As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MARCAM CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2711580
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
95 Wells Avenue, Newton, Massachusetts 02159
(617) 965-0220
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
George A. Chamberlain, 3d
Chief Financial Officer
Marcam Corporation
95 Wells Avenue
Newton, Massachusetts 02159
(617) 965-0220
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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Copies to:
Mark H. Burnett Mark G. Borden
TESTA, HURWITZ & THIBEAULT, LLP Thomas L. Barrette, Jr.
125 High Street; High Street Tower HALE AND DORR LLP
Boston, Massachusetts 02110 60 State Street
(617) 248-7000 Boston, Massachusetts 02109
(617) 526-6000
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering: [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
Title Of Shares Proposed Maximum Aggregate
To Be Registered Price Offering (1) Amount Of Registration Fee (1)
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<S> <C> <C>
Common Stock, par value $0.01 per share $86,250,000 $26,136
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Rights to Purchase Series F Junior
Participating
Preferred Stock, par value $1.00 per share (2) None
=============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) No separate consideration will be received for the Rights.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED APRIL 30, 1997
PROSPECTUS
, 1997
[Mapics logo]
Shares
MAPICS, Inc.
(Currently Marcam Corporation)
Common Stock
All of the shares of Common Stock offered hereby are being sold by MAPICS,
Inc. ("MAPICS" or the "Company," currently known as Marcam Corporation).
Prior to the completion of the Offering, the Company will distribute to its
stockholders of record on the record date (the "Distribution") all of the
outstanding capital stock of Marcam Solutions, Inc., a new wholly owned
subsidiary of the Company ("Marcam Solutions"). Purchasers of Common Stock in
the Offering will not participate in the Distribution. See "The
Distribution." Accordingly, historical trading prices of the Common Stock of
Marcam Corporation will not be indicative of future trading prices of the
Company's Common Stock. The initial price to the public of the Common Stock
offered hereby will be determined by negotiations between the Company and the
Underwriters. See "Underwriting" for information relating to the factors to
be considered in determining the initial price to the public. The Common
Stock of Marcam Corporation is traded on the Nasdaq National Market under the
symbol "MCAM." Application has been made to change the Company's trading
symbol to "MAPX" effective concurrently with the Company's name change to
"MAPICS, Inc." at the time of the Offering.
See "Risk Factors" on page 7 for information that should be considered by
prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price Underwriting Proceeds
to Discounts and to the
the Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share $ $ $
Total (3) $ $ $
- --------------------------------------------------------------------------------
(1)The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting" for indemnification arrangements with the
Underwriters.
(2)Before deducting expenses payable by the Company estimated at $1,750,000.
(3)The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of additional shares at the Price to the Public,
less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If the option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds
to the Company will be $ , $ , and $ ,
respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to reject orders in whole or in part.
It is expected that delivery of the share certificates will be made in New
York, New York on or about , 1997.
Donaldson, Lufkin & Jenrette Lazard Freres & Co. LLC
Securities Corporation
<PAGE>
[PICTURES AND CAPTIONS]
Description of Inside Front Cover Page Graphics:
[Multicolor computer generated graphic depicting a silhouette of two
people shaking hands, encircled by computer icons which depict and name six
areas of the Company's software applications, as follows: Business
Management; Demand Management; Maintenance Management; Operations Management;
Resource Planning; Engineering Management; and Financial Management, all
superimposed upon a globe-like sphere against a dark background.] A caption
at the bottom of the page reads as follows: "One decision into the future."
Description of inside back-cover page
[Multicolor computer generated graphic depicting a sample of one of the
Company's proprietary "PDM Plus" graphical user interface computer screens,
showing multiple task, function, editing and customizing selections,
simulated data and representative icons.] A caption at the bottom of the
pages reads as follows: "Sample of MAPICS XA new, object-oriented
client-server user interface."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
-------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
MAPICS(R) is a registered trademark of the Company. Marcam(R) is a
registered trademark of Marcam Solutions. This Prospectus also includes
product and company names, trademarks and trade names of companies other than
the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and combined financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option; and (ii) gives effect to the Distribution. Although
Marcam Solutions Common Stock will be distributed to Marcam Corporation's
stockholders, the Distribution will be recorded as a disposal of the business
conducted by MAPICS, Inc., due to the relative significance of the business
conducted by Marcam Solutions. Except as otherwise noted, the combined
financial statements and notes thereto and all other financial data herein
reflect only the business related to the MAPICS products, as derived from the
historical assets, liabilities and operating results of Marcam Corporation.
See "The Distribution," "Relationship Between MAPICS and Marcam Solutions,"
"Description of Capital Stock," "Underwriting" and Notes 1 and 15 of Notes to
Combined Financial Statements.
The Company
MAPICS is a leading provider of enterprise resource planning ("ERP")
software applications for mid-size discrete and batch-process manufacturing
enterprises worldwide. The Company's products provide an integrated and
function-rich ERP solution with the breadth and depth of applications to
manage an entire manufacturing enterprise. The MAPICS XA product line
currently consists of 44 integrated application modules in the areas of
Engineering and Cost Management, Market and Demand Management, Plant
Operations and Logistics Management, Production Resource Planning, Financial
Management and Measurements and Cross Applications Solutions. The Company
continually enhances its product offerings to meet the specific needs of
mid-size manufacturers and offers such manufacturers the opportunity to
gradually migrate to new technologies, one user at a time if desired, while
protecting their existing investments in both hardware and software. In
addition to its internal development programs, the Company utilizes
independent software developers, known as Solution Partners, to assist in the
development of new applications. Solution Partners permit the Company to
introduce new applications quickly and on a variable cost basis.
Approximately 6,500 customer sites presently use MAPICS applications,
which the Company believes represents one of the largest installed user bases
in the ERP industry. In Advanced Manufacturing Research's ("AMR") survey of
ERP customer satisfaction, MAPICS products received the highest overall total
score (nearly one-third higher than the next competitor) based on 15
different factors, including functionality, value, implementation results,
quality of support, service and maintenance, and knowledge of sales force.
The Company's customer base consists primarily of mid-size ($20 million to
$500 million in annual revenues) manufacturers and divisions, sites and
subsidiaries of large companies, including Bristol-Myers Squibb Company,
Colgate-Palmolive Company, Eaton Corporation, Electrolux Corporation, General
Electric Company, Honda Motor Co., Ltd., International Game Technology, Peg
Perego Pines SPA, Shiseido Cosmetics (America) Ltd. and Sub-Zero Freezer Co.,
Inc. The primary channel for selling and supporting MAPICS products is a
network of more than 80 affiliates which sells, implements, services and
supports MAPICS products throughout the world. In addition to providing
customers high quality local implementation, consulting and support services
in a cost-effective manner, the affiliate distribution channel provides the
Company an attractive variable cost structure for sales and marketing.
According to industry sources, the total worldwide market for ERP systems
on all hardware systems was approximately $5.5 billion in 1996 and will grow
at least 20% this year. The MAPICS XA product line runs on International
Business Machines Corporation's ("IBM") AS/400 system, which the Company
believes is the leading platform in the mid-size manufacturing market.
3
<PAGE>
The Company's primary objective is to continue to be a leading provider of
integrated ERP solutions to mid- size manufacturers worldwide. The key
elements to implement this strategy are:
Leverage Large Installed Customer Base. The Company believes the
approximately 6,500 customer sites using MAPICS applications represent one of
the largest installed user bases in the ERP industry. Opportunities for
recurring revenue from existing customers include continued licensing of
existing modules, licensing of additional modules, implementation of MAPICS
products at additional sites, upgrades to larger processors and migrations to
new technologies.
Utilize Well-Established Affiliate Distribution Channel. MAPICS products
are distributed in over 50 countries through a network of more than 80
affiliates. The use of local affiliates provides the Company with strong
market access and penetration, while providing for local support. With their
extensive experience installing MAPICS products, these affiliates typically
offer customers high quality and cost-effective local implementation,
consulting and support services and, in some cases, offer complementary
products. Affiliates typically have extensive knowledge of the mid-size
manufacturing industry in their geographic region and are able to establish
and maintain cooperative relationships with MAPICS customers. The affiliate
distribution channel provides the Company with an attractive variable cost
structure for sales and marketing.
Accelerate Growth in International Markets. The Company intends to
continue to expand its market presence throughout the world, with a focus on
Europe where there is a large installed base of IBM AS/400 systems. During
1996, the Company introduced its International Financial Management suite of
modules, which are designed to meet the requirements of international
enterprises with customers and production facilities in multiple countries.
To address specific needs in local markets, MAPICS modules are translated and
localized, supporting the local language, currency, taxation and accounting
requirements. Currently, the most commonly installed MAPICS XA application
modules are available in English, Chinese, French, German, Japanese,
Portuguese and Spanish.
Broaden Customer Base with New Functionality. The Company intends to
continue to broaden its customer base by offering new functionality required
by both new and existing customers. The Company uses the feedback it receives
from its customers, affiliates and Solution Partners to develop the
functionality needed by certain segments of the mid-size manufacturing
industries. For example, the Company recently introduced Intersite Logistics
for customers with multiple, interrelated production sites; Contract
Accounting for manufacturers with projects which extend over long time
periods and for government contractors; and Knowledge-Based Configurator for
manufacturers in make-to-order production industries.
Migrate Customers to New Technologies Gradually. The Company is committed
to enhancing the functionality of its products and delivering solutions which
utilize new technologies sought by users, while preserving users' previous
investments in both hardware and software. This evolutionary product
development strategy is designed to offer customers the opportunity to
migrate to new technologies at their own pace, as gradually as one user at a
time if desired. The Company believes this approach is attractive to those
mid-size manufacturers who seek functional applications which operate on
established hardware platforms.
The Company was incorporated in Massachusetts in 1980. The Company's
principal executive offices are located at 5775-D Glenridge Drive, Atlanta,
Georgia 30328, and its telephone number is (404) 705-3000.
4
<PAGE>
The Distribution
Marcam Corporation has announced its intention to spin off in a tax-free
distribution the portion of its business relating to its PRISM, Protean and
Avantis product lines. The separation into two independent, publicly traded
companies is designed to enable each to better focus on its core markets, to
better serve existing customers and to finance its business.
To effect the spin-off, Marcam Corporation will transfer to a newly formed
corporation, Marcam Solutions, the business, assets and liabilities relating
to its PRISM, Protean and Avantis product lines and will commit to contribute
to Marcam Solutions an aggregate of $42.0 million in cash. Of this cash
contribution, $34.0 million will initially be represented by a promissory
note, which will be paid with a portion of the proceeds from this Offering.
See "Use of Proceeds." Shares of common stock of Marcam Solutions will be
distributed (the "Distribution") by means of a distribution to its
stockholders of record on the record date. The Distribution will be subject
to final approval by the Board of Directors of Marcam Corporation, approval
by the stockholders of Marcam Corporation, and the receipt of a favorable
ruling from the Internal Revenue Service that, except as otherwise provided
herein, the Distribution will qualify as a tax-free distribution under
Section 355 of the Internal Revenue Code of 1986, as amended (the "Code") or,
if such ruling is not obtained prior to the date of the Distribution, an
opinion of special tax counsel and the Company's independent accountants to
the effect that such Distribution should qualify as a tax-free distribution
under Section 355 of the Code. See "Risk Factors--Federal Income Tax
Consequences and Liabilities." Purchasers of Common Stock in the Offering
will not participate in the Distribution. See "The Distribution."
The Offering
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company shares
Common Stock to be outstanding after the
Offering shares (1)
Use of Proceeds Repayment of debt, including a promissory note
to capitalize Marcam Solutions, and general
corporate purposes, including working capital
Proposed Nasdaq National Market symbol "MAPX" (2)
</TABLE>
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(1) Does not include as of April 30, 1997 (i) 3,250,000 shares of Common
Stock issuable upon the conversion of the Series D and E Convertible
Preferred Stock outstanding, (ii) 1,383,333 shares of Common Stock
issuable upon the exercise of warrants outstanding with a weighted
average exercise price of $13.58 per share and (iii) 2,655,195 shares of
Common Stock issuable upon the exercise of stock options outstanding as
of April 30, 1997 with a weighted average exercise price of $14.65 per
share. See "Capitalization," "Description of Capital Stock" and Notes to
Combined Financial Statements.
(2) To be effective concurrently with the Company's name change from "Marcam
Corporation" to "MAPICS, Inc." which is expected to occur at the time of
the Offering. See "The Distribution."
5
<PAGE>
Summary Combined Financial Data(A)
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Years Ended September 30, March 31,
--------------------------------- -------------------
1994 1995 1996 1996 1997
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License $33,410 $42,745 $45,341 $20,501 $25,328
Services 19,373 26,553 32,261 15,343 18,837
------- ------- ------- ------- -------
Total revenues 52,783 69,298 77,602 35,844 44,165
Operating expenses:
Cost of license revenues 3,280 5,689 6,913 3,026 4,129
Cost of services revenues 5,428 7,567 9,499 4,573 5,301
Selling and marketing 17,765 24,780 27,851 13,028 14,834
Product development 6,692 7,432 6,398 3,122 4,969
General and administrative 4,810 5,384 5,965 2,212 4,360
------- ------- ------- ------- -------
Total operating expenses 37,975 50,852 56,626 25,961 33,593
------- ------- ------- ------- -------
Operating income 14,808 18,446 20,976 9,883 10,572
Income tax expense 4,641 7,112 8,076 3,805 4,071
------- ------- ------- ------- -------
Net income $10,167 $11,334 $12,900 $ 6,078 $ 6,501
======= ======= ======= ======= =======
Pro forma net income per common
share (B) $0.91 $ 0.43
======= =======
Pro forma weighted average number
of common shares outstanding (B) 14,185 14,991
======= =======
</TABLE>
As of March 31, 1997
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Pro Forma
As Adjusted
Actual Pro Forma(C) (C)(D)
(In thousands)
Balance Sheet Data:
Cash and cash equivalents $ 852 $ 852 $ 7,440
Working capital (deficit) (E) (13,999) (50,411) (7,411)
Total assets 46,646 46,646 53,234
Total debt -- (61,412) --
Divisional equity 9,228 -- --
Stockholders' equity (deficit) -- (52,184) 15,816
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(A) See Combined Financial Statements and related Notes thereto appearing
elsewhere in this Prospectus.
(B) See Note 2 of Notes to Combined Financial Statements for information
concerning the computation of per share earnings.
(C) Adjusted to give effect to the Distribution, the assumption of Marcam
Corporation's $25.0 million 9.82% Subordinated Notes due 2001 including
approximately $2.4 million for a prepayment penalty and accrued interest,
and the $34.0 million promissory note used to capitalize Marcam
Solutions.
(D) Adjusted to give effect to the sale of shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Capitalization" and "Description of
Capital Stock."
(E) Includes $21.2 million of deferred revenue.
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Actual results could differ
materially from those projected in the forward-looking statements as a result
of the risk factors set forth below and elsewhere in this Prospectus. In
addition to the other information contained in this Prospectus, the following
factors should be carefully considered by prospective investors when
evaluating an investment in the Common Stock offered hereby.
Variability in Quarterly Operating Results; Seasonality. The Company has
experienced fluctuations in its quarterly operating results and anticipates
that such fluctuations will continue and may intensify. The Company's
quarterly operating results are affected by a number of factors that could
materially and adversely affect revenues and profitability, including the
size and timing of license transactions; the demand for the Company's
products; the proportion of revenues attributable to license fees versus
services fees; the proportion of Solution Partner- developed products versus
internally-developed products licensed; changes in the level of operating
expenses; the potential for delay or deferral of customer purchases of the
Company's software; the timing of the introduction or market acceptance of
new or enhanced products offered by the Company or its competitors; the
ability of the Company's affiliate distribution channel to service additional
sales; the competitive conditions in the industry; and the general economic
and political conditions and other factors affecting capital expenditures by
customers. The purchase of the Company's products and services may involve a
significant commitment of capital and other resources by its customers with
the attendant delays frequently associated with large capital expenditures
and authorization procedures within an organization. Accordingly, the sales
cycles for the Company's products and services are subject to a number of
significant risks over which the Company has little or no control, including
customers' budgetary constraints and internal authorization procedures.
License revenues in any quarter are substantially dependent on orders booked
and shipped in that quarter.
The Company's quarterly operating results are subject to certain seasonal
fluctuations. The Company believes that its first quarter (ending December
31) revenues generally are positively affected by year-end capital
expenditures by certain customers and by year-end incentives provided by
International Business Machines Corporation ("IBM") to resellers of its
hardware, which include many of the Company's distribution affiliates. In the
Company's fourth quarter (ending September 30), revenues are positively
affected by the incentives provided pursuant to the Company's sales
compensation plans. These factors have historically resulted in increased
license revenues during such quarters. In addition, the Company's revenues
occur predominantly in the third month of each quarter and tend to be
concentrated in the latter half of that third month. Accordingly, the
Company's quarterly operating results are difficult to predict, and delays in
product delivery or in closings of sales near the end of a quarter could
cause quarterly revenues and, to a greater degree, net income to fall
substantially short of anticipated levels. Net income is affected because the
Company establishes its spending levels on the basis of its expected future
operating margins. These seasonal factors are likely to continue to affect
quarter-to-quarter comparisons.
Due to the foregoing factors, it is possible that the Company's operating
results could fail to meet the expectations of securities analysts or
investors. In such event, or in the event that adverse conditions in the
manufacturing or ERP marketplace prevail or are perceived to prevail, the
price of the Company's Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Quarterly Financial Results."
Reliance on Third Party Distribution Channel. The Company markets, sells,
and supports its products primarily through a network of more than 80
distribution affiliates and as a result maintains a limited direct sales
force. The Company relies on its affiliates for sales, product
implementation, customization and customer support services. There can be no
assurance that the affiliates will continue to provide the level and quality
of service required to meet the needs of the Company's customers or that the
Company will be able to maintain effective long-term relationships with its
affiliates. If the Company is unable to maintain effective, long-term
relationships with the affiliates, or if the affiliates fail to meet the
needs of the Company's customers, the Company's business would be adversely
affected. From time to time certain of the Company's competitors have
established, and may continue to seek to establish a comparable distribution
channel, in part by attempting to attract the Company's own affiliates. The
Company's agreements with its affiliates are generally terminable by either
party and do not impose specific obligations on the part of the affiliates.
Further, there can be no assurance that the affiliates will not otherwise
reduce or discontinue their relationships with or support of the Company and
its products. See "Business--Marketing and Sales."
7
<PAGE>
Competition. The market for business software within the mid-size
manufacturing industry is highly competitive, changes rapidly and is to a
significant degree affected by new product introductions and other market
activities of industry participants. The Company's products and related
services are primarily targeted at the market for business applications
software for use with the IBM AS/400. The Company's current and prospective
competitors offer a variety of products which address this and similar
markets. The Company's primary competition comes from a large number of
independent software vendors and other sources, including Baan N.V., Computer
Associates, Inc., Intentia AB, JBA Holdings Plc, J.D. Edwards & Company,
Inc., Oracle Corporation, SAP AG, and System Software Associates, Inc. Of the
Company's primary competitors, the products of Intentia are currently
designed solely for use with the IBM AS/400, and the products of JBA Holdings
Plc, J.D. Edwards and System Software Associates are currently designed for
use primarily with the IBM AS/400. The Company also experiences some
competition from vendors of specialized applications.
Certain of the Company's competitors have significantly greater financial,
marketing, service, support and technical resources, and greater name
recognition than the Company. In order to be successful in the future, the
Company must continue to respond promptly and effectively to the challenges
of technological change and its competitors' innovations. The Company's
competitors may be able to respond more quickly to new or emerging
technologies or changes in customer requirements or devote greater resources
to the development, promotion and sale of their products than the Company.
The Company also expects to face additional competition as other established
and emerging companies enter the market for business software for use with
the AS/400 and as new products and technologies are introduced. In addition,
current and potential competitors may make acquisitions or establish
alliances among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances
among current and new competitors may emerge and rapidly gain significant
market share, resulting in price or fee rate reductions, fewer customer
orders and reduced gross margin, any one of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will be able to
compete successfully with existing or new competitors or that competition
will not have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, because the Company relies
on a network of distribution affiliates for implementation and other support
of its products, there can be no assurance that these affiliates will
maintain sufficiently high quality standards so that the Company's reputation
and competitive position will not be adversely affected. See
"Business-Marketing and Sales" and "--Competition."
Dependence on Key Personnel; Ability to Attract and Retain Skilled
Personnel. The Company's future performance depends to a significant extent
upon the continued service of a number of senior management and key technical
personnel. The Company does not maintain key-person life insurance on any of
its key employees. None of the Company's employees is bound by an employment
agreement. The loss of the services of one or more key employees could have a
material adverse effect on the Company. The Company's future financial
results also will depend in large part upon its ability to attract on a
timely basis and retain highly skilled technical, managerial and marketing
personnel and the ability of its officers and key employees to manage growth
successfully and to continue successful development of new products and
enhancements to existing products. Competition for such personnel is intense
and is likely to intensify further as companies compete to hire personnel.
The Company competes in the market for such personnel against numerous
companies, including larger, more established companies with significantly
greater financial resources than the Company. There can be no assurance that
the Company will be successful in attracting and retaining the personnel it
requires to develop successfully new and enhanced products. See
"Business--Employees" and "Management."
New Products and Technological Change. The market for the Company's ERP
software products is characterized by rapid technological advances, evolving
industry standards in computer hardware and software technology, changes in
customer requirements, and frequent new product introductions and
enhancements. The Company's future success will depend upon its ability to
continue to enhance its MAPICS products and to develop and introduce new
products that keep pace with technological developments, satisfy increasingly
sophisticated customer requirements and achieve market acceptance. In
particular, the Company must continue to anticipate and respond adequately to
advances in standard business applications software and client/server
solutions, as well as object-oriented technology. There can be no assurance
that the Company will be successful in developing and marketing, on a timely
and cost-effective basis, functioning product enhancements or new products
that respond
8
<PAGE>
to technological advances by its competitors or that its new products will
achieve market acceptance. See "Business--Product Development."
As a result of the complexities inherent in the functionality and
performance demanded by ERP software customers, major new products and
product enhancements can require long development and testing periods. In
addition, ERP software programs as complex as those offered by the Company
may contain errors which are discovered only after the products and new
releases have been installed and used by customers despite testing by the
Company. There can be no assurance that undetected errors will not impair the
market acceptance of these products or adversely affect the Company's
operating results. Problems encountered by customers installing and
implementing the Company's new product releases or with product performance,
including product functionality, product response time and program errors,
could also materially adversely affect the Company's operating results.
Dependence on External Development Resources. To date, approximately 23 of
the Company's application modules were developed in collaboration with third
parties (Solution Partners) and the Company expects to continue to rely on
Solution Partners for the development of additional application modules.
Generally, Solution Partners continue to own the rights to, and maintain, the
technology underlying the modules and license, on an exclusive basis, the
technology to the Company. Under the terms of such agreements, the Company is
obligated to pay a royalty to a Solution Partner for sales of the Solution
Partner-developed application modules. In the event the Company fails to pay
the required royalty when due, such agreement may be terminated. The
termination of such an agreement with a Solution Partner could adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that Solution Partners will be available to develop
application modules for the Company in the future or will complete
application modules for the Company on a timely basis, within acceptable
guidelines, or at all. The Company's success depends in part on its continued
ability to license application modules from Solution Partners and there can
be no assurance that the Company will be able to obtain such licenses on
terms acceptable to the Company or at all. Although the Company is entitled
to obtain a non-exclusive license to the source code for an application
module in the event the Solution Partner fails to maintain or update the
application module, goes out of business or otherwise breaches the terms of
the license agreement, the Company may not be able to maintain or upgrade the
application module adequately or on a timely basis. The failure of the
Company to adequately or on a timely basis, maintain or upgrade the
application module could adversely affect the Company's business, financial
condition and results of operations. See "Business--Product Development."
