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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1999
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)
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Georgia 04-2711580
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
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1000 Windward Concourse Parkway
Alpharetta, Georgia 30005
(Address of principal executive offices)
(678) 319-8000
(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 $144,516,000 at December 1, 1999, based on the closing sale
price of $9.4375 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 1, 1999 was 17,586,611.
Documents Incorporated by Reference
Specifically identified portions of the proxy statement for the 2000 annual
meeting of shareholders to be held on February 10, 2000 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, 1999
TABLE OF CONTENTS
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Item Page
Number Number
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PART I
1. Business........................................................ 1
2. Properties...................................................... 12
3. Legal Proceedings............................................... 12
4. Submission of Matters to a Vote of Security Holders............. 12
PART II
Market for the Registrant's Common Equity and Related
5. Stockholder Matters............................................. 13
6. Selected Financial Data......................................... 13
Management's Discussion and Analysis of Financial Condition and
7. Results of Operations........................................... 15
7A. Quantitative and Qualitative Disclosures about Market Risk...... 40
8. Financial Statements and Supplementary Data..................... 41
Changes in and Disagreements with Accountants on Accounting and
9. Financial Disclosure............................................ 68
PART III
10. Directors and Executive Officers of the Registrant.............. 69
11. Executive Compensation.......................................... 69
12. Security Ownership of Certain Beneficial Owners and Management.. 69
13. Certain Relationships and Related Transaction................... 69
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
14. K............................................................... 70
Signatures...................................................... 76
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PART I
Item 1. Business.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to
our shareholders and to the public. This report as well as our 1999 Annual
Report contain forward-looking statements, including in particular the
statements about our 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 report. You can
identify these statements by forward-looking words such as "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions. Although we believe that the plans, objectives, expectations and
prospects reflected in or suggested by our forward-looking statements are
reasonable, those statements involve uncertainties and risks, and we can give
no assurance that our plans, objectives, expectations and prospects will be
achieved. Important factors that could cause our actual results to differ
materially from the results anticipated by the forward-looking statements are
contained in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Factors Affecting Future Performance" and
elsewhere in this report. All written or oral forward-looking statements
attributable to us are expressly qualified in their entirety by these
cautionary statements.
General
We are a developer of global enterprise software that addresses the needs
of mid-sized manufacturing establishments in discrete and batch process
industries. We deliver Enterprise Resource Management, or ERM, and e-Business
solutions to automate the manufacturing process, improve coordination of
organizational resources and enhance interaction with supply chain partners.
Our e-Xtended Architecture, or MAPICS XA, suite of applications provides the
following functions:
.Engineering management;
.Demand management;
.Operations management;
.Resource planning;
.Financial management; and
.Business management.
Our application architecture allows customers to rapidly implement all or a
portion of our MAPICS XA solutions with minimal disruption to their business.
Furthermore, our MAPICS XA solutions enable our customers to leverage their
existing information technology investments and adopt new technologies
gradually, which lowers their costs and increases their return on investment.
We have licensed MAPICS XA for use in over 2,500 locations around the
world. Our target market consists of mid-sized manufacturing establishments
with annual sales between $20 million and $500 million. With the depth and
breadth of our capabilities, we can support single and multi-site
manufacturing organizations, including those with global, multi-currency
requirements, as well as divisional operations within multibillion dollar
manufacturing enterprises. We currently work with customers such as:
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Bayer Corp. MAG Instruments, Inc.
Dialight Corporation Michelin Corp.
General Electric Co., P.L.C. MTD, Inc.
Goodyear Tire & Rubber Co. Volvo Corp.
Honda Motor Co., Ltd. York International
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Our primary sales and implementation channel is a network of more than 75
independent local companies, which we refer to as affiliates, that market and
sell our products worldwide and support the global installed base. In addition
to providing customers with high quality and cost-effective local
implementation, industry specific consulting and other professional services,
the affiliate channel provides us with an attractive variable cost structure
for sales and marketing.
Our history of providing stable business solutions, flexible implementation
and industry leading support has given us the ability to extend our reach
within the ERM market. We intend to accomplish this by: (1) expanding our
presence within targeted manufacturing segments; (2) increasing the capacity
and strength of our affiliate sales channel; (3) enhancing the functionality
of our solutions to address emerging needs; (4) incorporating new
technologies, additional platforms and multiple deployment options;
(5) continuing to pursue strategic alliances and (6) building on our
reputation for customer satisfaction.
We were incorporated in Massachusetts in 1980 under the name Marcam
Corporation. On July 29, 1997, we distributed to our shareholders, in a tax-
free distribution which we refer to as the Distribution, all of the capital
stock of our subsidiary Marcam Solutions, Inc. and changed our name to MAPICS,
Inc. As a result of the Distribution, Marcam Solutions owns and operates some
of the software product lines that we had owned and operated before the
Distribution and we continue to own and operate the MAPICS product line. At
the time of the Distribution, we relocated our headquarters from Boston to
Atlanta, and in 1998 we reincorporated in Georgia. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 1 of the notes to our consolidated financial statements contained in
"Item 8. Financial Statements and Supplementary Data."
Industry Background
Approximately half of all mid-sized manufacturers operate either discrete
or batch-process manufacturing facilities. Discrete manufacturers produce
finished goods by assembling or machining a set of component parts or sub-
assemblies into finished products. Batch-process manufacturers produce goods
by combining specific materials in pre-defined quantities by a series of
discontinuous operations.
Mid-sized manufacturers operate in an environment of rapidly changing
business requirements. Due to the global nature of the industry, these
organizations must:
. manage broad product lines;
. provide multi-national distribution;
. streamline product development;
. reduce manufacturing cycles;
. maintain lower inventory levels; and
. adopt more flexible manufacturing strategies.
These requirements are driving the need for an enhanced supply chain,
distributed manufacturing resources and improved methods of interacting with
suppliers and customers. Consistent product quality, customer satisfaction and
profitability all depend on an accurate flow of information within a tightly
integrated supply chain and an expanded enterprise linking suppliers with end-
customers through the manufacturer.
Manufacturers have long relied on ERM systems to streamline business
processes and coordinate internal resources. These systems provide
applications to support:
. engineering data management;
. sales management;
. material procurement;
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. inventory management;
. manufacturing control;
. distribution;
. transportation;
. finance; and
. many other specialized business functions.
Advancements in Internet technology and client/server computing, however, have
significantly enhanced the usability and ultimate benefit of these systems.
Manufacturers have begun to look outside the plant for competitive
differentiation. The opportunity to use these technologies to more closely
link operations with suppliers and customers is creating increased demand for
a new generation of ERM solutions that extend system capabilities beyond the
four walls of the manufacturing operation.
In order to compete effectively in their markets, mid-sized manufacturers
also require ERM 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, ERM 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 ERM
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, or AMR, the total worldwide
market for ERM 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 ERM market and is its fastest
growing segment.
The MAPICS Solution
With over 20 years of manufacturing and technology expertise, we are a
leading provider of full-function client/server-based ERM systems that enable
manufacturers to respond to the demands of a rapidly growing, highly
competitive, global marketplace. In particular, we have succeeded in
addressing the technology and business requirements of mid-sized manufacturers
by providing comprehensive product functionality and high quality customer
service on a cost-effective basis. The MAPICS XA product line currently
operates on International Business Machines Corporation's AS/400 server
platform, a 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 our customers through the following benefits:
Comprehensive Functionality with Flexible Architecture. We have developed a
comprehensive solution focused on meeting the needs of mid-sized
manufacturers. The MAPICS XA product line currently consists of more than 50
applications designed to manage the most complex manufacturing enterprises.
Our flexible architecture allows customers to purchase and implement only
those applications that are required. Moreover, MAPICS XA is scalable to
accommodate the diverse requirements of our broad customer base. Some of our
current customers have implementations supporting up to 1,500 networked users.
Over the years, we have leveraged our strong manufacturing and technology
expertise to continually develop functionality that meets the emerging needs
of mid-sized manufacturing establishments. Since the first release of MAPICS
XA in 1994, we have more than doubled the number MAPICS XA applications and
significantly enhanced the depth and breadth of functionality we offer.
Dedicated and Experienced Value-Added Affiliate Channel. The primary
channel for selling and implementing our solutions is a network of more than
75 affiliate organizations selling to customers located in
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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 our customers. Each affiliate has the
right to market our solutions within a specific geographic territory and is
not typically permitted to represent competitive ERM systems. For these
reasons, affiliates are likely to invest significant resources to further
their knowledge of MAPICS XA. Affiliates offer experienced local professionals
to implement and configure these solutions rapidly and in a cost-effective
manner, as well as local services that enable our 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 of our products minimizes the need to perform custom
modifications, thereby allowing rapid product implementation. In addition, our
in-depth manufacturing, product and customer knowledge has enabled us to
develop a standard implementation methodology, a consistent process followed
by many customers and affiliates around the world. MAPICS XA implementations
generally take from three to twelve months, depending upon the number and type
of applications purchased and the complexity of the manufacturing
establishment. The high reliability and ease of user customization of our
products, coupled with our extensive quality assurance and excellent technical
support, minimize our customer's need to maintain a large information
technology staff. Subsequent releases of our software products are designed to
preserve the customer's existing investments in technology and user education,
with minimal disruption to the their business. These factors can offer the low
total cost of ownership and high return on investment that mid-sized
manufacturers require.
High Quality Worldwide Customer Support. We are dedicated to providing high
quality customer support for our products around the world through a
combination of employee support staff and our affiliate channel. We were among
the first enterprise software developers to receive ISO 9001 certification for
our primary development and support quality system, and we remain among the
few to have achieved this status. In a 1995 customer satisfaction survey
performed by AMR, we received the highest overall score, nearly one-third
higher than the next competitor, based on 15 separate factors, including:
. functionality;
. value;
. implementation results;
. quality of support;
. service and maintenance; and
. knowledge of our sales force.
To demonstrate our long-term commitment to customer satisfaction, we engaged
GartnerGroup, Inc. in 1998 to perform a similar survey of our customers, which
again reflected high levels of customer satisfaction.
The MAPICS Strategy
Our primary objective is to further increase our share of the ERM market by
attracting new customers in existing and new market segments and increasing
sales to our expanding customer base. Key elements of our strategy to achieve
this objective are:
Continue to Expand Middle Market Presence. The middle market is considered
one of the fastest growing segments in the ERM space. We intend to further
leverage our manufacturing and technology expertise and the strengths of our
affiliates to expand our presence in this market. We will continue to invest
in new product functionality and technology to improve the global
competitiveness of our middle market customers. We also intend to continue to
leverage our 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. Our large installed base also provides an
opportunity to generate significant revenues by selling additional
applications and upgrades to existing customers.
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Increase the Capacity and Strength of the Affiliate Channel. We intend to
further enhance our sales channel by assisting affiliates with recruiting
efforts and providing them with on-line training and remote learning
opportunities. We intend for these offerings to increase an affiliate sales
representative's ability both to compete for new accounts and expand our
presence within the customer base. In addition, we 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. Cost sharing programs include marketing assistance,
telemarketing, education and joint recruiting. We also intend to continue
expanding our overlay sales force to assist affiliates with multi-site selling
opportunities. The number of these multi-site opportunities is on the rise due
to the scalability of our solutions, enhanced Internet and e-Business
functionality and expanded multi-plant capabilities.
Broaden Product Functionality to Meet Emerging Customer Needs. We intend to
continue to offer new functionality to attract additional customers and allow
existing customers to more easily adapt to changes within the extended
manufacturing enterprise. We will continue to focus on the extended enterprise
business model and intend to enhance our e-Business, advanced planning and
scheduling, or APS, and customer relationship management, or CRM, systems.
Currently, our applications are available in 19 languages, including English,
Chinese, French, German, Japanese, Portuguese and Spanish, with plans for
additional localization to expand the functionality of our products and allow
us to more effectively target additional geographic markets. In addition, we
continually evaluate potential acquisitions of complementary technologies,
products and businesses serving our market niche.
Incorporate New Technologies to Expand Market Opportunity. We intend to
incorporate the new technologies necessary to help mid-sized manufacturers
compete in their rapidly changing environments. These technologies include:
. object-oriented programming to reduce development and maintenance costs
and allow the user to more easily adapt installed applications to
specific business conditions;
. full Internet, intranet or extranet enablement to allow the customer,
and its customers and suppliers, to access the MAPICS XA application
from any geographic location by an Internet connection, which greatly
reduces network complexity and costs; and
. advanced decision support to allow users to view and analyze information
to solve business problems.
To broaden our current target base of customers, we also intend to offer an
ERM solution on Microsoft's Windows-NT platform. As part of this strategy, on
December 15, 1999, we announced the execution of a definitive agreement to
purchase Pivotpoint, Inc., a leading provider of extended enterprise
applications to mid-sized manufacturing and distribution companies. We believe
this acquisition will allow us to expand our product offerings across multiple
platforms, including Windows NT, UNIX, Linux and AS/400. Also, we believe we
can expand sales opportunities for Pivotpoint's offerings through use of our
worldwide network of affiliates.
Pivotpoint, a privately held company based in Woburn, Massachusetts, has
provided advanced business systems to mid-sized manufacturers and distribution
companies since 1987. Pivotpoint's offerings include Point.Man, a powerful
suite of extended enterprise applications designed to streamline business
processes for manufacturing, customer service and financials across sites,
business lines and countries. Point.Man provides the speed, Internet
accessibility and tight integration mid-sized manufacturing establishments
expect, with broad functionality that they can easily deploy as their
businesses change and expand. Pivotpoint currently supports more than 700
customers.
Pursue Strategic Development Alliances. We intend to expand our product
solutions and expertise by forming additional strategic development alliances.
We have used our innovative extended laboratory approach to speed time to
market with new functionality, leverage development investment dollars and
reduce development risk. We have also created strategic development
relationships with third parties, which we call solution partners, and have
also initiated joint development relationships, called technology alliances,
with other
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third parties. Solution partners contribute solutions that supplement our core
applications; we then remarket these solutions under the MAPICS brand name.
Through technology alliances, we share the initial development costs of new
applications, acquire the rights to these applications and then use internal
development expertise to integrate and further enhance these applications.
Maintain High Customer Satisfaction. We believe that a highly satisfied
installed customer base is critical to expanding our middle market presence.
We intend to develop or acquire new implementation tools and advanced user
education offerings to further improve our affiliates' and customers' ability
to install and use our solutions, thereby improving the customer's return on
investment. For example, in November 1998, we introduced a standard worldwide
implementation methodology to further assist affiliates in complex or multi-
national implementations. We also have extended 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
We introduced our current solution, MAPICS XA, in 1994. Since then, we have
increased the number of MAPICS XA applications from 19 to over 50 and have
substantially enhanced and rewritten many of the applications available in the
first release. We designed MAPICS XA 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.
Our e-Xtended Architecture gives customers the flexibility to expand to new
applications, sites and processes as their business evolves. Many applications
are available in 19 languages, including English, Chinese, French, German,
Japanese, Portuguese and Spanish, with plans for additional localization to
expand the functionality of our products and allow us to more effectively
target additional geographic markets.
In October 1998, we announced the worldwide availability of MAPICS XA
Release 5, which included three new applications and enhancements to 20 of our
existing applications. Release 5 offered a complete solution for the Euro
Conversion and allows companies to maximize the benefits of e-commerce through
a complete Java user interface called eWorkPlace and an Internet-based
customer service application called COM Net. Using eWorkPlace, remote or local
users can obtain controlled access to MAPICS applications by 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.
In June 1999, we delivered our APS solution, MAPICS XA Wisdom. MAPICS XA
Wisdom offers manufacturers:
. advanced supply chain planning functionality, including synchronized
planning and scheduling of all resources to enable customers to improve
on-time delivery performance;
. summarized planning and scheduling of problems with emphasis on
eliminating late orders, critical bottlenecks and material shortages;
and
. a decision-support tool to provide management with the ability to
compare different customer order fulfillment scenarios.
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In September 1999, we introduced MAPICS XA Front Door, a powerful suite of
web-based and disconnected configuration, quote generation and order
processing tools that are fully integrated into the MAPICS XA ERM system.
MAPICS XA Front Door enables companies to significantly speed the
manufacturing process and improve customer service for a shorter, more
profitable sales cycle.
Also, late in fiscal 1999, we delivered MAPICS XA Release 5.5, which gives
our customers significant product enhancements, including several new
applications designed to improve a customer's operational efficiency and
strengthen its competitive advantage. These new applications include:
. MAPICS XA Workflow, a powerful object-oriented tool that allows
customers to better manage and control internal resources by automating
common business processes within the MAPICS system;
. MAPICS Integrator, an application that allows end-users to customize
where and how they access data within MAPICS; and
. a manufacturing execution system, or MES, that offers electronic
dispatching and messaging, on-line drawings/ISO documentation, and
integrated statistical process control testing, as well as collection of
time and attendance, labor and inventory transaction data.
Our MAPICS XA product line integrates over 50 applications in the following
business solution areas:
. Engineering management applications assist in the development of data
that describe the materials, processes and facilities required to
estimate costs and produce manufactured items.
. Demand management applications provide for the configuration and entry
of customer orders, the control of these orders through pricing,
shipping and invoicing and the analysis of customer and sales order
information.
. Operations management applications support the procurement and tracking
of material, the launch and control of manufacturing activity and the
management of plant maintenance.
. Resource planning applications assist in preparing the master schedule
to produce items ordered by customers and project the demand for
materials, personnel and equipment based on forecasts.
. Financial management applications provide financial and managerial
accounting functions and track historical performance of key management
measurements and contracts.
. Business management applications provide common services, such as
security control, data retrieval, report development and data
transmission for applications as well as high level views of the MAPICS
data used to make executive business decisions.
With every license, we generally receive both an initial license fee and a
periodic license fee. The typical initial license fee for a new MAPICS system
is in the range of $80,000 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 the customer usually pays annually in advance,
entitles the customer to continue using the software and to receive 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 architecture is built around IBM's AS/400
application server and a Windows-based personal computer as a client. This
client architecture allows users to easily customize their view of the MAPICS
XA solution without modifying the underlying application programs.
IBM introduced the MAPICS I application system, the first manufacturing
resource planning system, in 1978. In 1984, IBM introduced the enhanced MAPICS
II application, which was designed to run on IBM's System 36 and 38 computers.
We have discontinued the customer support for these legacy systems. In 1989,
IBM introduced MAPICS/DB to run on IBM's AS/400 system. In 1993, we acquired
from IBM the rights to the
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MAPICS product line and retained approximately 150 former IBM employees to
continue the development and support of the MAPICS products.
Product Development
We are focusing our ongoing product development efforts on addressing the
emerging needs of our market by expanding the breadth and depth of our product
functionality and incorporating new technologies, while maintaining product
reliability. We increased product development spending by 12.8% in the fiscal
year ended September 30, 1999, which we refer to as fiscal 1999, despite a
significant decrease in our license revenue, reflecting our plan to develop
new products and deliver continuous product enhancements.
Internal and Solution Partner Development
Senior management determines product direction with guidance from our
customers, the marketing staff and affiliates. The development team is
responsible for design and design verification, coding, quality assurance,
documentation and language conversion of new enhancements, products and
releases. We were among the first in the ERM software industry to receive ISO
9001 certification for our primary development and support quality system, and
we remain 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--We are subject to risks
resulting from rapid technological change and evolving industry standards."
In addition to internal development efforts, we have developed several
software applications in collaboration with third party solution partners. We
expect solution partners to maintain development quality commensurate with our
internal development laboratory. As a result of working closely with our
solution partners, we believe that our software applications attain consistent
quality, implementation and support standards and that most applications that
solution partners develop are virtually indistinguishable from those that our
internal development staff develops. We generally pay royalties to the
solution partners when we receive license fees from customers for solution
partner-developed applications.
Strategic Technology Alliances
We have entered into agreements with third parties to develop and market
specific applications. As part of these agreements, we generally acquire
ongoing rights to use and redistribute the software solution and solution
enhancements during the term of the agreement. We plan to evaluate and pursue
additional strategic technology alliances.
Customers
Our primary customers are mid-sized discrete and batch-process
manufacturers, consisting both of independent companies and of 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. We believe that we meet the practical business
requirements of mid-sized manufacturers by offering a cost-effective
integrated solution that can be implemented rapidly using our affiliate
network. Our 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 ERM
solution with a high return on investment. With over 20 years of development
experience built into MAPICS XA, our considerable industry knowledge allows us
to continually anticipate the needs of the mid-sized manufacturer.
MAPICS XA has a base of approximately 2,500 customer sites. We intend to
leverage our 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 we do not actively support our older MAPICS I and
II products, we do not include users or former
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users of those products on our customer site lists and treat MAPICS I and II
users as prospective new customers for sales and marketing purposes.
Our installed base of customers includes the following enterprises:
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ABB Asea Brown Boveri
(Holding) Ltd. Matsushita Electronic Industrial Co., Ltd.
AP Technoglass Michelin Corp.
Bayer Corp. Michigan Bulb Company Inc., Ltd.
Bristol-Myers Squibb Company MTD Inc.
Bostick, Inc. Pall Corporation
Braun AG Peg Perego Pines USA, Inc.
Coltec Industries Inc. Philips Electronics N.V.
Cooper Industries Sanyo Energy
Dialight Corporation Shiseido Cosmetics (America) Ltd.
Eaton Controlls PTY, Ltd. Sub-Zero Freezer Co., Inc.
Emerson Electric Co. Sylvania Lighting International B.V.
General Electric Co., PLC Thomas Lighting Inc.
Giddings and Lewis, Inc. Trans-matic Manufacturing, Inc.
Goodyear Tire & Rubber Co. Volvo Corp.
Honda Motor Co., Ltd. Weber Aircraft
International Game
Technology Westinghouse Electric Corporation
Kerry Ingredients UK Ltd. York International
MAG Instruments, Inc.
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None of our customers accounted for more than 5% of total revenues in the
fiscal year ended September 30, 1999. We do not believe that our backlog at
any particular point in time is indicative of future sales.
Marketing and Sales
Our marketing strategy focuses on positioning us as a leading provider of
ERM solutions and increasing our brand and product recognition. In support of
this strategy, our marketing programs include advertising, public relations,
direct marketing, worldwide web marketing, customer and internal events and
product management.
We sell to customers located in over 70 countries throughout (1) North
America, (2) Europe, the Middle East and Africa, or EMEA, and (3) the Latin
America and Asia Pacific regions through a network of more than 75 independent
local affiliates. We believe the use of affiliates gives us strong market
access. Affiliates provide sales, consulting, implementation and other
services directly to our customers, usually on a local basis. Each affiliate
has the right to market our products within a specific geographic territory
and is not typically permitted to represent competitive ERM systems. Our 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 growth and sales to new accounts.
Our affiliate channel provides significant benefits to us and our
customers. For example, the affiliates provide us with a variable cost sales
channel, receiving a sales commission from us only when we receive license
fees from our customers. In addition, affiliates typically have extensive
knowledge of the manufacturing industry in their geographic region and develop
long-standing relationships with our customers. Moreover, the affiliate
channel continually provides local input and feedback regarding customer
requirements, industry trends and competitive products, enabling us to respond
to and anticipate the future product needs of our customers and to incorporate
these needs into our product development efforts.
Historically, we have had excellent relations with our affiliates. We
believe these strong relations are attributable to a number of factors,
including the significant revenues that we pay affiliates in the form of
commissions, as well as revenues that our customers pay affiliates for
consulting, implementation and other
9
<PAGE>
services rendered within the territory they represent. Additionally, in some
instances, customers pay affiliates for hardware they sell to the customers.
In addition, the affiliates have generally made significant investments in
developing MAPICS knowledge within their organizations.
We intend to further enhance our sales channel by assisting affiliates with
recruiting efforts and providing them with on-line training and remote
learning opportunities. These offerings are intended to increase an affiliate
sales representative's ability both to compete for new accounts and expand our
presence within the customer base. In addition, we will continue seeking 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. For example, in fiscal 1999, we created a
joint venture in China to capture the expanding manufacturing market there. We
also made investments in a number of European affiliates to expand our
presence in the growing European market. Cost sharing programs include
marketing assistance, telemarketing, education and joint recruiting. We also
intend to continue expanding our overlay employee sales force to assist
affiliates with multi-site selling opportunities. The number of these multi-
site opportunities is on the rise due to the scalability of our solutions,
enhanced Internet and e-Business functionality and expanded multi-plant
capabilities.
Customer Support and Service
We believe 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 continued revenue growth.
Accordingly, we are committed to maintaining a high-quality, knowledgeable
affiliate channel supported our internal service and support staff. Our
customer service and support activities can be grouped into two key areas, as
follows:
Implementation Consulting, Education and Applications Integration
Services. Although we are building our consulting skills to enhance and
supplement those of the affiliates, particularly in new or complex application
areas, the affiliates typically provide these services directly on a project-
consulting basis. We do not record revenues related to these services provided
by the affiliates. Affiliates provide implementation-consulting services on-
site to assist customers in the installation and use of our products, whether
entire systems are implemented or individual applications are installed to
augment existing applications. We have developed educational materials and
instructions for the affiliates to use in customer classroom environments. We
intend to provide additional tools to assist affiliates and customers in
simplifying the implementation effort. We also intend 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. We will generate only
limited additional revenues from these supplemental services and tools.
Installed Product Maintenance. We maintain a central telephone response and
assistance program. In North America, this program is available 24 hours a
day, seven days a week to customers who pay periodic license fees. We assist
all supported customers in operational issues and resolving possible code
errors. Our support centers use a standardized telephone support management
system 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,
we provide similar support services to our customers in conjunction with the
affiliates. During fiscal 1999, we introduced a tool which enables customers
to access our knowledge database, permitting them to quickly locate, without
the assistance of direct support personnel, answers to operational issues.
We presently maintain three support centers: (1) Atlanta, Georgia, which
services North America and the Latin America region; (2) s-Hertogenbosh, The
Netherlands, which services EMEA; and (3) Kuala Lumpur, Malaysia, which
services the Asia Pacific region.
10
<PAGE>
Proprietary Rights and Technology
Our success and ability to compete depends heavily upon our proprietary
technology, including our software. To protect our proprietary technology, we
rely on a combination of copyright, trademark and trade secret laws and
license and non-disclosure agreements. These may afford us only limited
protection. In addition, effective copyright protection may be unavailable or
limited in some foreign countries.
Our software is protected as a copyrighted work. In addition, some of the
source code for our software is protected as a trade secret. We generally
provide our products to customers under a non-exclusive license that is
renewable upon payment of periodic license fees. We also generally enter into
confidentiality or license agreements with third parties and control access to
and distribution of our software, documentation and other proprietary
information. We presently have no patents or patent applications pending. We
rely upon license or joint development agreements with solution partners and
technology alliance partners to allow us to use technologies that they develop
on terms that are favorable to us. We also rely on the knowledge, skills and
experience of our employees, frequent product enhancements and the timeliness
and quality of our support services. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Future Performance--We may not be successful in protecting our proprietary
rights or in avoiding claims that we infringe 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 result in
increased competition. We target our products and related services primarily
at the market for business applications software for mid-sized manufacturing
establishments. Current and prospective competitors offer a variety of
products that address this and similar markets. We primarily compete with a
large number of independent software vendors. These competitors include, among
others:
. Baan Company N.V.;
. Computer Associates, Inc.;
. Intentia AB;
. Geac Computer Corporation Limited;
. J.D. Edwards & Company, Inc.;
. SAP AG; and
. System Software Associates, Inc.
