
We look forward to you joining Marcam Solutions and know that you will make
a wonderful contribution to our company.
Sincerely,
Jonathan Crane
President and Chief Executive Officer
Enclosures
o Application for Employment
o Marcam Solutions Employee Agreement
o Benefits Summary
I have read and understood the aforementioned responsibilities, terms and
conditions of employment, and accept the position as outlined above.
/s/ Stephen R. Quehl November 11, 1998
- -------------------------- ------------------
Signature Date
cc: Dawn Meyer, Human Resources
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 19,156
<SECURITIES> 4,212
<RECEIVABLES> 28,574
<ALLOWANCES> 2,517
<INVENTORY> 0
<CURRENT-ASSETS> 53,245
<PP&E> 26,179
<DEPRECIATION> 20,070
<TOTAL-ASSETS> 60,120
<CURRENT-LIABILITIES> 54,190
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 5,748
<TOTAL-LIABILITY-AND-EQUITY> 60,120
<SALES> 6,332
<TOTAL-REVENUES> 26,095
<CGS> 916
<TOTAL-COSTS> 15,789
<OTHER-EXPENSES> 7,948
<LOSS-PROVISION> 391
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> (10,934)
<INCOME-TAX> 375
<INCOME-CONTINUING> (11,309)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,309)
<EPS-PRIMARY> (1.46)
<EPS-DILUTED> (1.46)
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