Dependence on IBM's AS/400. Substantially all of the Company's revenues
have been derived from products designed to operate primarily on IBM's AS/400
series of computers. Therefore, the Company's future revenues from initial
license fees and periodic license fees will be primarily derived from and
dependent upon the continued widespread use of the AS/400 and the continued
support of the AS/400 by IBM. While the Company believes that customers will
continue to use, and IBM will continue to support, the AS/400, there can be
no assurance of such continued use or support and the loss of either would
have a material adverse effect on the Company's operating results. The
Company will be required and intends to continue to devote significant
resources to supporting its installed base of AS/400 customers. Although the
Company believes it has an advantage in assisting its installed AS/400 base
in converting to independent platforms, there is no assurance that these
customers will continue to use MAPICS products if they implement such
independent platforms. If there should be a rapid shift away from the current
widespread use of the AS/400 operating system, the Company would be required
to expend substantial capital resources to develop new software and would be
likely to experience delays or losses in customer orders and, as a result,
its business would be materially adversely affected. In addition, in order to
retain its AS/400 customers, the Company may be required to adapt its MAPICS
products to any changes made in the AS/400 operating system in the future.
The Company's inability to adapt to future changes in the AS/400 operating
system, or delays in doing so, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Industry Background."
Absence of History as a Stand-Alone Public Company; Limited Relevance of
Certain Historical Financial Information. The Company has never operated as a
stand-alone company. Except for Richard C. Cook, the Company's senior
executive officers have had limited or no prior management experience as
senior executives in a public company. After the Distribution, the Company
will operate as a stand-alone entity and, while the Company will continue to
receive certain services from Marcam Solutions, there can be no assurance
that the Company's operating results will not be adversely affected as a
result of the reduction of general service assistance from Marcam Solutions.
In anticipation of being established as a stand-alone entity, the Company has
reviewed its business and
9
<PAGE>
operations and is implementing certain organizational changes. However, there
can be no assurance that these changes or that the separation from Marcam
Solutions will not have an adverse impact on the Company's business,
financial condition and results of operations.
The financial information included herein may not necessarily reflect the
results of operations, financial position and cash flows of the Company in
the future or what the results of operations, financial position and cash
flows would have been had the Company been a separate, stand-alone entity
during the periods presented, because as certain allocations were made in
preparing such financial data. This is particularly true with regard to
allocations of corporate overhead. The financial information included herein
does not reflect the many significant changes that will occur in the funding
and operations of the Company as a result of the Distribution and the
Offering. In addition, the combined financial statements of the Company
include certain assets, liabilities, revenues and expenses which were not
historically recorded at the entity level of, but are associated with, the
Company. See "The Distribution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
Management of Potential Growth. The Company's business has grown rapidly
in the last three years, with total revenues increasing from $52,783,000 in
fiscal 1994 to $77,602,000 in fiscal 1996. This recent growth has placed, and
may continue to place, strain on the Company's management and systems.
Accordingly, the Company's future operating results will depend, in part, on
the ability of its officers and other key employees to continue to implement
and improve its operational and financial control systems and to effectively
expand, train and manage its employee base. The Company's growth is also
dependent upon its distribution affiliates' ability to implement the
Company's products in response to the projected demands of the Company's
customer base. There can be no assurance that the Company or its affiliates
will be able to manage any future expansion successfully, and any inability
to do so would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Relationship with Marcam Solutions. The Company will enter into certain
agreements with Marcam Solutions which will govern certain aspects of the
parties' relationship on an ongoing basis that may be material to the conduct
of the Company's business, including the provision of certain administrative
services, the sharing of certain facilities and indemnification obligations
related to the Distribution. These agreements would have a material adverse
effect on the Company's business, financial condition and results of
operations if such agreements result in significant liabilities to the
Company. In addition, because the business to be conducted by Marcam
Solutions will be conducted through Marcam Corporation until the
Distribution, MAPICS may be liable for the liabilities of Marcam Solutions
relating to the period prior to the Distribution. If Marcam Solutions for any
reason is unable to satisfy its liabilities, MAPICS may be liable for them.
See "The Distribution" and "Relationship Between MAPICS and Marcam
Solutions."
Dependence on Worldwide Manufacturing Industry. The Company's business
depends substantially upon the capital expenditures of mid-size
manufacturers, which expenditures depend in part upon the demand for such
manufacturers' products. A recession or other adverse events affecting the
worldwide manufacturing industry served by the Company could affect such
demand, forcing manufacturers in the Company's target market to curtail or
postpone capital expenditures on business information systems. Any such
change in the amount or timing of capital expenditures in its target market
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Federal Income Tax Consequences and Liabilities. The Company has requested
a private letter ruling (the "Private Letter Ruling") from the Internal
Revenue Service (the "Service") substantially to the effect that, except as
provided below, the Distribution will qualify as a tax-free distribution to
the Company and its stockholders under Section 355 of the Code. If the
Private Letter Ruling is not obtained prior to the date of the Distribution,
the Company will proceed with the Distribution based upon the opinions of its
special tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP and its
independent accountants, Coopers & Lybrand L.L.P. that, except as provided
below, the Distribution should qualify as a tax-free distribution under
Section 355 of the Code (the "Tax Opinions"). The Tax Opinions will be based
upon certain facts, assumptions and representations of officers of the
Company and Marcam Solutions as of the date of the Distribution. The Company
will not complete the Distribution unless it receives the Private Letter
Ruling or the Tax Opinions. Accordingly, neither the Company nor its
stockholders should recognize taxable gain on the Distribution, except as
provided below. The Company, however, will recognize gain on the Distribution
to the extent that Marcam Solutions shares are received by stockholders who
are not United States persons ("non-U.S. persons"). The number of Marcam
Solutions shares expected to be distributed to non-U.S. persons will
represent approximately 16% of the total Marcam Solutions shares distributed in
the Distribution.
10
<PAGE>
Moreover, the Company may recognize gain with respect to certain restructuring
transactions expected to be consummated in connection with the Distribution. The
aggregate amount of gain recognized by the Company in connection with the
Distribution is not expected to result in any significant tax liability, but
rather is expected to be offset by Marcam Corporation's net operating losses.
Accordingly, the amount of such net operating losses available to the Company
after the Distribution will likely be reduced. The incurrence of significant tax
liabilities by the Company, in the event that the Distribution is not treated as
a tax-free transaction, may have a material adverse effect on the Company's
business, financial condition and results of operations.
Prior to completion of the Distribution, the Company and Marcam Solutions
intend to enter into a tax sharing agreement (the "Tax Sharing Agreement")
that defines the parties' rights and obligations with respect to deficiencies
and refunds of federal, state, and other income or franchise taxes relating
to the Company's business for taxable years prior to the Distribution and
with respect to certain tax attributes of the Company after the Distribution.
In general, pursuant to the Tax Sharing Agreement, Marcam Solutions shall
indemnify the Company for tax liabilities of the Company attributable to any
period ending prior to the Distribution, calculated after giving effect to
Marcam Corporation's net operating losses and tax credits as of the date of
the Distribution. As of the end of the most recent taxable year, Marcam
Corporation had net operating losses of approximately $42 million and tax
credits of approximately $7 million. After the Distribution, such net
operating losses and tax credits are expected to remain with the Company.
Such net operating losses and tax credits expire between 1997 and 2012. The
utilization of net operating loss carryfowards will be limited on an annual
basis due to changes in ownership of the Company. The amount of the Company's
net operating losses and tax credits are subject to adjustment by the
Service, and, in the event of such adjustment, Marcam Solutions shall be
obligated to make indemnification payments to the Company only to the extent
any such adjustment results in a tax liability for a period ending prior to
the date of the Distribution. Under the Tax Sharing Agreement, if the Company
receives a refund of certain taxes applicable to a period ending prior to the
date of the Distribution, the Company shall remit such refund to Marcam
Solutions. Also, under the Tax Sharing Agreement, the Company shall be liable
for any taxes arising out of the Distribution unless attributable to actions
taken by Marcam Solutions or transactions involving Marcam Solutions
occurring after, the Distribution. See "The Distribution" and "Relationship
Between MAPICS and Marcam Solutions."
Uncertain Protection of Proprietary Technology. The Company's success is
heavily dependent upon protection of its proprietary software. The Company
relies on a combination of copyright, trademark and trade secret laws and
license and non-disclosure agreements, to establish and protect its
proprietary rights in its products. The Company enters into confidentiality
and/or license agreements with its employees, distributors, customers and
potential customers, and limits access to and distribution of its software,
documentation, and other proprietary information. There can be no assurance,
however, that despite these precautions, an unauthorized third party will not
copy or reverse-engineer certain portions of the Company's products or obtain
and use information that the Company regards as proprietary. In addition, the
laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the U.S. There can be no
assurance that the mechanisms used by the Company to protect its software
will be adequate or that the Company's competitors will not independently
develop software products that are substantially equivalent or superior to
the Company's software products.
In the future the Company may receive notices claiming that it is
infringing the proprietary rights of third parties and there can be no
assurance that the Company will not become the subject of infringement claims
or legal proceedings by third parties with respect to current or future
products. In addition, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Any such claim
could be time consuming, result in costly litigation, cause product shipment
delays or force the Company to enter into royalty or license agreements
rather than dispute the merits of such claims. Moreover, an adverse outcome
in litigation or similar adversarial proceedings could subject the Company to
significant liabilities to third parties, require the expenditure of
significant resources to develop non-infringing technology, require disputed
rights to be licensed from others or require the Company to cease the
marketing or use of certain products, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. To the extent the Company desires or is required to obtain
licenses to proprietary rights of others, there can be no assurance that any
such licenses will be made available on terms acceptable to the Company, if
at all. Claims against the Company, with or without merit, as well as claims
initiated
11
<PAGE>
by the Company against third parties, can be time consuming and expensive to
defend, prosecute or resolve. See "Business--Proprietary Rights and
Technology."
Risks of Product Liability. The Company's products are generally used to
manage data critical to large organizations. As a result, the sale and
support of products by the Company may entail the risk of product liability
claims. While the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims, it is possible that such limitations of liability
provisions may not be effective under the laws of all jurisdictions. In
addition, the Company is insured for product liability protection against
claims for personal injury or damage to property, as well as for the
customers losses for which the Company is liable, although such insurance may
not be sufficient to cover all claims in the event the limitation of
liability provisions contained in the Company's license agreements are not
effective. Although the Company has not experienced any significant product
liability claims to date, there can be no assurance that the Company will not
be subject to such claims in the future. A successful product liability claim
brought against the Company could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
defending such a suit, regardless of its merits, could entail substantial
expense and require the time and attention of key management personnel,
either of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Absence of Comparable Trading History for Common Stock; Possible
Volatility of Stock Price. The Common Stock is traded on the Nasdaq National
Market. However, because of the Distribution, historical trading prices of
the Common Stock are unlikely to be indicative of future trading prices. The
initial price to the public of the Common Stock to be sold in the Offering
will be determined by negotiation between the Company and the Underwriters.
See "Underwriting" for a discussion of the factors to be considered in this
connection.
The market price of the Company's Common Stock could be subject to
significant volatility due to a number of factors, including the announcement
of new products or product enhancements by the Company or its competitors,
quarterly variations in the Company's operating results or operating results
of its competitors or companies in related industries, changes in earnings or
revenue estimates or recommendations by securities analysts, developments in
the Company's industry, general market conditions and other factors,
including factors unrelated to the operating performance of the Company or
its competitors. Such factors and fluctuations, as well as general economic,
political and market conditions, such as recessions, could materially and
adversely affect the market price of the Company's Common Stock.
Risks Associated with International Operations and Currency
Fluctuations. A material portion of the Company's business comes from outside
the U.S. The Company derived approximately 22%, 27%, and 27% of its total
revenues from customers located outside of the U.S. in 1994, 1995, and 1996,
respectively. The Company believes that its continued growth and
profitability will require expansion of its sales in international markets.
To successfully expand international sales, the Company has utilized, and
will continue to utilize, substantial resources to enlarge existing foreign
operations, establish additional foreign operations and hire additional
personnel. International expansion of the Company's operations has required,
and will continue to require, the Company to translate and localize its
application modules. To the extent the Company is unable to expand its
international operations or translate and localize its application modules in
a timely manner, it is likely to adversely impact the Company's operating
results. In addition, even if international operations are successfully
expanded, there can be no assurance that the Company will be able to maintain
or increase international market presence or demand for its products.
Risks inherent in the Company's international business activities include
imposition of government controls, restrictions on the export of critical
technology, political and economic instability (including fluctuations in
foreign currency exchange rates), trade restrictions, difficulties in
staffing international offices, longer accounts receivable payment collection
cycles in certain countries, burdens of complying with a wide variety of
foreign laws and regulations, management of an organization spread over
various countries, unexpected changes in regulatory requirements and overlap
of different tax structures. In addition, effective copyright, trademark and
trade secret protection may not be available in every foreign country in
which the Company sells its products. As a result of the continued expansion
of the Company's international operations, the fluctuations in the value of
foreign currencies in which the Company conducts its business may cause
currency transaction gains and losses. To date, currency transaction gains
and losses have not been material. However, due to the number of foreign
currencies involved, the constantly changing currency exposures and
volatility of currency exchange rates, the Company
12
<PAGE>
cannot predict the effect of exchange rate fluctuations upon future operating
results. The Company's business, financial condition and results of
operations could be materially adversely affected by any of these factors.
Anti-Takeover Provisions; Rights Plan; Issuance of Preferred Stock. The
Company's Restated Articles of Organization and Amended and Restated By-laws
contain provisions that may make it more difficult for a third party to
acquire, or discourage acquisition bids for, or discourage changes in
management of, the Company. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock. Also, the Company has adopted a Stockholder Rights
Plan, pursuant to which the Company has distributed to its stockholders
rights to purchase shares of junior participating preferred stock (the
"Rights Plan"). Upon certain triggering events, such rights become
exercisable to purchase the Company's Common Stock at a price substantially
discounted from the then applicable market price of the Company's Common
Stock. The Rights Plan could generally discourage a merger or tender offer
involving the securities of the Company that is not approved by the Company's
Board of Directors by increasing the cost of effecting any such transaction
and, accordingly, could have an adverse impact on stockholders who might want
to vote in favor of such merger or participate in such tender offer. In
addition, shares of the Company's Preferred Stock have been issued in the
past and may be issued in the future without further stockholder approval and
upon such terms and conditions, and having such rights, privileges and
preferences, as the Board of Directors may determine. The rights of the
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of Preferred Stock currently outstanding and will be
subject to, and may be adversely affected by, the rights of any holders of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company.
The Company has no present plans to issue any additional shares of Preferred
Stock. The Company's Board of Directors is divided into three classes, each
of which serves for a staggered three-year term. Such staggered Board may
make it more difficult for a third party to gain control of the Company's
Board of Directors. The Amended and Restated By-laws impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. See "Description of Capital
Stock."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
numbers of shares of Common Stock, or the prospect of such sales, could
adversely affect the market price of the Common Stock and the Company's
ability to raise needed capital in the capital markets at a time and price
favorable to the Company. Upon completion of this Offering, the Company will
have a total of shares of Common Stock outstanding, of which the
shares offered hereby will be freely tradeable without restriction under
the Securities Act of 1933, as amended (the "Securities Act"), by persons
other than "affiliates" of the Company, as defined under the Securities Act.
The remaining 11,533,660 outstanding shares of Common Stock will be eligible
for sale in the public market following the Offering, except for shares of
Common Stock subject to lock-up agreements described below and shares of
Common Stock held or subsequently purchased by affiliates of the Company. Of
these shares, an aggregate of 710,227 shares are subject to lock-up
agreements with the representatives of the Underwriters expiring 180 days
following the date of this Prospectus (the "Lock-Up Agreements"). Such
agreements provide that the representatives may, in their sole discretion and
at any time without notice, release all or a portion of the shares subject to
these Lock-Up Agreements. The remaining shares are not subject to Lock-Up
Agreements and substantially all of these shares are eligible for immediate
sale into the public market.
As of April 30, 1997, the Company had options to purchase an aggregate of
2,655,195 shares outstanding under its existing stock option plans and had an
additional 1,873,585 shares of Common Stock reserved for issuance pursuant to
these plans. In addition, the Company maintains an employee stock purchase
plan pursuant to which it has 152,281 shares of Common Stock reserved for
issuance. Any shares of Common Stock issued upon the exercise of such
outstanding options or any options granted in the future will be, upon
issuance, freely tradeable in the public market, except for shares subject to
Lock-Up Agreements and shares held by affiliates of the Company. Of the
outstanding options, 1,623,068 shares issuable upon exercise of such options
are exercisable within 180 days of the date of this Prospectus and of these
shares of Common Stock, 589,956 shares are subject to Lock-Up Agreements. The
Company also has in effect a registration statement under the Securities Act
covering the sale of 383,333 shares of Common Stock issuable upon the
exercise of warrants exercisable at a price of $8.92 per share. These shares
of Common Stock are not subject to Lock-Up Agreements.
The holders of the Company's convertible preferred stock currently
convertible into 3,250,000 shares of Common Stock and the holders of warrants
currently exercisable for 1,000,000 shares of Common Stock at an
13
<PAGE>
exercise price of $15.36 are entitled to certain demand registration rights
with respect to such shares of Common Stock commencing on or after July 23,
1998 and are also entitled to piggy-back registration rights. If the Company
were required to include in a Company-initiated registration shares held by
such holders pursuant to the exercise of their piggyback registration rights,
such sale might have an adverse effect on the Company's ability to raise
needed capital in the capital markets at a time and price favorable to the
Company. In addition, 2,250,000 shares of Common Stock underlying the
convertible preferred stock currently are eligible for sale in the public
market subject to the conditions of Rule 144 and the remaining shares of
Common Stock underlying the convertible preferred stock and warrants will
become eligible for sale subject to the conditions of Rule 144 on July 23,
1997. Of the 4,250,000 shares underlying the convertible preferred stock and
warrants, 4,000,000 are subject to Lock-Up Agreements.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby are estimated to be approximately
$68,000,000 ($78,462,500 if the Underwriters' over-allotment option is
exercised in full), after deducting estimated underwriting discounts and
commissions and offering expenses.
The Company intends to use approximately $34,000,000 of the net proceeds
for the repayment of the outstanding principal of, and accrued interest on,
the $34,000,000 promissory note used by MAPICS to capitalize Marcam Solutions
which currently bears interest at a rate of % annually and which is due
upon the consummation of the Offering. The Company intends to use
approximately $27,412,000 of the net proceeds for the repayment of the
$25,000,000 aggregate principal amount of the Company's outstanding 9.82%
Subordinated Notes due 2001 (the "Subordinated Notes"), including a
prepayment penalty of approximately $1,750,000 plus accrued interest of
approximately $662,000. The Company intends to use any remaining net proceeds
for general corporate purposes, including working capital. Pending such uses,
the net proceeds of this Offering will be invested in interest-bearing or
dividend-bearing, investment grade securities. See "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources" and "Relationship Between MAPICS and Marcam Solutions."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain future earnings to fund future
development and growth and the operation of its business, and therefore does
not anticipate paying any cash dividends in the foreseeable future. Covenants
in the Company's revolving credit facility prohibit the payment of cash
dividends. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
results of operations, financial condition, capital requirements and such
other factors as the Board of Directors deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997 (i) on an actual basis, (ii) on a pro forma basis reflecting
the Distribution and certain other matters, and (iii) on a pro forma as
adjusted basis reflecting the Distribution, certain other matters, the sale
of shares of Common Stock offered hereby and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Combined Financial Statements and related Notes thereto appearing elsewhere
in this Prospectus. See also "Use of Proceeds," "Selected Combined Financial
Data," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Capital Stock."
<TABLE>
<CAPTION>
As of March 31, 1997
--------------------------------------------
Pro Forma As
Actual Pro Forma(A) Adjusted(A)(B)
(In thousands, except per share data)
<S> <C> <C> <C>
Cash and cash equivalents $ 852 $ 852 $ 7,440
====== ======== ========
Total debt $ -- $ 61,412 $ --
Divisional equity 9,228 -- --
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000 shares
authorized
Series D Convertible Preferred Stock,
225 shares issued and outstanding pro forma
and pro forma as adjusted -- 225 225
Series E Convertible Preferred Stock,
100 shares issued and outstanding pro forma
and pro forma as adjusted -- 100 100
Common stock, $.01 par value; 50,000 shares
authorized; 11,534 shares issued and
outstanding pro forma; shares issued
and outstanding pro forma as adjusted (C) -- 115 115
Additional paid in-capital -- -- 68,000
Retained earnings -- (52,624) (52,624)
Total stockholders' equity (deficit) -- (52,184) 15,816
------ -------- --------
Total capitalization $9,228 $ 9,228 $ 15,816
====== ======== ========
</TABLE>
- -------------
(A) Adjusted to give effect to the Distribution, the assumption of Marcam
Corporation's $25.0 million 9.82% Subordinated Notes due 2001 including
approximately $2.4 million for a prepayment penalty and accrued interest,
and the $34.0 million promissory note used to capitalize Marcam
Solutions.
(B) Adjusted to give effect to the sale of shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Description of Capital Stock."
(C) Does not include (i) 1,383,333 shares of Common Stock issuable upon the
exercise of warrants outstanding as of March 31, 1997 with a weighted
average exercise price of $13.58 per share and (ii) 2,663,452 shares of
Common Stock issuable upon the exercise of stock options outstanding as
of March 31, 1997 with a weighted average exercise price of $14.64 per
share.
16
<PAGE>
SELECTED COMBINED FINANCIAL DATA(A)
The following table sets forth selected combined financial data of the
Company for and as of the years ended September 30, 1994, 1995 and 1996 for
the six months ended March 31, 1996 and 1997 and as of the six months ended
March 31, 1997. The selected combined financial data for and as of the years
ended September 30, 1994, 1995, and 1996 have been derived from the Company's
combined financial statements which have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as indicated in their report. The
selected combined financial data for the six months ended March 31, 1996 and
1997 and as of the six months ended March 31, 1997 have been derived from the
Company's unaudited combined financial statements which, in the opinion of
management of the Company, have been prepared on the same basis as the
audited combined financial statements and include all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of the
results of operations and financial position for and as of these periods.
Operating results for the six months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the entire year. These data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Combined Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Years Ended September 30, March 31,
------------------------------ ---------------------
1994 1995 1996 1996 1997
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License $33,410 $42,745 $45,341 $20,501 $25,328
Services 19,373 26,553 32,261 15,343 18,837
------- ------- ------- ------- -------
Total revenues 52,783 69,298 77,602 35,844 44,165
Operating expenses:
Cost of license revenues 3,280 5,689 6,913 3,026 4,129
Cost of services revenues 5,428 7,567 9,499 4,573 5,301
Selling and marketing 17,765 24,780 27,851 13,028 14,834
Product development 6,692 7,432 6,398 3,122 4,969
General and administrative 4,810 5,384 5,965 2,212 4,360
------- ------- ------- ------- -------
Total operating expenses 37,975 50,852 56,626 25,961 33,593
Operating income 14,808 18,446 20,976 9,883 10,572
Income tax expense 4,641 7,112 8,076 3,805 4,071
------- ------- ------- ------- -------
Net income $10,167 $11,334 $12,900 $ 6,078 $ 6,501
======= ======= ======= ======= =======
Pro forma net income per common
share (B) $ 0.91 $ 0.43
======= =======
Pro forma weighted average number
of common shares outstanding (B) 14,185 14,991
====== =======
</TABLE>
As of September 30, As of March 31,
------------------------------ ----------------
1994 1995 1996 1997
(In thousands)
Balance Sheet Data:
Cash and cash equivalents $ 107 $ 226 $ 378 $ 852
Working capital (deficit) (2,040) (8,527) (13,945) (13,999)
Total assets 36,392 41,226 45,405 46,646
Long-term liabilities 493 196 884 394
Divisional equity 17,091 11,492 9,193 9,228
- -------------
(A) See Notes to Combined Financial Statements appearing elsewhere in this
Prospectus.
(B) See Note 2 of Notes to Combined Financial Statements for information
concerning the computation of per share earnings.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Combined Financial Data" and the combined financial statements and
notes thereto included elsewhere in this Prospectus. The discussion in this
Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this
Prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus. The Company's actual
results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include those discussed in
"Risk Factors" as well as those discussed elsewhere herein.
Overview
The MAPICS product line was initially introduced by International Business
Machines Corporation ("IBM") in 1978 to provide integrated application
software for accounting, manufacturing and logistics for mid-size
manufacturers. In February 1993, Marcam Corporation acquired the exclusive
marketing and licensing rights to the MAPICS products from IBM and began
managing the development and support of the MAPICS products. In September
1995, Marcam Corporation acquired all of the outstanding capital stock of the
company that owned the MAPICS products. The combined financial statements and
other financial information included in this Prospectus have been prepared
using Marcam Corporation's historical basis in the assets, liabilities and
historical results of operations of the business related to the MAPICS
products. See Notes to Combined Financial Statements.