We also compete with vendors of specialized applications. We may be unable
to compete successfully with existing or new competitors.
To be successful in the future, we must continue to respond promptly and
effectively to changes in technology. We must also respond to our competitors'
innovations. Some of our competitors have significantly greater financial,
marketing, service, support and technical resources and greater name
recognition than we have. Accordingly, these competitors may be able to
respond more quickly 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.
We also expect to face additional competition as other established and
emerging companies enter the market for business software for mid-sized
manufacturing establishments 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 our current or prospective customers. As a
result, it is possible that new competitors or
11
<PAGE>
alliances among current and new competitors may emerge and rapidly gain
significant market share. Either of these situations could result in fee
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 our business, financial condition and results of operations.
Employees
As of December 1, 1999, we employed approximately 410 persons, of which 275
were employed in product development and support, 75 were employed in sales
and marketing and 60 were employed in management and administration. None of
our employees is represented by a labor union. We have experienced no work
stoppages and believe that our employee relations are good.
Our future operating results depend significantly upon the continued
service of key technical and senior management personnel. Our future success
also depends on our 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 issues
associated with the conversion by 11 of the 15 member countries of the
European Union to the euro as their common currency. This event is called the
Euro Conversion. We cannot assure that we will retain our key managerial or
technical personnel or will be able to attract such personnel in the future.
We have at times experienced and continue to experience difficulty recruiting
qualified personnel, and we may continue to experience such difficulties in
the future. Either directly or through personnel search firms, we actively
recruit qualified product development, consulting and sales and marketing
personnel. If we are unable to hire and retain qualified personnel in the
future, our business, financial condition and results of operations could be
materially affected. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Factors Affecting Future
Performance--We depend on our retention of key personnel and our ability to
attract and retain other qualified personnel."
Item 2. Properties.
Our principal administrative, marketing, product development and support
facilities are located in Alpharetta, Georgia, a suburb of Atlanta, where we
lease approximately 120,000 square feet under a lease that expires in 2007. We
have other leases for regional sales and support facilities for operations in
North America, EMEA, and the Latin America and Asia Pacific regions.
Item 3. Legal Proceedings.
There is no legal or governmental proceeding pending or threatened against
us.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of our shareholders during our fourth
fiscal quarter ended September 30, 1999.
12
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Common Stock Price
The following table shows the high and low sales prices on a per share
basis of our common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C> <C> <C>
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
Fiscal 1999
First Quarter............................................ $23 3/8 $13 1/4
Second Quarter........................................... 17 3/4 7
Third Quarter............................................ 11 3 15/16
Fourth Quarter........................................... $10 7/8 $ 7 3/16
</TABLE>
Holders
As of December 1, 1999, there were approximately 610 record holders of our
common stock, and we estimate that there were approximately 6,100 beneficial
owners of our common stock.
Dividend Policy
We have never paid any cash dividends on our common stock. We currently
intend to retain future earnings to fund future development, growth and the
operation of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Additionally, covenants in our bank
credit facility prohibit the payment of cash dividends. Any future
determination to pay cash dividends will be at the discretion of our board of
directors and will depend upon our 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 the notes to our consolidated financial statements contained in
"Item 8. Financial Statements and Supplementary Data."
Item 6. Selected Financial Data.
The tables on the following pages present selected statement of operations
and balance sheet data for the fiscal years ended and as of September 30,
1995, 1996, 1997, 1998 and 1999. The selected financial data for those periods
and as of those dates have been derived from our financial statements that
have been audited by PricewaterhouseCoopers LLP, our independent accountants.
You should read this selected financial data 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."
We prepared the statements of operations data for the fiscal years ended
September 30, 1995, 1996 and 1997 and the balance sheet data as of September
30, 1995 and 1996 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 statement data are combined and
generally reflect the results of operations and financial position of the
MAPICS business as if it were a separate entity for these periods. We
allocated some costs and expenses presented in the financial statement data
for the years ended September 30, 1995, 1996 and 1997 based on our estimates
of the costs of services that Marcam Corporation provided to the MAPICS
business. We believe these allocations are reasonable. However, the financial
statement data may not necessarily reflect our results of
13
<PAGE>
operations and financial position in the future or what they would have been
had the MAPICS business been a separate entity during the fiscal years ended
September 30, 1995, 1996 and 1997. The statements of operations data for the
fiscal years ended September 30, 1998 and 1999 and the balance sheet data as
of September 30, 1997, 1998 and 1999 are consolidated and consist solely of
the separate financial statements of MAPICS, Inc. and our wholly owned
subsidiaries.
Under a tax sharing agreement between with Marcam Solutions, we became
entitled to utilize favorable income tax attributes of Marcam Corporation,
principally net operating loss carryforwards and tax credits, immediately
following the Distribution. As a result, we recognized an income tax benefit
of $14.9 million during the quarter ended September 30, 1997. Excluding this
income tax benefit, net income for the fiscal year ended September 30, 1997
was $14.2 million, or $0.88 per share (basic) and $0.72 per share (diluted).
Before the Distribution, Marcam Corporation did not reflect a benefit
corresponding to these favorable income tax attributes in its consolidated
financial statements because Marcam Corporation believed it was more likely
than not that it would not realize these benefits due to its history
generating of operating losses.
We calculated net income per common share presented in the statements of
operations for the fiscal years ended September 30, 1996 and 1997 using the
capital structure of Marcam Corporation for periods prior to the Distribution,
including the weighted average number of common shares and common equivalent
shares, giving effect to the Distribution on a pro forma basis for all periods
prior to the Distribution. See Note 2 of the notes to our consolidated
financial statements contained in "Item 8. Financial Statements and
Supplementary Data" for further information concerning the computation and
presentation of net income per common share.
<TABLE>
<CAPTION>
Fiscal Years Ended September 30,
------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
License............................ $42,745 $45,341 $56,368 $ 79,189 $ 71,195
Services........................... 26,553 32,261 39,036 50,552 63,523
------- ------- ------- -------- --------
Total revenues.................... 69,298 77,602 95,404 129,741 134,718
------- ------- ------- -------- --------
Operating expenses:
Cost of license revenues........... 5,689 6,913 9,816 13,108 13,689
Cost of services revenues.......... 7,567 9,499 11,838 14,873 19,012
Selling and marketing.............. 24,780 27,851 31,905 48,111 51,601
Product development................ 7,432 6,398 10,259 15,073 18,083
General and administrative......... 5,384 5,965 8,256 8,884 12,673
------- ------- ------- -------- --------
Total operating expenses.......... 50,852 56,626 72,074 100,049 115,058
------- ------- ------- -------- --------
Income from operations.............. 18,446 20,976 23,330 29,692 19,660
Interest income (expense), net...... -- -- (218) 760 1,801
------- ------- ------- -------- --------
Income before income tax expense
(benefit).......................... 18,446 20,976 23,112 30,452 21,461
Income tax expense (benefit)........ 7,112 8,076 (6,004) 11,724 8,262
------- ------- ------- -------- --------
Net income.......................... $11,334 $12,900 $29,116 $ 18,728 $ 13,199
======= ======= ======= ======== ========
Net income per common share
(basic)............................ $ 0.82 $ 1.79 $ 1.01 $ 0.70
======= ======= ======== ========
Net income per common share
(diluted).......................... $ 0.70 $ 1.47 $ 0.81 $ 0.62
======= ======= ======== ========
Weighted average number of common
shares outstanding (basic)......... 15,717 16,239 18,579 18,943
======= ======= ======== ========
Weighted average number of common
shares and common equivalent shares
outstanding (diluted).............. 18,514 19,810 23,100 21,444
======= ======= ======== ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
As of September 30,
-------------------------------------------
1995 1996 1997 1998 1999
------ -------- -------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......... $ 226 $ 378 $ 5,562 $33,442 $21,351
Working capital (deficit) (1)...... (8,527) (13,945) (12,413) 12,282 6,332
Total assets....................... 41,226 45,405 76,970 110,042 95,394
Long-term liabilities.............. 196 884 -- -- --
Shareholders' equity (2)........... 11,492 9,193 24,707 46,941 38,259
</TABLE>
- --------
(1) Excluding $15.2 million, $18.6 million, $25.1 million, $31.1 million and
$29.0 million of deferred revenues as of September 30, 1995, 1996, 1997,
1998 and 1999, respectively, working capital would have been $6.7 million,
$4.6 million, $12.7 million, $43.4 million and $35.3 million as of those
dates.
(2) Shareholders' equity amounts as of September 30, 1995 and 1996 represent
divisional equity. See Notes 2 and 11 of the notes to our consolidated
financial statements contained in "Item 8. Financial Statements and
Supplementary Data" for information concerning divisional equity and
shareholders' equity. Shareholders' equity amounts as of September 30,
1998 and 1999 are reduced by the cost of treasury stock of $1.3 million
and $22.4 million, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
You should read the following discussion and analysis in conjunction with
"Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data." This discussion contains forward-looking statements
relating to our future financial performance, business strategy, financing
plans and other future events that involve uncertainties and risks. Our actual
results could differ materially from the results anticipated by these forward-
looking statements as a result of many known and unknown factors, including
but not limited to those discussed below in "--Factors Affecting Future
Performance" and elsewhere in this report.
The terms "fiscal 1997," "fiscal 1998" and "fiscal 1999" refer to our
fiscal years ended September 30, 1997, 1998 and 1999, respectively. The term
"fiscal 2000" refers to our fiscal year ending September 30, 2000.
Overview
We are a developer of global enterprise software that addresses the needs
of mid-sized manufacturing establishments in discrete and batch process
industries. We deliver Enterprise Resource Management, or ERM, and e-Business
solutions to automate the manufacturing process, improve coordination of
organizational resources and enhance interaction with supply chain partners.
Our e-Xtended Architecture, or MAPICS XA, suite of applications provides the
following functions:
. Engineering management;
. Demand management;
. Operations management;
. Resource planning;
. Financial management; and
. Business management.
Our application architecture allows customers to rapidly implement all or a
portion of our MAPICS XA solutions with minimal disruption to their business.
Furthermore, our MAPICS XA solutions enable our customers to leverage their
existing information technology investments and adopt new technologies
gradually, which lowers their costs and increases their return on investment.
15
<PAGE>
Results of Operations
Summary and Outlook. 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 an 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. Net income
decreased 29.5% from $18.7 million, or $0.81 per common share (diluted), in
fiscal 1998 to $13.2 million, or $0.62 per common share (diluted), in fiscal
1999.
License revenue decreased 10.1% in fiscal 1999 while operating expenses
increased 15.0%. We believe that concern over the Year 2000 issue caused some
customers to delay purchasing decisions for our software products.
Consequently, our license revenue and results of operations for fiscal 1999
were negatively affected. In light of the adverse market conditions, we tried
to minimize our operating expenses. Accordingly, we reduced spending on non-
strategic activities and other discretionary items. On the other hand, we
continued to make strategic investments in our affiliate channel and in new or
expanded product functionality. As a result, our operating expenses as a
percentage of total revenues in fiscal 1999 were higher than in the previous
two fiscal years.
The outlook for fiscal 2000 is difficult for us to predict due to the
uncertainty around the Year 2000 issue. However, we expect demand for our
products and services to be negatively affected as customers continue to delay
purchasing decisions through the end of calendar 1999 and into calendar 2000,
until the costs and uncertainties related to the Year 2000 issue begin to
abate. However, we anticipate that demand for our products and services will
increase in the latter half of fiscal 2000. Furthermore, we believe that our
financial condition, cash flows and access to borrowings will enable us to
sufficiently fund our operating activities and allow us to continue making
strategic investments in our business during this market downturn.
Revenues. We generate a significant portion of our total revenues from
licensing software, which is conducted principally through our global network
of independent affiliates. The affiliates provide the principal channel
through which we sell our products. However, the ultimate customer typically
executes a license agreement directly with us rather than the affiliate. When
we first license our software, we receive both an initial license fee and a
periodic license fee. We record initial license fees as license revenues and
typically recognize them upon delivery of the software to the ultimate
customer. We record periodic license fees as services revenues and recognize
them 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 support services, as
available. If a customer does not renew its periodic license, it is no longer
entitled to use our software. We believe this licensing arrangement provides a
source of recurring revenues from our installed base of customers and enables
our customers to take advantage of new releases and enhancements of our
software.
The affiliates provide our customers with most of the consulting and
implementation services relating to the MAPICS products. We provide consulting
and implementation services for complex or multinational projects, and we
offer educational courses and training materials to our customers and
affiliates. However, we do not generate a significant amount of revenues from
these services.
The following table shows information about our license revenue and our
services revenues during the last three fiscal years:
<TABLE>
<CAPTION>
Change from
Years Ended September 30, Prior Year
--------------------------- ------------
1997 1998 1999 1998 1999
------- -------- -------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
License revenue......... $56,368 $ 79,189 $ 71,195 40.5% (10.1)%
As a percentage of total
revenues............... 59.1% 61.0% 52.8%
Services revenues....... $39,036 $ 50,552 $ 63,523 29.5% 25.7%
As a percentage of total
revenues............... 40.9% 39.0% 47.2%
Total revenues.......... $95,404 $129,741 $134,718 36.0% 3.8%
</TABLE>
16
<PAGE>
License revenues increased in fiscal 1998 due to:
. a volume increase in license sales to new customers. New customers for
this purpose include both new accounts and customers migrating from the
older MAPICS I and II product lines; and
. a volume increase in license sales to existing customers for additional
applications and upgraded systems.
In fiscal 1999, although license sales to existing customers increased,
total license revenues decreased due to a significant decrease in license
sales to new customers.
Our operations are conducted principally in (1) North America, (2) EMEA and
(3) the Latin America and the Asia Pacific regions, or LAAP. The following
table shows the percentage of total license revenues contributed by each of
our primary geographic markets:
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
North America.................................. 69.2% 68.5% 69.2%
EMEA........................................... 21.9% 22.0% 20.2%
LAAP........................................... 8.9% 9.5% 10.6%
-------- -------- --------
Total........................................ 100.0% 100.0% 100.0%
======== ======== ========
</TABLE>
Additional information about our operations in these geographical areas is
presented in Note 13 of the notes to our consolidated financial statements
contained in "Item 8. Financial Statements and Supplementary Data."
During fiscal 1999, we announced the availability of a variety of new and
enhanced products as well as outsourcing services specifically designed for
mid-market manufacturers. Revenues from these new product offerings and
services were not significant in fiscal 1999. However, we believe that revenue
from these new products and outsourcing service offerings will increase in
fiscal 2000.
Services revenues increased in fiscal 1998 and fiscal 1999 due to a volume
increase in the number of customers paying periodic license fees. However,
services revenues increased at a lower rate in fiscal 1999 as a result of the
slowdown in license sales. While current market conditions for license sales
persist, we anticipate growth in services revenues to be less than in prior
years.
As reflected in the immediately preceding table, the mix of total revenues
has consisted of license revenue of approximately 60.0% and services revenues
of approximately 40.0%. The mix of total revenues changed during fiscal 1999
as a result of the significant decrease in license revenue.
Cost of License Revenues. Our cost structure is designed so that a
significant portion of our operating expenses varies in direct relation to our
license revenues. These variable expenses include particularly product
royalties, which are included in cost of license revenues, and commissions
paid to affiliates, which are included in selling and marketing expenses.
Cost of license revenues consists primarily of royalties paid to solution
partners for products we license and amortization of computer software costs.
We license from our solution partners complementary software products or
technology that have been or will be integrated into the MAPICS product line.
Generally, when we license a solution partner product to a customer, we pay a
royalty to the solution partner. As a result, a significant portion of our
cost of license revenues varies in direct relation to license revenue based on
the mix of internally developed and solution partner-developed products.
Through our solution partner arrangements, we have been able to enhance the
functionality of our existing products and introduce new products utilizing
this variable cost approach to expand our product offerings.
Amortization of computer software costs represents recognition of the costs
of some of the software products we sell, including purchased software costs,
capitalized software development costs and costs incurred to translate
software into various foreign languages. We begin amortization of computer
software costs upon
17
<PAGE>
general release of the product to customers and compute amortization on a
product-by-product basis based on the greater of the amount determined using:
. the ratio that current period gross revenues bear to the total of
current and anticipated future gross revenues, or
. 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, we shortened the
estimated useful life of our 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 approximately $446,000, or $0.03 per
common share (basic) and $0.02 per common share (diluted).
The following table shows information about our cost of license revenues
during the last three fiscal years:
<TABLE>
<CAPTION>
Years Ended September Change from
30, Prior Year
------------------------ -------------
1997 1998 1999 1998 1999
------ ------- ------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cost of license revenues............ $9,816 $13,108 $13,689 33.5% 4.4%
As a percentage of license revenue.. 17.4% 16.6% 19.2%
As a percentage of total revenues... 10.3% 10.1% 10.2%
</TABLE>
Cost of license revenues increased in fiscal 1998 and fiscal 1999 primarily
as a result of increases in amortization of computer software costs. Product
royalty expense increased in fiscal 1998 and decreased in fiscal 1999 due to
the respective increase and decrease in license revenue during those years.
During the last three fiscal years, the mix of products that we licensed to
our customers has included increasing percentages of solution partner-
developed products, which has resulted in both increasing revenues and
increasing royalty costs. As a result, product royalty expense has increased
as a percentage of license revenue.
We expect that cost of license revenues will vary from period to period
based on the mix of products licensed between internally developed products
and solution partner-developed products and the timing of computer software
amortization.
Cost of Services Revenues. Cost of services revenues consists primarily of:
. personnel costs related to the ongoing maintenance and support of the
MAPICS products;
. fees paid to affiliates outside our North America region to provide
support services in those regions;
. fees paid to solution partners to provide similar services with respect
to their products;
. costs of distributing our software products; and
. personnel costs related to the limited education and implementation
consulting services we provide.
We provide direct support services, primarily by telephone and the
Internet, to our customers in our North America region. Elsewhere, we engage
local affiliates to provide varying degrees of support services for a fee. For
some of our solution partner-developed products, the solution partners provide
varying levels of support for a fee. The costs of our direct support services
and the fees paid to affiliates and solution partners for providing support
services are recorded as cost of services revenues.
The following table shows information about our cost of services revenues
during the last three fiscal years:
<TABLE>
<CAPTION>
Years Ended September Change from
30, Prior Year
------------------------- ------------
1997 1998 1999 1998 1999
------- ------- ------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cost of services revenues........... $11,838 $14,873 $19,012 25.6% 27.8%
As a percentage of services reve-
nues............................... 30.3% 29.4% 29.9%
As a percentage of total revenues... 12.4% 11.5% 14.1%
</TABLE>
18
<PAGE>
Cost of services revenues increased in fiscal 1998 and fiscal 1999 as a
result of additional distribution and support costs associated with the
increase in customers, including:
. a volume increase in fees paid to affiliates and solution partners for
providing support services in EMEA and LAAP; and
. the hiring of additional customer support and services personnel.
Moreover, in fiscal 1999, despite the lower rate of growth in services
revenues, we made additional investments for improved implementation tools and
for improved customer support, with Internet-based and other tools that
enhance customers' ability to quickly find answers to commonly asked
questions. Also, in late fiscal 1999, we reassigned some of our employees to a
service group focused on providing outsourcing services to mid-market
manufacturers. We expect these additional costs to have an increased impact on
cost of services revenues in fiscal 2000.
Selling and Marketing Expenses. Selling and marketing expenses consist
primarily of commissions paid to our independent affiliates, compensation of
our sales and marketing personnel and direct costs associated with selling
programs and marketing campaigns.
The following table shows information about our selling and marketing
expenses during the last three fiscal years:
<TABLE>
<CAPTION>
Years Ended September Change from
30, Prior Year
------------------------- -------------
1997 1998 1999 1998 1999
------- ------- ------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selling and marketing expenses..... $31,905 $48,111 $51,601 50.8% 7.3%
As a percentage of total revenues.. 33.4% 37.1% 38.3%
</TABLE>
Selling and marketing expenses increased in fiscal 1998 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.
In fiscal 1999, these expenses increased at a much lower rate due to a
significant decrease in commissions earned by affiliates resulting from the
decrease in license revenue and decreased spending on some of our selling and
marketing programs in reaction to current market conditions. However, we
continued to make strategic investments in our 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;
. increasing channel capacity through cost sharing programs with
affiliates that are attempting to enter new or under-penetrated
territories or to expand their operations more rapidly than their
financial resources allow; and
. expanding our overlay sales force that cooperatively assists affiliates
selling to multiple sites and enterprises that cross multiple
territories.
These investments are intended to increase the ability of the affiliates to
compete for new accounts as well as better serve our large installed customer
base. We anticipate that selling and marketing expenses will continue to
increase as a result of these and other initiatives to increase license sales.
19
<PAGE>
Product Development Expenses. Product development expenses consist of
product development costs and software translation costs. Product development
costs consist primarily of compensation for software engineering personnel and
independent contractors retained to assist with our product development
efforts. We charge 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 subsequently amortized to cost of license revenues.
Software translation costs consist primarily of fees paid to consultants for
(1) translating some of our software into foreign languages and (2) localizing
some of our software to meet foreign regulatory requirements.
The following table shows information about our product development
expenses during the last three fiscal years:
<TABLE>
<CAPTION>
Change
Years Ended from
September 30, Prior Year
------------------------- -----------
1997 1998 1999 1998 1999
------- ------- ------- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Product development costs............ $12,618 $17,851 $20,137 41.5% 12.8 %
Software translation costs........... 3,091 4,206 2,280 36.1% (45.8)%
------- ------- -------
15,709 22,057 22,417 40.4% 1.6 %
------- ------- -------
Less:
Capitalized product development
costs............................... (2,476) (3,018) (3,771)
Capitalized software translation
costs............................... (2,974) (3,966) (2,002)
------- ------- -------
(5,450) (6,984) (5,773)
------- ------- -------
Plus:
Write off of capitalized product
development costs................... -- -- 1,439
------- ------- -------
Product development expenses......... $10,259 $15,073 $18,083 46.9% 20.0 %
======= ======= =======
As a percentage of total revenues.... 10.8% 11.6% 13.4%
</TABLE>
Product development costs increased in fiscal 1998 and fiscal 1999 due to:
. the hiring of additional product development personnel;
. increased spending on product development activities to support the
effort to re-engineer our software applications to the Windows NT server
platform; and
. continued efforts to expand the MAPICS XA product line.
Product development costs increased at a slower rate in fiscal 1999 because
most of our additional hiring was completed in fiscal 1998 and we increased
our effort to control non-strategic development activities during the market
slowdown in fiscal 1999. Software translation costs, which increased in fiscal
1998 and decreased in fiscal 1999, are typically project related, and the
timing of those expenditures is subject to change from period to period.
The amounts of product development costs capitalized in fiscal 1997, fiscal
1998 and fiscal 1999 represented 19.6%, 16.9% and 18.7% of product development
costs, respectively. The amounts of software translation costs capitalized in
fiscal 1997, fiscal 1998 and fiscal 1999 represented 96.2%, 94.3% and 87.8% of
software translation costs, respectively. Capitalization rates are generally
affected by the nature and timing of development activities and vary from
period to period.
During fiscal 1999, we wrote off $1.4 million of capitalized software
development costs due to a change in product development approach. Excluding
this write off, overall product development expenses increased 10.4% from
$15.1 million in fiscal 1998 to $16.6 million in fiscal 1999 and, as a
percentage of total revenues, increased from 11.6% in fiscal 1998 to 12.4% in
fiscal 1999.
20
<PAGE>
General and Administrative Expenses. General and administrative expenses
consist primarily of compensation for executive, financial, legal and
administrative personnel, outside professional and service fees, facility
costs and provisions for bad debts.
The following table shows information about our general and administrative
expenses during the last three fiscal years:
<TABLE>
<CAPTION>
Years Ended Change from
September 30, Prior Year
----------------------- ------------
1997 1998 1999 1998 1999
------ ------ ------- ----- -----
(Dollars in
thousands)
<S> <C> <C> <C> <C> <C>
General and administrative expenses..... $8,256 $8,884 $12,673 7.6% 42.6%
As a percentage of total revenues....... 8.6% 6.8% 9.4%
</TABLE>
General and administrative expenses increased in fiscal 1998 and fiscal
1999 as a result of increased personnel and facility costs associated with our
expanded operations. Furthermore, bad debts and foreign exchange transaction
losses increased in fiscal 1999. Because a significant portion of general and
administrative expenses is fixed, the increase as a percentage of total
revenues was amplified by the decrease in license revenue in fiscal 1999.
Interest Income and Interest Expense. The following table shows information
about our interest income and interest expense during the last three fiscal
years:
<TABLE>
<CAPTION>
Years Ended
September 30,
-------------------
1997 1998 1999
----- ---- ------
(Dollars in
thousands)
<S> <C> <C> <C>
Interest income............................................ $ 45 $816 $1,887
Interest expense........................................... (263) (56) (86)
----- ---- ------
Interest income (expense), net............................ $(218) $760 $1,801
===== ==== ======
</TABLE>
Interest income increased in fiscal 1998 and fiscal 1999 due primarily to
increases in the average balance of cash and cash equivalents. Before the
Distribution, Marcam Corporation routinely transferred any surplus cash
generated by the MAPICS business to other areas of its operations, reducing
our investable cash. In addition, in fiscal 1999, we recognized additional
interest income of $680,000 related to federal income tax refunds due to us.
Interest expense in fiscal 1997 reflects interest we paid on borrowings
related to our term loan and revolving credit facility with a bank. We repaid
those debts in fiscal 1997 and have not had any outstanding loans or
borrowings since then. Interest expense in fiscal 1998 and fiscal 1999
reflects commitment fees incurred for unused portions of the revolving credit
facility and additional interest paid in connection with the settlement of
some payables in fiscal 1999. See "--Liquidity and Capital Resources."
Income Tax Expense (Benefit). The following table shows information about
our income tax expense (benefit) during the last three fiscal years:
<TABLE>
<CAPTION>
Years Ended
September 30,
--------------------------
1997 1998 1999
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Income before income tax expense (benefit).......... $23,112 $30,452 $21,461
Income tax expense (benefit)........................ (6,004) 11,724 8,262
Effective income tax rate........................... (26.0)% 38.5% 38.5%
</TABLE>
21
<PAGE>
The income tax benefit of $6.0 million for fiscal 1997 reflects income tax
expense of $8.9 million offset by an income tax benefit of $14.9 million
resulting from the Distribution. Excluding the income tax benefit, the
effective tax rate in fiscal 1997 was 38.5%. The effective tax rate for fiscal
1997, fiscal 1998 and fiscal 1999 differs from the statutory federal income
tax rate of 35.0% principally due to the impact of state income taxes.
