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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM____________ TO ____________
COMMISSION FILE NUMBER: 000-18674
MAPICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 04-2711580
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
5775-D GLENRIDGE DRIVE
ATLANTA, GEORGIA 30328-5380
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(404) 705-3000
(REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
SERIES F JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant was $329,163,000 at December 14, 1998, based on the closing sale
price of $17.50 per share for the Common Stock on such date on the Nasdaq
National Market.
The number of shares of the registrant's Common Stock outstanding at December
14, 1998 was 20,345,142.
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the Proxy Statement for the 1999 Annual
Meeting of Shareholders to be held on February 10, 1999 are incorporated by
reference in Part III.
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MAPICS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
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ITEM PAGE
NUMBER NUMBER
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PART I
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1. Business...................................................... 1
2. Properties.................................................... 12
3. Legal Proceedings............................................. 12
4. Submission of Matters to a Vote of Security Holders........... 12
4(A) Executive Officers of the Registrant.......................... 12
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................... 13
6. Selected Financial Data....................................... 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 16
7(A) Quantitative and Qualitative Disclosures about Market Risk.... 41
8. Financial Statements and Supplementary Data................... 42
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 73
PART III
10. Directors and Executive Officers of the Registrant............ 73
11. Executive Compensation........................................ 73
12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 73
13. Certain Relationships and Related Transaction................. 73
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 74
Signatures.................................................... 80
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PART I
ITEM 1. BUSINESS.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This report as well as the Company's 1998 Annual Report include forward-
looking statements, including in particular the statements about the Company's
plans, objectives, expectations and prospects under the headings "Item 1.
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this document. The words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions identify forward-looking statements. Although the Company believes
that the plans, objectives, expectations and prospects reflected in or
suggested by such forward-looking statements are reasonable, such statements
involve uncertainties and risks, and the Company can give no assurance that
such, plans, objectives, expectations and prospects will be achieved.
Important factors that could cause actual results to differ materially from
the results anticipated by the forward-looking statements are set forth in
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Performance" and elsewhere in
this document. All written or oral forward-looking statements attributable to
the Company are expressly qualified in their entirety by these cautionary
statements.
GENERAL
MAPICS, Inc. ("MAPICS" or the "Company") is a business software company
whose primary customers are discrete and batch process manufacturers. The
Company delivers Enterprise Resource Planning ("ERP") software that allows its
customers to automate the manufacturing process and coordinate multiple
functions and departments within their organizations, as well as extend their
interactions with their supply chain partners. The MAPICS XA product line
currently consists of 49 applications in the areas of Engineering Management,
Demand Management, Operations Management, Resource Planning, Financial
Management and Business Management. The design of the Company's applications
allows its customers to rapidly implement all or a portion of the Company's
solution with minimal disruption to their business. Furthermore, MAPICS
solutions enable customers to leverage existing information technology
investments and adopt new technologies gradually, which lowers costs and
increases their return on investment.
The Company has a base of approximately 3,400 customer sites, of which
approximately 2,400 have selected MAPICS XA, the Company's current product
line, with the balance using the older MAPICS/DB product. The Company
principally markets to mid-sized ($20 million to $500 million in annual
revenues) manufacturers and divisions, sites and subsidiaries of large
companies, such as AP Technoglass, Bristol-Myers Squibb Company, Goodyear Tire
& Rubber Co., Honda Motor Co., Ltd., Michelin Corp., SANYO Energy, Sub-Zero
Freezer Co., Inc., Trans-matic Manufacturing, Inc., Volvo Construction
Equipment N.V., Weber Aircraft and York International. The primary channel for
selling and implementing the MAPICS products is a network of more than 80
independent local companies ("Affiliates") that sell to customers located in
more than 70 countries around the world. In addition to providing customers
with high quality and cost-effective local implementation, consulting and
other professional services, the Affiliate channel provides the Company with
an attractive variable cost structure for sales and marketing.
With its integrated product line and cost-effective implementation and
support capabilities, the Company intends to further penetrate the ERP market
by: (i) continuing to expand its middle market presence, (ii) increasing the
capacity and strength of the Affiliates, (iii) broadening product
functionality to meet emerging customer needs, (iv) incorporating new
technologies to expand market opportunity, (v) pursuing strategic development
alliances and (vi) maintaining high customer satisfaction.
The Company was incorporated in Massachusetts in 1980 under the name Marcam
Corporation. On July 29, 1997, the Company distributed to its shareholders, in
a tax-free distribution (the "Distribution"), all of the capital stock of its
subsidiary Marcam Solutions, Inc. and changed its name from Marcam Corporation
to MAPICS, Inc. As a result of the Distribution, Marcam Solutions, Inc. owns
and operates certain software product lines that had been owned and operated
by Marcam Corporation prior to the Distribution, and the Company
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continues to own and operate the MAPICS product line. At the time of the
Distribution, the Company relocated its headquarters from Boston to Atlanta,
and in 1998 the Company reincorporated in Georgia. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 1 of Notes to Consolidated Financial Statements contained in "Item 8.
Financial Statements and Supplementary Data."
INDUSTRY BACKGROUND
Approximately half of the manufacturing market consists of discrete and
batch-process manufacturers. Discrete manufacturers produce products by
assembling or machining component parts or sub-assemblies into finished
products. Batch-process manufacturers typically produce a specific quantity of
products on an order or "batch" basis in which a batch moves through a series
of operations in discontinuous mode. These manufacturers face increasingly
intense global competition, more demanding worldwide customer relationships
and rapidly changing business requirements. To remain competitive in this
environment, manufacturers are increasingly adopting methods such as rate-
based manufacturing and just-in-time inventory replenishment. In addition,
manufacturers are required to manage broadening product lines, provide multi-
national distribution, reduce product development and manufacturing cycles,
maintain lower inventory levels and adopt more flexible manufacturing
strategies. These requirements often involve global sourcing and assembly from
a supply chain consisting of internal and outsourced suppliers. Managing that
supply chain requires streamlined organizations, efficient business processes,
effective information flow and communication and an integration of the supply
chain from raw material suppliers to the ultimate customers.
In an effort to strengthen their global competitive position, organizations
increasingly rely on ERP systems to manage and coordinate requirements and
resources across the entire manufacturing enterprise and its supply chain.
These systems typically provide applications to support engineering data
management, sales management, material procurement, inventory management,
manufacturing control, distribution, transportation, finance and other
functions. Information system technologies, such as the Internet, intranets,
extranets and client/server computing, can provide efficient and effective
information flow and networking for manufacturers using ERP systems. Advanced
programming architectures utilizing object-oriented technology enable software
providers to more rapidly deploy system functionality and decrease development
cycles to respond to changing market demands. The emergence of these new
technologies, as well as the need to address the Year 2000 problem and issues
associated with the conversion by 11 of the 15 member countries of the
European Union to the euro as their common currency beginning in January 1999
(the "Euro Conversion"), are creating increased demand for a new generation of
ERP solutions with expanded functionality.
In order to compete effectively in their markets, mid-sized manufacturers
also require ERP solutions that provide a high return on investment. These
systems must be able to be implemented rapidly with minimal disruption to the
business and maintained with a limited information technology staff. At the
same time, ERP systems must provide sufficient depth of functionality and
flexibility to enable manufacturers to respond to constantly changing customer
needs. The systems must also be scalable to accommodate expansion of the
manufacturer's business. Mid-sized manufacturers prefer fully integrated ERP
solutions covering all aspects of their business as opposed to specialized
multi-vendor solutions that are more costly and difficult to integrate and
maintain.
According to Advanced Manufacturing Research ("AMR"), the total worldwide
market for ERP systems is expected to increase from $15 billion in 1998 to $52
billion in 2002, representing a compound annual growth rate of 37%.
Additionally, industry sources estimate that the mid-sized manufacturing
segment constitutes over 50% of the total ERP market and is its fastest
growing segment.
THE MAPICS SOLUTION
With 20 years of manufacturing and technology expertise, the Company is a
leading provider of full-function client/server-based ERP systems that enable
manufacturers to respond to the demands of a rapidly growing, highly
competitive, global marketplace. In particular, the Company has been
successful at addressing the technology and business requirements of mid-sized
manufacturers by providing comprehensive product
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functionality and high quality customer service on a cost-effective basis. The
MAPICS XA product line currently operates on International Business Machines
Corporation's ("IBM") AS/400 server platform, which the Company believes is
the leading server platform in the mid-sized manufacturing market due to its
reliability and low total cost of ownership. The MAPICS solution provides
value to the Company's customers through the following benefits:
Comprehensive Functionality with Flexible Architecture. The Company has
developed a comprehensive solution focused on meeting the needs of mid-sized
manufacturers. The MAPICS XA product line currently consists of 49 integrated
applications that are designed to manage the most complex manufacturing
enterprises. Its flexible architecture allows customers to purchase and
implement only those applications that are required. Moreover, the MAPICS XA
product line is scalable to accommodate the diverse requirements of its broad
customer base. Current customers have implementations supporting up to 1,500
networked users. The Company leverages its strong manufacturing and technology
expertise to continually develop functionality that meets the emerging needs
of its customers. Since the introduction of MAPICS XA in 1994, the Company has
more than doubled the number of its MAPICS XA applications and significantly
enhanced the functionality of existing applications.
Dedicated and Experienced Value-Added Affiliate Channel. The primary channel
for selling and implementing the MAPICS products is a network of more than 80
independent local Affiliates selling to customers located in more than 70
countries around the world. Affiliates typically have extensive knowledge of
the manufacturing industry in their geographic regions and develop long-
standing relationships with MAPICS' customers. Each Affiliate has the right to
market the MAPICS products within a specific geographic territory and, in
return, Affiliates are not typically permitted to represent competitive ERP
systems. This arrangement has led Affiliates to invest significant resources
to develop their knowledge of the MAPICS products. Affiliates offer
experienced local professionals to implement and configure the MAPICS products
rapidly and in a cost-effective manner, as well as local services that enable
the Company's customers to maintain a limited information technology staff,
which is often a requirement of the mid-sized manufacturer.
Rapid Implementation and High Return on Investment. The comprehensive
functionality and flexibility of MAPICS products minimize the need for
modification, thereby allowing rapid product implementation. In addition, the
Affiliates have refined implementation methodologies through in-depth
manufacturing, product and customer knowledge, which many have developed over
more than ten years of experience in implementing MAPICS solutions. Moreover,
the Company has introduced a standard implementation methodology to further
assist Affiliates in complex or multi-national implementations. MAPICS
implementations generally take from three to twelve months, depending upon the
number and type of applications purchased and the complexity of the
manufacturing enterprise. The high reliability and ease of user customization
of the MAPICS products, coupled with the Company's extensive quality assurance
and strong customer support, minimize the customer's need to maintain a large
information technology staff. Subsequent releases of the software are designed
to preserve existing investments in technology and user education, with
minimal disruption to the customer's business. The Company believes that all
these factors lead to the low total cost of ownership and high return on
investment that mid-sized manufacturers require.
High Quality Worldwide Customer Support. The Company is dedicated to
providing high quality customer support for its products around the world
through a combination of its employee support staff and the Affiliate channel.
The Company was among the first in the ERP software industry to receive ISO
9001 certification for its primary development and support quality system, and
remains among the few to have achieved this status. In a 1995 customer
satisfaction survey performed by AMR, the Company received the highest overall
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, as well as knowledge of its sales force.
Indicative of the Company's continuing focus on customer satisfaction, the
Company engaged Gartner Group, Inc. in 1998 to perform another survey of its
customers, which again reflected high levels of customer satisfaction.
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THE MAPICS STRATEGY
The Company's primary objective is to further increase its share of the ERP
market by attracting new customers in existing and new market segments and
increasing sales to its growing installed base of customers. Key elements of
the Company's strategy are:
Continue to Expand Middle Market Presence. The middle market is considered
to be one of the fastest growing segments in the ERP market. The Company
intends to further leverage its manufacturing and technology expertise and the
strengths of its Affiliates to expand its presence in that market. The Company
will continue to invest in new product functionality and technology to improve
the global competitiveness of its middle market customers. The Company also
intends to continue to leverage its large, installed customer base to generate
additional revenues by using positive references from existing customers to
assist in sales to new customers. Such references are often critical to the
buying decisions of middle market manufacturers. This installed base also
provides the Company with an opportunity to generate significant revenues by
selling additional applications and upgrades to existing customers. For
example, on average, MAPICS XA customers have purchased only 14 of the 49
currently available MAPICS XA applications.
Increase the Capacity and Strength of the Affiliate Channel. The Company
intends to further enhance the Affiliate channel by assisting Affiliates with
recruiting efforts and providing Affiliates with on-line training facilities,
remote learning facilities and improved implementation methodologies to
further streamline the implementation process. These enhancements are intended
to increase the ability of the Affiliates to compete for new accounts as well
as serve the large installed customer base. In addition, the Company will seek
to increase worldwide channel capacity through cost sharing programs with, and
strategic capital investments in, Affiliates that are attempting to enter new
or under-penetrated territories, or expand their operations more rapidly than
their financial resources allow. The Company expects cost sharing programs to
include marketing assistance, telemarketing, education and joint recruiting.
The Company is also in the process of expanding its overlay sales force that
cooperatively assists Affiliates selling to multiple sites across territories.
The number of these multi-site opportunities has been increasing due to the
scalability of the MAPICS products, e-business via the Internet and expanded
MAPICS multi-plant support.
Broaden Product Functionality to Meet Emerging Customer Needs. The Company
intends to continue to offer new functionality to attract additional customers
and allow existing customers to more easily adapt to changes in their
manufacturing enterprises and supply chains. The Company intends to focus its
product enhancements and extensions on e-business, advanced planning and
scheduling systems, warehouse and transportation planning and customer
interactive selling. Currently, MAPICS applications are available in 19
languages, including English, Chinese, French, German, Japanese, Portuguese
and Spanish, and the Company intends to further localize and expand the
functionality of its products to target additional geographic markets. For
example, in October 1998, the Company released support for the euro currency
and solutions to address the Euro Conversion. In addition, the Company
continually evaluates potential acquisitions of complementary technologies,
products and businesses in the ERP market.
Incorporate New Technologies to Expand Market Opportunity. The Company
intends to continue to incorporate new technologies necessary to help mid-
sized manufacturers compete in their rapidly changing environments. These
technologies include: (i) object-oriented technology, to reduce development
and maintenance costs and allow the user to more easily customize the MAPICS
products to meet changing business conditions; (ii) full Internet, intranet or
extranet enablement to allow the customer to access any part of the MAPICS XA
application from any geographic location via an Internet connection, thus
greatly reducing network complexity and costs; and (iii) advanced decision
support to allow users to view and analyze information to solve business
problems. To broaden its current target base of customers, the Company is
continuing its Java-based development activities to re-engineer its
applications to also run on the Windows NT server platform.
Pursue Strategic Development Alliances. The Company intends to expand its
product solutions and expertise by forming additional strategic development
alliances. The Company uses its innovative extended laboratory approach to
speed its time to market, leverage development investment dollars and reduce
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development risk. The Company has created strategic development relationships
with third parties, referred to by the Company as "Solution Partners," and has
recently commenced or intends to commence joint development relationships,
called "Technology Alliances," with other third parties. Solution Partners
contribute solutions that supplement the core MAPICS application
functionality, and the Company remarkets these solutions under its own brand
name. Through Technology Alliances, the Company shares the development costs
of new core application functionality, acquires rights to it and builds
development expertise for the application internally so the Company can
enhance and support these core solutions. In June 1998, the Company entered
into a Technology Alliance with Symix Systems, Inc. ("Symix") to develop and
market an Advanced Planning and Scheduling ("APS") application. See "--Product
Development--Strategic Technology Alliances."
Maintain High Customer Satisfaction. The Company believes that a highly
satisfied installed customer base is critical to expanding its middle market
presence. The Company intends to develop or acquire new implementation tools
and advanced user education offerings to further improve the Affiliates' and
customer's ability to install and use the MAPICS products efficiently and
improve the customer's return on investment. For example, in November 1998,
the Company introduced a standard worldwide implementation methodology to
further assist Affiliates in complex or multi-national implementations. The
Company also plans to extend customer support with Internet-based and other
tools that enhance customers' ability to quickly find answers to commonly
asked questions and rapidly and inexpensively download information or fixes to
their systems.
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 to run on
IBM's System 36 and 38 computers. The Company has discontinued customer
support for these legacy systems. In 1989, IBM introduced MAPICS/DB to run on
IBM's AS/400 system. In 1993, the Company acquired from IBM the rights to the
MAPICS product line and retained approximately 150 former IBM employees to
continue the development and support of the MAPICS products.
The Company introduced its current product line, MAPICS XA, in 1994. Since
its introduction, the Company has increased the number of the MAPICS XA
applications from 19 to 49, and has substantially enhanced and rewritten many
of its original applications. MAPICS XA has been designed to support, within a
single site or multiple sites, a variety of business processes, such as
Engineering Management, Demand Management, Operations Management, Resource
Planning, Financial Management and Business Management. The MAPICS
architecture provides the flexibility to expand to new applications, sites and
processes as a customer's business evolves. MAPICS applications are currently
available in 19 languages, including English, Chinese, French, German,
Japanese, Portuguese and Spanish, and the Company intends to further localize
and expand the functionality of its products to target additional geographic
markets.
In December 1997, the Company introduced MAPICS XA Release 4, its first
major release since becoming a separate, stand-alone company as a result of
the Distribution. Release 4 includes six new applications and enhancements to
22 of the existing applications of MAPICS XA, including enriched multiple
language capabilities, expanded international financial management and
improved multi-facility demand and supply management. These new applications
and enhancements are designed to help manufacturers further streamline their
global communications and information exchange within their own enterprises,
across multinational sites and among their supply chain partners.
Recently, the Company announced the world-wide availability of MAPICS XA
Release 5, which includes three new applications and enhancements to 20 of the
existing applications. Release 5 offers a complete solution for the Euro
Conversion and allows companies to maximize the benefits of e-commerce through
a complete Java user interface (eWorkPlace) and an Internet-based customer
service application (COM Net). Using eWorkPlace, remote or local users can
obtain controlled access to MAPICS applications via an intranet, an extranet
or the Internet. COM Net helps companies service their customers over the
Internet, enabling them to place orders, review inventory availability, obtain
current pricing and promotional information, specify product configurations
and inquire into the status of an order 24 hours a day, seven days a week.
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The Company's MAPICS XA product line integrates the following applications
in the noted business solution areas:
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BUSINESS SOLUTION AREAS APPLICATIONS
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ENGINEERING MANAGEMENT Estimating and Quote Enterprise Product Data
applications assist in the Management(1) Product Data Management(1)
development of data that Management Plus(1) Product Data
describe the materials, Management(1)
processes and facilities
required to estimate costs and
produce manufactured items.
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DEMAND MANAGEMENT applications Customer Order Management COM-Net(1)
provide for the configuration Market Monitoring and Sales Analysis
and entry of customer orders, Analysis(1) Knowledge-Based
the control of these orders Configurator(1)
through pricing, shipping and
invoicing and the analysis of
customer and sales order
information.
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OPERATIONS MANAGEMENT Plant Maintenance Multi-Environment InterSite
applications support the Entity Management Logistics(1)
procurement and tracking of Preventive Maintenance Procurement Management(1)
material, the launch and Work Order Management Inventory Management(1)
control of manufacturing MRO Inventory Repetitive Production
activity and the management of Maintenance Imaging Management(1)
plant maintenance. Maintenance Executive Purchasing(1)
Information System Production Control and Costing(1)
InterSite Logistics(1) Production Monitoring and Control
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RESOURCE PLANNING applications Finite Capacity Planning and Capacity Requirements Planning
assist in preparing the master Scheduling(1) Master Production Schedule
schedule to produce items Advanced Planning and Planning(1)
ordered by customers and Scheduling System(2) Material Requirements Planning(1)
project the demand for Forecasting
materials, personnel and
equipment based on forecasts.
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FINANCIAL MANAGEMENT International Financial Accounting Management
applications provide financial Management Accounts Payable(1) Accounts Payable
and managerial accounting Accounts Receivable(1) Accounts Receivable
functions and track historical General Ledger(1) General Ledger
performance of key management Contract Accounting(1) Payroll (USA)
measurements and contracts. ControllerVision(2) Financial Analysis and Fixed
Manufacturing Performance Assets
Analysis
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BUSINESS MANAGEMENT PowerVision(1) MAPICS Browser(1)
applications provide common Electronic Commerce(1) Visual WorkPlace(1)
services (e.g., security eWorkPlace(1) Cross Application Support(1)
control, data retrieval, report Info WorkPlace(1) MAPICS Integrator(2)
development, data transmission) Executive Information System(1) Approvals
for applications as well as Foundation(1)
high level views of the MAPICS
data used to make executive
business decisions.
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(1) Application has been introduced or enhanced since December 1, 1997.
(2) Application is currently being integrated into MAPICS XA product line
and is expected to be released in the near future.
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When it first licenses its software, the Company generally receives both an
initial license fee and a periodic license fee. The typical initial license
fee for a new MAPICS system ranges from $100,000 to $600,000, depending on the
number and type of applications licensed, the size of the processor and the
number of users. The periodic license fee, which is usually paid annually in
advance, entitles the customer to continue using the software and to receive
certain support services. The typical periodic license fee is based on a
percentage (usually 15%) of the then current amount of the applicable initial
license fee.
The MAPICS XA client/server offering uses IBM's AS/400 as a server and a
Windows-based personal computer as a client. This client architecture allows
users to easily customize their view of MAPICS without modifying the
underlying application programs.
MAPICS XA releases since 1995 and the most recent release of MAPICS/DB have
been converted to be Year 2000 compliant, and the MAPICS development processes
are Information Technology Association of America 2000 certified. Many Company
applications that are currently in use were sold before 1995 and are not Year
2000 enabled. The Year 2000 enabled versions of the products are available at
no additional charge to MAPICS' customers using older versions of MAPICS XA
and MAPICS/DB that pay periodic license fees. While the Company has made Year
2000 enabled replacement software available to most customers using older
applications, not all have adopted these replacements. The Company cannot
assure that its customers will not bring Year 2000-related claims against the
Company. These claims could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Performance--Failure to Obtain Year 2000
Compliance May Have Adverse Effects on the Company."
PRODUCT DEVELOPMENT
The Company's ongoing product development efforts focus on addressing the
emerging needs of the market by expanding the breadth and depth of the
functionality of MAPICS applications and incorporating new technologies. To
support its strategic initiatives to expand the MAPICS XA product line, the
Company increased its spending on product development by 40.4% in the fiscal
year ended September 30, 1998 compared to the fiscal year ended September 30,
1997. The Company anticipates that core development expenditures will continue
to increase as a result of the Company's plans to enhance its existing
offerings to take advantage of new technologies, offer new applications and
business functions and continue its Java-based development activities.
Development direction is established by senior management with guidance from
the marketing staff and the 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 was among the first in the ERP software industry to receive ISO 9001
certification for its primary development and support quality system, and
remains among the few to have achieved this status. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Factors Affecting Future Performance--The Company is Subject to Risks
Resulting from Rapid Technological Change and Evolving Industry Standards."
Internal and Solution Partner Development
In addition to internal development efforts, the Company has developed
several software applications in collaboration with third party Solution
Partners. Solution Partners are expected to maintain development quality
commensurate with that of the Company's internal development laboratory. As a
result of working closely with its Solution Partners, the Company believes
that its software applications attain consistent quality, implementation and
support standards and that most applications 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 license fees from customers for Solution
Partner-developed applications.
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Strategic Technology Alliances
In June 1998, the Company entered into an agreement with Symix to develop
and market an APS application, which helps production planners make better
decisions by analyzing the implications of alternative approaches to meeting
customer demand. Unlike traditional planning systems, APS solutions
concurrently consider all resources and their constraints, and then provide
achievable plans and schedules which result in lower manufacturing costs and
improved on-time delivery to customers. As part of the agreement, the Company
acquired certain ongoing rights to use and redistribute the APS software
solution and enhancements made thereto during the term of the agreement. The
Company and Symix will both contribute product development resources and
personnel to advance the APS product and will market and distribute the
resulting APS application as separate products in each company's ERP product
line. The Company plans to continue to evaluate and pursue additional
strategic Technology Alliances.
CUSTOMERS
The Company's primary customers are mid-sized discrete and batch-process
manufacturers, consisting of independent companies and divisions, sites and
subsidiaries of larger companies. Mid-sized manufacturers generally seek
software solutions to help manage the manufacturing process as it relates to
accounting, engineering, production, production planning, customer asset
management and finance. The Company believes that it meets the practical
business requirements of mid-sized manufacturers by offering a cost-effective
integrated solution that can be implemented rapidly using the Company's local
Affiliate network. The Company's products assist customers in meeting their
internal goals of maintaining operational flexibility and responding to market
changes, while minimizing cost, waste and disruption through the utilization
of an ERP solution with a high return on investment. The Company has over 20
years of experience in the development of its products and relies upon its
considerable industry knowledge to continually anticipate the needs of the
mid-sized manufacturer.
The Company has a base of approximately 3,400 customer sites, of which
approximately 2,400 have selected MAPICS XA, the Company's current product
line, with the balance using MAPICS/DB. The Company intends to leverage this
large installed customer base to generate additional revenues by using
existing customers to assist in sales to new customers through positive
references, as well as by selling additional applications and upgrades to
existing customers. Because the Company does not actively support its older
MAPICS I and II products, it does not include users or former users of those
products on its customer site lists and treats MAPICS I and II users as
prospective new customers for sales and marketing purposes.
The Company's installed base of customers includes the following
enterprises:
<TABLE>
<S> <C>
ABB Asea Brown Boveri
(Holding) Ltd. Matsushita Electronic Industrial Co., Ltd.
AP Technoglass Michelin Corporation
Bayer Corporation Michigan Bulb Company Inc., Ltd.
Bristol-Myers Squibb Company MTD Products, Inc.
Bostick, Inc. Pall Corporation
Braun AG Peg Perego Pines USA, Inc.
Colgate-Palmolive Company Philips Electronics N.V.
Coltec Industries Inc. Sanyo Energy
Cooper Industries Shiseido Cosmetics (America) Ltd.
Eaton Controlls PTY, Ltd. Sub-Zero Freezer Co., Inc.
Emerson Electric Co. Sylvania Lighting International B.V.
General Electric Company, plc Thomas Lighting Inc.
Giddings and Lewis, Inc. Trans-matic Manufacturing, Inc.
Goodyear Tire & Rubber Company Volvo Construction Equipment N.V.
Honda Motor Co., Ltd. Weber Aircraft
International Game Technology Westinghouse Electric Corporation
Kerry Ingredients UK Ltd. York International
</TABLE>
8
<PAGE>
None of the Company's customers accounted for more than 5% of total revenues
in the fiscal year ended September 30, 1998. The Company does not believe that
its backlog at any particular point in time is indicative of future sales.
MARKETING AND SALES
The Company's marketing strategy focuses on positioning the Company as a
leading provider of ERP solutions and increasing the name recognition of the
Company and its products. In support of this strategy, the Company's marketing
programs include advertising, public relations, direct marketing, worldwide
web marketing, customer and internal events and product management.
The Company sells its products to customers located in over 70 countries
throughout North America, Europe, the Middle East, Africa ("EMEA") and the
Latin America and Asia Pacific regions through a network of more than 80
independent local Affiliates. The use of Affiliates provides the Company with
strong market access. Affiliates provide sales, consulting, implementation and
other services directly to the Company's customer base usually on a local
basis. The Company does not currently own any interest in any of the
Affiliates. Each Affiliate has the right to market the MAPICS products within
a specific geographic territory and, in return, Affiliates are not typically
permitted to represent competitive ERP systems. The Company's sales management
team has encouraged the consolidation of smaller Affiliates into larger
organizations, the elimination of overlapping territories and the development
among Affiliates of a higher level of sales skills with a greater focus on
selling to new accounts.
The Affiliate channel provides significant benefits to the Company and its
customers. For example, the Affiliates provide a variable cost channel because
Affiliates receive a sales commission only when the Company receives its
license fees. In addition, Affiliates typically have extensive knowledge of
the manufacturing industry in their geographic region and develop long-
standing relationships with MAPICS' customers. Moreover, the Affiliate channel
continually provides the Company with local input and feedback regarding
customer 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 requirements into its product
development efforts.
The Company historically has had excellent relations with its Affiliates.
The Company believes these strong relations are attributable to a number of
factors, including the significant revenues that the Affiliates receive
directly from the Company in the form of commissions, as well as from
consulting, implementation and other services rendered to users of the MAPICS
products in the territory they represent and in some instances from IBM for
sales of AS/400 hardware. In addition, the Affiliates have generally made
significant investments in developing MAPICS knowledge within their
organizations.
The Company intends to further enhance the Affiliate channel by assisting
Affiliates with recruiting efforts and providing Affiliates with on-line
training facilities, remote learning facilities and improved implementation
methodologies to further streamline the implementation process. These
enhancements are intended to increase the ability of the Affiliates to compete
for new accounts as well as serve the large installed customer base. In
addition, the Company will seek to increase channel capacity through cost
sharing programs with, and strategic capital investments in, Affiliates that
are attempting to enter new or under-penetrated territories, or expand their
operations more rapidly than their financial resources allow. The Company
expects cost sharing programs to include marketing assistance, telemarketing,
education and joint recruiting. The Company is also in the process of
expanding its overlay sales force that cooperatively assists Affiliates
selling to multiple sites across territories. The number of these multi-site
opportunities has been increasing due to the scalability of the MAPICS
products, e-business via the Internet and expanded MAPICS multi-plant support.
CUSTOMER SUPPORT AND SERVICE
The Company believes that providing high quality customer service and
technical support is necessary to achieve rapid product implementation which,
in turn, is essential to long-term customer satisfaction and
9
<PAGE>
continued revenue growth. Accordingly, the Company is committed to maintaining
a high-quality, knowledgeable Affiliate channel supported by the Company's
internal service and support staff. The Company's customer service and support
activities can be grouped into two key areas, as follows:
Implementation Consulting, Education and Applications Integration
Services. These services are typically provided on a project consulting basis
directly by the Affiliates. The Company does not record revenue related to
these services provided by the 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
applications are installed to augment existing applications. The Company has
developed educational materials and instructions for use by Affiliates in
customer classroom environments. The Company intends to provide additional
tools to assist Affiliates and customers in simplifying the implementation
effort. For example, in November 1998, the Company introduced a standard
worldwide implementation methodology to further assist Affiliates in complex
or multi-national implementations. The Company also intends to supply central
services to assist Affiliates in managing multi-site and multi-territory
implementation efforts and supplement the Affiliates' expertise in new
application areas until such time as Affiliates are able to upgrade their
skills to a point where they no longer need assistance. These supplemental
services and tools will provide only limited additional revenue for the
Company.
Installed Product Maintenance. The Company maintains a central telephone
response and assistance program. In North America, this program is available
24 hours a day, seven days a week to customers that pay periodic license fees.
All supported customers receive assistance in operational issues and resolving
possible code errors. A standardized telephone support management system is
used by 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. Outside
North America, the Company provides similar support services to its customers
in conjunction with the Affiliates. The Company has recently made available to
customers a tool to access the Company's knowledge database which permits
customers to quickly locate, without the assistance of direct support
personnel, answers to operational issues.
The Company presently maintains three support centers: Atlanta, Georgia,
which services North America and the Latin America region; Eindhoven,
Netherlands, which services EMEA; and Kuala Lumpur, Malaysia, which services
the Asia Pacific region.
PROPRIETARY RIGHTS AND TECHNOLOGY
The Company's success and ability to compete depends heavily upon its
proprietary technology, including its software. 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.
The Company's software is protected as a copyrighted work. In addition, some
of the Company's source code for its software is protected as a trade secret.
The Company generally provides its products to customers under a non-exclusive
license that is renewable upon payment of annual license fees. It also
generally enters into confidentiality or license agreements with third parties
and controls access to and distribution of its software, documentation and
other proprietary information. The Company presently has no patents or patent
applications pending. The Company relies upon license or joint development
agreements with Solution Partners and Technology Alliance partners to allow
the Company to use technologies that are developed on terms that are favorable
to the Company. The Company also relies on the knowledge, skills and
experience of its employees, frequent product enhancements and the timeliness
and quality of its support services. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Performance--The Company May Not Be Successful in Protecting its
Proprietary Rights or in Avoiding Claims That it Infringes the Proprietary
Rights of Others."
COMPETITION
The market for business software within the mid-sized manufacturing industry
is highly competitive and changes rapidly. The market activities of industry
participants, such as new product introductions, frequently
10
<PAGE>
result in increased competition. The Company targets its products and related
services primarily 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 that address this and similar markets. The Company
primarily competes with a large number of independent software vendors. These
competitors include, among others, Baan Company N.V.; Computer Associates,
Inc.; Intentia AB; JBA Holdings Plc; J.D. Edwards & Company, Inc.; SAP AG and
System Software Associates, Inc. The Company also competes with certain
vendors of specialized applications. The Company may be unable to compete
successfully with existing or new competitors.
To be successful in the future, the Company must continue to respond
promptly and effectively to changes in technology. It must also respond to its
competitors' innovations. Certain of the Company's competitors have
significantly greater financial, marketing, service, support and technical
resources and greater name recognition than the Company. Accordingly, the
Company's competitors may be able to respond more quickly than the Company to
new or emerging technologies or changes in customer requirements. They may
also be able to 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. Such acquisitions or alliances could
increase the ability of competitors' products to address the needs of the
Company's current or prospective customers. As a result, it is possible that
new competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. For the Company, this could result in
fee rate reductions, the loss of new and existing customers, fewer customer
orders and reduced net income, any or all of which could have a material
adverse affect on the Company's business.
In addition, the Company principally relies on a network of Affiliates for
implementation and other support of its products. If the Affiliates fail to
maintain sufficiently high quality standards, the Company's reputation and
competitive position could weaken. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Performance--The Market for Business Software in the Mid-Sized
Manufacturing Industry is Highly Competitive."
EMPLOYEES
As of December 1, 1998, the Company employed approximately 400 persons, of
which 260 were employed in product development and support, 85 were employed
in sales and marketing and 55 were employed in management and administration.
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 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 and others, including resources needed to address the
Year 2000 problem and the Euro Conversion. The Company cannot assure that it
will retain its key managerial or technical personnel or will be able to
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. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Performance--The
Company Depends on its Retention of Key Personnel and its Ability to Attract
and Retain Other Qualified Personnel."
11
<PAGE>
ITEM 2. PROPERTIES.
The Company's principal administrative, marketing, product development and
support facilities are located in Atlanta, Georgia, where the Company leases a
total of approximately 74,000 square feet under four leases that expire at
various times between March 1999 and June 2002. The Company has other leases
for regional sales and support facilities for operations in North America,
EMEA, and the Latin America and Asia Pacific regions.
On October 29, 1998, the Company entered into an agreement to lease
approximately 120,000 square feet of new office space (the "New Lease") in
Alpharetta, Georgia, a suburb of Atlanta. The new office space is required to
meet the needs of the Company's growing employee population. The New Lease
will become effective on March 1, 1999, at which time the Company will vacate
its current facilities in Atlanta. The Company has reached an agreement to
assign the four leases for its current facilities in Atlanta (the "Old
Leases") to a third party which will assume all of the Company's obligations
under the Old Leases effective March 1, 1999. See Notes 10 and 18 of Notes to
Consolidated Financial Statements contained in "Item 8. Financial Statements
and Supplementary Data."
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during the
Company's fourth fiscal quarter ended September 30, 1998.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information as of September 30, 1998 regarding
the executive officers of the Company.
Richard C. Cook, age 51, has been the Company's President and Chief
Executive Officer and a director of the Company since August 1997. From July
1996 to August 1997, Mr. Cook served as the Company's Senior Vice President
and General Manager, MAPICS Business Group. From October 1994 to July 1996, he
served as the Company'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., a former subsidiary of the Company (the "Mapics
Subsidiary"), from February 1993 to September 1994. Mr. Cook was employed by
IBM as Director of its Atlanta Software Development Laboratory from March 1990
to February 1993 and as Director of its Corporate Computer Integrated
Manufacturing Project Office from March 1988 to April 1990.
Thomas F. Aery, age 53, has been the Company's Vice President of Worldwide
Customer Support since August 1997. From October 1994 to August 1997, he
served as 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 the Mapics Subsidiary. Prior to joining the Company, Mr.
Aery was employed by IBM as Worldwide Product Manager, MAPICS.
William J. Gilmour, age 43, has been the Company's Chief Financial Officer,
Vice President of Finance and Treasurer since August 1997. From October 1994
to August 1997, Mr. Gilmour served as Controller of the Company's MAPICS
Business Group. From January 1993 to September 1994, Mr. Gilmour served as
Controller of the Mapics Subsidiary. From November 1991 to January 1993, Mr.
Gilmour served as Controller of Marcam Canada Corporation, an indirect
subsidiary of the Company. Prior to joining the Company, 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.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
COMMON STOCK PRICE
Prior to the Distribution on July 29, 1997, the Common Stock was traded on
the Nasdaq National Market under the symbol "MCAM." Following the
Distribution, the Common Stock began trading on the Nasdaq National Market
under the symbol "MAPX." The table set forth below provides, on a per share
basis for the periods indicated, the high and low sales prices of the Common
Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL 1997
First Quarter............................................ $13 1/8 $10 1/2
Second Quarter........................................... 17 1/2 12 1/4
Third Quarter............................................ 15 3/16 8 1/2
Fourth Quarter (under the symbol "MCAM") for the period
from July 1, 1997 to July 29, 1997...................... $14 7/8 $11 3/4
Fourth Quarter (under the symbol "MAPX") for the period
from July 30, 1997 to September 30, 1997................ $14 1/4 $ 9
FISCAL 1998
First Quarter............................................ $13 1/4 $ 8 3/4
Second Quarter........................................... 17 11/16 10 1/2
Third Quarter............................................ 20 1/4 15 3/8
Fourth Quarter........................................... $22 7/8 $16 3/4
</TABLE>
HOLDERS
As of December 14, 1998, there were approximately 540 record holders of the
Common Stock, and the Company estimates that there were approximately 4,700
beneficial owners of the Common Stock.
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. Additionally, covenants
in the Company's bank credit facility prohibit the payment of cash dividends.
Any future determination to pay cash dividends will be at the discretion of
the Company's board of directors and will depend upon the Company's results of
operations, financial condition, capital requirements and such other factors
as the board of directors deems relevant. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and Note 8 of Notes to Consolidated Financial Statements
contained in "Item 8. Financial Statements and Supplementary Data."
RECENT SALES OF UNREGISTERED SECURITIES
On November 20, 1998, the Company (i) issued 880,920 shares of Common Stock
to General Atlantic Partners 21, L.P. ("GAP 21") upon the conversion by GAP 21
of 88,029 shares of the Company's Series D Convertible Preferred Stock into
Common Stock, (ii) issued 188,120 shares of Common Stock to GAP Coinvestment
Partners, L.P. ("GAP Coinvestment") upon the conversion by GAP Coinvestment of
11,971 shares of Series D Preferred Stock and 6,841 shares of the Company's
Series E Convertible Preferred
13
<PAGE>
Stock into Common Stock and (iii) issued 431,600 shares of Common Stock to
General Atlantic Partners 32, L.P. ("GAP 32") upon the conversion by GAP 32 of
43,160 shares of Series E Preferred Stock into Common Stock. The Company did
not receive any proceeds from the issuance of such shares of Common Stock. The
issuance of such shares of Common Stock was exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 3(a)(9)
thereof. Such shares currently are eligible for sale in the public market
subject to the conditions of Rule 144 of the Securities and Exchange
Commission.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected statements of operations and balance
sheet data of the Company for the fiscal years ended, and as of, September 30,
1994, 1995, 1996, 1997 and 1998. The selected financial data for each of the
five fiscal years in the period ended September 30, 1998 and as of September
30, 1995, 1996, 1997 and 1998 have been derived from the Company's financial
statements which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The selected financial data as of September 30, 1994 have been
derived from the Company's unaudited financial statements which, in the
opinion of management, have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the Company's
financial position as of such date. The selected financial data should be read
in conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8. Financial Statements and
Supplementary Data."