The Company generates revenues primarily from licensing its software. When
it first licenses its software, the Company receives both an initial license
fee and a periodic license fee. The periodic license fee, which is typically
paid annually in advance thereafter, entitles the customer to continue using
the software and to receive certain support services. If a customer does not
renew its periodic license, it is no longer entitled to use the Company's
software. The Company believes this licensing arrangement provides it with
recurring revenues from its installed base of customers and enables customers
to take advantage of new releases and enhancements of its software. Initial
license fees are recorded as license revenues, and periodic license fees are
recorded as services revenues and recognized ratably over the period.
The Company's cost structure is designed so that a significant portion of
its costs vary in direct relation to license revenues, particularly its
selling and marketing expenses and cost of license revenues. The MAPICS
products are sold primarily through the Company's network of independent
local affiliates, with support from the Company's sales management. The
Company's single largest expense is commissions paid to these affiliates,
which are based on the revenues they generate from selling licenses to the
MAPICS products. The Company currently expects that as its affiliates
generate increasing license revenues, selling and marketing expenses will
decrease as a percentage of revenues because of the relatively fixed cost of
the Company's direct selling and marketing activities. The affiliates, not
the Company, provide the Company's customers with consulting and
implementation services relating to the MAPICS products. As a result, the
Company neither receives revenues from providing consulting and
implementation services, nor bears the fixed costs inherent in maintaining a
services business.
In Japan and certain Eastern European countries, the Company's affiliates
act as resellers of the MAPICS products and the Company records as license
revenues the net royalties received from the affiliates without any
corresponding commission expenses. From 1994 to 1996, net royalties received
from such resellers decreased from 17.0% to 1.3% of total license revenues.
The Company's strategy has been to reduce its reliance on resellers in order
to maintain a direct relationship with its customers. This shift generally
has resulted in an increase in selling and marketing expense as a percentage
of revenues and a decrease in the operating margin percentage. The Company
believes that the proportion of reseller sales to total license revenues will
remain relatively constant for the foreseeable future.
Cost of license revenues consists primarily of royalties paid to Solution
Partners with respect to products licensed by the Company and amortization of
software development costs. The Company expects that cost of license revenues
will vary based on the mix of products licensed during the applicable period
between Company-developed products and Solution Partner-developed products.
The Company licenses from its Solution Partners complementary software
products which have been integrated into the MAPICS product line. When the
Company
18
<PAGE>
licenses a Solution Partner product to a customer, the Company pays a royalty
to the Solution Partner. As a result, a significant portion of its cost of
license revenues varies in direct relation to license revenues based on
Solution Partners' products. Through its Solution Partner arrangements, the
Company has been able to both enhance the functionality of its existing
products and introduce new products utilizing this variable cost approach to
expand its product offerings. During the past three fiscal years, the mix of
products licensed by the Company has included increasing percentages of
Solution Partner products, which has resulted in both increasing revenues and
royalty costs.
The Company's capitalized software development costs result primarily from
internal software development activities and the translation of software into
various foreign languages. The Company has typically amortized its
capitalized software development and translation costs over five years. As of
March 31, 1997, the Company's balance sheet reflected approximately four
years of accumulated capitalized software development costs, because the
Company did not begin capitalizing software until the acquisition of the
exclusive marketing and licensing rights to the MAPICS products in February
1993. Consequently, the Company currently expects amortization of these costs
to continue to increase through fiscal 1998, when five years of software
development costs will have been capitalized. In addition, in fiscal 1997 the
Company made a decision to amortize its 1997 and future translation
expenditures over a revised useful life of two years rather than five years.
This decision resulted, beginning in the first quarter of fiscal 1997, and
will continue to result, in an increase in amortization expense compared with
fiscal 1996.
In the U.S. and Canada, the Company is the provider of support services
(primarily via telephone) to its customers. Elsewhere, the Company engages
local affiliates to provide varying degrees of support services for a fee.
For certain Solution Partner-developed products, the Solution Partners
provide varying levels of support for a fee. The costs of the Company's
direct support services and the fees paid to affiliates and Solution Partners
for providing support services are recorded as costs of services revenues.
In 1996, the Company reduced its level of spending on product development
activities other than translation of products ("core product development")
because, at the time, Marcam Corporation anticipated that the MAPICS products
would use certain technologies being developed in connection with its Protean
and Avantis product lines. Subsequently, the Company determined that such a
development strategy was not consistent with the demands of its target market
and commenced a revised development strategy which will allow future platform
independence. The Company currently anticipates that core product development
expenditures will increase as a percentage of revenues to levels more
consistent with those of 1994 and 1995. Costs of establishing technological
feasibility of computer software products are charged to product development
expense as they are incurred. Consequently, the Company's operating results
may be affected adversely by significant changes in the level of product
development investments.
Certain expenses presented in the combined financial statements and other
financial information included in this Prospectus have been allocated based
on management's estimates of the cost of services provided to the Company by
Marcam Corporation. The Company's management believes that these allocations
are reasonable. The combined financial statements and other financial
information included in this Prospectus, however, may not necessarily reflect
the combined financial position, results of operations and cash flows of the
Company had it operated as a separate entity during the periods presented, or
what they may be in the future. See "Risk Factors-- Absence of History as a
Stand-Alone Public Company" and Notes to Combined Financial Statements.
19
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain line items in the Company's combined
statements of operations.
<TABLE>
<CAPTION>
Fiscal Years Ended Six Months Ended
September 30, March 31,
------------------------- ----------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Revenues:
License 63.3% 61.7% 58.4% 57.2% 57.3%
Services 36.7 38.3 41.6 42.8 42.7
----- ----- ----- ------ ------
Total revenues 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of license revenues 6.2 8.2 8.9 8.4 9.3
Cost of services revenues 10.3 10.9 12.2 12.8 12.0
Selling and marketing 33.7 35.8 35.9 36.3 33.6
Product development 12.7 10.7 8.3 8.7 11.3
General and administrative 9.1 7.8 7.7 6.2 9.9
----- ----- ----- ------ ------
Total operating expenses 72.0 73.4 73.0 72.4 76.1
----- ----- ----- ------ ------
Operating income 28.0 26.6 27.0 27.6 23.9
Income tax expense 8.8 10.3 10.4 10.6 9.2
----- ----- ----- ------ ------
Net income 19.2% 16.3% 16.6% 17.0% 14.7%
===== ===== ===== ====== ======
</TABLE>
Six Months ended March 31, 1997 Compared to Six Months ended March 31, 1996
Revenues. The Company generates revenues from licensing its software.
Total revenues increased 23.2% to $44.2 million for the six months ended
March 31, 1997 from $35.8 million for the six months ended March 31, 1996.
License revenues increased 23.5% to $25.3 million for the six months ended
March 31, 1997 from $20.5 million for the six months ended March 31, 1996.
This increase resulted primarily from an increase of license sales to new
customers, and to a lesser extent, an increase of license sales to existing
customers for new sites, upgraded systems and additional modules,
particularly in the U.S., Canada and the Europe, Middle East and Africa
region ("EMEA"). Services revenues increased 22.8% to $18.8 million for the
six months ended March 31, 1997 from $15.3 million for the six months ended
March 31, 1996, principally due to the increase in the Company's installed
customer base and additional optional support offerings that were made
available in the second quarter of fiscal 1996 in EMEA to customers who had
licensed MAPICS products from IBM without support services.
Cost of License Revenues. Cost of license revenues consists primarily of
royalties paid to Solution Partners with respect to products licensed by the
Company and amortization of capitalized software development costs. Cost of
license revenues increased 36.5% to $4.1 million for the six months ended
March 31, 1997 from $3.0 million for the six months ended March 31, 1996.
These costs increased as a percentage of license revenues to 16.3% from 14.8%
for the six months ended March 31, 1997 and 1996, respectively. These
increases were primarily due to increased royalty costs as the volume of
Solution Partner products licensed by the Company increased from the 1996
period to the 1997 period and increased amortization of capitalized software
development and translation costs which resulted from the increased
capitalized software asset.
Cost of Services Revenues. Cost of services revenues consists primarily of
personnel costs related to the ongoing maintenance and support of the MAPICS
products, fees paid to affiliates outside the U.S. and Canada to provide
certain support services in those regions, and the fees paid to Solution
Partners to provide similar services with respect to their products. Cost of
services revenues increased 15.9% to $5.3 million for the six months ended
March 31, 1997 from $4.6 million for the six months ended March 31, 1996,
primarily as a result of the increased fees paid to affiliates and Solution
Partners for providing support services. As a percentage of services
revenues, these costs decreased to 28.1% from 29.8% for the six months ended
March 31, 1997 and 1996, respectively. This decrease resulted primarily from
the relatively fixed personnel costs in the Company's support services
organization which were offset in part by the increased fees paid to Solution
Partners and affiliates for support services in the 1997 period.
20
<PAGE>
Selling and Marketing. Selling and marketing expenses consist primarily of
commissions paid to the Company's independent affiliates, compensation for
the Company's sales and marketing personnel and direct costs associated with
the Company's marketing campaigns. Selling and marketing expenses increased
13.9% to $14.8 million for the six months ended March 31, 1997 from $13.0
million for the six months ended March 31, 1996. This increase in the 1997
period was due primarily to increased commissions earned by affiliates on
increased license revenues. As a percentage of revenues, selling and
marketing expenses decreased to 33.6% from 36.3% for the six months ended
March 31, 1997 and 1996, respectively. This decrease resulted primarily from
the Company's direct selling and marketing costs being relatively fixed in
nature.
Product Development. Product development expenses consist primarily of
compensation for software engineering personnel and independent contractors
retained to assist in the Company's product development efforts. Costs of
establishing technological feasibility of computer software products are
charged to product development expense as they are incurred. Thereafter,
certain software development costs and the cost of translating software
products into different foreign languages are capitalized in accordance with
Statement of Financial Accounting Standards No. 86. Capitalized software
development costs are amortized over the useful lives of such products, which
are generally five years (except for translation expenditures capitalized in
1997 which are being amortized over two years). Amortization expense is
charged to cost of license revenues.
Overall, product development expenses increased 59.2% to $5.0 million for
the six months ended March 31, 1997 from $3.1 million for the six months
ended March 31, 1996 and increased as a percentage of revenues to 11.3% from
8.7% for the six months ended March 31, 1997 and 1996, respectively. These
increases resulted primarily from lower costs qualifying for capitalization
in 1997 than in 1996 due to the Company's core development efforts. See
"Overview" and "Business--Product Development."
Gross core development expenditures increased 16.3% to $6.0 million for
the six months ended March 31, 1997 from $5.2 million for the six months
ended March 31, 1996. This increase was primarily due to increased
development expenditures as a result of the Company's change in product
development strategy. See "Overview" and "Business--Product Development." The
amounts of core development expenditures capitalized for the six months ended
March 31, 1997 and 1996 were $1.2 million and $2.2 million, respectively,
representing 19.1% and 42.1% of gross core development expenditures during
those periods. The amounts of development expenditures capitalized during the
period decreased because a higher proportion of development expenditures were
related to the establishment of technological feasibility of the Company's
revised development strategy. Gross translation expenditures decreased 30.8%
to $1.3 million for the six months ended March 31, 1997 from $1.9 million for
the six months ended March 31, 1996. Translation expenditures are typically
project related and the timing of these expenditures is subject to change
from period to period. The amounts of translation costs capitalized for the
six months ended March 31, 1997 and 1996 were $1.2 million and $1.8 million,
respectively, representing 93.8% of gross translation expenditures during
both periods.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, financial, legal and administrative
personnel, outside professional and service fees and provisions for bad
debts. General and administrative expenses increased 97.1% to $4.4 million
for the six months ended March 31, 1997 from $2.2 million for the six months
ended March 31, 1996 due primarily to an increase in the provision for bad
debts, as well as increases in facilities and personnel costs. General and
administrative expenses represented 9.9% of revenues for the six months ended
March 31, 1997 as compared to 6.2% for the six months ended March 31, 1996.
The level of general and administrative expenses for the 1996 period was
relatively low primarily because the Company recorded less bad debt expense
due to available reserves.
Provision for Income Taxes. Income tax expense represented 38.5% of income
before tax expense for the six months ended March 31, 1997 and 1996. The
effective tax rates for both periods exceeded the statutory federal rate
largely due to the impact of state income taxes, partially offset by research
and experimentation credits.
Fiscal 1996 Compared to Fiscal 1995
Revenues. Total revenues increased 12.0% to $77.6 million in 1996 from
$69.3 million in 1995. License revenues increased 6.1% to $45.3 million in
1996 from $42.7 million in 1995. This increase resulted primarily from an
increase of license sales to new and existing customers for new sites,
upgraded systems and additional modules, particularly outside the U.S. and
Canada. This increase was primarily attributable to the availability of
French,
21
<PAGE>
German, Spanish and Portuguese translations of Release 2 of MAPICS XA.
Services revenues increased 21.5% to $32.3 million in 1996 from $26.6 million
in 1995, principally due to the increase in the Company's installed customer
base and revenues from optional support services offered in EMEA to customers
who had licensed MAPICS products from IBM without support services.
Cost of License Revenues. Cost of license revenues increased 21.5% to $6.9
million from $5.7 million in 1995 and represented 15.2% and 13.3% of license
revenues in 1996 and 1995, respectively. This increase was primarily due to
increased royalty costs as the volume of Solution Partner products licensed
by the Company increased from 1995 to 1996 and increased amortization of
capitalized software development and translation costs which resulted from
the increased capitalized software asset.
Cost of Services Revenues. Cost of services revenues increased 25.5% to
$9.5 million from $7.6 million in 1995 and represented 29.4% and 28.5% of
services revenues in 1996 and 1995, respectively. This increase was primarily
due to increases in staff and other costs in 1996 to support the growing base
of customers in EMEA.
Selling and Marketing. Selling and marketing expenses increased 12.4% to
$27.9 million in 1996 from $24.8 million in 1995 and represented 35.9% and
35.8% of total revenues in 1996 and 1995, respectively. The increase in these
expenses resulted primarily from increased commissions earned by affiliates
on increased revenues. As a percentage of total revenues, these expenses
remained relatively constant as a result of changes in the mix of revenues
from affiliates and resellers. See "Overview."
Product Development. Overall, product development expenses decreased 13.9%
to $6.4 million from $7.4 million in 1995 and represented 8.3% and 10.7% of
total revenues in 1996 and 1995, respectively. These decreases resulted
primarily from lower core development expenditures in 1996. See "Overview"
and "Business--Product Development."
Gross core development expenditures decreased 9.9% to $9.1 million for
1996 from $10.0 million for 1995. This decrease was due primarily to the
change in the Company's development strategy. See "Overview." The amounts of
core development expenditures capitalized for 1996 and 1995 were $2.9 million
and $2.8 million, respectively, representing 31.9% and 28.2% of gross core
development expenditures during those periods. Gross translation expenditures
increased 27.6% to $3.7 million for 1996 from $2.9 million for 1995. The
amounts of translation costs capitalized for 1996 and 1995 were $3.5 million
and $2.7 million, respectively, representing 93.6% and 92.4% of gross
translation expenditures during those periods.
General and Administrative. General and administrative expenses increased
10.8% to $6.0 million from $5.4 million in 1995 and represented 7.7% and 7.8%
of total revenues in 1996 and 1995, respectively. The overall increase was
primarily due to expansion of staff and facilities in EMEA.
Provision for Income Taxes. Income tax expense represented 38.5% and 38.6%
of income before income tax for fiscal years 1996 and 1995, respectively. The
effective tax rates for both periods exceeded the statutory federal rate
largely due to the impact of state income taxes, partially offset by research
and experimentation credits.
Fiscal 1995 Compared to Fiscal 1994
Revenues. Total revenues increased 31.3% to $69.3 million in 1995 from
$52.8 million in 1994. License revenues grew 27.9% to $42.7 million in 1995
from $33.4 million in 1994. This increase resulted primarily from increased
licensing volume both to new customers and to existing customers for new
sites, upgraded systems and additional modules, particularly in the U.S. and
Canada. The Company believes that this increase was attributable to the
availability of the significant enhancements in Release 2 of MAPICS XA and
improvements in affiliate productivity outside North America.
Services revenues increased 37.1% to $26.6 million in 1995 from $19.4
million in 1994. This increase was primarily attributable to the inclusion in
1995 of periodic license fee revenues for a full year. In connection with the
transactions relating to the MAPICS products which occurred in February 1993,
none of the periodic license fees billed by IBM prior to the closing were
transferred to the Company. The Company began recognizing periodic license
fee revenues only after the period for which the customer paid IBM expired.
Periodic license fees were typically billed on the anniversary of the
original license of the software, although revenues from those fees were
recognized ratably during the period. Consequently, the Company did not
recognize a full year of periodic license fee revenues during 1994. In
addition, the Company recognized revenues from optional support services
offered in Europe to customers who had licensed MAPICS products from IBM
without support services.
22
<PAGE>
Cost of License Revenues. Cost of license revenues increased 73.4% to $5.7
million from $3.3 million in 1994 and represented 13.3% and 9.8% of license
revenues in 1995 and 1994, respectively. This increase was primarily due to
increased royalty costs as the volume of Solution Partner products licensed
by the Company increased from 1994 to 1995 and increased amortization of
capitalized software development and translation costs which resulted from
the increased capitalized software asset.
Cost of Services Revenues. Cost of services revenues increased 39.4% to
$7.6 million from $5.4 million in 1994 and represented 28.5% and 28.0% of
services revenues in 1995 and 1994, respectively. This increase resulted
primarily from increased personnel costs associated with expansion of the
Company's North American and European support capabilities.
Selling and Marketing. Selling and marketing expenses increased 39.5% to
$24.8 million in 1995 from $17.8 million in 1994. This increase was due
primarily to increased commissions earned by affiliates on increased license
revenues. Selling and marketing expenses increased as a percentage of total
revenues from 33.7% to 35.8% from 1994 to 1995. This increase was primarily
attributable to a decrease in the proportion of revenues received in 1995
from affiliates who act as resellers whereby the Company only records as
license revenues the net proceeds from the affiliate and no corresponding
commission expense is recognized, as well as expansion of the Company's
direct marketing programs.
Product Development. Overall, product development expenses increased 11.1%
to $7.4 million in 1995 from $6.7 million in 1994 and represented 10.7% and
12.7% of revenues in 1995 and 1994, respectively. These increases were due to
lower amounts of core development costs qualifying for capitalization in
1995.
Gross core development expenditures decreased 5.5% to $10.0 million for
1995 from $10.6 million for 1994. The amounts of core development
expenditures capitalized for 1995 and 1994 were $2.8 million and $4.1
million, respectively, representing 28.2% and 39.0% of gross core development
expenditures during those periods. Gross translation expenditures increased
237.4% to $2.9 million for 1995 from $0.9 million for 1994. The amounts of
translation costs capitalized for 1995 and 1994 were $2.7 million and $0.7
million, respectively, representing 92.4% and 75.9% of gross translation
expenditures during those periods.
General and Administrative. General and administrative expenses increased
11.9% to $5.4 million from $4.8 million in 1994 and represented 7.8% and 9.1%
of total revenues in 1995 and 1994, respectively. This increase was due
primarily to an increase in the provision for bad debts.
Provision for Income Taxes. Income tax expense represented 38.6% and 31.3%
of income before income tax for fiscal years 1995 and 1994, respectively. The
effective tax rate in 1995 exceeded the federal statutory rate largely due to
the impact of state income taxes, partially offset by research and
experimentation credits. The effective tax rate in 1994 was lower than the
federal statutory rate due to research and experimentation credits and the
benefit of net operating losses exceeding the impact of state income taxes.
Quarterly Financial Results
The following table sets forth unaudited statement of operations data for
each of the four quarters in fiscal 1995 and 1996 and the first two quarters
in fiscal 1997 and the percentage of the Company's total revenues represented
by each item for the respective quarter. This unaudited quarterly information
has been prepared on the same basis as the annual information presented
elsewhere herein and, in the Company's opinion, includes all adjustments
necessary for a fair presentation of the information for the quarters
presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
23
<PAGE>
Operating Results:
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1994 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C>
Revenues:
License $11,241 $ 8,456 $ 8,739 $14,309 $11,449
Services 5,972 6,902 6,564 7,115 7,174
------- ------- ------- ------- -------
Total revenues 17,213 15,358 15,303 21,424 18,623
Operating Expenses:
Cost of license revenues 1,060 1,043 1,462 2,124 1,681
Cost of services revenues 1,643 1,770 1,821 2,333 2,234
Selling and marketing 5,720 5,456 5,297 8,307 6,814
Product development 1,739 1,844 2,078 1,771 1,371
General and administrative 1,307 1,205 1,143 1,729 1,486
------- ------- ------- ------- -------
Total operating expenses 11,469 11,318 11,801 16,264 13,586
------- ------- ------- ------- -------
Operating income 5,744 4,040 3,502 5,160 5,037
Income tax expense 2,215 1,558 1,350 1,989 1,939
------- ------- ------- ------- -------
Net income $ 3,529 $ 2,482 $ 2,152 $ 3,171 $ 3,098
======= ======= ======= ======= =======
<CAPTION>
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Revenues:
License $ 9,052 $ 9,809 $15,031 $14,277 $11,051
Services 8,169 8,319 8,599 9,102 9,735
------- ------- ------- ------- -------
Total revenues 17,221 18,128 23,630 23,379 20,786
Operating Expenses:
Cost of license revenues 1,345 1,429 2,458 2,558 1,571
Cost of services revenues 2,339 2,300 2,626 2,583 2,718
Selling and marketing 6,214 6,321 8,502 8,035 6,799
Product development 1,751 1,482 1,794 2,488 2,481
General and administrative 726 2,002 1,751 1,922 2,438
------- ------- ------- ------- -------
Total operating expenses 12,375 13,534 17,131 17,586 16,007
------- ------- ------- ------- -------
Operating income 4,846 4,594 6,499 5,793 4,779
Income tax expense 1,866 1,768 2,503 2,230 1,841
------- ------- ------- ------- -------
Net income $ 2,980 $ 2,826 $ 3,996 $ 3,563 $ 2,938
======= ======= ======= ======= =======
</TABLE>
Percentage of Total Revenues:
<TABLE>
<CAPTION>
Quarters Ended
----------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1994 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C>
Revenues:
License 65.3% 55.1% 57.1% 66.8% 61.5%
Services 34.7 44.9 42.9 33.2 38.5
----- ----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 100.0
Operating Expenses:
Cost of license revenues 6.2 6.8 9.5 9.9 9.0
Cost of services revenues 9.5 11.5 11.9 10.9 12.0
Selling and marketing 33.2 35.5 34.6 38.8 36.6
Product development 10.1 12.0 13.6 8.2 7.4
General and administrative 7.6 7.9 7.5 8.1 8.0
----- ----- ----- ----- -----
Total operating expenses 66.6 73.7 77.1 75.9 73.0
----- ----- ----- ----- -----
Operating income 33.4 26.3 22.9 24.1 27.0
Income tax expense 12.9 10.1 8.8 9.3 10.4
----- ----- ----- ----- -----
Net income 20.5% 16.2% 14.1% 14.8% 16.6%
===== ===== ===== ===== =====
<CAPTION>
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1996 1996 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Revenues:
License 52.6% 54.1% 63.6% 61.1% 53.2%
Services 47.4 45.9 36.4 38.9 46.8
----- ----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 100.0
Operating Expenses:
Cost of license revenues 7.8 7.9 10.4 10.9 7.6
Cost of services revenues 13.6 12.7 11.1 11.1 13.1
Selling and marketing 36.1 34.9 36.0 34.4 32.7
Product development 10.2 8.2 7.6 10.6 11.9
General and administrative 4.2 11.0 7.4 8.2 11.7
----- ----- ----- ----- -----
Total operating expenses 71.9 74.7 72.5 75.2 77.0
----- ----- ----- ----- -----
Operating income 28.1 25.3 27.5 24.8 23.0
Income tax expense 10.8 9.7 10.6 9.5 8.8
----- ----- ----- ----- -----
Net income 17.3% 15.6% 16.9% 15.3% 14.2%
===== ===== ===== ===== =====
</TABLE>
The Company's quarterly operating results are affected by a number of
factors including the size and timing of license transactions; the demand for
the Company's products; the proportion of revenues attributable to license
fees versus services fees; the proportion of Solution Partner-developed
products versus internally-developed products licensed; changes in the level
of operating expenses; the potential for delay or deferral of customer
purchases of the Company's software; the timing of the introduction or market
acceptance of new or enhanced products offered by the Company or its
competitors; the ability of the Company's affiliate distribution channel to
service additional sales; the competitive conditions in the industry; and the
general economic and political conditions and other factors affecting capital
expenditures by customers. The purchase of the Company's products and
services may involve a significant commitment of capital and other resources
by its customers with the attendant delays frequently associated with large
capital expenditures and authorization procedures within an organization.