Liquidity and Capital Resources
The following tables show information about our cash flows during the last
three fiscal years and selected balance sheet data as of September 30, 1998
and 1999. You should read these tables and the discussion that follows in
conjunction with our statements of cash flows and balance sheets contained in
"Item 8. Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
Summary of Cash Flows
Fiscal Years Ended
September 30,
----------------------------
1997 1998 1999
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net cash provided by operating activities before
changes in operating assets and liabilities.... $ 23,359 $ 36,088 $ 30,716
Changes in operating assets and liabilities..... 4,385 2,736 (7,538)
-------- -------- --------
Net cash provided by operating activities....... 27,744 38,824 23,178
Net cash used for investing activities.......... (8,414) (13,287) (12,724)
Net cash (used for) provided by financing
activities..................................... (14,146) 2,343 (22,545)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... $ 5,184 $ 27,880 $(12,091)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet
Data
Setpember 30,
---------------
1998 1999
------- -------
(In thousands)
<S> <C> <C>
Cash and cash equivalents...................................... $33,442 $21,351
Working capital................................................ 12,282 6,332
Working capital, excluding deferred revenues................... 43,388 35,331
</TABLE>
We have funded our operations and capital expenditures primarily with cash
generated from operating activities. The changes in net cash provided by
operating activities generally reflect the changes in earnings plus the effect
of changes in working capital. Changes in working capital, especially trade
accounts receivable, trade accounts payable and accrued expenses, are
generally the result of timing differences between collection of fees billed
and payment of operating expenses.
During fiscal 1997 and fiscal 1998, growth in earnings was primarily
responsible for the increase in net cash provided by operating activities.
Changes in operating assets and liabilities also had a positive effect on cash
flows for those years. Specifically, in fiscal 1997, the following changes in
operating assets and liabilities had a positive effect on operating cash
flows:
. an $8.7 million increase in accrued expenses due to increases in
affiliate commissions, product royalties and employee bonuses payable;
and
. a $6.6 million increase in deferred revenues due to growth in periodic
license fees as well as the deferral of initial license fees 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 growth in revenues over the prior year.
22
<PAGE>
In fiscal 1998, the following changes in operating assets and liabilities
had a positive effect on operating cash flows:
. a $6.0 million increase in deferred revenues due to growth in periodic
license fees; and
. a $3.3 million increase in accrued expenses due to increases in 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 revenues.
In fiscal 1999, a 29.5% decrease in net income contributed to a 14.9%
decrease in net cash provided by operating activities before changes in
operating assets and liabilities. Working capital changes in fiscal 1999
further reduced net cash flows provided by operating activities, including:
. a $5.3 million increase in prepaid expenses and other current assets due
to prepayments of product royalties and due to advances to affiliates
and interest accrued related to income tax refunds;
. a $3.9 million decrease in accounts payable, accrued expenses and other
current liabilities due to decreases in affiliate commissions and
product royalties; and
. a $2.1 million decrease in deferred revenues due to decreases in multi-
year license agreements and deferred initial license fees.
Those changes were offset by a $3.7 million decrease in accounts receivable
due to improvements in our collection efforts and write offs of uncollectible
accounts receivable.
In fiscal 1997, fiscal 1998 and fiscal 1999, we used cash for investing
activities related to computer software development, translation of our
computer software products and purchases of property and equipment. Also, we
spent $1.0 million, $3.0 million and $3.4 million, respectively, in those
years to acquire rights to complementary computer software to be integrated
with our product offerings.
In July 1997, we borrowed $64.0 million 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.
In August 1997, we entered into our term loan and revolving bank credit
facility to repay a portion of the borrowings related to the Distribution and
for general corporate purposes. Substantially all of our assets are pledged as
collateral for any obligations under this bank credit facility. The bank
credit facility contains covenants that, among other things, require us to
maintain specific financial ratios and impose limitations or prohibitions on
us with respect to:
. incurrence of indebtedness, liens and capital leases;
. payment of dividends on our capital stock;
. redemption or repurchase of our capital stock;
. investments and acquisitions;
. mergers and consolidations; and
. disposition of our properties or assets outside the course of ordinary
business.
In August 1997, we issued 6.9 million shares of our common stock in a
public offering, raising net proceeds of approximately $56.0 million, after
deducting offering costs of approximately $6.1 million. We used the net
proceeds of the public offering along with borrowings of $6.4 million under
the term loan portion of our bank credit facility and working capital of $1.6
million to repay the $64.0 million of indebtedness related to the
Distribution. Before the end of fiscal 1997, we repaid the principal amount of
this term loan with interest of $254,000. Since that time, we can no longer
borrow funds under the term loan portion of the bank credit facility.
23
<PAGE>
In fiscal 1997, fiscal 1998 and fiscal 1999, we received proceeds from
stock options exercised and employee stock purchases of $452,000, $3.6 million
and $1.7 million, respectively. In fiscal 1998, we purchased 128,600 shares of
common stock for $1.3 million. In fiscal 1999, we purchased 2,954,000 shares
of common stock for $24.3 million and retired the 128,600 shares that were
acquired in fiscal 1998.
In addition to cash flows from operations and financing activities, we can
borrow up to $15.0 million, subject to some limitations, under the revolving
portion of our bank credit facility. The amount that we can borrow and the
interest that we would pay vary depending upon our ability to maintain
specific financial ratios. As of September 30, 1998 and 1999, we met all of
those financial ratios necessary for us to borrow up to $15.0 million,
although we have not borrowed any funds under the revolving credit portion of
the bank credit facility since its inception. If we did borrow any funds under
the revolving credit portion of the bank credit facility, we would have to
repay them on or before June 30, 2001 when the bank credit facility expires.
We pay a quarterly commitment fee for unused portions of the revolving credit
facility.
Pursuant to a tax sharing agreement with Marcam Solutions, we became
entitled to utilize some favorable income tax attributes, principally net
operating loss carryforwards and tax credits, of Marcam Corporation
immediately following the Distribution. These income tax attributes enabled us
to reduce cash paid for income taxes in fiscal 1998 and fiscal 1999, and we
believe they will continue to result in cash savings in future periods as we
use them to offset income taxes payable. At September 30, 1999, we had
research and experimentation and other credit carryforwards of $3.2 million.
These tax credits expire between fiscal 2000 and fiscal 2014. The utilization
of inherited tax credits is limited on an annual basis due to a change in
ownership of Marcam Corporation during fiscal 1996. We do not believe this
limitation will significantly impact our ability to utilize the tax credits
prior to their expiration.
We have entered into agreements with third parties to develop and market
specific applications. As part of these agreements, we generally acquire
ongoing rights to use and redistribute the software solution and solution
enhancements during the term of the agreement. As of September 30, 1999, we
were obligated to make future payments of approximately $2.0 million to some
of our strategic partners under these agreements.
On December 15, 1999, we announced the execution of a definitive agreement
to purchase Pivotpoint, Inc. for $48.0 million in cash. Pivotpoint is a
leading provider of extended enterprise applications to mid-sized
manufacturing and distribution companies. We anticipate closing the
acquisition by February 2000.
We have arranged to finance a significant portion of the purchase price and
costs associated with the transaction with borrowings from a bank under a term
loan and revolving credit facility. This new arrangement will replace our
current bank credit facility and will consist of a $40.0 million term loan and
a $15.0 million revolving credit facility.
We believe that cash and cash equivalents on hand as of September 30, 1999,
together with cash flows from operations and available borrowings under either
our existing or new bank credit facility, will be sufficient to maintain our
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, such as "99" for "1999".
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. We believe that the Year 2000 issue may
affect us in two principal ways: through our products and our operations.
Our Readiness Status
We develop and market software programs that are date sensitive and may be
affected by the Year 2000 issue. We believe that the Year 2000 issue has
affected and will likely continue to affect the demand for our products and
the spending patterns of our customers.
24
<PAGE>
In July 1997, we received Information Technology Association of America
2000, or ITAA 2000, certification, validating that our 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 in 1995 have been converted and tested to be Year 2000
compliant. We believe that the products we currently produce adequately
address the Year 2000 issue. Our solution partners have certified to us that
their products are also Year 2000 compliant. However, we cannot assure that
these products or future products developed by us or our solution partners
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 our
business, financial condition and results of operations.
Many hardware, operating system and application products developed by third
parties interact or operate with our applications. In addition, customers or
others may modify our products after they have been installed. We cannot
assess the Year 2000 readiness of these hardware, operating system and
application products or modified MAPICS products. The performance and
functionality of our applications that work with these products could be
adversely affected if these products are not Year 2000 compliant. Although we
believe that we would not be responsible for these Year 2000 problems, we are
unable to assess the effect they may have on our business, financial condition
and results of operations.
We believe the Year 2000 issue is affecting the demand for Year 2000
enabled hardware and software products, including the demand for our products
and services. During fiscal 1998, the Year 2000 issue may have driven
increased demand for our Year 2000 enabled products. However, we currently
believe that both existing customers and potential new customers have deferred
and may continue to defer purchase decisions for our products because they are
required to divert their resources to address other Year 2000 issues within
their businesses. In addition, once companies have replaced their existing
systems that were not Year 2000 enabled, they may no longer demand our
products. We are unable to quantify the effect that the demand for Year 2000
enabled products has had on our past or current business, financial condition
and results of operations and cannot predict the effect that any increase or
decrease in demand will have on us in the future.
We principally rely on our MAPICS XA product to support our internal
accounting, payables and invoicing operations. While MAPICS XA has been
converted and tested to be Year 2000 compliant, we also rely on third party
systems developed by others for many of our critical internal operations. Our
business, financial condition and results of operations may be materially
adversely affected if these third party systems are not Year 2000 compliant.
In addition, our internal operations may also be affected by Year 2000 issues
affecting third parties with whom we have relationships, including affiliates,
solution partners and other vendors such as utilities, distributors and banks.
A Year 2000 problem affecting one or more of these third parties may also have
a material adverse effect our business, financial condition and results of
operations.
We have assembled a Year 2000 taskforce made up of representatives from our
development, marketing, support, information systems, facilities, finance and
legal departments to assess the Year 2000 readiness of our internal operations
and the readiness of third parties on which we rely. The taskforce has
identified and assessed the Year 2000 readiness of most of the material
information technology and non-information technology systems, including fax
machines, phone switches and badge access readers, used internally as part of
our operations. Based on information obtained from third party vendors or
testing that we have performed, we believe that all such internal systems are
Year 2000 ready or that we have the appropriate plans in place to achieve
timely Year 2000 readiness for such internal systems. However, our on-going
program could reveal Year 2000 issues that are not currently identified or
fully understood.
The taskforce has also worked to identify third parties on which our
operations materially rely. This includes our affiliates, solution partners
and other suppliers. The taskforce has gathered written materials published by
many of these third parties or otherwise communicated directly with these
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 us.
While the taskforce has collected many responses and other materials from
these third parties regarding their
25
<PAGE>
Year 2000 readiness, we are not certain that the Year 2000 issue will be
properly and timely resolved by all of our suppliers, affiliates, or solution
partners. Any unresolved problems could have a material impact on our
business, financial condition and results of operations.
Our Costs to Address the Year 2000 Issue
We have incurred approximately $330,000 in costs to make our products and
internal systems Year 2000 compliant. In addition, during fiscal 1999, we
spent approximately $455,000 to replace our customer support call management
system. We had planned to make this replacement in fiscal 1999 for business
reasons other than the Year 2000 issue; however, our previous system was not
Year 2000-enabled. We do not expect to incur material additional costs to
remedy any remaining Year 2000 problems with our products and internal
systems. However, we cannot currently assess the costs of remedying problems
resulting from the Year 2000 issues of others. Our business, financial
condition and results of operations may be materially adversely affected if
the costs of remedying these Year 2000 problems prove to be significant.
Risks
Our customer support operations depend heavily on the constant availability
of telecommunications equipment and other utilities. As a result, we currently
believe that the most reasonably likely worst case Year 2000 scenario would
involve the temporary interruption of electric power, telephone or other
utility supplies to our headquarters or our 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 our
internal systems or those of our affiliates or our suppliers may not be Year
2000 ready. Such failure could have a material adverse effect on our business,
financial condition and results of operations.
In addition, "business interruption" litigation may arise out of the Year
2000 issue. We are not aware of any possible claim against us arising from
instances of business interruption. However, we are uncertain how we may be
affected by any such litigation. In particular, many of our applications that
are currently in use but were sold before our 1995 application releases are
not Year 2000 enabled. We no longer support these applications. While we have
made Year 2000 enabled replacement software available to most customers using
older applications, we 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, we cannot assure that these customers will not bring
Year 2000-related claims against us which, with or without merit, could be
time consuming and expensive for us to defend or resolve. Any adverse outcome
in any such litigation could subject us to significant liability. As a result,
business interruption litigation could have a material adverse effect on our
business, financial condition and results of operations.
Contingency Plans
While we have not established a contingency plan to address the most
reasonably likely worst case scenario described above, we have developed
contingency plans to address other potential scenarios.
We may receive increased requests for support and assistance from our
customers during the period of time immediately preceding and following
January 1, 2000. Accordingly, we have developed contingency plans that will
better identify the available development and customer support resources
during this time, including resources belonging to affiliates which provide
customers with local support. Because we have not received responses from all
suppliers on which we rely and because Year 2000 issues may arise which are
not currently identified or fully understood, additional contingency plans
specific to potential exposures may have to be developed in the future.
26
<PAGE>
We may receive increased requests for support and assistance from our
customers during the period of time immediately preceding and following
January 1, 2000. Accordingly, we have developed contingency plans that will
better identify the available development and customer support resources
during this time, including resources belonging to affiliates which provide
customers with local support. Because we have not received responses from all
suppliers on which we rely and because Year 2000 issues may arise which are
not currently identified or fully understood, additional contingency plans
specific to potential exposures may have to be developed in the future.
Cautionary Statements
The continued assessment, progress and timing of our 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. We can give no assurance that assessments to date will prove to be
accurate. Serious deficiencies that are not currently identified or fully
understood may arise in the future and may have a material adverse impact on
our business, financial condition and results of operations. We plan to
continue our taskforce into the year 2000 to assess the impact of Year 2000
issues on us, apprise management of the status of its findings and develop
appropriate contingency plans where necessary in an effort to minimize our
potential exposure to the Year 2000 issue.
Euro Conversion Issue
On January 1, 1999, a new currency called the "euro" was introduced in 11
of the 15 member countries of the European Union. In 2002, each of these
participating countries will adopt the euro as their single currency. This
event is referred to as the Euro Conversion. Until that time, however,
financial transactions in these participating countries may be conducted in
either the euro or the local national currency. As a result, companies
operating or conducting business in these participating countries during this
transition period must be able to process financial transactions in either the
euro or the local national currency.
Beginning with MAPICS XA Release 5, which we introduced last year, our
product includes a solution designed to address the Euro Conversion. Although
this product is designed to enable companies to process financial transactions
in the euro and the local national currencies, we cannot assure that we will
satisfactorily address all Euro Conversion issues. The costs to resolve any
resulting Euro Conversion related errors could have a material adverse effect
on our business, financial condition and results of operations.
We, like our customers and others who operate or conduct business in the
participating countries, must be able to process financial transactions in
both the euro and the local national currencies of the participating
countries. Through calendar 1999, we have not experienced a significant amount
of financial transactions with our customers, vendors, affiliates or others
that were denominated in the euro. Furthermore, we do not expect such
transactions to be commonplace during the initial phase of the transition to
the euro.
We believe that we can process a minimal amount of euro-related
transactions without modification to our existing internal systems. However,
over time, as companies adopt the euro as the preferred currency for some or
all of their business transactions, we will be required to process euro-
related transactions in increasing volume. We currently plan to implement our
euro-enabled MAPICS XA Release 5 before this volume becomes significant. We
expect that the costs of implementing MAPICS XA Release 5 for our own use will
be insignificant and do not expect to experience significant conversion and/or
operational problems associated with the implementation of our own software
product. However, if we are required to process a significant amount of
financial transactions in the euro before we are able to implement MAPICS XA
Release 5 for our own use, or if subsequently MAPICS XA Release 5 does not
allow us to satisfactorily process financial transactions in the euro, it may
result in unforeseen costs or a disruption to our business, either of which
could have a material adverse effect on our business, financial condition and
results of operations.
27
<PAGE>
We do not believe that the translation of financial transactions into euros
will have a significant effect on our business, financial condition or results
of operations. The Euro Conversion, however, may have an impact on economic
factors that affect our business, including its effect on interest rates,
exchange rates and contract prices. Moreover, the Euro Conversion may create
strategic challenges as companies across Europe adapt to a single
transnational currency. The participating countries' adoption of the euro will
likely result in greater transparency of pricing, making Europe a more
competitive environment. Although we have adapted our European price list to
accommodate the introduction of the euro, we are currently unsure of the
potential impact it could have on competitive conditions in European markets.
Inflation
To date, we believe inflation has not had a material impact on our
operations.
Recently Issued Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 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 Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
We adopted SOP 98-1 on October 1, 1999. We expect that the adoption of SOP 98-
1 will not have a material impact on our software capitalization policies,
financial position, results of operations or financial statement disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for our fiscal year that begins on October 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments which are embedded in other contracts,
and for hedging activities. We generally do not enter into transactions
involving derivatives, except that from time to time we may enter into forward
exchange contracts or purchase options to minimize the effect of changes in
exchange rates on our financial position, results of operations and cash
flows. However, these activities are not significant. Accordingly, we expect
that the adoption of SFAS No. 133 will not have a material impact on our
financial position, results of operations or financial statement disclosures.
In December 1998, the Accounting Standards Executive Committee issued SOP
98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions." SOP 98-9, which amends SOP 97-2, provides additional
guidance on revenue recognition for software arrangements with multiple
elements. We adopted SOP 98-9 on October 1, 1999. We expect that the adoption
of SOP 98-9 will not have a material impact on our financial position, results
of operations or financial statement disclosures.
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FACTORS AFFECTING FUTURE PERFORMANCE
Various factors outside our control may affect operating results and cause
fluctuations in quarterly results.
Our future success depends on a number of factors, many of which are
unpredictable and beyond our control. Moreover, many of these factors are
likely to cause our 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 our license transactions. Our 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 our revenues attributable to fees for licenses versus
fees for services;
. he proportion of products we license that are developed by us alone
versus those developed by a third party alone or by us in collaboration
with a third party;
. how much money we must spend to improve our business and expand our
operations;
. changes in the level of our operating expenses;
. the amount of capital expenditures by our customers;
. delays in the purchase of our products and services by our customers due
to their budgetary constraints and the time they often require to
authorize purchases of our products and services;
. the demand for our products and services;
. whether customers accept the new and enhanced products and services we
offer;
. how.quickly we are able to develop new products and services that our
customers require;
. whether and how quickly alternative technologies, products and services
introduced by our competitors gain market acceptance;
. the timing of the introduction of new or enhanced products offered by
our competitors or us;
. the ability of our affiliates to sell products or service additional
sales;
. the competitive conditions in our industry;
. whether we retain our key employees;
. whether our business is subject to disruptions resulting from Year 2000
computer problems; and
. prevailing conditions in the ERM marketplace and other general economic
and political factors.
Due to one or more of these factors, our operating results could fail to meet
the expectations of securities analysts or investors. If that happens, the
price of our common stock could decline materially.
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. We currently target our products and services primarily
at the market for business applications software that is used with IBM's
AS/400 series of computers. Our competitors offer a variety of products that
address this and similar markets. We primarily compete with a large number of
independent software vendors. These competitors include, among others:
. Baan Company N.V.;
. Computer Associates, Inc.;
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. Intentia AB;
. Geac Computer Corporation Limited;
. J.D. Edwards & Company, Inc.;
. SAP AG; and
. System Software Associates, Inc.
We also compete with some vendors of specialized applications. We may be
unable to compete successfully with existing or new competitors.
To be successful in the future, we must respond promptly and effectively to
changes in technology. We must also respond to our competitors' innovations.
Some of our competitors have significantly greater financial, marketing,
service, support and technical resources than we do. Some of these competitors
also have greater name recognition than we do. Accordingly, our competitors
may be able to respond more quickly 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.
We expect to face additional competition as other established and emerging
companies enter the market for business software 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 our 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 ERM market.
For us, this could result in fee reductions, the loss of current or
prospective customers, fewer customer orders and reduced net income. In
addition, we principally rely on our network of affiliates for the
implementation and support of our products. If the affiliates fail to maintain
sufficiently high quality standards, our reputation and competitive position
could weaken. Any or all of these events could materially and adversely affect
our business, financial condition and results of operations.
We are subject to risks resulting from rapid technological change and evolving
industry standards.
The market for our enterprise software products is constantly changing.
These changes include, among others:
. rapid technological advances, including those which make use of the
Internet;
. evolving industry standards in computer hardware and software
technology;
. changes in customer requirements; and
. frequent new product introductions and enhancements.
Our future success depends upon our ability to continue to enhance our
products as well as our ability to develop and introduce new products that
keep pace with technological developments, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. In particular, we must
anticipate and respond adequately to advances in standard business
applications software, client/server solutions, object-oriented technology and
Internet technology. Our business, financial condition and results of
operations could be materially and adversely affected if we are unable to
develop and market new products and product enhancements that achieve market
acceptance on a timely and cost-effective basis.
As a result of the high level of functionality and performance demanded by
enterprise software customers, major new products and product enhancements can
require long development and testing periods. Despite testing, however, the
complex enterprise software programs we offer may contain errors that
customers discover only after the programs have been installed and used.
Undetected errors may impair the market acceptance of our
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products or adversely affect our business, financial condition and results of
operations. Problems encountered by customers installing and implementing our
new products or releases or with the performance of new products, including
product functionality, product response time and program errors, also could
adversely affect our business, financial condition and results of operations.
Our quarterly operating results are concentrated toward the end of each
quarter and are difficult to predict.
Our 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,
our quarterly operating results are difficult to predict. Delays in product
delivery or in closings of sales near the end of a quarter could cause our
quarterly revenues to fall substantially short of the levels we anticipate.
Moreover, we establish our spending levels based on our expected future
operating results. If results of operations are less than we anticipate, we
may not be able to reduce spending levels proportionately. As a consequence,
our operating results, cash flows and liquidity will likely be adversely
affected. These and other factors are likely to continue to affect our results
of operations.
Due to these factors, our operating results could fail to meet the
expectations of securities analysts or investors. If that happens, the price
of our common stock could decline materially.
We are subject to risks associated with making acquisitions and may not be
able to grow through acquisitions.
As part of our business strategy, we continually evaluate potential
acquisitions of complementary technologies, products and businesses in the
enterprise application market. In our pursuit of acquisitions, we may be
unable to:
. identify suitable acquisition candidates;
. compete for acquisitions with other companies, many of which have
substantially greater resources than we do;
. obtain sufficient financing on acceptable terms to fund acquisitions;
. complete the acquisitions on terms favorable to us;
. integrate acquired technologies, products and businesses into our
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 that we acquire may not perform as
expected;
. technologies, products or businesses that we acquire may not achieve
levels of revenues, profitability or productivity comparable to our
existing technologies, products and operations;
. acquisitions may adversely affect our results of operations;
. acquisitions may divert the attention of management and our resources;
. we may experience difficulty in assimilating the acquired operations and
personnel; and
. we may experience difficulty in retaining, hiring and training key
personnel.
Any or all of these risks could materially and adversely affect our business,
financial condition or results of operations.
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Our product development and enhancement efforts depend in part on other
software companies.
We developed several of our applications in collaboration with our solution
partners. We expect 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 us. Under a license agreement with a solution
partner, we ordinarily are obligated to pay a royalty to the solution partner
for sales of the applications developed by the solution partner. If we fail to
pay the required royalty when due or otherwise breach 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 our business, financial
condition and results of operations. In addition, we are 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. We,
however, may not be able to maintain or upgrade the application adequately or
on a timely basis. If we are not able to do so, it could adversely affect our
business, financial condition and results of operations.
Our success depends in part on our continued ability to license
applications from solution partners. However, solution partners may not be
available to develop or support applications for us in the future. Even if
available, solution partners may not complete applications for us on a timely
basis and within acceptable guidelines. Accordingly, we cannot assure that we
will be able to license applications from solution partners on terms
acceptable to us, or at all.
As part of our strategy to develop new applications, we have entered into
joint development relationships with several other software companies. We
refer this type of relationship as a technology alliance. Through a technology
alliance, we share the development costs of an application and acquire rights
to it. We also build development expertise for the application internally so
that we can enhance and support the application. Technology alliances involve
a number of risks. These risks include, among others:
. our investment of substantial resources in technology alliances may
divert resources from other areas of our business;
. we may fail to realize the intended benefits of technology alliances;
. we will increase our reliance on others for product development and
support;
. we 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;
. we may lose key employees to partners in technology alliances; and
. we may inadvertently transfer our proprietary technology to partners in
technology alliances, some or all of which may be or become our
competitors.
A partner in a technology alliance may also have or develop a relationship
with our existing or prospective customers. The partner could use this
relationship to become a competitor of ours. If the partner is already our
competitor, it may use this relationship to enhance its competitive position.
The partner could, as a competitor or otherwise, cause us to lose existing or
prospective customers. We cannot assure that we will be successful in
identifying and entering into technology alliances. In addition, we cannot
assure that, if entered into, technology alliances will provide the results we
expect. Moreover, if we successfully identify and enter into technology
alliances, the occurrence of any of the events described above could
materially and adversely affect our business, financial condition and results
of operations.
We may not be successful in protecting our proprietary rights or in avoiding
claims that we infringe the proprietary rights of others.
Our success depends heavily upon the protection of our proprietary
software. We rely on a combination of copyright, trademark and trade secret
laws and license and non-disclosure agreements to establish and protect
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our proprietary rights in our products and information. To further protect
these rights, we (1) enter into confidentiality and/or license agreements with
our employees, distributors, contractors, customers and potential customers
and (2) limit access to and distribution of our software, documentation and
other proprietary information. Despite these precautions, an unauthorized
person could copy or reverse-engineer some portions of our products or obtain
and use information that we regard as proprietary. In addition, the laws of
some foreign countries do not protect our proprietary rights to the same
extent, as do the laws of the United States. Accordingly, we cannot assure
that our steps to protect our software will be adequate. Moreover, our
competitors may independently develop software products that are substantially
equivalent or superior to our software products.
We may receive notices claiming that we are infringing the proprietary
rights of others. Third parties could also institute legal proceedings against
us claiming that our current or future products infringe their proprietary
rights. Alternatively, we may make claims or initiate litigation against
others for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Any claims against us, with or without merit, or
claims by us against others could be time consuming and expensive to defend,
prosecute or resolve. In addition, these claims could cause product shipment
delays or force us 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 us to significant
liabilities to others, (2) require us to allocate significant resources to
develop non-infringing technology, (3) require disputed rights to be licensed
from others or (4) prohibit us from using specific marketing materials or
products. If we are required to license proprietary rights from others or wish
to do so, we cannot assure that the necessary licenses will be available on
terms that are acceptable to us, or at all. One or more of these events could
materially and adversely affect our business, financial condition and results
of operations.
Failure to obtain Year 2000 compliance may have adverse effects on us.
Many existing computer hardware and software systems are designed to use
only two digits to identify a year in date fields (e.g., "99" for "1999").