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
License............................. $33,410 $42,745 $45,341 $56,368 $79,189
Services............................ 19,373 26,553 32,261 39,036 50,552
------- ------- ------- ------- -------
Total revenues.................... 52,783 69,298 77,602 95,404 129,741
------- ------- ------- ------- -------
Operating expenses:
Cost of license revenues............ 3,280 5,689 6,913 9,816 13,108
Cost of services revenues........... 5,428 7,567 9,499 11,838 14,873
Selling and marketing............... 17,765 24,780 27,851 31,905 48,111
Product development................. 6,692 7,432 6,398 10,259 15,073
General and administrative.......... 4,810 5,384 5,965 8,256 8,884
------- ------- ------- ------- -------
Total operating expenses.......... 37,975 50,852 56,626 72,074 100,049
------- ------- ------- ------- -------
Income from operations................ 14,808 18,446 20,976 23,330 29,692
Interest income (expense), net........ -- -- -- (218) 760
------- ------- ------- ------- -------
Income before income tax expense
(benefit)............................ 14,808 18,446 20,976 23,112 30,452
Income tax expense (benefit) (1)...... 4,641 7,112 8,076 (6,004) 11,724
------- ------- ------- ------- -------
Net income (1)........................ $10,167 $11,334 $12,900 $29,116 $18,728
======= ======= ======= ======= =======
Net income per common share (basic)
(1) (2).............................. $ 0.82 $ 1.79 $ 1.01
======= ======= =======
Net income per common share (diluted)
(1) (2).............................. $ 0.70 $ 1.47 $ 0.81
======= ======= =======
Weighted average number of common
shares
outstanding (basic) (2).............. 15,717 16,239 18,579
======= ======= =======
Weighted average number of common
shares and common equivalent shares
outstanding (diluted) (2)............ 18,514 19,810 23,100
======= ======= =======
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
-----------------------------------------
1994 1995 1996 1997 1998
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 107 $ 226 $ 378 $ 5,562 $33,442
Working capital (deficit) (3)........ (2,040) (8,527) (13,945) (12,413) 12,282
Total assets......................... 36,392 41,226 45,405 76,970 110,042
Long-term liabilities................ 493 196 884 -- --
Shareholders' equity (4)............. 17,091 11,492 9,193 24,707 46,941
</TABLE>
- --------
(1) Excluding an income tax benefit of $14.9 million in the fiscal year ended
September 30, 1997, net income for such fiscal year was $14.2 million, or
$0.88 per share (basic) and $0.72 per share (diluted). Pursuant to a tax
sharing agreement between the Company and Marcam Solutions, the Company
became entitled to utilize certain favorable income tax attributes
(principally net operating loss carryforwards and tax credits) of Marcam
Corporation immediately following the Distribution. As a result, the
Company recognized the income tax benefit during the quarter ended
September 30, 1997. Prior to the Distribution, Marcam Corporation did not
reflect a benefit corresponding to these favorable income tax attributes
in its consolidated financial statements because Marcam Corporation's
management believed it was more likely than not that such benefits would
not be realized due to Marcam Corporation's history of operating losses.
(2) See Note 2 of Notes to Consolidated Financial Statements contained in
"Item 8. Financial Statements and Supplementary Data" for information
concerning the computation and presentation of net income per common
share.
(3) Excluding $9.7 million, $15.2 million, $18.6 million, $25.1 million and
$31.1 million of deferred revenues as of September 30, 1994, 1995, 1996,
1997 and 1998, respectively, working capital would have been $7.7 million,
$6.7 million, $4.6 million, $12.7 million and $43.4 million as of such
dates.
(4) Balances as of September 30, 1994, 1995 and 1996 represent divisional
equity. See Notes 2 and 11 of Notes to Consolidated Financial Statements
contained in "Item 8. Financial Statements and Supplementary Data" for
information concerning divisional equity and shareholders' equity.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
"Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data." This discussion contains forward-looking statements that
involve uncertainties and risks, such as statements of the Company's plans,
objectives, expectations and prospects. The Company's actual results could
differ materially from those discussed herein as a result of certain factors,
including but not limited to those discussed below in "--Factors Affecting
Future Performance" and elsewhere in this document.
As used herein, the terms "fiscal 1995," "fiscal 1996," "fiscal 1997" and
"fiscal 1998" refer to the Company's fiscal years ended September 30, 1995,
1996, 1997 and 1998, respectively.
OVERVIEW
The Company is a business software company whose primary customers are
discrete and batch process manufacturers. The Company delivers ERP software
that allows its customers to automate the manufacturing process and coordinate
multiple functions and departments within their organizations, as well as
extend their interactions with their supply chain partners. The MAPICS XA
product line currently consists of 49 applications in the areas of Engineering
Management, Demand Management, Operations Management, Resource Planning,
Financial Management and Business Management. The design of the Company's
applications allows its customers to rapidly implement all or a portion of the
Company's solution with minimal disruption to their business. Furthermore,
MAPICS solutions enable customers to leverage existing information technology
investments and adopt new technologies gradually, which lowers costs and
increases their return on investment.
The financial statements and other financial information as of dates and for
periods prior to the Distribution included herein have been prepared using
Marcam Corporation's historical basis in the assets and liabilities and
historical results of operations of the business related to the MAPICS product
line. These financial statements are combined and generally reflect the
financial position, results of operations and cash flows of the MAPICS
business as if it were a separate entity for those periods. Certain expenses
presented in the combined financial statements and other financial information
included herein have been allocated based on management's estimates of the
cost of services provided to the MAPICS business by Marcam Corporation. The
Company's management believes that these allocations are reasonable. The
combined financial statements and other combined financial information
included herein, however, may not necessarily reflect the financial position,
results of operations and cash flows of the Company in the future or what the
results of operations, financial position and cash flows of the Company would
have been had the MAPICS business been a separate, stand-alone entity as of
the dates and during the periods presented. The financial statements and other
financial information as of dates and for periods after the Distribution
included herein are consolidated, consisting solely of the separate financial
statements of MAPICS, Inc. and its wholly owned subsidiaries. See "--Factors
Affecting Future Performance--The Company is Subject to Risks Resulting From
Rapid Technological Change and Evolving Industry Standards" and Note 1 of
Notes to Consolidated Financial Statements contained in "Item 8. Financial
Statements and Supplementary Data."
The Company generates revenues primarily from licensing its software, which
is conducted principally through a global network of independent Affiliates.
The Affiliates provide the principal channel through which the Company's
products are distributed to its customers. However, the ultimate customer
typically executes a license agreement directly with the Company rather than
the Affiliate. When it first licenses its software, the Company receives both
an initial license fee and a periodic license fee. Initial license fees are
recorded as license revenues and typically recognized upon delivery of the
software to the ultimate customer. Periodic license fees are recorded as
services revenue and recognized ratably over the term of the periodic license
agreement. The periodic license fee, which is typically paid annually in
advance, entitles the customer to continue using the software and to receive
certain support services, as available. 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 a source of recurring
revenues from its installed base of customers and enables customers to take
advantage of new releases and enhancements of its software.
16
<PAGE>
The Affiliates, rather than the Company, provide the Company's customers
with consulting and implementation services relating to the MAPICS products.
As a result, the Company does not generate revenues from providing consulting
and implementation services.
The Company's cost structure is designed so that a significant portion of
the Company's costs vary in direct relation to license revenues, particularly
commissions paid to Affiliates, which are included in selling and marketing
expenses, and product royalties, which are included in cost of license
revenues. The Company's single largest expense is commissions paid to
Affiliates, which are based on the revenues they generate from licensing the
MAPICS products.
Cost of license revenues consists primarily of royalties paid to Solution
Partners for products licensed by the Company and amortization of computer
software costs. The Company expects that cost of license revenues will vary
from period to period based on the mix of products licensed during the
applicable period between Company-developed products and Solution Partner-
developed products and the timing of computer software amortization.
The Company licenses from its Solution Partners complementary software
products or technology which have been integrated into the MAPICS product
line. Generally, when the Company 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 enhance the functionality
of its existing products and introduce new products utilizing this variable
cost approach to expand its product offerings. During the three fiscal years
ended September 30, 1998, the mix of products licensed by the Company has
included increasing percentages of Solution Partner-developed products, which
has resulted in both increasing revenues and increasing royalty costs.
Computer software costs represent the costs of certain software products
sold or to be sold by the Company, including purchased software costs,
software development costs and 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 product-by-
product based on the greater of the amount determined using (i) the ratio that
current period gross revenues bear to the total of current and anticipated
future gross revenues or (ii) the straight-line method over the estimated
economic life of the product, generally five years for purchased software
costs and software development costs and two years for software translation
costs. Software is subject to rapid technological obsolescence, and as a
result, future amortization periods for computer software costs could be
shortened to reflect changes in technology in the future. In fiscal 1997, the
Company shortened the estimated useful life of its 1997 and future computer
software translation costs from five years to two years. This change in
estimate decreased net income in fiscal 1997 by approximately $446,000, or
$0.03 per common share (basic) and $0.02 per common share (diluted).
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 United States and Canada to provide certain support
services in those regions and fees paid to Solution Partners to provide
similar services with respect to their products. In the United States and
Canada, the Company provides 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 cost of services revenues.
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. The Company anticipates that selling and marketing expenses will
increase as a result of various initiatives to increase license sales. The
Company intends to further enhance the Affiliate channel by assisting
Affiliates with recruiting efforts and providing Affiliates with on-line
training facilities,
17
<PAGE>
remote learning facilities and improved implementation methodologies to
further streamline the implementation process. These enhancements are intended
to increase the ability of the Affiliates to compete for new accounts as well
as serve the large installed customer base. In addition, the Company will seek
to increase channel capacity through cost sharing programs with, and strategic
capital investments in, Affiliates that are attempting to enter new or under-
penetrated territories or to expand their operations more rapidly than their
financial resources allow. The Company expects cost sharing programs to
include marketing assistance, telemarketing, education and joint recruiting.
The Company is also in the process of expanding its overlay sales force that
cooperatively assists Affiliates selling to multiple sites across territories.
The number of these multi-site opportunities has been increasing due to the
scalability of the MAPICS products, e-business via the Internet and expanded
MAPICS multi-plant support.
Product development expenses consist primarily of compensation for software
engineering personnel and independent contractors retained to assist with the
Company's product development efforts. The Company charges all costs of
establishing technological feasibility of computer software products to
product development expense as they are incurred. From the time of
establishing technological feasibility through general release of the product,
computer software development and translation costs are capitalized and
thereafter amortized to cost of license revenues.
In fiscal 1996, the Company reduced its level of spending on product
development activities other than those to translate products into new
languages ("core product development") because, at the time, Marcam
Corporation anticipated that the MAPICS products would use certain
technologies being developed in connection with its ProteanTM product line.
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 is designed to enhance the MAPICS products and
allow future server platform independence. In fiscal 1997, the Company
initiated Java-based development activities to re-engineer certain of its
applications to run on the Windows NT server platform. As a result of these
and other development efforts to continually enhance its product offerings,
the Company's core product development expenditures have increased, and the
Company currently anticipates that core product development expenditures will
continue to increase. Because the costs of establishing technological
feasibility of computer software products are charged to product development
expense as they are incurred, the Company's operating results may be affected
adversely by significant increases in the level of product development
investments.
General and administrative expenses consist primarily of compensation for
executive, financial, legal and administrative personnel, outside professional
and service fees and provisions for bad debts.
Net income per common share presented in the statements of operations for
fiscal 1996 and 1997 was calculated using the capital structure of Marcam
Corporation for periods prior to the Distribution, including the weighted
average number of common shares and common share equivalents, giving effect to
the Distribution on a pro forma basis for all periods presented through the
Distribution. See Note 2 of Notes to Consolidated Financial Statements
contained in "Item 8. Financial Statements and Supplementary Data."
18
<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 statement of
operations.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
License............................. 58.4% 59.1% 61.0%
Services............................ 41.6 40.9 39.0
---------- ---------- ----------
Total revenues..................... 100.0 100.0 100.0
---------- ---------- ----------
Operating expenses:
Cost of license revenues............ 8.9 10.3 10.1
Cost of services revenues........... 12.2 12.4 11.5
Selling and marketing............... 35.9 33.4 37.1
Product development................. 8.3 10.8 11.6
General and administrative.......... 7.7 8.6 6.8
---------- ---------- ----------
Total operating expenses............. 73.0 75.5 77.1
---------- ---------- ----------
Income from operations............. 27.0 24.5 22.9
Other:
Interest income..................... -- -- 0.6
Interest expense.................... -- (0.3) --
---------- ---------- ----------
Income before income tax expense
(benefit)........................... 27.0 24.2 23.5
Income tax expense (benefit)......... 10.4 (6.3) 9.1
---------- ---------- ----------
Net income........................... 16.6% 30.5% 14.4%
========== ========== ==========
</TABLE>
FISCAL 1997 COMPARED TO FISCAL 1998
Revenues. Total revenues increased 36.0% from $95.4 million in fiscal 1997
to $129.7 million in fiscal 1998. License revenues increased 40.5% from $56.4
million in fiscal 1997 to $79.2 million in fiscal 1998 due to a volume
increase in license sales to existing customers for additional applications
and upgraded systems and a volume increase in license sales to new customers
(which include both new named accounts and migrations from the older MAPICS I
and II product lines). The Company achieved similar license revenue growth in
each of its primary geographic markets in fiscal 1998.
Operations in (i) North America, (ii) EMEA and (iii) the combined Latin
America and Asia Pacific regions accounted for 69.2%, 21.9% and 8.9% of total
license revenues, respectively, in fiscal 1997 compared to 68.5%, 22.0% and
9.5%, respectively, in fiscal 1998. The Company believes that future license
revenue growth will be most significant in North America and EMEA, and that
license revenue growth in its two smallest geographic markets, the Latin
America and Asia Pacific regions, will be less predictable.
Services revenues increased 29.5% from $39.0 million in fiscal 1997 to $50.6
million in fiscal 1998, principally due to the increase in the Company's
installed customer base.
Cost of License Revenues. Cost of license revenues increased 33.5% from $9.8
million in fiscal 1997 to $13.1 million in fiscal 1998, primarily as a result
of an increase in amortization expense related to computer software costs and
an increase in product royalty expense due to the increased volume in
licensing of Solution Partner-developed products. Cost of license revenues as
a percentage of license revenues decreased from 17.4% in fiscal 1997 to 16.6%
in fiscal 1998, primarily as a result of proportionally lower amortization of
computer software costs.
19
<PAGE>
Cost of Services Revenues. Cost of services revenues increased 25.6% from
$11.8 million in fiscal 1997 to $14.9 million in fiscal 1998. This increase
resulted from the additional distribution and support costs associated with
the increase in new customers, a volume increase in fees paid to Affiliates
and Solution Partners for providing support services in EMEA and the Latin
America and Asia Pacific regions and the added personnel costs associated with
hiring additional personnel. Cost of services revenues as a percentage of
total services revenues decreased from 30.3% in fiscal 1997 to 29.4% in fiscal
1998 because the fixed cost component relating primarily to personnel costs
was a proportionally lower percentage of cost of services revenues in fiscal
1998.
Selling and Marketing. Selling and marketing expenses increased 50.8% from
$31.9 million in fiscal 1997 to $48.1 million in fiscal 1998. As a percentage
of total revenues, selling and marketing expenses increased from 33.4% in
fiscal 1997 to 37.1% in fiscal 1998. These increases were due to increased
commissions earned by Affiliates on increased license revenues, the hiring of
additional sales and marketing personnel and increased spending on selling and
marketing programs.
Product Development. Overall product development expenses increased 46.9%
from $10.3 million in fiscal 1997 to $15.1 million in fiscal 1998. As a
percentage of total revenues, product development expenses increased from
10.8% in fiscal 1997 to 11.6% in fiscal 1998. Gross core product development
expenditures increased 40.4% from $15.7 million in fiscal 1997 to $22.1
million in fiscal 1998. This increase was due primarily to the hiring of
additional personnel and incremental spending on product development resources
to support the on-going Java development effort to re-engineer the Company's
software server applications to the Windows NT server platform, while
continuing efforts to expand the MAPICS XA product line. The amounts of core
product development expenditures capitalized in fiscal 1997 and fiscal 1998
were $2.5 million and $3.0 million, respectively, representing 19.6% and 16.9%
of gross core product development expenditures during those periods. The
amount of core product development expenditures capitalized as a percentage of
gross core product development expenditures decreased in fiscal 1998 because a
lower proportion of these expenditures had reached the technological
feasibility stage as compared to those in fiscal 1997. Gross computer software
translation expenditures increased 36.1% from $3.1 million in fiscal 1997 to
$4.2 million in fiscal 1998. Translation expenditures are typically project
related, and the timing of these expenditures is subject to change from period
to period. The amounts of translation expenditures capitalized in fiscal 1997
and fiscal 1998 were $3.0 million and $4.0 million, respectively, representing
96.2% and 94.3%, respectively, of gross translation expenditures during those
periods.
In addition to the spending on core product development and computer
software translation, the Company spent approximately $1.0 million in fiscal
1997 and $3.0 million in fiscal 1998 to acquire certain rights to computer
software. The amounts spent to acquire computer software were capitalized and
are included in computer software costs.
General and Administrative. General and administrative expenses increased
7.6% from $8.3 million in fiscal 1997 to $8.9 million in fiscal 1998. These
expenses represented 8.6% and 6.8% of total revenues in fiscal 1997 and 1998,
respectively. The decrease in general and administrative expenses as a
percentage of total revenues reflects the generally fixed nature of the
general and administrative expenses.
Interest Income. Interest income increased from $45,000 in fiscal 1997 to
$816,000 in fiscal 1998. Prior to the Distribution, any surplus cash generated
by operations associated with the MAPICS products was routinely transferred to
other operations of Marcam Corporation. The increase in interest income is due
to the increase in cash and cash equivalents during fiscal 1998.
Interest Expense. Interest expense decreased from $263,000 in fiscal 1997 to
$56,000 in fiscal 1998. Interest expense in fiscal 1997 reflects interest paid
on $64.0 million of indebtedness of the Company borrowed in connection with
the Distribution (the "Debt Financing") and on the Company's senior secured
term loan and revolving credit facility (the "Bank Credit Facility"). Interest
expense in fiscal 1998 reflects commitment fees incurred for unused portions
of the revolving credit facility. See "--Liquidity and Capital Resources."
20
<PAGE>
Income Tax Expense (Benefit). The Company recorded an income tax benefit of
$6.0 million in fiscal 1997 compared to income tax expense of $11.7 million in
fiscal 1998. Prior to the Distribution, the operations represented by MAPICS
were included in the consolidated United States federal and certain state and
foreign income tax returns filed by Marcam Corporation. For financial
reporting purposes, income tax expense was reflected on a separate return
basis for all periods presented in the combined financial statements through
the Distribution.
Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution. As a result, the
Company recognized an income tax benefit of $14.9 million during the fourth
quarter of fiscal 1997. Prior to the Distribution, Marcam Corporation did not
reflect a benefit corresponding to these favorable tax attributes in its
consolidated financial statements because Marcam Corporation's management
believed it was more likely than not that such benefits would not be realized
due to Marcam Corporation's history of operating losses. See "--Liquidity and
Capital Resources" and Notes 9 and 15 of Notes to Consolidated Financial
Statements contained in "Item 8. Financial Statements and Supplementary Data."
The income tax benefit of $6.0 million for fiscal 1997 reflects income tax
expense of $8.9 million offset by the income tax benefit of $14.9 million.
Excluding the income tax benefit in fiscal 1997, the effective tax rate in
fiscal 1997 and fiscal 1998 was 38.5% which differs from the statutory federal
rate of 35.0% principally due to the impact of state income taxes.
Net Income. Net income decreased 35.7% from $29.1 million, or $1.47 per
common share (diluted), in fiscal 1997 to $18.7 million, or $0.81 per common
share (diluted), in fiscal 1998. Excluding the income tax benefit of $14.9
million in fiscal 1997, net income in fiscal 1998 increased 31.5% from $14.2
million, or $0.72 per common share (diluted), in fiscal 1997.
FISCAL 1996 COMPARED TO FISCAL 1997
Revenues. Total revenues increased 22.9% from $77.6 million in fiscal 1996
to $95.4 million in fiscal 1997. License revenues increased 24.3% from $45.3
million in fiscal 1996 to $56.4 million in fiscal 1997. This increase resulted
primarily from an increase in license sales to new customers and, to a lesser
extent, an increase in license sales to existing customers for new sites,
upgraded systems and additional applications, primarily in North America.
Services revenues increased 21.0% from $32.3 million in fiscal 1996 to $39.0
million in fiscal 1997, principally due to the increase in the Company's
installed customer base.
Cost of License Revenues. Cost of license revenues increased 42.0% from $6.9
million in fiscal 1996 to $9.8 million in fiscal 1997. These costs as a
percentage of license revenues increased from 15.2% in fiscal 1996 to 17.4% in
fiscal 1997. These increases were primarily due to: (i) increased royalty
costs as the volume of Solution Partner products licensed by the Company
increased in fiscal 1997; (ii) increased amortization of capitalized software
development costs which resulted from the increased capitalized software
asset; and (iii) increased amortization of capitalized software translation
costs resulting from a change in estimate of useful life which increased
amortization expense by approximately $446,000 in fiscal 1997.
Cost of Services Revenues. Cost of services revenues increased 24.6% from
$9.5 million in fiscal 1996 from $11.8 million in fiscal 1997, 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
increased from 29.4% in fiscal 1996 to 30.3% in fiscal 1997. This increase
resulted primarily from increased fees paid to Solution Partners and
Affiliates for support services in fiscal 1997.
21
<PAGE>
Selling and Marketing. Selling and marketing expenses increased 14.6% from
$27.9 million in fiscal 1996 to $31.9 million in fiscal 1997. This increase
was due primarily to increased commissions earned by Affiliates on increased
license revenues. As a percentage of total revenues, selling and marketing
expenses decreased from 35.9% in fiscal 1996 to 33.4% in fiscal 1997. This
decrease resulted primarily from the Company's direct selling and marketing
costs being relatively fixed in nature.
Product Development. Overall product development expenses increased 60.3%
from $6.4 million in fiscal 1996 to $10.3 million in fiscal 1997 and increased
as a percentage of total revenues from 8.3% in fiscal 1996 to 10.8% in fiscal
1997. These increases resulted primarily from an increase in core development
spending and a decrease in the percentage of costs qualifying for
capitalization in fiscal 1997. See "--Overview" and "Item 1. Business--Product
Development."
Gross core product development expenditures increased 39.4% from $9.1
million in fiscal 1996 to $12.6 million in fiscal 1997. This increase was
primarily due to increased development expenditures as a result of the
Company's change in product development strategy. See "--Overview" and "Item
1. Business--Product Development." The amounts of core product development
expenditures capitalized in fiscal 1996 and fiscal 1997 were $2.9 million and
$2.5 million, respectively, representing 31.9% and 19.6% of gross core product
development expenditures during those periods, respectively. The amount of
development expenditures capitalized in fiscal 1997 decreased because a higher
proportion of development expenditures was related to the establishment of
technological feasibility of the products under the Company's revised
development strategy. Gross translation expenditures decreased 16.5% from $3.7
million in fiscal 1996 to $3.1 million in fiscal 1997. Translation
expenditures are typically project related, and the timing of these
expenditures is subject to change from period to period. The amounts of
translation expenditures capitalized in fiscal 1996 and fiscal 1997 were $3.5
million and $3.0 million, respectively, representing 93.6% and 96.2%,
respectively, of gross translation expenditures during those periods.
General and Administrative. General and administrative expenses increased
38.4% from $6.0 in fiscal 1996 to $8.3 million in fiscal 1997, due primarily
to increases in facilities and personnel costs in EMEA. General and
administrative expenses represented 7.7% of total revenues in fiscal 1996 as
compared to 8.6% in fiscal 1997.
Interest Income. Interest income increased from $0 in fiscal 1996 to $45,000
in fiscal 1997. Interest income reflects interest earned on cash and cash
equivalents. Prior to the Distribution, any surplus cash generated by
operations associated with the MAPICS products was routinely transferred to
other operations of Marcam Corporation.
Interest Expense. Interest expense increased from $0 in fiscal 1996 to
$263,000 in fiscal 1997. Interest expense in fiscal 1997 reflects interest
paid in connection with the Debt Financing and the Bank Credit Facility. See
"--Liquidity and Capital Resources."
Income Tax Expense (Benefit). The Company recorded income tax expense of
$8.1 million in fiscal 1996 compared to an income tax benefit of $6.0 million
in fiscal 1997. The income tax benefit of $6.0 million in fiscal 1997 reflects
income tax expense of $8.9 million offset by the income tax benefit of $14.9
million recognized during the fourth quarter of fiscal 1997, as discussed
above. Excluding the income tax benefit in fiscal 1997, the effective tax rate
in fiscal 1996 and fiscal 1997 was 38.5%, which differs from the statutory
federal rate of 35.0% principally due to the impact of state income taxes.
Net Income. Net income increased 125.7% from $12.9 million, or $0.70 per
share (diluted), in fiscal 1996 to $29.1 million, or $1.47 per common share
(diluted), in fiscal 1997. Excluding the income tax benefit of $14.9 million
in fiscal 1997, net income in fiscal 1997 was $14.2 million, or $0.72 per
common share (diluted), a 10.4% increase over fiscal 1996.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth a summary of the Company's cash flow activity
for the periods indicated and should be read in conjunction with the Company's
statements of cash flows contained in "Item 8. Financial Statements and
Supplementary Data."
<TABLE>
<CAPTION>
SUMMARY OF CASH FLOWS
----------------------------------
FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by operating
activities............................ $ 23,322 $ 27,744 $ 38,824
Net cash used for investing
activities............................ (7,971) (8,414) (13,287)
Net cash (used for) provided by
financing activities.................. (15,199) (14,146) 2,343
---------- ---------- ----------
Net increase in cash and cash
equivalents......................... $ 152 $ 5,184 $ 27,880
========== ========== ==========
</TABLE>
The Company has funded its operations and capital expenditures primarily
with cash generated from operating activities. Prior to the Distribution, any
surplus cash generated by operations associated with the MAPICS products was
routinely transferred to other operations of Marcam Corporation. During fiscal
1996 and fiscal 1997, net cash from operations associated with the MAPICS
products of $26.1 million and $15.9 million, respectively, was transferred to
other operations of Marcam Corporation.
As of September 30, 1997, the Company had cash and cash equivalents of $5.6
million and a working capital deficit of $12.4 million. Excluding deferred
revenues of $25.1 million, working capital as of September 30, 1997 was $12.7
million. During fiscal 1997, the Company increased cash and cash equivalents
and working capital, excluding deferred revenues, by $5.2 million and $8.1
million, respectively.
As of September 30, 1998, the Company had cash and cash equivalents of $33.4
million and working capital of $12.3 million. Excluding deferred revenues of
$31.1 million, working capital as of September 30, 1998 was $43.4 million.
During fiscal 1998, the Company increased cash and cash equivalents and
working capital, excluding deferred revenues, by $27.8 million and $30.7
million, respectively.
Net cash provided by operating activities in fiscal 1996, fiscal 1997 and
fiscal 1998 was $23.3 million, $27.7 million and $38.8 million, respectively.
The increase in net cash provided by operating activities in each of these
fiscal years generally reflects growth in revenues and earnings plus the
effect of changes in working capital. In fiscal 1996, working capital was
principally affected by an increase in deferred revenues as a result of growth
in services revenues. In fiscal 1997, working capital changes included an $8.7
million increase in accrued expenses due to increased Affiliate commissions,
product royalties and employee bonuses payable and a $6.6 million increase in
deferred revenues as a result of growth in services revenues and the deferral
of license revenues related to a significant fourth quarter license agreement.
Those increases were offset partially by a $10.7 million increase in accounts
receivable principally resulting from the growth in sales over the prior year.
In fiscal 1998, working capital changes included a $6.0 million increase in
deferred revenues as a result of growth in services revenues and a $3.3
increase in accrued expenses due to increased income taxes, sales taxes and
employee bonuses payable. Those increases were offset partially by a $6.1
million increase in accounts receivable principally resulting from the
continued growth in sales.
Net cash used for investing activities in fiscal 1996, fiscal 1997 and
fiscal 1998 was $8.0 million, $8.4 million and $13.3 million, respectively. In
each fiscal year, the Company increasingly used cash for investing activities
related to computer software development, computer software translation and
purchases of property and equipment, reflecting the incremental investments
made in its computer software development activities and the additional
computer equipment and office furniture needed for its growing employee
population. In fiscal 1997 and fiscal 1998, the Company spent $1.0 million and
$3.0 million, respectively, to acquire certain rights to computer software to
be integrated with the Company's product offerings.
Net cash used for financing activities in fiscal 1996 and fiscal 1997 was
$15.2 million and $14.1 million, respectively, including net cash transferred
to other operations of Marcam Corporation of $15.2 million and $6.6 million,
respectively. Net cash provided by financing activities in fiscal 1998 was
$2.3 million.
23
<PAGE>
In July 1997, the Company borrowed $64.0 million in the Debt Financing to
fund a $39.0 million cash transfer to Marcam Solutions payable as part of the
Distribution and to repay Marcam Corporation's $25.0 million aggregate
principal amount of 9.82% Subordinated Notes due 2001. The indebtedness
incurred in the Debt Financing had an interest rate of 9.0%. In connection
with the Debt Financing, Marcam Corporation's $20.0 million revolving credit
facility was terminated.
In August 1997, the Company executed the Bank Credit Facility to repay a
portion of the borrowings from the Debt Financing and for general corporate
purposes. Substantially all of the Company's assets are pledged as collateral
for any obligations under the Bank Credit Facility. The Bank Credit Facility
contains covenants which, among other things, require the Company to maintain
certain financial ratios and impose certain limitations or prohibitions on the
Company with respect to the incurrence of 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 of the Company's properties or assets.
Also in August 1997, the Company completed an underwritten public offering
of 6.9 million shares of its Common Stock (the "1997 Offering"), raising net
proceeds of approximately $56.0 million, after deducting offering costs of
approximately $6.1 million. The net proceeds of the 1997 Offering along with
borrowings of $6.4 million under the term loan portion of the Bank Credit
Facility and working capital of $1.6 million were used to repay the $64.0
million of indebtedness from the Debt Financing. As of September 30, 1997, the
principal amount of this term loan was repaid with interest of $254,000, after
which no additional amount is available for future borrowings under the term
loan portion of the Bank Credit Facility.
In fiscal 1997 and fiscal 1998, the Company received proceeds from stock
options exercised and employee stock purchases of $452,000 and $3.6 million,
respectively. In fiscal 1998, the Company purchased 128,600 shares of Common
Stock for $1.3 million pursuant to a stock repurchase plan authorized by the
Company's board of directors in December 1997. The stock repurchase plan was
rescinded in December 1998.
In addition to the cash provided by operating and financing activities,
additional borrowings of up to $15.0 million, subject to certain limitations,
are available to the Company under the revolving portion of the Bank Credit
Facility. Availability of revolving credit loans and the rate of interest
thereon vary depending upon the Company's ability to maintain certain
financial ratios. Any outstanding revolving credit borrowings under the Bank
Credit Facility mature on June 30, 2000. As of September 30, 1997 and 1998,
the Company met all of those financial ratios, although no revolving credit
borrowings have been outstanding under the revolving credit portion of the
Bank Credit Facility since its inception. The Company pays a quarterly
commitment fee for unused portions of the revolving credit facility.
Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable income tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution. These favorable
income tax attributes resulted in cash savings in fiscal 1998, and the Company
believes that these favorable income tax attributes will continue to result in
cash savings from the reduction of income taxes payable in future periods as
these favorable income tax attributes are utilized. The utilization of the
inherited net operating loss carryforwards and tax credits from periods on or
before September 30, 1996 is limited on an annual basis due to a change in
ownership of Marcam Corporation during fiscal 1996. The Company does not
believe that this limitation will have a significant impact on its ability to
utilize the net operating loss carryforwards or tax credits prior to their
expiration. As of September 30, 1998, the Company had approximately $10.7
million of net operating loss carryforwards and approximately $2.5 million of
research and experimentation and other credit carryforwards. Such
carryforwards and tax credits expire between the years ending September 30,
1999 and September 30, 2013.
Pursuant to the same tax sharing agreement, Marcam Solutions is generally
responsible for certain state, local and foreign taxes for periods ended on or
before the Distribution, and the Company is responsible for all other taxes
for such periods. In addition, the Company is generally liable for any taxes
arising out of the
24
<PAGE>
Distribution. In the quarter ended September 30, 1997, the Company provided
for income taxes arising out of the Distribution, principally foreign income
taxes, expected to approximate $1.1 million, of which the Company paid
$325,000 in fiscal 1998.
As of September 30, 1998, the Company did not have any material commitments
for capital expenditures.
The Company believes that cash and cash equivalents on hand as of September
30, 1998, together with cash flows from operations and available borrowings
under the Bank Credit Facility, will be sufficient to maintain its current
level of operations for at least the next 12 months.
YEAR 2000 ISSUE
Many existing computer hardware and software systems are designed to use
only two digits to identify a year in date fields (e.g., "98" for "1998").
These systems may not properly recognize a year that begins with "20" instead
of "19." If not corrected, these systems could fail or could create erroneous
results when working with dates beyond the year 1999. This is commonly
referred to as the "Year 2000 issue." The Company believes that the Year 2000
issue may affect the Company in two principal ways: through the Company's
products and its operations.
THE COMPANY'S READINESS STATUS
The Company develops and markets software programs which are date sensitive
and may be affected by the Year 2000 issue. The Year 2000 issue may also
affect the demand for the Company's products and the spending patterns of the
Company's customers.
In July 1997, the Company received Information Technology Association of
America 2000 ("ITAA 2000") certification, validating that the Company's
development processes meet the information technology industry's best software
development practices for addressing the Year 2000 issue. MAPICS XA releases
since 1995 and the last release of MAPICS/DB have been converted and tested to
be Year 2000 compliant. The Company believes that the products it currently
produces adequately address the Year 2000 issue. The Company's Solution
Partners have certified to the Company that their products are also Year 2000
compliant. However, the Company cannot assure that these products or future
products that the Company or its Solution Partners develop contain or will
contain all necessary date code changes or that errors will not be found in
these products at a later time. The costs to resolve any resulting Year 2000
related errors could have a material adverse impact on the Company's business,
financial condition and results of operations.
Many hardware, operating system and application products developed by third
parties interact or operate with MAPICS applications. In addition, customers
or others may modify MAPICS products after they have been installed. The
Company cannot assess the Year 2000 readiness of these hardware, operating
system and application products or modified MAPICS products. If these products
are not Year 2000 compliant, it could adversely affect the performance and
functionality of the Company's applications that work with these products.
While the Company would not be responsible for these Year 2000 problems, it is
unable to assess the effect they may have on the Company's business, financial
condition and results of operations.
The Company believes that the Year 2000 issue has increased current demand
for Year 2000 enabled hardware and software products, including those offered
by the Company. However, this demand is likely to decrease once companies have
repaired or replaced their existing systems which are not Year 2000 enabled.
Demand may also decrease if customers are required to divert their resources
to address other Year 2000 issues within their businesses. The Company is
unable to quantify the effect that the demand for Year 2000 enabled products
has had on its current business, financial condition and results of operations
and cannot predict the effect that any increase or decrease in demand will
have on the Company in the future.
The Company principally relies on its MAPICS XA product to support its
internal accounting, payables and invoicing operations. While MAPICS XA has
been converted and tested to be Year 2000 compliant, the
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Company also relies on third party systems developed by others for many of its
critical internal operations. If these systems are not Year 2000 compliant, it
may have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company's internal
operations may also be affected by Year 2000 issues affecting third parties
with whom the Company has relationships, including Affiliates, Solution
Partners and other vendors (e.g., utilities, distributors, banks and other
suppliers). A Year 2000 problem effecting one or more of these third parties
may also have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has assembled a Year 2000 taskforce made up of representatives
from the Company's development, marketing, support, information systems,
facilities, finance and legal departments to assess the Year 2000 readiness of
the Company's internal operations and the readiness of third parties on which
it relies. The taskforce has identified and assessed the Year 2000 readiness
of most of the material information technology ("I/T") and non-information
technology ("non-I/T") systems, including fax machines, phone switches and
badge access readers, used internally as part of the Company's operations, but
such work is ongoing. The taskforce has tested or will test these systems
where feasible and practicable. The Company expects testing to be complete by
the end of the first quarter of calendar 1999. The Company believes that it
has the appropriate plans in place to achieve timely Year 2000 readiness for
its internal systems. However, the Company's on-going assessment program may
in the future reveal Year 2000 issues which are not currently identified or
fully understood.
The taskforce has also worked to identify those third parties on which the
Company's operations materially rely. This includes the Company's Affiliates,
Solution Partners and other suppliers. The taskforce has gathered written
materials published by such third parties or otherwise communicated directly
with such third parties in order to determine the Year 2000 readiness of their
business operations or the readiness of the products or services they supply
to the Company. While the taskforce has collected many responses and other
materials from such third parties regarding their Year 2000 readiness, the
process is ongoing. The Company expects to gather materials on all third
parties with whom it relies by the end of the second quarter of calendar 1999.
The Company is not certain that the Year 2000 issue will be properly and
timely resolved by all of its suppliers, Affiliates, or Solution Partners, and
if not so resolved, this could have a material impact on the Company's
business, financial condition and results of operations.
COMPANY COSTS TO ADDRESS THE YEAR 2000 ISSUE
The Company has incurred approximately $330,000 in costs to make its
products and internal systems Year 2000 compliant. It does not expect to incur
material additional costs to remedy any remaining Year 2000 problems with its
products and internal systems. However, the Company cannot currently assess
the costs of remedying problems resulting from the Year 2000 issues of others.
If the costs of remedying these Year 2000 problems proves to be significant,
it may have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS
The Company's customer operations are heavily dependent on the constant
availability of telecommunications equipment and other utilities. As a result,
the Company currently believes that the most reasonably likely worst case Year
2000 scenario would involve the temporary interruption of electric power,
telephone or other utility supplies to the Company's headquarters or its other
support operations facilities due to a failure of a utility supplier to be
Year 2000 compliant. In addition, despite assurances and testing, it is also
possible that the Company's internal systems or those of its Affiliates or its
suppliers may not be Year 2000 ready. Such failure could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In addition, "business interruption" litigation may arise out of the Year
2000 issue. The Company is not aware of any possible claim against it arising
from instances of business interruption. However, the Company is
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uncertain how it may be affected by any such litigation. In particular, many
of the Company's applications that are currently in use but were sold before
the Company's 1995 application releases are not Year 2000 enabled. These
applications are no longer supported by the Company. While the Company has
made Year 2000 enabled replacement software available to most customers using
older applications, it cannot assure that all of these customers are aware of
the Year 2000 issue or that they have adopted these replacements or other
remedies. In addition, it cannot assure that these customers will not bring
Year 2000-related claims against the Company which, with or without merit,
could be time consuming and expensive for the Company to defend or resolve.
Any adverse outcome in any such litigation could subject the Company to
significant liability. As a result, business interruption litigation could
have a material adverse effect on the Company's business, financial condition
and results of operations.
CONTINGENCY PLANS
The Company has not yet established a contingency plan to address the most
reasonably likely worst case scenario described above. Because the Company has
not completed the testing of those internal systems which it can test feasibly
and practically, and since it has not received all responses from those
suppliers on which it relies, it has not fully assessed the potential Year
2000 exposures. Accordingly, the Company has not yet fully developed Year 2000
specific contingency plans. These plans will be developed in or before the
third quarter of calendar 1999 if the foregoing assessment identifies a
material business function that is substantially at risk.
CAUTIONARY STATEMENTS
The continued assessment, progress and timing of the Company's Year 2000
readiness efforts and potential exposures as described above depend upon the
cooperation and responsiveness of third parties, the accuracy and reliability
of responses provided and testing procedures, and the availability of skilled
resources, both internal and external, to address Year 2000 issues that exist
or may arise. There can be no assurance that assessments to date will prove to
be accurate. Serious deficiencies which are not currently identified or fully
understood may arise in the future and may have a material adverse impact on
the Company's business, financial condition and results of operations. The
Company plans to continue its taskforce into the Year 2000 to assess Year 2000
issues affecting the Company, apprise management of the status of its findings
and develop appropriate contingency plans where necessary in an effort to
minimize the potential exposure of the Company to the Year 2000 issue.
EURO CONVERSION ISSUE
On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to initiate the Euro Conversion. The Company has established a
taskforce to conduct an internal analysis of the effects of the Euro
Conversion on the Company's operations, but the Company is currently unsure of
the potential impact that the Euro Conversion will have on its business,
financial condition and results of operations, particularly as the Euro
Conversion relates to the Company's European operations. See "--Factors
Affecting Future Performance--The Conversion to a Single European Currency May
Adversely Affect the Company."
INFLATION
To date, the Company believes inflation has not had a material impact on the
Company's operations.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 requires businesses to disclose comprehensive
income and its components in their general-purpose financial statements, with
reclassification of comparative (earlier period) financial statements. The
Company adopted SFAS No. 130 on October 1, 1998. For the fiscal years ended
September 30, 1996, 1997 and 1998, there was no component of comprehensive
income other than those included in net income as presented in the Company's
statements of operations. As a result, the adoption of SFAS No. 130 is not
expected to have a material impact on the presentation of comprehensive income
in the Company's general-purpose financial statements.
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In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The Company
adopted SFAS No. 131 on October 1, 1998, and expects to make the required
disclosures for the first time in its financial statements for the fiscal year
ending September 30, 1999.
In October 1997, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued SOP 97-2
"Software Revenue Recognition," which provides guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions
and supersedes SOP 91-1. The Company adopted the provisions of SOP 97-2 on
October 1, 1998. The Company believes that the adoption of SOP 97-2 will not
have a material impact on its financial position, results of operations or
financial statement disclosures.
In March 1998, the AcSEC issued SOP 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use," which is effective for
fiscal years beginning after December 15, 1998. The Statement distinguishes
accounting for the costs of computer software developed or obtained for
internal use from guidance under SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." The Company will
adopt SOP 98-1 on October 1, 1999. The adoption of SOP 98-1 is not expected to
have a material impact on the Company's software capitalization policies,
financial position, results of operations or financial statement disclosures.