Accordingly, the sales cycles for the Company's products and services are
subject to a number of significant risks over which the Company has little or
no control, including customers' budgetary constraints and internal
authorization procedures. License revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter.
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The Company's quarterly operating results are subject to certain seasonal
fluctuations. The Company believes that its first quarter (ending December
31) revenues generally are positively affected by year-end capital
expenditures by certain customers and by year-end incentives provided by IBM
to resellers of its hardware, which include many of the Company's affiliates.
In the Company's fourth quarter (ending September 30), revenues are
positively affected by the incentives provided pursuant to the Company's
sales compensation plans. These factors historically have resulted in each
case in increased license revenues during such quarters. In addition, the
Company's revenues occur predominantly in the third month of each quarter and
tend to be concentrated in the latter half of that third month. Accordingly,
delays in product delivery or in closings of sales near the end of a quarter
could cause quarterly revenues and, to a greater degree, net income to fall
substantially short of anticipated levels. Net income is affected because the
Company establishes its spending levels on the basis of its expected future
gross margins. These seasonal factors are likely to continue to affect
quarter-to-quarter comparisons.
Due to the foregoing factors, it is possible that the Company's operating
results could fail to meet the expectations of securities analysts or
investors. In such event, or in the event that adverse conditions in the
manufacturing or ERP marketplace prevail or are perceived to prevail, the
price of the Company's Common Stock would likely be materially adversely
affected. See "Risk Factors--Variability in Quarterly Operating Results;
Seasonality."
Liquidity and Capital Resources
The Company has funded its operations and capital expenditures primarily
through cash generated from operations. Historically, the Company has
remitted its excess cash from operations to Marcam Corporation. During the
six months ended March 31, 1997, the Company transferred net cash of $6.5
million to Marcam Corporation. During fiscal 1996, 1995 and 1994, the Company
transferred net cash to Marcam Corporation of $15.2 million, $16.5 million
and $14.3 million, respectively. As of March 31, 1997, the Company had $0.9
million in cash and a working capital deficit of $14.0 million.
Cash provided by operations was $9.8 million for the six months ended
March 31, 1997 and $23.3 million, $22.7 million and $20.4 million for fiscal
1996, 1995 and 1994, respectively. During the six months ended March 31,
1997, working capital changes included an increase in deferred revenue as a
result of growth in services revenues, offset partially by an increase in
accounts receivable. During fiscal 1996, working capital was principally
affected by an increase in deferred revenue as a result of growth in services
revenues.
Cash used for investing activities was $2.9 million for the six months
ended March 31, 1997 and $8.0 million, $6.1 million and $5.8 million for
fiscal 1996, 1995 and 1994, respectively. During fiscal 1996 and the six
months ended March 31, 1997, the Company used cash for investing activities
primarily related to software development and translation and purchases of
property and equipment.
In conjunction with the Distribution, the Company will contribute to
Marcam Solutions a promissory note in the amount of $34.0 million. In
addition, at the time of the Distribution, the Company will assume $25.0
million in 9.82% subordinated notes previously issued by Marcam Corporation.
Both of these liabilities, as well as a prepayment penalty and accrued
interest of approximately $2.4 million on the subordinated notes, will be
paid from proceeds of the Offering. If the proposed Offering is unsuccessful
or delayed, the Company will be required to seek financing from an alternate
source.
The Company expects to complete negotiations in May 1997 to establish a
revolving credit facility of $5.0 million, with borrowing availability equal
to 80% of qualifying accounts receivable. Borrowings under this facility will
bear interest at a designated prime rate plus 1% per annum. This credit
facility will expire on July 31, 1998. The Company's obligations under this
credit facility are secured by liens on substantially all of the assets of
the Company. Additionally, this credit facility will contain covenants which,
among other things, impose certain limitations or prohibitions on the Company
with respect to additional indebtedness, liens and capital leases; the
payment of dividends on, and the redemption or repurchase of, capital stock
of the Company; investments and acquisitions; the merger or consolidation of
the Company with any person or entity and the disposition of any property or
assets of the Company.
As of March 31, 1997, the Company did not have any material commitments
for capital expenditures. The Company anticipates that its capital
requirements for the last six months of fiscal 1997 will be approximately
$1.0
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million. The Company's aggregate minimum lease payments for the remainder of
fiscal 1997 are expected to be $538,000.
The Company believes that the net proceeds from this Offering, together
with cash flows from operations and available borrowings, will be sufficient
to meet the Company's working capital and capital expenditure needs at least
until the end of fiscal year 1998.
Inflation
To date, the Company believes inflation has not had a material impact on
the Company's operations.
Recently Issued Pronouncements
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which will
require the Company to elect either expense recognition under SFAS 123 or its
disclosure-only alternative for stock-based employee compensation. The
expense recognition provision encouraged by SFAS 123 would require fair-value
based financial accounting to recognize compensation expense for employee
stock compensation plans. The Company has determined that it will elect the
disclosure-only alternative. The Company will be required to disclose the pro
forma net income and pro forma net income per share in the notes to the
combined financial statements using the fair-value based method beginning in
fiscal 1997 after the Distribution, with comparable disclosures for fiscal
1996. The Company has not determined the impact that these pro forma
adjustments will have on its net income or income per share.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued which will require the Company
to present basic and diluted earnings per share ("EPS"). Basic EPS, which
replaces primary EPS, excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to fully diluted EPS under existing rules.
SFAS 128 requires restatement of all prior period earnings per share data
presented. The Company will adopt SFAS 128 as of October 1, 1998 and has not
yet determined the impact of the adoption.
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BUSINESS
MAPICS is a leading provider of enterprise resource planning ("ERP")
software applications for mid-size discrete and batch-process manufacturing
enterprises worldwide. The Company's products provide an integrated and
function-rich ERP solution with the breadth and depth of applications to
manage an entire manufacturing enterprise. The MAPICS XA product line
currently consists of 44 integrated application modules in the areas of
Engineering and Cost Management, Market and Demand Management, Plant
Operations and Logistics Management, Production Resource Planning, Financial
Management and Measurements and Cross Applications Solutions. The Company
continually enhances its product offerings to meet the specific needs of
mid-size manufacturers and offers such manufacturers the opportunity to
gradually migrate to new technologies, one user at a time if desired, while
protecting their existing investments in both hardware and software. In
addition to its internal development programs, the Company utilizes third
parties (Solution Partners) to assist in the development of new applications.
Solution Partners permit the Company to introduce new applications quickly
and on a variable cost basis.
Approximately 6,500 customer sites presently use MAPICS applications,
which the Company believes represents one of the largest installed user bases
in the ERP industry. In Advanced Manufacturing Research's survey of ERP
customer satisfaction (the "AMR Survey"), MAPICS products received the
highest overall total score (nearly one-third higher than the next
competitor) based on 15 different factors, including functionality, value,
implementation results, quality of support, service and maintenance, and
knowledge of sales force. The Company's customer base consists primarily of
mid-size ($20 million to $500 million in annual revenues) manufacturers and
divisions, sites and subsidiaries of large companies, including Bristol-Myers
Squibb Company, Colgate-Palmolive Company, Eaton Corporation, Electrolux
Corporation, General Electric Company, Honda Motor Co., Ltd., International
Game Technology, Peg Perego Pines SPA, Shiseido Cosmetics (America) Ltd. and
Sub-Zero Freezer Co., Inc. The primary channel for selling and supporting
MAPICS products is a network of more than 80 affiliates which sells,
implements, services and supports MAPICS products throughout the world. In
addition to providing customers high quality local implementation, consulting
and support services in a cost-effective manner, the affiliate distribution
channel provides the Company an attractive variable cost structure for sales
and marketing.
The MAPICS XA product line runs on International Business Machine
Corporation's ("IBM") A/S 400 system, which the Company believes is the
leading platform in the mid-size manufacturing market. The Company intends to
pursue growth opportunities in the ERP market by leveraging its large
installed customer base, continuing to utilize its well-established affiliate
distribution channel, accelerating its growth in international markets,
broadening its customer base with new functionality and continuing its
evolutionary product development approach, designed to migrate customers to
new technologies gradually.
Industry Background
Manufacturers face increasingly intense global competitive pressures, more
demanding vendor-customer relationships and rapidly changing market
requirements. Intensifying global competition requires immediate and
effective communication with customers and suppliers of both discrete and
batch-process manufacturers. Discrete manufacturers produce products by
assembling or machining component parts or sub-assemblies into finished
products. Batch-process manufacturers produce products on an order or "batch"
basis in which a batch moves through a series of operations. Customers of
discrete and batch-process manufacturers increasingly demand products which
meet custom ("make-to-order") requirements. These manufacturers are also
utilizing new manufacturing methods such as rate-based manufacturing and
just-in-time inventory replenishment. In addition, manufacturers are
increasingly required to manage broadening product portfolios, multinational
distribution, reduced product development and delivery cycles, lower
inventory levels, and more complex manufacturing strategies. These
requirements often involve global sourcing and assembly from a network of
internal and outsourced manufacturers and suppliers. These challenges require
more streamlined organizations, more efficient business processes, more
effective information flow and communication, and a seamless integration of
the entire extended enterprise.
Effective information technology systems, capable of generating and
disseminating critical information throughout an organization and its
extended enterprise, can be a strategic resource for pursuing competitive
advantage, allowing an organization to respond more rapidly to changing
market and customer needs. Organizations rely on ERP systems to manage and
integrate resources across the enterprise including component procurement,
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inventory management, manufacturing control, sales management, distribution,
transportation, finance and other functions. The emergence of new computer
and communications technologies, the requirements for addressing Year 2000
system issues and new developments in electronic commerce are creating demand
for a new generation of ERP applications that offer solutions with expanded
functionality which can be implemented faster, with less risk and lower cost
and which are designed to accommodate future changes to the manufacturing
processes.
Mid-size manufacturers, consisting of independent companies and divisions,
sites and subsidiaries of larger companies with annual revenues of between
$20 million and $500 million, are focused on balancing their needs for
functionality from their ERP systems against budgetary constraints. The IBM
AS/400 system, which the Company believes is the leading platform used by
mid-size manufacturers, is increasingly being used as a server for
client/server networks and offers an attractive platform alternative for many
companies implementing ERP solutions because of its low cost of ownership,
flexibility, scalability and maintainability. According to industry sources,
the total worldwide market for ERP systems on all hardware systems was
approximately $5.5 billion in 1996 and will grow at least 20% this year. IBM
has reported that more than 425,000 AS/400 systems have been shipped since
1988. In addition, according to industry sources, more than 60,000 IBM AS/400
systems were shipped during 1996.
In order to compete effectively in their market today and in the future,
mid-size manufacturers require the benefits of client/server ERP solutions
that are affordable and can be implemented quickly, with minimal disruption
to business, and that can be maintained with a limited information technology
staff. ERP systems must provide sufficient depth of functionality and
flexibility to enable manufacturers to respond to varying customer needs and
must offer scalability for growth in operations. Mid-size manufacturers
prefer fully integrated ERP solutions covering all aspects of managing the
business enterprise as opposed to specialized solutions which are costly to
integrate and maintain and are difficult to synchronize when changes are made
in software solutions developed by multiple vendors.
The MAPICS Solution
The Company is a leading provider of ERP software applications for
mid-size discrete and batch-process manufacturing enterprises worldwide. The
Company's approach to addressing this market includes the following:
Integrated Product Line With Broad And Deep Functionality. The MAPICS XA
product line currently consists of 44 integrated application modules which
offer the breadth and depth of functions required to manage a complex
manufacturing enterprise. The MAPICS products, initial versions of which were
introduced over 19 years ago, reflect the Company's comprehensive
understanding of manufacturing processes across a wide range of industries
worldwide. The Company offers a suite of fully integrated application modules
which has expanded from the original 17 modules (many of which have been
substantially enhanced and rewritten) to 44 over the past three years. These
new modules and product enhancements were developed in response to emerging
customer needs and include, among others, Intersite Logistics, Material
Requirements Planning, Customer Order Management, International Financial
Management and Electronic Commerce. Additionally, all of the current versions
of MAPICS products are Year 2000 compliant.
Customers Able to Migrate to New Technologies Gradually. The Company
continually enhances its product offerings to meet the specific needs of
customers and offers customers the opportunity to gradually migrate to new
technologies, one user at a time if desired, while protecting their existing
investments in both hardware and software. As new features and functions are
added, all existing functionality is preserved. MAPICS XA utilizes the
technology often sought by manufacturers, such as client/server computing,
object-oriented technology and data warehousing.
Local Implementation and Support Services. MAPICS users throughout the
world benefit from the implementation and other support services provided by
the Company's more than 80 local distribution affiliates. These affiliates
offer customers experienced local contact to implement and customize MAPICS
products rapidly and cost-effectively and also offer customers the necessary
level of support to permit them to maintain limited information technology
staffs. These affiliates are also able to customize applications for
customers. The Company has consolidated its distribution channel, reducing it
from over 200 affiliates at the time the business was acquired in 1993,
retaining its current affiliates because of their ability to sell and market
MAPICS products, product knowledge, quality of customer support,
implementation capacity and financial stability.
High Quality Product Support. The Company is dedicated to providing high
quality support for its products both directly through its 90 employee
support staff and through its affiliates. The Company's development
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laboratory and the primary customer support center were among the first in
the ERP packaged software industry to be ISO 9001 registered, and they remain
among the few which have achieved this status. In the AMR Survey, MAPICS
products received the highest overall total score (nearly one-third higher
than the next competitor) based on 15 different factors, including
functionality, value, implementation results, quality of support, service and
maintenance, and knowledge of sales force.
Strategy
The Company's primary objective is to continue to be a leading provider of
integrated ERP solutions to mid- size manufacturers worldwide. The key
elements to implement this strategy are:
Leverage Large Installed Customer Base. The Company believes the
approximately 6,500 customer sites using MAPICS applications represent one of
the largest installed user bases in the ERP industry. Opportunities for
recurring revenue from existing customers include continued licensing of
existing modules, licensing of additional modules, implementation of MAPICS
products at additional sites, upgrades to larger processors and migrations to
new technologies.
Utilize Well-Established Affiliate Distribution Channel. MAPICS products
are distributed in over 50 countries through a network of more than 80
affiliates. The use of local affiliates provides the Company with strong
market access and penetration, while providing for local support. With their
extensive experience installing MAPICS products, these affiliates typically
offer customers high quality and cost-effective local implementation,
consulting and support services and, in some cases, offer complementary
products. Affiliates typically have extensive knowledge of the mid-size
manufacturing industry in their geographic region and are able to establish
and maintain cooperative relationships with MAPICS customers. While these
activities generate significant revenues for the affiliates, the affiliate
distribution channel provides the Company with an attractive variable cost
structure for sales and marketing. The Company continues to enhance its
affiliate distribution channel by providing new training programs, assisting
in affiliate recruiting efforts and improving communications with its
affiliates.
Accelerate Growth in International Markets. The Company intends to
continue to expand its market presence throughout the world, with a focus on
Europe where there is a large installed base of AS/400 systems. During 1996,
the Company introduced its International Financial Management suite of
modules, which are designed to meet the requirements of international
enterprises with customers and production facilities in multiple countries.
To address specific needs in local markets, MAPICS modules are translated and
localized, supporting the local language, currency, taxation and accounting
requirements. Currently, the most commonly installed MAPICS XA application
modules are available in English, Chinese, French, German, Japanese,
Portuguese and Spanish.
Broaden Customer Base with New Functionality. The Company intends to
continue to broaden its customer base by offering new functionality required
by both new and existing customers. The Company uses the feedback it receives
from its customers, affiliates and Solution Partners to develop the
functionality needed by certain segments of the mid-size manufacturing
industries. For example, the Company recently introduced Intersite Logistics
for customers with multiple, interrelated production sites; Contract
Accounting for manufacturers with projects which extend over long time
periods and for government contractors; and Knowledge-Based Configurator for
manufacturers in make-to-order production industries.
Migrate Customers to New Technologies Gradually. The Company is committed
to enhancing the functionality of its products and delivering solutions which
utilize new technologies sought by users, while preserving users' previous
investments in both hardware and software. This evolutionary product
development strategy is designed to offer customers the opportunity to
migrate to new technologies at their own pace, as gradually as one user at a
time if desired. The Company believes this approach is attractive to those
mid-size manufacturers who seek functional applications which operate on
established hardware platforms. Product development priorities are determined
by insight and input from the Company's customers, Solution Partners and
affiliates. Also, the Company will continue to work with Solution Partners,
which enables the Company to offer functionality to meet specific customer
needs.
Products
The MAPICS I application system, the first comprehensive manufacturing
resource planning system, was introduced in 1978 by IBM. In 1984, IBM
introduced the enhanced MAPICS II application, which was designed
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to run on IBM's System 36 and 38 computers. In 1988, IBM introduced MAPICS/DB
to run on IBM's AS/400 system. In 1993, the Company acquired the exclusive
marketing rights to the MAPICS product line and retained approximately 150
former IBM employees to continue the development and support of the MAPICS
products.
Following the acquisition, the Company undertook to improve the overall
functionality of the MAPICS products and in 1994 MAPICS eXtended Advantage
(XA) was introduced by the Company. Overall, since the acquisition of the
marketing rights in 1993, the Company has expanded the number of software
modules from 17 to 44, and has substantially enhanced and rewritten many of
the original 17 modules.
The Company's principal software product line, MAPICS XA, which runs on
the IBM AS/400 system, provides a comprehensive and integrated ERP solution
for mid-size manufacturing enterprises. The MAPICS XA product line has been
designed to support, within a single site or multiple sites, varied
production and operational processes. The MAPICS products provide the
flexibility to expand to additional sites and processes as a manufacturer's
business evolves. The MAPICS XA product line consists of application modules,
which can be combined and integrated to meet the evolving and specific needs
of the Company's customers.
The Company's MAPICS XA software application modules integrate
feature-rich applications in the following key application areas:
Engineering and Cost Management Applications assist in the development of
data which describe the materials, processes and facilities required to
estimate costs and produce manufactured items. The Company's four software
modules in this area include:
Product Data Management Engineering Data Management
PDMPlus Interface
Estimating and Quote Management
Market and Demand Management Applications provide for the configuration
and entry of customer orders and the control of these orders through pricing,
picking, shipping and invoicing. Also included is the analysis of the demand
sources (e.g., customers, sales territories and geographies) of all orders.
The Company's four software modules in this area include:
Customer Order Management Market Monitoring and Analysis
Sales Analysis Knowledge-Based Configurator
Plant Operations and Logistics Management Applications support the
procurement and tracking of material, the launch and control of manufacturing
activity, and the management of plant maintenance. The Company's 14 software
modules in this area include:
Inventory Management Approvals
Repetitive Production Management Entity Management
Intersite Logistics-Single Site Preventive Maintenance
Intersite Logistics-Multiple Site Work Order Management
Purchasing MRO Inventory
Production Control and Costing Maintenance Imaging
Production Monitoring and Control Maintenance EIS
Production Resource Planning Applications project the demand for
materials, personnel and equipment based on forecasts and assist in preparing
the master schedule to produce items ordered by customers. The Company's five
software modules in this area include:
Forecasting Master Production Schedule
Material Requirements Planning Planning
Finite Capacity Planning and Scheduling Capacity Requirements Planning
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Financial Management and Measurements Applications provide financial and
managerial accounting functions and tracks historical performance of key
management measurements and contracts. The Company's 12 software modules in
this area include:
International Financial Management Accounting Management
Accounts Payabale Accounts Payable
Accounts Receivable Accounts Receivable
General Ledger Financial Analysis
Contract Accounting General Ledger
Executive Information System Fixed Assets
Manufacturing Performance Analysis Payroll USA
Cross Applications Solution Applications provide common services (e.g.,
security control, data retrieval, report development, data transmission) for
all application modules. The Company's five software modules in this area
include:
Cross Application Support Electronic Commerce
PowerVision Visual Workplace
Information WorkPlace
The MAPICS XA product line is compatible with the needs of mid-size
manufacturers throughout the world. The Company's most commonly purchased
products have been translated into at least six languages, support local
currency transactions and can be implemented and utilized in multisite,
multinational divisions of large, diverse enterprises. Typically, the license
fee for a new MAPICS system ranges between $100,000 and $700,000, depending
upon the number and type of modules licensed, the size of the processor and
in some instances the number of users.
The MAPICS XA product line offers a Graphical User Interface (GUI), which
allows the user to choose between the lower cost character-based screens or a
Microsoft Windows-based look and feel. In addition, the GUI coding is
generated in Visual Basic, making modification or customization of views and
functions easier to implement. The MAPICS products have been converted to be
Year 2000 compliant and are offered to MAPICS customers who are paying
periodic license fees.
Product Development
Since the Company acquired the exclusive marketing rights to the MAPICS
products from IBM in 1993, it has released a number of new products and
product enhancements to the MAPICS/DB and MAPICS XA product lines. Ongoing
product development efforts are focused on addressing the needs of its
customer base, in part as a result of feedback from its local affiliates, and
on further broadening and deepening the functionality of MAPICS products. In
particular, research is currently being conducted by the Company to make
MAPICS products available in a JAVA development environment which can be
ported to run on multiple platforms, including the IBM AS/400 and those
running Microsoft's NT Server. These research efforts have been undertaken so
that the Company may, in the future, offer its customers a choice of
platforms on which to run MAPICS products. Development direction is
established by senior management with guidance from the marketing staff and
affiliates. The development team is responsible for design and design
verification, coding, quality assurance, documentation, and language
conversion of new enhancements, products and releases. The Company's
development lab, located in Atlanta, Georgia, is certified for compliance
with ISO 9001. See "Risk Factors--New Products and Technological Change."
In addition to internal development efforts, the Company has, to date,
developed 23 of the Company's software modules in collaboration with third
parties, termed "Solution Partners." Solution Partners are generally expected
to maintain development quality and procedures commensurate with those
utilized in the Company's internal development lab. As a result of working
closely with its Solution Partners, the Company believes that most of its
software modules attain consistent quality, implementation and support
standards, and that most modules developed by Solution Partners are virtually
indistinguishable from those developed by the Company's internal development
team. The Solution Partners are generally paid royalties by the Company when
the Company receives its license fees for Solution Partner-developed modules.
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Research and development expenditures have increased significantly in
recent periods as the Company has continued to focus on development of new
and enhanced products. During fiscal years 1994, 1995, and 1996, gross
research and product development expenditures were $11.4 million, $12.9
million, and $12.7 million, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk
Factors--Dependence on External Development Resources."
Customers
The Company believes that MAPICS products have been licensed to more
customer sites worldwide than any other ERP software solution in the industry
with an installed user base of approximately 6,500 customer sites. The
Company's primary customers are mid-size discrete and batch-process
manufacturers, consisting of independent companies and divisions, sites and
subsidiaries of larger companies with annual revenues of between $20 million
and $500 million. Discrete mid-size manufacturers generally seek software
solutions that will address and help manage product specifications, customer
demand, inventory availability, labor and equipment resources and advanced
manufacturing techniques which require just-in-time inventory replenishment.
The Company believes that it meets the practical business requirements of
mid-size manufacturers by offering modular technology choices which can be
implemented gradually and which are fully supported by local service
providers. The Company's products assist customers in meeting their internal
goals of maintaining operational flexibility, responding to market changes,
increasing revenue and market share, and minimizing cost, waste and
disruption.
None of the Company's customers accounted for more than 10% of total
revenues in fiscal 1996. The Company does not believe that its backlog at any
particular point in time is indicative of future sales.
The Company's installed base includes divisions, sites and subsidiaries of
the following enterprises:
ABB Asea Brown Boveri (Holding) Ltd. International Game Technology
Bayer Corporation Kerry Ingredients UK Ltd.