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."
We are subject to a number of risks resulting from the Year 2000 issue
including, among others, that:
. existing and future products developed by our solution partners and us
may not contain all necessary date code changes to address the Year 2000
issue;
. existing and future products developed by our solution partners and us
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 our products is likely to decrease once companies have
repaired or replaced their existing systems that are not Year 2000
enabled;
. demand for our products is likely to decrease if customers are required
to divert their money and other resources to address Year 2000 issues;
. systems used in our internal operations, some of which have been
developed by others, may not be Year 2000 compliant;
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. our operations may be impacted by Year 2000 issues affecting others with
whom we have relationships, including affiliates, solution partners and
other vendors (e.g., utilities, distributors, banks and other
suppliers);
. purchasers of our products that were sold before our 1995 application
releases, which are not Year 2000 enabled, may bring Year 2000-related
claims against us; and
. customers and others whose operations are interrupted by Year 2000
problems involving our products may institute "business interruption"
litigation against us.
Any or all of these risks could materially and adversely affect our business,
financial condition and results of operations.
We depend on the constant availability of telecommunications equipment and
other utilities to service our customers. As a result, we currently believe
that the most reasonably likely worst case Year 2000 scenario would involve
the temporary interruption of electric power, telephone or other utility
supplies to our headquarters or our other customer support facilities due to a
failure of a utility supplier to be Year 2000 compliant. Because we have no
contingency plan of action in the event of a failure of utility service, such
a failure could materially and adversely affect our business, financial
condition and results of operations.
The foregoing descriptions of risks resulting from the Year 2000 issue are
based on our best current assessment. We cannot assure that this assessment
will prove to be accurate. Additional problems related to the Year 2000 issue
that we have not yet identified or fully understand may arise in the future.
These additional problems may cause our current assessment of the Year 2000
issue to be incorrect. They may also materially and adversely affect our
business, financial condition and results of operations.
Our stock price will fluctuate, and could fluctuate significantly.
The market price of our 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 our common stock to fluctuate. These include, among others:
. quarterly variation in our actual or anticipated operating results;
. the depth and liquidity of the trading market for our common stock;
. growth rates;
. changes by securities analysts in estimates regarding us;
. conditions in the enterprise software industry;
. the condition of the stock market;
. announcements by our competitors;
. regulatory actions affecting us; 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, including ours. These
fluctuations may be unrelated to the operating performance of these companies.
Furthermore, our 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 our common stock to decline materially.
We depend on the worldwide manufacturing industry.
Our 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
our target market to reduce
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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 our business, financial condition and
results of operations.
We are subject to the risk of product liability claims.
Our products are generally used to manage data critical to large
organizations. As a result, our development, sale and support of products may
entail the risk of product liability claims. Our license agreements with
customers typically contain provisions designed to limit our exposure to
potential product liability claims. However, these provisions may not be
effective under the laws of all jurisdictions. Our insurance may not be
sufficient in scope or amount to cover all personal injury, property damage
and other claims if the limitations on our liability contained in our license
agreements are ineffective. A successful product liability claim brought
against us could therefore materially and adversely affect our business,
financial condition and results of operations. In addition, defending such a
suit, regardless of its merits, could require us to incur substantial expense
and require the time and attention of key management personnel. This could
also materially and adversely affect our business, financial condition and
results of operations.
We depend on our retention of key personnel and our ability to attract and
retain other qualified personnel.
Our 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
our business, financial condition and results of operations. Our future
financial results also will depend upon our ability to attract and retain
highly skilled technical, managerial and marketing personnel. We do not
currently maintain key-person life insurance on any of our key employees.
Competition for qualified personnel is intense and is likely to intensify
in the future. We compete for qualified personnel against numerous companies,
including larger, more established companies with significantly greater
financial resources than ours. We have at times experienced and continue to
experience difficulty recruiting and retaining qualified personnel. Our
business, financial condition and results of operations could be materially
adversely affected if we are unable to hire and retain qualified personnel in
the future.
We depend on IBM's AS/400 series of computers and may not be able to
effectively develop products that use independent server platforms.
We derive substantially all of our revenues from products designed to
operate primarily on IBM's AS/400 series of computers and the related OS/400
operating system. Therefore, our future revenues from initial and periodic
license fees will significantly 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 our business, financial condition
and results of operations. We have devoted a significant part of our resources
to develop and support business software that uses the AS/400 series of
computers. Our future success depends in part on our continued devotion of
resources to further develop and support products that are used on these
computers.
We plan to develop or acquire new products for use on independent server
platforms, as well as the AS/400 series of computers. However, our existing
and potential new customers may not choose to purchase our products if the
customers decide to use independent server platforms instead of the AS/400
series of computers. If a significant number of our existing or potential
customers decide to use independent server platforms, we would be required to
expend substantial resources to develop new software that could be used on
these platforms. This expenditure would materially and adversely our business,
financial condition and results of operations. Moreover, we 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 our business, financial
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condition and results of operations. Similarly, to retain our AS/400
customers, we may be required to adapt our products to any changes made in the
OS/400 operating system in the future. If we are unable to adapt to these
future changes, or we delay in doing so, our business, financial condition and
results of operations could be materially and adversely affected.
We depend on a network of independent local companies to sell and support our
products.
We market, sell and provide professional services for our products
primarily through a global network of more than 75 independent local
affiliates. As a result, we maintain a limited direct sales force. We rely on
our affiliates for sales, product implementation, customization and, outside
North America, customer support services that are provided in conjunction with
us. If we are unable to maintain effective long-term relationships with our
affiliates, or if our affiliates fail to meet our customers' needs, our
business, financial condition and results of operations would be adversely
affected.
From time to time some of our competitors have established, and may
continue to seek to establish, a comparable distribution channel, in part by
attempting to attract our affiliates. Our agreements with affiliates are
generally of short duration. In some instances, either the affiliate or we can
terminate an agreement. If the affiliates reduce or discontinue their
relationships with us or their support of our products, our business,
financial condition and results of operations would be adversely affected.
In addition, the ability of the affiliates to meet our customers' needs
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.
Our business, financial condition and results of operations could be
materially adversely affected, if the affiliates are unable to attract and
retain sufficient numbers of professional and technical personnel.
We may not be able to effectively manage our growth.
Our business has grown rapidly in the last five years. This growth has
strained, and may continue to strain, our management and systems. Our future
operating results depend in part on the ability of our officers and other key
employees to continue to implement and improve our operational and financial
controls, to expand, train and manage our employees effectively and to
successfully develop new products and enhancements to existing products. Our
growth also depends upon our affiliates' ability to grow, to manage this
growth and to implement our products in response to the projected demands of
our customers. We cannot assure that our affiliates or we will be able to
manage any future expansion successfully. Our business, financial condition
and results of operations would be materially and adversely affected if our
affiliates or we are unable to effectively manage our growth.
Our international operations subject us to a number of risks.
A material portion of our business comes from outside the United States. We
believe that our continued growth and profitability will require expansion of
our sales in international markets. To expand international sales
successfully, we have invested, and will continue to invest, substantial
resources to (1) grow our existing foreign operations, (2) establish new
foreign operations, (3) improve existing or establish new affiliate
relationships and (4) hire additional personnel. International expansion of
our operations has required, and will continue to require, us to localize our
applications and translate them into foreign languages. If we cannot expand
our international operations or localize and translate our applications in a
timely and accurate manner, it is likely to impact negatively our operating
results. In addition, even if we successfully expand our international
operations, we cannot assure that we will be able to maintain or increase our
international market presence or demand for our products.
Risks inherent in our international business activities include, among
others:
. the imposition of government controls;
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. 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 some 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 we sell our products.
Any or all of these risks could materially and adversely affect our business,
financial condition and results of operations.
As a result of the continued expansion of our international operations, the
fluctuations in the value of foreign currencies in which we conduct our
business may cause us to experience currency transaction gains and losses.
Because of the number of foreign currencies involved, our constantly changing
currency exposure and the volatility of currency exchange rates, we cannot
predict the effect of exchange rate fluctuations upon our future operating
results. These currency risks could materially and adversely affect our
business, financial condition and results of operations.
The conversion to a single European currency may adversely affect us.
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the euro as their common legal currency. We have established a
taskforce to monitor the effects that this conversion to a single European
currency has had or will have on us. Although we believe the conversion has
not had a substantial effect on our European operations in 1999, we are unsure
of the potential impact that the conversion will have on our business as the
number of transactions conducted in the euro increases. The conversion may
involve a number of risks for us, including:
. increased costs of conducting business during this initial transition
period in which our operations and those of others will be conducted in
either 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 us and others in the performance of contracts requiring
payments in legacy currencies;
. third parties, like our 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.
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Any or all of these risks could materially and adversely affect our business,
financial condition and results of operations.
We have adopted measures that have anti-takeover effects and could limit the
price of our stock.
Georgia law and our articles of incorporation, bylaws and shareholder
rights plan contain provisions that may (1) make it more difficult for a third
party to acquire us, (2) discourage acquisition bids for us, (3) discourage
changes in our management and (4) limit the price that investors are willing
to pay for shares of our common stock. The most significant of these
provisions are described below.
Provisions of Georgia law have anti-takeover effects.
Georgia law prohibits us from entering into some business combination
transactions with any person for a period of five years from the date the
person became an "interested shareholder," unless specific requirements are
satisfied. Generally, an "interested shareholder" is any person that owns at
least 10% of our outstanding voting stock, other than the us and our
subsidiaries. Georgia law also requires that each of these transactions:
. meets specific fair price criteria and other tests or
. meets specific requirements relating to approval of the transaction by
our board of directors and shareholders.
We have issued preferred stock and may issue additional preferred stock in
the future.
We have issued shares of our 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 our board of directors
determines. The rights of holders of our common stock are subject to, and may
be adversely affected by, the rights of holders of our preferred stock.
Our articles of incorporation and bylaws contain additional provisions that
have anti-takeover effects.
Our 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 our
board of directors and limitation on the removal of directors could make it
more difficult for a potential acquirer to gain control of our board of
directors. Our articles of incorporation and bylaws contain additional
provisions that have anti-takeover effects.
We have adopted a shareholder rights plan.
We have adopted a shareholder rights plan under which we have distributed
to our shareholders rights to purchase shares of our Series F junior
participating preferred stock. If specific triggering events occur, the
holders of the rights will be able to purchase shares of our common stock at a
price substantially discounted from the then applicable market price of our
common stock. The shareholder rights plan could increase a potential
acquirer's costs of effecting a merger with us or a tender offer for our
outstanding securities that is not approved by our board of directors. These
increased costs could prevent or discourage such a transaction, even though
our shareholders want to vote in favor of the merger or participate in the
tender offer.
Shares of our outstanding stock are currently eligible for future sale, and
some holders of our securities have registration rights.
Sales of a substantial number of shares of our common stock, or the
prospect of these sales, could adversely affect the market price of our common
stock. These sales or the prospect of these sales could also impair our
ability to raise needed funds in the capital markets at a time and price
favorable to us. As of December 1, 1999, we had a total of 17,586,611 shares
of common stock outstanding, most of which are freely tradable without
38
<PAGE>
restriction under the Securities Act. 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, 1999, we had options outstanding under our stock option
plans for the purchase of a total of 3,684,196 shares of common stock at a
weighted average exercise price of $10.86 per share. We have reserved an
additional 1,040,286 shares of common stock that we may issue upon the
exercise of options granted in the future under these plans. We have also
reserved 146,008 shares of common stock that we may issue under our employee
stock purchase plan. We have in effect a registration statement under the
Securities Act of 1933 covering our issuance of shares upon the exercise of
these outstanding options and our issuance of shares under our employee stock
purchase plan. All of these shares will be freely tradable in the public
market, except for shares held by our directors, officers and principal
shareholders, which will be eligible for public sale at various times pursuant
to Rule 144 of the SEC.
We have in effect a registration statement under the Securities Act
covering the sale of 526,309 shares of common stock that we will issue upon
the exercise of warrants. These warrants are exercisable at a price of $6.50
per share. In addition, entities affiliated with General Atlantic Partners,
LLC have "demand" and "piggy back" registration rights for (1) 1,000,000
shares of common stock that are issuable upon the exercise of warrants that
are exercisable at a price of $11.53 per share, (2) 1,499,990 shares of common
stock that are issuable upon the conversion of our convertible preferred stock
and (3) 1,500,010 shares of outstanding common stock. The demand registration
rights permit the holders of these securities to require us to register the
sale of this common stock under the Securities Act. The piggyback registration
rights permit the holders of these securities to participate in any
registration of our common stock under the Securities Act. Another of our
shareholders also has piggyback registration rights for 250,000 shares of
common stock that we will issue upon the conversion of our convertible
preferred stock. If these holders require us to include their shares in a
registration that we initiate, it could adversely affect our ability to raise
needed capital in the public market at a favorable time and price.
The 1,749,990 shares of common stock underlying our convertible preferred
stock and the 1,500,010 shares of common stock held directly by entities
affiliated with General Atlantic Partners currently are eligible for sale in
the public market subject to the conditions of Rule 144 of the SEC. In
addition, the 1,000,000 shares of common stock underlying the warrants held by
entities affiliated with General Atlantic Partners will be eligible for sale
in the public market at any future time or times permitted by Rule 144.
Our 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 our combined
financial statements and other financial information as of dates and for
periods prior to the Distribution, we have allocated some expenses based on
our 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 our 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 necessarily reflect our financial position, results of
operations and cash flows in the future. In particular, our combined financial
statements and other financial information as of dates and for periods prior
to the Distribution:
. may not indicate what our 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 some costs and expenses based on our estimates of
the cost of services provided to the MAPICS business by Marcam
Corporation;
. do not reflect the changes in our financial position, results of
operations and cash flows resulting from the Distribution and the
related transactions; and
. include some assets, liabilities, revenues and expenses that were not
historically recorded at the entity level by Marcam Corporation, but
were associated with the MAPICS business.
39
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We do not engage in trading market risk sensitive instruments nor do we
purchase, whether for investment, hedging or purposes "other than trading,"
instruments that are likely to expose us to market risk, whether foreign
currency exchange, interest rate, commodity price or equity price risk, except
as discussed in the following paragraph. We have not issued any debt
instruments, entered into any forward or futures contracts, purchased any
options or entered into any swaps, except as discussed in the following
paragraph.
Our foreign operations, primarily those in Western Europe, involve
financial transactions that are denominated in foreign currencies. From time
to time, we may enter into forward exchange contracts or purchase options to
minimize the effect of changes in exchange rates on our financial position,
results of operations and cash flows. These transactions were immaterial
during fiscal 1997, fiscal 1998 and fiscal 1999, and we did not have any open
forward exchange contracts or options at September 30, 1998 or 1999. However,
as our foreign operations increase, our business, financial condition and
results of operations could be adversely affected by future changes in foreign
currency exchange rates. For further information see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Factors Affecting Future Performance--Our international operations subject us
to a number of risks."
A change in either our lender's base rate or LIBOR would affect the rate at
which we could borrow funds under our revolving credit facility. However, we
consider our interest rate risk to be immaterial.
40
<PAGE>
Item 8. Financial Statements and Supplementary Data.
The following is a list of our consolidated financial statements and
supplemental financial information appearing in this Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ 42
Consolidated Balance Sheets as of September 30, 1998 and 1999............ 43
Consolidated Statements of Operations for the years ended September 30,
1997, 1998 and 1999..................................................... 44
Consolidated Statements of Shareholders' Equity for the years ended Sep-
tember 30, 1997, 1998 and 1999.......................................... 45
Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1998 and 1999..................................................... 46
Notes to Consolidated Financial Statements............................... 47
Supplemental Financial Information....................................... 68
</TABLE>
41
<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, cash flows and shareholders'
equity present fairly, in all material respects, the financial position of
MAPICS, Inc. and Subsidiaries at September 30, 1998 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 25, 1999, except
as to note 17 for which the
date is December 15, 1999
42
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30,
------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 33,442 $ 21,351
Accounts receivable, net of allowances of $1,989 in 1998
and $1,781 in 1999 (Note 3)............................. 35,879 30,804
Prepaid expenses and other current assets................ 4,600 9,860
Deferred income taxes, net (Note 9)...................... 1,462 1,452
-------- --------
Total current assets................................... 75,383 63,467
Property and equipment, net (Note 4)..................... 5,038 6,019
Computer software costs, net (Note 5).................... 19,554 19,902
Other intangible assets, net (Note 6).................... 4,292 3,776
Deferred income taxes, net (Note 9)...................... 5,775 2,230
-------- --------
Total assets........................................... $110,042 $ 95,394
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable......................................... $ 8,499 $ 6,455
Accrued expenses and other current liabilities (Note 7).. 23,496 21,681
Deferred revenues........................................ 31,106 28,999
-------- --------
Total current liabilities.............................. 63,101 57,135
-------- --------
Commitments and contingencies (Notes 10 and 15)
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) in
1998; 125 shares issued and outstanding (liquidation
preference of $9,419) in 1999.......................... 225 125
Series E convertible preferred stock, 100 shares issued
and outstanding (liquidation preference of $7,536) in
1998; 50 shares issued and outstanding (liquidation
preference of $3,768) in 1999.......................... 100 50
Common stock, $0.01 par value; 50,000 shares authorized,
18,891 shares issued and 18,762 shares outstanding in
1998; 90,000 shares authorized, 20,370 shares issued
and 17,592 shares outstanding in 1999.................. 189 204
Additional paid-in capital............................... 61,670 61,899
Accumulated deficit...................................... (13,962) (1,667)
Treasury stock-at cost, 129 shares in 1998 and 2,778
shares in 1999.......................................... (1,281) (22,352)
-------- --------
Total shareholders' equity............................. 46,941 38,259
-------- --------
Total liabilities and shareholders' equity............. $110,042 $ 95,394
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Revenues:
License......................................... $56,368 $ 79,189 $ 71,195
Services........................................ 39,036 50,552 63,523
------- -------- --------
Total revenues................................ 95,404 129,741 134,718
------- -------- --------
Operating expenses:
Cost of license revenues........................ 9,816 13,108 13,689
Cost of services revenues....................... 11,838 14,873 19,012
Selling and marketing........................... 31,905 48,111 51,601
Product development............................. 10,259 15,073 18,083
General and administrative...................... 8,256 8,884 12,673
------- -------- --------
Total operating expenses...................... 72,074 100,049 115,058
------- -------- --------
Income from operations............................ 23,330 29,692 19,660
Other:
Interest income................................. 45 816 1,887
Interest expense................................ (263) (56) (86)
------- -------- --------
Income before income tax expense (benefit)........ 23,112 30,452 21,461
Income tax expense (benefit) (Note 9)............. (6,004) 11,724 8,262
------- -------- --------
Net income........................................ $29,116 $ 18,728 $ 13,199
======= ======== ========
Pro forma for 1997 (note 2)
Net income per common share (basic)............. $ 1.79 $ 1.01 $ 0.70
======= ======== ========
Net income per common share (diluted)........... $ 1.47 $ 0.81 $ 0.62
======= ======== ========
Weighted average number of common shares
outstanding (basic)............................ 16,239 18,579 18,943
======= ======== ========
Weighted average number of common shares and
common equivalent shares outstanding
(diluted)...................................... 19,810 23,100 21,444
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Series D and E
Convertible Retained
Preferred Stock Common Stock Additional Net Earnings Treasury Stock Total
---------------- ----------------- Paid-In Transfers (Accumulated ---------------- Shareholders'
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,
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 16)......... 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 and options
issued to non
employees......... 2 -- 29 29
Tax benefit
associated with
exercise of stock
options and stock
awards (Note 16).. 903 903
Compensation
payable in common
stock............. 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
Conversion of
preferred stock... (150) (150) 1,500 15 135 --
Stock options
exercised......... 91 1 960 (103) (39) 422 1,280
Employee stock
purchases......... 17 -- 240 (51) (22) 252 441
Stock and options
issued to non
employees......... -- -- 138 (3) (1) 11 146
Tax benefit
associated with
exercise of stock
options and stock
awards (Note 16).. 267 267
Compensation
payable in common
stock............. (231) (747) (114) 1,229 251
Treasury stock
acquired.......... 2,954 (24,266) (24,266)
Retirement of
treasury stock.... (129) (1) (1,280) (129) 1,281 --
Net income......... 13,199 13,199
---- ---- ------ ---- ------- -------- ----- -------- --------
Balance as of
September 30,
1999............... 175 $175 20,370 $204 $61,899 $ (1,667) 2,778 $(22,352) $ 38,259
==== ==== ====== ==== ======= ======== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 29,116 $ 18,728 $ 13,199
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 1,394 1,852 2,426
Amortization................................... 5,708 7,537 7,945
Write off of capitalized software.............. -- -- 1,439
Provision for bad debts........................ 956 570 1,387
Deferred income taxes.......................... (13,815) 7,141 3,822
Compensation payable in common stock........... -- 231 251
Stock and options issued to non employees...... -- 29 146
Loss on disposal of property and equipment..... -- -- 101
-------- -------- --------
23,359 36,088 30,716
Changes in operating assets and liabilities:
Accounts receivable........................... (10,732) (6,085) 3,688
Prepaid expenses and other current assets..... (1,818) (2,017) (5,260)
Accounts payable.............................. 1,647 1,544 (2,044)
Accrued expenses and other current
liabilities.................................. 8,717 3,322 (1,815)
Deferred revenues............................. 6,571 5,972 (2,107)
-------- -------- --------
Net cash provided by operating activities.... 27,744 38,824 23,178
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............. (1,964) (3,328) (3,508)
Additions to computer software costs............ (5,450) (6,984) (5,773)
Purchases of computer software.................. (1,000) (2,975) (3,443)
-------- -------- --------
Net cash used for investing activities....... (8,414) (13,287) (12,724)
-------- -------- --------
Cash flows from financing activities:
Proceeds from stock options exercised........... 452 3,291 1,280
Proceeds from employee stock purchases.......... -- 333 441
Acquisitions of treasury stock.................. -- (1,281) (24,266)
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)... (6,559) -- --
-------- -------- --------
Net cash (used for) provided by financing
activities.................................. (14,146) 2,343 (22,545)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents.................................... 5,184 27,880 (12,091)
Cash and cash equivalents at beginning of year.. 378 5,562 33,442
-------- -------- --------
Cash and cash equivalents at end of year........ $ 5,562 $ 33,442 $ 21,351
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
Business
We are a developer of global enterprise software that addresses the needs
of mid-sized manufacturing establishments in discrete and batch process
industries. We deliver Enterprise Resource Management, or ERM, and e-Business
solutions to automate the manufacturing process, improve coordination of
organizational resources and enhance interaction with supply chain partners.
Our e-Xtended Architecture, or MAPICS XA, suite of applications provides the
following functions:
.Engineering management;
.Demand management;
.Operations management;
.Resource planning;
.Financial management; and
.Business management.
Our application architecture allows customers to rapidly implement all or a
portion of our MAPICS XA solutions with minimal disruption to their business.
Furthermore, our MAPICS XA solutions enable our customers to leverage their
existing information technology investments and adopt new technologies
gradually, which lowers their costs and increases their return on investment.
Our primary sales and implementation channel is a network of more than 75
independent local companies, which we refer to as affiliates, that market and
sell our products worldwide and support the global installed base. In addition
to providing customers with high quality and cost-effective local
implementation, industry specific consulting and other professional services,
the affiliate channel provides us with an attractive variable cost structure
for sales and marketing. Our primary geographic markets include (1) North
America, (2) the Europe, Middle East and Africa region, or EMEA, and (3) the
Latin America and Asia Pacific regions, or LAAP.
We were incorporated in Massachusetts in 1980 under the name Marcam
Corporation. On July 29, 1997, we distributed to our shareholders, in a tax-
free distribution which we refer to as the Distribution, all of the capital
stock of our subsidiary Marcam Solutions, Inc. and changed our name to MAPICS,
Inc. As a result of the Distribution, Marcam Solutions owns and operates some
of the software product lines that we had owned and operated before the
Distribution and we continue to own and operate the MAPICS product line. At
the time of the Distribution, we relocated our headquarters from Boston to
Atlanta, and in 1998 we reincorporated in Georgia.
Basis of Presentation
We prepared the statements of operations, shareholders' equity and cash
flows for the year ended September 30, 1997 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 results of operations,
financial position and cash flows of the MAPICS business as if it were a
separate entity for this period. We allocated some costs and expenses
presented in the financial statements for the year ended September 30, 1997
based on our estimates of the costs of services that Marcam Corporation
provided to the MAPICS business. We believe these allocations are reasonable.
However, the financial statement information may not necessarily reflect our
results of operations, financial position and cash flows in the future
47
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
or what they would have been had the MAPICS business been a separate entity
during the year ended September 30, 1997.
Although we distributed the common stock of Marcam Solutions to our
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 Marcam Solutions product lines at the time of the
Distribution.
The balance sheets as of September 30, 1998 and 1999 and the statements of
operations, shareholders' equity and cash flows for the years ended September
30, 1998 and 1999 are consolidated and consist solely of the separate
financial statements of MAPICS, Inc. and our wholly owned subsidiaries. We
eliminated all significant intercompany accounts and transactions in
consolidation.
We operate on a fiscal year that ends on September 30th. References to
fiscal years refer to our fiscal year ended or ending September 30th. For
example, "fiscal 1999" refers to our fiscal year ended September 30, 1999.
2. Significant Accounting Policies
Our Use of Estimates
We are required to make some estimates and assumptions in the preparing our
financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions affect (1) the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and (2) the reported amounts of
revenues and expenses during the reporting periods. Actual results may differ
from estimates.
The most significant estimates included in these financial statements are:
. the valuation of accounts receivable;
. the processes used for amortizating and evaluating the net realizability
of computer software costs and other intangible assets;
. the valuation of deferred income taxes; and
. the allocation of corporate expenses from Marcam Corporation to the
MAPICS business for periods prior to the Distribution.
Cash and Cash Equivalents
We consider 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, 1998 and 1999, we held substantially all of our cash and
cash equivalents on deposit with four financial institutions. We believe that
the carrying amount of cash equivalents is a reasonable estimate of their fair
value. As of September 30, 1998 and 1999, our cash and cash equivalents
denominated in foreign currencies was $2,055,000 and $2,401,000, respectively.
In addition to cash and cash equivalents, trade accounts receivable is the
only financial instrument which potentially exposes us to concentrations of
credit risk. We provide credit in the normal course of business to various
types and sizes of manufacturers located throughout the world. As a result, we
believe that concentration of credit risk with respect to trade accounts
receivable is not significant.
48
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. We calculate depreciation 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>
We record a gain or a loss on the disposal of property and equipment based
on the difference between the proceeds we receive, if any, and the net book
value of the assets we dispose on the date of disposal.
Computer Software Costs
We charge 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, we capitalize computer software development costs and report them
on the balance sheet as a component of computer software costs at the lower of
unamortized cost or net realizable value. Amortization of computer software
costs represents recognition of the costs of some of the software products we
sell, including purchased software costs, capitalized software development
costs and costs incurred to translate software into various foreign languages.