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FACTORS AFFECTING FUTURE PERFORMANCE
VARIOUS FACTORS OUTSIDE THE COMPANY'S CONTROL MAY AFFECT THE COMPANY'S
OPERATING RESULTS AND CAUSE FLUCTUATIONS IN THE COMPANY'S QUARTERLY RESULTS
The Company's future success depends on a number of factors, many of which
are unpredictable and beyond its control. Moreover, many of these factors are
likely to cause the Company's operating results, cash flows and liquidity to
fluctuate significantly from quarter to quarter in the future. These factors
include, among others:
. the size and timing of the Company's license transactions the Company's
license revenues in any quarter depend substantially on the number and
size of orders booked and shipped to customers in that quarter;
. the proportion of the Company's revenues attributable to fees for
licenses versus fees for services;
. the proportion of products licensed by the Company that are developed
by the Company alone versus those developed by a third party alone or
by the Company in collaboration with a third party;
. how much money the Company must spend to improve its business and
expand its operations;
. changes in the level of the Company's operating expenses;
. the amount of capital expenditures by the Company's customers;
. delays in the purchase of the Company's products and services by its
customers due to customers' budgetary constraints and the time
customers often require to authorize purchases of the Company's
products and services;
. the demand for the Company's products;
. whether customers accept new and enhanced products and services offered
by the Company;
. how quickly the Company is able to develop new products and services
that its customers require;
. whether and how quickly alternative technologies, products and services
introduced by the Company's competitors gain market acceptance;
. the timing of the introduction of new or enhanced products offered by
the Company or its competitors;
. the ability of the Company's Affiliates to sell products or service
additional sales;
. the competitive conditions in the Company's industry;
. whether the Company retains its key employees;
. whether the Company's business is subject to disruptions resulting from
Year 2000 computer problems; and
. prevailing conditions in the ERP marketplace and other general economic
and political factors.
Due to one or more of these factors, the Company's operating results could
fail to meet the expectations of securities analysts or investors. If that
happens, the price of the Common Stock could decline materially.
THE COMPANY'S EXPECTED INCREASE IN ITS PRODUCT DEVELOPMENT EFFORTS WILL
ADVERSELY AFFECT THE COMPANY'S RESULTS OF OPERATIONS
The Company expects to increase its product development expenditures in the
future in an effort to develop new or enhanced products and services. The
increased product development efforts will adversely affect the Company's
operating results because certain costs related to product development are
charged to the Company's product development expense as they are incurred.
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THE COMPANY'S QUARTERLY OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS
AND ARE DIFFICULT TO PREDICT
The Company's quarterly operating results are subject to seasonal
fluctuations. The Company believes that in the first fiscal quarter (ending
December 31), calendar year-end capital expenditures by certain customers of
the Company and calendar year-end incentives provided by IBM to resellers of
its hardware, which include many of the Company's Affiliates, increase the
Company's overall license revenues. In the Company's fourth fiscal quarter
(ending September 30), the incentives the Company provides to its employees
through its sales compensation plans also increase the Company's license
revenues. 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. As a result, the Company's quarterly operating results are
difficult to predict. Delays in product delivery or in closings of sales near
the end of a quarter could cause the Company's quarterly revenues to fall
substantially short of the levels the Company anticipates. Moreover, the
Company establishes its spending levels based on its expected future operating
results. If results of operations are less than the Company anticipates, the
Company may not be able to reduce spending levels proportionately. As a
consequence, the Company's operating results, cash flows and liquidity will
likely be adversely affected. These and other factors are likely to continue
to affect the Company's results of operations.
Due to these factors, the Company's operating results could fail to meet the
expectations of securities analysts or investors. If that happens, the price
of the Common Stock could decline materially.
THE COMPANY DEPENDS ON A NETWORK OF INDEPENDENT LOCAL COMPANIES TO SELL AND
SUPPORT THE COMPANY'S PRODUCTS
The Company markets and provides professional services for its products
primarily through a network of more than 80 independent local Affiliates. As a
result, the Company maintains a limited direct sales force. The Company relies
on its Affiliates for sales, product implementation, customization and,
outside North America, customer support services that are provided in
conjunction with the Company. If the Company is unable to maintain effective
long-term relationships with its Affiliates, or if its Affiliates fail to meet
the needs of the Company's customers, the Company's business, financial
condition and results of operations 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 Affiliates. The Company's agreements
with its Affiliates are generally of short duration. In some instances, either
the Company or its Affiliate can terminate an agreement. If the Affiliates
reduce or discontinue their relationships with the Company or their support of
the Company's products, the Company's business, financial condition and
results of operations would be adversely affected.
In addition, the ability of the Affiliates to meet the needs of the
Company's customers depends upon their ability to attract, develop, motivate
and retain highly skilled professionals and technical personnel. These
personnel are in great demand and are likely to remain a limited resource for
the foreseeable future. If the Affiliates are unable to attract and retain
sufficient numbers of professional and technical personnel, it could adversely
affect the Company's business, financial condition and results of operations.
THE MARKET FOR BUSINESS SOFTWARE IN THE MID-SIZED MANUFACTURING INDUSTRY IS
HIGHLY COMPETITIVE
The market for business software in the mid-sized manufacturing industry is
highly competitive and changes rapidly. The market activities of industry
participants, such as new product introductions, frequently result in
increased competition. The Company targets its products and services primarily
at the market for business applications software that is used with IBM's
AS/400 series of computers. The Company's competitors offer a variety of
products that address this and similar markets. The Company primarily competes
with a large number of independent software vendors. These competitors
include, among others, Baan Company N.V.; Computer
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Associates, Inc.; Intentia AB; JBA Holdings Plc; J.D. Edwards & Company, Inc.;
SAP AG and System Software Associates, Inc. The Company also competes with
certain vendors of specialized applications. The Company may be unable to
compete successfully with existing or new competitors.
To be successful in the future, the Company must respond promptly and
effectively to changes in technology. It must also respond to its competitors'
innovations. Certain of the Company's competitors have significantly greater
financial, marketing, service, support and technical resources than the
Company. Certain of these competitors also have greater name recognition than
the Company. Accordingly, the Company's competitors may be able to respond
more quickly than the Company to new or emerging technologies or changes in
customer requirements. They may also be able to devote greater resources to
the development, promotion and sale of products than the Company.
The Company expects to face additional competition as other established and
emerging companies enter the market for business software that is used with
IBM's AS/400 series of computers and as new products and technologies are
introduced. In addition, current and potential competitors may make
acquisitions or establish alliances among themselves or with others. These
acquisitions or alliances could increase the ability of competitors' products
to address the needs of the Company's current or prospective customers. As a
result, it is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain a significant share of the ERP market.
For the Company, this could result in fee rate reductions, the loss of current
or prospective customers, fewer customer orders and reduced net income. In
addition, the Company principally relies on its network of Affiliates for the
implementation and support of its products. If the Affiliates fail to maintain
sufficiently high quality standards, the Company's reputation and competitive
position could weaken. Any or all of these events could materially and
adversely affect the Company's business, financial condition and results of
operations.
THE COMPANY DEPENDS ON ITS RETENTION OF KEY PERSONNEL AND ITS ABILITY TO
ATTRACT AND RETAIN OTHER QUALIFIED PERSONNEL
The Company's future performance depends upon the continued service of a
number of senior management and key technical personnel. The loss or
interruption of the services of one or more key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's future financial results also will depend
upon its ability to attract and retain highly skilled technical, managerial
and marketing personnel. The Company currently maintains no key-person life
insurance on any of its key employees.
Competition for qualified personnel is intense and is likely to intensify in
the future. The Company competes for qualified personnel against numerous
companies, including larger, more established companies with significantly
greater financial resources than those of the Company. The Company has at
times experienced and continues to experience difficulty recruiting and
retaining qualified personnel. If the Company is unable to hire and retain
qualified personnel in the future, it could materially and adversely affect
its business, financial condition and results of operations.
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY MANAGE ITS GROWTH
The Company's business has grown rapidly in the last four years. This recent
growth has strained, and may continue to strain, the Company's management and
systems. The Company's future operating results depend in part on the ability
of its officers and other key employees to continue to implement and improve
the Company's operational and financial controls, to expand, train and manage
its employees effectively and to successfully develop new products and
enhancements to existing products. The Company's growth also depends upon its
Affiliates' ability to grow, to manage this growth and to implement the
Company's products in response to the projected demands of the Company's
customers. The Company cannot assure that it or its Affiliates will be able to
manage any future expansion successfully. If the Company and its Affiliates
are unable to do so, it would materially and adversely affect the Company's
business, financial condition and results of operations.
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THE COMPANY IS SUBJECT TO RISKS RESULTING FROM RAPID TECHNOLOGICAL CHANGE AND
EVOLVING INDUSTRY STANDARDS
The market for the Company's ERP software products is constantly changing.
These changes include, among others:
. 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 depends upon its ability to continue to enhance
its products. Its success also depends upon its ability 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 anticipate and respond adequately
to advances in standard business applications software, client/server
solutions, object-oriented technology and Internet technology. If the Company
is unable to develop and market new products and product enhancements that
achieve market acceptance on a timely and cost-effective basis, it could
materially and adversely affect its business, financial condition and results
of operations.
As a result of the high level of functionality and performance demanded by
ERP software customers, major new products and product enhancements can
require long development and testing periods. Despite testing, however, the
complex ERP software programs offered by the Company may contain errors that
customers discover only after the programs have been installed and used.
Undetected errors may impair the market acceptance of the Company's products
or adversely affect the Company's business, financial condition and results of
operations. Problems encountered by customers installing and implementing the
Company's new products or releases or with the performance of new products,
including product functionality, product response time and program errors,
also could adversely affect the Company's business, financial condition and
results of operations.
THE COMPANY'S PRODUCT DEVELOPMENT AND ENHANCEMENT EFFORTS DEPEND IN PART ON
OTHER SOFTWARE COMPANIES
The Company developed several of its applications in collaboration with
other software companies, referred to by the Company as "Solution Partners."
The Company expects to continue to rely on Solution Partners for the
development of additional applications. Generally, Solution Partners continue
to own the rights to, and maintain, the technology underlying the applications
but license the technology to the Company. Under a license agreement between
the Company and a Solution Partner, the Company ordinarily is obligated to pay
a royalty to the Solution Partner for sales of the applications developed by
the Solution Partner. If the Company fails to pay the required royalty when
due or otherwise breaches the license agreement, the Solution Partner may
terminate the agreement. The unwillingness of a Solution Partner to renew its
agreement or the termination of an agreement with a Solution Partner could
adversely affect the Company's business, financial condition and results of
operations. In addition, the Company is generally entitled to obtain a non-
exclusive license to the source code for an application if the Solution
Partner fails to maintain or update the application, goes out of business or
otherwise breaches the terms of the license agreement. The Company, however,
may not be able to maintain or upgrade the application adequately or on a
timely basis. If the Company is not able to do so, it could adversely affect
its business, financial condition and results of operations.
The Company's success depends in part on its continued ability to license
applications from Solution Partners. However, Solution Partners may not be
available to develop or support applications for the Company in the future.
Even if available, Solution Partners may not complete applications for the
Company on a timely basis and within acceptable guidelines. Accordingly, the
Company cannot assure that it will be able to license applications from
Solution Partners on terms acceptable to the Company, or at all.
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As part of its strategy to develop new applications, the Company recently
commenced a joint development relationship with another software company,
referred to by the Company as a "Technology Alliance." Through a Technology
Alliance, the Company shares the development costs of an application and
acquires rights to it. The Company also builds development expertise for the
application internally so that it can enhance and support the application.
Technology Alliances involve a number of risks. These risks include, among
others:
. the Company's investment of substantial resources in Technology
Alliances may divert resources from other areas of the Company's
business;
. the Company may fail to realize the intended benefits of Technology
Alliances;
. the Company will increase its reliance on others for product development
and support;
. the Company may be required to pay license fees or royalties to a third
party for the use of applications or other technology developed through
a Technology Alliance;
. the Company may lose key employees to partners in Technology Alliances;
and
. the Company may inadvertently transfer its proprietary technology to
partners in Technology Alliances, some or all of which may be or become
competitors of the Company.
A partner in a Technology Alliance may also have or develop a relationship
with the Company's existing or prospective customers. The partner could use
this relationship to become a competitor of the Company. If the partner is
already a competitor of the Company, it may use this relationship to enhance
its competitive position. The partner could, as a competitor or otherwise,
cause the Company to lose existing or prospective customers. The Company
cannot assure that it will be successful in identifying and entering into
Technology Alliances. In addition, it cannot assure that, if entered into,
Technology Alliances will provide the results the Company expects. Moreover,
if the Company successfully identifies and enters into Technology Alliances,
the occurrence of any of the events described above could materially and
adversely affect the Company's business, financial condition and results of
operations.
THE COMPANY DEPENDS ON IBM'S A/S 400 SERIES OF COMPUTERS AND MAY NOT BE ABLE
TO EFFECTIVELY DEVELOP PRODUCTS THAT USE INDEPENDENT SERVER PLATFORMS
Substantially all of the Company's revenues have been derived from products
designed to operate primarily on IBM's AS/400 series of computers and the
related OS/400 operating system. Therefore, the Company's future revenues from
initial and periodic license fees will primarily depend upon the continued
widespread use of the AS/400 series of computers and IBM's continued support
of these computers. Any decline in customers' use or in IBM's support and
marketing of the AS/400 series of computers would adversely affect the
Company's business, financial condition and results of operations. The Company
has devoted a significant part of its resources to develop and support
business software that uses the AS/400 series of computers. The Company's
future success depends in part on its continued devotion of significant
resources to further develop and support products that are used on these
computers.
The Company plans to develop new products for use on independent server
platforms, as well as the A/S 400 series of computers. However, the Company's
existing and potential new customers may not choose to purchase the Company's
products if the customers decide to use independent server platforms instead
of the A/S 400 series of computers. If a significant number of the Company's
existing or potential customers decide to use independent server platforms,
the Company would be required to expend substantial resources to develop new
software that could be used on these platforms. This expenditure would
materially and adversely affect the Company's business, financial condition
and results of operations. Moreover, the Company may not be able to develop
the required new software on a timely basis, or at all. This would likely
result in the loss of existing and potential customers and would materially
and adversely affect the Company's business, financial condition and results
of operations. Similarly, to retain its AS/400 customers, the Company may be
required to adapt its products to any changes made in the OS/400 operating
system in the future. If the Company is unable to adapt to these future
changes, or the Company delays in doing so, it could materially and adversely
affect the Company's business, financial condition and results of operations.
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THE COMPANY IS SUBJECT TO RISKS ASSOCIATED WITH MAKING ACQUISITIONS AND MAY
NOT BE ABLE TO GROW THROUGH ACQUISITIONS
As part of its business strategy, the Company continually evaluates
potential acquisitions of complementary technologies, products and businesses
in the ERP market. In its pursuit of acquisitions, the Company may be unable
to:
. identify suitable acquisition candidates;
. compete for acquisitions with other companies, many of which have
substantially greater resources than the Company;
. obtain sufficient financing on acceptable terms to fund acquisitions;
. complete the acquisitions;
. complete the acquisitions on terms favorable to the Company;
. integrate acquired technologies, products and businesses into its
existing operations; and
. profitably manage acquired technologies, products and businesses.
Acquisitions may also involve a number of risks including, among others,
that:
. technologies, products or businesses acquired by the Company may not
perform as expected;
. technologies, products or businesses acquired by the Company may not
achieve levels of revenues, profitability or productivity comparable to
those of the Company's existing technologies, products and operations;
. acquisitions may adversely affect the Company's results of operations;
. acquisitions may divert the attention of management and the Company's
resources;
. the Company may experience difficulty in assimilating the acquired
operations and personnel; and
. the Company may experience difficulty in retaining, hiring and training
key personnel.
Any or all of these risks could materially and adversely affect the
Company's business, financial condition or results of operations. Currently
the Company is not a party to any written agreements with regard to any
material acquisitions.
THE COMPANY IS SUBJECT TO RISKS ARISING FROM THE DISTRIBUTION AND ITS
RELATIONSHIP WITH MARCAM SOLUTIONS
The Company has entered into agreements with Marcam Solutions that govern
certain aspects of their relationship on an ongoing basis. For example, these
agreements contain provisions which require the Company and Marcam Solutions
to indemnify each other for certain liabilities, including liabilities related
to the Distribution. These agreements may be material to the conduct of the
Company's business. In addition, prior to the Distribution, the business
currently conducted by Marcam Solutions was conducted through Marcam
Corporation, the Company's predecessor. As a result, the Company may become
liable for the obligations and other liabilities of Marcam Solutions arising
from conduct prior to the Distribution. If, for example, Marcam Solutions
cannot satisfy its obligations to third parties under agreements entered into
prior to the Distribution, the Company may become liable for these
obligations. If Marcam Solutions fails to perform these obligations and
satisfy these liabilities, it may materially and adversely affect the
Company's business, financial condition and results of operations.
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THE COMPANY'S FINANCIAL INFORMATION AS OF DATES AND FOR PERIODS PRIOR TO THE
DISTRIBUTION MAY HAVE ONLY LIMITED RELEVANCE
The MAPICS business has operated as a separate, stand-alone company since
July 29, 1997, the date of the Distribution. In preparing the Company's
combined financial statements and other financial information as of dates and
for periods prior to the Distribution, management has allocated certain
expenses based on its estimates of the cost of services Marcam Corporation
provided to the MAPICS business prior to the Distribution. As a result, the
combined financial statements and other financial information as of dates and
for periods prior to the Distribution may not be comparable to the Company's
financial statements and other financial information as of dates and for
periods after the Distribution. Moreover, the combined financial statements
and other financial information may not reflect the Company's financial
position, results of operations and cash flows in the future. In particular,
the Company's combined financial statements and other financial information as
of dates and for periods prior to the Distribution:
. may not indicate what the Company's results of operations, financial
position and cash flows would have been had the MAPICS business been a
separate, stand-alone entity as of those dates and for those periods;
. contain allocations of certain costs and expenses based on management's
estimates of the cost of services provided to the MAPICS business by
Marcam Corporation;
. do not reflect the changes in the Company's financial position, results
of operations and cash flows resulting from the Distribution and the
related transactions; and
. include certain assets, liabilities, revenues and expenses that were not
historically recorded at the entity level by Marcam Corporation, but
were associated with the MAPICS business.
THE COMPANY DEPENDS ON THE WORLDWIDE MANUFACTURING INDUSTRY
The Company's business depends substantially upon the capital expenditures
of mid-sized manufacturers. In turn, these expenditures depend in part upon
the demand for these manufacturers' products. A recession or other adverse
event affecting the worldwide manufacturing industry could cause manufacturers
in the Company's target market to reduce or postpone capital expenditures on
business information systems. This change in the amount or timing of capital
expenditures by mid-sized manufacturers could materially and adversely affect
the Company's business, financial condition and results of operations.
THE COMPANY MAY NOT BE SUCCESSFUL IN PROTECTING ITS PROPRIETARY RIGHTS OR IN
AVOIDING CLAIMS THAT IT INFRINGES THE PROPRIETARY RIGHTS OF OTHERS
The Company's success depends heavily upon the 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. To further protect these
rights, the Company (1) enters into confidentiality and/or license agreements
with its employees, distributors, contractors, customers and potential
customers and (2) limits access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, an
unauthorized person could 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
United States. Accordingly, the Company cannot assure that its steps to
protect its software will be adequate. Moreover, the Copmany's competitors may
independently develop software products that are substantially equivalent or
superior to the Company's software products.
The Company may receive notices claiming that it is infringing the
proprietary rights of others. Third parties could also institute legal
proceedings against the Company claiming that the Company's current or future
products infringe their proprietary rights. Alternatively, the Company may
make claims or initiate litigation against others for infringement of the
Company's proprietary rights or to establish the validity of the Company's
proprietary rights. Any claims against the Company, with or without merit, or
claims by the Company against
35
<PAGE>
others could be time consuming and expensive to defend, prosecute or resolve.
In addition, these claims could cause product shipment delays or force the
Company to enter into royalty or license agreements rather than dispute the
merits of the claims. Moreover, an adverse outcome in litigation or a similar
adversarial proceedings could (1) subject the Company to significant
liabilities to others, (2) require the Company to allocate significant
resources to develop non-infringing technology, (3) require disputed rights to
be licensed from others or (4) prohibit the Company from using certain
marketing materials or products. If the Company is required to license
proprietary rights from others or it wishes to do so, the Company cannot
assure that the necessary licenses will be available on terms that are
acceptable to the Company, or at all. One or more of these events could
materially and adversely affect the Company's business, financial condition
and results of operations.
THE COMPANY IS SUBJECT TO THE RISK OF PRODUCT LIABILITY CLAIMS
The Company's products are generally used to manage data critical to large
organizations. As a result, the Company's development, sale and support of
products may entail the risk of product liability claims. The Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential product liability claims. However,
these provisions may not be effective under the laws of all jurisdictions. The
insurance maintained by the Company may not be sufficient in scope or amount
to cover all personal injury, property damage and other claims if the
limitations on the Company's liability contained in its license agreements are
ineffective. A successful product liability claim brought against the Company
could therefore materially and adversely affect the Company's business,
financial condition and results of operations. In addition, defending such a
suit, regardless of its merits, could require the Company to incur substantial
expense and require the time and attention of key management personnel. This
could also materially and adversely affect the Company's business, financial
condition and results of operations.
THE COMPANY'S STOCK PRICE WILL FLUCTUATE, AND COULD FLUCTUATE SIGNIFICANTLY
The market price of the Common Stock has fluctuated significantly in the
past and will continue to fluctuate in the future. Various factors and events
have caused this fluctuation and are likely to continue to cause the market
price of the Common Stock to fluctuate. These include, among others:
. quarterly variations in the Company's actual or anticipated operating
results;
. the depth and liquidity of the trading market for the Common Stock;
. growth rates;
. changes by securities analysts in estimates regarding the Company;
. conditions in the ERP industry;
. the condition of the stock market;
. announcements by the Company's competitors;
. regulatory actions affecting the Company; and
. general economic conditions.
In addition, from time to time the stock market experiences significant
price and volume fluctuations. Stock market fluctuations have particularly
affected the stock prices of technology companies, such as the Company. These
fluctuations may be unrelated to the operating performance of these companies.
Furthermore, the Company's operating results and prospects from time to time
may be below the expectations of securities analysts and investors. Any such
event could cause the market price of the Common Stock to decline materially.
36
<PAGE>
THE COMPANY'S INTERNATIONAL OPERATIONS SUBJECT THE COMPANY TO A NUMBER OF
RISKS
A material portion of the Company's business comes from outside the United
States. The Company believes that its continued growth and profitability will
require expansion of its sales in international markets. To expand
international sales successfully, the Company has invested, and will continue
to invest, substantial resources to (1) grow its existing foreign operations,
(2) establish new foreign operations, (3) improve existing or establish new
Affiliate relationships and (4) hire additional personnel. International
expansion of the Company's operations has required, and will continue to
require, the Company to localize its applications and translate them into
foreign languages. If the Company cannot expand its international operations
or localize and translate its applications in a timely and accurate manner, it
is likely to impact negatively the Company's operating results. In addition,
even if the Company successfully expands its international operations, the
Company cannot assure that it will be able to maintain or increase its
international market presence or demand for its products.
Risks inherent in the Company's international business activities include,
among others:
. the imposition of government controls;
. restrictions on the export of critical technology;
. political and economic instability (including fluctuations in foreign
currency exchange rates and devaluation of foreign currencies);
. trade restrictions;
. difficulties in staffing international offices;
. difficulty in collecting or the inability to collect license fees;
. 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;
. overlap of different tax structures; and
. effective copyright, trademark and trade secret protection may not be
available in every foreign country in which the Company sells its
products.
Any or all of these risks could materially and adversely affect the
Company's business, financial condition and results of operations.
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 the Company to experience currency
transaction gains and losses. To date, currency transaction gains and losses
have not been material to the Company. However, because of the number of
foreign currencies involved, the Company's constantly changing currency
exposure and the volatility of currency exchange rates, the Company cannot
predict the effect of exchange rate fluctuations upon its future operating
results. These currency risks could materially and adversely affect the
Company's business, financial condition and results of operations.
THE CONVERSION TO A SINGLE EUROPEAN CURRENCY MAY ADVERSELY AFFECT THE COMPANY
On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to adopt the euro as their common legal currency. The Company has
established a taskforce to conduct an internal analysis of the effects that
this conversion to a single European currency will have on the Company.
Currently, however, the Company is unsure of the potential impact that the
conversion will have on its business, particularly as the conversion relates
to its European operations. The conversion may involve a number of risks for
the Company, including:
37
<PAGE>
. increased costs of conducting business during an initial transition
period in which the operations of the Company and others will be
conducted in both existing or "legacy" currencies and the euro;
. increased competition resulting from greater access of competitors to
European markets and the consolidation of competitors' operations to
pursue economies of scale by treating Europe as a single market;
. the participating countries' pursuit of a single monetary policy through
a central European bank;
. increased risks of conducting business in multiple currencies resulting
from, among other things, changes in currency exchange costs;
. difficulty for the Company and others in the performance of contracts
requiring payments in legacy currencies;
. whether the Company will realize taxable gains, and the timing of this
realization, for its financial instruments that are denominated in
legacy currencies;
. third parties such as the Company's customers, suppliers and service
providers may be unable to operate using the euro; and
. during the transition from the legacy currencies to the euro, these
third parties may be unable to operate using both legacy currencies and
the euro.
Any or all of these risks could materially and adversely affect the
Company's business, financial condition and results of operations.
FAILURE TO OBTAIN YEAR 2000 COMPLIANCE MAY HAVE ADVERSE EFFECTS ON THE COMPANY
Many existing computer hardware and software systems are designed to use
only two digits to identify a year in date fields (e.g., "98" for "1998").
These systems may not properly recognize a year that begins with "20" instead
of "19." If not corrected, these systems could fail or could create erroneous
results when working with dates beyond the year 1999. This is commonly
referred to as the "Year 2000 issue."
The Company is subject to a number of risks resulting from the Year 2000
issue including, among others, that:
. existing and future products developed by the Company and its Solution
Partners may not contain all necessary date code changes to address the
Year 2000 issue;
. existing and future products developed by the Company and its Solution
Partners may contain errors related to the Year 2000 issue that are not
discovered until a later time;
. hardware, operating system and application products developed by others
that interact with MAPICS applications may not be Year 2000 compliant
and may adversely affect these MAPICS applications;
. MAPICS products that have been modified by customers or others after the
products have been installed may not be Year 2000 compliant as a result
of these modifications;
. demand for the Company's products is likely to decrease once companies
have repaired or replaced their existing systems which are not Year 2000
enabled;
. demand for the Company's products may decrease if customers are required
to divert their money and other resources to address Year 2000 issues;
. the systems used by the Company for its own operations, some of which
have been developed by others, may not be Year 2000 compliant;
. the Company's operations may be impacted by Year 2000 issues affecting
others with whom the Company has relationships, including Affiliates,
Solution Partners and other vendors (e.g., utilities, distributors,
banks and other suppliers);
38
<PAGE>
. purchasers of the Company's products that were sold before the Company's
1995 application releases, which are not Year 2000 enabled, may bring
Year 2000-related claims against the Company; and
. customers and others whose operations are interrupted by Year 2000
problems involving the Company's products may institute "business
interruption" litigation against the Company.
Any or all of these risks could materially and adversely affect the
Company's business, financial condition and results of operations.
The Company depends on the constant availability of telecommunications
equipment and other utilities to service its customers. As a result, the
Company currently believes that the most reasonably likely worst case Year
2000 scenario would involve the temporary interruption of electric power,
telephone or other utility supplies to the Company's headquarters or its other
customer support facilities due to a failure of a utility supplier to be Year
2000 compliant. Such a failure could materially and adversely affect the
Company's business, financial condition and results of operations.
The foregoing description of risks to the Company resulting from the Year
2000 issue are based on the Company's best current assessment. The Company
cannot assure that this assessment will prove to be accurate. Additional
problems related to the Year 2000 issue which the Company has not yet
identified or fully understands may arise in the future. These additional
problems may cause the Company's current assessment of the Year 2000 issue to
be incorrect. They may also materially and adversely affect the Company's
business, financial condition and results of operations.
THE COMPANY HAS ADOPTED MEASURES THAT HAVE ANTI-TAKEOVER EFFECTS AND COULD
LIMIT THE PRICE OF THE COMPANY'S STOCK
Georgia law and the Company's Articles of Incorporation, Bylaws and
shareholder rights plan contain provisions that may (1) make it more difficult
for a third party to acquire the Company, (2) discourage acquisition bids for
the Company, (3) discourage changes in the Company's management and (4) limit
the price that investors are willing to pay for shares of the Common Stock.
The most significant of these provisions are described below.
Certain provisions of Georgia law have anti-takeover effects.
Georgia law prohibits the Company from entering into certain business
combination transactions with any person for a period of five years from the
date the person became an "interested shareholder," unless certain
requirements are satisfied. Generally, an "interested shareholder" is any
person that owns at least 10% of the outstanding voting stock of the Company,
other than the Company and its subsidiaries. Georgia law also requires that
each of these transactions (1) meets certain fair price criteria and other
tests or (2) meets certain requirements relating to approval of the
transaction by the Company's board of directs and shareholders.
The Company has issued preferred stock and may issue additional preferred
stock in the future.
The Company has issued shares of its preferred stock in the past and may
issue additional shares of preferred stock in the future without further
shareholder approval. Any future issuance of preferred stock will have the
terms, conditions, rights, privileges and preferences that the Company's board
of directors determines. The rights of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of the preferred
stock.
The Company's Articles of Incorporation and Bylaws contain additional
provisions that have anti-takeover effects.
The Company's board of directors is divided into three classes. Each class
serves for a staggered three-year term. In addition, a director may only be
removed from the board for cause and upon the vote of at least 80% of all
classes of stock entitled to vote in the election of the director. This
classification of the Company's board of directors and limitation on the
removal of directors could make it more difficult for a potential acquiror of
the Company to gain control of the Company's board of directors. The Company's
Articles of Incorporation and Bylaws contain additional provisions that have
anti-takeover effects.
39
<PAGE>
The Company has adopted a shareholder rights plan.
The Company has adopted a shareholder rights plan under which it has
distributed to its shareholders rights to purchase shares of its Series F
Junior Participating Preferred Stock. If certain triggering events occur, the
holders of the rights will be able to purchase shares of Common Stock at a
price substantially discounted from the then applicable market price of the
Common Stock. The shareholder rights plan could increase a potential
acquirer's costs of effecting a merger of the Company or a tender offer for
its outstanding securities that is not approved by the Company's board of
directors. These increased costs could prevent or discourage such a
transaction, even though the Company's shareholders want to vote in favor of
the merger or participate in the tender offer.
SHARES OF THE COMPANY'S OUTSTANDING STOCK ARE CURRENTLY ELIGIBLE FOR FUTURE
SALE AND CERTAIN HOLDERS OF THE COMPANY'S SECURITIES HAVE REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock, or the prospect of
these sales, could adversely affect the market price of the Common Stock.
These sales or the prospect of these sales could also impair the Company's
ability to raise needed funds in the capital markets at a time and price
favorable to the Company. As of December 1, 1998, the Company had a total of
20,323,742 shares of Common Stock outstanding, most of which are freely
tradable without restriction under the Securities Act of 1933. The remaining
outstanding shares will be eligible for sale in the public market at various
times pursuant to Rule 144 of the Securities and Exchange Commission.
As of December 1, 1998, the Company had options outstanding under its stock
option plans for the purchase of a total of 3,146,225 shares of Common Stock
at a weighted average exercise price of $12.05 per share. The Company had
reserved an additional 895,191 shares of Common Stock that it may issue upon
the exercise of options granted in the future under these plans. It had also
reserved 185,184 shares of Common Stock that it may issue under its employee
stock purchase plan. The Company has in effect a registration statement under
the Securities Act of 1933 covering its issuance of shares upon the exercise
of these outstanding options and the Company's issuance of shares under its
employee stock purchase plan. All of these shares will be freely tradable in
the public market, except for shares held by affiliates of the Company, which
will be eligible for public sale at various times pursuant to Rule 144 of the
Securities and Exchange Commission.
The Company has in effect a registration statement under the Securities Act
of 1933 covering the sale of 526,309 shares of Common Stock that the Company
will issue upon the exercise of warrants. These warrants are exercisable at a
price of $6.50 per share. In addition, affiliates of General Atlantic
Partners, LLC have "demand" and "piggy back" registration rights for (1)
1,000,000 shares of Common Stock the Company will issue upon the exercise of
warrants that are exercisable at a price of $11.53 per share, (2) 1,499,990
shares of Common Stock the Company will issue upon the conversion of its
convertible preferred stock and (3) 1,500,010 shares of Common Stock. The
demand registration rights permit the holders of these securities to require
the Company to register the sale of this Common Stock under the Securities Act
of 1933. The piggy back registration rights permit the holders of these
securities to participate in any registration by the Company of the Common
Stock under the Securities Act of 1933. Another shareholder of the Company
also has piggy back registration rights for 250,000 shares of Common Stock the
Company will issue upon the conversion of its convertible preferred stock. If
these holders require the Company to include their shares in a Company-
initiated registration, it could adversely affect the Company's ability to
raise needed capital in the public market at a time and price favorable to the
Company.
The 1,749,990 shares of Common Stock underlying the Company's convertible
preferred stock and the 1,500,010 shares of Common Stock held directly by
affiliates of General Atlantic Partners, LLC currently are eligible for sale
in the public market subject to the conditions of Rule 144 of the Securities
and Exchange Commission. In addition, the 1,000,000 shares of Common Stock
underlying the warrants held by affiliates of General Atlantic Partners, LLC
will be eligible for sale in the public market at any future time or times
permitted by Rule 144.
40
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not engage in trading market risk sensitive instruments.
The Company also does not purchase, for investment, hedging or for purposes
"other than trading," instruments that are likely to expose it to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk, except as discussed in the following paragraph. The Company has
issued no debt instruments, entered into no forward or futures contracts,
purchased no options and entered into no swaps, except as discussed in the
following paragraph.
The Company's foreign operations, primarily those in western Europe,
generate cash which is denominated in foreign currencies. At September 30,
1997 and 1998, cash denominated in foreign currencies was $1,867,000 and
$2,055,000, respectively. From time to time during fiscal 1998, the Company
entered into forward exchange contracts as a hedge against the foreign
currency exchange risk on cash and net receivables denominated in certain
foreign currencies. The Company had no open forward exchange contracts at
September 30, 1998 or at the end of any fiscal quarter during the year ended
September 30, 1998. Moreover, the Company believes that its exposure to
foreign currency exchange rate risk at September 30, 1998 was not material.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Future Performance--The Company's
International Operations Subject the Company to a Number of Risks."
The Company has minimal interest rate risk. A change in either the lender's
Base Rate or LIBOR would affect the rate at which the Company could borrow
funds under the Bank Credit Facility.
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following is a list of the Consolidated Financial Statements and
Supplemental Financial Information appearing herein:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................... 43
Consolidated Balance Sheets as of September 30, 1997 and 1998......... 44
Consolidated Statements of Operations for the years ended September
30, 1996, 1997 and 1998.............................................. 45
Consolidated Statements of Equity for the years ended September 30,
1996, 1997 and 1998.................................................. 46
Consolidated Statements of Cash Flows for the years ended September
30, 1996, 1997 and 1998.............................................. 47
Notes to Consolidated Financial Statements............................ 48
Supplemental Financial Information.................................... 72
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of MAPICS, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and equity and of cash flows present
fairly, in all material respects, the financial position of MAPICS, Inc. and
Subsidiaries at September 30, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
October 26, 1998, except as
to note 18 for which the
date is October 29, 1998
43
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 5,562 $ 33,442
Accounts receivable, net of allowances of $1,702 in 1997
and $1,989 in 1998 (Note 3)............................. 30,364 35,879
Prepaid expenses and other current assets................ 2,583 4,600
Deferred income taxes, net (Note 9)...................... 1,341 1,462
-------- --------
Total current assets................................... 39,850 75,383
Property and equipment, net (Note 4)..................... 3,562 5,038
Computer software costs, net (Note 5).................... 16,615 19,554
Other intangible assets, net (Note 6).................... 4,809 4,292
Deferred income taxes, net (Note 9)...................... 12,134 5,775
-------- --------
Total assets........................................... $ 76,970 $110,042
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable......................................... $ 6,955 $ 8,499
Accrued expenses and other current liabilities (Note 7).. 20,174 23,496
Deferred revenues........................................ 25,134 31,106
-------- --------
Total current liabilities.............................. 52,263 63,101
-------- --------
Commitments and contingencies (Notes 10, 15 and 18)
Shareholders' equity (Note 11):
Preferred stock, $1.00 par value; 1,000 shares authorized
Series D convertible preferred stock, 225 shares issued
and outstanding (liquidation preference of $16,955).... 225 225
Series E convertible preferred stock, 100 shares issued
and outstanding (liquidation preference of $7,536)..... 100 100
Common stock, $0.01 par value; 50,000 shares authorized;
18,499 shares issued and outstanding at September 30,
1997; 18,891 shares issued and 18,762 shares outstanding
at September 30, 1998................................... 185 189
Additional paid-in capital............................... 56,887 61,670
Accumulated deficit...................................... (32,690) (13,962)
Treasury stock-at cost, 129 shares at September 30,
1998.................................................... -- (1,281)
-------- --------
Total shareholders' equity............................. 24,707 46,941
-------- --------
Total liabilities and shareholders' equity............. $ 76,970 $110,042
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
-------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Revenues:
License........................................... $45,341 $56,368 $ 79,189
Services.......................................... 32,261 39,036 50,552
------- ------- --------
Total revenues.................................. 77,602 95,404 129,741
------- ------- --------
Operating expenses:
Cost of license revenues.......................... 6,913 9,816 13,108
Cost of services revenues......................... 9,499 11,838 14,873
Selling and marketing............................. 27,851 31,905 48,111
Product development............................... 6,398 10,259 15,073
General and administrative........................ 5,965 8,256 8,884
------- ------- --------
Total operating expenses........................ 56,626 72,074 100,049
------- ------- --------
Income from operations.............................. 20,976 23,330 29,692
Other:
Interest income................................... -- 45 816
Interest expense.................................. -- (263) (56)
------- ------- --------
Income before income tax expense (benefit).......... 20,976 23,112 30,452
Income tax expense (benefit) (Note 9)............... 8,076 (6,004) 11,724
------- ------- --------
Net income.......................................... $12,900 $29,116 $ 18,728
======= ======= ========
Pro forma for 1996 and 1997 (Note 2):
Net income per common share (basic) (Note 2)...... $ 0.82 $ 1.79 $ 1.01
======= ======= ========
Net income per common share (diluted) (Note 2).... $ 0.70 $ 1.47 $ 0.81
======= ======= ========
Weighted average number of common shares
outstanding (basic) (Note 2)..................... 15,717 16,239 18,579
======= ======= ========
Weighted average number of common shares and
common equivalent shares outstanding (diluted)
(Note 2)......................................... 18,514 19,810 23,100
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES D AND E
CONVERTIBLE RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL NET EARNINGS TREASURY STOCK
---------------- ---------------- PAID-IN TRANSFERS (ACCUMULATED -------------- TOTAL
SHARES PAR VALUE SHARES PAR VALUE CAPITAL COST DEFICIT) SHARES COST EQUITY
------ --------- ------ --------- ---------- --------- ------------ ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
September 30, 1995..... $ (7,206) $ 18,698 $ 11,492
Net transfers to Marcam
Corporation........... (15,199) (15,199)
Net income............. 12,900 12,900
-------- -------- --------
Balance as of September
30, 1996............... (22,405) 31,598 9,193
Net transfers to Marcam
Corporation........... (6,999) (6,999)
Transfer of cash to
Marcam Solutions...... (39,000) (39,000)
Assumption of Marcam
Corporation's
subordinated notes.... (25,000) (25,000)
Assumption of Marcam
Corporation's capital
stock................. 325 $325 11,547 $115 93,404 (93,404) 440
Net income............. 8,444 8,444
--- ---- ------ ---- -------- -------- --------
Balance as of July 29,
1997................... 325 325 11,547 115 $ -- (53,362) (52,922)
========
Issuance of common
stock, net of costs... 6,900 69 $55,892 55,961
Stock options
exercised............. 52 1 451 452
Cumulative tax benefit
associated with
exercise of stock
options (Note 17)..... 544 544
Net income............. 20,672 20,672
--- ---- ------ ---- ------- -------- --------
Balance as of September
30, 1997............... 325 325 18,499 185 56,887 (32,690) 24,707
Stock options
exercised............. 359 4 3,287 3,291
Employee stock
purchases............. 31 -- 333 333
Stock issued to
directors............. 2 -- 29 29
Tax benefit associated
with exercise of stock
options and stock
awards
(Note 17)............. 903 903
Deferred stock
compensation.......... 231 231
Treasury stock
acquired.............. 129 $(1,281) (1,281)
Net income............. 18,728 18,728
--- ---- ------ ---- ------- -------- --- ------- --------
Balance as of September
30, 1998............... 325 $325 18,891 $189 $61,670 $(13,962) 129 $(1,281) $ 46,941
=== ==== ====== ==== ======= ======== === ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 12,900 $ 29,116 $ 18,728
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation................................... 954 1,394 1,852
Amortization................................... 3,788 5,708 7,537
Provision for bad debts........................ 399 956 570
Deferred income taxes.......................... 688 (13,815) 7,141
Deferred stock compensation.................... -- -- 231
Stock issued to directors...................... -- -- 29
Changes in operating assets and liabilities:
Accounts receivable........................... (501) (10,732) (6,085)
Prepaid expenses and other current assets..... (118) (1,818) (2,017)
Accounts payable.............................. 1,071 1,647 1,544
Accrued expenses and other current
liabilities.................................. 784 8,717 3,322
Deferred revenues............................. 3,357 6,571 5,972
-------- -------- --------
Net cash provided by operating activities.... 23,322 27,744 38,824
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............. (1,613) (1,964) (3,328)
Additions to computer software costs............ (6,358) (5,450) (6,984)
Purchases of computer software.................. -- (1,000) (2,975)
-------- -------- --------
Net cash used for investing activities....... (7,971) (8,414) (13,287)
-------- -------- --------
Cash flows from financing activities:
Proceeds from stock options exercised........... -- 452 3,291
Proceeds from employee stock purchases.......... -- -- 333
Acquisitions of treasury stock.................. -- -- (1,281)
Cash transferred to Marcam Solutions in
connection with the Distribution............... -- (39,000) --
Principal repayment on subordinated notes
assumed from Marcam Corporation................ -- (25,000) --
Principal borrowings on notes payable........... -- 64,000 --
Principal repayments on notes payable........... -- (64,000) --
Proceeds from issuance of common stock.......... -- 62,100 --
Costs associated with issuance of common stock.. -- (6,139) --
Net transfers to Marcam Corporation (Note 14)... (15,199) (6,559) --
-------- -------- --------
Net cash (used for) provided by financing
activities.................................. (15,199) (14,146) 2,343
-------- -------- --------
Net increase in cash and cash equivalents....... 152 5,184 27,880
Cash and cash equivalents at beginning of
period......................................... 226 378 5,562
-------- -------- --------
Cash and cash equivalents at end of period...... $ 378 $ 5,562 $ 33,442
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
47
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Reporting Entity
MAPICS, Inc. ("MAPICS" or the "Company"), formerly known as Marcam
Corporation, was incorporated in Massachusetts in 1980 and reincorporated in
Georgia in 1998. The Company was organized as a consulting company to help
manufacturers improve manufacturing efficiency through implementation and
customization of International Business Machines Corporation's ("IBM")
manufacturing software. Over time, the Company developed a number of software
applications, further described below, to address the needs of continuous flow
process manufacturing companies.