Bostick, Inc. Matsushita Electronic Industrial Co., Ltd.
Bristol-Myers Squibb Company Michelin Corporation
Colgate-Palmolive Company Michigan Bulb Company Inc.
Coltec Industries Inc. MTD Products, Inc.
Cooper Industries Pall Corporation
Eaton Corporation Peg Perego Pines SPA
Electrolux Corporation Philips Electronics N.V.
Emerson Electric Co. Shiseido Cosmetics (America) Ltd.
Figgie International, Inc. Sub-Zero Freezer Co., Inc.
Gencor Ltd. Syntex Corp.
General Electric Company, P.L.C. Thomas Lighting Inc.
Giddings and Lewis, Inc. Volvo Corporation
Goodyear Tire & Rubber Company Westinghouse Electric Corporation
Honda Motor Co., Ltd. York International
Marketing and Sales
The Company markets its products through a network of more than 80
affiliates in over 50 countries throughout North America, Europe, Africa, the
Middle East, the Asia Pacific region, and Latin America, which implements,
services and supports the Company's products throughout the world. The use of
local affiliates provides the Company with strong market access and
penetration. Affiliates provide sales, consulting, implementation and
maintenance services directly to the Company's customer base on a local
basis. Typically, the affiliates have extensive experience in installing
MAPICS products and provide high quality, knowledgeable consulting and
support services to MAPICS customers. Affiliates tend to have extensive
knowledge of the mid-size manufacturing industry in their geographic region
and are able to establish and maintain cooperative relationships with MAPICS
customers. The Company does not own any interest in any of its distribution
affiliates. Each affiliate has the right to market and sell MAPICS products
within a specific geographic territory and in return, affiliates are
generally not permitted to represent other, competitive, ERP systems. The
affiliates are managed by a sales management team which has emphasized
consolidation of smaller affiliates into larger organizations, eliminated
overlapping territories, and developed a higher level of sales skills.
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The affiliate distribution channel provides significant leverage to the
Company. Most importantly, the affiliates provide a variable cost channel
since they generally receive a sales commission when the Company receives its
license fees. Moreover, the affiliate channel provides the Company continual
input and feedback regarding customer concerns and requirements, industry
trends and competitive products, thus enabling the Company to respond to and
anticipate the future product needs of its customer base and to incorporate
such knowledge into its product development efforts.
The Company historically has had excellent relations with its affiliates.
These strong relations are, the Company believes, attributable to a number of
factors, including the significant revenues which the affiliates receive both
directly from MAPICS as well as from consulting and customization services
rendered to users of MAPICS products and from IBM for sales of the AS/400. In
addition, the affiliates have generally made significant investments in
developing MAPICS knowledge within their organizations.
Customer Support and Service
The Company believes that providing a high level of customer service and
technical support is necessary to achieve rapid product implementation which,
in turn, is essential to long-term customer satisfaction and continued
revenue growth. Accordingly, MAPICS is committed to maintaining a
high-quality, knowledgeable affiliate channel supported by the Company's
internal service and support staff. MAPICS' customer service and support
activities can be grouped into two key areas, as follows:
Implementation consulting, education and applications integration
services. These services are provided on a project consulting basis by the
Company's affiliates. Implementation consulting services are provided on-site
to assist customers in the installation and use of the Company's products
whether entire systems are implemented or individual modules are installed to
augment existing applications. The Company also provides its customers with
supplemental materials which guide the customer through the installation
process thus increasing the efficiency of installation and reducing the cost.
The Company has developed and provides educational materials and instructions
which are used by affiliates in customer classroom environments.
Installed product maintenance. The Company maintains a central telephone
response and assistance program. In North America, this program is available
to customers that pay periodic license fees, 24 hours a day, seven days a
week. Customers receive assistance in operational issues and resolving
possible code errors. A standardized telephone support management system is
used by all support centers to log telephone calls, trace problems or
inquiries, identify qualified support personnel to assist customers, follow
the inquiry through to a successful resolution and measure support
performance. In the AMR Survey, telephone support for the MAPICS products was
rated the highest in the industry.
The Company presently maintains three support centers: Atlanta, Georgia,
which serves North and South America; Eindhoven, Netherlands, which services
Europe, the Middle East and Africa; and Kuala Lumpur, Malaysia which services
the Asia Pacific region.
Proprietary Rights and Technology
The Company's success and ability to compete is heavily dependent upon its
proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of copyright,
trademark and trade secret laws and license and non-disclosure agreements,
which may afford only limited protection. In addition, effective copyright
protection may be unavailable or limited in certain foreign countries.
Although the Company relies on the limited protection afforded by such
intellectual property laws, it also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable customer support
are also essential to establishing and maintaining a technology leadership
position. The Company presently has no patents or patent applications
pending. The source code for the Company's proprietary software is protected
both as a copyrighted work and certain of the applications are protected as
trade secrets. The Company generally enters into confidentiality or license
agreements with its employees, consultants, distributors and customers, and
generally controls access to and distribution of its software, documentation
and other proprietary information. The Company is reliant, however, upon
certain of its Solution Partners to continue to allow the Company to use
technologies developed by such Solution Partners on terms that are favorable
to the Company.
33
<PAGE>
Despite the measures taken by the Company to protect its proprietary
rights, unauthorized parties may attempt to reverse engineer or copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's products
is difficult. Litigation may be necessary in the future to enforce the
Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, to the extent the Company
desires or is required to obtain licenses to proprietary rights of others,
there can be no assurance that any such licenses will be made available on
terms acceptable to the Company, if at all. Any litigation or dispute
regarding proprietary technology which results in a ruling or settlement that
is adverse to the Company, could have a material adverse effect on the
Company's business operating results and financial condition. Claims against
the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time consuming and expensive to defend,
prosecute or resolve. See "Risk Factors--Uncertain Protection of Proprietary
Technology."
Competition
The market for ERP software within the mid-size manufacturing industry is
highly competitive, changes rapidly and is to a significant degree affected
by new product introductions and other market activities of industry
participants. The Company's products and related services are primarily
targeted at the market for business applications software for use with the
IBM AS/400. The Company's current and prospective competitors offer a variety
of products which address this and similar markets. The Company's primary
competition comes from a large number of independent software vendors and
other sources, including Baan N.V., Computer Associates, Inc., Intentia AB,
JBA Holdings Plc, J.D. Edwards and Company, Inc., Oracle Corporation, SAP AG
and System Software Associates, Inc. Of the Company's primary competitors,
the products of Intentia are currently designed solely for use with the IBM
AS/400, and the products of JBA Holdings Plc, J.D. Edwards and System
Software Associates are currently designed for use primarily with the IBM
AS/400. The Company also experiences some competition from vendors of
specialized applications. See "Risk Factors-- Competition."
The principal competitive factors in the market for ERP software and
services include product functionality, quality, performance, reliability,
ease-of-use, cost-effectiveness, size of installed base, technology, service,
and vendor reputation and financial stability. The Company believes that its
products currently compete favorably on the foregoing bases, although in
certain instances it may be at a competitive disadvantage against companies
with greater financial, marketing, service, support, and technological
resources, and greater name recognition. The Company believes its competitive
strengths include its extensive mid-size manufacturing industry expertise,
its dedicated affiliate channel, broad and deep functionality of its products
and proven customer satisfaction.
In order to be successful in the future, the Company must continue to
respond promptly and effectively to the challenges of technological change
and its competitors' innovations by continually enhancing its own product
offerings. There can be no assurance, however, that the Company's products
will continue to compete favorably or that the Company will be successful in
the face of increasing competition from new products and enhancements
introduced by existing competitors or by new companies entering this market.
In addition, because the Company often relies on third party affiliates for
implementation and other support of its products, there can be no assurance
that these affiliates will maintain high quality standards sufficient to
maintain the reputation and competitive position of the Company. The Company
must continue to respond effectively to customer needs and properly select
and incorporate those technologies and application functionalities that will
meet the challenges posed by competitors' innovations. To accomplish these
critical objectives, the Company must continue to invest in enhancing its
current products and introduce new products to remain competitive. See "Risk
Factors--New Products and Technological Change."
Employees
As of April 30, 1997, the Company employed a total of 234 employees. None
of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relations are
good.
The Company's future operating results depend in significant part upon the
continued service of its key technical and senior management personnel. The
Company's future success also depends on its continuing ability
34
<PAGE>
to attract and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense, and may further intensify due to
the hiring needs of numerous competitors to particularly address Year 2000
issues. There can be no assurance that the Company will retain its key
managerial or technical personnel or attract such personnel in the future.
The Company has at times experienced and continues to experience difficulty
recruiting qualified personnel and there can be no assurance that the Company
will not continue to experience such difficulties in the future. The Company,
either directly or through personnel search firms, actively recruits
qualified product development, consulting and sales and marketing personnel.
If the Company is unable to hire and retain qualified personnel in the
future, such inability could have a material adverse effect on the Company's
business, financial condition and results of operations.
Facilities
The Company's principal administrative, marketing, product development and
support facilities are located in Atlanta, Georgia, where the Company leases
a total of approximately 60,000 square feet under an agreement that expires
in March 1999. The Company has other leases in place for its North American,
Latin American, European and Asian Pacific sales and service offices. The
Company believes that its facilities are adequate for its current needs.
Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
business, financial condition or results of operations.
35
<PAGE>
MANAGEMENT
Executive Officers and Directors
Prior to the completion of the Offering and in connection with the
Distribution, it is expected that all current directors of the Company other
than William E. Ford and Edward J. Kfoury will resign and that Messrs. Ford
and Kfoury will fill the vacancies so created with the other individuals
identified as directors below. In addition, it is expected that all current
executive officers of the Company other than Richard C. Cook will be replaced
with the individuals identified as executive officers below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard C. Cook 49 President, Chief Executive Officer and Director
William J. Gilmour 41 Chief Financial Officer and Vice President of Finance
Thomas F. Aery 51 Vice President of Worldwide Customer Support
George A. Chamberlain, 3d (2) 61 Director
Edward J. Kfoury (1) (2) 58 Director
William E. Ford (1) (2) 35 Director
</TABLE>
- -------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Mr. Cook will serve as the Company's President and Chief Executive Officer
immediately following the Offering. Since July 1996, Mr. Cook served as
Marcam Corporation's Senior Vice President and General Manager, MAPICS
Business Group. From October 1994 to July 1996, he served as Marcam
Corporation's Vice President and General Manager, MAPICS Business Group. Mr.
Cook served as the President, Chief Executive Officer and Chairman of the
Board of Mapics, Inc. from October 1992 to September 1994. Mr. Cook was
employed by International Business Machines Corporation ("IBM") as Director
of its Atlanta Software Development Lab from March 1990 to September 1992 and
as Director of its Corporate CIM (Computer Integrated Manufacturing) Project
Office from March 1988 to April 1990.
Mr. Gilmour will serve as the Company's Chief Financial Officer and Vice
President of Finance immediately following the Offering. Since October 1994,
Mr. Gilmour served as Controller of Marcam Corporation's MAPICS Buisiness
Group. From January 1993 to September 1994, Mr. Gilmour served as Controller
of Mapics, Inc. From November 1991 to February 1993, Mr. Gilmour served as
Controller of Marcam Canada, a subsidiary of Marcam Corporation. Prior to
joining Marcam Corporation, Mr. Gilmour served as Corporate Controller of
Madison Chemical Industries, a specialty chemical manufacturer. Mr. Gilmour
obtained his Chartered Accountant designation from the Canadian Institute of
Chartered Accountants in 1980.
Mr. Aery will serve as the Company's Vice President of Worldwide Customer
Support immediately following the Offering. Since October 1994, he has served
as Marcam Corporation's Vice President of Worldwide Customer Support, MAPICS
Business Group. From May 1993 to September 1994, Mr. Aery served as Director
of Worldwide Customer Support of Mapics, Inc. Prior to joining Marcam
Corporation, Mr. Aery was employed by IBM as Worldwide Product Manager,
MAPICS.
Mr. Chamberlain will become a director of the Company immediately
following the Offering. Mr. Chamberlain has served as Marcam Corporation's
Chief Financial Officer since September 1994. Prior to joining Marcam
Corporation, Mr. Chamberlain was an Executive Vice President with Capital
Technologies, Inc., a consulting and venture capital company, during 1993 and
1994. Mr. Chamberlain retired from Digital Equipment Corporation in 1992,
where he had most recently been Vice President of Finance.
Mr. Kfoury has been a director of Marcam Corporation since May 10, 1993
and will continue to be a director of the Company. He was initially appointed
to the Board of Directors of Marcam Corporation as a designee of IBM, a
stockholder of Marcam Corporation, pursuant to agreements between IBM and
Marcam Corporation and among IBM, Marcam Corporation, Paul A. Margolis and
John Campbell. Mr. Kfoury is no longer a designee of IBM. Mr. Kfoury served
as a division President and as a Vice President of IBM until June 1, 1993,
the effective date of his retirement.
Mr. Ford has been a director of Marcam Corporation since October 1995 and
will continue to be a director of the Company. He was appointed to the Board
of Directors as a designee of General Atlantic Partners 21, L.P.,
36
<PAGE>
("GAP 21"), a stockholder of Marcam Corporation, pursuant to the Convertible
Preferred Stock Purchase Agreement dated as of September 20, 1995 by and
among Marcam Corporation, GAP 21, GAP Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance Company. Mr. Ford has been a managing
member of General Atlantic Partners, LLC since 1991. Prior to 1991, Mr. Ford
was a Senior Associate with Morgan Stanley. Mr. Ford is also a director of GT
Interactive Software Corp., Envoy Corporation, SS&C Technologies, Inc. and
E*Trade Group, Inc.
Pursuant to the Company's Restated Articles of Organization, the Company's
Board of Directors is divided into three classes. Each director is elected
for a three-year term of office, with one class of directors being elected at
each annual meeting of stockholders. Each director holds office until his
successor is elected and qualified or until his earlier death, resignation or
removal. Mr. Kfoury will serve in class I whose term expires in 1998; Messrs.
Chamberlain and Cook will serve in class II whose term expires in 1999; and
Mr. Ford will serve in class III whose term expires in 2000.
Executive Compensation
Prior to the Distribution, the executive officers of the Company will not
have been paid any compensation or provided any benefits by the Company.
Rather, such persons will have been paid compensation and provided benefits
by Marcam Corporation. Compensation paid or benefits provided by Marcam
Corporation and its subsidiaries during Marcam Corporation's last fiscal year
to the chief executive officer of the Company and the one other most highly
compensated executive officer of the Company whose annual compensation and
bonus was $100,000 or more is as follows: Mr. Cook received a base salary of
$162,437, a bonus of $189,801 and a contribution to Marcam Corporation's
group life insurance policy and 401(k) Plan of $3,018. Mr. Cook did not
receive any stock option grants during fiscal 1996. Mr. Aery received a base
salary of $99,875, a bonus of $41,055 and a contribution to Marcam
Corporation's group life insurance policy and 401(k) Plan of $1,906. Mr. Aery
received options to purchase 5,000 shares of Common Stock during fiscal 1996.
Mr. Gilmour received a base salary of $78,678, a bonus of $23,954 and a
contribution to Marcam Corporation's group life insurance policy and 401(k)
Plan of $1,665. Mr. Gilmour received options to purchase 1,500 shares of
Common Stock during fiscal 1996. Marcam Corporation did not grant any stock
appreciation rights during fiscal 1996. No other executive officer of the
Company who held office during fiscal 1996 met the definition of "highly
compensated" within the meaning of the Securities and Exchange Commission's
executive compensation disclosure rules.
After the Distribution, the Company intends to increase the base salaries
for its executive officers to levels commensurate with salary levels of
software companies with similar historical revenues. In addition, the Company
expects to implement new executive incentive compensation and stock option
arrangements similar to those currently maintained by software companies with
similar historical revenues. Accordingly, the historical compensation
information for Messrs. Cook, Aery and Gilmour is of limited relevance.
THE DISTRIBUTION
Marcam Corporation has announced its intention to spin off in a tax-free
distribution the portion of its business relating to its PRISM, Protean and
Avantis product lines. The separation into two independent, publicly traded
companies is designed to enable each to better focus on its core markets, to
better serve existing customers and to finance its business.
To effect the Distribution, Marcam Corporation will transfer to Marcam
Solutions the business, assets and liabilities relating to its PRISM, Protean
and Avantis product lines (the "Asset and Liability Transfer"). In addition,
MAPICS will commit to contribute to Marcam Solutions an aggregate of $42.0
million in cash. Of this cash contribution, $34.0 million will initially be
represented by a promissory note which will bear interest at a rate of %
annually and which will become due upon the closing of this Offering (the
"Note Transfer" and together with the Asset and Liability Transfer, the
"Transfer"). The Subordinated Notes will remain obligations of the Company
after the Distribution and will be repaid with a portion of the net proceeds
of this Offering. In connection with the Distribution, the Company will
change its name from "Marcam Corporation" to "MAPICS, Inc."
MAPICS intends to distribute all of its ownership interest in Marcam
Solutions (the "Distribution") by means of a distribution to its stockholders
of record on the record date. The Distribution will be subject to the receipt
of a favorable ruling from the Internal Revenue Service that, except as
provided below, the Distribution will qualify
37
<PAGE>
as a tax-free distribution under Section 355 of the Code, or, if such ruling
is not obtained prior to the date of the Distribution, an opinion of special
tax counsel, Skadden, Arps, Slate, Meagher & Flom LLP and the Company's
independent accountants, to the effect that such distribution should qualify
as a tax-free distribution under Section 355 of the Code. See "Risk
Factors--Federal Income Tax Consequences and Liabilities." Accordingly,
except as provided below, neither the Company nor its stockholders should
recognize taxable gain on the Distribution. The Company, however, will
recognize gain on the Distribution to the extent that Marcam Solutions shares
are received by stockholders who are not United States persons ("non-U.S.
persons"). The number of Marcam Solutions shares expected to be distributed
to non-U.S. persons will represent approximately 16% of the total Marcam
Solutions shares distributed in the Distribution. Moreover, the Company may
recognize gain with respect to certain restructuring transactions expected to
be consummated in connection with the Distribution. The aggregate amount of
gain recognized by the Company in connection with the Distribution is not
expected to result in any significant tax liability, but rather is expected
to be offset by the Company's net operating losses. Accordingly, the amount
of such net operating losses available to the Company after the Distribution
will likely be reduced. The Distribution will also be subject to certain
other conditions, including (i) approval by Marcam Corporation's stockholders
of the Distribution and the Transfer; (ii) the declaration by Marcam
Corporation's Board of Directors of a dividend of the shares of Common Stock
of Marcam Solutions then owned by Marcam Corporation; and (iii) the absence
of any change in market conditions or other circumstances that would cause
the Board of Directors of Marcam Corporation to conclude that the
Distribution is not in the best interests of the stockholders of Marcam
Corporation. No assurance can be given that the favorable tax ruling or
opinions, or the applicable stockholder approvals will be obtained.
Purchasers of Common Stock in the Offering will not participate in the
Distribution.
MAPICS and Marcam Solutions will enter into, on or prior to the date of
the Distribution, a Distribution Agreement together with certain ancillary
agreements providing for the separation of the product lines and governing
various ongoing relationships between the two companies. See "Relationship
Between MAPICS and Marcam Solutions."
The Distribution Agreement will provide that promptly following the
closing of the Offering, all directors of Marcam Corporation (other than
those directors who will continue to be directors of the Company) shall
resign from the Board of Directors of Marcam Corporation. The continuing
directors will then elect the new directors to fill the vacancies created by
the resignations and the newly constituted Board of Directors of the Company
will appoint the executive officers of the Company.
After the Distribution, the Company expects to continue to offer a benefit
package to its employees substantially comparable to that currently available
under the plans and programs offered by Marcam Corporation and also expects
that there will be no significant interruption in or loss of benefits to its
employees. These benefits include participation in a 401(k) plan, medical,
dental, disability and life insurance, a Section 125 cafeteria plan, an
employee stock purchase plan and other welfare benefits.
Until the Distribution is completed, employees assigned to Marcam
Solutions will continue to participate in all Marcam Corporation benefit
plans and provisions, although Marcam Solutions will bear its allocable share
of the costs of those plans and programs. Effective immediately after the
Distribution, Marcam Solutions will establish its own welfare benefit plans
and programs which generally will be comparable to those currently offered by
Marcam Corporation. However, Marcam Solutions may change its plans and
programs in the future. In addition, it is expected that the Company will
transfer the assets and liabilities of the 401(k) plan relating to Marcam
Solutions employees and former employees to a corresponding Marcam Solutions
401(k) plan. See "Relationship Between MAPICS and Marcam Solutions."
Certain employees of Marcam Corporation currently hold options to purchase
Marcam Corporation common stock (the "Marcam Corporation Options") pursuant
to various Marcam Corporation employee stock plans (the "Stock Plans"). In
connection with the Distribution, each Marcam Corporation Option will be
adjusted so as to represent two separately exercisable options--one to
purchase Common Stock of MAPICS (a "MAPICS Adjusted Option") and one to
purchase common stock of Marcam Solutions (a "Marcam Solutions Option"). The
current exercise price of the Marcam Corporation Options will be allocated
between the MAPICS Adjusted Options and the Marcam Solutions Options on a
basis intended to preserve the spread value of the existing Marcam
Corporation Options. The MAPICS Adjusted Options and the Marcam Solutions
Options will have the same vesting provisions, option periods and other terms
and conditions reflected in the Marcam Corporation Options. As a result
38
<PAGE>
of the adjustment of the Marcam Corporation Options, certain Marcam
Corporation employees who remain employees of MAPICS will hold both MAPICS
Adjusted Options and Marcam Solutions Options, and certain Marcam Corporation
employees who become employees of Marcam Solutions will hold both Marcam
Solutions Options and MAPICS Adjusted Options. All Marcam Solutions Options
(including those held by Marcam employees who will remain employees of
MAPICS) will be honored by Marcam Solutions and will be satisfied from shares
of common stock reserved for issuance under the Marcam Solutions stock option
plan.
In connection with the Distribution, the warrants to purchase an aggregate
of 383,333 shares of Common Stock of Marcam Corporation issued in connection
with the sale of the Subordinated Notes (the "Sub Debt Warrants") will be
adjusted such that the exercise price will be decreased and the number of
underlying shares will be increased on a basis intended to preserve the
spread value of the Sub Debt Warrants. In addition, warrants to purchase an
aggregate of 1,000,000 shares of Common Stock of Marcam Corporation issued in
connection with the sale of Series E Convertible Preferred Stock (the "GA
Warrants") will be adjusted so as to represent two separately exercisable
warrants--one to purchase Common Stock of MAPICS (the "MAPICS GA
Warrants")--and one to purchase common stock of Marcam Solutions (the "Marcam
Solutions GA Warrants"). The current exercise price of the GA Warrants will
be allocated between the MAPICS GA Warrants and the Marcam Solutions GA
Warrants on a basis intended to preserve the spread value of the existing GA
Warrants.
RELATIONSHIP BETWEEN MAPICS AND MARCAM SOLUTIONS
Prior to the completion of the Offering, the Company and Marcam Solutions
will enter into the Distribution Agreement. Pursuant to the Distribution
Agreement, subject to limited exceptions, the two companies are required to
indemnify each other and each other's directors, officers, employees, agents
and representatives for liabilities under federal or state securities laws
that are a result of the Offering and the Distribution, including liabilities
arising out of or based upon alleged misrepresentations in or omissions from
the Registration Statement on Form S-4, the Special Meeting Proxy Statement,
this Prospectus and other disclosure documents prepared in connection with
the Distribution by such party. The Distribution Agreement also provides that
each party thereto will indemnify the other party thereto and its directors,
officers, employees, agents and representatives for liabilities that may be
incurred by the indemnified party relating to, resulting from or arising out
of (i) the business, operations or assets conducted or owned or formerly
conducted or owned by the indemnifying party and its subsidiaries, or (ii)
the failure by the indemnifying party to comply with any other agreements
executed in connection with the Distribution or the Offering. In addition,
the Distribution Agreement will provide that Marcam Solutions will indemnify
MAPICS and its directors, officers, employees, agents and representatives for
any liabilities resulting from or arising out of certain acts, failures to
act or the provision of incorrect factual information by Marcam Solutions in
connection with the IRS private letter ruling request that cause the
Distribution to be taxable to the Company or its stockholders. In addition,
because the business to be conducted by Marcam Solutions will be conducted
through Marcam Corporation until the Distribution, MAPICS may be liable for
the liabilities of Marcam Solutions for the period prior to the Distribution.