We begin amortizing computer software costs upon general release of the
product to customers and compute amortization on a product-by-product basis
based on the greater of the amount determined using:
. the ratio that current period gross revenues bear to the total of
current and anticipated future gross revenues, or
. 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. Where future revenues are not
expected to cover the related unamortized computer software costs, we either
accelerate amortization or expense the remaining unamortized amounts. In
fiscal 1999, we wrote off $1.4 million of capitalized software development
costs due to a change in our product development approach.
We include amortization of computer software costs in cost of license
revenues in the statement of operations. Amortization of computer software
costs was $5,192,000, $7,020,000 and $7,428,000 in fiscal 1997, fiscal 1998
and fiscal 1999, respectively. In fiscal 1997, we shortened the estimated
useful life of our 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, including installed customer base, affiliate
network, trade names, trademarks and goodwill, resulted from our acquisition
of the MAPICS business in 1993. We calculate amortization of intangible
assets, which is included in cost of license revenues, using the straight-line
method over the estimated lives of the intangible assets. We are amortizing
the installed customer base and affiliate network over fifteen years and trade
names, trademarks and goodwill over ten years.
Long-Lived Assets
As required by Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," we periodically assess the recoverability of the cost of
our long-lived assets and other intangible assets, including goodwill. We base
this assessment on
49
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
several criteria, including but not limited to sales trends, undiscounted
operating cash flows and other operating factors. We reduce the carrying value
of long-lived assets if the sum of expected future net cash flows is less than
their carrying value. We did not make any adjustments like this during the
periods presented in the financial statements.
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
shareholders' equity through the Distribution. For financial reporting
purposes, our financial statements reflect the assumption of Marcam
Corporation's capital structure as of the Distribution.
Foreign Currency
The majority of our revenues and operating expenses from foreign operations
are denominated in local currencies. The functional currency for most of our
foreign operations is generally the local currency. We translate assets and
liabilities of foreign operations into United States dollars at period-end
rates of exchange. We translate revenues and expenses of foreign operations
into United States dollars at the average rates for the periods. The resultant
translation adjustments are immaterial for all periods presented. Foreign
currency transaction gains and losses and the effects of exchange rate changes
on cash are also immaterial for all periods presented, except that in fiscal
1999, we incurred net foreign currency transaction losses of $561,000, mostly
due to transactions within EMEA.
Revenue Recognition
We generate a significant portion of our total revenues from licensing
software, which is conducted principally through our global network of
independent affiliates. The affiliates provide the principal channel through
which we sell our products. However, the ultimate customer typically executes
a license agreement directly with us rather than the affiliate. When we first
license our software, we receive both an initial license fee and a periodic
license fee. We record initial license fees as license revenues and typically
recognize them upon delivery of the software to the ultimate customer. We
record periodic license fees as services revenues and recognize them 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 support services, as available. If a
customer does not renew its periodic license, it is no longer entitled to use
our software. We believe this licensing arrangement provides a source of
recurring revenues from our installed base of customers and enables our
customers to take advantage of new releases and enhancements of our software.
Under the terms of our license agreements, our customer is responsible for
installation and training. The affiliates provide our customers with most of
the consulting and implementation services relating to the MAPICS products. We
have no commitment to reimburse the affiliates for any losses incurred. We
provide consulting and implementation services for complex or multinational
projects, and we offer educational courses and training materials to our
customers and affiliates. However, we do not generate a significant amount of
revenues from these services.
We recognize revenue from software licensing in accordance with the
guidance provided by Statement of Position 97-2, "Software Revenue
Recognition." We generally recognize revenue from the initial licensing of our
software upon:
(1) the signing of a license agreement between us and the ultimate
customer;
(2) delivery of the software to the customer or to a location designated by
the customer;
50
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) fees being fixed and determinable; and
(4) determination that collection of the related receivable is probable.
Advertising Costs
We expense advertising costs as they are incurred. Advertising expenses in
fiscal 1998 and fiscal 1999 were $1,346,000 and $742,000, respectively.
Advertising expenses were immaterial in fiscal 1997.
Allocated Costs
We allocated expenses in our financial statements for periods prior to the
Distribution based on a variety of methods depending on the nature of the
expense. These allocation methods include
. proportional MAPICS product revenues to total Marcam Corporation
revenues;
. headcount equivalents; and
. our estimates.
These amounts approximate our estimates of Marcam Corporation's corporate
costs to support the MAPICS-related operations. We allocated corporate
marketing expenses in selling and marketing expenses and allocated corporate
administrative functions, including data services, employee benefits, legal,
insurance, accounting and other corporate overhead, in general and
administrative operating expenses in the statements of operations for fiscal
1997.
Stock-Based Compensation
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for our stock
option plans and our employee stock purchase plan and the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." As a
result, we generally do not recognize compensation expense for stock options
issued to our directors or our employees, except for stock options and other
stock-based awards issued under specific performance plans. We record expense
for all stock-based awards issued to non-employees, other than our non-
employee directors.
Income Taxes
We account for income taxes using the asset and liability method as
prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method,
we recognize deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. We measure deferred tax assets and liabilities using enacted tax rates
applied to taxable income. We recognize the effect on deferred tax assets and
liabilities of a change in tax rates in income in the period that includes the
enactment date. We provide a valuation allowance for deferred tax assets when
we believe it is more likely than not that we will not realize all or a
portion of the assets.
Computation and Presentation of Net Income per Common Share
We calculated net income per common share for fiscal 1997 using the capital
structure of Marcam Corporation through the Distribution, including the
weighted average number of common shares and common equivalent shares giving
effect to the Distribution on a pro forma basis.
We apply SFAS No. 128, "Earnings Per Share," which requires us to present
"basic" and "diluted" earnings per share, or EPS, for all periods presented in
the statements of operations. We compute basic EPS, which excludes dilution,
by dividing income available to common shareholders by the weighted average
number
51
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if holders of our preferred stock, common
stock options or common stock warrants converted or exercised their holdings
into common stock that then shared in our earnings.
The weighted average number of common shares outstanding that we used to
calculate basic EPS includes:
. the weighted average number of common shares outstanding; plus
. the number of shares of common stock issued in our 1997 public offering,
the proceeds from which were deemed to be used to pay a 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 that we used to calculate diluted EPS includes:
. the weighted average number of common shares outstanding; plus
. the number of shares of common stock issued in the 1997 public offering,
as described above; plus
. the weighted average number of common equivalent shares from the assumed
conversion of preferred stock and the assumed exercise of dilutive stock
options and warrants.
The following table presents the calculations of basic EPS and diluted EPS
(in thousands, except per share data):
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Basic EPS:
Weighted average common shares outstanding......... 12,654 18,579 18,943
Pro forma shares issued in the 1997 public
offering.......................................... 3,585 -- --
------- ------- -------
16,239 18,579 18,943
======= ======= =======
Net income......................................... $29,116 $18,728 $13,199
======= ======= =======
Basic EPS.......................................... $ 1.79 $ 1.01 $ 0.70
======= ======= =======
Diluted EPS:
Weighted average common shares outstanding......... 12,654 18,579 18,943
Pro forma shares issued in the 1997 public offer-
ing............................................... 3,585 -- --
Common share equivalents:
Convertible preferred stock...................... 3,250 3,250 1,955
Common stock options............................. 176 702 325
Common stock warrants............................ 145 569 221
------- ------- -------
19,810 23,100 21,444
======= ======= =======
Net income......................................... $29,116 $18,728 $13,199
======= ======= =======
Diluted EPS........................................ $ 1.47 $ 0.81 $ 0.62
======= ======= =======
</TABLE>
Comprehensive Income
SFAS No. 130 "Reporting Comprehensive Income" requires us to present
comprehensive income, which is net income plus all other changes in net assets
from non-owner sources, and its components in the financial statements. Except
for foreign currency translation adjustments, which were not material for the
periods presented, there was no component of comprehensive income other than
those that we included in net income in our statements of operations.
52
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment Reporting
In fiscal 1999, we adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which superseded SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect our results of operations or our
financial position but did affect our disclosure of segment information in
note 13.
Recently Issued Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee 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." We adopted SOP 98-1 on October 1, 1999. We expect that
the adoption of SOP 98-1 will not have a material impact on our software
capitalization policies, financial position, results of operations or
financial statement disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for our fiscal year that begins on October 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments which are embedded in other contracts,
and for hedging activities. We generally do not enter into transactions
involving derivatives, except that from time to time we may enter into forward
exchange contracts or purchase options to minimize the effect of changes in
exchange rates on our financial position, results of operations and cash
flows. However, these activities are not significant. Accordingly, we expect
that the adoption of SFAS No. 133 will not have a material impact on our
financial position, results of operations or financial statement disclosures.
In December 1998, the Accounting Standards Executive Committee issued SOP
98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions." SOP 98-9, which amends SOP 97-2, provides additional
guidance on revenue recognition for software arrangements with multiple
elements. We adopted SOP 98-9 on October 1, 1999. We expect that the adoption
of SOP 98-9 will not have a material impact on our financial position, results
of operations or financial statement disclosures.
3. Allowance for Doubtful Accounts
The following is a summary of the activity in the allowance for doubtful
accounts during the last three fiscal years (in thousands):
<TABLE>
<CAPTION>
Beginning of Provision End of
Year Balance for Bad Debts Write-Offs Other Year Balance
------------ ------------- ---------- ----- ------------
<S> <C> <C> <C> <C> <C>
Fiscal 1997........... $1,240 $ 956 $ (494) $1,702
Fiscal 1998........... 1,702 570 (383) $100 1,989
Fiscal 1999........... 1,989 1,387 (1,595) 1,781
</TABLE>
We establish reserves for customer receivable balances when we believe it
is probable that we will not collect those receivables. We include the related
provision for bad debts in general and administrative expenses. During 1998,
we reclassified $100,000 from accrued liabilities to the allowance for
doubtful accounts.
53
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
-----------------
1998 1999
------- --------
<S> <C> <C>
Furniture and fixtures....................................... $ 747 $ 1,143
Computer equipment........................................... 9,559 10,180
Leasehold improvements....................................... 206 651
------- --------
10,512 11,974
Accumulated depreciation and amortization.................... (5,474) (5,955)
------- --------
$ 5,038 $ 6,019
======= ========
During fiscal 1999, we disposed of some of our computer equipment,
furniture and fixtures and leasehold improvements. The assets disposed had a
total net book value of $101,000, which we recorded as a loss.
5. Computer Software Costs
Computer software costs consist of the following (in thousands):
<CAPTION>
September 30,
-----------------
1998 1999
------- --------
<S> <C> <C>
Computer software development costs.......................... $18,330 $ 21,337
Accumulated amortization..................................... (9,474) (12,668)
------- --------
8,856 8,669
------- --------
Computer software translation costs.......................... 15,363 17,365
Accumulated amortization..................................... (8,440) (12,279)
------- --------
6,923 5,086
------- --------
Purchased software costs..................................... 3,975 6,741
Accumulated amortization..................................... (200) (594)
------- --------
3,775 6,147
------- --------
$19,554 $ 19,902
======= ========
6. Other Intangible Assets
Other intangible assets consist of the following (in thousands):
<CAPTION>
September 30,
-----------------
1998 1999
------- --------
<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..................................... (3,740) (4,256)
------- --------
$ 4,292 $ 3,776
======= ========
</TABLE>
In February 1993, Marcam Corporation acquired from International Business
Machines Corporation the exclusive worldwide marketing rights to the MAPICS
product line for 25 years. Marcam Corporation also acquired from IBM the
option to purchase the MAPICS product line and some related intellectual
property rights. As part of the acquisition of the marketing rights, Marcam
Corporation recorded $10,699,000 of purchased intangible assets of which
$8,032,000 was allocated to us in the Distribution.
54
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
September 30,
---------------
1998 1999
------- -------
<S> <C> <C>
Accrued commissions and royalties........................... $12,678 $ 9,630
Accrued income taxes payable................................ 5,245 5,431
Accrued payroll and related expenses........................ 4,425 4,853
Other....................................................... 1,148 1,767
------- -------
$23,496 $21,681
======= =======
</TABLE>
Accrued payroll and related expenses include $792,000 and $949,000 for
compensated absences as of September 30, 1998 and 1999, respectively.
8. Borrowing Arrangement
Debt Financing
On July 25, 1997, we borrowed $64.0 million from a bank to fund the
Distribution, including a $39.0 million cash transfer to Marcam Solutions and
repayment of Marcam Corporation's $25.0 million subordinated notes. We refer
to this borrowing arrangement as the debt financing. For financial reporting
purposes, our financial statements reflect our assumption and repayment of the
subordinated notes, excluding the prepayment penalty and accrued interest that
Marcam Solutions recorded.
Term Loan and Revolving Credit Facility
In August 1997, we obtained a senior secured term loan and revolving credit
facility, which we refer to as the bank credit facility, to repay a portion of
the borrowings from the debt financing and for general corporate purposes. At
the same time, we issued 6.9 million shares of our common stock in an
underwritten public offering that raised net proceeds of approximately $56.0
million, after deducting offering costs of approximately $6.1 million. We used
the net proceeds of the 1997 public 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 to repay the $64.0 million of indebtedness from the
debt financing. Before September 30, 1997, we repaid the principal amount of
this term loan with interest of $254,000. No additional amount is available to
us for future borrowings under the term loan portion of this bank credit
facility.
Substantially all of our 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 us to maintain
specific financial ratios and impose limitations or prohibitions on us with
respect to:
.the occurrence of indebtedness, liens and capital leases;
.the payment of dividends on and the redemption or repurchase of our
capital stock;
.investments and acquisitions;
.our merger or consolidation with any person or entity; and
.the disposition of any of our properties or assets outside the ordinary
course of business.
Additional borrowings of up to $15.0 million, subject to limitations, are
available to us under the revolving portion of the bank credit facility.
Availability of revolving credit loans and the rate of interest that the
lender changes us vary depending upon our ability to maintain specific
financial ratios. As of September 30, 1998 and 1999, we met all of those
financial ratios, although we have never made any borrowings under the
revolving
55
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
credit facility. Any outstanding loans under the revolving credit facility
mature on June 30, 2001, pursuant to an amendment to the bank credit facility
that extended the maturity date for one year. We pay a quarterly commitment
fee, which is included in interest expense, for unused portions of the
revolving credit facility.
9. Income Taxes
The components of income tax expense (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
-------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Federal:
Current.......................................... $ 5,009 $ 3,102 $ 3,565
Deferred......................................... (13,402) 6,163 3,476
-------- ------- -------
(8,393) 9,265 7,041
-------- ------- -------
State:
Current.......................................... 1,062 1,582 255
Deferred......................................... (413) 75 79
-------- ------- -------
649 1,657 334
-------- ------- -------
Foreign:
Current.......................................... 1,740 802 887
Deferred......................................... -- -- --
-------- ------- -------
1,740 802 887
-------- ------- -------
$ (6,004) $11,724 $ 8,262
======== ======= =======
</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,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Domestic............................................. $22,636 $29,993 $20,854
Foreign.............................................. 476 459 607
------- ------- -------
$23,112 $30,452 $21,461
======= ======= =======
</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,
---------------------------
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Expected income tax expense at the domestic
federal statutory rate....................... $ 8,089 $10,658 $ 7,511
Benefit associated with the recognition of
Marcam Corporation's tax attributes.......... (14,872) -- --
State income taxes, net of federal income tax
benefit...................................... 422 1,077 217
Foreign income taxes.......................... -- 403 335
Other......................................... 357 (414) 199
-------- ------- -------
$ (6,004) $11,724 $ 8,262
======== ======= =======
Effective income tax expense (benefit) rates.. (26.0)% 38.5% 38.5%
</TABLE>
56
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Prior to the Distribution, Marcam Corporation included the operations
represented by the MAPICS business in its consolidated United States federal
and some state and foreign income tax returns filed by Marcam Corporation. For
financial reporting purposes, we calculated income tax expense on a separate
return basis for all periods through the Distribution.
Pursuant to a tax sharing agreement with Marcam Solutions, we became
entitled to utilize some favorable income tax attributes, principally net
operating loss carryforwards and tax credits, of Marcam Corporation
immediately following the Distribution. As a result, we 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 believed it was more likely than not
that it would not realize these benefits due to its history of generating
operating losses. Excluding the income tax benefit of $14.9 million, the
effective tax rate in fiscal 1997 was 38.5%.
As set forth in a tax sharing agreement with Marcam Solutions, we are
liable for any taxes arising out of the Distribution. In fiscal 1998 and
fiscal 1999, we paid $325,000 and $433,000, respectively, for foreign income
taxes arising out of the Distribution. However, we do not expect to make
additional payments for taxes arising out of the Distribution. The tax sharing
agreement further provides for cooperation with respect to tax matters, the
exchange of information and the retention of records.
Significant components of our deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Tax credits.............................................. $ 2,498 $ 3,168
Reserves and accruals.................................... 1,266 1,609
Allowance for doubtful accounts.......................... 766 685
Intangible assets........................................ 1,026 514
Federal and state net operating loss carryforwards....... 3,922 123
Deferred revenues........................................ 386 72
Other.................................................... 105 66
------- -------
Total deferred tax assets.............................. 9,969 6,237
------- -------
Deferred tax liabilities:
Computer software costs.................................. (1,956) (1,891)
Property and equipment................................... (205) (81)
Other.................................................... (571) (583)
------- -------
Total deferred tax liabilities......................... (2,732) (2,555)
------- -------
Net deferred tax assets................................ $ 7,237 $ 3,682
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, we consider whether
it is more likely than not that we will realize some or all of the deferred
tax assets. Accordingly, we have recorded deferred tax assets at the amount we
believe is more likely than not to be realized.
At September 30, 1998 and 1999, we had federal net operating loss
carryforwards of $10.7 million and $0, respectively, and research and
experimentation and other credit carryforwards of $2.5 million and $3.2
million, respectively. Remaining tax credits at September 30, 1999 expire
between 2000 and 2014. The utilization of inherited tax credits is limited on
an annual basis due to a change in ownership of Marcam Corporation during
fiscal 1996. We do not believe that this limitation will significantly impact
our ability to utilize the tax credits before their expiration.
57
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1999, the Internal Revenue Service completed its examination of our
income tax returns for fiscal years 1990 through 1994. The results of the
examination indicate that we will receive income tax refunds of approximately
$1.6 million in the aggregate plus accrued interest. Upon completion of the
examination and concurrence with the IRS report, we recognized this interest
income, which totals $680,000 through September 30, 1999. The examination did
not have a significant effect on our net operating loss carryforwards or other
tax credit carryforwards.
10. Commitments and Contingencies
Lease Commitments
We lease office space and equipment under operating leases, some of which
contain renewal options and generally requires us to pay insurance, taxes and
maintenance. The lease on our headquarters building includes scheduled base
rent increases over the term of the lease. We charge to expense the total
amount of the base rent payments using the straight-line method over the term
of the lease. In addition, we pay a monthly allocation of the building's
operating expenses. We have recorded a deferred credit to reflect the excess
of rent expense over cash payments since inception of the lease in March 1999.
Deferred rent expense was not material at September 30, 1999. Total rental
expense under all operating lease agreements was $1,308,000, $2,059,000 and
$2,861,000 in fiscal 1997, fiscal 1998 and fiscal 1999, respectively. Future
minimum lease payments under noncancelable operating leases having initial or
remaining lease terms longer than one year as of September 30, 1999 were as
follows (in thousands):
<TABLE>
<CAPTION>
Amount
Fiscal Years Ending September 30: -------
<S> <C>
2000................................................................ $ 3,376
2001................................................................ 3,071
2002................................................................ 2,744
2003................................................................ 2,921
2004................................................................ 2,919
Thereafter.......................................................... 8,460
-------
Total............................................................. $23,941
=======
</TABLE>
Commitments under Technology Alliances
We have entered into agreements with third parties to develop and market
specific applications. As part of these agreements, we generally acquire
ongoing rights to use and redistribute the software solution and solution
enhancements during the term of the agreement. As of September 30, 1999, we
were obligated to make future payments of approximately $2.0 million to some
of our strategic partners under these agreements.
Litigation
There is no legal or governmental proceeding pending or threatened against
us.
We are indemnified for future claims arising from Marcam Solutions product
lines and related activities in accordance with the agreements entered into
with Marcam Solutions.
11. Shareholders' Equity and Stock-Based Compensation Plans
For financial reporting purposes, our financial statements reflect the
assumption of Marcam Corporation's capital structure as of the Distribution.
The holders of our 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.
58
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following the authorization of an additional 40,000,000 shares of common
stock in fiscal 1999, our authorized capital stock consists of 90,000,000
shares of common stock, par value $0.01 per share, and 1,000,000 shares of
preferred stock, par value $1.00 per share.
We have never paid any cash dividends on our common stock. We currently
intend to retain future earnings to fund future development and growth and the
operations of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Additionally, covenants in our bank
credit facility 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 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.
On November 20, 1998, we issued 1,500,010 shares of common stock upon the
conversion of 100,000 shares of series D convertible preferred stock and
50,001 shares of series E convertible preferred stock. As of September 30,
1998 and 1999, we had outstanding 225,000 and 125,000 shares, respectively, of
series D convertible preferred stock and 100,000 and 49,999 shares,
respectively, of series E convertible preferred stock. For 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 is convertible at any time at the option of the holder into 10
shares of common stock, subject to adjustment in the event of our liquidation
or dissolution as defined in the preferred stock agreements. 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
our common stock exceeds $30.14 per share, we may effect the mandatory
conversion of all then outstanding shares of series D convertible preferred
stock 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 our common stock exceeds $30.14 per share, we may effect the
mandatory conversion of all then outstanding shares of series E convertible
preferred stock into shares of common stock.
Upon any event of our liquidation or dissolution, we must pay holders of
convertible preferred, before any distribution is made upon stock ranking
junior to the convertible preferred stock, the greater of (1) $75.36 per share
plus an amount per share equal to any dividends declared but unpaid on the
convertible preferred stock or (2) 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 sale of Marcam Corporation's
subordinated notes, Marcam Corporation issued warrants to purchase an
aggregate of 383,333 shares of common stock, as adjusted from time to time. We
refer to these warrants as the sub debt warrants. These 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, we adjusted
the sub debt warrants to decrease the exercise price to $6.50 per share and to
increase the number of underlying shares to 526,309 on a basis intended to
preserve the spread value of the sub debt warrants.
59
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In July 1996, in connection with the issuance and sale of the series E
convertible preferred stock, we issued and sold warrants to purchase an
aggregate of 1,000,000 shares of common stock, as adjusted from time to time.
We refer to these warrants as the 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, we adjusted the GA warrants so
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
We have a shareholder rights plan under which we declared a dividend of (1)
one preferred stock purchase right, or a "right," for each outstanding share
of common stock, and (2) a number of rights for each outstanding share of
convertible preferred stock equal to the number of shares of common stock
issuable upon conversion of that convertible preferred stock. Each right
entitles holders to purchase one one-thousandth of a share, or a "unit," of
series F junior participating preferred stock at an exercise price of $60.00
per unit, subject to adjustment. The rights become exercisable for common
stock only under specific circumstances and in the event of particular events
relating to a change in control of us. Under specific circumstances pursuant
to the rights plan, we may redeem the rights. The rights expire on December
16, 2006, unless earlier redeemed or exchanged. The rights have an anti-
takeover effect, in that they would cause substantial dilution to a person or
group that acquires a significant interest in us on terms not approved by our
board of directors.
Stock-Based Compensation Plans
At September 30, 1999, we had five stock option plans and an employee stock
purchase plan, described below.
As of the Distribution, our current and former employees and our directors
held options to purchase an aggregate of 2,601,561 shares of our common stock.
In connection with the Distribution, we adjusted the per share exercise price
of each of these stock options to give effect to the Distribution based on the
relative fair market values of our underlying common stock and the common
stock of Marcam Solutions after the Distribution so as to preserve the spread
value of the existing stock options. 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 us, Marcam Solutions or both.
The 1998 Long-Term Incentive Plan. The MAPICS, Inc. 1998 Long-Term
Incentive Plan allows us to issue up to 2,000,000 shares of common stock
through various stock-based awards to our directors, officers, employees and
consultants, including an additional 1,000,000 shares authorized in fiscal
1999. The stock-based awards can be in the form of (a) incentive stock
options, or 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, we provided long-term incentive compensation to some of
our 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 that will be determined by the achievement
of specific performance objectives. During fiscal 1999, we granted 113,501
shares of performance accelerated restricted stock, or PARS, to some of our
officers and employees under the 1998 LTIP. PARS shares are shares of common
stock that we granted outright without cost to the officer or employee. The
shares, however, are restricted in that they may not be sold or otherwise
transferred by the officer or employee until they vest, generally after the
end of three years. The vesting date may accelerate if we achieve specific
performance objectives. If the officer or employee leaves us prior to the
vesting date for any reason, the officer or employee generally will forfeit
the
60
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
PARS shares, which will be returned to us. Once the PARS shares have vested,
they become unrestricted and may be transferred and sold like any other shares
of common stock.
We recognize compensation expense over the performance period based on the
grant date fair value of the performance-based stock awards issued to officers
and employees. During fiscal 1998 and fiscal 1999, we recognized compensation
expense of $231,000 and $251,000, respectively, related to performance-based
stock awards.
The Directors Plan. The MAPICS, Inc. 1998 Non-Employee Director Stock
Option Plan allows us 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 our employees nor our officers. 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 market value of the common
stock at the date of grant. Subject to specific 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 the vesting date. The
stock options granted under the Directors Plan expire ten years from the date
of grant.
The Directors Incentive Plan. The 1998 Non-Employee Directors Stock
Incentive Plan 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 our employees nor our officers. During fiscal 1998 and fiscal 1999, we
issued 1,562 and 1,765 shares of common stock, respectively, under the
Directors Incentive Plan.
The 1987 Plan. Prior to its expiration on December 31, 1996, the Marcam
Corporation 1987 Stock Plan allowed us to grant ISO's to our employees and
non-qualified stock options and stock awards to our officers, employees and
consultants. 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 specific 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.
The 1994 Plan. Prior to its discontinuation in February 1998, the Marcam
Corporation 1994 Stock Plan allowed us to grant ISO's to our employees and
non-qualified stock options and stock awards to our officers, employees and
consultants. 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. The
1994 Plan required non-qualified stock options to be granted with an exercise
price that was not less than the minimum legal consideration required under
applicable state law. Subject to specific provisions, stock options granted
under the 1994 Plan were fully exercisable on the date of grant or became
exercisable after the date of grant 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.
The 1998 ESPP. Under the MAPICS, Inc. 1998 Employee Stock Purchase Plan we
are authorized to issue up to 700,000 shares of common stock to our full-time
employees, nearly all of whom are eligible to participate. The 1998 ESPP is a
qualified plan under Section 423 of the Internal Revenue Code. Under the terms
of the 1998 ESPP, employees, excluding those owning 5 percent or more of the
common stock, can choose every six months to have up to 10 percent of their
base and bonus earnings withheld to purchase common stock, subject to
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. We refer to options
granted under the 1998 ESPP as look-back options.