In February 1993, the Company acquired from IBM the exclusive worldwide
marketing rights to the MAPICS product line, which addresses the software
needs of discrete and batch-process manufacturers, for 25 years. Marcam
Corporation also acquired from IBM the option to purchase the MAPICS product
line and certain related intellectual property rights. In September 1995, the
Company exercised its option and acquired from IBM all of the outstanding
stock of the company that owned the MAPICS product line. Through the acquired
MAPICS product line and its existing PRISM, ProteanTM and AvantisTM software
product lines, the Company offered comprehensive business planning and control
solutions to the production, logistics, asset management and financial
requirements of manufacturing companies worldwide.
In April 1997, the Company's board of directors authorized management of the
Company to proceed with the separation of Marcam Corporation into two publicly
traded corporations. The separation was designed to enable each company to
better focus on its core markets, to better serve its existing customers and
to better finance its business.
On July 25, 1997, the Company transferred substantially all of the business,
assets and liabilities relating to its PRISM, Protean and Avantis product
lines, which address the needs of continuous flow process manufacturers, and
$39.0 million in cash to a newly formed wholly owned subsidiary, Marcam
Solutions, Inc. ("Marcam Solutions"). The Company borrowed $64.0 million from
a bank (the "Debt Financing") to fund the $39.0 million cash transfer to
Marcam Solutions and to repay Marcam Corporation's $25.0 million 9.82%
Subordinated Notes due 2001 (the "Subordinated Notes"). The accompanying
financial statements of the Company reflect the assumption and repayment of
the Subordinated Notes, excluding the prepayment penalty and accrued interest
which were recorded by Marcam Solutions.
On July 29, 1997, the Company spun off to its shareholders, in a tax-free
distribution (the "Distribution"), all of the shares of common stock of Marcam
Solutions. In connection with the Distribution, Marcam Corporation changed its
name to MAPICS, Inc. and thereafter continues the operations related to the
MAPICS product line, which addresses the needs of discrete and batch-process
manufacturers.
Although the common stock of Marcam Solutions was distributed to the
Company's shareholders, the Distribution was recorded for accounting purposes
as a disposition by Marcam Solutions of the MAPICS business, due to the
relative significance of the PRISM, Protean and Avantis product lines at the
time of the Distribution.
During August 1997, the Company obtained a senior secured term loan and
revolving credit facility (the "Bank Credit Facility") to repay a portion of
the borrowings from the Debt Financing and for general corporate purposes.
Also in August 1997, the Company completed an underwritten public offering
of 6.9 million shares of its Common Stock (the "1997 Offering") raising net
proceeds of approximately $56.0 million, after deducting offering costs of
approximately $6.1 million. The net proceeds of the 1997 Offering along with
borrowings of $6.4 million under the term loan portion of the Bank Credit
Facility and working capital of $1.6 million were used to repay the $64.0
million of indebtedness from the Debt Financing.
48
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the Distribution, the Company and Marcam Solutions entered into
various agreements providing for the separation of the product lines and
governing various ongoing relationships between the two companies, including a
distribution agreement, a general services agreement and a tax sharing
agreement.
Basis of Presentation
The statements of operations, equity and cash flows for the years ended
September 30, 1996 and 1997 have been prepared using Marcam Corporation's
historical basis in the assets and liabilities and historical results of
operations of the business related to the MAPICS product line. These financial
statements are combined and generally reflect the financial position, results
of operations and cash flows of the MAPICS business as if it were a separate
entity for these periods. Certain costs and expenses presented in the
financial statements for the years ended September 30, 1996 and 1997 have been
allocated based on management's estimates of the cost of services provided to
the MAPICS business by Marcam Corporation. Management believes these
allocations are reasonable. However, the financial information included herein
may not necessarily reflect the financial position, results of operations and
cash flows of the Company in the future or what they would have been had the
MAPICS business been a separate entity during the years ended September 30,
1996 and 1997.
The financial statements as of dates and for periods after the Distribution,
including the balance sheets as of September 30, 1997 and 1998 and the
statements of operations, equity and cash flows for the year ended September
30, 1998, are consolidated and consist solely of the separate financial
statements of MAPICS, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
Nature of the Business
The Company is a business software company whose primary customers are
discrete and batch process manufacturers. The Company delivers Enterprise
Resource Planning ("ERP") software that allows its customers to automate the
manufacturing process and coordinate multiple functions and departments within
their organizations, as well as extend their interactions with their supply
chain partners. The MAPICS XA product line currently consists of 49 integrated
applications in the areas of Engineering Management, Demand Management,
Operations Management, Resource Planning, Financial Management and Business
Management. The primary channel for selling and implementing the MAPICS
products is a network of more than 80 independent local companies
("Affiliates") that sell to customers located in more than 70 countries around
the world. In addition to providing customers with high quality and cost-
effective local implementation, consulting and other professional services,
the Affiliate channel provides the Company with an attractive variable cost
structure for sales and marketing. The Company also provides services to
customers in the form of product support. The Company's primary geographic
markets include North America; the Europe, Middle East and Africa region
("EMEA"); and the Latin America and Asia Pacific regions.
The Company operates on a fiscal year ending September 30th. As used herein,
the terms "fiscal 1994," "fiscal 1995," "fiscal 1996," "fiscal 1997" and
"fiscal 1998" refer to the Company's fiscal years ended September 30, 1994,
1995, 1996, 1997 and 1998, respectively.
49
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates by Management
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. The most significant estimates
included in these financial statements are the valuation of accounts
receivable, computer software costs, other intangible assets and deferred
income taxes and the allocation of corporate expenses from Marcam Corporation
to the MAPICS business for periods prior to the Distribution. Actual results
may differ from estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments (primarily United
States government agency obligations and commercial paper) purchased with
maturities of three months or less to be cash equivalents.
Financial Instruments and Concentrations of Credit Risk
At September 30, 1997 and 1998, substantially all cash and cash equivalents
were on deposit with three and four financial institutions, respectively. The
carrying amount of cash equivalents is a reasonable estimate of its fair
value. As of September 30, 1997 and 1998, cash and cash equivalents included
$1,867,000 and $2,055,000, respectively, denominated in foreign currencies.
In addition to cash and cash equivalents, financial instruments which
potentially expose the Company to concentrations of credit risk consist
primarily of accounts receivable. The Company provides credit, in the normal
course of business, to various types and sizes of manufacturers located
throughout the world. As a result, management believes that concentration of
credit risk with respect to trade accounts receivable is not significant.
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:
<TABLE>
<S> <C>
Furniture and fixtures..... 4 years
Computer equipment......... 4 years
Leasehold improvements..... Shorter of lease term or useful life of asset
</TABLE>
Computer Software Costs
The Company charges all costs of establishing technological feasibility of
computer software products to product development expense as they are
incurred. From the time of establishing technological feasibility through
general release of the product, computer software development costs are
capitalized and thereafter reported on the balance sheet in computer software
costs at the lower of unamortized cost or net realizable value. Computer
software costs represent the costs of certain software products sold or to be
sold by the Company, including purchased software costs, software development
costs and 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 product-by-product based on 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 for purchased software
50
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
costs and software development costs and two years for software translation
costs. The Company evaluates the realizability of computer software costs
based on expected revenues from the related product over the remaining product
life. Where future revenues are not expected to cover the related unamortized
computer software costs, the Company either accelerates amortization or
expenses the remaining unamortized amounts.
Amortization of computer software costs is included in cost of license
revenues in the statement of operations. Software is subject to rapid
technological obsolescence, and as a result, future amortization periods for
computer software costs could be shortened to reflect changes in technology.
Amortization of computer software costs was $3,148,000, $5,192,000 and
$7,020,000 in fiscal 1996, fiscal 1997 and fiscal 1998, respectively. In
fiscal 1997, the Company shortened the estimated useful life of its fiscal
1997 and future computer software translation costs from five years to two
years. This change in estimate decreased net income in fiscal 1997 by
$446,000, or $0.03 per common share (basic) and $0.02 per common share
(diluted).
Other Intangible Assets
Other intangible assets represent certain intangible assets which resulted
from the acquisition of the MAPICS business in 1993. These intangible assets
are being amortized to cost of license revenues using the straight-line method
over the estimated lives of the intangible assets. The installed customer base
and affiliate network is being amortized over fifteen years; and trade names,
trademarks and goodwill are being amortized over ten years. At each balance
sheet date, a determination is made by management to ascertain whether the
intangible assets have been impaired based on several criteria, including but
not limited to sales trends, undiscounted operating cash flows and other
operating factors.
Divisional Equity
Divisional equity includes the accumulated retained earnings of the MAPICS
business, net transfers from the MAPICS business to Marcam Corporation and
current period income for the periods presented in the statements of equity
through the Distribution. For financial reporting purposes, the Company's
financial statements reflect the assumption of Marcam Corporation's capital
structure as of the Distribution.
Foreign Currency Translation
The majority of the Company's revenues from foreign operations are
denominated in local currencies. The functional currency for each of the
Company's foreign operations is generally its local currency. Assets and
liabilities of foreign operations are translated into United States dollars at
period-end rates of exchange. Revenues and expenses are translated into United
States 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.
Revenue Recognition
The Company generates revenues primarily from licensing its software, which
is conducted through a global network of independent Affiliates. The
Affiliates provide the principal channel through which the Company's products
are distributed to its customers. However, the ultimate customer typically
executes a license agreement directly with the Company rather than the
Affiliate.
The Company recognizes revenue from software licensing in accordance with
the guidance provided by Statement of Position ("SOP") 91-1, "Software Revenue
Recognition." The Company generally recognizes revenue from the licensing of
its software upon: (i) the signing of a license agreement between the Company
and the ultimate customer; (ii) delivery of the software to the customer or to
a location designated by the
51
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
customer; (iii) determination that collection of the related receivable is
probable; and (iv) expiration of any contractual rights of acceptance or
return. Under the terms of the Company's license agreements, the customer is
responsible for installation and training. At the time the Company recognizes
revenue from the licensing of software, no significant vendor obligations
remain and the costs of insignificant obligations, if any, are accrued.
Revenue from the licensing of software is included in license revenues, and
the related commissions paid to Affiliates are included in selling and
marketing expenses.
The Company recognizes services revenues from its periodic license fees
ratably over the terms of the periodic 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, as available.
The Company has no commitment to reimburse the Affiliates for any losses
incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses in
fiscal 1998 were $1,346,000. Advertising expenses are immaterial for all other
periods presented.
Allocated Costs
Expenses in the Company's financial statements for periods prior to the
Distribution have been allocated based on a variety of methods depending on
the nature of the expense. Such allocation methods include proportional MAPICS
product revenues to total Marcam Corporation revenues, 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 statements of operations.
Stock-Based Compensation
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its stock option plans and its employee stock purchase plan and
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." Accordingly, the Company does not recognize compensation
expense for stock options issued to its directors, officers or employees.
The Company recognizes compensation expense on a pro-rata basis over the
performance period for Common Stock to be issued pursuant to performance units
issued under its 1998 Long-Term Incentive Plan based on the current fair value
of the estimated shares to be issued in the future with consideration given to
the likelihood that the performance objectives will be met. The cumulative
amount of this deferred stock compensation is reflected as a component of
additional paid-in capital.
Income Taxes
The Company accounts for income taxes using the asset and liability method
as prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates applied to taxable income. The effect on deferred tax assets and
liabilities of a change in tax
52
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rates is recognized in income in the period that includes the enactment date.
A valuation allowance is provided for deferred tax assets when management
believes it is more likely than not that the assets, or a portion thereof,
will not be realized.
Prior to the Distribution, the operations represented by the MAPICS business
were included in the consolidated United States federal and certain state and
foreign income tax returns filed by Marcam Corporation. For financial
reporting purposes, income tax expense in the financial statements has been
calculated on a separate-return basis for all periods presented through the
Distribution. Income taxes paid by the MAPICS business to Marcam Corporation
have been included in the determination of divisional equity for the periods
presented through the Distribution. After the Distribution, the Company is
responsible for any tax obligations arising from its operations and files
separate income tax returns.
Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable income tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution.
Computation and Presentation of Net Income per Common Share
Net income per common share presented in the statements of operations for
fiscal 1996 and fiscal 1997 was calculated using the capital structure of
Marcam Corporation for periods prior to the Distribution, including the
weighted average number of common and common share equivalents, giving effect
to the Distribution on a pro forma basis for all periods presented through the
Distribution.
On October 1, 1997, the Company adopted SFAS No. 128, "Earnings Per Share"
and has restated earnings per share ("EPS") data for all prior periods where
applicable. SFAS No. 128 requires the Company to present "basic" and "diluted"
EPS for all periods presented in the statements of operations. Basic EPS
excludes dilution and is computed by dividing income available to common
shareholders 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.
The weighted average number of common shares outstanding used to calculate
basic EPS includes the weighted average number of common shares outstanding
plus the number of shares of Common Stock from the 1997 Offering, the proceeds
from which were deemed to be used to pay the capital contribution of $39.0
million to Marcam Solutions, based on the offering price of $9.00 per share.
The weighted average number of common shares and common equivalent shares
outstanding used to calculate diluted EPS includes the weighted average number
of common shares outstanding plus the number of shares of Common Stock from
the 1997 Offering, as described above, plus the weighted average number of
common equivalent shares from the assumed exercise of dilutive stock options,
warrants and convertible preferred stock.
53
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The calculations of basic and diluted EPS are presented in the following
table for the periods indicated (in thousands, except per share data):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
BASIC EPS:
Weighted average common shares outstanding.......... 11,384 12,654 18,579
Pro forma shares issued in the 1997 Offering........ 4,333 3,585 --
------- ------- -------
15,717 16,239 18,579
======= ======= =======
Net income.......................................... $12,900 $29,116 $18,728
======= ======= =======
Basic EPS........................................... $ 0.82 $ 1.79 $ 1.01
======= ======= =======
DILUTED EPS:
Weighted average common shares outstanding.......... 11,384 12,654 18,579
Pro forma shares issued in the 1997 Offering........ 4,333 3,585 --
Common share equivalents:
Convertible preferred stock....................... 2,501 3,250 3,250
Common stock options.............................. 166 176 702
Common stock warrants............................. 130 145 569
------- ------- -------
18,514 19,810 23,100
======= ======= =======
Net income.......................................... $12,900 $29,116 $18,728
======= ======= =======
Diluted EPS......................................... $ 0.70 $ 1.47 $ 0.81
======= ======= =======
</TABLE>
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires businesses to
disclose comprehensive income and its components in their general-purpose
financial statements, with reclassification of comparative (earlier period)
financial statements. The Company adopted SFAS No. 130 on October 1, 1998. For
the fiscal years ended September 30, 1996, 1997 and 1998, there was no
component of comprehensive income other than those included in net income as
presented in the Company's statements of operations. As a result, the adoption
of SFAS No. 130 is not expected to have a material impact on the presentation
of comprehensive income in the Company's general-purpose financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The Company
adopted SFAS No. 131 on October 1, 1998, and expects to make the required
disclosures for the first time in its financial statements for the fiscal year
ending September 30, 1999.
In October 1997, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued SOP 97-2
"Software Revenue Recognition," which provides guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions
and supersedes SOP 91-1. The Company adopted the provisions of SOP 97-2 on
October 1, 1998. The Company believes that the adoption of SOP 97-2 will not
have a material impact on its financial position, results of operations or
financial statement disclosures.
54
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In March 1998, the AcSEC issued SOP 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use," which is effective for
fiscal years beginning after December 15, 1998. The Statement distinguishes
accounting for the costs of computer software developed or obtained for
internal use from guidance under SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." The Company will
adopt SOP 98-1 on October 1, 1999. The adoption of SOP 98-1 is not expected to
have a material impact on the Company's software capitalization policies,
financial position, results of operations or financial statement disclosures.
Reclassifications
Certain amounts in the fiscal 1996 financial statements have been
reclassified to conform to the presentation in the fiscal 1997 and 1998
financial statements.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides reserves for customer receivable balances when it is
probable that such balances will be uncollectible. The allowance for doubtful
accounts was $1,626,000, $1,240,000, $1,702,000 and $1,989,000 as of September
30, 1995, 1996, 1997 and 1998, respectively. The provision charged to bad debt
expense, which is included in general and administrative expenses, was
$399,000, $956,000 and $570,000 in fiscal 1996, 1997 and 1998, respectively.
Write-offs against the allowance for doubtful accounts were $785,000, $494,000
and $383,000 in fiscal 1996, 1997 and 1998, respectively. The financial
statements reflect a reclassification of $100,000 from accrued liabilities to
the allowance for doubtful accounts during fiscal 1998.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1997 1998
------ -------
<S> <C> <C>
Furniture and fixtures...................................... $ 235 $ 747
Computer equipment.......................................... 6,900 9,559
Leasehold improvements...................................... 49 206
------ -------
7,184 10,512
Accumulated depreciation and amortization................... (3,622) (5,474)
------ -------
$3,562 $ 5,038
====== =======
</TABLE>
The financial statements reflect a disposal of fully depreciated property
and equipment in the amount of $196,000 during fiscal 1997.
55
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMPUTER SOFTWARE COSTS
Computer software costs consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Computer software development costs........................ $15,313 $18,330
Accumulated amortization................................... (6,411) (9,474)
------- -------
8,902 8,856
------- -------
Computer software translation costs........................ 11,396 15,363
Accumulated amortization................................... (4,683) (8,440)
------- -------
6,713 6,923
------- -------
Purchased software costs................................... 1,000 3,975
Accumulated amortization................................... -- (200)
------- -------
1,000 3,775
------- -------
$16,615 $19,554
======= =======
</TABLE>
The financial statements reflect a reclassification of $348,000 from
computer software costs to other assets during fiscal 1997.
6. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Installed customer base and affiliate network.............. $ 6,034 $ 6,034
Tradenames and trademarks.................................. 1,712 1,712
Goodwill................................................... 286 286
------- -------
8,032 8,032
Accumulated amortization................................... (3,223) (3,740)
------- -------
$ 4,809 $ 4,292
======= =======
</TABLE>
In February 1993, the Company acquired from IBM the exclusive worldwide
marketing rights to the MAPICS product line for 25 years. The Company also
acquired from IBM the option to purchase the MAPICS product line and certain
related intellectual property rights. As part of the acquisition of the
marketing rights, the Company recorded $10,699,000 of purchased intangible
assets of which $8,032,000 was allocated to the Company in the preparation of
the combined financial statements.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1997 1998
------- -------
<S> <C> <C>
Accrued commissions and royalties........................... $12,836 $12,678
Accrued income taxes payable................................ 2,880 5,245
Accrued payroll and related expenses........................ 3,995 4,425
Other....................................................... 463 1,148
------- -------
$20,174 $23,496
======= =======
</TABLE>
56
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accrued payroll and related expenses include $536,000 and $792,000 for
compensated absences as of September 30, 1997 and 1998, respectively.
8. BORROWING ARRANGEMENT
Debt Financing
On July 25, 1997, the Company borrowed $64.0 million from a bank to fund the
$39.0 million cash transfer to Marcam Solutions and to repay Marcam
Corporation's $25.0 million 9.82% Subordinated Notes due 2001. The
indebtedness incurred in the Debt Financing had an interest rate of 9.0% and
was payable on August 4, 1997. For financial reporting purposes, the Company's
financial statements reflect the assumption and repayment of the Subordinated
Notes, excluding the prepayment penalty and accrued interest which were
recorded by Marcam Solutions.
Term Loan and Revolving Credit Facility
In August 1997, the Company executed the Bank Credit Facility to repay a
portion of the borrowings from the Debt Financing and for general corporate
purposes. Substantially all of the Company's assets are pledged as collateral
for any obligations under the Bank Credit Facility. The Bank Credit Facility,
as amended, contains covenants which, among other things, require that the
Company maintain certain financial ratios and impose certain limitations or
prohibitions on the Company with respect to the occurrence of 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 of the Company's properties or assets.
In August 1997, the Company borrowed $6.4 million under the term loan
portion of the Bank Credit Facility to repay the amounts borrowed in the Debt
Financing which were not repaid with the net proceeds from the 1997 Offering.
As of September 30, 1997, the principal amount of this term loan was repaid
with interest of $254,000, after which no additional amount is available for
future borrowings under the term loan portion of the Bank Credit Facility.
Additional borrowings of up to $15.0 million, subject to certain
limitations, are available to the Company under the revolving portion of the
Bank Credit Facility. Availability of revolving credit loans and the rate of
interest thereon vary depending upon the Company's ability to maintain certain
financial ratios. As of September 30, 1997 and 1998, the Company met all of
those financial ratios, although no amount was outstanding under the revolving
credit facility at September 30, 1998 or at any time since its inception. Any
outstanding loans under the revolving credit facility mature on June 30, 2000.
The Company pays a quarterly commitment fee, which is included in interest
expense, for unused portions of the revolving credit facility.
57
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The components of income tax expense (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
------------------------
1996 1997 1998
------ -------- -------
<S> <C> <C> <C>
Federal:
Current........................................... $5,547 $ 5,009 $ 3,102
Deferred.......................................... 610 (13,402) 6,163
------ -------- -------
6,157 (8,393) 9,265
------ -------- -------
State:
Current........................................... 1,415 1,062 1,582
Deferred.......................................... 78 (413) 75
------ -------- -------
1,493 649 1,657
------ -------- -------
Foreign:
Current........................................... 426 1,740 802
Deferred.......................................... -- -- --
------ -------- -------
426 1,740 802
------ -------- -------
$8,076 $ (6,004) $11,724
====== ======== =======
</TABLE>
The components of income from domestic and foreign operations before income
tax expense (benefit) are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Domestic............................................. $20,766 $22,636 $29,993
Foreign.............................................. 210 476 459
------- ------- -------
$20,976 $23,112 $30,452
======= ======= =======
</TABLE>
The actual income tax expense (benefit) differs from the expected income tax
expense calculated by applying the federal statutory rate of 35.0% to income
before income tax expense (benefit) as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
--------------------------
1996 1997 1998
------ -------- -------
<S> <C> <C> <C>
Expected income tax expense at the domestic
federal statutory rate........................ $7,342 $ 8,089 $10,658
Benefit associated with the recognition of
certain Marcam Corporation tax attributes..... -- (14,872) --
State income taxes, net of federal income tax
benefit....................................... 998 422 1,077
Foreign income taxes........................... -- -- 403
Research and experimentation credits........... (413) -- --
Other.......................................... 149 357 (414)
------ -------- -------
$8,076 $ (6,004) $11,724
====== ======== =======
Effective income tax expense (benefit) rates... 38.5% (26.0)% 38.5%
</TABLE>
58
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the Distribution, the operations represented by the MAPICS business
were included in the consolidated United States federal and certain state and
foreign income tax returns filed by Marcam Corporation. For financial
reporting purposes, income tax expense has been calculated on a separate
return basis for all periods through the Distribution.
Pursuant to a tax sharing agreement between the Company and Marcam
Solutions, the Company became entitled to utilize certain favorable income tax
attributes (principally net operating loss carryforwards and tax credits) of
Marcam Corporation immediately following the Distribution. As a result, the
Company recognized an income tax benefit of $14.9 million during the fourth
quarter of fiscal 1997. Prior to the Distribution, Marcam Corporation did not
reflect a benefit corresponding to these favorable income tax attributes in
its financial statements because Marcam Corporation's management believed it
was more likely than not such benefits would not be realized due to Marcam
Corporation's history of operating losses. Excluding the income tax benefit of
$14.9 million, the effective tax rate in fiscal 1997 was 38.5%.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $10,345 $ 3,922
Tax credits.............................................. 2,801 2,498
Intangible assets........................................ 1,341 1,026
Reserves and accruals.................................... 1,298 1,266
Allowance for doubtful accounts.......................... 655 766
Deferred revenues........................................ 386 386
Other.................................................... -- 105
------- -------
Total deferred tax assets.............................. 16,826 9,969
------- -------
Deferred tax liabilities:
Computer software costs.................................. (1,852) (1,956)
Property and equipment................................... (886) (205)
Other.................................................... (613) (571)
------- -------
Total deferred tax liabilities......................... (3,351) (2,732)
------- -------
Net deferred tax assets................................ $13,475 $ 7,237
======= =======
</TABLE>
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, deferred tax assets have
been recorded at the amount management believes more likely than not will be
realized.
At September 30, 1997 and 1998, the Company had approximately $28.8 million
and $10.7 million, respectively, of net operating loss carryforwards, and
approximately $2.8 million and $2.5 million, respectively, of research and
experimentation and other credit carryforwards. Such carryforwards and tax
credits expire between 1999 and 2013. The utilization of inherited net
operating loss carryforwards and tax credits is limited on an annual basis due
to a change in ownership of Marcam Corporation during fiscal 1996. The Company
does not believe that this limitation will have a significant impact on its
ability to utilize the net operating loss carryforwards or tax credits prior
to their expiration.
59
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain office space and equipment under operating
leases. Certain leases contain renewal options and generally provide that the
Company shall pay for insurance, taxes and maintenance. Total rental expense
under all operating lease agreements was $1,133,000, $1,308,000 and $2,059,000
in fiscal 1996, fiscal 1997 and fiscal 1998, respectively. Future minimum
lease payments under noncancelable operating leases having initial or
remaining lease terms longer than one year as of September 30, 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
FISCAL YEARS ENDING SEPTEMBER 30: ------
<S> <C>
1999................................................................. $1,714
2000................................................................. 1,260
2001................................................................. 637
2002................................................................. 218
2003................................................................. 39
Thereafter........................................................... --
------
Total.............................................................. $3,868
======
</TABLE>
Litigation
The Company is subject to legal proceedings and claims that arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the financial
position or results of operations of the Company.
The Company is indemnified for future claims arising from Marcam Solutions'
Prism, Protean and Avantis product lines and related activities in accordance
with the agreements entered into with Marcam Solutions as described in Note
15.
11. SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION PLANS
For financial reporting purposes, the Company's financial statements reflect
the assumption of Marcam Corporation's capital structure as of the
Distribution. The holders of the Company's capital stock following the
Distribution have the same rights, preferences and privileges with respect to
such capital stock as had the holders of Marcam Corporation's capital stock as
of the date of the Distribution.
Following the authorization of an additional 20,000,000 common shares in
fiscal 1997, the Company's authorized capital stock consists of 50,000,000
shares of common stock, par value $0.01 per share (the "Common Stock") and
1,000,000 shares of preferred stock, par value $1.00 per share (the "Preferred
Stock").
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 operations of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future. Additionally,
covenants in the Bank Credit Facility, as amended, prohibit the payment of
cash dividends.
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
60
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 September 30, 1997 and 1998, 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."
Each share of Series D Convertible Preferred Stock and Series E Convertible
Preferred Stock (together the "Convertible Preferred Stock") is convertible at
any time at the option of the holder into 10 shares of Common Stock, subject
to adjustment in the event of certain reorganizations or reclassifications of
the Company's capital stock. The holders of Convertible Preferred Stock are
generally entitled to vote on an as converted basis and are entitled to
receive dividends at the same rate as dividends are paid with respect to
Common Stock. If at any time after September 30, 1998, for a period of not
less than 30 consecutive trading days, the market value of the Common Stock
exceeds $30.14 per share (as adjusted in connection with the Distribution),
the Company may elect that all then outstanding shares of Series D Convertible
Preferred Stock be mandatorily converted into shares of Common Stock.
Likewise, if at any time after July 23, 1999, for a period of not less than 30
consecutive trading days, the market value of the Common Stock exceeds $30.14
per share (as adjusted in connection with the Distribution), the Company may
elect that all then outstanding shares of Series E Convertible Preferred Stock
be mandatorily converted into shares of Common Stock.
Upon any event of liquidation or dissolution of the Company, holders of
Convertible Preferred Stock are entitled to receive, before any distribution
is made upon stock ranking junior to the Convertible Preferred Stock, the
greater of (i) $75.36 per share (as adjusted in connection with the
Distribution) plus an amount per share equal to any dividends declared but
unpaid thereon or (ii) such amounts per share as would have been payable had
each share been converted to Common Stock.
Warrants
In May 1994, in connection with the issuance and sale of the Subordinated
Notes, the Company issued warrants to purchase an aggregate of 383,333 shares
of Common Stock, as adjusted from time to time (the "Sub Debt Warrants"). The
Sub Debt Warrants were originally exercisable at any time during the period
commencing June 30, 1994 and ending April 30, 2001, at an exercise price of
$8.93 per share, as adjusted from time to time. In connection with the
Distribution, the Sub Debt Warrants were adjusted such that the exercise price
was decreased to $6.50 per share and the number of underlying shares was
increased to 526,309 on a basis intended to preserve the spread value of the
Sub Debt Warrants.
In July 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, as adjusted from time to
time ("GA Warrants"). The GA Warrants were originally 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. In
connection with the Distribution, the GA Warrants were adjusted such that the
exercise price was decreased to $11.53 per share on a basis intended to
preserve the spread value of the GA Warrants.
Rights Plan
The Company has a Shareholder Rights Plan, as amended (the "Rights Plan"),
and declared a dividend of (i) one preferred stock purchase right (a "Right")
for each outstanding share of Common Stock, and (ii) for each outstanding
share of Convertible Preferred Stock, a number of Rights equal to the number
of shares of Common Stock issuable upon conversion of such Convertible
Preferred Stock, to shareholders of record. Each Right entitles holders to
purchase one one-thousandth of a share (a "Unit") of Series F Junior
Participating
61
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock, par value $1.00, at an exercise price of $60 per Unit,
subject to adjustment. The Rights become exercisable for Common Stock only
under certain circumstances and in the event of particular events relating to
a change in control of the Company. The Company under certain circumstances
pursuant to the Rights Plan may redeem the Rights. The Rights expire on
December 16, 2006, unless earlier redeemed or exchanged. The Rights have
certain anti-takeover effects, in that they would cause substantial dilution
to a person or group that attempts to acquire a significant interest in the
Company on terms not approved by the board of directors.
Stock-Based Compensation Plans
At September 30, 1998, the Company had five stock option plans and an
employee stock purchase plan, described below.
As of the Distribution, options to purchase an aggregate of 2,601,561 shares
of Common Stock were held by current and former employees and directors of the
Company under the stock option plans. In connection with the Distribution, the
per share exercise price of each of the stock options was adjusted to give
effect to the Distribution based on the relative fair market values of the
underlying Common Stock of the Company and the common stock of Marcam
Solutions after the Distribution so as to preserve the spread value of the
existing stock options. For this purpose, the fair market value of a share of
each such common stock was the average of the closing sales prices per share
of each common stock on the Nasdaq National Market for each of the five
consecutive trading days beginning on the first day following the date of the
Distribution. Each stock option continues to be subject to the same terms and
conditions that applied prior to the Distribution, except that vesting is
based on service with the Company, Marcam Solutions or both.
The 1987 Plan. Prior to its expiration on December 31, 1996, the Marcam
Corporation 1987 Stock Plan (the "1987 Plan"), as amended, allowed the Company
to grant incentive stock options ("ISO's") to its employees and non-qualified
stock options and stock awards to its officers, employees and consultants to
purchase up to 1,750,000 shares of Common Stock. In general, the exercise
price specified in the agreement relating to each ISO granted under the 1987
Plan was required to be not less than the fair market value of the Common
Stock as of the date of grant. Subject to certain provisions, stock options
granted under the 1987 Plan were fully exercisable on the date of grant or
became exercisable thereafter in installments specified by the board of
directors. The stock options granted under the 1987 Plan expire on dates
specified by the board of directors not to exceed a period of ten years from
the date of grant. As of September 30, 1997 and 1998, 1,018,336 and 825,387
stock options, respectively, were outstanding under the 1987 Stock Plan, of
which 784,383 and 724,413 stock options, respectively, were exercisable.
Under the 1987 Plan, 110,000 and 10,000 restricted stock awards were issued
to various individuals during fiscal 1994 and fiscal 1995, respectively. These
restricted stock awards generally become 50% vested in 4 years and 100% vested
in 5 years. However, during fiscal 1997, the board of directors lifted the
restrictions on 45,000 of the restricted stock awards. During fiscal 1996 and
1997, 45,000 and 10,000, respectively, of the restricted stock awards were
canceled. During fiscal 1998, 15,000 of the restricted stock awards became
vested. As of September 30, 1997 and 1998, 20,000 and 5,000 restricted stock
awards, respectively, were outstanding under the 1987 Stock Plan.
The Directors Plan. The MAPICS, Inc. 1998 Non-Employee Director Stock Option
Plan (the "Directors Plan"), formerly known as the Marcam Corporation 1991
Non-Employee Director Stock Option Plan, as amended, allows the Company to
issue non-qualified stock options to purchase up to 310,000 shares of Common
Stock to eligible members of the board of directors who are neither employees
nor officers of the Company, including an additional 100,000 shares authorized
in fiscal 1998. In general, the exercise price specified in the agreement
relating to each non-qualified stock option granted under the Directors Plan
is required to be the fair
62
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
market value of the Common Stock at the date of grant. Subject to certain
provisions, stock options granted under the Directors Plan become exercisable
in various increments over a period of one to four years, provided that the
optionee has continuously served as a member of the board of directors through
such vesting date. The stock options granted under the Directors Plan expire
ten years from the date of grant. As of September 30, 1997 and 1998, 158,000
and 190,750 stock options, respectively, were outstanding under the Directors
Plan of which 27,800 and 60,350 stock options, respectively, were exercisable.
The 1994 Plan. Prior to its discontinuation in February 1998, the Marcam
Corporation 1994 Stock Plan (the "1994 Plan"), as amended, allowed the Company
to grant ISO's to employees and non-qualified stock options and stock awards
to its officers, employees and consultants to purchase up to 3,250,000 shares
of Common Stock, including an additional 1,250,000 shares authorized during
fiscal 1997. In general, the exercise price specified in the agreement
relating to each ISO granted under the 1994 Plan was required to be not less
than the fair market value of the Common Stock as of the date of grant. Non-
qualified stock options were required to be granted with an exercise price not
less than the minimum legal consideration required under applicable state law.
Subject to certain provisions, stock options granted under the 1994 Plan were
fully exercisable on the date of grant or became exercisable thereafter in
installments specified by the board of directors. The stock options granted
under the 1994 Plan expire on dates specified by the board of directors not to
exceed a period of ten years from the date of grant. As of September 30, 1997
and 1998, 2,260,800 and 1,895,545 stock options, respectively, were
outstanding under the 1994 Plan of which 466,701 and 845,958 stock options,
respectively, were exercisable.
During fiscal 1995 and 1996, respectively, 30,000 and 6,000 restricted stock
awards were issued under the 1994 Plan to various individuals. These
restricted stock awards generally become 50% vested in 4 years and 100% vested
in 5 years. However, during fiscal 1997, the board of directors lifted the
restrictions on 16,000 of the restricted stock awards. As of September 30,
1997 and 1998, 20,000 restricted stock awards were outstanding under the 1994
Plan.
The Directors Incentive Plan. The 1998 Non-Employee Directors Stock
Incentive Plan (the "Directors Incentive Plan"), approved in February 1998,
provides for the issuance of Common Stock, deferred rights to receive Common
Stock and non-qualified stock options to purchase up to 60,000 shares of
Common Stock to eligible members of the board of directors who are neither
employees nor officers of the Company. During fiscal 1998, 1,562 shares of
Common Stock were issued under the Directors Incentive Plan.
As of September 30, 1998, 58,438 shares remain available for grant under the
Directors Incentive Plan. The Directors Incentive Plan expires in February
2008.
The 1998 Long-Term Incentive Plan. The MAPICS, Inc. 1998 Long-Term Incentive
Plan (the "1998 LTIP"), approved in February 1998, allows the Company to issue
up to 1,000,000 shares of Common Stock through various stock-based awards to
its directors, officers, employees and consultants. The stock-based awards can
be in the form of: (a) ISO's or non-qualified stock options; (b) stock
appreciation rights; (c) performance units; (d) restricted stock; (e) dividend
equivalents; and (f) other stock based awards.
During fiscal 1998, the Company provided long-term incentive compensation to
certain officers and employees through grants of performance units and stock
options under the 1998 LTIP. Performance units represent the right to receive
a number of shares of Common Stock which will be determined by the cumulative
growth in the Company's EPS during the performance period.
As of September 30, 1998, 194,400 stock options were outstanding under the
1998 LTIP of which none was exercisable.
63
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 1998 ESPP. Under the MAPICS, Inc. 1998 Employee Stock Purchase Plan (the
"1998 ESPP"), formerly known as The 1990 Employee Stock Purchase Plan (the
"1990 ESPP"), as amended, the Company is authorized to issue up to 700,000
shares of Common Stock to its full-time employees, nearly all of whom are
eligible to participate, including an additional 100,000 shares authorized
during fiscal 1998. The 1998 ESPP is a qualified plan under Section 423 of the
Internal Revenue Code of 1986, as amended. Under the terms of the 1998 ESPP,
employees, excluding those owning 5% or more of the Common Stock, can choose
every six months to have up to 10% of their base and bonus earnings withheld
to purchase Common Stock, subject to certain limitations. The purchase price
of the Common Stock is 85 percent of the lower of its beginning-of-period or
end-of-period market price. Options granted under the 1998 ESPP are referred
as "look-back options."
Under the 1998 ESPP, the Company sold 86,440 shares, 81,246 shares and
30,973 shares to employees during fiscal 1996, fiscal 1997 and fiscal 1998,
respectively. The combined statements of equity and cash flows for periods
prior to the Distribution do not reflect employee stock purchases under the
employee stock purchase plan.
At September 30, 1997 and 1998, 116,157 and 185,184 shares, respectively,
were available for issuance under the 1998 ESPP. The 1998 ESPP expires on
December 31, 2007.
Additional Stock Option Grants. During prior fiscal years, the board of
directors authorized the issuance of stock options to purchase 25,260 shares
of Common Stock which were granted outside of the existing stock option plans.
As of September 30, 1997 and 1998, 25,260 and 24,060 of these stock options,
respectively, were outstanding and exercisable.