If Marcam Solutions for any reason is unable to satisfy its liabilities,
MAPICS may be liable for them.
The ancillary agreements to be executed and delivered together with the
Distribution Agreement include a General Services Agreement, Domestic and
International Facilities Sharing Agreements and a Tax Sharing Agreement. The
General Services Agreement will provide that Marcam Solutions will provide to
the Company from time to time, upon the request of the Company, certain
routine and ordinary corporate services, including financial, accounting, tax
and legal services. For these services, Marcam Solutions will be reimbursed
for its costs (including the pro rata costs of the Marcam Solutions employees
performing such services and allocable overhead) on a per diem basis.
In addition, the Company and Marcam Solutions will enter into two
facilities sharing agreements (each, a "Facilities Sharing Agreement")
providing for the sharing by the Company and Marcam Solutions of its
facilities in the U.S. in Newton, Massachusetts, Chicago, Illinois, Irvine,
California and Saddle Brook, New Jersey (the "Domestic Facilities Sharing
Agreement") and facilities worldwide (the "International Facilities Sharing
Agreement"). The Newton, Chicago, Irvine and Saddle Brook locations are each
expected to have one to two Company employees resident. Each Facilities
Sharing Agreement shall allocate on a pro rata basis, determined either by
square footage occupied by each company or the number of employees of each
company at a specific location, all costs associated with leasing and
maintaining such facility. With respect to the Company's existing and new
Atlanta facilities, the Company and Marcam Solutions may also enter into an
agreement to share information services, communications and other services.
The remaining facilities will not be affected by the Distribution.
39
<PAGE>
In connection with the Distribution, the Company will assign the leases
for the new Atlanta Facilities, as well as the leases for premises in Newton,
Massachusetts, Saddle Brook, New Jersey, Chicago, Illinois, Cleveland, Ohio,
Irvine, California and Dallas, Texas to Marcam Solutions. All of the
employees involved with the operations of Marcam Solutions who are currently
located in the existing Atlanta facility will be relocated to the new Atlanta
Facility. The assignments shall not release of the Company from its
obligations under these leases.
In connection with the Distribution, the Company and Marcam Solutions will
enter into a Tax Sharing Agreement that defines the parties rights, and
obligations with respect to deficiencies and refunds of federal, state, and
other income or franchise taxes relating to the Company's business for
taxable years prior to the Distribution and with respect to certain tax
attributes of the Company after the Distribution. In general, pursuant to the
Tax Sharing Agreement, Marcam Solutions shall indemnify the Company for tax
liabilities of the Company attributable to any period ending prior to the
Distribution, calculated after giving effect to the Company's net operating
losses and tax credits as of the date of the Distribution. As of the end of
its most recent taxable fiscal year, Marcam Corporation had net operating
losses of approximately $42 million and tax credits of approximately $7
million. After the Distribution, such net operating losses and tax credits
are expected to remain with the Company. Such net operating losses and tax
credits expire between 1997 and 2012. The utilization of net operating loss
carryforwards will be limited on an annual basis due to changes in ownership
of the Company. The amount of the Company's net operating losses and tax
credits are subject to adjustment by the Internal Revenue Service, and, in
the event of such adjustment, Marcam Solutions shall be obligated to make
indemnification payments to the Company only to the extent any such
adjustment results in a tax liability for a period ending prior to the date
of the Distribution. Under the Tax Sharing Agreement, if the Company receives
a refund of certain taxes applicable to a period ending prior to the date of
the Distribution, the Company shall remit such refund to Marcam Solutions.
Under the Tax Sharing Agreement, the Company shall be liable for any taxes
arising out of the Distribution, unless attributable to actions taken by
Marcam Solutions or transactions involving Marcam Solutions occurring after
the Distribution.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's voting securities (i) by each person who, to the
knowledge of the Company, beneficially owns more than 5% of any class of the
Company's voting securities; (ii) by each person who is expected to become a
director of the Company immediately following the Offering; (iii) by each
person who is expected to become an executive officer of the Company
immediately following the Offering; and (iv) by all persons who are expected
to become directors and executive officers of the Company immediately
following the Offering as a group.
<TABLE>
<CAPTION>
Percent of Total Shares
-----------------------
Shares
Beneficially Before After
Name and Address Owned (1) Offering Offering
--------- -------- --------
<S> <C> <C> <C>
General Atlantic Partners, LLC (2) 4,000,000 25.8% %
Clover Capital Management, Inc. (3) 2,628,625 22.8% %
Pioneer Management Corporation (4) 1,140,000 9.9% %
Richard C. Cook (5) 48,500 * *
William J. Gilmour (6) 2,698 * *
Thomas F. Aery (7) 8,275 * *
George A. Chamberlain, 3d (8) 48,000 * *
William E. Ford (9) 4,000,000 25.8% %
Edward J. Kfoury (10) 11,600 * *
All executive officers and directors as a group
(6 persons) (11) 4,119,073 26.3% %
</TABLE>
- -------------
* less than 1%
(1) The persons and entities named in the table have sole voting and
investment power with respect to all shares shown as beneficially owned
by them, except as noted below. Information is as of March 31, 1997,
unless otherwise indicated. As of March 31, 1997, there were outstanding
11,533,660 shares of Common Stock. Pursuant to the rules of the
Securities and Exchange Commission, the number of shares of Common Stock
deemed outstanding for a specified person or group includes shares
issuable pursuant to convertible securities, warrants and options held
by such person or group which may be converted or exercised within 60
days of this Prospectus.
(2) Consists of 176,058 shares of Series D Preferred Stock held by General
Atlantic Partners 21, L.P. ("GAP 21"), 23,942 shares of Series D
Preferred Stock and 13,681 shares of Series E Preferred Stock held by
GAP Coinvestment Partners, L.P. ("GAP Coinvestment") and 86,319 shares
of Series E Preferred Stock held by General Atlantic Partners 32, L.P.
("GAP 32"). Each share of Series D Preferred Stock and Series E
Preferred Stock currently is convertible at any time into 10 shares of
Common Stock. Also includes warrants to purchase 863,190 and 136,810
shares of Common Stock held by GAP 32 and GAP Coinvestment,
respectively. GAP Coinvestment, GAP 21, GAP 32 and General Atlantic
Partners, LLC ("GAP LLC"), the sole general partner of GAP 21 and GAP 32
(the "GA Entities"), own beneficially 4,000,000 shares of Common Stock
of the Company. The GA Entities own beneficially 88.9% of the
outstanding Series D Preferred Stock and 100% of the outstanding Series
E Preferred Stock. Mr. Ford, William O. Grabe, Steven A. Denning, David
C. Hodgson, Stephen P. Reynolds and J. Michael Cline (the "GA Members")
are the managing members of GAP LLC, which is the sole general partner
of GAP 21 and GAP 32, and are the same persons who have voting and
investment control over securities held by GAP Coinvestment. The GA
Members disclaim beneficial ownership of such shares, except to the
extent of each member's proportionate pecuniary interest therein.
(3) According to Amendment No. 3 to Schedule 13G dated February 11, 1997.
Clover Capital Management, Inc., a registered investment adviser for
various accounts, has shared voting and investment power with respect to
2,628,625 shares.
(4) According to Amendment No. 1 to Schedule 13G dated January 21, 1997. Of
the 1,140,000 shares beneficially owned by Pioneer Management
Corporation ("Pioneer"), it has sole voting power with respect to
1,140,000 shares, shared investment power with respect to 1,132,000
shares and sole investment power with respect to 8,000 shares.
(5) Consists of 100 shares held by Mr. Cook's wife and 48,400 shares
issuable upon the exercise of outstanding stock options exercisable
currently or within 60 days.
(6) Includes 2,525 shares issuable upon the exercise of outstanding stock
options exercisable currently or within 60 days.
(7) Consists of 8,275 shares issuable upon the exercise of outstanding stock
options exercisable currently or within 60 days.
(8) Consists of 48,000 shares issuable upon the exercise of outstanding
stock options exercisable currently or within 60 days.
(9) Consists of 4,000,000 shares of Common Stock beneficially owned by the
GA Entities. See note 2, above.
(10) Includes 6,600 shares issuable upon the exercise of outstanding stock
options exercisable currently or within 60 days.
(11) Includes 113,800 shares which the directors and executive officers as a
group have the right to acquire upon the exercise of outstanding stock
options exercisable currently or within 60 days granted under the
Company's stock plans.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $.01 per share, which will be increased to 50,000,000
shares subject to stockholder approval prior to the closing of the Offering,
and 1,000,000 shares of preferred stock, par value $1.00 per share (the
"Preferred Stock").
As of March 31, 1997, there were outstanding 11,533,660 shares of Common
Stock held of record by 609 stockholders and 325,000 shares of Series D and E
Preferred Stock convertible into 3,250,000 shares of Common Stock. Based upon
the number of shares of Common Stock outstanding as of that date and giving
effect to the issuance of shares of Common Stock offered hereby,
there will be shares of Common Stock outstanding upon the closing
of the Offering ( shares on an as converted basis).
Common Stock
Except as otherwise provided by law, the Company's Restated Articles of
Organization or the description of the Preferred Stock below, holders of
Preferred Stock and Common Stock vote together as a class on all matters to
be voted on by the stockholders of the Company and holders of Common Stock
are entitled to one vote for each share held on all matters submitted to a
vote of stockholders and do not have cumulative voting rights. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally available
therefor, subject to any preferential dividend rights of any then outstanding
Preferred Stock. Upon the dissolution or liquidation of the Company, whether
voluntary or involuntary, holders of Common Stock will be entitled to receive
all of the assets of the Company available for distribution to its
stockholders, subject to any preferential and participation rights of any
then outstanding Preferred Stock. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of holders of shares of Series D Convertible Preferred Stock and
Series E Convertible Preferred Stock and the rights of any series of
Preferred Stock which the Company may designate and issue in the future.
Preferred Stock
Of the 1,000,000 authorized shares of Preferred Stock, one share has been
designated as Series A Preferred Stock, one share has been designated as
Series B Preferred Stock, one share has been designated as Series C Preferred
Stock, 225,000 shares have been designated as Series D Convertible Preferred
Stock, 100,000 shares have been designated as Series E Convertible Preferred
Stock and 30,000 shares have been designated as Series F Junior Participating
Preferred Stock. As of March 31, 1997, there were outstanding 225,000 shares
of Series D Convertible Preferred Stock and 100,000 shares of Series E
Convertible Preferred Stock. For certain information regarding the Series F
Junior Participating Preferred Stock, see "Rights Plan."
Dividends. Holders of Series D Convertible Preferred Stock and Series E
Convertible Preferred Stock (the "Convertible Preferred Stock") are entitled
to receive (on an as converted basis), out of funds legally available
therefor, dividends at the same rate as dividends (other than dividends paid
in additional shares of Common Stock) are paid with respect to the Common
Stock.
Conversion. A holder of Convertible Preferred Stock has the right, at its
option at any time, to convert any such shares of Convertible Preferred Stock
into ten shares of Common Stock, subject to adjustment. At the time of each
conversion, the Company will pay in cash an amount equal to all dividends
(other than dividends paid in additional shares of Common Stock) declared but
unpaid on the shares of Convertible Preferred Stock surrendered for
conversion. The Company does not have the right to redeem the Convertible
Preferred Stock.
Voting Rights. Except as otherwise provided by law and the Company's
Restated Articles of Organization, the holders of Preferred Stock and Common
Stock vote together as a single class on all matters to be voted on by the
stockholders of the Company on the following basis: (i) each holder of
Convertible Preferred Stock is entitled to such number of votes per share on
each action as shall equal the number of shares of Common Stock (including
fractions of a share) into which each share of Convertible Preferred Stock is
then convertible and (ii) each holder of Common Stock is entitled to one vote
per share. As long as the GA Entities (together with their affiliates) own in
the aggregate shares of Common Stock, Convertible Preferred Stock or other
securities of the Company convertible into or exchangeable for shares of
voting capital stock of the Company that represent at least 10% of the total
number of shares of Common Stock outstanding on an as converted basis, the GA
Entities will be entitled to elect, or designate one person for election as,
a director of the Company.
42
<PAGE>
Liquidation. Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (each a "Liquidation Event"), the
Convertible Preferred Stock will be entitled, before any distribution or
payment is made upon any stock ranking junior, to be paid an amount equal to
the greater of (i) $100 per share plus, in the case of each share, an amount
equal to any dividends declared but unpaid thereon, through the date payment
thereof is made available, or (ii) such amount per share as would have been
payable had each such share been converted to Common Stock immediately prior
to such Liquidation Event and the holders of Convertible Preferred Stock are
not entitled to any further payment. Upon any such Liquidation Event after
the holders of Preferred Stock have been paid in full the amount to which
such holders are entitled, the remaining net assets of the Company may be
distributed to the holders of stock ranking junior.
Future Issuances. The Board of Directors is authorized, subject to any
limitations prescribed by law, without further stockholder approval, to issue
from time to time the remaining shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or
relative rights or privileges as shall be determined by the Board of
Directors. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, a majority of
the outstanding voting stock of the Company. The Company has no present plans
to issue any additional shares of Preferred Stock.
Warrants
On May 12, 1994, in connection with the issuance and sale of $25,000,000
in aggregate principal amount of its 9.82% Subordinated Notes due on April
30, 2001, the Company issued warrants to purchase an aggregate of 383,333
shares of Common Stock of the Company, as adjusted from time to time. The
warrants are exercisable at any time during the period commencing June 30,
1994 and ending April 30, 2001, at an exercise price of $8.92 per share, as
adjusted from time to time.
On July 19, 1996, in connection with the issuance and sale of the Series E
Convertible Preferred Stock, the Company issued and sold warrants to purchase
an aggregate of 1,000,000 shares of Common Stock of the Company, as adjusted
from time to time, for an aggregate purchase price of $500,000. The warrants
are exercisable at any time during the period commencing July 23, 1996 and
ending July 23, 2003, at an exercise price of $15.36 per share, as adjusted
from time to time.
For the effects of the Distribution on these warrants, see "The
Distribution."
Massachusetts Law and Certain Charter Provisions
The Company is subject to the provisions of Chapter 110F of the
Massachusetts General Laws and anti- takeover law. In general, this statute
prohibits a publicly held Massachusetts corporation such as the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
becomes an interested stockholder, unless (i) the interested stockholder
obtains the approval of the Board of Directors prior to becoming an
interested stockholder, (ii) the interested stockholder acquires 90% of the
outstanding voting stock of the corporation (excluding shares held by certain
affiliates of the corporation) at the time it becomes an interested
stockholder or (iii) the business combination is approved by both the Board
of Directors and the holders of two-thirds of the outstanding voting stock of
the corporation (excluding shares held by the interested stockholder). An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 5% or
more the outstanding voting stock of the corporation. A "business
combination" includes a merger, a stock or asset sale, and other transactions
resulting in a financial benefit to the stockholder.
The Company's Amended and Restated By-laws include a provision which
excludes the Company from the applicability of Massachusetts General Laws
Chapter 110D, entitled "Regulation of Control Share Acquisitions." In
general, this statute provides that any stockholder of a corporation subject
to this statute who acquires 20% or more of the outstanding voting stock of a
corporation may not vote such stock unless the stockholders of the
corporation so authorize. The Board of Directors may amend the Company's
Amended and Restated By-laws at any time to subject the Company to this
statute prospectively.
43
<PAGE>
Massachusetts General Laws Chapter 156B, Section 50A require that a
publicly held Massachusetts corporation have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless the
corporation elects not to be covered by Section 50A. The Company is subject
to the provisions of Section 50A.
The Company's Restated Articles of Organization also include provisions to
(i) eliminate the personal liability of the Company's directors for monetary
damages resulting from breaches of their fiduciary duty to the extent
permitted by the Massachusetts Business Corporation Law and (ii) indemnify
the Company's directors and officers to the fullest extent permitted by
Massachusetts law, including under circumstances in which indemnification is
otherwise discretionary. Also, the Company has entered into indemnity
agreements with each of its directors and certain executive officers. Those
agreements require the Company to indemnify such individuals to the fullest
extent permitted by Massachusetts law.
Rights Plan
Pursuant to the Company's Stockholder Rights Plan, each share of the
Common Stock has an associated preferred stock purchase right (a "Right") and
each share of Convertible Preferred Stock has ten associated Rights. Each
Right entitles the holder to purchase from the Company a unit consisting of
one one-thousandth of a share of Series F Junior Participating Preferred
Stock, par value $1.00 per share (the "Junior Preferred Shares"), of the
Company at a price of $60.00 per Unit, subject to adjustment (the "Purchase
Price"). The Rights will be exercisable only if (i) a person or group other
than an Exempt Person acquires beneficial ownership of 20% or more of the
outstanding Common Stock (an "Acquiring Person"), (ii) a person or group
announces a tender offer or exchange offer the consummation of which would
result in the beneficial ownership by such person or group of 20% or more of
the outstanding Common Stock or (iii) a person owning 10% or more of the
Common Stock of the Company whose ownership is determined by the Board of
Directors to be reasonably likely to cause a material adverse impact on the
business or prospects of the Company or to pressure the Company to take
action to benefit such person as opposed to the Company is declared by the
Board of Directors to be an adverse person (an "Adverse Person"). Until a
Right is exercised, the holder thereof will have no rights as a stockholder
of the Company. General Atlantic Partners and its affiliates would each be
deemed "Exempt Persons", subject to compliance with their standstill
agreements with the Company.
In the event that (i) any person or group acquires 20% or more of the
outstanding Common Stock, except pursuant to a tender or exchange offer for
all shares at a price that a majority of the continuing directors determines
to be fair, (ii) a person owning 10% or more of the Common Stock is
determined by the Board of Directors to be an Adverse Person, (iii) a person
owning 20% or more of the outstanding Common Stock engages in a merger with
the Company in which the Company survives and its Common Stock remains
outstanding and unchanged, or (iv) while there is an Acquiring Person, such
person engages in certain self-dealing transactions or an event occurs which
results in such person's stock holdings increasing by more than 1%, each
holder of a Right, other than Rights beneficially owned by the Acquiring
Person or the Adverse Person, will thereafter have the right to receive upon
exercise that number of shares of Common Stock having a market value of two
(2) times the Purchase Price, and in the event that, while there is an
Acquiring Person, the Company is acquired in a business combination
transaction in which it does not survive or 50% or more of its assets are
sold, each holder of a Right will thereafter have the right to receive upon
exercise that number of shares of common stock of the acquiring company which
at the time of the transaction will have a market value of two (2) times the
Purchase Price. The events set forth in this paragraph are referred to as
"Section 11(a)(ii) Events."
At any time after the occurrence of a Section 11(a)(ii) Event, the Board
of Directors of the Company may cause the Rights (other than Rights owned by
such person or group) to be exchanged, in whole or in part, for Common Stock
at an exchange rate of one (1) share of Common Stock per Right.
The Board of Directors of the Company will generally be entitled to redeem
the Rights in whole at a price of $.01 per Right, until the tenth day
following a public announcement that a 20% stock position has been acquired
and in certain other circumstances.
The Rights have a certain anti-takeover effects, in that they will cause
substantial dilution to a person or group that attempts to acquire a
significant interest in the Company on terms not approved by the Board of
Directors.
Transfer Agent
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe.
44
<PAGE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, a
syndicate of underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation and Lazard Freres & Co.
LLC are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company an aggregate of shares of Common
Stock. The number of shares of Common Stock that each Underwriter has agreed
to purchase is set forth opposite its name below:
Number of
Underwriters Shares
------------
Donaldson, Lufkin & Jenrette
Securities Corporation ---------
Lazard Freres & Co. LLC ---------
Total
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase the shares of Common Stock offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. If any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all such shares (other than those covered by the
over-allotment option described below).
The Company has been advised by the Underwriters that they propose to
offer the shares of Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price, less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to additional
shares of Common Stock at the initial price to the public less underwriting
discounts and commissions, solely to cover over-allotments. To the extent
that the Underwriters exercise such option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
In the Underwriting Agreement, the Company and the Underwriters have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
The Company, its officers and directors and certain other stockholders
have agreed not to offer, sell, contract to sell or otherwise dispose of any
Common Stock or any securities convertible into or exchangeable for Common
Stock for a period of 180 days from the date of this Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation
and provided that the Company may grant options and issue Common Stock upon
the exercise of options under its option plans.
In general, the rules of the Securities and Exchange Commission prohibit
the Underwriters (and selling group members) from making a market in the
Common Stock during the "cooling off" period immediately preceding the
commencement of sales in the Offering. The Commission has, however, adopted
exemptions from these rules that permit passive market making under certain
conditions. In connection with the Offering, certain Underwriters (and
selling group members) may engage in passive market making activities in the
Common Stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M during the period immediately preceding commencement of offers
or sales of the Common Stock. The passive market making transactions must
comply with applicable volume and price limits and be identified as such. In
general, a passive market maker may display its bid at a price not in excess
of the highest independent bid for the security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including overallotments, entering stabilizing bids, effecting
syndicate short covering transactions or imposing penalty bids. An
overallotment means the confirming of sales of Common Stock in excess of the
number of shares of Common Stock offered hereby. A stabilizing bid means
45
<PAGE>
the placing of any bid, or effecting of any purchase, for the purpose of
pegging, fixing or maintaining the price of the Common Stock. A syndicate
short covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the affecting of any purchase to reduce a short
position created in connection with the Offering. A penalty bid means an
arrangement that permits the Representatives to reclaim a selling concession
from a syndicate member in connection with the Offering when shares of Common
Stock are sold by the syndicate member are purchased in syndicate short
covering transactions. Such transactions may be effected in the over-the-
counter market or otherwise. Such transactions may stabilize the market price
of the Common Stock at a level above that which might otherwise prevail and,
if commenced, may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Common Stock is traded on the Nasdaq National Market. However, because
of the Distribution, historical trading prices of the Common Stock are
unlikely to be indicative of future trading prices. The price to the public
for the shares of Common Stock will be determined through negotiations
between the Company and the Representatives and will be based on, among other
things, the Company's financial and operating history and condition, the
prospects of the Company and its industry in general, the management of the
Company and the market prices of securities of companies engaged in
businesses similar to those of the Company. There can, however, be no
assurance that the prices at which the shares of Common Stock will sell in
the public market after this Offering will not be lower than the price at
which they are sold by the Underwriters.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts. Certain legal matters in connection with this Offering will be
passed upon for the Underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The combined balance sheets of MAPICS, Inc. as of September 30, 1996 and
1995 and the related combined statements of operations, divisional equity,
and cash flows for each of the three years in the period ended September 30,
1996, included in this Prospectus and Registration Statement, have been
included in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of Marcam Corporation as of
September 30, 1996 and 1995 and for each of the two years in the period ended
September 30, 1996, included in the Annual Report on Form 10-K of the Company
for the year ended September 30, 1996 and referred to below, have been
audited by Coopers & Lybrand L.L.P., independent accountants, as set forth in
their report dated October 24, 1996, accompanying such financial statements,
and are incorporated herein by reference in reliance upon the report of such
firm, which report is given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Marcam Corporation and
subsidiaries for the year ended September 30, 1994, have been incorporated by
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Registrant with the Securities and
Exchange Commission (the "Commission") pursuant to the Exchange Act are
incorporated in this Prospectus by reference as of their respective dates
(File No. 0-18674): (1) Annual Report on Form 10-K for the fiscal year ended
September 30, 1996; (2) Quarterly Report on Form 10-Q for the fiscal period
ended December 31, 1996; (3) Current Report on Form 8-K dated December 3,
1996; (4) the section entitled "Description of Securities to be Registered"
contained in the Registrant's Registration Statement on Form 8-A filed with
the Commission on December 5, 1996; and (5) the section entitled "Description
of Securities to be Registered" contained in the Registrant's Registration
Statement on Form 8-A filed on June 29, 1990, as amended on Form 8 as filed
with the Commission on August 13, 1990.
46
<PAGE>
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the Offering shall be deemed to be incorporated
by reference in this Prospectus from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is also deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents described above
(other than exhibits to such documents). Requests for such copies should be
directed to George A. Chamberlain, 3d, Chief Financial Officer, Marcam
Corporation, 95 Wells Avenue, Newton, Massachusetts 02159 (telephone:
617-965-0220).