61
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the 1998 ESPP, we sold 81,246, 30,973 and 39,176 shares of common
stock to employees during fiscal 1997, fiscal 1998 and fiscal 1999,
respectively. The statements of shareholders' 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, 1998 and 1999, we had available for issuance under the
1998 ESPP 185,184 and 146,008 shares, respectively. 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 we granted outside of the existing stock option plans.
Except for the look-back options issued under the 1998 ESPP, all stock
options granted under our stock-based compensation plans, as well as those
stock options granted outside our 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 following table reflects the activity and historical weighted average
exercise prices of our stock options for the periods from September 30, 1996
through July 29, 1997, the date of the Distribution. As of July 29, 1997, in
connection with the Distribution, we adjusted, as previously described, the
exercise prices of the then outstanding stock options. For periods after the
Distribution, the table presents the weighted average exercise prices, as
adjusted where necessary for the Distribution.
<TABLE>
<CAPTION>
Number of Shares Weighted Average
Under Options Exercise Price($)
---------------- ----------------
<S> <C> <C>
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
Granted.................................... 925,089 8.69
Exercised.................................. (129,948) 9.85
Canceled/expired........................... (319,846) 12.88
---------
Balance as of September 30, 1999............. 3,605,437 10.76
=========
</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.
62
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options 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>
$ 4.19--4.45.... 420,000 9.5 $ 4.24 -- $ --
6.56--8.96.... 702,777 7.1 8.03 420,213 8.15
9.20--11.45... 1,532,556 7.1 10.17 954,292 10.21
12.20--14.83... 266,761 4.5 13.50 208,661 13.65
15.21--17.75... 468,993 2.9 16.90 431,118 16.89
18.00--20.69... 120,150 8.6 18.65 29,725 18.59
21.94--22.50... 94,200 8.9 22.09 8,250 22.37
--------- --------------
3,605,437 2,052,259
========= ==============
</TABLE>
Pro Forma Information
We apply APB Opinion No. 25 and related interpretations in accounting for
our stock option plans and employee stock purchase plan and have adopted the
disclosure-only provisions of SFAS No. 123. In general, we have not recognized
compensation expense for stock options granted to our directors, officers or
employees under our stock-based compensation plans. If we did recognize
compensation cost for stock options issued to our directors, officers and
employees as prescribed in SFAS No. 123, we would have reduced our net income,
net income per common share (basic) and net income per common share (diluted)
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net income, as reported............................ $29,116 $18,728 $13,199
Pro forma effect of SFAS 123....................... (886) (1,063) (1,748)
------- ------- -------
Pro forma net income............................... $28,230 $17,665 $11,451
======= ======= =======
Basic EPS, as reported............................. $ 1.79 $ 1.01 $ 0.70
Pro forma effect of SFAS 123....................... (0.05) (0.06) (0.09)
------- ------- -------
Pro forma basic EPS................................ $ 1.74 $ 0.95 $ 0.61
======= ======= =======
Diluted EPS, as reported........................... $ 1.47 $ 0.81 $ 0.62
Pro forma effect of SFAS 123....................... (0.04) (0.05) (0.08)
------- ------- -------
Pro forma diluted EPS.............................. $ 1.43 $ 0.76 $ 0.54
======= ======= =======
</TABLE>
For the purpose of calculating pro forma expense for fiscal 1997 under the
method proscribed by SFAS No. 123, we considered only those stock options
granted to our directors, officers, employees and consultants. We did not
include stock options granted to directors, officers, employees or consultants
of Marcam Solutions. The pro forma effects of SFAS No. 123 on net income for
the periods presented are not representative of the effect on reported net
income for future years.
63
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
We estimated the fair value of the options granted under the stock option
plans at the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Weighted average grant date fair value of op-
tions......................................... $5.56 $6.41 $8.69
Dividend yield................................. 0% 0% 0%
Expected volatility............................ 55% 50% 73%
Risk-free interest rate........................ 5.99% 5.52% 5.06%
Expected life of options....................... 5 years 5 years 5 years
</TABLE>
We estimated the fair value of the look-back options granted under the 1998
ESPP at the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Weighted average grant date fair value of
options.................................... $4.37 $3.73 $4.37
Dividend yield.............................. 0% 0% 0%
Expected volatility......................... 55% 50% 73%
Risk-free interest rate..................... 5.54% 5.52% 4.75%
Expected life of options.................... 6 months 6 months 6 months
</TABLE>
Treasury Stock
In fiscal 1998 and fiscal 1999, we purchased 128,600 and 2,953,800 shares
of common stock for $1,281,000 and $24,266,000, respectively, pursuant to
stock repurchase plans that our board of directors authorized. In fiscal 1999,
we retired 128,600 shares of treasury stock with a cost of $1,281,000.
12. Employee Benefit Plans
Retirement Plan
We have a defined contribution 401(k) retirement plan covering
substantially all of our employees in the United States. Under this plan,
eligible employees may contribute a portion of their salary until retirement.
We match a portion of the employees' contributions and pay the administration
costs of the plan. We incurred total expenses under this plan of $185,000,
$443,000 and $594,000 in fiscal 1997, fiscal 1998 and fiscal 1999,
respectively.
Group Medical Plan
We have a partially self-insured group medical plan to which both we and
eligible employees are required to make contributions. The plan is
administered by a third party who reviews all claims filed and authorizes the
payment of benefits. We expense medical claims as they are incurred, and we
recognize a liability for claims incurred but not reported. As of September
30, 1998 and 1999, we had a reserve of $550,000 for medical claims.
13. Operating Segments and Geographic Information
SFAS No. 131 defines operating segments as components of an enterprise
about which separate financial data are available and are evaluated regularly
by the chief operating decision maker in deciding how to allocate resources
and in assessing performance. Our chief operating decision-maker, for this
purpose, is our president and chief executive officer who acts with the
support of other executive officers and senior vice presidents. We have one
operating segment that consists of developing, marketing, licensing and
supporting business software
64
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
that is marketed and delivered to manufacturing enterprises worldwide. Our
principal administrative, marketing, product development and support
operations are located in the United States. Areas of operation outside of the
United States include EMEA, LAAP and Canada.
We regularly prepare and evaluate separate financial information for each
of our principal geographic areas, including (1) North America, (2) EMEA and
(3) LAAP. In evaluating financial performance, we focus on operating profit as
a measure of a geography's profit or loss. Operating profit for this purpose
is income before interest, taxes and allocation of some corporate expenses. We
include our corporate division in the presentation of reportable segment
information because some of the income and expense of this division are not
allocated separately to the operating segments. We generally do not evaluate
assets by geography, except for accounts receivable.
The following tables include financial information related to our operating
segments and geographic areas (in thousands):
<TABLE>
<CAPTION>
NORTH
AMERICA EMEA LAAP CORPORATE ELIMINATIONS TOTAL
FISCAL 1997: ------- ------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
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............ 21,571 2,152 909 (883) (419) 23,330
Interest income........ 45
Interest expense....... (263)
--------
Income before income
tax expense
(benefit)............. 23,112
========
Depreciation and
amortization.......... 6,386 185 15 516 -- 7,102
Accounts receivable,
net (at year end)..... 22,307 5,777 1,980 300 -- 30,364
FISCAL 1998:
Revenues from
unaffiliated
customers............. $91,595 $27,203 $10,943 $ -- $ -- $129,741
Transfers between
geographic areas...... -- -- -- -- -- --
------- ------- ------- ------ ------- --------
Total revenues......... 91,595 27,203 10,943 -- -- 129,741
======= ======= ======= ====== ======= ========
Income from
operations............ 23,059 8,352 2,523 (4,242) -- 29,692
Interest income........ 816
Interest expense....... (56)
--------
Income before income
tax expense
(benefit)............. 30,452
========
Depreciation and
amortization.......... 8,662 191 20 516 -- 9,389
Accounts receivable,
net (at year end)..... 26,600 6,709 2,570 -- -- 35,879
FISCAL 1999:
Revenues from
unaffiliated
customers............. $95,097 $27,769 $11,852 $ -- $ -- $134,718
Transfers between
geographic areas...... -- -- -- -- -- --
------- ------- ------- ------ ------- --------
Total revenues......... 95,097 27,769 11,852 -- -- 134,718
======= ======= ======= ====== ======= ========
Income from
operations............ 17,723 5,461 752 (4,276) -- 19,660
Interest income........ 1,887
Interest expense....... (86)
--------
Income before income
tax expense
(benefit)............. 21,461
========
Depreciation and
amortization.......... 9,569 250 36 516 -- 10,371
Accounts receivable,
net (at year end)..... 22,936 4,140 3,704 24 -- 30,804
</TABLE>
65
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The information presented above may not be indicative of results if the
geographic areas were independent organizations. No single customer accounts
for more than 10% of our revenues. We eliminate transfers between geographic
areas in the preparation of the consolidated financial statements.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Revenues from unaffiliated customers:
United States.................................. $73,109 $ 86,896 $ 91,705
Foreign countries.............................. 22,295 42,845 43,013
------- -------- --------
$95,404 $129,741 $134,718
======= ======== ========
Long-lived assets:
United States.................................. $ 3,354 $ 4,579 $ 5,291
Foreign countries.............................. 208 459 728
------- -------- --------
$3,562 $ 5,038 $ 6,019
======= ======== ========
</TABLE>
No single foreign country had a material portion of total revenues from
unaffiliated customers or total long-lived assets. Long-lived assets consist
of property and equipment.
14. RELATIONSHIP WITH MARCAM CORPORATION
We have included allocations from Marcam Corporation of corporate marketing
expenses and corporate administrative functions, including data services,
employee benefits, legal, insurance, accounting and other corporate overhead,
in the selling and marketing and general and administrative expense categories
in our statements of operations for all periods prior to the Distribution. The
amounts allocated to us for the period from October 1, 1996 through July 29,
1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Selling and marketing............................................... $ 219
<S> <C>
General and administrative.......................................... 2,030
-------
$ 2,249
=======
</TABLE>
The activity in the net transfers to Marcam Corporation account, included
in divisional equity, for the period from October 1, 1996 through July 29,
1997, was as follows (in thousands):
<TABLE>
<S> <C>
Marcam Corporation services and other corporate charges........... $ 2,249
Domestic and foreign income taxes................................. 7,075
Cash transfers, net............................................... (15,883)
--------
Net transfers to Marcam Corporation............................. $ (6,559)
========
</TABLE>
The financial statements do not reflect interest charged to the MAPICS
business for these transactions or for any debt held by Marcam Corporation.
66
<PAGE>
MAPICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Relationship with Marcam Solutions
In connection with the Distribution, we entered into various agreements
with Marcam Solutions which govern specific aspects of our relationship on an
ongoing basis that may be material to the conduct of our business, including
indemnification obligations related to the Distribution. These agreements
would have a material adverse effect on our business, financial condition and
results of operations if these agreements result in significant liabilities to
us. Further, because prior to the Distribution the business conducted by
Marcam Solutions was conducted through Marcam Corporation, we may be liable
for the obligations of Marcam Solutions if, for any reason, they are unable to
satisfy those liabilities. We are not aware of any liability that exists under
these agreements.
16. 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 all periods prior to the Distribution.
Income taxes included in net transfers to Marcam Corporation for the period
from October 1, 1996 through July 29, 1997 were $7,075,000. In fiscal 1998 and
fiscal 1999, we made cash payments for income taxes of $1,866,000 and
$3,921,000, respectively.
In fiscal 1997, fiscal 1998 and fiscal 1999, we made cash payments for
interest of $254,000, $51,000 and $88,000, respectively.
Non-cash Investing and Financing Activities
Non-cash investing and financing activities are summarized below (in
thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
-------------------
1997 1998 1999
------- ---- ------
<S> <C> <C> <C>
Retirement of treasury stock.............................. $ -- $-- $1,281
Expense for stock-based awards............................ -- 260 397
Tax benefit associated with the exercise of stock options
and stock awards......................................... 544 903 267
Conversion of preferred stock............................. -- -- 150
Assumption of Marcam Corporation's capital stock.......... 440 -- --
Assumption of Marcam Corporation's subordinated notes..... 25,000 -- --
</TABLE>
17. Subsequent Event
On December 15, 1999, we announced the execution of a definitive agreement
to purchase Pivotpoint, Inc. for $48.0 million in cash. Pivotpoint is a
leading provider of extended enterprise applications to mid-sized
manufacturing and distribution companies. We will account for the acquisition
as a purchase. Accordingly, we will allocate the purchase price to the net
tangible and intangible assets acquired based on their estimated fair values
at the date of acquisition. We may also allocate a portion of the purchase
price to in-process research and development projects of the acquired
business, which we would expense immediately in the period of acquisition. We
will allocate the balance of the purchase price to goodwill. We are currently
in the process of preparing the purchase price allocation and determining the
useful lives of the assets acquired. We anticipate closing the acquisition by
February 2000.
We have arranged to finance a significant portion of the purchase price and
costs associated with the transaction with borrowings from a bank under a term
loan and revolving credit facility. This new arrangement will replace our
current bank credit facility and will consist of a $40.0 million term loan and
a $15.0 million revolving credit facility.
67
<PAGE>
Supplemental Financial Information
Selected Quarterly Financial Data (Unaudited)
The following quarterly information is unaudited and, in our opinion,
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 1998:
Total revenues....................... $29,594 $29,008 $32,016 $39,123 $129,741
Income before income tax expense..... 7,540 5,871 6,566 10,475 30,452
Net income......................... 4,637 3,611 4,044 6,436 18,728
Fiscal 1999:
Total revenues....................... $38,461 $30,263 $32,065 $33,929 $134,718
Income before income tax expense..... 9,792 3,270 3,924 4,475 21,461
Net income......................... 6,022 2,011 2,414 2,752 13,199
</TABLE>
We have experienced fluctuations in our quarterly operating results and
anticipate that these fluctuations will continue and may intensify.
With the exception of the results for the first quarter, the results for
fiscal 1999 reflect an industry-wide slowdown in demand for software products
and services like those that we offer. We believe this slowdown is a result of
increased focus by companies on the Year 2000 issue, which appears to have
resulted in a delay in ERM purchasing decisions. However, other factors,
including global economic conditions and increased competition, also
contributed to the overall slowdown in revenue growth. Although we cannot
predict any future increase or decrease in demand that may result from the
Year 2000 issue, we believe that the decline in license revenue will most
likely continue through the remainder of calendar 1999 and into calendar 2000.
We recorded two non-recurring items in the fourth quarter of fiscal 1999:
(1) we wrote off $1.4 million of capitalized software development costs due to
a change in product development approach; and (2) we recognized interest
income of $680,000 related to federal income tax refunds due to us.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
68
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
We will provide information relating to our directors under the captions
"Proposal 1--Election of Directors--Nominees" and "--Information Regarding
Nominees and Continuing Directors" in our proxy statement for our 2000 annual
meeting of shareholders to be held on February 10, 2000. We will provide
information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 by our directors and executive officers and beneficial owners of
more than 10% of our common stock under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the proxy statement. All of that
information is incorporated in this Item 10 by reference. We will file the
proxy statement for our 2000 annual meeting of shareholders with the SEC
within 120 days after September 30, 1999.
The following information about our executive offices is as of September
30, 1999:
Richard C. Cook, age 52, has been our President and Chief Executive Officer
and a director since August 1997. From July 1996 to August 1997, Mr. Cook
was Senior Vice President and General Manager of our MAPICS Business Group,
and from October 1994 to July 1996, he was Vice President and General
Manager of our MAPICS Business Group. Mr. Cook was the President, Chief
Executive Officer and Chairman of the Board of our former subsidiary,
Mapics, Inc., from February 1993 to September 1994. Mr. Cook was Director
of IBM's Atlanta Software Development Laboratory from March 1990 to
February 1993 and Director of its Corporate Computer Integrated
Manufacturing Project Office from March 1988 to April 1990. Mr. Cook is
also a director of the American Electronics Association and Chairman of its
Southeast Regional Council.
William J. Gilmour, age 44, has been our Chief Financial Officer, Vice
President of Finance and Treasurer since August 1997. From October 1994 to
August 1997, Mr. Gilmour was Controller of our MAPICS Business Group. From
January 1993 to September 1994, Mr. Gilmour was Controller of our former
Mapics, Inc. subsidiary. From November 1991 to January 1993, Mr. Gilmour
was Controller of our former subsidiary Marcam Canada Corporation. Before
joining us, Mr. Gilmour was Corporate Controller of Madison Chemical
Industries, a specialty chemical manufacturer. Mr. Gilmour received his
Chartered Accountant designation from the Canadian Institute of Chartered
Accountants in 1980.
Martin D. Avallone, age 38, has been our Vice President, General Counsel
and Secretary since October 1998. From July 1997 through September 1998,
Mr. Avallone was our General Counsel and Secretary. From May 1986 though
July 1997, Mr. Avallone held various legal positions within IBM.
Item 11. Executive Compensation.
We will provide information relating to executive compensation under the
captions "Proposal 1--Election of Directors--Director Compensation,"
"Executive Compensation" and "Compensation Committee Interlocks and Insider
Participation" in the proxy statement. That information is incorporated in
this Item 11 by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
We will provide information regarding ownership of our common stock by
specified persons under the caption "Stock Ownership" in the proxy statement.
That information is incorporated in this Item 12 by reference.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
69
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Consolidated Financial Statements
Our consolidated financial statements listed below are set forth in Item 8
of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants..................................... 42
Consolidated Balance Sheets as of September 30, 1998 and 1999......... 43
Consolidated Statements of Operations for the years ended September
30, 1997, 1998 and 1999.............................................. 44
Consolidated Statements of Shareholders' Equity for the years ended
September 30, 1997,
1998 and 1999........................................................ 45
Consolidated Statements of Cash Flows for the years ended September
30, 1997, 1998 and 1999.............................................. 46
Notes to Consolidated Financial Statements............................ 47
Supplemental Financial Information.................................... 68
</TABLE>
2. Financial Statement Schedules
We have omitted all schedules to our consolidated financial statements
because they are not required under the related instructions or are
inapplicable, or because we have included the required information in our
consolidated financial statements or related notes.
3. Exhibits
The following exhibits either (i) are filed with this report or (ii) have
previously been filed with the Securities and Exchange Commission and are
incorporated in Item 14 by reference to those prior filings. Previously filed
registration statements and reports which are incorporated by reference are
identified in the column captioned "SEC Document Reference." We will furnish
any exhibit upon request to Martin D. Avallone, our Vice President, General
Counsel and Secretary, 1000 Windward Concourse Parkway, Alpharetta, Georgia
30005. We charge $.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 Exhibit 2.1 to Quarterly Report on Form
March 30, 1998 between MAPICS, Inc, a 10-Q dated May 14, 1998
Massachusetts corporation, and MAPICS,
Inc., a Georgia corporation
2.2+ Agreement and Plan of Merger dated as of
December 15, 1999 by and among MAPICS,
Inc., MAPICS Merger Corp. and
Pivotpoint, Inc.
3.1 Articles of Incorporation 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 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 Exhibit 3 to Registration Statement on
common Form 8-A dated March 31, 1998, as
stock amended by Form 8-A/A dated August 21,
1998
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
------- ----------- ----------------------
<S> <C> <C>
4.2 Amended and Restated Rights Agreement Exhibit 4 to Registration Statement on
dated as of March 30, 1998 among MAPICS, Form 8-A dated March 31, 1998, as
Inc., a Georgia corporation, MAPICS, amended by Form 8-A/A dated August 21,
Inc., a Massachusetts corporation, and 1998
BankBoston, N.A., as its rights agent,
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 Exhibit 10.21 to Annual Report on Form
amended and restated 10-K for the fiscal year ended September
30, 1991
10.2* Deferred Compensation Plan for Non- Exhibit 10.22 to Annual Report on Form
Employee Directors, as amended and 10-K for the fiscal year ended September
restated 30, 1991
10.3 Note and Warrant Purchase Agreement Exhibit 10.1 to Quarterly Report on Form
entered into by Marcam Corporation and 10-Q dated May 12, 1994, as amended by
each of The Northwestern Mutual Life Form 10-Q/A dated October 6, 1994
Insurance Company, John Hancock Mutual
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 Exhibit 10.1 to Quarterly Report on Form
19, 1994 by and among the Registrant, 10-Q dated August 22, 1994
The Northwestern Mutual Life Insurance
Company, John Hancock Mutual Life
Insurance Company and John Hancock Life
Insurance Company of America
10.5 Amendment Agreement dated as of July 29, Exhibit 10.36 to Annual Report on Form
1995 by and among the Registrant, The 10-K for the fiscal year ended September
Northwestern Mutual Life Insurance 30, 1994, as amended
Company, John Hancock Mutual Life
Insurance Company and John Hancock Life
Insurance Company of America
10.6 Amendment Agreement dated as of Exhibit 10.4 to Registration Statement,
September 29, 1995 by and among the No. 33-90670
Registrant, The Northwestern Mutual Life
Insurance Company, John Hancock Mutual
Life Insurance Company and John Hancock
Life Insurance Company of America and
Barnett & Co.
10.7 Amendment Agreement dated as of November Exhibit 10.31 to Annual Report on Form
14, 1995 by and among the Registrant, 10-K for the fiscal year ended September
The Northwestern Mutual Life Insurance 30, 1995, as amended
Company, John Hancock Mutual Life
Insurance Company and John Hancock
Insurance Company of America and Barnett
& Co.
10.8 Amendment Agreement dated as of December Exhibit 10.38 to Annual Report on Form
15, 1995 by and among the Registrant, 10-K for the fiscal year ended September
The Northwestern Mutual Life Insurance 30, 1995, as amended
Company, John Hancock Mutual Life
Insurance Company, John Hancock Life
Insurance Company of America and Barnett
& Co.
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
------- ----------- ----------------------
<S> <C> <C>
10.9 Letter dated March 29, 1996 to Exhibit 10.1 to Quarterly Report on Form
Northwestern Mutual Life Insurance 10-Q dated May 14, 1996
Company, John Hancock Life Insurance
Company of America and Barnett & Co.
from Marcam Corporation
10.10 Amendment and Waiver Agreement dated as Exhibit 10.1 to Quarterly Report on Form
of July 16, 1996 by and among the 10-Q dated August 14, 1996
Registrant, The Northwestern Mutual Life
Insurance Company, John Hancock Mutual
Life Insurance Company, John Hancock
Life Insurance Company of America and
Barnett & Co.
10.11 Convertible Preferred Stock Purchase Exhibit 10.2 to Current Report on Form
Agreement dated September 20, 1995 by 8-K dated September 29, 1995
and among Marcam Corporation, General
Atlantic Partners 21, L.P. GAP
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company
10.12 Convertible Preferred Stock and Warrant Exhibit 10.1 to Current Report on Form
Purchase Agreement dated July 19, 1996 8-K dated July 23, 1996
among Marcam Corporation, General
Atlantic Partners 32, L.P. and GAP
Coinvestments Partners, L.P., including
the form of Marcam Corporation Common
Stock Purchase Warrants
10.13 Amended and Restated Registration Rights Exhibit 10.2 to Current Report on Form
Agreement dated July 23, 1996 by and 8-K dated July 23, 1996
among Marcam Corporation, General
Atlantic Partners 21, L.P., General
Atlantic Partners 32, L.P., GAP
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company
10.14 Distribution Agreement between Marcam Exhibit 2 to Amendment No. 1 to
Solutions, Inc. and Marcam Corporation Registration Statement on Form 10, No.
000-22841, of Marcam Solutions, Inc.
dated July 22, 1997
10.15 Tax Sharing Agreement between Marcam Exhibit 10.2 to Amendment No. 1 to
Solutions, Inc. and Marcam Corporation Registration Statement on Form 10, No.
000-22841, of Marcam Solutions, Inc.
dated July 22, 1997
10.16 General Services Agreement between Exhibit 10.1 to Amendment No. 1 to
Marcam Solutions, Inc. and Marcam Registration Statement on Form 10, No.
Corporation 000-22841, of Marcam Solutions, Inc.
dated July 22, 1997
10.17+ Amended and Restated Revolving Credit
and Term Loan Agreement dated as of
August 4, 1997 among MAPICS, Inc.,
BankBoston, N.A. and the other lending
institutions set forth on Schedule I
thereto, and BankBoston, N.A., as agent
10.18 Security Agreement dated August 4, 1997 Exhibit 10.2 to Current Report on Form
between MAPICS, Inc. and BankBoston N.A. 8-K dated August 12, 1997
as agent
10.19 Revolving Credit Note in the principal Exhibit 10.3 to Current Report on Form
amount of $15,000,000 dated August 4, 8-K
1997 dated August 12, 1997
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description SEC Document Reference
------- ----------- ----------------------
<S> <C> <C>
10.20* 1994 Stock Plan, as amended and restated Exhibit 4.4 to Registration Statement on
Form S-8, No. 333-02158
10.21* 1987 Stock Plan, as amended and restated Exhibit 10.33 to Annual Report on Form
10-K for the fiscal year ended September
30, 1996
10.22* 1991 Non-Employee Director Stock Option Exhibit 10.34 to Annual Report on Form
Plan, as amended and restated 10-K for the fiscal year ended September
30, 1996
10.23* Memoranda regarding Compensation Plans Exhibit 10.40 to Annual Report on Form
for fiscal 1997 from MAPICS to each of 10-K for the fiscal year ended September
Messrs. Cook, Aery and Gilmour 30, 1997
10.24* 1998 Non-Employee Director Stock Option Exhibit 99.1 to Registration Statement
Plan on Form S-8, No. 333-48989
10.25* 1998 Non-Employee Director Stock Exhibit 99.2 to Registration Statement
Incentive Plan on Form S-8, No. 333-48989
10.26* 1998 Long-Term Incentive Plan Exhibit 99.3 to Registration Statement
on Form S-8, No. 333-48989
10.27* 1998 Employee Stock Purchase Plan Exhibit 99.4 to Registration Statement
on Form S-8, No. 333-48989
10.28* Amendment No. 1 to 1998 Long-Term Exhibit 10.45 to Quarterly Report on
Incentive Plan dated May 5, 1998 Form 10-Q dated May 14, 1998
10.29 Change of Control Employment Agreement Exhibit 10.46 to Quarterly Report on
by and between MAPICS, Inc. and Richard Form 10-Q dated May 14, 1998
C. Cook dated as of March 24, 1998
10.30 Change of Control Employment Agreement Exhibit 10.47 to Quarterly Report on
by and between MAPICS, Inc. and Thomas Form 10-Q dated May 14, 1998
F. Aery dated as of March 31, 1998
10.31 Change of Control Employment Agreement Exhibit 10.48 to Quarterly Report on
by and between MAPICS, Inc. and William Form 10-Q dated May 14, 1998
J. Gilmour dated as of March 31, 1998
10.32 Change of Control Employment Agreement Exhibit 10.36 to Annual Report on Form
by 10-K for the fiscal year ended September
and between MAPICS, Inc. and Martin 30, 1998
Avallone
dated as of March 27, 1998
10.33 Sublease Agreement by and between Exhibit 10.37 to Annual Report on Form
General Electric Capital Corporation and 10-K for the fiscal year ended September
MAPICS, Inc. dated as of October 29, 30, 1998
1998
10.34 Assignment and Assumption of Lease and Exhibit 10.38 to Annual Report on Form
Consent of Landlord by and among MAPICS, 10-K for the fiscal year ended September
Inc., General Electric Capital 30, 1998
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of premises in
the 5775-D Glenridge Drive Building in
Atlanta, Georgia, containing 47,902
square feet
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
xhibitE
No. Description SEC Document Reference
- ------- ----------- ----------------------
<S> <C> <C>
10.35 Assignment and Assumption of Lease and Exhibit 10.39 to Annual Report on Form
Consent of Landlord by and among MAPICS, 10-K for the fiscal year ended September
Inc., General Electric Capital 30, 1998
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of premises
described as Suites 100, 150 and 425 in
the 5775-D Glenridge Drive Building in
Atlanta, Georgia
10.36 Assignment and Assumption of Lease and Exhibit 10.40 to Annual Report on Form
Consent of Landlord by and among MAPICS, 10-K for the fiscal year ended September
Inc., General Electric Capital 30, 1998
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of premises
described as Suites 400 and 475 in the
5775-D Glenridge Drive Building in
Atlanta, Georgia
10.37 Assignment and Assumption of Lease and Exhibit 10.41 to Annual Report on Form
Consent of Landlord by and among MAPICS, 10-K for the fiscal year ended September
Inc., General Electric Capital 30, 1998
Corporation and EOP-Lakeside Office,
L.L.C. dated as of November 5, 1998,
pertaining to the rental of premises
described as Suite 105 in the 5775-D
Glenridge Drive Building in Atlanta,
Georgia
10.38 Amendment No. 1 to the MAPICS, Inc. 1998 Exhibit 10.2 to Quarterly Report on Form
Employee Stock Purchase Plan 10-Q dated August 12, 1999
10.39+ Amendment No. 2 to the MAPICS, Inc. 1998
Employee Stock Purchase Plan
10.40+ Amendment to Convertible Preferred Stock
Purchase Agreement Among MAPICS, Inc.,
General Atlantic Partners 21, L.P., GAP
Coinvestment Partners, L.P. and The
Northwestern Mutual Life Insurance
Company, dated as of August 4, 1999
10.41+ Amendment to Convertible Preferred Stock
and Warrant Purchase Agreement Among
MAPICS, Inc., General Atlantic Partners
32, L.P. and GAP Coinvestment Partners,
L.P., dated as of August 4, 1999
10.42+ Commitment of BankBoston, N.A. dated
December 10, 1999 to provide financing
in an aggregate amount up to $55,000,000
to MAPICS, Inc.