Except for the "look-back options" issued under the 1998 ESPP, all stock
options granted under the Company's stock-based compensation plans, as well as
those stock options granted outside the Company's stock-based compensation
plans, were granted at exercise prices not less than the fair market value of
the Common Stock at the date of grant.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans and employee stock purchase plan and has
adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no
compensation expense has been recognized in the statements of operations for
stock options granted to directors, officers or employees of the Company under
its stock-based compensation plans. Had compensation cost for such stock
options been determined based on the fair value at the grant dates of such
stock options consistent with the method prescribed in SFAS No. 123, the
Company's net income, net income per common share (basic) and net income per
common share (diluted) would have been reduced as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net income, as reported........................... $12,900 $29,116 $18,728
Pro forma effect of SFAS 123...................... (186) (886) (1,063)
------- ------- -------
Pro forma net income.............................. $12,714 $28,230 $17,665
======= ======= =======
Basic EPS, as reported............................ $ 0.82 $ 1.79 $ 1.01
Pro forma effect of SFAS 123...................... (0.01) (0.05) (0.06)
------- ------- -------
Pro forma basic EPS............................... $ 0.81 $ 1.74 $ 0.95
======= ======= =======
Diluted EPS, as reported.......................... $ 0.70 $ 1.47 $ 0.81
Pro forma effect of SFAS 123...................... (0.01) (0.04) (0.05)
------- ------- -------
Pro forma diluted EPS............................. $ 0.69 $ 1.43 $ 0.76
======= ======= =======
</TABLE>
64
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For the purpose of calculating pro forma expense for fiscal 1996 and fiscal
1997 under the method proscribed by SFAS No. 123, only those stock options
granted to the Company's directors, officers, employees and consultants (not
including those of Marcam Solutions) were considered. The pro forma effect of
SFAS No. 123 on net income for the periods presented is not representative of
the effect on reported net income for future years.
The fair value of each option granted under the stock option plans is
estimated as $7.87, $5.56 and $6.41 for fiscal 1996, fiscal 1997 and fiscal
1998, respectively, on the date of grant using the Black-Scholes option-
pricing model with the following weighted average assumptions: dividend yield
of 0%; expected volatility of 50% for the fiscal 1998 and 55% for all other
periods; risk-free interest rates of 5.77%, 5.99% and 5.52% for fiscal 1996,
fiscal 1997 and fiscal 1998, respectively, and an expected life of five years
for all periods.
The fair value of each look-back option granted under the 1998 ESPP is
estimated as $3.70, $4.37 and $3.73 for fiscal 1996, fiscal 1997 and fiscal
1998, respectively, with the following weighted average assumptions: dividend
yield of 0%; expected volatility of 50% for fiscal 1998 and 55% for all other
periods; risk-free interest rates of 5.36%, 5.54% and 5.52% for fiscal 1996,
fiscal 1997 and fiscal 1998, respectively, and an expected life of six months
for all periods.
The table presented below reflects the activity and historical prices of the
Company's stock options for the periods from September 30, 1995 through July
29, 1997, the date of the Distribution. As of July 29, 1997, in connection
with the Distribution, the exercise prices of the then outstanding stock
options were adjusted as previously described. For periods after the
Distribution, the table presents the weighted average exercise prices as
adjusted for the Distribution.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE
UNDER OPTIONS PRICE($)
---------------- ----------------
<S> <C> <C>
Balance as of September 30, 1995........... 1,937,935 14.58
Granted.................................. 739,704 14.32
Exercised................................ (112,789) 5.17
Canceled/expired......................... (455,371) 13.23
---------
Balance as of September 30, 1996........... 2,109,479 15.28
Granted.................................. 783,870 12.50
Exercised................................ (43,803) 8.80
Canceled/expired......................... (247,985) 13.37
---------
Balance as of July 29, 1997................ 2,601,561 14.74(1)
Granted.................................. 984,424 10.07
Exercised................................ (52,034) 8.59
Canceled/expired......................... (71,555) 9.67
---------
Balance as of September 30, 1997........... 3,462,396 10.83
Granted.................................. 338,100 16.09
Exercised................................ (359,462) 9.18
Canceled/expired......................... (310,892) 11.17
---------
Balance as of September 30, 1998........... 3,130,142 11.55
=========
</TABLE>
- --------
(1) The weighted average exercise price of the stock options outstanding as of
July 29, 1997 was $11.04, as adjusted for the Distribution.
65
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about the stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
------------------------------ ------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES NUMBER LIFE PRICE NUMBER PRICE
------------------------ --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 6.57 - 8.96 555,978 6.9 $ 8.20 381,444 $ 8.15
9.20 - 11.45 1,659,191 8.0 10.15 640,684 10.25
12.20 - 14.83 283,547 5.6 13.48 190,627 13.72
15.02 - 17.75 485,526 3.9 16.86 440,026 16.81
18.00 - 20.69 118,900 9.7 18.59 -- --
21.96 - 22.50 27,000 9.5 22.44 2,000 21.96
--------- ---------
3,130,142 1,654,781
========= =========
</TABLE>
Treasury Stock
In fiscal 1998, the Company purchased 128,600 shares of Common Stock for
$1,281,000 pursuant to a stock repurchase plan authorized by the Company's
board of directors in December 1997. The stock repurchase plan was rescinded
by the Company's board of directors in December 1998.
12. EMPLOYEE BENEFIT PLANS
Retirement Plan
The Company has a defined contribution 401(k) retirement plan covering
substantially all of its employees in the United States. Under this plan,
eligible employees may contribute a portion of their salary until retirement
and the Company matches a portion of the employees' contributions. Total
expenses incurred by the Company under this plan were $110,000, $185,000 and
$443,000 in fiscal 1996, fiscal 1997 and fiscal 1998, respectively.
Group Medical Plan
The Company has a group medical self-insurance plan covering certain of its
employees. The Company employs a third-party administrator to manage this
plan. Under terms of this plan, both the Company and eligible employees are
required to make contributions to this plan. The administrator reviews all
claims filed and authorizes the payment of benefits. The Company has stop-loss
insurance coverage on all individual claims exceeding $125,000. In February
1998, the stop-loss limit was reduced to $100,000. The Company expenses
medical claims as they are incurred and recognizes a liability for claims
incurred but not reported. As of September 30, 1997 and 1998, the Company had
accrued $500,000 and $550,000, respectively, as a liability for expenses
incurred under this plan.
66
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. GEOGRAPHIC INFORMATION
The Company has one business segment which consists of developing,
marketing, licensing and supporting business software which is marketed and
delivered to manufacturing enterprises worldwide. The Company's principal
administrative, marketing, product development and support operations are
located in the United States. Areas of operation outside of the United States,
include EMEA, the Latin America and Asia Pacific regions and Canada. No single
customer accounts for more than 10% of the Company's revenues. Transfers
between geographic areas are eliminated in the financial statements. Financial
information related to domestic and foreign operations is as follows (in
thousands):
<TABLE>
<CAPTION>
UNITED
STATES EMEA ALL OTHER ELIMINATION TOTAL
------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
FISCAL 1996:
Revenues from 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
------- ------- ------- ------- --------
Income from operations.... 17,705 2,268 1,296 (293) 20,976
Identifiable assets....... 37,876 4,789 2,740 -- 45,405
FISCAL 1997:
Revenues from unaffiliated
customers................ $73,109 $18,632 $ 3,663 $ -- $ 95,404
Transfers between
geographic areas......... 1,540 -- -- (1,540) --
------- ------- ------- ------- --------
Total revenues............ 74,649 18,632 3,663 (1,540) 95,404
------- ------- ------- ------- --------
Income from operations.... 20,688 2,152 909 (419) 23,330
Identifiable assets....... 66,721 7,933 2,316 -- 76,970
FISCAL 1998:
Revenues from unaffiliated
customers................ $86,896 $27,203 $15,642 $ -- $129,741
Transfers between
geographic areas......... -- -- -- -- --
------- ------- ------- ------- --------
Total revenues............ 91,595 27,203 10,943 -- 129,741
------- ------- ------- ------- --------
Income from operations.... 20,123 8,352 1,217 -- 29,692
Identifiable assets....... 95,624 10,926 3,492 -- 110,042
</TABLE>
The information presented above may not be indicative of results if the
geographic areas were independent organizations. Income from operations by
geographic area is total revenues less operating expenses, excluding interest
income, interest expense and income tax expense (benefit). United States
identifiable assets include $378,000, $3,601,000 and $30,071,000 of cash and
cash equivalents at September 30, 1996, 1997 and 1998, respectively. These
assets are available for general corporate purposes.
14. RELATIONSHIP WITH MARCAM CORPORATION
Allocations from Marcam Corporation of corporate marketing expenses,
corporate product development expenses and corporate administrative functions
(including data services, employee benefits, legal, insurance, accounting and
other corporate overhead) have been included in the selling and marketing,
product development and general and administrative expense categories in the
Company's statements of operations for all periods presented through the
Distribution.
67
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amounts allocated to the Company in each of the periods presented are as
follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
FISCAL 1996 THROUGH JULY 29, 1997
----------- ---------------------
<S> <C> <C>
Selling and marketing...................... $ 213 $ 219
Product development........................ 239 --
General and administrative................. 2,412 2,030
------ ------
$2,864 $2,249
====== ======
</TABLE>
Net transfers to Marcam Corporation, included in divisional equity for
periods presented through the Distribution, include net cash transfers to
Marcam Corporation, amounts due to Marcam Corporation for services and other
charges and income taxes paid by the MAPICS business to Marcam Corporation. No
interest related to these transactions or to any debt held by Marcam
Corporation has been charged to the Company. The activity in the net transfers
to Marcam Corporation account, included in divisional equity, is summarized
below (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1, 1996
FISCAL 1996 THROUGH JULY 29, 1997
----------- ---------------------
<S> <C> <C>
Marcam services and other corporate
charges................................ $ 2,864 $ 2,249
Domestic and foreign income taxes....... 8,076 7,075
Cash transfers, net..................... (26,139) (15,883)
-------- --------
Net transfers to Marcam Corporation..... $(15,199) $ (6,559)
======== ========
</TABLE>
15. RELATIONSHIP AND AGREEMENTS WITH MARCAM SOLUTIONS
Relationship with Marcam Solutions
The Company has entered into three agreements with Marcam Solutions which
govern certain aspects of the parties' relationship on an ongoing basis that
may be material to the conduct of the Company's business, including provision
of certain administrative services 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. Further, because
prior to the Distribution the business conducted by Marcam Solutions was
conducted through Marcam Corporation, the Company may be liable for the
liabilities of Marcam Solutions if Marcam Solutions for any reason is unable
to satisfy such liabilities.
Distribution Agreement
Prior to the completion of the Distribution, the Company and Marcam
Solutions entered 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 1997 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
1997 Offering. The ancillary agreements executed in connection with the
Distribution included a General Services Agreement and a Tax Sharing
Agreement, discussed below.
68
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
General Services Agreement
The General Services Agreement provides that Marcam Solutions and the
Company will provide to each other from time to time, upon request, certain
routine and ordinary corporate services, including financial, accounting,
administrative, tax, and legal services, if required. For these services, the
party providing such services will be reimbursed for its costs, including the
pro rata costs of its employees performing such services and allocable
overhead, on a per diem basis. Management believes that the expected charges
in accordance with this agreement are fair and reasonable.
Following the Distribution, as the Company and Marcam Solutions effected the
separation of the financial, accounting, administrative, tax and legal
functions, each company reimbursed the other for certain costs incurred and
paid to third parties on behalf of the other company.
Tax Sharing Agreement
Prior to completion of the Distribution, the Company and Marcam Solutions
entered into a Tax Sharing Agreement that defines the parties' rights and
obligations with respect to certain tax liabilities and refunds of taxes
relating to Marcam Corporation's business for periods ending on or prior to
the date of the Distribution. In general, pursuant to the Tax Sharing
Agreement, Marcam Solutions shall be responsible for certain state, local and
foreign taxes for periods ending on or before the Distribution (and shall be
entitled to refunds with respect to such taxes), and the Company shall be
responsible for all other taxes for such periods (and shall be entitled to
refunds with respect to such taxes). In addition, under the Tax Sharing
Agreement, the Company shall be liable for any taxes arising out of the
Distribution. In the quarter ended September 30, 1997, the Company provided
for income taxes arising out of the Distribution, principally foreign income
taxes, expected to approximate $1.1 million, of which the Company paid
$325,000 in fiscal 1998. The Tax Sharing Agreement further provides for
cooperation with respect to certain tax matters, the exchange of information
and the retention of records.
16. RELATED PARTY TRANSACTIONS
In fiscal 1996, IBM was considered a related party of the Company due to its
significant ownership interest in the Company. As of September 30, 1996, IBM
had substantially reduced its ownership interest in the Company. Accordingly,
for all periods after fiscal 1996, IBM is not considered a related party.
The Company has a number of marketing and product development relationships
with IBM in the normal course of business. Additionally, IBM has purchased
licenses for MAPICS products for internal use, as well as for marketing
purposes, and the Company has purchased certain services, equipment and
software licenses from IBM.
In fiscal 1996, the Company recorded $1,013,000 in revenues derived from
transactions with IBM, including $604,000 for royalties on sales of MAPICS
products and $409,000 for products and services sold directly to IBM.
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Payments for Income Taxes and Interest
Net transfers to Marcam Corporation include income taxes paid by the MAPICS
business to Marcam Corporation for the periods prior to the Distribution.
Income taxes included in net transfers to Marcam Corporation in fiscal 1996
and for the period from October 1, 1997 through the Distribution were
approximately $8,076,000 and $7,075,000, respectively. Cash paid for income
taxes in fiscal 1998 was $1,866,000.
No interest related to these transactions or to any debt held by Marcam
Corporation has been charged to the Company. Cash paid for interest was
$254,000 and $51,000 in fiscal 1997 and 1998, respectively.
69
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Non-cash Investing and Financing Activities
Non-cash investing and financing activities in fiscal 1996, fiscal 1997 and
fiscal 1998 are summarized below (in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
---------------------
1996 1997 1998
-------------- ------
<S> <C> <C> <C>
Assumption of Marcam Corporation's capital stock (1).. $ -- $ 440 $ --
Assumption of Marcam Corporation's Subordinated Notes
(2).................................................. -- 25,000 --
Tax benefit associated with the exercise of stock
options and stock awards (3)......................... -- 544 903
Deferred stock compensation related to performance
units (4)............................................ -- -- 231
</TABLE>
- --------
(1) For financial reporting purposes, the Company's financial statements
reflect the assumption of Marcam Corporation's capital structure as of the
Distribution, at which time the Company had capital stock with an
aggregate par value of $440,000, including Common Stock with an aggregate
par value of $115,000 and Preferred Stock with an aggregate par value of
$325,000.
(2) For financial reporting purposes, the Company's financial statements
reflect the assumption of Marcam Corporation's Subordinated Notes, which
were repaid by the Company in connection with the Distribution.
(3) The Company is entitled to an income tax deduction related to Common Stock
purchased through the exercise of non-qualified stock options, through the
exercise of ISO's and look-back options which are sold within one year of
exercise and through the vesting of restricted stock awards. The income
tax benefit of the deduction is not reflected in the statements of
operations but is reflected as an increase in additional paid-in capital.
The cumulative tax benefit associated with the exercise of stock options
recognized by the Company in fiscal 1997 reflects the aggregate historical
tax benefit not recognized by Marcam Corporation during the periods from
October 1, 1993 through the Distribution. In subsequent periods, the tax
benefit associated with the exercise of stock options relate only to the
Company's stock options exercised in the then current reporting period.
(4) The Company accrues compensation expense on a pro-rata basis over the
performance period for Common Stock to be issued pursuant to performance
units issued under its 1998 Long-Term Incentive Plan based on the current
fair value of the estimated shares to be issued in the future with
consideration given to the likelihood that the performance objectives will
be met. The cumulative amount of this deferred stock compensation is
reflected as a component of additional paid-in capital.
18. SUBSEQUENT EVENT
On October 29, 1998, the Company entered into an agreement to lease
approximately 120,000 square feet of new office space (the "New Lease") in
Alpharetta, Georgia, a suburb of Atlanta. The new office space is required to
meet the needs of the Company's growing employee population. The New Lease
will become effective on March 1, 1999, at which time the Company will vacate
its current facilities in Atlanta. The Company has reached an agreement to
assign the four leases for its current facilities in Atlanta (the "Old
Leases") to a third party which will assume all of the Company's obligations
under the Old Leases effective March 1, 1999.
70
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Giving consideration to the future minimum lease payments that will be made
under the New Lease and the termination of the Old Leases on March 1, 1999,
the pro forma future minimum lease payments under noncancelable operating
leases having initial or remaining lease terms longer than one year as of
September 30, 1998 would be as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
FISCAL YEARS ENDING SEPTEMBER 30: -------
<S> <C>
1999................................................................ $ 2,878
2000................................................................ 2,427
2001................................................................ 2,296
2002................................................................ 2,316
2003................................................................ 2,363
Thereafter.......................................................... 9,579
-------
Total............................................................. $21,859
=======
</TABLE>
71
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
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 (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
FISCAL 1997:
Total revenues.................. $23,379 $20,786 $21,997 $29,242 $ 95,404
Income before income tax expense
(benefit)...................... 5,793 4,779 4,861 7,679 23,112
Net income (2).................. 3,563 2,938 2,990 19,625 29,116
FISCAL 1998:
Total revenues.................. $29,594 $29,008 $32,016 $39,123 $129,741
Income before income tax expense
(benefit)...................... 7,540 5,871 6,566 10,475 30,452
Net income...................... 4,637 3,611 4,044 6,436 18,728
</TABLE>
(1) The Company has experienced fluctuations in its quarterly operating
results and anticipates that such fluctuations will continue and may
intensify. Furthermore, the Company's quarterly operating results are
subject to certain seasonal fluctuations. The Company believes that its
first quarter (ending December 31) revenues are positively affected by
calendar year-end capital expenditures by certain customers and calendar
year-end incentives provided by IBM to resellers of its hardware, which
may 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 seasonal factors are likely to continue to affect quarter-to-quarter
comparisons.
(2) Pursuant to a tax sharing agreement between the Company and Marcam
Solutions (See Note 15), the Company became entitled to utilize certain
favorable income tax attributes (principally net operating loss
carryforwards and tax credits) of Marcam Corporation immediately following
the Distribution. As a result, the Company recognized an income tax
benefit of $14.9 million during the fourth quarter of fiscal 1997. Prior
to the Distribution, Marcam Corporation did not reflect a benefit
corresponding to these favorable income tax attributes in its financial
statements because Marcam Corporation's management believed it was more
likely than not such benefits would not be realized due to Marcam
Corporation's history of operating losses. Net income for the fourth
quarter of fiscal 1997 reflects this income tax benefit of $14.9 million.
72
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the directors of the Company will be set forth under
the captions "Proposal 2--Election of Directors--Nominees" and "--Information
Regarding Nominees and Continuing Directors" in the Company's Proxy Statement
for its 1999 Annual Meeting of Shareholders to be held on February 10, 1999
(the "1999 Proxy Statement". Such information is incorporated herein by
reference. Information relating to the executive officers of the Company is
set forth in Part I, Item 4(A) of this report under the caption "Executive
Officers of the Registrant." Information regarding compliance with Section
16(a) of the Securities Exchange Act of 1934 by directors and executive
officers of the Company and beneficial owners of more than 10% of the
Company's Common Stock will be set forth under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in the 1999 Proxy Statement. Such
information is incorporated herein by reference. The 1999 Proxy Statement will
be filed with the Securities and Exchange Commission within 120 days after
September 30, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation will be set forth under the
captions "Proposal 2--Election of Directors--Director Compensation,"
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation" in the 1999 Proxy Statement. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding ownership of the Company's Common Stock by certain
persons will be set forth under the caption "Stock Ownership" in the 1999
Proxy Statement. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and transactions between the
Company and certain non-employee directors of the Company will be set forth
under the captions "Proposal 2--Election of Directors--Director Compensation"
and "Compensation Committee Interlocks and Insider Participation" in the 1999
Proxy Statement. Such information is incorporated herein by reference.
73
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of MAPICS, Inc. and
Subsidiaries are set forth in Item 8 hereof:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................... 43
Consolidated Balance Sheets as of September 30, 1997 and 1998......... 44
Consolidated Statements of Operations for the years ended September
30, 1996, 1997 and 1998.............................................. 45
Consolidated Statements of Equity for the years ended September 30,
1996, 1997 and 1998.................................................. 46
Consolidated Statements of Cash Flows for the years ended September
30, 1996, 1997 and 1998.............................................. 47
Notes to Consolidated Financial Statements............................ 48
Supplemental Financial Information.................................... 72
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All schedules to the consolidated financial statements are omitted as they
are not required under the related instructions or are inapplicable, or
because the required information is included in the consolidated financial
statements or related notes thereto.
3. EXHIBITS
The following exhibits either (i) are filed herewith or (ii) have previously
been filed with the Securities and Exchange Commission and are incorporated
herein by reference to such prior filings. Previously filed registration
statements and reports which are incorporated herein by reference are
identified in the column captioned "SEC Document Reference." The Company will
furnish any exhibit upon request to Martin D. Avallone, Vice President,
General Counsel and Secretary of the Company, 5775-D Glenridge Drive, Atlanta,
Georgia 30328-5360. There is a charge of $.50 per page to cover expenses of
copying and mailing.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of 000-18674
March 30, 1998 between MAPICS, Inc, a Exhibit 2.1 to Form 10-Q dated May 14,
Massachusetts corporation, and MAPICS, 1998
Inc., a Georgia corporation
3.1 Articles of Incorporation of the 000-18674
Registrant Exhibit 4.1 to Registration Statement on
Form 8-A dated March 31, 1998, as
amended by Form 8-A/A dated August 21,
1998
3.2 By-laws of the Registrant 000-18674
Exhibit 4.2 to Registration Statement on
Form 8-A dated March 31, 1998, as
amended by Form 8-A/A dated August 21,
1998
4.1 Specimen certificate representing the 000-18674
Common Stock Exhibit 3 to Registration Statement on
Form 8-A dated March 31, 1998, as
amended by Form 8-A/A dated August 21,
1998
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
4.2 Amended and Restated Rights Agreement 000-18674
dated as of March 30, 1998 among MAPICS, Exhibit 4 to Registration Statement on
Inc., a Georgia corporation, MAPICS, Form 8-A dated March 31, 1998, as
Inc., a Massachusetts corporation, and amended by Form 8-A/A dated August 21,
BankBoston, N.A., as its rights agent, 1998
which includes as Exhibit A the terms of
the Series F Preferred Stock, as Exhibit
B the Form of Rights Certificate and as
Exhibit C the Form of Summary of Rights
to Purchase Preferred Stock
10.1* 1990 Employee Stock Purchase Plan, as 000-18674
amended and restated Exhibit 10.21 to Annual Report on, Form
10-K for the fiscal year ended September
30, 1991
10.2* Deferred Compensation Plan for Non-- 000-18674
Employee Directors, as amended and Exhibit 10.22 to Annual Report on Form
restated 10-K for the fiscal year ended September
30, 1991
10.3 Note and Warrant Purchase Agreement 000-18674
entered into by Marcam Corporation and Exhibit 10.1 to Quarterly Report on Form
each of The Northwestern Mutual Life 10-Q dated May 12, 1994 as amended by
Insurance Company, John Hancock Mutual Form 10-Q/A dated October 6, 1994
Life Insurance Company and John Hancock
Life Insurance Company of America dated
as of May 12, 1994
10.4 Amendment Agreement dated as of August 000-18674
19, 1994 by and among the Registrant, Exhibit 10.1 to Quarterly Report on Form
The Northwestern Mutual Life Insurance 10-Q dated August 22, 1994
Company, John Hancock Mutual Life
Insurance Company and John Hancock Life
Insurance Company of America
10.5 Amendment Agreement dated as of July 29, 000-18674
1995 by and among the Registrant, The Exhibit 10.36 to Annual Report of Form
Northwestern Mutual Life Insurance 10-K for the fiscal year ended September
Company, John Hancock Mutual Life 30, 1994 as amended
Insurance Company and John Hancock Life
Insurance Company of America
10.6 Loan and Security Agreement dated as of 000-18674
August 29, 1995 by and between Greyrock Exhibit 10.37 to Annual Report of Form
Business Credit, a division of Greyrock 10-K for the fiscal year ended September
Capital Group, Inc., and the Registrant 30, 1994 as amended
10.7 Amendment Agreement dated as of 33-90670
September 29, 1995 by and among the Exhibit 10.4
Registrant, The Northwestern Mutual Life
Insurance Company, John Hancock Mutual
Life Insurance Company and John Hancock
Life Insurance Company of America and
Barnett & Co.
10.8 Amendment Agreement dated as of November 000-18674
14, 1995 by and among the Registrant, Exhibit 10.31 to Annual Report on Form
The Northwestern Mutual Life Insurance 10-K for the fiscal year ended September
Company, John Hancock Mutual Life 30, 1995 as amended
Insurance Company and John Hancock
Insurance Company of America and Barnett
& Co.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
10.9 Amendment Agreement dated as of December 000-18674
15, 1995 by and among the Registrant, Exhibit 10.38 to Annual Report on Form
The Northwestern Mutual Life Insurance 10-K for the fiscal year ended September
Company, John Hancock Mutual Life 30, 1995 as amended
Insurance Company, John Hancock Life
Insurance Company of America and Barnett
& Co.
10.10 Letter dated March 29, 1996 to 000-18674
Northwestern Mutual Life Insurance Exhibit 10.1 to Quarterly Report on Form
Company, John Hancock Life Insurance 10-Q dated May 14, 1996
Company of America and Barnett & Co.
from Marcam Corporation
10.11 Amendment dated as of March 30, 1996 to 000-18674
Loan and Security Agreement dated as of Exhibit 10.2 to Quarterly Report on Form
August 29, 1995 by and between Greyrock 10-Q dated May 14, 1996
Business Credit, a division of Greyrock
Capital Group, and the Registrant
10.12 Amendment and Waiver Agreement dated as 000-18674
of July 16, 1996 by and among the Exhibit 10.1 to Quarterly Report on Form
Registrant, The Northwestern Mutual Life 10-Q dated August 14, 1996
Insurance Company, John Hancock Mutual
Life Insurance Company, John Hancock
Life Insurance Company of America and
Barnett & Co.
10.13 Amendment dated July 23, 1996 to Loan 000-18674
and Security Agreement by and between Exhibit 10.2 to Quarterly Report on Form
Greyrock Business Credit, a division of 10-Q dated August 14, 1996
Greyrock Capital Group, and the
Registrant
10.14 Amendment dated December 16, 1996 to 000-18674
Loan and Security Agreement by and Exhibit 10.35 to Annual Report on Form
between Greyrock Business Credit, a 10-K for the fiscal year ended September
division of Greyrock Capital Group, and 30, 1996
the Registrant
10.15 Amendment dated December 16, 1996 to 000-18674
Loan and Security Agreement by and Exhibit 10.36 to Annual Report on Form
between Greyrock Business Credit, a 10-K for the fiscal year ended September
division of Greyrock Capital Group and 30, 1996
the Registrant
10.16 Amendment Agreement dated as of December 000-18674
23, 1996 by and among the Registrant, Exhibit 10.37 to Annual Report on Form
The Northwestern Mutual Life Insurance 10-K for the fiscal year ended September
Company, John Hancock Mutual Life 30, 1996
Insurance Company, John Hancock Life
Insurance Company of America and Barnett
& Co.
10.17 Convertible Preferred Stock Purchase 000-18674
Agreement dated September 20, 1995 by Exhibit 10.2 to Current Report on Form
and among Marcam Corporation, General 8-K dated September 29, 1995
Atlantic Partners 21, L.P. GAP
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
10.18 Convertible Preferred Stock and Warrant 000-18674
Purchase Agreement dated July 19, 1996 Exhibit 10.1 to Current Report on Form
among Marcam Corporation, General 8-K dated July 23, 1996
Atlantic Partners 32, L.P. and GAP
Coinvestments Partners, L.P., including
the form of Marcam Corporation Common
Stock Purchase Warrants
10.19 Amended and Restated Registration Rights 000-18674
Agreement dated July 23, 1996 by and Exhibit 10.2 to Current Report on Form
among Marcam Corporation, General 8-K dated July 23, 1996
Atlantic Partners 21, L.P., General
Atlantic Partners 32, L.P., GAP
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company
10.20 Distribution Agreement between Marcam 000-22841
Solutions, Inc. and Marcam Corporation Exhibit 2 to Amendment No. 1 to
Registration Statement on Form 10 of
Marcam Solutions, Inc. dated July 22,
1997
10.21 Tax Sharing Agreement between Marcam 000-22841
Solutions, Inc. and Marcam Corporation Exhibit 10.2 to Amendment No. 1 to
Registration Statement on Form 10 of
Marcam Solutions, Inc. dated July 22,
1997
10.22 General Services Agreement between 000-22841
Marcam Solutions, Inc. and Marcam Exhibit 10.1 to Amendment No. 1 to
Corporation Registration Statement on Form 10 of
Marcam Solutions, Inc. dated July 22,
1997
10.23 Revolving Credit and Term Loan Agreement 000-18674
dated as of August 4, 1997, as Amended Exhibit 10.1 to Form 10-Q dated August
and Restated through March 31, 1998, 13, 1998
among MAPICS, Inc., BankBoston, N.A. and
the other lending institutions set forth
on Schedule I thereto, and BankBoston,
N.A. as agent
10.23 Security Agreement dated August 4, 1997 000-18674
between MAPICS, Inc. and BankBoston N.A. Exhibit 10.2 to Current Report on Form
as agent 8-K dated August 12, 1997
10.23 Revolving Credit Note in the principal 000-18674
amount of $15,000,000 dated August 4, Exhibit 10.3 to Current Report on Form
1997 8-K dated August 12, 1997
10.23 Term Note in the principal amount of 000-18674
$15,000,000 dated August 4, 1997 Exhibit 10.4 to Current Report on Form
8-K dated August 12, 1997
10.24* 1994 Stock Plan, as amended and restated 333-02158
Exhibit 4.4
10.25* 1987 Stock Plan, as amended and restated 000-18674
Exhibit 10.33 to Annual Report on Form
10-K for the fiscal year ended September
30, 1996
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
10.26* 1991 Non-Employee Director Stock Option 000-18674
Plan, as amended and restated Exhibit 10.34 to Annual Report on Form
10-K for the fiscal year ended September
30, 1996
10.27* Memoranda regarding Compensation Plans 000-18674
for fiscal 1997 from MAPICS to each of Exhibit 10.40 to Annual Report on Form
Messrs. Cook, Aery and Gilmour 10-K for the fiscal year ended September
30, 1997
10.28* 1998 Non-Employee Director Stock Option 333-48989
Plan Exhibit 99.1 to Form S-8 dated March 31,
1998
10.29* 1998 Non-Employee Director Stock 333-48989
Incentive Plan Exhibit 99.2 to Form S-8 dated March 31,
1998
10.30* 1998 Long-Term Incentive Plan 333-48989
Exhibit 99.3 to Form S-8 dated March 31,
1998
10.31* 1998 Employee Stock Purchase Plan 333-48989
Exhibit 99.4 to Form S-8 dated March 31,
1998
10.32* Amendment No. 1 to 1998 Long-Term 000-18674
Incentive Plan dated May 5, 1998 Exhibit 10.45 to Form 10-Q dated May 14,
1998
10.33 Change of Control Employment Agreement 000-18674
by and between MAPICS, Inc. and Richard Exhibit 10.46 to Form 10-Q dated May 14,
C. Cook dated as of March 24, 1998 1998
10.34 Change of Control Employment Agreement 000-18674
by and between MAPICS, Inc. and Thomas Exhibit 10.47 to Form 10-Q dated May 14,
F. Aery dated as of March 31, 1998 1998
10.35 Change of Control Employment Agreement 000-18674
by and between MAPICS, Inc. and William Exhibit 10.48 to Form 10-Q dated May 14,
J. Gilmour dated as of March 31, 1998 1998
10.36+ Change of Control Employment Agreement
by and between MAPICS, Inc. and Martin
Avallone dated as of March 27, 1998
10.37+ Sublease Agreement by and between
General Electric Capital Corporation and
MAPICS, Inc. dated as of October 29,
1998
10.38+ Assignment and Assumption of Lease and
Consent of Landlord by and among MAPICS,
Inc., General Electric Capital
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of certain
premises in the 5775-D Glenridge Drive
Building in Atlanta, Georgia, containing
47,902 square feet
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION SEC DOCUMENT REFERENCE
------- ----------- ----------------------
<S> <C> <C>
10.39+ Assignment and Assumption of Lease and
Consent of Landlord by and among MAPICS,
Inc., General Electric Capital
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of certain
premises described as Suites 100, 150
and 425 in the 5775-D Glenridge Drive
Building in Atlanta, Georgia
10.40+ Assignment and Assumption of Lease and
Consent of Landlord by and among MAPICS,
Inc., General Electric Capital
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of certain
premises described as Suites 400 and 475
in the 5775-D Glenridge Drive Building
in Atlanta, Georgia
10.41+ Assignment and Assumption of Lease and
Consent of Landlord by and among MAPICS,
Inc., General Electric Capital
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of certain
premises described as Suite 105 in the
5775-D Glenridge Drive Building in
Atlanta, Georgia
21+ Subsidiaries of the Registrant
23.1+ Consent of PricewaterhouseCoopers LLP
23.2+ Consent of PricewaterhouseCoopers LLP
27.1+ Financial Data Schedule for the year
ended September 30, 1998 (for SEC use
only)
27.2+ Restated Financial Data Schedule for the
year ended September 30, 1997 (for SEC
use only)
</TABLE>
- --------
* Compensatory management plan.
+ Filed herewith.
(B) REPORTS ON FORM 8-K
The Company filed no Current Reports on Form 8-K during the fourth fiscal
quarter ended September 30, 1998.
(C) SEE ITEM 14(A)(3) ABOVE.
(D) SEE ITEM 14(A)(2) ABOVE.
79
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on December 16,
1998.
MAPICS, Inc.
/s/ Richard C. Cook
By: _________________________________
Richard C. Cook
President and Chief Executive
Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on
December 16, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Richard C. Cook President, Chief Executive Officer and
______________________________ Director
Richard C. Cook
/s/ George A. Chamberlain 3d Director
______________________________
George A. Chamberlain 3d
/s/ William E. Ford Director
______________________________
William E. Ford
/s/ Roger Heinen, Jr. Director
______________________________
Roger Heinen, Jr.
/s/ Edward J. Kfoury Director
______________________________
Edward J. Kfoury
/s/ Terry H. Osborne Director
______________________________
Terry H. Osborne
/s/ H. Mitchell Watson, Jr. Director
______________________________
H. Mitchell Watson, Jr.
/s/ William J. Gilmour Vice President of Finance, Treasurer
______________________________ and Chief Accounting Officer
William J. Gilmour
</TABLE>
80
<PAGE>
[MAPICS Logo Appears Here]
<PAGE>
EXHIBIT 10.36
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
--------------------------------------
AGREEMENT by and between MAPICS, Inc. (the "Company") and Martin Avallone
(the "Executive"), dated as of the 27th day of March, 1998.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section l(b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs during the Change of Control
Period and if the Executive's employment with the Company has been terminated
either by the Company without Cause or by the Executive for Good Reason (as such
terms are defined in Section 5) within one year prior to the date on which the
Change of Control occurs, and unless it is reasonably demonstrated by the
Company that such termination of employment (i) was not at the request of a
third party who has taken steps reasonably calculated to effect the Change of
Control and (ii) did not otherwise arise in connection with or anticipation of
the Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
<PAGE>
2. Change of Control. For the purposes of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following acquisitions shall not constitute a Change
of Control: (i) any acquisition by a Person who is on the date of this Agreement
the beneficial owner of 25% or more of the Outstanding Company Voting
Securities, (ii) any acquisition directly from the Company, (iii) any
acquisition by the Company, (iv) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (v) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of subsection (c)
of this Section 2; or
(b) Individuals who, as of the date of this Agreement, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date of this Agreement whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting
-2-
<PAGE>
from such Business Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 25% or more of the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
-----------------
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date, and (B) the
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or location less
than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) engage in other business activities that do not
represent a conflict of interest with the full execution of his duties to the
Company, and (C) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's responsibilities
as an employee of the Company in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
-3-
<PAGE>
nature and scope thereto) subsequent to the Effective Date shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period, the Executive shall
-----------
receive an annual base salary ("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to 12 times the highest monthly base salary paid or
payable, including any base salary which has been earned but deferred, to the
Executive by the Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall be reviewed no more
than 12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in this Agreement,
the term "affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall
------------
be awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
annual bonus for the last three full fiscal years prior to the Effective Date
(annualized in the event that the Executive was not employed by the Company for
the whole of such fiscal year). Each such Annual Bonus shall be paid no later
than the end of the third month of the fiscal year next following the fiscal
year for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
--------------------------------- -----
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
---------------------
and/or the Executive's family, as the case may be, shall be eligible for
-4-
<PAGE>
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall
---------------
be entitled to fringe benefits in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
-5-
<PAGE>
(b) Cause. The Company may terminate the Executive's employment during the
-----
Employment Period with or without Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason or for no reason. For purposes of this Agreement,
"Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
-6-
<PAGE>
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
---------------------
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 12(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination or any later date specified in such notice, (iii)
if the Executive's employment is terminated by reason of death or
-7-
<PAGE>
Disability, the Date of Termination shall be the date of death of the Executive
or the Disability Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
------------------------------------------------------
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability, or the Executive shall terminate employment
for Good Reason, then in consideration of Executive's services rendered prior to
such termination and of Executive's covenants contained in Section 10 hereof:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
Annual Bonus paid or payable, including any bonus or portion thereof which has
been earned but deferred, for the most recently completed fiscal year during the
Employment Period, if any (such amount being referred to as the "Most Recent
Annual Bonus") and (y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination, and the denominator
of which is 365, and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon and subject to any prior
election by the Executive to receive such deferred amounts in installments) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to two times the sum of (1) the Executive's Annual
Base Salary and (2) the Most Recent Annual Bonus;
(ii) for two years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes re-employed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the
-8-
<PAGE>
Executive shall be considered to have remained employed until two years after
the Date of Termination and to have retired on the last day of such period;
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(iv) notwithstanding any provision of this Agreement to the contrary, the
Executive shall forfeit his right to receive, or, to the extent such amounts
have previously been paid to the Executive, shall repay in full to the Company
within thirty (30) days of a final determination of the Executive's liability
therefor as set forth below, the amount described in Section 6(a)(i)(B) of this
Agreement if at any time during the period of two years after the Date of
Termination he violates the Restrictive Covenants set forth in Section 10
hereof.
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall include
without limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable of the
following: (1) of the benefits provided by the Company and affiliated companies
to the estates and beneficiaries of peer executives of the Company and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, as in effect with respect to other peer executives
and their beneficiaries at any time during the 120-day period immediately
preceding the Effective Date, or (2) similar benefits in effect on the date of
the Executive's death with respect to other peer executives of the Company and
its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of the following: (1) disability and other benefits generally provided by the
Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any,
-9-
<PAGE>
as in effect generally with respect to other peer executives and their families
at any time during the 120-day period immediately preceding the Effective Date,
or (2) disability and other benefits in effect at any time thereafter generally
with respect to other peer executives of the Company and its affiliated
companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall
---------------------------------
be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
explicitly provided herein, such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to pay as incurred, to
the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
-10-
<PAGE>
9. Limitation of Benefits.
----------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any benefit, payment or distribution by the
Company to or for the benefit of the Executive (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (a "Payment") would, if
paid, be subject to the excise tax imposed by Section 4999 of the Code (the
"Excise Tax"), then the Payment shall be reduced to the extent necessary of
avoid the imposition of the Excise Tax. The Executive may select the Payments
to be limited or reduced.
(b) All determinations required to be made under this Section 9, including
whether an Excise Tax would otherwise be imposed and the assumptions to be
utilized in arriving at such determination, shall be made by Coopers & Lybrand
L.L.P. or such other certified public accounting firm as may be designated by
the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that a Payment is due to be made, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive may appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Payments
hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
10. Restrictions on Conduct of the Executive. The Executive and the
----------------------------------------
Company understand and agree that the purpose of the provisions of this Section
10 is to protect legitimate business interests of the Company, as more fully
described below, and is not intended to eliminate the Executive's post-
employment competition with the Company per se, nor is it intended to impair or
infringe upon the Executive's right to work, earn a living, or acquire and
possess property from the fruits of his labor. The Executive hereby
acknowledges that the post-employment restrictions set forth in this Section 10
are reasonable and that they do not, and will not, unduly impair his ability to
earn a living after the termination of this Agreement. Therefore, subject to
the limitations of reasonableness imposed by law upon the restrictions set forth
herein by the time and geographical area described below, the Executive shall be
subject to the restrictions set forth in this Section 10.
-11-
<PAGE>
(a) Definitions. The following capitalized terms used in this Section 10
-----------
shall have the meanings assigned to them below, which definitions shall apply to
both the singular and the plural forms of such terms:
"Competitive Services" means providing enterprise resource planning
software applications for discrete and batch-process mid-size manufacturing
enterprises (i.e., enterprises having annual revenue of $20 million to $500
million).
"Confidential Information" means any confidential or proprietary
information possessed by the Company or its affiliated entities or relating to
its or their business, including without limitation, any confidential customer
lists, details of client or consultant contracts, current and anticipated
customer requirements, pricing policies, price lists, market studies, business
plans, operational methods, marketing plans or strategies, product development
techniques or plans, unannounced computer software programs, computer software
program source code, data and documentation, data base technologies, computer
program structures and architectures, inventions and ideas, past, current and
planned research and development, compilations, devices, methods, techniques,
processes, financial information and data, business acquisition plans, new
personnel acquisition plans and any other information that would constitute a
"trade secret(s)" under the common law or statutory law of the State of Georgia.