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. All such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: 73 Tremont Street, Suite 600,
Boston, Massachusetts 02108-3912; 7 World Trade Center, Suite 1300, New York,
New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a
World-Wide Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
The Common Stock of the Company is quoted on The Nasdaq National Market and
such material may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington,
D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including all amendments thereto, the "Registration Statement") under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of
the Commission. For further information regarding the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement
and to the exhibits and schedules filed therewith. Statements contained in
this Prospectus regarding the contents of any agreement or other document
filed as an exhibit to the Registration Statement are not necessarily
complete, and in each instance reference is made to the copy of such
agreement filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected at
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and copies of all or any part thereof may be obtained
from such office upon payment of the prescribed fees.
47
<PAGE>
MAPICS, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Combined Balance Sheets as of September 30, 1995 and 1996 and March 31, 1997
(unaudited) F-3
Combined Statements of Operations for the years ended September 30, 1994, 1995
and 1996 and for the six months ended March 31, 1996 and 1997 (unaudited) F-4
Combined Statements of Divisional Equity for the years ended September 30,
1994, 1995 and 1996 and for the six months ended March 31, 1997 (unaudited) F-5
Combined Statements of Cash Flows for the years ended September 30, 1994, 1995
and 1996 and for the six months ended March 31, 1996 and 1997 (unaudited) F-6
Notes to Combined Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Marcam Corporation:
We have audited the accompanying combined balance sheets of MAPICS, Inc. as
of September 30, 1996 and 1995 and the related combined statements of
operations, divisional equity, and cash flows for each of the three years in
the period ended September 30, 1996. These financial statements are the
responsibility of MAPICS, Inc.'s management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of MAPICS, Inc. as of
September 30, 1996 and 1995, and the combined results of its operations and
its cash flows for each of the three years in the period ended September 30,
1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 29, 1997
F-2
<PAGE>
MAPICS, INC.
Combined Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
As of September 30, As of March 31,
-------------------- ---------------
1995 1996 1997
<S> <C> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash $ 226 $ 378 $ 852
Accounts receivable, net of allowances of
$1,626 in 1995,
$1,240 in 1996 and $1,466 in 1997 (Note 3) 20,416 20,518 21,141
Prepaid expenses and other current assets 369 487 1,032
------ ------- -----------
Total current assets 21,011 21,383 23,025
Property and equipment, net (Note 4) 1,755 2,992 2,813
Computer software costs, net (Note 5) 12,495 15,705 15,741
Other intangible assets, net (Notes 7 and 13) 5,965 5,325 5,067
------- ------- -----------
Total assets $41,226 $45,405 $ 46,646
======= ======= ===========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable $ 3,659 $ 5,308 $ 4,412
Accrued expenses and other current liabilities
(Note 6) 10,673 11,457 11,415
Deferred revenue 15,206 18,563 21,197
------ -------- -----------
Total current liabilities 29,538 35,328 37,024
Deferred income taxes (Note 8) 196 884 394
------ -------- -----------
Total liabilities 29,734 36,212 37,418
Commitments and contingencies (Note 9) -- -- --
Divisional equity 11,492 9,193 9,228
------ -------- -----------
Total liabilities and divisional equity $41,226 $45,405 $ 46,646
======= ======== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE>
MAPICS, INC.
Combined Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
Years ended September 30, March 31,
---------------------------- ----------------------
1994 1995 1996 1996 1997
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License $33,410 $42,745 $45,341 $20,501 $25,328
Services 19,373 26,553 32,261 15,343 18,837
------- ------- ------- ------- -------
Total revenues 52,783 69,298 77,602 35,844 44,165
------- ------- ------- ------- -------
Operating expenses:
Cost of license revenues 3,280 5,689 6,913 3,026 4,129
Cost of services revenues 5,428 7,567 9,499 4,573 5,301
Selling and marketing 17,765 24,780 27,851 13,028 14,834
Product development 6,692 7,432 6,398 3,122 4,969
General and administrative 4,810 5,384 5,965 2,212 4,360
------- ------- ------- ------- -------
Total operating expenses 37,975 50,852 56,626 25,961 33,593
------- ------- ------- ------- -------
Income before income tax expense 14,808 18,446 20,976 9,883 10,572
Income tax expense 4,641 7,112 8,076 3,805 4,071
------- ------- ------- ------- -------
Net income $10,167 $11,334 $12,900 $ 6,078 $ 6,501
======= ======= ======= ======= =======
Pro forma net income per common share
(Note 2) (unaudited) $ 0.91 $ 0.43
======= =======
Pro forma weighted average number of
common and common equivalent shares
outstanding (Note 2) (unaudited) 14,185 14,991
======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE>
MAPICS, INC.
Combined Statements of Divisional Equity
(In thousands)
<TABLE>
<CAPTION>
Six months
ended
Years ended September 30, March 31,
-------------------------------------- ----------
1994 1995 1996 1997
(unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 21,271 $ 17,091 $ 11,492 $ 9,193
Net income 10,167 11,334 12,900 6,501
Net transfers to Marcam
Corporation (14,347) (16,933) (15,199) (6,466)
-------- -------- -------- -------
Balance, end of period $ 17,091 $ 11,492 $ 9,193 $ 9,228
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-5
<PAGE>
MAPICS, INC.
Combined Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Six months
ended
Years ended September 30, March 31,
------------------------------------ ------------------------
1994 1995 1996 1996 1997
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 10,167 $ 11,334 $ 12,900 $ 6,078 $ 6,501
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 545 709 954 375 660
Amortization 2,353 3,248 3,788 1,936 2,328
Provision for bad debts 6 939 399 73 611
Deferred income taxes 1,110 737 688 323 (490)
Changes in operating assets and
liabilities, net of effects of
acquisition:
Accounts receivable (788) (5,302) (501) 4,447 (1,234)
Prepaid expenses and other
assets (418) 239 (118) (69) (266)
Accounts payable 576 383 1,071 (513) (896)
Accrued expenses and other
current liabilities 2,725 4,988 784 (2,999) (42)
Deferred revenue 4,143 5,466 3,357 2,982 2,634
-------- -------- -------- ------- -------
Net cash provided by operating
activities 20,419 22,741 23,322 12,633 9,806
-------- -------- -------- ------- -------
Cash flows from investing
activities:
Purchases of property and equipment (979) (623) (1,613) (466) (481)
Additions to computer software
costs (4,795) (5,516) (6,358) (3,973) (2,385)
-------- -------- -------- ------- -------
Net cash used for investing
activities (5,774) (6,139) (7,971) (4,439) (2,866)
-------- -------- -------- ------- -------
Cash flows from financing
activities:
Net transfers to Marcam Corporation (14,347) (16,483) (15,199) (7,947) (6,466)
-------- -------- -------- ------- -------
Net cash used for financing
activities (14,347) (16,483) (15,199) (7,947) (6,466)
-------- -------- -------- ------- -------
Net increase in cash 298 119 152 247 474
Cash at beginning of period (191) 107 226 226 378
-------- -------- -------- ------- -------
Cash at end of period $ 107 $ 226 $ 378 $ 473 $ 852
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements
(1) BASIS OF PRESENTATION
(a) The Distribution
On April 28, 1997, the Board of Directors of Marcam Corporation authorized
management to proceed with the separation of Marcam Corporation into two
publicly traded corporations. Marcam Corporation intends to spin off in a
tax-free distribution the portion of its business relating to its PRISM,
Protean and Avantis product lines. The separation into two independent,
publicly traded companies is designed to enable each to better focus on its
core markets, to better serve existing customers and to finance its business.
Marcam Corporation will change its name to MAPICS, Inc. ("MAPICS") and will
continue the operations relating to the MAPICS product lines.
To effect the separation, Marcam Corporation will transfer to a newly
formed corporation, Marcam Solutions, Inc. ("Marcam Solutions"), the
business, assets and liabilities relating to its PRISM, Protean and Avantis
product lines and will commit to contribute certain amounts of cash to Marcam
Solutions, as represented by a note, which will be paid with a portion of the
proceeds from a proposed offering of common stock of MAPICS. All of the
shares of common stock of Marcam Solutions will be distributed (the
"Distribution") by means of a distribution to stockholders of Marcam
Corporation. Subsequent to the Distribution, MAPICS will be the legal entity
that will continue to conduct the operations relating to Marcam Corporation's
MAPICS product lines. However, for accounting purposes, due to the relative
significance of the PRISM, Protean and Avantis product lines, the
Distribution will be recorded as a disposal of the MAPICS product lines in
the historical consolidated financial statements of Marcam Corporation and in
the future financial statements of Marcam Solutions.
The Distribution will be subject to final approval by the Board of
Directors of Marcam Corporation, approval by the stockholders of Marcam
Corporation, and the receipt of a favorable ruling from the Internal Revenue
Service that, except as provided below, the Distribution will qualify as a
tax-free distribution under Section 355 of the Internal Revenue Code of 1986,
as amended (the "Code"), or, if such ruling is not obtained prior to the date
of the Distribution, an opinion of special tax counsel and Marcam
Corporation's independent accountants to the effect that such distribution
should qualify as a tax-free distribution under Section 355 of the Code.
These combined financial statements have been prepared using Marcam
Corporation's historical basis in the assets and liabilities and historical
results of operations related to the MAPICS product lines. These combined
financial statements generally reflect the financial position, results of
operations, and cash flows of MAPICS as if it were a separate entity for all
periods presented. Certain costs and expenses presented in these financial
statements have been allocated based on management's estimates of the cost of
services provided to MAPICS by Marcam Corporation. Management believes that
these allocations are reasonable. However, the financial information included
herein may not necessarily reflect the combined financial position, results
of operations, and cash flows of MAPICS in the future, or what they would
have been had MAPICS been a separate entity during the periods presented.
Prior to the Distribution, MAPICS intends to enter into various agreements
with Marcam Solutions providing for the separation of the product lines and
governing various ongoing relationships between the two companies, in
accordance with the terms described in Note 15.
(b) Nature of the Business
MAPICS is a leading provider of enterprise resource planning (ERP)
software applications for mid-size manufacturing enterprises worldwide.
MAPICS products provide an integrated and function-rich ERP solution with the
breadth and depth of applications to manage an entire manufacturing
enterprise. The MAPICS XA product line currently consists of 44 integrated
application modules in the areas of Engineering and Cost Management, Market
and Demand Management, Plant Operations and Logistics Management, Production
Resource Planning, Financial Management and Measurements and Cross
Applications Solutions. MAPICS also provides services to customers in the
form of product support. The primary geographic markets of MAPICS include
North America, Europe, the Middle East, Africa, Latin America and Asia
Pacific.
F-7
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates by Management
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. The
most significant estimates included in these financial statements are the
valuation of capitalized software, intangible assets and accounts receivable
and the allocation of corporate expenses from Marcam Corporation. Actual
results may differ from estimates.
(b) Revenue Recognition
MAPICS recognizes revenues from the licensing of its software upon the
signing of license agreements, delivery of the software and determination
that collection of the related receivable is probable. Under the terms of the
MAPICS license agreements, the customer is responsible for installation and
training. At the time MAPICS recognizes revenues from the licensing of
software, no significant vendor obligations remain, and the costs of
insignificant obligations, if any, are accrued.
MAPICS recognizes services revenues from its periodic license fees ratably
over the terms of the license agreements. The periodic license fee, which is
typically payable annually in advance, entitles the customer to continue
using the software and to receive certain support services.
Generally, revenues from the licensing of products through third-party
representatives are included in revenues, and related commissions are
included in selling and marketing expenses. In certain situations, however,
revenues from affiliates are recorded as royalties in license revenues (See
Note 14).
(c) Concentrations of Credit Risk
Financial instruments which potentially expose MAPICS to concentrations of
credit risk consist primarily of trade accounts receivable. MAPICS provides
credit, in the normal course of business, to various types and sizes of
manufacturers located throughout the world. As a result, concentration of
credit risk with respect to trade receivables is not significant.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method based upon the following estimated useful
lives:
Furniture and fixtures 4 years
Computer equipment 4 years
Leasehold improvements Shorter of lease term or useful life of asset
(e) Computer Software Costs
MAPICS charges all costs of establishing technological feasibility of
computer software products to product development expense as they are
incurred. Thereafter, computer software costs are capitalized and reported at
the lower of unamortized cost or net realizable value. Computer software
costs include in-house software development costs and the costs incurred to
translate software into various foreign languages. Amortization of computer
software costs commences upon general release of the product to customers and
is computed on a product-by-product basis using the greater of the amount
determined using (a) the ratio that current period gross revenues bear to the
total of current and anticipated future gross revenues or (b) the
straight-line method over the estimated economic life of the product
(generally five years). Amortization of capitalized software costs is charged
to cost of license revenues. Capitalized software is subject to rapid
technological obsolescence and, as a result, amortization periods could
ultimately shorten to reflect changes in technology in the future. In fiscal
1997, the Company made a decision to amortize its 1997 and future translation
expenditures over a revised useful life of two years, rather than five years.
F-8
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
(f) Other Intangible Assets
Other intangible assets represent intangible assets that are being
amortized to cost of license revenues using the straight-line method over the
estimated lives of the intangibles. The installed customer base and affiliate
network is amortized over fifteen years; trade names, trademarks and goodwill
are amortized over ten years.
MAPICS evaluates the net realizable value of capitalized software costs
and other intangibles on a quarterly basis using undiscounted cash flows. Its
review of intangible assets includes an analysis of past operating results,
business plans and budgets related to recoverability of the specific assets.
(g) Foreign Currency Translation
The majority of foreign revenues of MAPICS are denominated in local
currencies. The functional currency for each of the MAPICS foreign operations
is generally its local currency. Assets and liabilities of foreign operations
are translated into U.S. dollars at period-end rates of exchange. Revenues
and expenses are translated into U.S. dollars at the average rates for the
periods. The resultant translation gains and losses are immaterial for all
periods presented. Foreign currency transaction gains and losses and the
effects of exchange rate changes on cash are immaterial for all periods
presented.
(h) Income Taxes
Historically, the operations represented by MAPICS have been included in
the consolidated U.S. Federal and certain state and foreign income tax
returns filed by Marcam Corporation. Income tax expense has been calculated
on a separate-return basis. Income taxes paid on behalf of MAPICS are
included in divisional equity. After the Distribution, MAPICS will file
separate income tax returns.
Pursuant to the anticipated Tax Sharing Agreement between MAPICS and
Marcam Solutions and after the Distribution, MAPICS will be entitled to
utilize certain tax attributes (principally federal, state and foreign net
operating loss carryforwards) of Marcam Corporation.
(i) Divisional Equity
Divisional equity includes accumulated retained earnings, net transfers to
Marcam Corporation and current period income. The capital structure of MAPICS
after the Distribution will reflect the capital structure of Marcam
Corporation immediately before the Distribution.
(j) Unaudited pro forma net income per share
Unaudited pro forma net income per share for the periods ended September
30, 1996 and March 31, 1997 gives effect to the Distribution and is
calculated based on the weighted average number of common and common
equivalent shares of Marcam Corporation common stock outstanding during the
respective periods. Pro forma fully diluted net income per share does not
differ materially from reported pro forma primary net income per share.
(k) Allocated Costs
Expenses have been allocated based on a variety of methods depending on
the nature of the expense. Such allocation methods include proportional
MAPICS product revenue to total Marcam Corporation revenue, headcount
equivalents and management estimates. These amounts approximate management's
estimates of Marcam Corporation's corporate costs to support the
MAPICS-related operations. An allocation of corporate marketing expenses,
corporate product development expenses, and corporate administrative
functions (including data services, employee benefits, legal, insurance,
accounting and other corporate overhead) has been included in the selling and
marketing, product development, and general and administrative operating
expenses in the combined statements of operations and is presented in the
following table. Certain general and administrative and selling and marketing
expenses, which were specifically identified by product line in fiscal 1995
and 1996, were not directly identified by product line or function in fiscal
1994. Management has estimated those fiscal 1994 expenses attributable to the
MAPICS-related business, and has presented those expenses as corporate
allocations in the following table.
F-9
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
The amounts allocated to MAPICS in each of the periods presented are as
follows (in thousands):
Six months ended
Years ended September 30, March 31,
------------------------- ---------
1994 1995 1996 1996 1997
(unaudited)
Selling and marketing $5,219 $ 223 $ 213 $ 102 $ 134
Product development 207 221 239 117 --
General and administrative 2,794 2,030 2,412 1,204 1,415
(l) Interim Period Financial Statements
In the opinion of management, the unaudited interim combined financial
statements contain all adjustments which are of a normal recurring nature,
necessary to present fairly the financial position of MAPICS as of March 31,
1997 and its results of operations and cash flows for the six months ended
March 31, 1997 and 1996. Interim financial results are not necessarily
indicative of operating results for the entire year.
(m) New Accounting Pronouncements
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), was issued which will
require MAPICS to elect either expense recognition under SFAS 123 or its
disclosure-only alternative for stock-based employee compensation. The
expense recognition provision encouraged by SFAS 123 would require fair-value
based financial accounting to recognize compensation expense for employee
stock compensation plans. MAPICS has determined that it will elect the
disclosure-only alternative. MAPICS will be required to disclose the pro
forma net income and pro forma net income per share in the notes to the
financial statements using the fair-value based method beginning in fiscal
1997 after the Distribution, with comparable disclosures for fiscal 1996.
MAPICS has not determined the impact that these pro forma adjustments will
have on its net income or income per share.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"), was issued which will require MAPICS to
present basic and diluted earnings per share (EPS). Basic EPS, which replaces
primary EPS, excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS is
computed similarly to fully diluted EPS under existing rules. SFAS 128
requires restatement of all prior period earnings per share data presented.
MAPICS will adopt SFAS 128 as of October 1, 1998 and has not yet determined
the impact of the adoption of this standard.
(3) ALLOWANCE FOR DOUBTFUL ACCOUNTS
MAPICS provides reserves for customer receivable balances which are
considered potentially uncollectible. The allowance for doubtful accounts
amounted to $733,000, $1,626,000, $1,240,000 and $1,466,000 at September 30,
1994, 1995 and 1996 and March 31, 1997, respectively. The provision charged
to bad debt expense, which is included in general and administrative
expenses, was $6,000, $939,000 and $399,000 for fiscal 1994, 1995 and 1996,
respectively, and was $611,000 for the six months ended March 31, 1997.
Write-offs against the allowance were $458,000, $46,000 and $785,000 for
fiscal 1994, 1995 and 1996, respectively, and were $385,000 for the six
months ended March 31, 1997.
F-10
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
1995 1996 1997
(unaudited)
<S> <C> <C> <C>
Furniture and fixtures $ 99 $ 106 $ 138
Computer equipment 3,101 5,285 5,710
Leasehold improvements 25 25 49
------- ------- -------
3,225 5,416 5,897
Accumulated depreciation and amortization (1,470) (2,424) (3,084)
------- ------- -------
$ 1,755 $ 2,992 $ 2,813
======= ======= =======
</TABLE>
(5) COMPUTER SOFTWARE COSTS
Computer software costs capitalized during fiscal years 1994, 1995 and
1996 amounted to $4,795,000, $5,516,000 and $6,358,000, respectively, and
during the six months ended March 31, 1997, amounted to $2,385,000.
Amortization of computer software costs during those periods was
approximately $1,553,000, $2,448,000, $3,148,000, and $2,070,000,
respectively. These combined financial statements reflect a reduction of
$1,050,000 in net capitalized software costs at September 30, 1995 as a
result of purchase accounting adjustments described in Note 13 and reflect
the reclassification of $279,000 of capitalized software costs to other
assets in the six months ended March 31, 1997. Accumulated amortization at
September 30, 1995, September 30, 1996 and March 31, 1997 totaled $2,754,000,
$5,902,000 and $7,972,000, respectively.
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following
(in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
1995 1996 1997
(unaudited)
<S> <C> <C> <C>
Accrued commissions and royalties $ 5,949 $ 5,556 $ 7,077
Accrued payroll and related expenses 274 1,642 1,632
Accrued sales and other taxes 407 530 722
Other 4,043 3,729 1,984
------- ------- -------
$10,673 $11,457 $11,415
======= ======= =======
</TABLE>
F-11
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
(7) OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
------------- ---------
1995 1996 1997
(unaudited)
<S> <C> <C> <C>
Installed customer base and affiliate network $ 6,034 $ 6,034 $ 6,034
Trade names and trademarks 1,712 1,712 1,712
Goodwill 286 286 286
------- -------- -------
8,032 8,032 8,032
Accumulated amortization (2,067) (2,707) (2,965)
------- ------- -------
$ 5,965 $ 5,325 $ 5,067
======= ======= =======
</TABLE>
(8) INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
Six months ended
Years ended September 30, March 31,
------------------------- ---------
1994 1995 1996 1997
(unaudited)
Federal:
Current $2,742 $4,743 $5,547 $3,527
Deferred 978 653 610 (434)
------ ------ ------ ------
Total 3,720 5,396 6,157 3,093
------ ------ ------ ------
State:
Current 736 1,398 1,415 745
Deferred 131 84 78 (56)
------ ------ ------ ------
Total 867 1,482 1,493 689
------ ------ ------ ------
Foreign:
Current 54 234 426 289
Deferred -- -- -- --
------ ------ ------ ------
Total 54 234 426 289
------ ------ ------ ------
Total $4,641 $7,112 $8,076 $4,071
====== ====== ====== ======
F-12
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
The components of income from domestic and foreign operations before
provision for income taxes are as follows (in thousands):
Six months
ended
Years ended September 30, March 31,
------------------------- ---------
1994 1995 1996 1997
(unaudited)
Domestic $14,760 $18,137 $20,766 $10,274
Foreign 48 309 210 298
------- ------- ------- -------
Total $14,808 $18,446 $20,976 $10,572
======= ======= ======= =======
The effective income tax rates of 31.3%, 38.6% and 38.5% for the years
ended September 30, 1994, 1995 and 1996, respectively, and 38.5% for the six
months ended March 31, 1997, differ from the expected income taxes for those
periods calculated by applying the federal statutory rate of 35.0% to income
before income taxes for the years ended September 30, 1994, 1995 and 1996 and
the six months ended March 31, 1997 as follows (in thousands):
Six months
ended
Years ended September 30, March 31,
------------------------- ---------
1994 1995 1996 1997
(unaudited)
Expected tax $5,183 $6,456 $7,342 $3,701
Benefit of net operating losses (169) -- -- --
State taxes, net 610 992 998 429
Research and experimentation credits (737) (423) (413) (159)
Other (246) 87 149 100
------ ------ ------ ------
$4,641 $7,112 $8,076 $4,071
====== ====== ====== ======
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the net deferred income tax liability at September 30, 1995 and 1996 and
March 31, 1997 relate to the following (in thousands):
September 30, March 31,
------------- ---------
1995 1996 1997
(unaudited)
Deferred tax assets:
Deferred revenue $ 334 $ 411 $ 451
Allowance for doubtful accounts 469 229 450
Intangible assets 71 -- --
Other 41 267 718
------- ------- -------
Total deferred tax assets 915 907 1,619
------- ------- -------
Deferred tax liabilities:
Capitalized software (1,044) (1,034) (867)
Intangible assets -- (737) (1,143)
Other (67) (20) (3)
------- ------- -------
Total deferred tax liabilities (1,111) (1,791) (2,013)
------- ------- -------
Net deferred tax liabilities $ (196) $ (884) $ (394)
======= ======= =======
F-13
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some or all of the deferred
tax assets will not be realized. As a result of its evaluation, management
has recorded no valuation allowance.
Pursuant to the anticipated Tax Sharing Agreement between MAPICS and
Marcam Solutions and upon the effectiveness of the Distribution, MAPICS will
become entitled to utilize certain tax attributes of Marcam Corporation. As
of September 30, 1996, those attributes include net operating loss
carryforwards of approximately $42 million, foreign tax credit carryforwards
of approximately $4 million and research and experimentation credit
carryforwards of approximately $3 million. Such carryforwards expire between
1997 and 2012. The utilization of net operating loss carryforwards will be
limited on an annual basis due to changes in ownership of Marcam Corporation.
Management does not believe that this limitation will have a significant
impact on the amount of taxes to be paid in the future.