10.43+ Summary of Proposed Terms and Conditions
for Proposed up to $60,000,000 Senior
Secured Credit Facilities dated December
10, 1999
21+ Subsidiaries of the Registrant
23.1+ Consent of PricewaterhouseCoopers LLP
27.1+ Financial Data Schedule for the fiscal
year ended
September 30, 1999 (for SEC use only)
</TABLE>
- --------
*Compensatory management plan.
+Filed with this report.
74
<PAGE>
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K dated August 9, 1999 reporting,
pursuant to Item 5, the resignation of Stephen R. Reynolds from the board of
directors.
We filed a Current Report on Form 8-K dated December 15, 1999 reporting,
pursuant to Items 5 and 7, that we announced the execution of a definitive
agreement to purchase Pivotpoint, Inc.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
75
<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 22,
1999.
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 22, 1999.
<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/ 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>
76
<PAGE>
[MAPICS Logo Appears Here]
<PAGE>
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MAPICS, INC.
MAPICS MERGER CORP.
AND
PIVOTPOINT, INC.
DATED AS OF DECEMBER 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 TRANSACTIONS AND TERMS OF MERGER............................ 1
1.1 Merger...................................................... 1
1.2 Closing..................................................... 1
SECTION 2 ARTICLES, BY-LAWS........................................... 2
2.1 Charter..................................................... 2
2.2 Bylaws...................................................... 2
SECTION 3 MANNER OF CONVERTING SHARES................................. 2
3.1 Conversion of Shares........................................ 2
3.2 Shares Held by the Company.................................. 3
3.3 Dissenting Shareholders..................................... 3
3.4 Closing Documents........................................... 3
SECTION 4 SURRENDER OF SHARES......................................... 4
4.1 Surrender................................................... 4
4.2 Rights of Former Company Shareholders....................... 5
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 5
5.1 Capacity and Validity....................................... 5
5.2 Organization................................................ 5
5.3 Capitalization.............................................. 6
5.4 Title to Stock; Other Rights................................ 7
5.5 No Conflict................................................. 7
5.6 Subsidiaries................................................ 7
5.7 Financial Statements........................................ 8
5.8 Foreign Corrupt Practices Act............................... 8
5.9 Absence of Undisclosed Liabilities.......................... 8
5.10 Absence of Changes.......................................... 8
5.11 Taxes....................................................... 9
5.12 Title to Assets; Encumbrances; Condition.................... 11
5.13 Real Property............................................... 12
5.14 Personal Property........................................... 12
5.15 Intellectual Property....................................... 12
5.16 Computer Software and Databases............................. 15
5.17 Product Warranty............................................ 17
5.18 Inventories................................................. 18
5.19 Accounts Receivable......................................... 18
5.20 Insurance................................................... 18
5.21 Bonds, Letters of Credit and Guarantees..................... 19
5.22 Compliance with Law......................................... 19
5.23 Benefit Plans............................................... 20
5.24 Contracts................................................... 21
5.25 Suppliers and Customers..................................... 23
</TABLE>
i
<PAGE>
5.26 Labor Matters............................................... 24
5.27 Brokers and Finders......................................... 26
5.28 Compliance with the Immigration Reform and Control Act...... 26
5.29 Litigation.................................................. 26
5.30 Interested Transactions..................................... 27
5.31 Environmental............................................... 27
5.32 Year 2000 Compliance........................................ 30
5.33 Accounts Payable............................................ 31
5.34 Thru-Put Transaction........................................ 31
5.35 Statements True and Correct................................. 31
SECTION 6 REPRESENTATIONS AND WARRANTIES OF MERGER CORP. AND MAPICS... 31
6.1 Organization................................................ 31
6.2 Capacity and Validity....................................... 32
6.3 No Conflict................................................. 32
6.4 Brokers and Finders......................................... 32
6.5 Statements True and Correct................................. 32
6.6 Purchaser Financing......................................... 33
SECTION 7 COVENANTS AND AGREEMENTS.................................... 33
7.1 Pre-Closing Negative Covenants.............................. 33
7.2 Pre-Closing Affirmative Covenants........................... 34
7.3 Commercially Reasonable Efforts of the Company.............. 35
7.4 MAPICS' and Merger Corp.'s Commercially Reasonable Efforts.. 36
7.5 Public Announcements........................................ 36
7.6 Notification................................................ 36
7.7 Vacation and Holiday Pay, Etc............................... 37
7.8 Risk of Loss................................................ 37
7.9 No-Shop..................................................... 37
7.10 Applications; Antitrust Notification........................ 37
7.11 Filings with State Offices.................................. 38
7.12 Indemnification of Company Officers, Directors.............. 38
7.13 Collection of Company Accounts Receivable................... 38
7.14 Payment of Certain Indebtedness............................. 38
SECTION 8 TERMINATION................................................. 38
8.1 Grounds for Termination..................................... 38
8.2 Consequences of Termination................................. 39
SECTION 9 AMENDMENT OF AGREEMENT...................................... 39
SECTION 10 SECTIONS PRECEDENT TO MAPICS' OBLIGATION TO CLOSE........... 40
10.1 Representations and Warranties.............................. 40
10.2 Good Standing............................................... 40
10.3 Litigation.................................................. 40
10.4 Opinion of Counsel.......................................... 40
10.5 Resolutions................................................. 40
ii
<PAGE>
10.6 Governmental Concurrences................................... 41
10.7 Adverse Changes............................................. 41
10.8 Due Diligence Review........................................ 41
10.9 Financing................................................... 42
10.10 Escrow Agreement............................................ 42
10.11 Indemnification Agreement................................... 42
10.12 Resignations; Releases...................................... 42
10.13 Other Agreements............................................ 42
10.14 Dissenters.................................................. 42
10.15 Thru-Put Closing............................................ 42
10.16 HSR Act Compliance.......................................... 43
10.17 Payment of 1998 Taxes....................................... 43
10.18 Amendment of Employee Benefit Plans......................... 43
10.19 Pay-Off of Long-Term Debt................................... 43
10.20 Stockholders' Agreement..................................... 43
SECTION 11 CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY TO CLOSE.. 43
11.1 Representations, Warranties and Covenants................... 44
11.2 Resolutions................................................. 44
11.3 Existence................................................... 44
11.4 Opinion of Counsel.......................................... 44
11.5 Litigation.................................................. 44
11.6 Indemnification Agreement................................... 44
11.7 Appointment of Representative............................... 45
11.8 Escrow Agreement............................................ 45
11.9 Necessary Consents.......................................... 45
11.10 No Material Adverse Change.................................. 45
11.11 Other Agreements............................................ 45
11.12 HSR Act Compliance.......................................... 45
SECTION 12 PAYMENT OF EXPENSES......................................... 45
SECTION 13 ADDITIONAL DOCUMENTS........................................ 45
SECTION 14 NOTICES..................................................... 46
SECTION 15 MISCELLANEOUS............................................... 46
15.1 Counterparts................................................ 46
15.2 Headings.................................................... 46
15.3 Assignability; Binding Terms and Provisions................. 47
15.4 Entire Agreement............................................ 47
15.5 Governance.................................................. 47
15.6 Waiver of Breach............................................ 47
15.7 Third Party Beneficiaries................................... 47
15.8 Dispute Resolution.......................................... 47
15.9 Knowledge................................................... 48
15.10 Schedules................................................... 48
iii
<PAGE>
MERGER AGREEMENT
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<S> <C>
3.1 Distribution Amounts, Percentages of Merger Consideration
5.2(a) Organizational Documents
5.2(b) Foreign Qualifications
5.3(a) Company Obligations to Issue Additional Capital Stock
5.3(b) Subsidiary Capitalization and Obligations to Issue Additional Capital Stock
5.5 Conflicts Arising from Merger Agreement
5.6 Subsidiaries of the Company
5.7 Financial Statements
5.10 Material Changes
5.11 Taxes
5.12 Title to Assets
5.13 Real Property
5.14 Personal Property
5.15(a) Patents
5.15(b) Royalties
5.15(c) Officer, Director, Independent Contractor, Employee Rights in Intellectual Property
5.15(e) Copyright, Patent, Trademark Applications and Registrations
5.15(g) Affect of Merger on Intellectual Property Rights
5.16(a) Computer Programs, Materials, Tapes, Source and Object Codes
5.16(e) Grants of License, Option or Right to Computer Software and Databases
5.16(g) Warranties to Third Parties Regarding Intellectual Property
5.17(a) Nonconforming Warranties
5.17(b) Nonconforming Products and Services
5.17(c) Product Liability and Warranty Claims
5.19 Accounts Receivable
5.20 Insurance
5.20(a) Insurance Claims Pending
5.22 Licenses and Orders
5.23 Employee Benefit Plans
5.24(a)(i) Purchase Orders - Non-Capital Assets
5.24(a)(ii) Purchase Orders - Capital Assets
5.24(a)(iii) Employment or Other Affiliate Contracts
5.24(a)(iv) Sales Representatives
5.24(a)(v) Powers of Attorney
5.24(a)(vi) Intellectual Property Contracts
5.24(a)(vii) Other Critical Contracts
5.24(a)(viii) Warranty Contracts and Maintenance Contracts
5.24(a)(ix) Other Contracts
5.24(c) Limits to Enforceability
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
5.25 Suppliers and Customers
5.26(a) Employees and Independent Contractors
5.26(b)(i) Employment Contracts Not Terminable at Will
5.26(b)(ii) Obligations to Employees and Independent Contractors
5.26(c) Union and Collective Bargaining Agreements
5.26(d) Employment Losses
5.27 Brokers and Finders
5.29 Litigation
5.30 Interested Transactions
5.31 Environmental Litigation
5.32 Year 2000 Compliance
5.33 Accounts Payable
6.4 Brokers and Finders
7.1(g) Mergers with Other Entities
7.7 Vacation, Holiday Pay, Etc.
EXHIBITS
- --------
3.3(b) Escrow Agreement
10.11 Indemnification Agreement
10.12 Release
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of December 15, 1999, by and among PIVOTPOINT, INC. (the "Company"), a
Massachusetts corporation having its principal office located in Woburn,
Massachusetts; MAPICS MERGER CORP. ("Merger Corp."), a Massachusetts corporation
having its principal office located in Atlanta, Georgia; and MAPICS, INC.
("MAPICS"), a Georgia corporation having its principal office located in
Atlanta, Georgia.
Preamble
--------
The Boards of Directors of MAPICS, Merger Corp., a wholly owned subsidiary
of MAPICS, and the Company are of the opinion that the transactions described
herein are in the best interests of the parties and their respective
shareholders. This Agreement provides for the acquisition of the Company by
MAPICS pursuant to the merger of Merger Corp. with and into the Company (the
"Surviving Corporation"). At the Effective Time (as defined in Section 1.2
hereof) of such merger, the outstanding shares of the capital stock of the
Company shall be converted into the right to receive from MAPICS the merger
consideration set forth in Section 3.1 hereof. The Company shall continue to
conduct its business and operations as a wholly owned subsidiary of MAPICS. The
transactions described in this Agreement are subject to the approvals of the
shareholders of the Company and Merger Corp. and the satisfaction of certain
other conditions described in this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
SECTION 1
---------
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
------
Effective Time, Merger Corp. shall be merged with and into the Company in
accordance with the applicable provisions of the Massachusetts Business
Corporation Act and the separate corporate existence of Merger Corp. shall
thereupon cease (the "Merger"). The Company shall be the surviving corporation
resulting from the Merger and shall become a wholly owned subsidiary of MAPICS
and shall continue to be governed by the laws of the Commonwealth of
Massachusetts. The Merger shall be consummated pursuant to the terms of this
Agreement, which has been approved and adopted by the respective Boards of
Directors of the Company, Merger Corp. and MAPICS and the shareholders of the
Company and Merger Corp.
1.2 Closing. The closing of the Merger (the "Closing"), shall take place
-------
at the offices of Alston & Bird LLP, located at One Atlantic Center, 1201 West
Peachtree Street, Atlanta, Georgia 30309-3424 at 10:00 a.m. local time, on
January 10, 2000 (the
1
<PAGE>
"Closing Date"), or on such other date and time as is mutually agreed upon by
the parties, but in no event later than January 31, 2000 (unless the Financing
Commitment (as defined in Section 6.6) has been extended, and in that case,
February 15, 2000) (the "Outside Closing Date"). The transactions contemplated
hereby shall be deemed to be effective for tax, accounting, and all other
purposes as of 12:01 a.m. on the Closing Date, unless otherwise mutually agreed
upon in writing by the parties hereto (the "Effective Time"); provided, however,
the parties acknowledge that under the Massachusetts Business Corporation Law
the Merger will not be effective until the Articles of Merger are properly
filed.
Subject to the provisions of Section 8 hereof, failure to consummate
the transactions on the Closing Date shall not result in the termination of this
Agreement, and will not relieve any party of any obligation hereunder.
SECTION 2
---------
ARTICLES, BYLAWS
----------------
2.1 Charter. The Articles of Organization of the Company in effect
-------
immediately prior to the Effective Time shall be amended and restated, effective
at the Effective Time, in a manner satisfactory to MAPICS. The Articles of
Organization of the Company, as so amended and restated, shall be the Articles
of Organization of the Surviving Corporation until otherwise amended or
repealed.
2.2 Bylaws. The Bylaws of the Company in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
SECTION 3
---------
MANNER OF CONVERTING SHARES
---------------------------
3.1 Conversion of Shares. Subject to the provisions of this Section 3, at
--------------------
the Effective Time, by virtue of the Merger and without any action on the part
of the parties hereto or the shareholders of any of the parties, the shares of
the constituent corporations of the Merger shall be converted as follows:
(a) All shares of Merger Corp. capital stock issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and shall
be automatically converted, in the aggregate, into ten (10) shares of the common
stock, par value of $.01 per share, of the Company.
(b) All shares of the capital stock of the Company (the "Company
Capital Stock") issued and outstanding immediately prior to the Effective Time,
excluding shares held by any shareholders of the Company who perfect their
statutory dissenters' rights as provided in Section 3.3 of this Agreement, shall
cease to be outstanding and shall be automatically converted into and exchanged
for, as to each such
2
<PAGE>
shareholder: (i) the right to receive in cash (in immediately available funds)
the amount indicated in Schedule 3.1 hereto; and (ii) with respect to certain of
------------
the Company, the contingent and deferred right to receive Escrow Cash,
hereinafter defined, in the percentage (of the Escrow Cash) as indicated in
Schedule 3.1 hereto. For purposes of the foregoing, the term "Escrow Cash"
- ------------
means, with reference to the Escrow Agreement (the "Escrow Agreement"),in
substantially the form attached hereto as Exhibit 3.3(b) to be executed and
delivered at the Closing by and among the Recipient (as defined therein), MAPICS
and an escrow agent (the "Escrow Agent"), any Escrow Funds, as defined in the
Escrow Agreement, remaining on deposit with the Escrow Agent to be disbursed in
accordance with the terms of the Escrow Agreement.
3.2 Shares Held by the Company. Each share of the Company Capital Stock
--------------------------
held in treasury by the Company immediately prior to the Effective Time shall at
the Effective Time be cancelled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.3 Dissenting Shareholders. Any holder of shares of Company Capital
-----------------------
Stock who perfects dissenters' rights in accordance with and as contemplated by
Section 85 of Chapter 156B of the Massachusetts Business Corporation Act shall
be entitled to receive the fair value of such shares in cash from the Company
after the Effective Time as determined pursuant to such provision of law;
provided, that no such payment shall be made to any dissenting shareholder
unless and until such dissenting shareholder has complied with the applicable
provisions of the Massachusetts Business Corporation Act and surrendered to the
Company the certificate or certificates representing the shares for which
payment is being made. In the event that a dissenting shareholder fails to
perfect, or effectively withdraws or loses, its right to appraisal and of
payment for its shares, MAPICS shall issue and deliver the consideration to
which such holder of shares of the Company Capital Stock is entitled under this
Section 3 (without interest) upon surrender by such holder of the certificate or
certificates representing such shares held by such holder.
3.4 Closing Documents.
-----------------
At the Closing, the Company, Merger Corp. and MAPICS, as the case may be,
shall execute and deliver, or cause to be executed and delivered, all documents
required to be delivered by each of them under this Agreement, including, but
not limited to, the following (the "Closing Documents"):
(a) A copy of resolutions duly adopted by the Board of Directors of
the Company, Merger Corp. and MAPICS and the shareholders of the Company and
Merger Corp. authorizing and approving their respective performance of the
transactions contemplated hereby and the execution and delivery of the documents
described herein, certified as true and in full force and effect as of Closing
by the appropriate authorized officer of each entity;
3
<PAGE>
(b) A certified copy of the organizational documents, and all
amendments thereto, of each of the Company, the Subsidiaries, defined in Section
5.6 hereof, Merger Corp., and MAPICS, each from its respective state of
incorporation dated the most recent practical date prior to Closing;
(c) A copy of the Bylaws, and all amendments thereto, of each of the
Company, the Subsidiaries, Merger Corp., and MAPICS, certified as true and in
full force and effect as of Closing by the appropriate authorized officer of
each such entity;
(d) A certificate of the President or a Vice President of the Company,
Merger Corp. and MAPICS, certifying that as of Closing all of the
representations and warranties by or on behalf of such party contained in this
Agreement are true and correct in all respects as of the time of the Closing and
each and every covenant and agreement of each such party to be performed prior
to or as of Closing pursuant to this Agreement has been performed;
(e) Certificates of incumbency for the respective officers of each
corporate entity making certifications for Closing, dated as of Closing Date;
(f) Certificates of corporate existence for each of Merger Corp. and
MAPICS and a certificate of corporate existence and good standing for the
Company and each of its Subsidiaries, each from its respective state of
incorporation dated the most recent practical date prior to Closing;
(g) Cash and share certificates as provided under Sections 3.1 and 4.1
hereof;
(h) Such other instruments and documents as are necessary to effect
the transactions contemplated hereby as provided herein, including, without
limitation, the documents, instruments, certificates and things required under
Sections 10 and 11 hereof.
SECTION 4
SURRENDER OF SHARES
-------------------
4.1 Surrender. After the Effective Time, each holder of shares of the
---------
Company Capital Stock (other than shares to be canceled pursuant to Section 3.2
of this Agreement or as to which statutory dissenters' rights have been
perfected as provided in Section 3.3 of this Agreement) issued and outstanding
at the Effective Time shall surrender the certificate or certificates
representing such shares to the Company and shall promptly upon surrender
thereof receive in exchange therefor the consideration provided in Section 3.1
of this Agreement. MAPICS shall not be obligated to deliver the consideration to
which any former holder of the Company Capital Stock is entitled as a result of
the Merger until such holder surrenders his or her certificate or certificates
representing the shares of the Company Capital Stock for exchange as provided in
this
4
<PAGE>
Section 4.1 or such holder provides an appropriate affidavit regarding loss
of such certificate and an indemnification for loss in favor of MAPICS. The
certificate or certificates of the Company Capital Stock so surrendered shall be
duly endorsed as MAPICS may reasonably require.
4.2 Rights of Former Company Shareholders. At the Effective Time, the
-------------------------------------
stock transfer books of the Company shall be closed and no transfer of the
Company Capital Stock by any such holder shall thereafter be made or recognized.
Until surrendered in accordance with the provisions of Section 4.1 of this
Agreement, each certificate theretofore representing shares of the Company
Capital Stock (other than shares to be canceled pursuant to Section 3.2 of this
Agreement or as to which statutory dissenters' rights have been perfected as
provided in Section 3.3 of this Agreement) shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Section 3.1 of this Agreement in exchange therefor.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to Merger Corp. and MAPICS as
follows and warrants that such representations and warranties are and will be
true on and as of the Closing Date:
5.1 Capacity and Validity. The Company has the corporate power and
---------------------
authority necessary to enter into and perform its obligations under this
Agreement and the other agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and such other agreements have been approved by
all necessary action of the Board of Directors and shareholders of the Company.
This Agreement and the other agreements to which the Company is a party have
been duly executed and delivered by duly authorized officers of the Company, and
each such agreement constitutes, or when executed, will constitute, a legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, other laws affecting
creditors' rights generally or equitable principles.
5.2 Organization. The Company and each of its Subsidiaries is a
------------
corporation duly organized, validly existing and in good standing under the laws
of the respective state of incorporation and has full corporate power and
authority to own, lease and operate its assets and to carry on its business.
Complete, correct and certified copies of the organizational documents, and all
amendments thereto, and Bylaws of the Company and its Subsidiaries, and all
amendments thereto (certified by the appropriate authorized officer) are
attached hereto as part of Schedule 5.2(a). The Company and each of its
---------------
Subsidiaries is duly qualified or licensed to transact business as a foreign
corporation in good standing in the jurisdictions listed on Schedule 5.2(b), and
---------------
the character of the
5
<PAGE>
Company, its Subsidiaries, its assets or the nature of its business does not
require such qualification or licensing in any other jurisdiction.
(a) All records of the proceedings of the incorporators, stockholders
and Board of Directors of the Company, including those which are set forth in
the Company's minute books ("Minute Books") and the stock record books of the
Company ("Stock Record Books"), are being delivered to Merger Corp. and MAPICS,
are correct and complete, and accurately reflect all proceedings of the
Company's incorporators, stockholders and Board of Directors and all committees
thereof and the ownership of the Company.
(b) All records of the proceedings of the incorporators, stockholders
and Board of Directors of the Subsidiaries, including those which are set forth
in the minute books and the stock record books of the Subsidiaries are being
delivered to Merger Corp. and MAPICS, are correct and complete, and accurately
reflect all proceedings of the Subsidiaries' incorporators, stockholders and
Board of Directors and all committees thereof and the ownership of the
Subsidiaries.
5.3 Capitalization.
--------------
(a) Capitalization of the Company. The authorized capital stock of
-----------------------------
the Company (the "Stock") consists of (i) 21,500,000 shares of $.01 par value
common stock, of which 2,095,902 are currently issued and outstanding (and of
which 3,250,154 will be issued and outstanding as of Closing), (ii) 161,000
shares of $.01 par value Series A preferred stock, of which 161,000 are issued
and outstanding, (iii) 31,849 shares of $.01 par value of Series B preferred
stock, of which 31,849 shares are outstanding, and (iv) 552,126 shares of $.01
par value of Series C preferred stock, none of which are currently issued and
outstanding (and of which 552,126 will be issued and outstanding as of the
Closing). The purposes of the Company and a description of each class and series
of the Stock is confirmed in the Company's Restated Articles of Organization, as
amended, contained in Schedule 5.2(a) hereto. All of the Stock is duly
---------------
authorized and validly issued and the outstanding shares are fully paid and
nonassessable, free of preemptive rights and issued pursuant to a valid
exemption from registration under the Securities Act of 1933, as amended, and
all applicable state securities laws. Except as set forth on Schedule 5.3(a),
---------------
the Company has no obligation to issue any additional capital stock of the
Company or securities convertible or exchangeable for capital stock of the
Company, or options or warrants for the purchase of any Stock or any securities
convertible into or exchangeable for any capital stock of the Company. Except as
set forth on Schedule 5.3(a), there are no outstanding rights to either demand
---------------
registration of any Stock under the Securities Act of 1933, as amended, or to
sell any Stock in connection with such a registration of Stock.
(b) Capitalization of Company's Subsidiary. The authorized capital
---------------------------------------
stock of the Subsidiaries is set forth on Schedule 5.3(b) (the "Subsidiary
---------------
Stock"). All of the Subsidiary Stock is duly authorized and validly issued and
outstanding, is fully paid
6
<PAGE>
and nonassessable, is free of preemptive rights and was issued pursuant to a
valid exemption from registration under the Securities Act of 1933, as amended,
and all applicable state securities laws. None of the Subsidiary Stock is
reserved for issuance. There are no outstanding rights to either demand
registration of any Subsidiary Stock under the Securities Act of 1933, as
amended, or to sell any Subsidiary Stock in connection with such a registration
of Subsidiary Stock. Except as set forth on Schedule 5.3, the Company has no
------------
obligation to issue any additional capital stock of the Company or securities
convertible or exchangeable for capital stock of the Company, or options or
warrants for the purchase of any Stock or any securities convertible into or
exchangeable for any capital stock of the Company.
5.4 Title to Stock; Other Rights.
----------------------------
(a) Title to Stock of the Company. The Stock constitutes all of the
-----------------------------
issued and outstanding shares of Company's Capital Stock. Except as
specifically contemplated by this Agreement (including Schedule 5.3), no person
------------
("Person") or entity has any contract, agreement, or option or any right or
privilege (whether pre-emptive or contractual) capable of becoming a contract
agreement or option for the purchase from the Company of any of the Stock or for
the purchase, subscription or issuance of any securities of the Company.