"Determination Date" means the date of termination of the Executive's
employment with the Company for any reason whatsoever or any earlier date
(during the Employment Period) of an alleged breach of the Restrictive Covenants
by the Executive.
"Person" means any individual or any corporation, partnership, joint
venture, association or other entity or enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"Protected Customers" means customers of the Company that purchased
Competitive Services from the Company within one (1) year prior to the
Determination Date.
"Protected Employees" means employees of the Company who were employed by
the Company at any time within six (6) months prior to the Determination Date.
"Restricted Period" means the period extending two (2) years from the
termination of the Executive's employment with the Company for any reason
whatsoever.
-12-
<PAGE>
"Restricted Territory" means the following territory, in which the
Executive engages in the provision of Competitive Services on behalf of the
Company on the date of this Agreement: State of Georgia.
"Restrictive Covenants" means the restrictive covenants contained in
Section 10 hereof.
(b) Restrictive Covenants.
---------------------
(i) Restriction on Disclosure and Use of Confidential Information. The
-------------------------------------------------------------
Executive understands and agrees that the Confidential Information constitutes a
valuable asset of the Company and its affiliated entities, and may not be
converted to the Executive's own use. Accordingly, the Executive hereby agrees
that the Executive shall not, directly or indirectly, at any time during the
Restricted Period reveal, divulge, or disclose to any Person not expressly
authorized by the Company any Confidential Information, and the Executive shall
not, directly or indirectly, at any time during the Restricted Period use or
make use of any Confidential Information in connection with any business
activity other than that of the Company. The parties acknowledge and agree that
this Agreement is not intended to, and does not, alter either the Company's
rights or the Executive's obligations under any state or federal statutory or
common law regarding trade secrets and unfair trade practices.
(ii) Nonsolicitation of Protected Employees. The Executive understands
--------------------------------------
and agrees that the relationship between the Company and each of its Protected
Employees constitutes a valuable asset of the Company and may not be converted
to the Executive's own use. Accordingly, the Executive hereby agrees that
during the Restricted Period the Executive shall not directly or indirectly on
the Executive's own behalf or as a Principal or Representative of any Person or
otherwise solicit or induce any Protected Employee to terminate his or her
employment relationship with the Company or to enter into employment with any
other Person.
(iii) Nonsolicitation of Protected Customers. The Executive understands
--------------------------------------
and agrees that the relationship between the Company and each of its Protected
Customers constitutes a valuable asset of the Company and may not be converted
to the Executive's own use. Accordingly, the Executive hereby agrees that,
during the Restricted Period, the Executive shall not, without the prior written
consent of the Company, directly or indirectly, on the Executive's own behalf or
as a Principal or Representative of any Person or otherwise, solicit a Protected
Customer for the purpose of providing or selling Competitive Services; provided,
however, that the prohibition of this covenant shall apply only to Protected
Customers with whom the Executive had Material Contact on the Company's behalf
during the twelve (12) months immediately preceding the Date of Termination.
For purposes of this Agreement, the Executive had "Material Contact" with a
Protected Customer if (a) he had business dealings with the Protected Customer
on the Company's behalf; (b) he was responsible for supervising or coordinating
the dealings between the Company and the Protected Customer; or (c) he
-13-
<PAGE>
obtained Confidential Information about the customer as a result of his
association with the Company.
(iv) Noncompetition with the Company. The Executive understands and
-------------------------------
agrees that, during the Restricted Period and within the Restricted Territory,
he shall not, directly or indirectly, on his own or on behalf of any Person, be
affiliated with as a Principal or Representative any Person engaged, in whole or
in part, in the provision of Competitive Services in a capacity where
Executive's duties or responsibilities for such Person will include strategic
planning, policymaking or management; provided, however, that the provisions of
Section 10 shall not be deemed to prohibit the ownership by the Executive of any
securities of the Company or its affiliated entities or not more than five
percent (5%) of any class of securities of any corporation having a class of
securities registered pursuant to the Exchange Act.
(c) Exceptions from Disclosure Restrictions. Anything herein to the
---------------------------------------
contrary notwithstanding, the Executive shall not be restricted from disclosing
or using Confidential Information that: (a) is or becomes generally available to
the public other than as a result of an unauthorized disclosure by the Executive
or his agent; (b) becomes available to the Executive in a manner that is not in
contravention of applicable law from a source (other than the Company or its
affiliated entities or one of its or their officers, employees, agents or
representatives) that is not bound by a confidential relationship with the
Company or its affiliated entities or by a confidentiality or other similar
agreement; (c) was known to the Executive on a non-confidential basis and not in
contravention of applicable law or a confidentiality or other similar agreement
before its disclosure to the Executive by the Company or its affiliated entities
or one of its or their officers, employees, agents or representatives; or (d) is
required to be disclosed by law, court order or other legal process; provided,
however, that in the event disclosure is required by law, the Executive shall
provide the Company with prompt notice of such requirement so that the Company
may seek an appropriate protective order prior to any such required disclosure
by the Executive.
(d) Enforcement of Restrictive Covenants.
------------------------------------
(i) Rights and Remedies Upon Breach. In the event the Executive breaches,
-------------------------------
or threatens to commit a breach of, any of the provisions of the Restrictive
Covenants, the Company shall have the following rights and remedies, which shall
be independent of any others and severally enforceable, and shall be in addition
to, and not in lieu of, any other rights and remedies available to the Company
at law or in equity:
(A) the right and remedy to enjoin, preliminarily and permanently, the
Executive from violating or threatening to violate the Restrictive Covenants and
to have the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened breach of
the Restrictive Covenants would cause irreparable injury to the Company and that
money damages would not provide an adequate remedy to the Company; and
-14-
<PAGE>
(B) the right and remedy to require the Executive to account for and pay
over to the Company all compensation, profits, monies, accruals, increments or
other benefits derived or received by the Executive as the result of any
transactions constituting a breach of the Restrictive Covenants.
(ii) Severability of Covenants. The Executive acknowledges and agrees
-------------------------
that the Restrictive Covenants are reasonable and valid in time and scope and in
all other respects. If any court determines that any of the Restrictive
Covenants, or any part thereof, are invalid or unenforceable, the remainder of
the Restrictive Covenants shall not thereby be affected and shall be given full
effect, without regard to the invalid portions.
(iii) Attorneys' Fees. In any action relating to the enforcement of the
---------------
Restrictive Covenants, the prevailing party in such action shall be entitled to
be paid any and all costs and expenses incurred by him or it in enforcing or
establishing his or its rights thereunder, including, without limitation,
reasonable attorneys' fees, whether suit be brought or not, and whether or not
incurred in trial, bankruptcy or appellate proceedings.
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than-by a
-15-
<PAGE>
written agreement executed by the parties hereto or their respective successors
and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Martin Avallone
229 Nacoochee Drive
Atlanta, Georgia 30305
If to the Company:
MAPICS, Inc.
5775-D Glenridge Drive
Atlanta, Georgia 30328
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
subject to Section 1(a) hereof, prior to the Effective Date, the Executive's
employment may be terminated by either the Executive or the Company at any time
prior to the Effective Date, in which case the Executive shall have no further
rights under this Agreement.
-16-
<PAGE>
However, absent termination of employment of the Executive, this Agreement may
not be terminated by the Company during the Change of Control Period and before
the Effective Date. From and after the Effective Date, this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof, including without limitation any then-current employment
agreement between the Company and the Executive.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf by its
undersigned officer thereunto, duly authorized, all as of the day and year first
above written.
/s/ Martin D. Avallone
-------------------------------
MAPICS, INC.
By: /s/ Richard C. Cook
---------------------------
Title: President & C.E.O.
-------------------
-17-
<PAGE>
EXHIBIT 10.37
1000 WINDWARD CONCOURSE PARKWAY
SUBLEASE AGREEMENT
------------------
This sublease agreement (this "Sublease") made as of October 29, 1998, by
and between GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
("GECC"), and MAPICS, INC., a Georgia corporation ("MAPICS").
WHEREAS, Development Authority of Fulton County, as landlord ("Development
Authority") and National Build To Suit Windward, L.L.C., an Illinois limited
liability company, as tenant ("NBTS") entered into that certain Lease Agreement
("Prime Lease") dated December 1, 1996 and recorded in Deed Book 23337, Page 6,
Fulton County, Georgia records for the lease of the Project (as that term is
defined under the Prime Lease) located at 1000 Windward Concourse Parkway,
Alpharetta, Georgia 30005 ("Premises"); a copy of the Prime Lease has been
delivered by GECC to MAPICS prior to MAPICS' execution and delivery of this
Sublease;
WHEREAS, NBTS, as sublandlord, subleased the Project to GECC, as subtenant,
pursuant to that certain Amended and Restated Build to Suit Sublease dated
December 1, 1996, as amended by that certain First Addendum to Amended and
Restated Build to Suit Sublease dated January 1, 1997 ("Intermediate Lease"); a
copy of the Intermediate Lease has been delivered by GECC to MAPICS prior to
MAPICS' execution and delivery of this Sublease;
WHEREAS, GECC, as subsublandlord, desires to sublease a portion of the
Premises to MAPICS, as subsubtenant, and MAPICS desires to sublease from GECC
approximately 119,276 square feet of rentable area located in the building
("Building") located on the Premises.
NOW, THEREFORE, for and in consideration of the covenants and agreements
set forth in this Sublease, GECC and MAPICS hereby agree as follows:
W I T N E S S E T H:
--------------------
1. PRIME LEASE AND INTERMEDIATE LEASE. MAPICS acknowledges that GECC's right
----------------------------------
title and interest to the Premises derives from the Prime Lease and the
Intermediate Lease, however MAPICS is not assuming and shall not be bound by any
obligation under the Prime Lease or the Intermediate Lease, but shall only be
liable for the obligations set forth in this Sublease. GECC shall remain
responsible for complying with all terms and conditions of the Prime Lease and
Intermediate Lease.
2. SUBLEASED PREMISES; SUBLEASE TERM. GECC hereby leases to MAPICS and MAPICS
---------------------------------
hereby leases from GECC approximately (i) 16,693 square feet of rentable area
located on the first floor ("First Floor") of the Building, (ii) 50,090 square
feet of rentable area located on the second floor ("Second Floor") of the
Building, and (iii) 52,493 square feet of rentable area located on the third
floor ("Third Floor") of the Building; all as more particularly depicted on the
<PAGE>
Floor Plan attached hereto as Exhibit "A" and made a part hereof (the First
-----------
Floor, Second Floor and Third Floor space together with the Leased Equipment, as
defined hereinafter, is referred to collectively as the "Subleased Premises").
MAPICS hereby acknowledges and agrees (a) with respect to the First Floor, that
the square footage of usable area is 14,516 and that the square footage of
rentable area is determined by multiplying the square footage of usable area by
a factor of 1.15, (b) with respect to the Second Floor, that the square footage
of usable area is 45,954.47 and that the square footage of rentable area is
determined by multiplying the square footage of usable area by a factor of 1.09,
and (c) with respect to the Third Floor, that the square footage of usable area
is 48,159.17 and that the square footage of rentable area is determined by
multiplying the square footage of usable area by a factor of 1.09. For the
purpose of this Sublease, GECC and MAPICS hereby expressly agree that the total
square footage of the Subleased Premises is 119,276 square feet of rentable area
and 108,629.64 square feet of usable area. Except as otherwise provided in
Exhibit "C" attached hereto and incorporated herein by this reference, the term
- -----------
of this Sublease (the "Sublease Term") shall commence on March 1, 1999 (the
"Commencement Date"); the Sublease Term shall expire on October 31, 2007, unless
earlier terminated in accordance with the terms hereof.
Prior to the Commencement Date, at such reasonable times as MAPICS and GECC
shall agree upon, MAPICS shall have the right to enter the telephone room on the
first floor of the west wing of the Building for the purpose of installing a
separate new telephone switch (the "MAPICS Phone Switch") for the exclusive use
of MAPICS during the Sublease Term. The dimensions and location of the MAPICS
Phone Switch inside the telephone room shall be subject to the prior written
approval of GECC. During installation of the MAPICS Phone Switch, MAPICS shall
have access to the telephone room and, moreover, may bring into the telephone
room as many technicians as are reasonably necessary to complete installation of
the MAPICS Phone Switch; provided, however, that each and every one of said
technicians shall be accompanied in the telephone room, at all times, by George
D. Carroll or such other individual representative of MAPICS as Mr. Carroll may
designate by prior written notice to GECC. At all times during the Sublease
Term, MAPICS shall have access to the telephone room for the purpose of
maintaining the MAPICS Phone Switch; provided, however, that said access shall
be subject to the following conditions:
(1) Access to the MAPICS Phone Switch on behalf of MAPICS shall be limited
to one technician who shall, at all times, be accompanied by George D.
Carroll or such other individual representative of MAPICS as Mr.
Carroll may designate by prior written notice to GECC; and
(2) No party entering the telephone room on behalf of MAPICS shall have
contact with any switch or other equipment in the telephone room
except the MAPICS Phone Switch.
3. RENT. The rent hereunder ("Rent") initially shall be Twenty-Two and 95/100
----
Dollars ($22.95) per square foot of rentable area per annum. MAPICS agrees to
pay Rent to GECC, subject to the increases under paragraph 4 hereinbelow, in the
monthly amount of Two Hundred Twenty-Eight Thousand One Hundred Fifteen and
35/100 Dollars ($228,115.35), which monthly
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<PAGE>
payments shall be made on the first day of each full calendar month during the
Sublease Term. Said monthly payments of Rent shall be prorated and paid as
appropriate for any partial calendar month during the Sublease Term. If any
monthly payment of Rent is not received by the tenth (10th) day of the month, a
late fee equal to five percent (5%) of the monthly payment amount shall be due
and payable concurrently with said late payment. Rent hereunder consists of the
two following components:
(i) a base amount for MAPICS' use and occupancy of the Subleased Premises
(the "Base Rent") which amount is not attributable in any manner
whatsoever to Operating Expenses (as that term is defined in paragraph
14(a) hereinbelow) of the Building -- the initial Base Rent under this
Sublease is Sixteen and 95/100 Dollars ($16.95) per square foot of
rentable area per annum; and
(ii) an amount attributable to MAPICS' Prorata Share of Operating Expenses
of the Building (the "Operating Expense Contribution") -- for the
purpose of calculating the initial Rent under this Sublease, the
Operating Expense Contribution is Six and no/100 Dollars ($6.00) per
square foot of rentable area per annum. From and after January 1,
2000, any increase in the Operating Expense Contribution shall be
calculated in accordance with the requirements of paragraph 4(b)
hereinbelow.
4. ADJUSTMENT OF RENT. Beginning on January 1, 2000, and continuing on January
------------------
1 of each and every successive year during the Sublease Term, Rent shall be
adjusted as follows:
(a) Adjustment of Base Rent. Base Rent shall be increased by three percent
-----------------------
(3%). Accordingly, Base Rent during the Sublease Term shall conform to the
following schedule:
<TABLE>
<CAPTION>
PERIOD ANNUAL AMOUNT MONTHLY AMOUNT
- ------ ------------- --------------
<S> <C> <C>
03/01/1999 through 12/31/1999 $1,684,773.50 $168,477.35
(10 months)
01/01/2000 through 12/31/2000 2,082,380.05 173,531.67
01/01/2001 through 12/31/2001 2,144,851.45 178,737.62
01/01/2002 through 12/31/2002 2,209,197.00 184,099.75
01/01/2003 through 12/31/2003 2,275,472.91 189,622.74
01/01/2004 through 12/31/2004 2,343,737.09 195,311.42
01/01/2005 through 12/31/2005 2,414,049.21 201,170.77
01/01/2006 through 12/31/2006 2,486,470.68 207,205.89
01/01/2007 through 10/31/2007 2,134,220.67 213,422.07
(10 months)
</TABLE>
(b) Adjustment of Operating Expense Contribution. The Operating Expense
--------------------------------------------
Contribution shall be adjusted to an amount that equals the product of (a)
MAPICS' Prorata Share (as that term is defined in paragraph 14(b) hereinbelow),
multiplied by (b) the amount by which annual Operating Expenses exceed Six and
no/100 Dollars ($6.00) per square foot of
-3-
<PAGE>
rentable area in the Building; provided, however, that in no event shall the
Operating Expense Contribution be reduced to an amount less than the initial
Operating Expense Contribution under this Sublease (i.e., $715,656.00 per annum;
----
$59,638.00 per month), and in no event shall MAPICS owe more than $6.00 per
square foot of rentable area per annum for the Operating Expense Contribution
for any period prior to January 1, 2000.
5. FIRST RENT PAYMENT. Concurrently with MAPICS' execution of this Sublease,
------------------
MAPICS shall pay to GECC Rent due for the first full calendar month of the
Sublease Term.
6. ACCEPTANCE OF SUBLEASED PREMISES; IMPROVEMENTS. With respect to the Second
----------------------------------------------
Floor and Third Floor of the Subleased Premises, MAPICS shall take the Subleased
Premises on an "AS IS" basis. With respect to the First Floor of the Subleased
Premises, taking of possession by MAPICS shall be deemed conclusively to
establish that (i) the Improvements (as that term is defined in paragraph 15
hereinbelow) have been completed in accordance with the Plans (as that term is
defined in paragraph 15 hereinbelow), and (ii) the First Floor of the Subleased
Premises is in good and satisfactory condition, as of the date possession is
taken by MAPICS, subject to punchlist items, which shall be GECC's obligation to
repair and any defects covered by warranties from contractors or suppliers. In
the event of any dispute as to substantial completion of the Improvements by
GECC, completion of the Improvements shall be conclusively deemed upon GECC's
delivery to MAPICS of (a) a certificate of occupancy issued by the appropriate
governmental authority, and (b) a certificate of substantial completion from
GECC's architect. Except for the Improvements to be made with respect to the
First Floor, the condition of the Subleased Premises on the Commencement Date
shall not be different in any material respect from the condition of the
Subleased Premises on the date of this Sublease.
7. PARKING. MAPICS shall have the right to use four (4) unassigned and
-------
uncovered parking spaces in the surface parking area immediately adjacent to the
Building for each 1,000 square feet of rentable area located in the Subleased
Premises. In addition, GECC shall, at MAPICS' request, designate three (3)
parking spaces in said parking area as reserved parking spaces for the exclusive
use of MAPICS' visitors; the specific parking spaces to be reserved for MAPICS'
visitors shall be determined jointly by MAPICS and GECC.
8. HVAC. Provided that MAPICS is not in default under any of the covenants
----
under this Sublease beyond any applicable cure period hereunder after notice of
default by GECC, GECC shall provide heating, ventilation and air conditioning
("HVAC") to the Subleased Premises in accordance with the standards set forth on
Exhibit "G" attached hereto between the hours of 7:00 a.m. and 6:00 p.m. on
- -----------
Business Days (as defined below) and between the hours of 8:00 a.m. and 1:00
p.m. on Saturdays unless Saturday is a legal holiday. GECC shall provide, on a
floor by floor basis, HVAC service at times in addition to those specified in
the preceding sentence, at MAPICS' sole expense, provided MAPICS gives GECC
notice prior to noon (in the case of after-hours service on weekdays) and prior
to 10:00 a.m. on Fridays or the day preceding a holiday (in the case of after-
hours service on Saturdays, Sundays or legal holidays). GECC shall charge
MAPICS for after-hours service at GECC's then-standard rates; on the date of
this Sublease the rate for said after-hours service is Fifty and no/100 Dollars
($50.00) per hour per air handler. Payment for such charges shall be due and
payable to GECC within ten (10) days after
-4-
<PAGE>
GECC's demand therefor. GECC's obligation to provide after-hours HVAC service
may be interrupted by reason of accident or emergency or for repairs,
replacements or alterations until such repairs, replacements or alterations have
been completed. For the purpose of this Sublease, "Business Days" shall mean all
days except Saturdays, Sundays and the following legal holidays: New Year's Day,
Memorial Day, Independence Day (July 4th), Labor Day, Thanksgiving and
Christmas.
9. ELECTRICITY. GECC shall furnish to MAPICS normal and usual electricity for
-----------
lighting purposes and the operation of ordinary office equipment. Except for
any rental abatement that might apply in accordance with paragraph 28.B(a)
below, GECC shall not be liable in any way to MAPICS for any failure or defect
in the supply or character of electrical energy furnished to the Subleased
Premises by reason of any requirement, act or omission of the public utility
serving the Building with electricity. Other than the computer room (which
shall be separately metered), MAPICS' use of electrical energy in the Subleased
Premises shall not at any time exceed the capacity of any of the electrical
conductors and equipment in or otherwise serving the Subleased Premises. GECC's
obligation to provide electrical services to the Subleased Premises shall be
limited to four (4) watts per square foot of rentable area in the Subleased
Premises. MAPICS shall, at MAPICS' sole cost and expense, install a separate
electric meter in the computer room located in the Subleased Premises. In order
to ensure that the capacity limits set forth in this paragraph are not exceeded
and to avert a possible adverse impact on the Building electrical service,
MAPICS shall give notice to GECC whenever MAPICS shall connect to the Building
electrical distribution system any electrically operated equipment other than
lamps, typewriters, desktop computers and word processors and similar small
office machines. MAPICS shall pay as additional rent to GECC monthly, as
billed, such charges for electricity consumption in the Subleased Premises which
(i) exceed the capacity limits set forth in this paragraph, and (ii) may be
separately metered as contemplated herein.
10. TELECOMMUNICATION/DATA SYSTEM. MAPICS shall have access to the Building's
-----------------------------
Category 5 enhanced cabling, provided that prior to exercising said access
rights, MAPICS must request and obtain written approval from GECC of the precise
location and manner of said access (which approval may not be unreasonably
withheld, conditioned or delayed by GECC). MAPICS shall have the right, at
MAPICS' sole cost and expense, to install in the Subleased Premises a switch to
facilitate MAPICS' use of said cabling. Upon the expiration or earlier
termination of this Sublease, MAPICS shall remove said switch from the Subleased
Premises and promptly repair any damage to the Subleased Premises resulting from
such removal.
11. AUDIO VISUAL SYSTEM. MAPICS shall have exclusive use of the enhanced audio
-------------------
visual systems located within the Subleased Premises on the Second Floor (a) in
each of the two conference rooms located in the west wing executive briefing
center and (b) in the conference room on the east wing. Said audio visual
systems consist of an Electrohome data/video projector with an Extron cable
interface and include an AMX master control system with an electronic light
dimming system.
-5-
<PAGE>
12. ACCESS. MAPICS and its employees shall have card reader access to the
------
Building during nights, weekends and holidays and to the Subleased Premises
seven (7) days per week, twenty-four (24) hours per day.
13. SIGNS. GECC shall, at GECC's cost, provide signage in the lobby area of
-----
the Building and at the entrance of the Subleased Premises identifying MAPICS'
name. GECC shall have the right to approve the size, color and style of such
signage proposed by MAPICS, which approval shall not be unreasonably withheld,
conditioned or delayed. In addition, MAPICS shall have the right to display, on
one of the three flagpoles on the south side of the Building, a flag with
MAPICS' corporate logo; provided, however, that (i) the flagpole to be used by
MAPICS shall be determined by GECC, and (ii) the size, color and style of said
flag shall be subject to the same approval rights of GECC applicable to MAPICS'
signage. Finally, no tenant in the Building shall have signage on, in or around
the Building with prominence greater than the signage of MAPICS.
14. OPERATING EXPENSES.
------------------
(a) Operating Expenses. "Operating Expenses", as used in this Sublease,
------------------
shall mean any and all expenses of every kind, both fixed and variable and
including, without limitation, any and all federal, state and local taxes
(except income taxes), fees and assessments now or hereafter existing, as are
incurred with respect to the ownership, management, operation, or maintenance of
the Building, the surface parking area immediately adjacent to the Building, all
appurtenances, and any expenses under the Prime Lease or the Intermediate Lease
to the extent any expenses under the Prime Lease or the Intermediate Lease
increase after the date of this Sublease, all as recorded on an accrual basis
and in accordance with accepted principles of sound management and expense
control and accounting practices applicable to first-class office building
complexes. Provided, however, in no event shall Operating Expenses include: (i)
the cost of any service (e.g., electricity) that GECC sells to MAPICS and for
which GECC is entitled to be reimbursed by MAPICS; (ii) leasing/brokerage
commissions (including, without limitation, those set forth in paragraph 22
below), attorneys' fees and other costs and expenses incurred in connection with
negotiations or disputes with tenants or other occupants of the Building or
prospective tenants; (iii) the cost of any work (such as preparing a tenant's
space for occupancy, including painting and decorating) or service (such as
separately metered electricity) performed for any specific tenant (including
MAPICS) of the Building (as distinguished from work or services performed
generally for all tenants); (iv) management fees in excess of four percent (4%)
of gross annual collections for the Building; (v) any other interest or
amortization of debt; (vi) compensation paid to clerks or attendants in the
cafeteria, concessions or newsstands; (vii) any cost or expense for which GECC
is separately reimbursed or for which GECC receives a credit from any other
party, such as casualty or condemnation proceeds; (viii) any costs, fines or
penalties incurred due to violations by GECC of any governmental rule or
authority; (ix) the cost of installing, operating and maintaining any specialty
service, such as a cafeteria, retail store, sundry shop, newsstand, concession,
or athletic or recreational club; (x) the cost of correcting defects in
construction and removal of asbestos-containing material; (xi) salaries of
GECC's officers and partners and its headquarters staff; (xii) the cost of any
work performed or service provided for any tenant of the Building to a
materially greater extent or in a materially more favorable manner
-6-
<PAGE>
than that furnished generally to the other tenants and occupants; (xiv) the cost
of any additions to the Premises, or Operating Expenses generated by such
additions, after the date of this Sublease; (xv) the cost of any repairs,
alterations, additions, changes, replacements, rental payments and the like
which, under generally accepted accounting principles and practices, are
properly classified as capital expenditures, except for any such capital
expenditures which reduce Operating Expenses and are amortized over the useful
life of the subject improvements at a reasonable interest rate; (xvi) the cost
of any repair made in accordance with paragraph 28(K) below; (xvii) insurance
premiums to the extent any tenant causes GECC's existing insurance premiums to
increase or requires GECC to purchase additional insurance; (xviii) rental under
the Prime Lease, the Intermediate Lease or any other ground lease or other
underlying lease; (xix) any advertising expenses; (xx) any costs representing an
amount paid to a related party or affiliate of GECC which is in excess of the
amount which would have been paid in the absence of such relationship; (xxi) any
expenses for repairs or maintenance which are covered by warranties, guarantees
or service contracts (excluding any mandatory deductibles); or (xxii) legal
expenses arising out of the construction, operation, use, occupation or
maintenance of the Building, or the enforcement of the provisions of any
agreements affecting the Premises, including this Sublease. In addition to the
foregoing exclusions from Operating Expenses, GECC and MAPICS hereby acknowledge
and agree that the following costs incurred or to be incurred by GECC shall not
be included in Operating Expenses:
(i) the cost of facilitating Georgia Power Company's direct
connection to the Building of electrical service; and
(ii) the cost of facilitating direct connection to the Building of
telephone service.
(b) Computation. After the end of each calendar year during the Sublease
-----------
Term, GECC shall compute the total Operating Expenses incurred for the Building
during such calendar year and shall allocate to MAPICS all Operating Expenses
based on MAPICS' Prorata Share, which allocation of Operating Expenses shall be
made in accordance with paragraph 4(b) of this Sublease. As used in this
Sublease, the term "MAPICS' Prorata Share" shall mean and refer to a fraction,
the numerator of which is the number of square feet of rentable area in the
Subleased Premises and the denominator of which is the number of square feet of
rentable area in the Building. MAPICS' Prorata Share is 47.71% on the date of
this Sublease (i.e., 119,276 = .4771).
---- -------
250,000
(c) Payment as Additional Rent. Subject to GECC's right to estimate
--------------------------
Operating Expenses pursuant to subsection (d) of this paragraph, MAPICS shall,
within thirty (30) days after demand therefor by GECC, pay to GECC any
adjustment amount calculated in accordance with paragraph 4(b) above for each
calendar year of the Sublease Term commencing with calendar year 2000.
(d) GECC's Right to Estimate. GECC may, at its discretion (i) make from
------------------------
time to time during the Sublease Term a reasonable estimate of the Operating
Expenses which may become due during any calendar year commencing with calendar
year 2000, (ii) require MAPICS
-7-
<PAGE>
to pay to GECC for each calendar month during such year one twelfth (1/12) of
any adjustment amount calculated in accordance with paragraph 4(b) above, and
(iii) at GECC's reasonable discretion, increase or decrease from time to time
during such calendar year the amount initially so estimated for such calendar
year, all by giving MAPICS written notice thereof, accompanied by a schedule
setting forth in reasonable detail the expenses comprising the Operating
Expenses, as so estimated. In such event, GECC shall cause the actual amount of
Operating Expenses to be computed and certified to MAPICS within ninety (90)
days after the end of such calendar year. In the event of any deficiency
therein, MAPICS shall pay to GECC the amount of such deficiency within fifteen
(15) days of the demand therefor. In the event of any overpayment therein,
MAPICS shall be entitled to a credit on future rent in the amount of such
overpayment or if after the term of this Sublease, shall be entitled to a refund
of such amount paid within one hundred five (105) days after the end of the
final calendar year.
(e) Proration. If only part of any calendar year falls within the
---------
Sublease Term, the amount computed as Operating Expenses for such calendar year
shall be prorated in proportion to the portion of such calendar year falling
within the Sublease Term.
(f) Books and Records. MAPICS shall have the right at reasonable times
-----------------
and upon prior notice to GECC to inspect the records maintained by GECC with
respect to Operating Expenses. In the event an audit of Operating Expenses by
MAPICS for any calendar year reveals errors in the calculation of Operating
Expenses which resulted in overcharges of more than three percent (3%) of the
total annual amount of Operating Expenses, GECC shall bear the cost of such
audit (and shall reimburse MAPICS within ten (10) days of written demand
accompanied by a copy of the invoice therefor) and such overcharge shall be
treated as an overpayment under subparagraph (d) above.
15. IMPROVEMENTS TO FIRST FLOOR. GECC shall cause the improvements
---------------------------
("Improvements") to be made on the First Floor in accordance with the plans and
specifications described on Exhibit "B" (the "Plans"), which Improvements shall
-----------
be constructed in accordance with the work letter attached hereto as Exhibit
-------
"C".
- ---
16. LEASED EQUIPMENT. During the Sublease Term, MAPICS shall have the right to
----------------
use and shall not remove from the Subleased Premises (except as provided below)
the (i) furniture, fixtures and equipment located (a) on the Second Floor and
Third Floor and listed on Exhibit "D" attached hereto and incorporated herein by
-----------
this reference and (b) in the east wing of the First Floor and listed on Exhibit
-------
"E" attached hereto and incorporated herein by this reference, and (ii) Audio
- ---
Visual System described in paragraph 11 hereinabove (the items described in (i)
and (ii) of this paragraph hereinafter are collectively referred to as "Leased
Equipment"). GECC hereby represents and warrants to MAPICS that GECC owns the
Leased Equipment, free and clear of any liens or encumbrances whatsoever. GECC
shall either assign to MAPICS, or upon written request of MAPICS enforce, all
warranties covering the Leased Equipment. If, at any time during the Sublease
Term, MAPICS delivers written notice to GECC that MAPICS desires to return to
GECC all or any portion of the Leased Equipment (which notice shall specifically
identify the items of Leased Equipment that MAPICS desires to return to GECC),
GECC shall remove from the Subleased Premises the Leased Equipment identified in
-8-
<PAGE>
MAPICS' notice, which removal shall be performed within ten (10) business days
after the date on which GECC receives said notice from MAPICS. Any Leased
Equipment removed from the Subleased Premises by GECC in accordance with the
immediately preceding sentence shall thereupon be deemed removed from Exhibit
-------
"E" and shall no longer be Leased Equipment hereunder; provided, however, that
- ---
no such removal of Leased Equipment from the Subleased Premises shall either (a)
reduce the Rent payable under this Sublease, or (b) reduce the purchase price
for the Leased Equipment, as said purchase price is set forth in the immediately
succeeding sentence. Upon the expiration or earlier termination of this
Sublease, MAPICS shall return all remaining Leased Equipment to GECC in as good
condition as when received, ordinary wear excepted; provided, however, that, in
lieu of returning the Leased Equipment to GECC at the expiration of the Sublease
Term, MAPICS shall have the right at the expiration of the Sublease Term to
purchase the Leased Equipment from GECC for the purchase price of Two Hundred
Thousand and no/100 Dollars ($200,000.00). MAPICS shall, during the Sublease
Term, maintain contents insurance coverage against loss, theft, damage or
destruction of the Leased Equipment, which insurance shall be in the full
replacement value of the Leased Equipment; GECC shall be named as additional
insured under said insurance and MAPICS shall provide GECC with evidence of said
coverage within ten (10) days after GECC's request therefor. GECC and MAPICS
shall not be under any obligation to renew, repair or replace any inadequate,
obsolete, worn out, unsuitable, undesirable, inappropriate or unnecessary Leased
Equipment. MAPICS acknowledges and agrees that it is leasing the Leased
Equipment in an "AS IS" condition. MAPICS further acknowledges that GECC has
not made and hereby specifically disclaims any representations or warranties of
any kind, either express or implied, as to the physical condition of the Leased
Equipment. To the maximum extent permitted by law, the Leased Equipment is
leased to MAPICS in its "AS IS" and "WITH ALL FAULTS" condition and, except for
the warranty of ownership given by GECC hereinabove, GECC expressly disclaims
any and all representations, warranties or guaranties of any kind, oral or
written, express or implied, concerning the Leased Equipment, including, without
limitation (i) the condition, merchantability, or fitness for a particular use
or purpose of the Leased Equipment, and (ii) the quality, state of repair, or
lack of repair of the Leased Equipment. MAPICS has inspected the Leased
Equipment prior to execution of this Sublease, and the Leased Equipment shall be
delivered by GECC to MAPICS on the Commencement Date in substantially the same
condition that exists on the date of this Sublease, reasonable wear and tear
excepted.
17. RIGHT OF FIRST OFFER. For the purpose of this paragraph, the term "Second
--------------------
Generation Space" shall mean and refer to any space in the Building which, on or
after the Commencement Date hereof, (i) is occupied, leased or subleased to a
party other than MAPICS (including, without limitation such space occupied by
GECC or its affiliates), (ii) subsequently becomes available and, in fact, is
offered by GECC for subleasing to any party unaffiliated with GECC. MAPICS
shall be entitled to a right of first offer with respect to the Second
Generation Space as set forth in this paragraph. GECC shall provide MAPICS
written notice twelve (12) months prior to any Second Generation Space becoming
available or, if GECC becomes aware of said availability less than twelve (12)
months prior to the date of availability, GECC shall notify MAPICS promptly
after GECC learns that the Second Generation Space will become available.
MAPICS shall have a period of sixty (60) days from MAPICS' receipt of such
notice of availability to reply; provided, however, that MAPICS shall have a
period of only ten (10) days
-9-
<PAGE>
to reply if GECC's notice of availability is delivered less than twelve (12)
months prior to the date of availability as hereinabove provided. If MAPICS
notifies GECC within said sixty-day period or ten-day period, as the case may
be, that MAPICS will take such space, then GECC shall deliver possession of such
space to MAPICS on an "AS-IS" basis promptly after the prior subtenant or
occupant vacates such space and relinquishes all claims with respect thereto,
whereupon such space shall be added to the Subleased Premises on the same terms
and conditions then in effect under this Sublease. If MAPICS rejects said space
or does not reply within said sixty-day period or ten-day period, as the case
may be, GECC may then offer the Second Generation Space to any other potential
subtenant without further obligation to MAPICS until such Second Generation
Space again becomes available. The right of first offer contained in this
paragraph shall be effective continuously during the Sublease Term with respect
to Second Generation Space each and every time Second Generation Space becomes
available as a consequence of expiration or termination of a sublease affecting
Second Generation Space during the Sublease Term.
18. SURRENDER OF SUBLEASED PREMISES. Upon the termination or cancellation of
-------------------------------
this Sublease, MAPICS will peacefully surrender possession of the Subleased
Premises to the Development Authority, NBTS, or GECC, as the case may be, and
MAPICS agrees to return the Subleased Premises in the same condition as the
Subleased Premises existed at the date of MAPICS' occupancy thereof, except for
ordinary wear and tear and improvements to the Subleased Premises.
19. DEFAULT. In the event MAPICS fails to perform, or defaults on, any of the
-------
covenants or agreements of this Sublease, GECC, subject to the notice and right
to cure terms hereinafter stated, may terminate this Sublease and pursue any and
all rights and remedies available at law or in equity.
20. NOTICE AND RIGHT TO CURE. Notwithstanding anything contained herein to the
------------------------
contrary, in the event of any default by MAPICS of MAPICS' obligations under
this Sublease, GECC shall notify MAPICS in writing of said default; provided,
however, that GECC shall have no obligation to notify MAPICS of MAPICS'
nonpayment of Rent under this Sublease more than twice in any period of twelve
(12) consecutive months during the Sublease Term. For a period of ten (10)
consecutive calendar days after the date of any such notice from GECC concerning
a monetary default by MAPICS under this Sublease, MAPICS shall have the right to
cure the default evidenced in the notice. For a period of thirty (30)
consecutive calendar days after the date of any such notice from GECC concerning
a nonmonetary default by MAPICS under this Sublease, or if such nonmonetary
default cannot be cured with thirty (30) days, such additional reasonable time
as may be necessary to complete such cure as long as MAPICS commences such cure
with said thirty (30) days and diligently pursues such cure thereafter, MAPICS
shall have the right to cure the default evidenced in the notice. In the event
MAPICS fails to cure any default under this Sublease within the time periods
specified in this paragraph, GECC shall have the right, after expiration of the
applicable cure period, to proceed with enforcement of GECC's rights and
remedies arising out of any such default by MAPICS.
-10-
<PAGE>
21. NOTICE. Any and all notices, demands, requests, and responses thereto
------
pursuant to this Sublease shall be in writing, signed by or on behalf of the
party giving the same, and shall be effective upon receipt by the addressee
thereof, regardless of how delivered, or upon the date which is three (3) days
after being deposited in the United States mail, postage prepaid, certified or
registered mail, return receipt requested, to the other party at the address set
forth below or at such other address as such other party may designate by notice
specifically designated as a notice of change of address and given in accordance
herewith. Rejection or other refusal to claim or accept, or inability to
deliver because of a changed address of which no notice has been received, shall
also constitute receipt. Any such notice, demand, or request shall be addressed
as follows:
GECC: General Electric Capital Corporation
1000 Windward Concourse Parkway, Suite 400
Alpharetta, Georgia 30005
Attention: Asset Manager
With a copy to: American Resurgens Management Corp.
-------------- 1000 Windward Concourse Parkway
Alpharetta, Georgia 30005
Attention: Douglas J. Tollett, President
MAPICS: Prior to Commencement Date:
------ --------------------------
Mr. George D. Carroll
Manager of Operations
MAPICS, Inc.
5775-D Glenridge Drive, Suite 100
Atlanta, GA 30328
With a copy to: Martin Avallone, Esq.
-------------- General Counsel
MAPICS, Inc.
5775-D Glenridge Drive, Suite 100
Atlanta, GA 30328
After Commencement Date:
-----------------------
Mr. George D. Carroll
Manager of Operations
1000 Windward Concourse Parkway
Suite 200
Alpharetta, Georgia 30005
-11-
<PAGE>
With a copy to: Martin Avallone, Esq.
-------------- General Counsel
MAPICS, Inc.
1000 Windward Concourse Parkway
Suite 200
Alpharetta, Georgia 30005
22. BROKERS. Each party represents and warrants to the other that it has not
-------
had dealings with any real estate broker, finder or other person with respect to
this Sublease except for CB Commercial Real Estate Group, Inc., The Wesley
Company and American Resurgens Management Corp. (collectively, the "Brokers"),
and GECC hereby indemnifies MAPICS and agrees to hold MAPICS harmless with
respect to any commission due Brokers in connection with this Sublease. Each
party hereby indemnifies and agrees to defend and hold the other party harmless
from and against all claims for broker's commissions or finder's fees in breach
of the foregoing representation and warranty.
23. BINDING EFFECT. This Sublease shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective transferees, successors, and
assigns. No assignment of this Sublease by GECC shall be effective unless the
assignee assumes all the obligations of GECC hereunder and provides written
notice thereof to MAPICS.
24. AGREEMENT; AMENDMENTS. This Sublease supersedes all prior discussions and
---------------------
agreements between the parties hereto with respect to this Sublease, the
Subleased Premises, and all other matters contained herein with respect thereto.
This Sublease may not be modified or amended unless such amendment is in writing
and signed by GECC and MAPICS.
25. SEVERABILITY. If any of the provisions of this Sublease shall be held to
------------
be invalid, illegal, or unenforceable for any reason, such circumstances shall
not affect any other provisions hereof. This Sublease shall be construed as if
such invalid, illegal, or unenforceable provision had never been herein.