(9) COMMITMENTS AND CONTINGENCIES
Lease Commitments
MAPICS leases certain equipment and office space under noncancelable
agreements and leases which expire at various dates through 2001. Future
minimum lease payments under noncancelable operating leases at September 30,
1996 were as follows (in thousands):
Year ending September 30:
1997 $1,161
1998 584
1999 166
2000 11
2001 5
-------
Total minimum lease payments $1,927
=======
Total rental expense charged to operations was $926,000, $1,033,000 and
$1,133,000 for fiscal years 1994, 1995 and 1996, respectively, and $533,000
for the six months ended March 31, 1997.
Capitalization of Marcam Solutions/Marcam Corporation Debt
Prior to the Distribution, MAPICS intends to contribute to Marcam
Solutions a promissory note in the amount of $34.0 million. In addition, at
the time of the Distribution MAPICS will assume the $25.0 million 9.82%
subordinated notes due 2001 issued by Marcam Corporation, including
approximately $2.4 million for a prepayment penalty and accrued interest.
Both of these liabilities will be repaid with proceeds from a proposed
offering of common stock of MAPICS. If the offering is unsuccessful or
delayed, MAPICS will be required to seek alternative sources to finance these
expected obligations.
Litigation
MAPICS is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the financial
position or results of operations of MAPICS.
MAPICS will be indemnified for future claims arising from Marcam
Corporation's PRISM, Protean and Avantis product lines and related activities
in accordance with the agreements to be entered into with Marcam Solutions as
described in Note 15.
F-14
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
(10) EMPLOYEE STOCK OPTION PLANS
Under Marcam Corporation's stock plans, certain employees and officers
have been granted incentive stock options and non-qualified stock options. At
September 30, 1996, options for the purchase of 2,109,000 shares of Marcam
Corporation common stock were outstanding, of which options for 623,000
shares were exercisable, with option prices ranging from $1.00 to $29.25 per
share. Of those options, MAPICS employees held 213,000, of which 96,000
shares were exercisable, with option prices ranging from $1.50 to $22.50 per
share. At March 31, 1997, outstanding options for the purchase of 2,644,000
shares of Marcam Corporation common stock were outstanding, of which options
for 874,000 shares were exercisable, with option prices ranging from $1.00 to
$29.25 per share. Of those options, MAPICS employees held 357,000, of which
124,000 shares were exercisable, with option prices ranging from $1.50 to
$22.50 per share.
Promptly following the Distribution, outstanding awards under the Marcam
Corporation stock plans held by Marcam Corporation employees will be adjusted
so as to represent two separately exercisable options--one to purchase common
stock of MAPICS and one to purchase common stock of Marcam Solutions. Each of
the two options will have the same ratio of the exercise price per option to
the market value per share, the same vesting provisions, option periods and
other terms and conditions and, in aggregate, the same difference between
market value and exercise price as reflected in the original Marcam
Corporation option.
(11) EMPLOYEE BENEFIT PLAN
Certain employees of MAPICS in the United States are eligible to
participate in Marcam Corporation's sponsored profit sharing retirement plan
established under the provisions of Internal Revenue Code Section 401(k). The
expenses of MAPICS related to this plan which are included in the statements
of operations amounted to $0, $77,000 and $110,000 for the fiscal years ended
September 30, 1994, 1995, and 1996, respectively, and $85,000 for the
six-month period ended March 31, 1997.
(12) MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
MAPICS had no customers which accounted for 10% or more of total revenues
in fiscal years 1995 and 1996 or in the six months ended March 31, 1996 and
1997. In fiscal 1994, International Business Machines Corporation accounted
for 12% of total revenues (See Note 14.)
MAPICS markets its products worldwide. Revenues are grouped into three
main geographic segments: U.S., Europe and All Other. Financial data by
geographic area is as follows (in thousands):
F-15
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
<TABLE>
<CAPTION>
U.S. Europe All Other Elimination Total
---- ------ --------- ----------- -----
<S> <C> <C> <C> <C> <C>
Fiscal year 1994
- ----------------
Net sales to unaffiliated customers $41,210 $ 5,273 $6,300 $ -- $52,783
Transfers between geographic areas 965 -- -- (965) --
------- -------- ------- ------- --------
Total revenues 42,175 5,273 6,300 (965) 52,783
------- -------- ------- ------- --------
Net income 5,356 1,375 1,608 1,828 10,167
Identifiable assets 32,041 3,489 862 -- 36,392
Fiscal year 1995
- ----------------
Net sales to unaffiliated customers $50,934 $10,419 $7,945 $ -- $69,298
Transfers between geographic areas 1,538 -- -- (1,538) --
------- -------- ------- ------- --------
Total revenues 52,472 10,419 7,945 (1,538) 69,298
------- -------- ------- ------- --------
Net income (loss) 9,669 458 2,623 (1,416) 11,334
Identifiable assets 34,765 4,841 1,620 -- 41,226
Fiscal year 1996
- ---------------
Net sales to unaffiliated customers $56,546 $14,311 $6,745 $ -- $77,602
Transfers between geographic areas 1,816 -- -- (1,816) --
------- -------- ------- ------- --------
Total revenues 58,362 14,311 6,745 (1,816) 77,602
------- -------- ------- ------- --------
Net income (loss) 10,058 2,197 938 (293) 12,900
Identifiable assets 37,876 4,789 2,740 -- 45,405
Six months ended March 31,1997 (unaudited)
- -----------------------------------------
Net sales to unaffiliated customers $32,450 $ 9,447 $2,268 $ -- $44,165
Transfers between geographic areas 1,114 -- -- (1,114) --
------- -------- ------- ------- --------
Total revenues 33,564 9,447 2,268 (1,114) 44,165
------- -------- ------- ------- --------
Net income (loss) 5,641 702 255 (97) 6,501
Identifiable assets 37,459 5,156 4,031 -- 46,646
</TABLE>
(13) RELATIONSHIP WITH MARCAM CORPORATION
On February 26, 1993, Marcam Corporation acquired the exclusive worldwide
marketing rights to the MAPICS product line for 25 years. Marcam Corporation
also acquired the option to purchase the MAPICS product line and certain
related intellectual property rights. As part of the acquisition of the
marketing rights, Marcam Corporation expensed $5,568,000 of in-process
research and development costs and recorded $10,699,000 of intangible assets
acquired. These amounts have been reflected in the combined financial
statements of MAPICS.
On September 29, 1995, Marcam Corporation acquired all of the outstanding
stock of the company which owned the MAPICS product line. As part of the
acquisition, certain non-cash balance sheet adjustments were recorded by
Marcam Corporation which have been reflected in the combined financial
statements of MAPICS. The adjustments consist of the following (in
thousands):
Reduction of net computer software costs $ 1,050
Reduction of payables (1,500)
-------
Net adjustment $ (450)
F-16
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
(14) RELATED PARTY TRANSACTIONS
MAPICS has a number of marketing and product development relationships
with International Business Machines Corporation ("IBM"). IBM has purchased
licenses for MAPICS products for internal use, as well as for marketing
purposes. MAPICS has purchased certain services, equipment and software
licenses from IBM.
Under various agreements with MAPICS and its representatives, IBM markets
MAPICS products in cooperation with MAPICS and its subsidiaries or
representatives in several countries. In each case, MAPICS or its
representative pays IBM a fee for marketing MAPICS products when a sale is
made with IBM's assistance. The fee is calculated as a percentage of the
license fees received by MAPICS and varies based on the agreement's specific
territories. MAPICS paid IBM aggregate fees of $1,453,000, $198,000 and $0 in
fiscal years 1994, 1995 and 1996, respectively, and $0 in the six-month
period ended March 31, 1997.
MAPICS recorded royalties from IBM of approximately $5,675,000, $2,614,000
and $604,000 in fiscal years 1994, 1995 and 1996, respectively, and $265,000,
in the six-month period ended March 31, 1997 relating to sales of MAPICS
products.
MAPICS also licenses products and provides services to IBM in the ordinary
course of business. During fiscal years 1994, 1995 and 1996, MAPICS
recognized an aggregate of approximately $700,000, $185,000 and $409,000,
respectively, and during the six-month period ended March 31, 1997 recognized
$236,000 from licensing products and providing services to IBM. IBM also
sells products and provides services, including distribution and translation
services, to MAPICS in the ordinary course of business.
Total revenues that were derived from transactions with IBM were
$6,375,000, $2,799,000 and $1,013,000 for fiscal 1994, 1995 and 1996,
respectively, and $501,000 for the six-month period ended March 31, 1997.
(15) SUBSEQUENT EVENTS (Unaudited)
Agreements with Marcam Solutions
Distribution Agreement. Prior to the completion of the offering, the
Company and Marcam Solutions will enter into a Distribution Agreement.
Pursuant to the Distribution Agreement, subject to limited exceptions, the
two companies are required to indemnify each other and each other's
directors, officers, employees, agents and representatives for liabilities
under federal or state securities laws that are a result of the offering and
the Distribution. The Distribution Agreement also provides that each party
thereto will indemnify the other party thereto and its directors, officers,
employees, agents and representatives for liabilities that may be incurred by
the indemnified party relating to, resulting from or arising out of (i) the
business, operations or assets conducted or owned or formerly conducted or
owned by the indemnifying party and its subsidiaries, or (ii) the failure by
the indemnifying party to comply with any other agreements executed in
connection with the Distribution or the offering. In addition, the
Distribution Agreement provides that Marcam Solutions will indemnify MAPICS
and its directors, officers, employees, agents and representatives for any
liabilities resulting from or arising out of certain acts, failures to act or
the provision of incorrect factual information by Marcam Solutions in
connection with the IRS private letter ruling request that cause the
Distribution to be taxable to MAPICS or its stockholders. The ancillary
agreements to be executed in connection with the Distribution include a
General Services Agreement, a Domestic Facilities Sharing Agreement, an
International Facilities Sharing Agreement and a Tax Sharing Agreement. With
respect to matters governed by services and facilities agreements, the
relationship between MAPICS and Marcam Solutions is intended to continue in a
manner generally consistent with past practices. Management believes that the
expected charges in accordance with these agreements are fair and reasonable.
General Services Agreement. The General Services Agreement will provide
that Marcam Solutions provides to MAPICS from time to time, upon the request
of MAPICS, certain routine and ordinary corporate services, including
financial, accounting, tax, and legal services. For these services, Marcam
Solutions will be reimbursed for its costs (including the pro rata costs of
the Marcam Solutions employees performing such services and allocable
overhead) on a per diem basis.
F-17
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
Domestic and International Facilities Agreements. MAPICS and Marcam
Solutions will enter into two facilities sharing agreements providing for the
sharing by MAPICS and Marcam Solutions of facilities in the U.S. (Domestic
Facilities Sharing Agreement) and facilities worldwide (International
Facilities Sharing Agreement).
The facilities agreements provide that MAPICS may occupy space located in
facilities owned and leased by Marcam Solutions in exchange for fees that
generally reflect an allocation of Marcam Solutions costs to operate that
facility, based either upon square footage or relative headcount at that
facility at the beginning of the agreement period.
Tax Sharing Agreement. Prior to completion of the Distribution, MAPICS and
Marcam Solutions intend to enter into a Tax Sharing Agreement that defines
the parties rights and obligations with respect to deficiencies and refunds
of federal, state, and other income or franchise taxes relating to the
business of MAPICS for taxable years prior to the Distribution and with
respect to certain tax attributes of MAPICS after the Distribution. In
general, pursuant to the Tax Sharing Agreement, Marcam Solutions shall
indemnify MAPICS for tax liabilities of MAPICS attributable to any period
ending prior to the Distribution, calculated after giving effect to the net
operating losses and tax credits as of the date of the Distribution. Under
the Tax Sharing Agreement, if MAPICS receives a refund of certain taxes
applicable to a period ending prior to the date of the Distribution, MAPICS
shall remit such refund to Marcam Solutions. Under the Tax Sharing Agreement,
MAPICS shall be liable for any tax arising out of the Distribution, unless
attributable to actions taken by Marcam Solutions or transactions involving
Marcam Solutions occurring after the Distribution.
Line of Credit
MAPICS expects to complete negotiations in May 1997 to establish a
revolving credit facility of $5,000,000, with borrowing availability equal to
80% of qualifying accounts receivable. Borrowings under this facility will
bear interest at a designated prime rate plus 1% per annum. This credit
facility will expire on July 31, 1998. The obligations of MAPICS under this
credit facility will be secured by liens on substantially all of MAPICS'
assets. Additionally, this credit facility will contain covenants which,
among other things, impose certain limitations or prohibitions on MAPICS with
respect to additional indebtedness, liens and capital leases; the payment of
dividends on, and the redemption or repurchase of, capital stock of MAPICS;
investments and acquisitions; the merger or consolidation of MAPICS with any
person or entity and the disposition of any of the property or assets of
MAPICS.
F-18
<PAGE>
MAPICS, INC.
Notes to Combined Financial Statements -- (Continued)
(16) SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following quarterly information is unaudited and, in the opinion of
management, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the operating results for each
quarter.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
1995:
Revenues $17,213 $15,358 $15,303 $21,424 $69,298
Income before income tax expense 5,744 4,040 3,502 5,160 18,446
Net income 3,529 2,482 2,152 3,171 11,334
1996:
Revenues $18,623 $17,221 $18,128 $23,630 $77,602
Income before income tax expense 5,037 4,846 4,594 6,499 20,976
Net income 3,098 2,980 2,826 3,996 12,900
1997:
Revenues $23,379 $20,786
Income before income tax expense 5,793 4,779
Net income 3,563 2,938
</TABLE>
F-19
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the shares by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making the offer or solicitation is not qualified to do so, or to any person
to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall create any
implication that the information contained herein is correct as of any time
subsequent to its date.
-------------
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 7
Use of Proceeds 15
Dividend Policy 15
Capitalization 16
Selected Combined Financial Data 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Business 27
Management 36
The Distribution 37
Relationship Between MAPICS and Marcam Solutions 39
Principal Stockholders 41
Description of Capital Stock 42
Underwriting 45
Legal Matters 46
Experts 46
Information Incorporated by Reference 46
Available Information 47
Index to Combined Financial
Statements F-1
Shares
[Logo]
Common Stock
--------------------
P R O S P E C T U S
-------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Lazard Freres & Co. LLC
, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth an estimate (except for the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee) of the fees and expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the Common Stock being registered under the Registration
Statement.
SEC registration fee $ 2
6,136
NASD filing fee 9,125
Nasdaq National Market listing fee 17,500
Printing and engraving expenses 100,000
Legal fees and expenses 700,000
Accounting fees and expenses 700,000
Blue Sky fees and expenses (including legal fees) 10,000
Transfer agent and registrar fees and expenses 10,000
Miscellaneous 197,237
----------
TOTAL $1,750,000
==========
The Company will bear all expenses shown above.
Item 15. Indemnification of Directors and Officers.
Section 67 of the Massachusetts Business Corporation Law ("Section 67")
provides that a corporation may indemnify its directors and officers to the
extent specified in or authorized by (i) the articles of organization, (ii) a
by-law adopted by the stockholders, or (iii) a vote adopted by the holders of
a majority of the shares of stock entitled to vote on the election of
directors. In all instances, the extent to which a corporation provides
indemnification to its directors and officers under Section 67 is optional.
The Company's Restated Articles of Organization provide indemnification to
the Company's directors and officers to the fullest extent permitted by
Massachusetts law, including circumstances in which indemnification is
otherwise discretionary. The Company's By-laws provide that each director and
officer shall be indemnified by the Company against liabilities and expenses
in connection with any legal proceeding to which such officer or director may
become a party by reason of being or having been an officer or director,
provided that such officer or director acted in good faith and in a manner he
or she reasonably believed to be in the best interests of the Company, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The Company has also entered into
indemnity agreements with each of its directors and certain executive
officers, which agreements require the Company to indemnify such individuals
to the fullest extent permitted by Massachusetts law.
The Company's Restated Articles of Organization eliminate the personal
liability of the Company's directors for monetary damages for breach of their
fiduciary duty as directors to the Company and its stockholders,
notwithstanding any provision of law imposing such liability. The Company's
Articles of Organization, however, do not eliminate liability of the
Company's directors for breach of the director's duty of loyalty to the
Company or its stockholders, acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law and actions leading to
improper personal benefit to the director, or under Section 61 or 62 of the
Massachusetts Business Corporation Law.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
- -------- ----------- ----------------------
<S> <C> <C>
1* Form of Underwriting Agreement
2+ Stock Purchase Agreement dated as of September 29, 1995 by 0-18674
and among Marcam Corporation, International Business Exhibit 2.1 to Current Report on
Machines Corporation, Edison Venture Fund, L.P., Richard Form 8-K Dated September 29,
C. Cook, Paul A. Margolis, John Campbell and MAPICS, Inc. 1995
4.1+ Restated Articles of Organization of the Registrant 33-5666
Exhibits 3.2, 4.2
4.2+ By-laws, as amended and restated, of the Registrant 33-5666
Exhibits 3.3, 4.3
4.3+ Certificate of Vote of Directors Establishing a Series or 0-18674
a Class of Stock of the Registrant Exhibits 3.1, 4.2 to Current
Report on Form 8-K Dated June
18, 1993
4.4+ Certificate of Vote of Directors Establishing a Series or 0-18674
a Class of Stock of the Registrant Exhibits 3.4, 4.4 to Annual
Report on Form 10-K for the
fiscal year ended September 30,
1993
4.5+ Specimen certificate representing the Common Stock 33-35666
Exhibit 4.4
4.6+ Certificate of Vote of Directors Establishing a Series of 0-18674
a Class of Stock for the Series D Convertible Preferred Exhibit 4 to Current Report on
Stock of Marcam Corporation Form 8-K Dated September 29,
1995
4.7+ Certificate of Vote of Directors Establishing a Series of 0-18674
a Class of Stock for the Series E Convertible Preferred Exhibit 4 to Current Report on
Stock of Marcam Corporation Form 8-K Dated July 23, 1996
8+ Rights Agreement, dated as of December 3, 1996, between 0-18674
Marcam Corporation and The First National Bank of Boston, Exhibit 4 to Current Report on
which includes as Exhibit A the form of Certificate of Form 8-K Dated December 3, 1996
Vote of Directors Establishing a Series of a Class of
Stock, as Exhibit B the Form of Rights Certificate, and
as Exhibit C the Summary of Rights to Purchase Preferred
Stock
5* Opinion of Testa, Hurwitz & Thibeault, LLP
II-2
<PAGE>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
21* Subsidiaries of the Registrant
23.1* Consent of Testa, Hurwitz & Thibeault, LLP (contained in
its opinion as Exhibit 5)
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (contained in the Signature Pages)
99.1* Form of Distribution Agreement
99.2* Form of Domestic Facilities Sharing Agreement
99.3* Form of International Facilities Sharing Agreement
99.4* Form of Tax Sharing Agreement
99.5* Form of General Services Agreement
</TABLE>
- -------------
+ Incorporated herein by reference.
* To be filed by amendment.
(b) Financial Statements Schedules:
All schedules to the combined financial statements are omitted as the
required information is either inapplicable or presented in the combined
financial statements or related notes thereto.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such
securities at that time shall be deemed to be the initial bona fide Offering
thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at
that time shall be deemed to be the initial bona fide Offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newton, Commonwealth of Massachusetts on this 30th
day of April, 1997.
MARCAM CORPORATION
By: /s/ George A. Chamberlain, 3d
------------------------------
George A. Chamberlain, 3d
Chief Financial Officer
POWER OF ATTORNEY AND SIGNATURES
The undersigned directors and officers of Marcam Corporation do hereby
constitute and appoint Michael J. Quinlan and Paul A. Margolis, and each of
them, with full power of substitution, our true and lawful attorneys-in-fact
and agents to do any and all acts and things in our name and behalf in our
capacities as directors and officers, and to execute any and all instruments
for us and in our names in the capacities indicated below which such person
may deem necessary or advisable to enable Marcam Corporation to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the SEC, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for
us, or any of us, in the capacities indicated below, any and all amendments
(including post-effective amendments filed pursuant to Rule 462(b) of the
Securities Act of 1933, as amended) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------------------------------- ------------------------------------ ---------------
<S> <C> <C>
President, Chief Executive Officer,
/s/ Michael J. Quinlan and Director (Principal Executive
Michael J. Quinlan Officer) April 30, 1997
/s/ Paul A. Margolis Chairman of the Board of Directors and
Paul A. Margolis Director April 30, 1997
/s/ John Campbell
John Campbell Director April 30, 1997
/s/ George A. Chamberlain, 3d Chief Financial Officer (Principal
George A. Chamberlain, 3d Financial and Accounting Officer) April 30, 1997
/s/ Richard S. Hickok
Richard S. Hickok Director April 30, 1997
/s/ Edward J. Kfoury
Edward J. Kfoury Director April 30, 1997
/s/ William E. Ford
William E. Ford Director April 30, 1997
/s/ William O. Grabe
William O. Grabe Director April 30, 1997
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
<S> <C> <C>
1* Form of Underwriting Agreement
2+ Stock Purchase Agreement dated as of September 29, 1995 by 0-18674
and among Marcam Corporation, International Business Exhibit 2.1 to Current Report on
Machines Corporation, Edison Venture Fund, L.P., Richard Form 8-K Dated September 29,
C. Cook, Paul A. Margolis, John Campbell and MAPICS, Inc. 1995
4.1+ Restated Articles of Organization of the Registrant 33-5666
Exhibits 3.2, 4.2
4.2+ By-laws, as amended and restated, of the Registrant 33-5666
Exhibits 3.3, 4.3
4.3+ Certificate of Vote of Directors Establishing a Series or 0-18674
a Class of Stock of the Registrant Exhibits 3.1, 4.2 to Current
Report on Form 8-K Dated June
18, 1993
4.4+ Certificate of Vote of Directors Establishing a Series or 0-18674
a Class of Stock of the Registrant Exhibits 3.4, 4.4 to Annual
Report on Form 10-K for the
fiscal year ended September 30,
1993
4.5+ Specimen certificate representing the Common Stock 33-35666
Exhibit 4.4
4.6+ Certificate of Vote of Directors Establishing a Series of 0-18674
a Class of Stock for the Series D Convertible Preferred Exhibit 4 to Current Report on
Stock of Marcam Corporation Form 8-K Dated September 29,
1995
4.7+ Certificate of Vote of Directors Establishing a Series of 0-18674
a Class of Stock for the Series E Convertible Preferred Exhibit 4 to Current Report on
Stock of Marcam Corporation Form 8-K Dated July 23, 1996
4.8+ Rights Agreement, dated as of December 3, 1996, between 0-18674
Marcam Corporation and The First National Bank of Boston, Exhibit 4 to Current Report on
which includes as Exhibit A the form of Certificate of Form 8-K Dated December 3, 1996
Vote of Directors Establishing a Series of a Class of
Stock, as Exhibit B the Form of Rights Certificate, and
as Exhibit C the Summary of Rights to Purchase Preferred
Stock
5* Opinion of Testa, Hurwitz & Thibeault, LLP
II-6
<PAGE>
Exhibit
No. Description SEC Document Reference
- ------- ----------- ----------------------
21* Subsidiaries of the Registrant
23.1* Consent of Testa, Hurwitz & Thibeault, LLP (contained in
its opinion as Exhibit 5)
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (contained in the Signatures)
99.1* Form of Distribution Agreement
99.2* Form of Domestic Facilities Sharing Agreement
99.3* Form of International Facilities Sharing Agreement
99.4* Form of Tax Sharing Agreement
99.5* Form of General Services Agreement
</TABLE>
- -------------
+ Incorporated herein by reference.
* To be filed by amendment.
II-7
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration
statement of Marcam Corporation on Form S-3 of our report, dated October 24,
1996, on our audits of the consolidated financial statements of Marcam
Corporation as of September 30, 1996 and 1995, and for the years ended
September 30, 1996 and 1995, which report is included in the Annual Report on
Form 10-K of Marcam Corporation for the year ended September 30, 1996. We
also consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 29, 1997
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 of
our report dated April 29, 1997, on our audits of the combined financial
statements of MAPICS, Inc. We also consent to the references to our firm
under the captions "Experts" and "Selected Combined Financial Data."
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 29, 1997
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in this Registration Statement on
Form S-3 of Marcam Corporation of our report dated October 20, 1994, relating
to the consolidated statements of operations, stockholders' equity, and cash
flows of Marcam Corporation and subsidiaries for the year ended September 30,
1994, which report appears in the September 30, 1996 Annual Report on Form
10-K of Marcam Corporation and to the reference of our firm under the heading
of "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
April 29, 1997