26. TIME OF THE ESSENCE. Time is and shall be of the essence of this Sublease.
-------------------
27. INDEMNITY. MAPICS agrees to protect and hold GECC harmless and indemnified
---------
from and against all claims, demands, actions, suits, judgments, decrees,
orders, liabilities, or expenses including without limitation attorneys' fees
and disbursements arising out of or on account of any damage or injury,
including wrongful death sustained or claimed to have been sustained by any
person or to any property in or upon the Subleased Premises, unless the same is
caused by or results from the negligence, recklessness, or willful act of GECC,
its employees, agents, invitees, or licensees. GECC agrees to protect and hold
MAPICS harmless and indemnified from and against all claims, demands, actions,
suits, judgments, decrees, orders, liabilities, or expenses including without
limitation attorneys' fees and disbursements arising out of or on account of any
damage or injury, including wrongful death sustained or claimed to have been
sustained by any person or to any property in or upon the common areas of the
Building and the Premises,
-12-
<PAGE>
unless the same is caused by or results from the negligence, recklessness, or
willful act of MAPICS, its employees, agents, invitees, or licensees.
28. ADDITIONAL PROVISIONS.
---------------------
A. Occupancy and Use. MAPICS shall use and occupy the Subleased
-----------------
Premises for general office purposes (which shall include software development
and support) and for no other use or purpose without the prior written consent
of GECC. Moreover, MAPICS shall not do or permit anything to be done in or
about the Subleased Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building or injure or annoy any
of said other tenants or occupants; nor shall MAPICS use or allow the Subleased
Premises to be used for any immoral or unlawful purposes or for any business,
use or purpose reasonably deemed by GECC to be disreputable or inconsistent with
the operation of a first class office building; nor shall MAPICS cause or
maintain or permit any nuisance or breach of the peace, in, on, or about the
Subleased Premises; nor shall MAPICS cause any items to be placed in the
Subleased Premises which will exceed the load capacities of the Building.
MAPICS shall not commit or suffer the commission of any waste in, on, or about
the Subleased Premises.
B. Repairs and Maintenance.
-----------------------
(a) GECC shall cause the Building and the Premises (including, without
limitation, the entranceway, parking lot, driveways and grounds) to be
maintained in a first class condition comparable to other first class
office buildings in the Atlanta area. GECC shall be responsible for
maintaining in good repair and operational all Building components and
systems serving the Subleased Premises, including, without limitation,
elevator service in the Building 24 hours a day, seven days a week,
overhead lighting (and replacement of bulbs and ballasts) serving the
Subleased Premises, hot and cold domestic water serving the Subleased
Premises, HVAC in accordance with paragraph 8 above, electricity in
accordance with paragraph 9 above and access in accordance with paragraph
12 above. In the event Building services are interrupted and render all or
any portion of the Subleased Premises untenantable for a period of more
than five (5) business days, rent shall be abated during such period on a
proportionate basis consistent with the portion of the Subleased Premises
that is untenantable, but only if the untenantable portion of the Subleased
Premises, in fact, is not used or occupied by MAPICS. If the entire
Subleased Premises remains untenantable for a period of ninety (90)
consecutive days, MAPICS may terminate this Sublease by written notice to
GECC.
(b) MAPICS shall, at all times during the Sublease Term, at MAPICS'
sole cost and expense, keep the Subleased Premises and every part thereof
in good order, condition and repair, excepting ordinary wear and tear,
damage thereto by fire, earthquake, act of God or the elements. MAPICS
shall upon the expiration or sooner termination of the Sublease Term,
surrender to GECC the Subleased Premises in the same condition as when
received, ordinary wear and tear, damage by fire, earthquake, act of God,
or the elements excepted.
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<PAGE>
(c) GECC shall exercise commercially reasonable efforts to ensure that
all of the computers and programmed equipment which operate any of the
Building components shall remain operational notwithstanding the onset of
the year 2000 and the potential computer problems associated with the year
2000.
C. Assignment and Subletting.
-------------------------
(a) MAPICS shall not sell, assign, encumber or otherwise transfer by
operation of law or otherwise this Sublease or any interest herein, sublet
the Subleased Premises or any portion thereof, or suffer any other person
to occupy or use the Subleased Premises or any portion thereof, without the
prior written consent of GECC, not to be unreasonably withheld, conditioned
or delayed.
(b) Any subletting or assignment hereunder by MAPICS shall not result
in MAPICS being released or discharged from any liability under this
Sublease. Moreover, except with respect to a subletting or assignment
permitted by subparagraph (e) below, to the extent the amount of any
payments (monthly or otherwise) received by MAPICS under any sublease or
assignment (including for the Leased Equipment, but excluding any payments
received by MAPICS for any other leased equipment owned or provided by
MAPICS) exceed the amount of any payments then due under this Sublease from
MAPICS to GECC, all such excess payments -- after payment of all reasonable
and actual out-of-pocket expenses incurred by MAPICS in connection with
said sublease or assignment -- shall (i) be delivered to GECC immediately
upon receipt thereof by MAPICS, and (ii) not credited against payments
thereafter due from MAPICS to GECC under this Sublease, it being
acknowledged that all such excess payments delivered to GECC shall be
deemed additional consideration for GECC's consent to the sublease or
assignment pursuant to which said excess payments are received by MAPICS.
As a condition to GECC's prior written consent as provided for in this
paragraph, the assignee or sublessee shall agree in writing to comply with
and be bound by all of the terms, covenants, conditions, provisions and
agreements of this Sublease, and MAPICS shall deliver to GECC promptly
after execution, an executed copy of each sublease or assignment and an
agreement of said compliance by each sublessee or assignee.
(c) MAPICS shall reimburse GECC, within ten (10) days from receipt of
GECC's invoice, all GECC's reasonable and actual third party costs and
expenses, including reasonable legal fees, for reviewing and processing any
requests for GECC's consent made by MAPICS with respect to the subject
matter of this paragraph.
(d) GECC's consent to any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer shall not release MAPICS from any of
MAPICS' obligations hereunder or be deemed to be a consent to any such
subsequent occurrence. Any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer of this Sublease which does not comply
with the provisions of this paragraph shall be void.
-14-
<PAGE>
(e) Notwithstanding the provisions of this paragraph, MAPICS shall
have the right, without the necessity or any consent from, or prior written
notice to, GECC: (i) to sublet all or part of the Subleased Premises to any
related corporation or entity which controls MAPICS, is controlled by
MAPICS, or is under common control with MAPICS; or (ii) to assign this
Sublease to a successor corporation into which or with which MAPICS is
merged or consolidated or which acquires substantially all of MAPICS'
assets and property, provided that: (a) such successor corporation assumes
substantially all of the obligations and liabilities of MAPICS; and (b)
MAPICS shall provide prompt written notice to GECC the of such sublease or
assignment. For the purpose hereof, "control" shall mean ownership of not
less than fifty percent (50%) of all the voting stock or legal and
equitable interest in such corporation or entity. In no event shall GECC
be entitled to any of the consideration received by MAPICS for any
subletting or assignment permitted under this subparagraph (e). On or
before the fifth (5th) business day after the effective date of any
subletting or assignment by MAPICS under this subparagraph (e), MAPICS
shall deliver to GECC (y) written notice of the subletting or assignment,
which notice shall include all of the material terms related thereto, and
(z) financial statements on the sublessee or assignee sufficient, in GECC's
reasonable judgment, to establish the assets, capitalization and net worth
of said sublessee or assignee.
(f) Anything in this Sublease to the contrary notwithstanding, for
assignments and sublettings other than those permitted hereby under
subparagraph (e) above, if MAPICS proposes to assign this Sublease or
sublease a portion of the Subleased Premises within the last two (2) years
of the Sublease Term (excluding any then unexercised extension options),
GECC shall have the further option to terminate this Sublease as to the
space so affected as of the proposed effective date set forth in MAPICS'
notice, in which event MAPICS shall be relieved of all further obligations
hereunder as to such space, except for such provisions of this Sublease
which expressly survive the termination hereof.
D. Insurance.
---------
(a) GECC shall not be liable to MAPICS and MAPICS hereby waives all
claims against GECC for any injury or damage to any person or property in
or about the Subleased Premises by or from any cause whatsoever, without
limiting the generality of the foregoing, whether caused by water leakage
of any character from the roof, walls, basement, or other portion of the
Subleased Premises or the Building, or caused by gas, fire or explosion of
the Building, except as caused by GECC's default under this Sublease or by
the negligence or willful misconduct of GECC or its agents, contractors or
employees.
(b) MAPICS agrees to purchase at its own expense and to keep in force
during the Sublease Term a policy or policies of workers' compensation and
comprehensive general liability insurance, including personal injury and
property damage, with contractual liability endorsement, in the amount of
at least One Million Five Hundred Thousand and no/100 Dollars
($1,500,000.00), as increased annually by any increase in
-15-
<PAGE>
the Consumer Price Index, combined single limit per occurrence for personal
injuries or deaths of persons occurring in or about the Subleased Premises.
Said policies shall: (i) name GECC as an additional insured and insure
GECC's contingent liability under this Sublease (except for the workers'
compensation policy, which shall instead include waiver of subrogation
endorsement in favor of GECC); (ii) be issued by an insurance company which
is reasonably acceptable to GECC and licensed to do business in the State
of Georgia; and (iii) provide that said insurance shall not be cancelled
unless thirty (30) days' prior written notice shall have been given to
GECC. GECC hereby acknowledges that a portion of the liability insurance
required of MAPICS under this Sublease may be provided by umbrella
insurance coverage maintained by MAPICS. Said policy or policies or
certificates thereof shall be delivered to GECC by MAPICS upon commencement
of the Sublease Term and upon each renewal of said insurance.
(c) During the Sublease Term, GECC covenants that it will maintain
comprehensive general liability insurance with broad form extended coverage
including contractual liability insurance against claims occurring upon, in
or about the Building with a minimum coverage of combined single limit of
Two Million and no/100 Dollars ($2,000,000), which coverage will provide
that no material change or cancellation shall be made without thirty (30)
days' prior written notice to MAPICS. In addition, GECC shall maintain and
keep in effect throughout the Sublease Term insurance against loss or
damage to the Building by fire or such other casualties as may be included
within all-risk insurance, such insurance to be in an amount equal to
ninety percent (90%) of the full replacement value of the Building.
E. Waiver of Subrogation. Each of GECC and MAPICS hereby release the
---------------------
other from any and all liability or responsibility to the other or to anyone
claiming through or under them by way of subrogation or otherwise for any loss
or damage to property caused by fire or any other perils insured in policies of
insurance covering such property, even if such loss or damage shall have been
caused by fault or negligence of the other party, or by anyone for whom such
party may be responsible; provided, however, that this release shall be
applicable and in force and effect only to such extent that such releases shall
be lawful at that time and in any event only with respect to loss or damage
occurring during such time as the releasor's policies of insurance shall contain
a clause or endorsement to the effect that any such release shall not adversely
affect or impair said policies or prejudice the right of the releasor to
coverage thereunder, and then only to the extent of the insurance proceeds
payable under such policies. GECC and MAPICS each hereby covenant and agree to
cause their respective insurance carrier(s) to include in their policy(ies) such
a clause or endorsement.
F. Certain Services to be Provided by GECC. GECC shall maintain the
---------------------------------------
public and common areas of the Building, including lobbies, stairs, elevators,
escalators, parking facilities, loading docks and areas, corridors and
restrooms, the windows in the Building, the mechanical, plumbing and electrical
equipment serving the Building, and the structure itself, in reasonably good
order and condition, except for damage occasioned by the act of MAPICS, which
damage shall be repaired by GECC at MAPICS' expense. GECC shall also provide
janitorial services to the Subleased Premises in accordance with the
specifications attached hereto as Exhibit "F".
-----------
-16-
<PAGE>
G. Quiet Enjoyment. GECC represents and warrants that it has full right
---------------
and authority to enter into this Sublease and that MAPICS, while paying the Rent
and performing MAPICS' other covenants and agreements herein set forth, shall
peaceably and quietly have, hold and enjoy the Subleased Premises for the
Sublease Term without hindrance or molestation from GECC, its agents,
contractors or employees, or persons claiming by, through or under GECC, subject
to the terms and provisions of this Sublease. GECC shall not be liable to MAPICS
for any interference or disturbance by third persons not covered by the
preceding sentence; nor shall MAPICS be released from any of the obligations of
this Sublease because of such interference or disturbance.
H. Non-Disturbance Agreements; Indemnity. GECC shall exercise
-------------------------------------
commercially reasonable efforts to obtain non-disturbance agreements from (i)
the Development Authority (or the Development Authority's successor-in-interest)
with respect to the Prime Lease, (ii) NBTS (or NBTS' successor-in-interest) with
respect to the Intermediate Lease, and (iii) from each and every mortgagee
having an interest in the Building. Irrespective of GECC's procurement of said
non-disturbance agreements, GECC hereby agrees to indemnify and hold MAPICS
harmless from any liability, cost and expense incurred by MAPICS with respect to
any disturbance of MAPICS' possession of the Subleased Premises during the
Subleased Term as a consequence of the exercise by any such prior interest
holders of their respective rights in and to the Building, including, without
limitation, moving and relocation expenses, increased rental payments and legal
fees and expenses. The indemnity obligation of GECC contained herein shall
continue notwithstanding any assignment of this Sublease by GECC.
I. Exclusion of Certain Provisions of Intermediate Lease. With respect
-----------------------------------------------------
to the Subleased Premises and the Building, MAPICS shall have no right by virtue
of this Sublease to renew the Intermediate Lease (as said right is provided to
GECC in Section 12.1 of the Intermediate Lease); nor shall MAPICS have an option
to purchase the Building or a right-of-first-refusal to purchase the Building
(as said rights are provided to GECC under Section 12.2 of the Intermediate
Lease).
J. Alterations. MAPICS shall not make or suffer to be made any
-----------
alterations, additions, changes or improvements (collectively "Alterations") in,
on, or to the Subleased Premises or any part thereof without the prior written
consent of GECC. In the event GECC consents to MAPICS' performance of any
Alterations, the Alterations shall be made at MAPICS' sole cost and expense and
in accordance with all applicable laws, statutes, ordinances, rules and
regulations, public and private, and all requirements of GECC's and MAPICS'
insurance policies, and in accordance with plans and specifications approved by
GECC (which approval shall not be unreasonably withheld, delayed or conditioned)
prior to MAPICS' performance of the Alterations. At GECC's option, MAPICS shall
pay to GECC a fee equal to fifteen percent (15%) of the cost and expense of any
Alterations after the Commencement Date; said fee shall (i) be due and payable
prior to performance of any Alterations, and (ii) compensate GECC for GECC's
coordination, supervision and overhead resulting from said Alterations. Any
contractor selected by MAPICS to perform Alterations, and all subcontractors,
must first be approved in writing by GECC; moreover, at GECC's option, the
necessary work shall be performed at the
-17-
<PAGE>
direction of GECC for MAPICS' account and MAPICS shall reimburse GECC for the
cost thereof upon demand. Upon the expiration or sooner termination of the
Sublease Term, MAPICS shall, upon demand by GECC (and provided GECC conditioned
its consent to the Alterations upon same), at MAPICS' sole cost and expense,
forthwith and with all due diligence remove the Alterations made by or for the
account of MAPICS and designated by GECC to be removed, and MAPICS shall
forthwith and with all due diligence, at MAPICS' sole cost and expense, repair
and restore the Subleased Premises to the condition of the Subleased Premises on
the Commencement Date, ordinary wear and tear excepted. Notwithstanding the
foregoing, MAPICS shall have the right, without GECC's prior written consent, to
make nonstructural Alterations involving the nonload-bearing movable walls and
cubicles located in the Subleased Premises; provided, however, that prior to
making any Alterations of the type referred to in this sentence, MAPICS shall
provide GECC with written notice of said Alterations.
K. Damage and Destruction; Condemnation. Events of damage, destruction
------------------------------------
and condemnation affecting the Building, the common areas of the Building or the
Subleased Premises (hereinafter collectively referred to as a "Disruptive
Occurrence") shall be governed by the terms and conditions of Article IX of the
Intermediate Lease. If the Intermediate Lease is terminated as a consequence of
a Disruptive Occurrence, then this Sublease shall terminate concurrently with
termination with the Intermediate Lease. If the Intermediate Lease is not
terminated as a consequence of a Disruptive Occurrence, then GECC shall exercise
GECC's rights, as sublessee under the Intermediate Lease, to ensure repair or
restoration of the Building and the Subleased Premises, as the case may be, in
accordance with GECC's rights and the time periods prescribed in the
Intermediate Lease. Notwithstanding the foregoing, on or before the ninetieth
(90th) day after a Disruptive Occurrence, GECC and MAPICS shall work diligently
and in good faith to determine the (i) likelihood of termination of the
Intermediate Lease as a consequence of the Disruptive Occurrence, (ii) impact of
the Disruptive Occurrence on the ability of MAPICS to conduct MAPICS' business
from the Subleased Premises as contemplated by this Sublease, and (iii)
prospects for restoration or repair of the Building, the common areas of the
Building or the Subleased Premises, as the case may be, to a condition
satisfactory for MAPICS to conduct MAPICS' business from the Subleased Premises
as contemplated by this Sublease within one hundred eighty (180) days after the
date of the Disruptive Occurrence. If, within said ninety-day (90) period, GECC
and MAPICS are mutually satisfied with the outcome of their joint evaluation,
this Sublease shall remain in effect and GECC shall cause repair or restoration
of the Building, the common areas of the Building or the Subleased Premises, as
the case may be, and shall exercise commercially reasonable efforts to ensure
completion of said repair or restoration on or before the one hundred eightieth
(180th) day after the date of the Disruptive Occurrence. Conversely, if either
GECC or MAPICS are not satisfied for any reason in their sole discretion with
the outcome of their joint evaluation, then GECC or MAPICS may terminate this
Sublease by notice to the other party on or before the ninetieth (90th) day
after the date of the Disruptive Occurrence. In the absence of delivery of a
termination notice as described in the immediately preceding sentence, it shall
be deemed that GECC and MAPICS have agreed not to terminate this Sublease
because of a Disruptive Occurrence, in which case, GECC shall cause repair or
restoration to proceed as hereinabove described. In the event of any Disruptive
Occurrence, notwithstanding anything to the contrary in the Intermediate Lease,
Rent shall be adjusted or abated entirely, depending on the degree to which the
Subleased Premises are
-18-
<PAGE>
untenantable. Any such adjustment or abatement shall be effective as of the date
of the Disruptive Occurrence and shall continue until this Sublease is
terminated as set forth above or until repair or restoration is completed, as
the case may be.
L. Food Service Operation. Anything to this Sublease to the contrary
----------------------
notwithstanding, GECC shall have no obligation under this Sublease to operate or
maintain in the Building during the Sublease Term a cafeteria or other food
service operation of any type or nature whatsoever, notwithstanding that a food
service operation exists in the Building on the date of this Sublease.
IN WITNESS WHEREOF, GECC and MAPICS have caused this Sublease to be
executed under seal by their respective representatives duly authorized
thereunto, as of the date first above written.
GECC:
----
GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation
By: /s/ Darryl Dong
------------------------------
Print Name: Darryl Dong
Print Title: District Manager
MAPICS:
------
MAPICS, INC., a Georgia corporation
By: /s/ Thomas F. Aery
------------------------------
Print Name: Thomas F. Aery
Print Title: V.P. Worldwide Support
(CORPORATE SEAL)
-19-
<PAGE>
LIST OF EXHIBITS TO SUBLEASE
Exhibit "A": Floor Plans for First, Second and Third Floors
Exhibit "B": Plans
Exhibit "C": Work Letter
Exhibit "D": Furniture, Fixtures and Equipment - Second and Third Floors
Exhibit "E": Furniture, Fixtures and Equipment - First Floor
Exhibit "F": Janitorial Specifications
Exhibit "G": HVAC Standards
<PAGE>
EXHIBIT "A"
-----------
FIRST, SECOND AND THIRD FLOOR PLANS
[GRAPH OF FIRST FLOOR PLAN APPEARS HERE]
<PAGE>
[GRAPH OF SECOND FLOOR PLAN APPEARS HERE]
<PAGE>
[GRAPH OF THIRD FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "B"
-----------
PLANS
The plans and specifications which are the work product of the
Planning Services and Drawings (as that term is defined in the work letter
attached to this Sublease as Exhibit "C").
-----------
<PAGE>
EXHIBIT "C"
-----------
WORK LETTER
A. PLANNING SERVICES AND DRAWINGS. GECC shall reimburse MAPICS in an amount up
------------------------------
to One and no/100 Dollar ($1.00) per square foot of usable area on the First
Floor only (i.e., $14,516.00) ("Planning Services and Drawings Allowance") for
----
the costs actually incurred and paid by MAPICS for architectural and engineering
services and construction documents (collectively, the "Planning Services and
Drawings"); provided, however, that GECC shall have no obligation to reimburse
MAPICS pursuant to the preceding clause unless and until GECC has received
evidence that such costs actually have been incurred and paid in full by MAPICS.
GECC shall made such payment to MAPICS within fifteen (15) days of receipt of
such evidence. Any costs associated with the Planning Services and Drawings in
excess of the Planning Services and Drawings Allowance shall be borne solely by
MAPICS and shall be promptly paid in full by MAPICS prior to GECC's commencement
of construction of the Improvements. The Planning Services and Drawings shall
be completed in accordance with the timetable set forth in paragraph C
hereinbelow.
B. CONSTRUCTION OF IMPROVEMENTS. GECC shall cause the Improvements to be
----------------------------
constructed in accordance with the Plans. GECC shall obtain competitive bids
from at least three (3) general contractors; provided, however, that MAPICS
shall have the right to select one (1) of the contractors to be included in the
bidding process. GECC shall make the final selection a contractor to construct
the Improvements, based upon the bids obtained by GECC; provided, however, that
(a) GECC shall not be obligated to accept the lowest bid, and (b) GECC's
selection of the contractor shall be made in GECC's sole discretion.
GECC shall provide MAPICS with an allowance (the "First Floor Improvement
Allowance") of Two Hundred Eighty-Three Thousand Seven Hundred Eighty-One and
no/100 Dollars ($283,781.00), equivalent to Seventeen and no/100 Dollars
($17.00) per square foot of rentable area on the First Floor of the Subleased
Premises; the First Floor Improvement Allowance shall be used by GECC to pay the
cost of construction of the Improvements, which cost shall include, without
limitation, permits, fees, additional utility services or meters. Anything in
this paragraph to the contrary notwithstanding, prior to the commencement of
construction of the Improvements, MAPICS shall pay to GECC, as additional rent,
(i) the amount, if any, by which the estimated cost of construction of the
Improvements exceeds the First Floor Improvement Allowance, and (ii) a fee for
GECC's management of construction of the Improvements, which fee shall be in an
amount equal to five percent (5%) of the total cost of construction of the
Improvements, which total cost shall include the management fee. The
Improvements shall constitute fixtures and remain in the Subleased Premises as
the property of GECC at the expiration or sooner termination of this Sublease.
The Improvements shall be completed in accordance with the timetable set forth
in paragraph C hereinbelow.
<PAGE>
C. CRITICAL PATH.
-------------
(1) GECC and MAPICS hereby agree that time is of the essence and that the
following sequence and schedule shall be strictly adhered to with
respect to processing of (i) Planning Services and Drawings, and (ii)
construction of the Improvements:
<TABLE>
<CAPTION>
<S> <C>
CD Start Date Smallwood, Reynolds Thursday, October 29, 1998
CD Completion Thursday, November 19, 1998
(includes architectural engineering)
Three (3) sets CD's submitted to City of Friday, November 20, 1998
Alpharetta for permits Permit Friday, December 4, 1998
CD approved by MAPICS Friday, November 20, 1998
Bid 3-way per lease to contractors Monday, November 23, 1998
Receive pricing Tuesday, December 1, 1998
Bid analysis and award contract Friday, December 4, 1998
Pending permit construction start date Monday, December 7, 1998
Construction completion Monday, March 1, 1999
</TABLE>
(2) Any contractor initiated change order must be reviewed and approved by
both GECC and MAPICS, which review and approval will not be
unreasonably withheld by either party.
(3) Should MAPICS, subsequent to commencement of construction of
Improvements, modify the approved construction drawings (the "Approved
Drawings") in any way, MAPICS shall pay all additional costs thereby
incurred by GECC, plus a fee of ten percent (10%) of the additional
cost to GECC, which fee shall compensate GECC for coordination,
supervision and overhead resulting from MAPICS' revision of the
Approved Drawings. All revisions or additions to the Approved
Drawings shall be subject to GECC's prior review and written approval.
D. COORDINATION. Unless otherwise agreed in writing by GECC and MAPICS, all
------------
work involved in construction of the Improvements shall be carried out by a
contractor under the sole direction of GECC. MAPICS shall cooperate with GECC,
the contractor and the space planner to promote the efficient and expeditious
completion of the Improvements.
2
<PAGE>
E. LEGAL REQUIREMENTS. All design, construction and installation shall conform
------------------
to the requirements of this Sublease and all applicable laws and regulations
including, but not limited to, all building, plumbing and electrical codes, the
Americans with Disabilities Act of 1993 ("ADA") and their requirements of any
authority having jurisdiction over or with respect to such work (collectively,
the "Legal Requirements"). The Approved Drawings shall be subject to GECC's
approval. However, no approval by GECC of the Approved Drawings shall in any
way be deemed agreement or certification by GECC that the work contemplated
thereby complies with Legal Requirements or that the Approved Drawings will be
approved by governmental agencies having jurisdiction thereover.
F. CONSTRUCTION WARRANTY. The general contractor shall provide a one year
---------------------
warranty for the Improvements. The general contractor's warranty, and any
warranties from subcontractors or suppliers, shall be assigned to MAPICS.
F. GENERAL PROVISIONS.
------------------
(1) If MAPICS' contractors or anyone employed by MAPICS shall cause a delay
in completing the Improvements, MAPICS agrees that such delay will constitute a
"MAPICS Delay."
(2) If substantial completion of the Improvements has not occurred by the
Commencement Date for any reason, the Commencement Date shall be postponed until
substantial completion has occurred. Should GECC be unable to substantially
complete the Improvements by the Commencement Date as a result of a "MAPICS
Delay," MAPICS shall pay to GECC, as additional rent, one (1) day's Rent
computed in accordance with this Sublease, for each calendar day of "MAPICS
Delay". If substantial completion of the Improvements is delayed only in part
due to a MAPICS Delay, MAPICS shall owe such additional rental only for the
period attributable to the MAPICS Delay. For example, if the Improvements are
not substantially completed until March 15, 1999, and seven (7) days of the
delay constituted a MAPICS Delay, the Commencement Date would occur on March 15,
1999 and MAPICS would owe Rent commencing March 8, 1999. Said adjustments in the
Commencement Date and commencement of Rent shall be the parties' sole remedy for
such delay and such adjustments shall be made by the parties as liquidated
damages and not as a penalty, it being agreed that GECC's or MAPICS' damages for
such delay would be otherwise difficult to determine. Said additional rent for a
period of MAPICS Delay will be due within ten (10) days of GECC's written demand
therefor.
(3) GECC, upon prior notice to MAPICS, reserves the right to make
reasonable substitutions of equal or better quality and value for building
standard materials in the event of unavailability of materials or due to field
conditions.
3
<PAGE>
EXHIBIT "D"
-----------
SECOND AND THIRD FLOORS
FURNITURE, FIXTURES AND EQUIPMENT
<PAGE>
EXHIBIT "D"
SECOND AND THIRD FLOORS
FURNITURE, FIXTURES AND EQUIPMENT
<TABLE>
SECOND FLOOR EAST AND WEST
- --------------------------
<S> <C>
LIFESPACE DEMOUNTABLE PARTITIONS (10'-0" HIGH)
INCLUDING DOORS AND SIDELIGHTS................................. 3404 LINEAL FT.
SMED PRIVATE OFFICE FURNITURE GROUP.............................. 33
SMED ADMINISTRATIVE WORKSTATION.................................. 8
STEELCASE MANAGER WORKSTATION 8 X 12............................. 5
STEELCASE TYPICAL WORKSTATION 8 X 8.............................. 80
OPEN OFFICE AREA LATERAL FILE.................................... 125
6' CONFERENCE TABLE.............................................. 3
8' CONFERENCE TABLE.............................................. 4
11' CONFERENCE TABLE............................................. 1
14' CONFERENCE TABLE............................................. 2
16' CONFERENCE TABLE............................................. 1
SIDECHAIRS....................................................... 100
BREAKROOM TABLE, STOOL AND CHAIR GROUPING........................ 1
AERON CHAIRS..................................................... 126
16' E EC. BOAT SHAPED CONF. TABLE 1 CREDENZA AND SEATING FOR 14.. 1
EXECUTIVE STONE CONFERENCE TABLE................................. 1
CREDENZA.................................................... 1
VECTA BLACK LEATHER CHAIRS.................................. 16
BERNARD GREENFIELD SIDE CHAIRS.............................. 8
MAHOGANY PRESENTATION BOARD................................. 1
PODIUM...................................................... 1
EXECUTIVE STONE CONFERENCE TABLE................................. 1
CREDENZA MARBLE TOP......................................... 2
VECTA BLACK LEATHER CHAIRS.................................. 16
PHONE ROOM SIDE CHAIRS........................................... 8
CREDENZA MARBLE TOPS............................................. 2
WAITING AREA LOUNGE SEATING GROUPINGS............................ 4
BLACK LEATHER CHAIRS........................................ 15
COFFEE TABLES............................................... 3
TABLE CONSOLE............................................... 1
TABLE CUBES................................................. 5
</TABLE>
1
<PAGE>
THE INVENTORY LISTED ON PAGE ONE DOES NOT - AND SHOULD NOT - INCLUDE THE
FOLLOWING ITEMS:
(1) IN THE EAST WING, (A) SMED PRIVATE OFFICE FURNITURE, WITH SEATING IN
OFFICES OF DOUG TOLLETT, SUE BENNETT AND BOB OLSON, (B)A SMED
ADMINISTRATIVE WORK STATION, WITH SEATING, USED BY JILL WAINSCOTT, AND (C)
THREE (3) LATERAL FILE CABINETS IN THE HALLWAY AREA OUTSIDE DOUG TOLLETT'S
OFFICE; AND
(2) IN THE WEST WING, FURNITURE IN THE EXECUTIVE OFFICE OF MIKE FORD.
(3) IN THE WEST WING, THREE (3) LATERAL FILE CABINETS IN STORAGE ROOM ADJACENT
TO OFFICE OF SID MILSTEIN.
2
<PAGE>
THIRD FLOOR EAST AND WEST
- -------------------------
<TABLE>
<S> <C>
LIFESPACE DEMOUNTABLE PARTITIONS (9'-0" HIGH)
INCLUDING DOORS AND SIDELIGHTS........................2078 LINEAL FEET
SMED PRIVATE OFFICE FURNITURE GROUP.................... 25
SMED ADMINISTRATIVE WORKSTATION........................ 5
STEELCASE MANAGER WORKSTATION 8 X 12................... 12
STEELCASE TYPICAL WORKSTATION 8 X 8.................... 169
OPEN OFFICE AREA LATERAL FILE.......................... 97
? CONFERENCE TABLE..................................... 1
? CONFERENCE TABLE..................................... 6
2' CONFERENCE TABLE.................................... 1
4' CONFERENCE TABLE.................................... 2
SIDE CHAIRS............................................ 136
BREAKROOM TABLE, STOOL AND CHAIR GROUPING.............. 1
AERON CHAIRS........................................... 211
</TABLE>
<PAGE>
EXHIBIT "E"
FIRST FLOOR EAST
FURNITURE, FIXTURES AND EQUIPMENT
<TABLE>
<S> <C>
LIFESPACE GLASS DEMOUNTABLE PARTITIONS (10'-6' HIGH)
INCLUDING DOORS AND SIDELIGHTS........................ 32 FEET
STEELCASE 75" X 75" WORKSTATION........................ 35
STEELCASE 75" X 150" WORKSTATION....................... 6
OPEN OFFICE AREA LATERAL FILE.......................... 26
TEAR DROP CONFERENCE TABLE............................. 18
12' CONFERENCE TABLE................................... 1
CONFERENCE TABLE 48" X 72"............................. 6
CONFERENCE TABLE ROUND 84"............................. 3
CONFERENCE TABLE 60"................................... 1
TRAINING TABLE 30" X 60"............................... 44
TRAINING ROOM CHAIR.................................... 121
BLACK LEATHER INSTRUCTOR STOOLS........................ 3
SMED DESK UNIT WHITE WITH LATERAL...................... 1
CREDENZA............................................... 3
AERON CHAIRS........................................... 41
</TABLE>
<PAGE>
EXHIBIT "F"
1. DESCRIPTION OF JANITORIAL SERVICES
A. The Contractor shall:
1. Provide cleaning services on a daily basis five (5) days per
week, Monday through Friday, unless otherwise agreed upon by the
parties involved. Work will commence no sooner than 5:30 p.m.
each day. Five (5) holidays will be observed each year when no
cleaning will be required (New Year's Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day).
2. Furnish all necessary and proper cleaning materials which will
not damage personal property and interior finishes including, but
not limited to, cleaning compounds, finishes, polishes, sealers,
detergents, and disinfectants. All products are subject to prior
and ongoing approvals by the Customer.
3. Furnish all equipment in sufficient quantities, including brooms,
vacuum cleaners, vacuum crevice tools, floor machines, pails, and
containers and maintain all equipment in a safe condition. All
equipment is subject to prior and ongoing approval by the
Customer and will be kept in good repair at all times. All maid
carts and rolling containers must have a protective bumper to
-----------------
avoid damage to walls, doors, and personal property.
4. Furnish and require each employee to wear identification tags
with a current photo stating name of company, name of employee,
and employee's social security number.
5. Comply with all laws relating to equal employment opportunities
and hold the Customer harmless from any noncompliance thereof.
6. Schedule periodic visits to the premises to monitor compliance
with the Agreement. A monthly inspection will be made by the
General Manager and a representative of the Contractor.
Inspections will occur more frequently during start up and
additions of new areas. Contractors will respond in writing,
within fifteen (15) days of these inspections, giving the status
of each item noted for correction.
7. Keep a log in place in the General Manager's office in which a
record is made promptly of any items requiring building
management attention (i.e., defective plumbing, doors left
unlocked, lamps and bulbs burned out, presence of pests or
insects).
8. Keep accurate records on-site of all work performed as set out in
the Detailed Cleaning Specifications (Item II).
<PAGE>
9. Adhere to all security guidelines as set out by the Customer and
abide by any and all safety rules and regulations.
10. Properly install hand soap, paper towels, and tissue supplied to
the Contractor by the Customer and store these supplies in an
appropriate area.
11. Collect, handle, and store all waste and trash collected from the
project and transport to a designated trash container within the
project. No plastic bags full of trash and liquids are to be
temporarily stored in carpeted areas. Large trash containers
used to remove trash from the building will have protective
bumpers to prevent damage to elevator doors, doors frames, walls,
etc.
12. One elevator will be designated to remove trash from all floors
and the elevator doors, door frames, walls, etc. One elevator
will be designated to remove trash from all floors and the
building. This elevator will be padded with the Customer's
elevator pads by Contractor each night before work commences and
removed and stored in the appropriate place when work is
completed.
13. Keep clean and orderly the space for storage of supplies and
equipment in each building. No food stuff or other personal items
will be stored in these areas.
14. Use best efforts to minimize hours of electrical usage.
B. All damage to the premises caused by the Contractor will be reported
and documented by both the General Manager and the Contractor's
representative. Damages will be repaired at the Contractor's expense
within seventy-two (72) hours.
C. No project keys will leave the property at any time. The loss of a
master key to any building will result in the rekeying of the total
building at the Contractor's expense. All keys will be kept locked in
a key cabinet in the General Manager's office. All Contractor
employees will keep doors locked at all times and use passkeys only
for entrance into designated areas.
II. DETAILED CLEANING SPECIFICATIONS
A Definitions
1. Clean - Remove dirt, stains, or other extraneous matter.
-----
2. Damp Mop - Remove dirt with a moist cotton or nylon mop.
--------
3. Damp Wipe - Remove surface dirt with a damp cloth, chamois, mop,
---------
or other similar item.
4. Disinfect - Wash or spray with a fluid containing disinfectant.
---------
F-2
<PAGE>
6. General Clean - Applies to given areas (i.e. offices, lobbies,
-------------
corridors, etc.); includes dusting furniture and furnishings;
empty and wipe ashtrays and trash receptacles; spot clean walls,
partitions, doors, etc.; sweep hard-surfaced floors; and vacuum
carpeting.
7. High Dust - Dust areas which are normally not within reach
---------
without the use of a stool or ladder.
8. Police - Remove cigarette butts, paper cups, or other debris
------
between regular cleaning activities.
9. Polish - Clean with a polishing compound or rub (if surface is
------
waxed) with a dry cloth.
10. Scrub - Clean with neutral detergent, scrub brush, and/or floor
-----
machine.
11. Seal - Apply one or more coats of scrubbable floor sealer to
----
floor after stripping operation.
12. Spot Clean - Remove spots, fingerprints, and other isolated
----------
defacements by washing or by using a commercial cleaning
compound.
13. Spot Wax - Apply wax or finish in heavy traffic areas after the
--------
surface has been damp wiped with or without scouring compound.
14. Spray-Buff - System of resilient floor maintenance, whereby a
----------
cleaning finish solution is applied in spray form and immediately
buffed dry. Scuffs, marks, etc, are removed and gloss is
restored.
15. Strip/Rewax - Remove accumulations of wax or finish by using a
-----------
neutral cleaner and hot water applied with a mop. Allow cleaner
to remain on floor 2 or 3 minutes, then wet scrub with a
scrubbing machine equipped with a Palmetto brush. Rinse
thoroughly with cold water and allow to dry completely. Apply an
even coat of wax or finish and allow to dry for 30 minutes; apply
a second coat, and, if wax is used, polish by buffing when dry.
16. Sweep - Remove surface dirt with a broom, treated dust mop, or
-----
mechanical sweeper.
17. Vacuum Clean - Remove surface and/or imbedded dirt with a suction
------------
cleaner using a crevice tool when needed.
18. Wash - Remove dirt and/or other accumulations with a detergent,
----
disinfectant, or similar product.
19. Wax or Finish - Apply wax or finish after the surface has been
-------------
stripped, scrubbed, or wet mopped.
F-3
<PAGE>
20. Wet Mop - Remove dirt with a cotton or nylon mop and water by
-------
laying down solution and rinsing in two separate operations.
21. Wet Shampoo - Use a high-pressure suction machine which utilizes
-----------
a top-quality liquid soap and water to extract all foreign
matter from carpet.
22. Wipe - Remove surface dirt with a soft cloth, chamois, or other
----
similar article.
B. General Cleaning: Office Areas
1. Nightly Tasks
a. Vacuum all carpeted areas and rugs. Use a crevice tool in
inaccessible areas.
b. Empty and clean all wastepaper baskets, ashtrays, and other
receptacles. Damp wipe and dry these items, as necessary, to
remove stains. Items that are not in trash cans and items
not marked "trash" are not to be disturbed.
c. Empty and clean all cigarette urns and replace sand as
needed, but no less than weekly. (All materials to be
furnished by Contractor.)
d. Sweep and dust mop all composition and wood flooring with a
treated cloth or a specially designed tool. Damp mop and
touch up spillages as required.
e. Dust and wipe clean all horizontal surfaces of furniture and
fixtures, including the tops of standard-height file
cabinets. Wipe all telephones with antiseptic solution, move
all desk blotters, desk sets, and trays to clean around
edges. Dust typewriter covers and around the perimeters of
all office machines. Damp wipe and dry furniture tops as
necessary to remove all stains caused by spillages, coffee
cups, etc. DO NOT DISTURB COMPANY PAPERS.
-----------------------------
f. Dust all accessible windowsill areas.
g. Wash and clean all water fountain areas and damp dry
fixtures.
h. Using spray bottle and cloth, remove all fingerprints from
all surfaces, including desk tops, bookcases, painted
walls, and doors throughout entire area. DO NOT spot clean
------
decorator wall fabrics under this nightly program.
i. Keep janitorial storage and slop-sink rooms in an orderly
condition.
j. Damp mop entire floor in all cafeteria, vending, and break
areas.
F-4
<PAGE>
k. Clean all doorjambs.
l. Spot clean carpet in office areas.
m. Dust picture frames and wall hangings.
n. Clean and polish thresholds.
2. Weekly Tasks
a. Vacuum in desk wells and under pedestals and use crevice tool
around perimeter of offices and in other inaccessible areas.
b. Wet clean with ammonia water mixture and dry all glass and marble
furniture tops.
c. Dust all chair rails and dust and shine all furniture legs,
pedestals, trim, and baseboards.
d. Dust all accessible vertical surfaces of furniture, including
desk wells, file cabinets, and bookcases.
e. Fully open draperies and completely dust windowsill areas.
f. Clean and dust, as needed, flooring and shelving in coat closets.
g. Wash out and disinfect all cans and other receptacles.
h. Vacuum and/or spot clean all upholstered furniture.
3. Monthly Tasks
a. Strip, wash and wax all resilient flooring.
b. Damp wipe base and cove molding to remove dirt and all foreign
stains.
c. Dust venetian blinds.
d. Disinfect all cans and other receptacles, including cigarette
urns.
4. Quarterly Tasks
a. High dust all furniture, shelves, crown moldings, picture frames,
doors, (including door louvres and closers), and exposed surfaces
of lighting fixture lenses.
b. Dust and/or wash diffusers and return air vents.
F-5
<PAGE>
5. Semiannually
a. Strip and wax all resilient floors.
C. Bathrooms
1. Nightly Tasks
a. Wet mop, scrub with brushes, rinse, and damp dry all ceramic tile
flooring using a cleaning compound with a germicidal action.
b. Wash and polish all mirrors, shelves, countertops of vanity, and
brightwork including towel cabinet, sanitary napkin vending
machine, flushometers, faucets, chrome piping, toilet booth
fixtures, toilet seat hinges, etc.
c. Spray wash and disinfect all basins, bowls, and urinals using an
odorless disinfectant solution. Wash both sides of all toilet
seats. Empty and clean paper towel and sanitary disposal
receptacles, damp wiping and towel drying the exposed surfaces of
these units. Leave one (1) ounce of bowl cleaner in all commodes
and urinals to set overnight.
d. Empty paper towel disposals and restock toilet tissue holders,
liquid soap, and towel dispensers. (Materials to be furnished by
the Customer.)
2. Weekly Tasks
a. Dust tops of toilet partitions, booth doors, entrance doors,
entrance door frames, hinges and door cheeks, and tops of frames
of all projecting fixtures.
b. Damp wipe both sides of all toilet partitions, including latch
and hinge hardware, and wipe dry and shine with dry cloth.
c. Damp wipe underparts of basin, including all plumbing fixtures
such as pipes, traps, and valves. Dry wipe and polish.
3. Monthly Tasks
a. Dust all painted surfaces, including ceiling, lights, exhaust,
and make-up registers.
b. Spray wash with antiseptic solution and damp dry all wall tile.
c. Spray wash and scrub wall tile where it meets the tile floor
with a corner brush around entire perimeter of bathroom. (Nightly
floor washing is to follow this operation.)
F-6
<PAGE>
d. Polish floor drain cover.
e. Machine scrub floor with mild solution, neutralize, and
flush.
4. Semiannually
a. Wash all vinyl wallcoverings.
D. Building Lobby and Public Areas
1. Nightly Tasks
a. Sweep, wash, and spray buff interior flooring. Special attention
to be given to the borders and carpet inserts so that carpet is
maintained in a dry, unsoiled condition.
b. Police and sweep exterior pavers, entrance walks, and steps. Do
not sweep trash into parking lot. All trash will be removed and
placed in trash containers.
c. Clean rain mats at building lobby entrance.
d. Vacuum elevator lobby carpet, all common area carpet, and carpet
in all passenger elevators. Use crevice tool in all inaccessible
areas.
e. Clean elevator cab interiors and dust wood paneling in these
elevators.
f. Dust interior sills and convector enclosures at base of perimeter
curtain wall.
g. Remove fingerprints and smudges from interior glass partitions,
interior side of curtain wall glass entrance doors, sidelights,
and glass vestibule to height of 8'.
h. Empty and clean all cigarette urns and replace sand or water as
needed. (All materials to be furnished by Contractor.)
i. Clean and polish building and suite thresh holds as needed.
j. Spot clean carpet in lobbies, elevators, and common area
corridors.
k. Vacuum upholstered lobby furniture and move to clean under,
around, and behind.
l. clean all doorjambs.
m. Sweep stairwells and dust railings.
F-7
<PAGE>
n. Dust and wipe elevator doors, mail depositories, directory
panels, signs, and all metal and brightwork.
o. Wash and clean all water fountain areas and damp dry
fixtures.
p. Keep janitorial storage and slop-sink rooms in an orderly
condition.
q. Damp wipe base and cove molding to remove dirt and all
foreign stains.
2. Weekly Tasks
a. Clean and polish tracks of all elevator doors on all floors.
b. Spray buff all resilient flooring.
c. Mop stairwells.
3. Monthly Tasks
a. Strip, wash, and wax all resilient flooring and damp clean
all cove base.
b. Dust and treat paneling in all passenger elevators with a
wood preservative similar to Guardsman.
4. Quarterly Tasks
a. High dust marble, core, and perimeter air diffusers,
lighting fixtures (except luminous ceiling), metal ceiling
coves, and interior surfaces of curtain wall mullions, both
horizontal and vertical, at lobby level only.
b. Machine scrub to strip sealant from marble floor. Rinse
clean, dry, and reapply marble sealant polish as directed.
NOTE: Inconsistencies in required cleaning frequencies will always be
resolved in favor of the higher number of times required to be
cleaned.
F-8
<PAGE>
EXHIBIT "G"
-----------
HEAT, VENTILATION AND AIR CONDITIONING SPECIFICATIONS
GECC shall provide heat, ventilation and air conditioning on a year-round
basis throughout the Subleased Premises and Building common areas. The equipment
shall be capable of maintaining the following indoor design conditions with
maximum internal heat rejection loads of 2 watts per square foot of lighting
load, 2 watts per square foot of equipment load, and a maximum occupant density
150 per square foot per person load.:
Winter: 72 degrees FDB with 30% RH
Summer: 78 degrees FDB with 55% RH
The equipment shall permit operation within the parameters defined by the
"Comfort Chart" shown in the latest edition of ASHRAE Standard 55, "Thermal
Environmental Conditions For Human Occupancy."
The minimum outdoor air supply rates shall not be less than 20 cfm/person
of outdoor air. Outdoor air for ventilation shall meet the requirements of the
latest edition of ASHRAE Standard 62, "Ventilation For Acceptable Indoor Air
Quality."
The central HVAC equipment shall be capable of cooling a process load
(personal computers) in every work station. The planning load for each
workstation is 250 watts with a maximum of 2 watts per square foot equipment
load.
Systems serving general office areas shall be equipped with 30% efficiency
filters.
<PAGE>
EXHIBIT 10.38
ASSIGNMENT AND ASSUMPTION OF LEASE
AND
CONSENT OF LANDLORD
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made and entered
into as of November 5, 1998, by and among MAPICS, INC., A GEORGIA CORPORATION
("Assignor"), GENERAL ELECTRIC CAPITAL CORPORATION, A NEW YORK CORPORATION
("Assignee") and EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY ("Landlord").
WHEREAS, The Mutual Life Insurance Company of New York ("Mutual Life"), as
landlord, and International Business Machines, a New York corporation ("IBM"),
as tenant, entered into that certain lease dated as of November 5, 1992 (the
"Lease"), for the rental of certain premises in the 5775-D Glenridge Drive
Building in Atlanta, Georgia, containing 47,902 square feet of rentable area
(the "Premises"); and
WHEREAS, Landlord is the current holder of all of Mutual Life's interest
under the Lease; and
WHEREAS, Assignor is the current holder of all of IBM's interest under the
Lease; and
WHEREAS, Assignor desires to assign all of Assignor's rights in, to and
under the Lease to Assignee, and Assignee agrees to assume all of Assignor's
rights, duties and obligations thereunder, and Landlord consents to said
assignment and assumption upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) in hand
paid to Assignor by Assignee, at and with the execution and delivery of this
Assignment, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor, Assignee and Landlord
covenant and agree as follows:
1. Assignment and Assumption. Effective as of March 1, 1999 (the
--------------------------
"Effective Date"), Assignor hereby absolutely and irrevocably assigns
to Assignee, its successors and assigns, all right, title, and
interest of Assignor in, to and under the Lease. Effective as of the
Effective Date, Assignee hereby expressly assumes all rights, duties
and obligations of Assignee under the Lease. Assignor, Assignee and
Landlord hereby expressly acknowledge, however, that Assignee shall
have no liability for satisfaction of any tenant obligations under the
Lease prior to the Effective Date, it being expressly agreed that
Landlord shall seek to enforce said obligations, if necessary, only
against Assignor.
2. Adjustments. If any payments of rent, additional rent or other
------------
changes due under the Lease relate to a period which includes time
both before and after the Effective Date of this Assignment, any such
payment shall be prorated between Assignor and Assignee according to
the fractions of the total number of days in such period occurring,
respectively, before and after said Effective Date. Assignor shall
pay the prorated portion of any such payment relating to the
fractional period before said Effective Date, and Assignee shall pay
the prorated portion of any such payment relating to the fractional
period on or after said Effective Date.
3. Indemnification. Assignor does hereby indemnify and hold Assignee
----------------
harmless from and against any and all claims, causes, demands, losses,
liabilities, costs, damages, expenses and fees, including, without
limitation, court costs and attorneys' fees, incurred, related to or
arising in any manner from or out of the performance or failure of
performance by Assignor of any of its duties as tenant under the Lease
prior to the Effective Date. Assignee does hereby indemnify and hold
Assignor harmless from and against any and all claims, causes,
demands, losses, liabilities, costs, damages, expenses and fees
including, without limitation, court costs and attorneys' fees,
incurred, related to or arising in any manner from and out of the
performance or failure of performance by Assignee of any of its duties
as tenant under the Lease from and after the Effective Date.
1
<PAGE>
4. Consent and Release.
--------------------
a. In reliance upon the agreements and representations contained in
this Assignment, Landlord hereby consents to this Assignment.
This consent shall not constitute a waiver of the obligation of
the tenant under the Lease to obtain the Landlord's consent to
any subsequent assignment, sublease or other transfer under the
Lease, nor shall it constitute a waiver of any existing defaults
under the Lease. Landlord waives any further applicable notice
of assignment or notice of intent to assign which may be required
of Assignor under the Lease in connection with this Assignment
described herein.
b. Effective as of the Effective Date, Landlord hereby releases and
forever discharges Assignor of and from any further obligation or
liability under the Lease arising from and after the Effective
Date.
5. Review Fee. Upon Assignor's execution and delivery of this
-----------
Assignment, Assignor shall pay to Landlord the sum of Two Hundred and
00/100 Dollars ($200.00) in consideration for Landlord's review of
this Assignment and/or review and execution of any estoppel
certificate requested of Landlord in connection with this Assignment.
6. Successors and Assigns. This Assignment shall be binding upon and
-----------------------
shall inure to the benefit of the successors, assigns and transferees
of the parties hereto.
7. Authority. Landlord expressly represents and warrants that (i)
----------
Landlord is the holder of the entire interest of the landlord under
the Lease, (ii) Landlord is authorized to enter into this Assignment,
and (iii) the party executing this Assignment on behalf of Landlord is
authorized to do so. Assignor expressly represents and warrants that
(a) Assignor is the holder of the entire interest of the tenant under
the Lease and Assignor has not transferred or conveyed its interest in
the Lease to any person or entity, collaterally or otherwise, (b)
Assignor is authorized to enter into this Assignment, and (c) the
party executing this Assignment on behalf of Assignor is authorized to
do so. Assignee expressly represents and warrants that (I) Assignee
is authorized to enter into this Assignment, and (II) the party
executing this Assignment on behalf of Assignee is authorized to do
so.
8. No Modification of Lease. Nothing contained in this Assignment shall
-------------------------
be deemed to amend, modify or alter in any way the terms, covenants
and conditions set forth in the Lease.
9. Further Agreements. The parties hereto further agree as follows:
-------------------
a. Subsequent to the date hereof, Landlord shall not recognize any
attempted exercise by Assignor of renewal, extension or expansion
rights under the Lease, if any, without Assignee's prior written
consent.
b. Subsequent to the date hereof, no agreement between Landlord and
Assignor modifying, amending, canceling, terminating or
surrendering the Lease or the Premises, or any part thereof,
shall be effective without the prior written consent of Assignee.
c. Subsequent to the Effective Date, Assignor's consent shall not be
required for any of the matters described in 8(a) or 8(b) above.
10. Notices. Prior to the Effective Date, notices to Assignor shall be
--------
delivered as described in the Lease at the address provided therein
for notices to tenant, and notices to Assignee shall be delivered in
accordance with the terms of the Lease at the following
address:________________________ __________________________________.
Following the Effective Date, any notices to Assignee shall be
effective when served to Assignee at the Premises in accordance with
the terms of the Lease.
2
<PAGE>
11. Governing Law. This Assignment shall be construed under and governed
--------------
in accordance with the laws of the State of Georgia.
12. Time. Time is of essence of this Assignment.
-----
13. Counterparts. This Assignment may be executed in multiple
-------------
counterparts, each of which shall be deemed an original provided that
all parties are furnished a copy or copies thereof reflecting the
signature of all parties.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
3
<PAGE>
IN WITNESS WHEREOF, this Assignment has been executed under seal on behalf
of Assignor, Assignee and Landlord, effective as of the date first above
written.
<TABLE>
<CAPTION>
WITNESS/ATTEST: LANDLORD:
<S> <C>
EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY
By: EOP Operating Limited Partnership, a Delaware limited
partnership, its sole member
By: Equity Office Properties Trust, a Maryland real estate
investment trust, its managing general partner
By: /s/ Jeff Sweeney
------------------------------------------------
/s/ Angela Langenderfer
- -------------------------------------- Name: Jeff Sweeney
------------------------------------------------
Name (print): Angela Langenderfer Title: VP - Leasing
------------------------ ------------------------------------------------
Name (print): ------------------------
WITNESS/ATTEST: ASSIGNOR:
MAPICS, INC., A GEORGIA CORPORATION
/s/ Steven D. Collier By: /s/ Thomas F. Aery
- -------------------------------------- -------------------------------------------------------
Name (print): Steven D. Collier Name: Thomas F. Aery
------------------------ -----------------------------------------------------
Name (print): Title: V.P. Worldwide Support
------------------------ -----------------------------------------------------
WITNESS/ATTEST: ASSIGNEE:
GENERAL ELECTRIC CAPITAL CORPORATION, A NEW YORK CORPORATION
/s/ Sue T. Bennett By: /s/ Darryl Dong
- -------------------------------------- -------------------------------------------------------
Name (print): Sue T. Bennett Name: Darryl Dong
------------------------ -----------------------------------------------------
Name (print): Title: District Manager
------------------------ -----------------------------------------------------
</TABLE>
4
<PAGE>
EXHIBIT 10.39
ASSIGNMENT AND ASSUMPTION OF LEASE
AND
CONSENT OF LANDLORD
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made and entered
into as of November 5, 1998, by and among MAPICS, INC., A GEORGIA CORPORATION
("Assignor"), GENERAL ELECTRIC CAPITAL CORPORATION, A NEW YORK CORPORATION
("Assignee") and EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY ("Landlord").
WHEREAS, The Mutual Life Insurance Company of New York ("Mutual Life"), as
landlord, and MARCAM Corporation, a Massachusetts corporation ("MARCAM"), as
tenant, entered into that certain lease dated January 14, 1994 (the "Lease"),
for the rental of certain premises described as Suites 100, 150 and 425 in the
5775-D Glenridge Drive Building in Atlanta, Georgia, containing 14,391 square
feet of rentable area (the "Premises"); and
WHEREAS, Landlord is the current holder of all of Mutual Life's interest
under the Lease; and
WHEREAS, Assignor is the current holder of all of MARCAM's interest under
the Lease; and
WHEREAS, Assignor desires to assign all of Assignor's rights in, to and
under the Lease to Assignee, and Assignee agrees to assume all of Assignor's
rights, duties and obligations thereunder, and Landlord consents to said
assignment and assumption upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) in hand
paid to Assignor by Assignee, at and with the execution and delivery of this
Assignment, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor, Assignee and Landlord
covenant and agree as follows:
1. Assignment and Assumption. Effective as of March 1, 1999 (the
--------------------------
"Effective Date"), Assignor hereby absolutely and irrevocably assigns
to Assignee, its successors and assigns, all right, title, and
interest of Assignor in, to and under the Lease. Effective as of the
Effective Date, Assignee hereby expressly assumes all rights, duties
and obligations of Assignee under the Lease. Assignor, Assignee and
Landlord hereby expressly acknowledge, however, that Assignee shall
have no liability for satisfaction of any tenant obligations under the
Lease prior to the Effective Date, it being expressly agreed that
Landlord shall seek to enforce said obligations, if necessary, only
against Assignor.
2. Adjustments. If any payments of rent, additional rent or other
------------
changes due under the Lease relate to a period which includes time
both before and after the Effective Date of this Assignment, any such
payment shall be prorated between Assignor and Assignee according to
the fractions of the total number of days in such period occurring,
respectively, before and after said Effective Date. Assignor shall
pay the prorated portion of any such payment relating to the
fractional period before said Effective Date, and Assignee shall pay
the prorated portion of any such payment relating to the fractional
period on or after said Effective Date.
3. Indemnification. Assignor does hereby indemnify and hold Assignee
----------------
harmless from and against any and all claims, causes, demands, losses,
liabilities, costs, damages, expenses and fees, including, without
limitation, court costs and attorneys' fees, incurred, related to or
arising in any manner from or out of the performance or failure of
performance by Assignor of any of its duties as tenant under the Lease
prior to the Effective Date. Assignee does hereby indemnify and hold
Assignor harmless from and against any and all claims, causes,
demands, losses, liabilities, costs, damages, expenses and fees
including, without limitation, court costs and attorneys' fees,
incurred, related to or arising in any manner from and out of the
performance or failure of performance by Assignee of any of its duties
as tenant under the Lease from and after the Effective Date.
1
<PAGE>
4. Consent and Release.
--------------------
a. In reliance upon the agreements and representations contained in
this Assignment, Landlord hereby consents to this Assignment.
This consent shall not constitute a waiver of the obligation of
the tenant under the Lease to obtain the Landlord's consent to
any subsequent assignment, sublease or other transfer under the
Lease, nor shall it constitute a waiver of any existing defaults
under the Lease. Landlord waives any further applicable notice
of assignment or notice of intent to assign which may be required
of Assignor under the Lease in connection with this Assignment
described herein.
b. Effective as of the Effective Date, Landlord hereby releases and
forever discharges Assignor of and from any further obligation or
liability under the Lease arising from and after the Effective
Date.
5. Review Fee. Upon Assignor's execution and delivery of this
-----------
Assignment, Assignor shall pay to Landlord the sum of Two Hundred and
00/100 Dollars ($200.00) in consideration for Landlord's review of
this Assignment and/or review and execution of any estoppel
certificate requested of Landlord in connection with this Assignment.
6. Successors and Assigns. This Assignment shall be binding upon and
-----------------------
shall inure to the benefit of the successors, assigns and transferees
of the parties hereto.
7. Authority. Landlord expressly represents and warrants that (i)
----------
Landlord is the holder of the entire interest of the landlord under
the Lease, (ii) Landlord is authorized to enter into this Assignment,
and (iii) the party executing this Assignment on behalf of Landlord is
authorized to do so. Assignor expressly represents and warrants that
(a) Assignor is the holder of the entire interest of the tenant under
the Lease and Assignor has not transferred or conveyed its interest in
the Lease to any person or entity, collaterally or otherwise, (b)
Assignor is authorized to enter into this Assignment, and (c) the
party executing this Assignment on behalf of Assignor is authorized to
do so. Assignee expressly represents and warrants that (I) Assignee
is authorized to enter into this Assignment, and (II) the party
executing this Assignment on behalf of Assignee is authorized to do
so.
8. No Modification of Lease. Nothing contained in this Assignment shall
-------------------------
be deemed to amend, modify or alter in any way the terms, covenants
and conditions set forth in the Lease.
9. Further Agreements. The parties hereto further agree as follows:
-------------------
a. Subsequent to the date hereof, Landlord shall not recognize any
attempted exercise by Assignor of renewal, extension or expansion
rights under the Lease, if any, without Assignee's prior written
consent.
b. Subsequent to the date hereof, no agreement between Landlord and
Assignor modifying, amending, canceling, terminating or
surrendering the Lease or the Premises, or any part thereof,
shall be effective without the prior written consent of Assignee.
c. Subsequent to the Effective Date, Assignor's consent shall not be
required for any of the matters described in 8(a) or 8(b) above.
10. Notices. Prior to the Effective Date, notices to Assignor shall be
--------
delivered as described in the Lease at the address provided therein
for notices to tenant, and notices to Assignee shall be delivered in
accordance with the terms of the Lease at the following
address:________________________ __________________________________.
Following the Effective Date, any notices to Assignee shall be
effective when served to Assignee at the Premises in accordance with
the terms of the Lease.
2
<PAGE>
11. Governing Law. This Assignment shall be construed under and governed
--------------
in accordance with the laws of the State of Georgia.
12. Time. Time is of essence of this Assignment.
-----
13. Counterparts. This Assignment may be executed in multiple
-------------
counterparts, each of which shall be deemed an original provided that
all parties are furnished a copy or copies thereof reflecting the
signature of all parties.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
3
<PAGE>
IN WITNESS WHEREOF, this Assignment has been executed under seal on behalf
of Assignor, Assignee and Landlord, effective as of the date first above
written.
WITNESS/ATTEST: LANDLORD:
EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its
sole member
By: Equity Office Properties Trust,
a Maryland real estate
investment trust, its managing
general partner
/s/ Angela Langenderfer By: /s/ Jeff Sweeney
- ----------------------- ----------------
Name (print): Angela Langenderfer Name: Jeff Sweeney
------------------- ------------
Name (print): Title: VP - Leasing
------------------- ------------
WITNESS/ATTEST: ASSIGNOR:
MAPICS, INC., A GEORGIA CORPORATION
/s/ Steven D. Collier By: /s/ Thomas F. Aery
- --------------------- ------------------
Name (print): Steven D. Collier Name: Thomas F. Aery
------------------ --------------
Name (print): Title: V.P. Worldwide Support
------------------ ----------------------
WITNESS/ATTEST: ASSIGNEE:
GENERAL ELECTRIC CAPITAL CORPORATION,
A NEW YORK CORPORATION
/s/ Sue T. Bennett By: /s/ Darryl Dong
- ------------------ ---------------
Name (print): Sue T. Bennett Name: Darryl Dong
-------------- -----------
Name (print): Title: District Manager
-------------- ----------------
4
<PAGE>
EXHIBIT 10.40
ASSIGNMENT AND ASSUMPTION OF LEASE
AND
CONSENT OF LANDLORD
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made and entered
into as of November 5, 1998, by and among MAPICS, INC., A GEORGIA CORPORATION
("Assignor"), GENERAL ELECTRIC CAPITAL CORPORATION, A NEW YORK CORPORATION
("Assignee") and EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY ("Landlord").
WHEREAS, Beacon Properties, L.P. ("Beacon"), as landlord, and MAPICS, Inc.,
a Massachusetts corporation ("MAPICS"), as tenant, entered into that certain
lease dated December 19, 1997 (the "Lease"), for the rental of certain premises
described as Suites 400 and 475 in the 5775-D Glenridge Drive Building in
Atlanta, Georgia, containing 7,323 square feet of rentable area (the
"Premises"); and
WHEREAS, Landlord is the current holder of all of Beacon's interest under
the Lease; and
WHEREAS, Assignor is the current holder of all of MAPICS' interest under
the Lease; and
WHEREAS, Assignor desires to assign all of Assignor's rights in, to and
under the Lease to Assignee, and Assignee agrees to assume all of Assignor's
rights, duties and obligations thereunder, and Landlord consents to said
assignment and assumption upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) in hand
paid to Assignor by Assignee, at and with the execution and delivery of this
Assignment, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor, Assignee and Landlord
covenant and agree as follows:
1. Assignment and Assumption. Effective as of March 1, 1999 (the
--------------------------
"Effective Date"), Assignor hereby absolutely and irrevocably assigns
to Assignee, its successors and assigns, all right, title, and
interest of Assignor in, to and under the Lease. Effective as of the
Effective Date, Assignee hereby expressly assumes all rights, duties
and obligations of Assignee under the Lease. Assignor, Assignee and
Landlord hereby expressly acknowledge, however, that Assignee shall
have no liability for satisfaction of any tenant obligations under the
Lease prior to the Effective Date, it being expressly agreed that
Landlord shall seek to enforce said obligations, if necessary, only
against Assignor.
2. Adjustments. If any payments of rent, additional rent or other
------------
changes due under the Lease relate to a period which includes time
both before and after the Effective Date of this Assignment, any such
payment shall be prorated between Assignor and Assignee according to
the fractions of the total number of days in such period occurring,
respectively, before and after said Effective Date. Assignor shall
pay the prorated portion of any such payment relating to the
fractional period before said Effective Date, and Assignee shall pay
the prorated portion of any such payment relating to the fractional
period on or after said Effective Date.
3. Indemnification. Assignor does hereby indemnify and hold Assignee
----------------
harmless from and against any and all claims, causes, demands, losses,
liabilities, costs, damages, expenses and fees, including, without
limitation, court costs and attorneys' fees, incurred, related to or
arising in any manner from or out of the performance or failure of
performance by Assignor of any of its duties as tenant under the Lease
prior to the Effective Date. Assignee does hereby indemnify and hold
Assignor harmless from and against any and all claims, causes,
demands, losses, liabilities, costs, damages, expenses and fees
including, without limitation, court costs and attorneys' fees,
incurred, related to or arising in any manner from and out of the
performance or failure of performance by Assignee of any of its duties
as tenant under the Lease from and after the Effective Date.
1
<PAGE>
4. Consent and Release.
--------------------
a. In reliance upon the agreements and representations contained in
this Assignment, Landlord hereby consents to this Assignment.
This consent shall not constitute a waiver of the obligation of
the tenant under the Lease to obtain the Landlord's consent to
any subsequent assignment, sublease or other transfer under the
Lease, nor shall it constitute a waiver of any existing defaults
under the Lease. Landlord waives any further applicable notice
of assignment or notice of intent to assign which may be required
of Assignor under the Lease in connection with this Assignment
described herein.
b. Effective as of the Effective Date, Landlord hereby releases and
forever discharges Assignor of and from any further obligation or
liability under the Lease arising from and after the Effective
Date.
5. Review Fee. Upon Assignor's execution and delivery of this
-----------
Assignment, Assignor shall pay to Landlord the sum of Two Hundred and
00/100 Dollars ($200.00) in consideration for Landlord's review of
this Assignment and/or review and execution of any estoppel
certificate requested of Landlord in connection with this Assignment.
6. Successors and Assigns. This Assignment shall be binding upon and
-----------------------
shall inure to the benefit of the successors, assigns and transferees
of the parties hereto.
7. Authority. Landlord expressly represents and warrants that (i)
----------
Landlord is the holder of the entire interest of the landlord under
the Lease, (ii) Landlord is authorized to enter into this Assignment,
and (iii) the party executing this Assignment on behalf of Landlord is
authorized to do so. Assignor expressly represents and warrants that
(a) Assignor is the holder of the entire interest of the tenant under
the Lease and Assignor has not transferred or conveyed its interest in
the Lease to any person or entity, collaterally or otherwise, (b)
Assignor is authorized to enter into this Assignment, and (c) the
party executing this Assignment on behalf of Assignor is authorized to
do so. Assignee expressly represents and warrants that (I) Assignee
is authorized to enter into this Assignment, and (II) the party
executing this Assignment on behalf of Assignee is authorized to do
so.
8. No Modification of Lease. Nothing contained in this Assignment shall
-------------------------
be deemed to amend, modify or alter in any way the terms, covenants
and conditions set forth in the Lease.
9. Further Agreements. The parties hereto further agree as follows:
-------------------
a. Subsequent to the date hereof, Landlord shall not recognize any
attempted exercise by Assignor of renewal, extension or expansion
rights under the Lease, if any, without Assignee's prior written
consent.
b. Subsequent to the date hereof, no agreement between Landlord and
Assignor modifying, amending, canceling, terminating or
surrendering the Lease or the Premises, or any part thereof,
shall be effective without the prior written consent of Assignee.
c. Subsequent to the Effective Date, Assignor's consent shall not be
required for any of the matters described in 8(a) or 8(b) above.
10. Notices. Prior to the Effective Date, notices to Assignor shall be
--------
delivered as described in the Lease at the address provided therein
for notices to tenant, and notices to Assignee shall be delivered in
accordance with the terms of the Lease at the following
address:________________________ __________________________________.
Following the
2
<PAGE>
Effective Date, any notices to Assignee shall be effective when served
to Assignee at the Premises in accordance with the terms of the Lease.
11. Governing Law. This Assignment shall be construed under and governed
--------------
in accordance with the laws of the State of Georgia.
12. Time. Time is of essence of this Assignment.
-----
13. Counterparts. This Assignment may be executed in multiple
-------------
counterparts, each of which shall be deemed an original provided that
all parties are furnished a copy or copies thereof reflecting the
signature of all parties.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
3
<PAGE>
IN WITNESS WHEREOF, this Assignment has been executed under seal on behalf
of Assignor, Assignee and Landlord, effective as of the date first above
written.
WITNESS/ATTEST: LANDLORD:
EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its
sole member
By: Equity Office Properties Trust, a
Maryland real estate investment
trust, its managing general
partner
/s/ Angela Langenderfer By: /s/ Jeff Sweeney
- ----------------------- ----------------
Name (print): Angela Langenderfer Name: Jeff Sweeney
------------------- ------------
Name (print): Title: VP - Leasing
------------------- ------------
WITNESS/ATTEST: ASSIGNOR:
MAPICS, INC., A GEORGIA CORPORATION
/s/ Steven D. Collier By: /s/ Thomas F. Aery
- --------------------- ------------------
Name (print): Steven D. Collier Name: Thomas F. Aery
------------------ --------------
Name (print): Title: V.P. Worldwide Support
------------------ ----------------------
WITNESS/ATTEST: ASSIGNEE:
GENERAL ELECTRIC CAPITAL CORPORATION,
A NEW YORK CORPORATION
/s/ Sue T. Bennett By: /s/ Darryl Dong
- ------------------ ---------------
Name (print): Sue T. Bennett Name: Darryl Dong
-------------- -----------
Name (print): Title: District Manager
-------------- ----------------
4
<PAGE>
EXHIBIT 10.41
ASSIGNMENT AND ASSUMPTION OF LEASE
AND
CONSENT OF LANDLORD
THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made and entered
into as of November 5, 1998, by and among MAPICS, INC., A GEORGIA CORPORATION
("Assignor"), GENERAL ELECTRIC CAPITAL CORPORATION, A NEW YORK CORPORATION
("Assignee") and EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY ("Landlord").
WHEREAS, The Mutual Life Insurance Company of New York ("Mutual Life"), as
landlord, and MARCAM Corporation, a Massachusetts corporation ("MARCAM"), as
tenant, entered into that certain lease dated April 22, 1997 (the "Lease"), for
the rental of certain premises described as Suite 105 in the 5775-C Glenridge
Drive Building in Atlanta, Georgia, containing 4,072 square feet of rentable
area (the "Premises"); and
WHEREAS, Landlord is the current holder of all of Mutual Life's interest
under the Lease; and
WHEREAS, Assignor is the current holder of all of MARCAM's interest under
the Lease; and
WHEREAS, Assignor desires to assign all of Assignor's rights in, to and
under the Lease to Assignee, and Assignee agrees to assume all of Assignor's
rights, duties and obligations thereunder, and Landlord consents to said
assignment and assumption upon the terms and conditions contained herein.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) in hand
paid to Assignor by Assignee, at and with the execution and delivery of this
Assignment, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Assignor, Assignee and Landlord
covenant and agree as follows:
1. Assignment and Assumption. Effective as of March 1, 1999 (the
--------------------------
"Effective Date"), Assignor hereby absolutely and irrevocably assigns
to Assignee, its successors and assigns, all right, title, and
interest of Assignor in, to and under the Lease. Effective as of the
Effective Date, Assignee hereby expressly assumes all rights, duties
and obligations of Assignee under the Lease. Assignor, Assignee and
Landlord hereby expressly acknowledge, however, that Assignee shall
have no liability for satisfaction of any tenant obligations under the
Lease prior to the Effective Date, it being expressly agreed that
Landlord shall seek to enforce said obligations, if necessary, only
against Assignor.
2. Adjustments. If any payments of rent, additional rent or other
------------
changes due under the Lease relate to a period which includes time
both before and after the Effective Date of this Assignment, any such
payment shall be prorated between Assignor and Assignee according to
the fractions of the total number of days in such period occurring,
respectively, before and after said Effective Date. Assignor shall
pay the prorated portion of any such payment relating to the
fractional period before said Effective Date, and Assignee shall pay
the prorated portion of any such payment relating to the fractional
period on or after said Effective Date.
3. Indemnification. Assignor does hereby indemnify and hold Assignee
----------------
harmless from and against any and all claims, causes, demands, losses,
liabilities, costs, damages, expenses and fees, including, without
limitation, court costs and attorneys' fees, incurred, related to or
arising in any manner from or out of the performance or failure of
performance by Assignor of any of its duties as tenant under the Lease
prior to the Effective Date. Assignee does hereby indemnify and hold
Assignor harmless from and against any and all claims, causes,
demands, losses, liabilities, costs, damages, expenses and fees
including, without limitation, court costs and attorneys' fees,
incurred, related to or arising in any manner from and out of the
performance or failure of performance by Assignee of any of its duties
as tenant under the Lease from and after the Effective Date.
1
<PAGE>
4. Consent and Release.
--------------------
a. In reliance upon the agreements and representations contained in
this Assignment, Landlord hereby consents to this Assignment.
This consent shall not constitute a waiver of the obligation of
the tenant under the Lease to obtain the Landlord's consent to
any subsequent assignment, sublease or other transfer under the
Lease, nor shall it constitute a waiver of any existing defaults
under the Lease. Landlord waives any further applicable notice
of assignment or notice of intent to assign which may be required
of Assignor under the Lease in connection with this Assignment
described herein.
b. Effective as of the Effective Date, Landlord hereby releases and
forever discharges Assignor of and from any further obligation or
liability under the Lease arising from and after the Effective
Date.
5. Review Fee. Upon Assignor's execution and delivery of this
-----------
Assignment, Assignor shall pay to Landlord the sum of Two Hundred and
00/100 Dollars ($200.00) in consideration for Landlord's review of
this Assignment and/or review and execution of any estoppel
certificate requested of Landlord in connection with this Assignment.
6. Successors and Assigns. This Assignment shall be binding upon and
-----------------------
shall inure to the benefit of the successors, assigns and transferees
of the parties hereto.
7. Authority. Landlord expressly represents and warrants that (i)
----------
Landlord is the holder of the entire interest of the landlord under
the Lease, (ii) Landlord is authorized to enter into this Assignment,
and (iii) the party executing this Assignment on behalf of Landlord is
authorized to do so. Assignor expressly represents and warrants that
(a) Assignor is the holder of the entire interest of the tenant under
the Lease and Assignor has not transferred or conveyed its interest in
the Lease to any person or entity, collaterally or otherwise, (b)
Assignor is authorized to enter into this Assignment, and (c) the
party executing this Assignment on behalf of Assignor is authorized to
do so. Assignee expressly represents and warrants that (I) Assignee
is authorized to enter into this Assignment, and (II) the party
executing this Assignment on behalf of Assignee is authorized to do
so.
8. No Modification of Lease. Nothing contained in this Assignment shall
-------------------------
be deemed to amend, modify or alter in any way the terms, covenants
and conditions set forth in the Lease.
9. Further Agreements. The parties hereto further agree as follows:
-------------------
a. Subsequent to the date hereof, Landlord shall not recognize any
attempted exercise by Assignor of renewal, extension or expansion
rights under the Lease, if any, without Assignee's prior written
consent.
b. Subsequent to the date hereof, no agreement between Landlord and
Assignor modifying, amending, canceling, terminating or
surrendering the Lease or the Premises, or any part thereof,
shall be effective without the prior written consent of Assignee.
c. Subsequent to the Effective Date, Assignor's consent shall not be
required for any of the matters described in 8(a) or 8(b) above.
10. Notices. Prior to the Effective Date, notices to Assignor shall be
--------
delivered as described in the Lease at the address provided therein
for notices to tenant, and notices to Assignee shall be delivered in
accordance with the terms of the Lease at the following
address:________________________ __________________________________.
Following the Effective Date, any notices to Assignee shall be
effective when served to Assignee at the Premises in accordance with
the terms of the Lease.
2
<PAGE>
11. Governing Law. This Assignment shall be construed under and governed
--------------
in accordance with the laws of the State of Georgia.
12. Time. Time is of essence of this Assignment.
-----
13. Counterparts. This Assignment may be executed in multiple
-------------
counterparts, each of which shall be deemed an original provided that
all parties are furnished a copy or copies thereof reflecting the
signature of all parties.
[SIGNATURES ARE ON THE FOLLOWING PAGE]
3
<PAGE>
IN WITNESS WHEREOF, this Assignment has been executed under seal on behalf
of Assignor, Assignee and Landlord, effective as of the date first above
written.
WITNESS/ATTEST: LANDLORD:
EOP-LAKESIDE OFFICE, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY
By: EOP Operating Limited Partnership,
a Delaware limited partnership,
its sole member
By: Equity Office Properties Trust,
a Maryland real estate investment
trust, its managing general
partner
/s/ Angela Langenderfer By: /s/ Jeff Sweeney
- ----------------------- ----------------
Name (print): Angela Langenderfer Name: Jeff Sweeney
------------------- ------------
Name (print): Title: VP - Leasing
------------------- ------------
WITNESS/ATTEST: ASSIGNOR:
MAPICS, INC., A GEORGIA CORPORATION
/s/ Steven D. Collier By: /s/ Thomas F. Aery
- --------------------- ------------------
Name (print): Steven D. Collier Name: Thomas F. Aery
----------------- --------------
Name (print): Title: V.P. Worldwide Support
----------------- ----------------------
WITNESS/ATTEST: ASSIGNEE:
GENERAL ELECTRIC CAPITAL CORPORATION,
A NEW YORK CORPORATION
/s/ Sue T. Bennett By: /s/ Darryl Dong
- ------------------ ---------------
Name (print): Sue T. Bennett Name: Darryl Dong
-------------- -----------
Name (print): Title: District Manager
-------------- ----------------
4
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of Incorporation Names Under Which
Name of Subsidiary or Organization Subsidiaries Do Business
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
MAPICS Australia Pty. Ltd. Australia MAPICS Australia Pty. Ltd.
MAPICS EMEA Support Center B.V. Netherlands MAPICS EMEA Support Center B.V.
MAPICS Singapore Pte. Ltd. Singapore MAPICS Singapore Pte. Ltd.
MAPICS GmbH Germany MAPICS GmbH
MAPICS KK Japan MAPICS KK
MAPICS UK Ltd. United Kingdom MAPICS UK Ltd.
MAPICS France S.a.r.l. France MAPICS France S.a.r.l.
MAPICS International Corporation Barbados MAPICS International Corporation
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MAPICS, Inc. on Form S-8 (File No. 333-48989) of our report dated October 26,
1998, except as to Note 18 for which the date is October 29, 1998 on our audits
of the consolidated financial statements of MAPICS, Inc. and its subsidiaries as
of September 30, 1998 and 1997, and for each of the three years in the period
ended September 30, 1998, which report is included in this Annual Report on Form
10-K.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 17, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
MAPICS, Inc. on Form S-3 (File No. 333-33865) of our report dated October 26,
1998, except as to Note 18 for which the date is October 29, 1998 on our audits
of the consolidated financial statements of MAPICS, Inc. and its subsidiaries as
of September 30, 1998 and 1997, and for each of the three years in the period
ended September 30, 1998, which report is included in this Annual Report on Form
10-K.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 33,442
<SECURITIES> 0
<RECEIVABLES> 37,868
<ALLOWANCES> 1,989
<INVENTORY> 0
<CURRENT-ASSETS> 75,383
<PP&E> 10,512
<DEPRECIATION> 5,474
<TOTAL-ASSETS> 110,042
<CURRENT-LIABILITIES> 63,101
<BONDS> 0
0
325
<COMMON> 189
<OTHER-SE> 46,427
<TOTAL-LIABILITY-AND-EQUITY> 110,042
<SALES> 79,189
<TOTAL-REVENUES> 129,741
<CGS> 13,108
<TOTAL-COSTS> 27,981
<OTHER-EXPENSES> 15,073
<LOSS-PROVISION> 570
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 30,452
<INCOME-TAX> 11,724
<INCOME-CONTINUING> 18,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,728
<EPS-PRIMARY> 1.01<F1>
<EPS-DILUTED> 0.81<F2>
<FN>
<F1>Represents basic EPS for the year ended September 30, 1998.
<F2>Represents diluted EPS for the year ended September 30, 1998.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 5,562
<SECURITIES> 0
<RECEIVABLES> 32,066
<ALLOWANCES> 1,702
<INVENTORY> 0
<CURRENT-ASSETS> 39,850
<PP&E> 7,184
<DEPRECIATION> 3,622
<TOTAL-ASSETS> 76,970
<CURRENT-LIABILITIES> 52,263
<BONDS> 0
0
325
<COMMON> 185
<OTHER-SE> 24,197
<TOTAL-LIABILITY-AND-EQUITY> 76,970
<SALES> 56,368
<TOTAL-REVENUES> 95,404
<CGS> 9,816
<TOTAL-COSTS> 21,654
<OTHER-EXPENSES> 10,259
<LOSS-PROVISION> 956
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 23,112
<INCOME-TAX> (6,004)
<INCOME-CONTINUING> 29,116
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,116
<EPS-PRIMARY> 1.79<F1>
<EPS-DILUTED> 1.47<F2>
<FN>
<F1>Represents basic EPS for the year ended September 30, 1997, as restated.
<F2>Represents diluted EPS for the year ended September 30, 1997, as restated.
</FN>
</TABLE>