(b) Title to Stock of Subsidiaries. The Company is the owner of all
------------------------------
right, title and interest (legal and beneficial) in and to 100% of the issued
and outstanding capital stock of each of its Subsidiaries, free and clear of any
mortgage, lien, security interest, pledge, encumbrance, adverse right or
interest, charge or adverse claim ("Lien"). Except as specifically contemplated
by this Agreement or Schedule 5.3, no Person or entity has any contract or
------------
option or any right or privilege (whether pre-emptive or contractual) capable of
becoming a contract or option for the purchase from the Company of any of the
capital stock of the Subsidiaries or for the purchase, subscription or issuance
of any securities of the Subsidiaries.
5.5 No Conflict. Except as disclosed on Schedule 5.5, neither the
----------- ------------
execution, delivery and performance of this Agreement or any related agreements
to which the Company is a party nor the consummation by the Company of the
transactions contemplated hereby or thereby will (a) conflict with or result in
a violation, contravention or breach of any of the terms, conditions or
provisions of the organizational documents of the Company or any of its
Subsidiaries, (b) result in a default or breach under, or require the consent
or approval of any party to, any contract of the Company or the Subsidiaries,
(c) result in the violation of any law or order, or (d) result in the creation
or imposition of any Lien.
5.6 Subsidiaries. All of the Subsidiaries of the Company (the
------------
"Subsidiaries") are listed on Schedule 5.6 and, except as set forth on Schedule
------------ --------
5.6, the Company has not in the past had, and does not currently have, any
- ---
subsidiaries. Except as set forth on Schedule 5.6, the Company has not in the
------------
past owned, and does not currently own,
7
<PAGE>
directly or indirectly, any capital stock or other equity, ownership,
proprietary or voting interest in any natural Person or any legal, commercial or
governmental entity, such as, but not limited to, a business association,
corporation, general partnership, joint venture, limited partnership, limited
liability company, limited liability partnership, trust, or any Person acting in
a representative capacity ("Person").
5.7 Financial Statements. The balance sheets of the Company and the
--------------------
Subsidiaries (other than Thru-Put Technologies, Inc. ("Thru-Put")) as of
December 31, 1998 and related statements of income and cash flows for the
periods then ended, and, in addition, quarterly balance sheets, income
statements and cash flows as of March 31, June 30, and September 30, 1999 and
for the periods then ended and the balance sheets of Thru-Put and its
subsidiaries, if any, and related statements of income and cash flows as of and
for the periods ending the same dates (collectively, the "Financial
Statements"), correct and complete copies of which are included on Schedule 5.7,
------------
(a) are in accordance with the books and records of the Company and the
Subsidiaries, which are correct and complete and which have been maintained in
accordance with good business practices; (b) present fairly the financial
position of such entities as of the dates indicated and the results of its
operations and its cash flows for the periods then ended; (c) have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied
consistently with Company's and the Subsidiaries' past practices (except, with
respect to any interim statements only, for the absence of footnote disclosure
and year-end audit adjustments); (d) reflect reserves established in conformity
with GAAP for all known liabilities and reasonably anticipated losses, and (e)
include only those revenues reasonably recognized under SOP 97-2.
5.8 Foreign Corrupt Practices Act. Neither the Company nor any of the
-----------------------------
Subsidiaries has made, offered or agreed to make or offer, any loan, gift,
donation or other payment, directly or indirectly, whether in cash or in kind,
for the benefit of or at the direction of, any candidate, committee, political
party, political function or government or governmental authority, or any
individual elected, appointed or otherwise designated as an employee or officer
thereof, for the purposes of influencing any act or decision of such Person or
inducing such Person to do or omit to do any act in order to obtain or retain
business in violation of the United States Foreign Corrupt Practices Act.
5.9 Absence of Undisclosed Liabilities. Except for liabilities incurred
----------------------------------
since September 30, 1999 (the "Balance Sheet Date") in the ordinary course of
business, none of which are material, individually or in the aggregate, neither
the Company nor its Subsidiaries has any liabilities which should properly be
disclosed in the Company's financial statements or notes thereto in accordance
with GAAP ("Undisclosed Liabilities").
5.10 Absence of Changes. Since the Balance Sheet Date and except as set
------------------
forth on Schedule 5.10, (a) the business of the Company and its Subsidiaries has
-------------
been carried on only in the ordinary course consistent with past practice, (b)
there has been no Material Adverse Change (as defined below) with respect to the
Company or any of its
8
<PAGE>
Subsidiaries, (c) neither the Company nor any of its Subsidiaries has granted or
paid a bonus or salary increase to any of its employees, other than in the
ordinary course of business, (d) neither the Company nor any of its Subsidiaries
has made any change in any method of accounting or accounting practice, (e)
neither the Company nor any of its Subsidiaries has canceled, modified or
waived, without receiving payment or performance in full, any (i) liability owed
to the Company or any of its Subsidiaries, including without limitation, any
receivable of the Company or its Subsidiaries from any affiliate or any related
Person to an affiliate, (ii) litigation the Company or any of its Subsidiaries
may have against other Persons or entities, or (iii) other rights of the Company
or its Subsidiaries, other than in the ordinary course of business, and (f)
neither the Company nor any of its Subsidiaries has experienced any material
problems with product development, quality assurance, product defect or customer
service, other than in the ordinary course of business. For the purposes of this
Agreement, "Material Adverse Change" and "Material Adverse Effect" mean any
material adverse change in or effect on (i) the business, operations, assets,
liabilities, financial condition or results of operations of such Person, (ii)
the ability of such Person to consummate the transactions contemplated by this
Agreement or any material related agreements to which it is a party, or (iii)
the ability of such party to perform any of its obligations under this Agreement
or any of the other agreements to which it is a party, if such change or effect
materially impairs the ability of such party to perform its obligations
hereunder or thereunder, taken as a whole.
5.11 Taxes.
-----
(a) Except as set forth on Schedule 5.11: (i) the Company and each of
-------------
its Subsidiaries has filed all tax returns that it was required to file; (ii)
all such tax returns were correct and complete in all respects; (iii) all taxes
owed by the Company and any Subsidiary (whether or not shown on any tax return)
have been paid; and (iv) neither the Company nor any Subsidiary is currently
the beneficiary of any extension of time within which to file any tax return.
Except as set forth on Schedule 5.11, no claim has ever been made by an
-------------
authority in a jurisdiction where the Company and any Subsidiary does not file
tax returns that it is or may be subject to taxation by that jurisdiction.
Except as set forth on Schedule 5.11, there are no Liens on any of the assets of
-------------
the Company or any Subsidiary that arose in connection with any failure or
alleged failure to pay any tax.
(b) Except as set forth on Schedule 5.11, the Company and each of its
-------------
Subsidiaries has withheld and paid all taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party. The Company and each of
its Subsidiaries is in compliance with, and its records contain all information
and documents necessary to comply with all applicable information reporting and
tax withholding requirements under foreign, federal, state, and local tax laws,
and such records identify with specificity all accounts subject to backup
withholding under Code Section 3406.
9
<PAGE>
(c) Except as set forth on Schedule 5.11, there is no dispute or claim
-------------
concerning any tax liability of the Company or any of its Subsidiaries either
claimed or raised by any governmental authority, or as to which the Company and
the directors and officers (and employees responsible for tax matters) of the
Company or any of its Subsidiaries have Knowledge. Except as disclosed on
Schedule 5.11, no tax returns with respect to the Company or any of its
- -------------
Subsidiaries have been audited.
(d) Except as set forth on Schedule 5.11, neither the Company nor any
-------------
Subsidiary has waived any statute of limitations in respect of taxes or agreed
to any extension of time with respect to a tax assessment or deficiency.
(e) Neither the Company nor any Subsidiary has filed a consent under
Code Section 341(f) concerning collapsible corporations. Neither the Company nor
any Subsidiary has made any payments, is not obligated to make any payments, and
is not a party to any contract that could obligate it to make any payments that
would be disallowed as a deduction under Code Sections 280G or 162(m). Neither
the Company nor any Subsidiary has been a United States real property holding
company within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii).
(f) Except as set forth on Schedule 5.11, neither the Company nor any
-------------
Subsidiary has been a member of an affiliated group filing a consolidated
federal income tax return, other than a group the common parent of which was the
Company. Neither the Company nor any Subsidiary is a party to any tax allocation
or sharing agreement and does not have any contractual obligation to indemnify
any Person with respect to taxes.
(g) The unpaid taxes of the Company and the Subsidiaries do not exceed
the reserve for tax liability (other than any reserve for deferred taxes
established to reflect timing differences between book and tax income) set forth
on the face of the unaudited balance sheets of the Company and each of its
Subsidiaries as of and for the period ended September 30, 1999 included in the
Financial Statements (the "Balance Sheet").
(h) Each affiliated group has filed all income tax returns that it was
required to file for each taxable period during which the Company and any
Subsidiary was a member of the group. All such tax returns were correct and
complete (i) in all respects in so far as they relate to the Company and any
Subsidiary and (ii) in all material respects in so far as they do not relate to
the Company and any Subsidiary. All material income taxes owed by any affiliated
group (whether or not shown on any tax return) have been paid for each taxable
period during which the Company and any Subsidiary was a member of the
affiliated group.
(i) Except as set forth in Schedule 5.11, there is no dispute or claim
-------------
concerning any material income tax liability of any affiliated group for any
taxable period during which the Company or any Subsidiary was a member of the
affiliated group either
10
<PAGE>
(i) claimed or raised by any governmental authority in writing or (ii) as to
which the Company and the directors and officers (and employees responsible for
tax matters) of the Company or any Subsidiary has Knowledge. Except as disclosed
on Schedule 5.11, no affiliated group has waived
-------------
any statute of limitations in respect of any material income taxes or agreed to
any extension of time with respect to a material income tax assessment or
deficiency for any taxable period during which the Company or any Subsidiary was
a member of the affiliated group.
(j) Neither the Company nor any Subsidiary has liability for the taxes
of any Person other than the Company and its Subsidiaries (i) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise.
(k) Except as set forth in Schedule 5.11, the Company and each of its
-------------
Subsidiaries, is, and has always been, a resident for tax purposes only in the
United States, and the Company and each of its Subsidiaries is not subject to
liability for taxes in any other country.
(l) The Company has furnished and made available to Merger Corp. and
MAPICS complete and accurate copies of all income and other tax returns and any
amendments thereto filed by the Company and each of its Subsidiaries (other than
Thru-Put) during the past seven (7) years and has furnished and made available
such returns and amendments for Thru-Put for the period listed in Schedule 5.11.
-------------
5.12 Title to Assets; Encumbrances; Condition.
----------------------------------------
(a) Except as disclosed on Schedule 5.12, the Company and each of its
-------------
Subsidiaries has good, valid and marketable title to all of its assets free and
clear of any and all Liens, except for (i) Liens for current real property taxes
not yet due and payable, (ii) Liens that do not affect the value or use of any
parcel of real property, and (iii) Liens, if any, relating to Merger Corp.'s
financing to which the assets are contemplated to be subject at the Closing. At
or prior to the Closing, all items relating to Cupertino Bank in Schedule 5.12
-------------
shall have been satisfied and shall no longer constitute liens or security
interests in the Company's assets.
(b) Each of the buildings, structures, fixtures and other improvements
included in the real property or interest owned or leased by the Company or any
of its Subsidiaries and used in connection with the business (the
"Improvements") and each item of personal property or interest therein owned,
leased, used or controlled by the Company or any of its Subsidiaries (the
"Personal Property") is in good condition and repair, reasonable wear and tear
excepted, and is usable in the ordinary course of business consistent with past
practices. Each Improvement and each item of Personal Property is adequate for
its present and intended uses and operation, and neither the Company nor any of
its Subsidiaries has any intention to use or operate any such improvement or any
item of Personal Property other than as presently used or operated. The assets
of the
11
<PAGE>
Company and its Subsidiaries (including the interest of the Company or its
Subsidiaries in all leased or licensed assets) (i) include all assets required
to operate the business of the Company or its Subsidiaries; (ii) constitute all
of the assets held for use or used in connection with the business of the
Company or its Subsidiaries; and (iii) are adequate to conduct the business of
the Company or its Subsidiaries as currently conducted.
5.13 Real Property.
-------------
(a) Neither the Company nor any of its Subsidiaries currently owns, or
has ever owned, any real property.
(b) Schedule 5.13 sets forth a correct and complete list of all Real
-------------
Property that is not owned in fee simple by the Company or its Subsidiaries
that the Company or its Subsidiaries either occupies or uses or has the right to
occupy or use (the "Leased Real Property") and each of the contracts of the
Company and each of its Subsidiaries relating to such Leased Real Property is
fully and accurately identified on Schedule 5.13, and is in full force and
-------------
effect. Except as disclosed on Schedule 5.13 or with respect to the rights of
-------------
landlords' mortgages, neither the Leased Real Property nor any of the Company's
or its Subsidiaries' right, title or interest therein is affected by any Lien,
prior interests or superior interests of any nature whatsoever that will, or
potentially could, terminate or otherwise adversely affect such Leased Real
Property or the right, title or interest of the Company or its Subsidiaries
therein.
5.14 Personal Property. Schedule 5.14 contains a correct and complete list
----------------- -------------
of each item of Personal Property owned or leased by the Company or any of its
Subsidiaries (excluding office furniture, equipment, supplies and miscellaneous
items of Personal Property with an original cost of $1,000 or less). Except as
disclosed on Schedule 5.14, neither the Company nor any of its Subsidiaries
-------------
leases any Personal Property as lessor.
5.15 Intellectual Property.
---------------------
(a) Schedule 5.15(a) contains a correct and complete list of all of
----------------
the Company's (i) U.S. and foreign patents and pending patent applications
together with any and all continuations, continuations in part, divisions,
reissues, extensions and renewals thereof, (ii) trade secrets, know-how,
inventions, designs, formulae and processes, whether trade secrets or not, (iii)
trade names, trademarks, service marks, logos, assumed names, brand names and
all registrations and applications therefor together with the goodwill of the
business symbolized thereby, (iv) copyrights and any registrations and
applications therefor, (v) technology rights and licenses, (vi) internet domain
names registered with any third party and (vii) all other intellectual property
owned by, registered in the name of, or used in the business of the Company and
its Subsidiaries or in which the Company and its Subsidiaries or its business
has any interest, or for which an application has been made including, without
limit, the Computer Software and Databases described in Section 5.16
(collectively the "Intellectual Property"), and indicates which of such
Intellectual Property is owned and which is licensed by the
12
<PAGE>
Company or any of its Subsidiaries as licensee. Schedule 5.15(a) also includes
----------------
all license contracts relating to the Intellectual Property other than internal
use licenses between the Company or any of its Subsidiaries and any end users of
its products.
(b) Neither the Company nor any of its Subsidiaries or predecessors
(or any goods or services sold by any of them) has violated, infringed upon or
unlawfully or wrongfully used or disclosed the Intellectual Property of any
third party. The business of the Company and its Subsidiaries, as presently
conducted, including without limitation the development modification, copying,
distribution, display, marketing, licensing, support and use of the Company's
and Subsidiaries' Intellectual Property, do not infringe or violate any
trademark, copyright, trade name, trade secret, patent or other intellectual
property rights of any third party, nor has the Company or any of its
Subsidiaries received notice from any third party alleging such infringement or
violation or otherwise asserting that any of the Intellectual Property is
invalid or unenforceable. The Company Knows of no basis for any claim of such
infringement, violation, unenforceability, invalidity or misuse. The Company and
each of its Subsidiaries has taken commercially reasonable and legally necessary
measures to enforce, maintain and protect its interests and, to the extent
applicable, the rights of third parties, in and to the Intellectual Property.
The Company and each of its Subsidiaries has, and upon consummation of the
transactions contemplated by this Agreement, will continue to have, except as
otherwise disclosed in this Agreement, all right, title and interest in or to,
or the license to use, copy, distribute, market, modify, display, license and/or
support, as applicable in the business of the Company or its Subsidiaries, the
Intellectual Property; the Company and its Subsidiaries have no restriction or
limitation on its or their right to use, market, license, modify, copy, support,
or distribute the Intellectual Property (other than with respect to internal use
licenses), including without limitation, the Computer Software and Databases,
either directly or through others. The consummation of the transactions
contemplated by this Agreement will not alter or impair any Intellectual
Property rights of the Company or any of its Subsidiaries. Except as set forth
on Schedule 5.15(b), the Company and its Subsidiaries are not obligated to make,
------------------
nor has the Company or any of its Subsidiaries incurred any Liability to make,
any payments for royalties, fees or otherwise to any Person in connection with
any of the Company's or its Subsidiaries' Intellectual Property. The Company and
each of its Subsidiaries owns or has the valid right to use all of the
Intellectual Property rights that it is presently using in the conduct of its
business or that it proposes to use in the performance of any contract, proposal
or letter of intent to which it is a party. Except as set forth on Schedule
--------
5.15(b), neither the Company nor any of its Subsidiaries has licensed or
- -------
sublicensed its rights in any Intellectual Property or granted any right or
license or assumed any obligation which would restrict or impair the Company's
and the Subsidiaries' right to market, use, license, modify, support, distribute
or display the Intellectual Property. All patents, trademarks, trade names,
service marks, assumed names, and copyrights and all registrations thereof
included in or related to the Intellectual Property of the Company and its
Subsidiaries are valid, subsisting and in full force and effect. Neither the
Company nor any of its Subsidiaries has Knowledge of any infringement of the
Intellectual Property of the Company or its Subsidiaries, and there are no
pending infringement actions against another for infringement of the
Intellectual
13
<PAGE>
Property of the Company or its Subsidiaries or theft of trade secrets of the
Company or its Subsidiaries.
(c) All Intellectual Property used by the Company and its Subsidiaries
in its business (other than shrinkwrap licenses for software internally used by
the Company or its Subsidiaries in its business) or provided by the Company or
its Subsidiaries to its customers that is owned by the Company or its
Subsidiaries has been either (i) developed by employees of the Company or its
Subsidiaries; (ii) developed by independent contractors each of which is a party
to a contract described in Section 5.24(a)(iii); or (iii) was acquired by
purchase or license from a third party pursuant to a contract with the Company
or its Subsidiary which assigns to the Company or any of its Subsidiaries any
interest in any Intellectual Property that relates to the business of the
Company or its Subsidiaries. Except as described on Schedule 5.15(c), every
----------------
current and former officer, director, consultant, independent contractor or
employee of the Company and each of its Subsidiaries has entered into a contract
that requires such officer, director, consultant, independent contractor or
employee to assign to the Company or to one of its Subsidiaries any interest in
any Intellectual Property that relates to the business of the Company or its
Subsidiaries and to keep confidential any trade secrets, proprietary data or
other proprietary business information of the Company or its Subsidiaries, or
any customer of the Company or its Subsidiaries, and to Company's Knowledge no
such officer, director, consultant, independent contractor or employee is in
breach of his, her or its obligations pursuant to any such contract, nor any
obligations they may have to any third parties (including former employers) nor
is a party to any contract that requires such individual to assign any interest
in any Intellectual Property that relates to the business of the Company or its
Subsidiaries to any Person other than the Company or any of its Subsidiaries or
that restricts or prohibits such officer, director, consultant or employee from
engaging in activities on behalf of the Company or its Subsidiaries. Except as
disclosed on Schedule 5.15(c), each employee, officer, director, consultant and
----------------
independent contractor who has had access to a source code for the products of
the Company or its Subsidiaries or similar proprietary information or who has
developed any portion of the Intellectual Property of the Company or its
Subsidiaries has executed an appropriate form of confidentiality and inventions
assignment agreement with respect to such activities.
(d) The Company and each of its Subsidiaries has sufficient rights to
the Intellectual Property described in Schedule 5.15 to continue to operate its
--------------
business as conducted on the date hereof. The conduct of the business of the
Company and each of its Subsidiaries does not infringe any Intellectual Property
of any other Person.
(e) The Company or one or more of its Subsidiaries is the sole owner
of record for each copyright, patent and trademark application and registration
listed on Schedule 5.15(e). There is no opposition, interference or cancellation
----------------
proceeding before any court or registration authority in any jurisdiction
against the registrations listed on Schedule 5.15(e), or, to the Knowledge of
----------------
the Company, against any Intellectual Property licensed to the Company or any of
its Subsidiaries that is pending or threatened.
14
<PAGE>
(f) There are no settlements, forbearances to sue, consents,
judgments, or orders or similar obligations to which the Company or its
Subsidiaries is a party or, to the Company's Knowledge, which otherwise apply to
the Company, that (i) restrict Company's or its Subsidiaries' rights to use any
Intellectual Property, (ii) restrict the Company's or its Subsidiaries' business
in order to accommodate a third party's Intellectual Property rights or (iii)
permit third parties to use any Intellectual Property owned or controlled by the
Company or its Subsidiaries.
(g) Except as set forth on Schedule 5.15(g), the consummation of the
----------------
transactions contemplated hereby will not result in the loss or impairment of
the Company's or its Subsidiaries' right to own or use any of its Intellectual
Property, nor will require the consent of any government authority or third
party in respect of such Intellectual Property.
(h) No present or former officer, director, partner, employee or
independent contractor of the Company or any of its Subsidiaries owns or has any
proprietary, financial or other interest, direct or indirect, in any of the
Intellectual Property of the Company or its Subsidiaries, including without
limitation any trade secrets, know-how, inventions, designs, formulae and
processes relating to equipment or machinery used in connection with the
business of the Company or its Subsidiaries.
5.16 Computer Software and Databases.
-------------------------------
(a) With respect to all of the Company's and the Subsidiaries'
products, Schedule 5.16(a) accurately identifies, and describes the functions
----------------
of, (a) all computer programs, materials, tapes, source and object codes
incorporated therein, and all prior and proposed versions, releases,
modifications, updates, upgrades and enhancements thereto, as well as
documentation and listings related thereto (the "Computer Software") and
databases in all forms, versions and media, together with prior and proposed
updates, modifications and enhancements thereto (the "Databases") owned,
licensed, leased, internally developed or otherwise used in connection with the
business of the Company or its Subsidiaries and (b) all Computer Software and
Databases sold, leased or licensed by the Company or its Subsidiaries to any
third party. The Computer Software and Databases identified and described on
Schedule 5.16(a) perform substantially in accordance with the documentation and
- ----------------
other written material related thereto or used in connection therewith and are,
to the Knowledge of the Company, free of material defects in programming and
operation, and are in machine-readable form.
(b) The Company has delivered to Merger Corp. and MAPICS complete and
correct copies of the Computer Software and Databases and all user, development
and technical documentation related to the Computer Software and Databases.
15
<PAGE>
(c) Neither the Company or its Subsidiaries nor, to the Company's
Knowledge, any employee, contractor or agent thereof, has developed or assisted
in the enhancement of the Computer Software and Databases except for
enhancements included in the Computer Software and Databases as delivered to
MAPICS and custom enhancements delivered to authorized end user internal use
licensees of the Computer Software and Databases.
(d) To the Company's Knowledge, no employee or contractor of the
Company or its Subsidiaries is, or is now expected to be, in default under any
term of any employment contract relating to the Computer Software or Databases
or noncompetition arrangement, or any other contract or any restrictive covenant
relating to the Computer Software or Databases, or their respective development
or exploitation. The Computer Software and the Databases were developed entirely
by the employees of the Company or its Subsidiaries during the time they were
employees only of the Company or any of its Subsidiaries or by consultants who
have assigned in writing all of their rights in the Computer Software and
Databases to the Company or to one of its Subsidiaries.
(e) All right, title and interest in and to the Computer Software and
the Databases identified and described on Schedule 5.16(a) developed by the
----------------
Company or its Subsidiaries are owned by the Company, free and clear of all
Liens, are fully transferable to Merger Corp. and MAPICS, and no Person other
than the Company or its Subsidiaries has any ownership interest in such Computer
Software and Databases including without limitation, any security interest,
license, contingent interest or otherwise. The Company's or its Subsidiaries'
development or sale or license of such Computer Software and Databases did and
does not violate any rights of any other Person and neither the Company nor any
of its Subsidiaries has received any communication alleging such a violation.
Neither the Company nor any of its Subsidiaries has any obligation to compensate
any Person for the development, use, sale or exploitation of such Computer
Software or Databases. Neither the Company nor any of its Subsidiaries has
granted to any other Person, (other than end users validly licensed under
written license agreements with the Company or its Subsidiaries to use the
products for internal purposes only) any license, option or other right to
develop, use, sell or exploit in any manner such Computer Software or Databases,
whether requiring the payment of royalties or not, except as set forth in
Schedule 5.16(e).
- ----------------
(f) The Company has kept secret and has not disclosed the source code
for any of the Computer Software or Databases identified and described on
Schedule 5.16 to any Person other than certain employees of, and consultants to,
- -------------
the Company or its Subsidiaries. The Company has taken all reasonable measures
to protect the confidential and proprietary nature of the Computer Software and
Databases identified and described on Schedule 5.16. To the Knowledge of the
-------------
Company, there are no trademark rights of any Person other than the Company or
its Subsidiaries in the names listed in Schedule 5.15.
-------------
16
<PAGE>
(g) Except as set forth on Schedule 5.16(g) or Schedule 5.17(a),
----------------
neither the Company nor any of its Subsidiaries has given any warranties to any
third parties with respect to the products or services offered by it.
(h) Schedule 5.16(e) identifies each Person (other than end users
----------------
validly licensed under written license agreements with the Company or any of its
Subsidiaries to use the products for internal purposes only) to whom the Company
or any of its Subsidiaries has sold, licensed, leased or otherwise transferred
or granted any interest or rights to any of the Computer Software and Databases
identified and described on Schedule 5.16 and the date of each such sale,
--------------
license, lease or other transfer or grant. The Company has previously delivered
to Merger Corp. and MAPICS complete and accurate copies of all documents
relating to each such sale, license, lease or other transfer or grant.
(i) In the event of conflict or inconsistency between Sections 5.15
and 5.16, the terms of Section 5.15 shall take precedence.
5.17 Product Warranty.
----------------
(a) Except as set forth in Schedule 5.17(a), the products and services
----------------
the Company and each of its Subsidiaries provides to its customers conform in
all material respects with any written specification, documentation, performance
standard, representation or statement made or provided with respect thereto by
or on behalf of the Company and any of its Subsidiaries without imposition of
any performance credits or other penalties, and there has not been during the
last three (3) years any claim made against the Company or any of its
Subsidiaries by any customer of the Company or its Subsidiaries or by any other
Person alleging that any the Company or Subsidiary product or service (including
each version thereof that has been licensed or otherwise made available by the
Company or Subsidiary to any Person) does not conform in all material respects
with any specification, documentation, performance standard, representation or
statement made or provided by or on behalf of the Company or Subsidiary, and, to
the Knowledge of the Company, there is not a reasonable basis for any such
claim. Except as set forth on Schedule 5.17(a), no product liability or
----------------
warranty claims have been communicated in writing to or threatened in writing
against the Company or any of its Subsidiaries.
(b) Each product and service manufactured, sold, leased, delivered or
provided by the Company or its Subsidiaries is in conformity with all applicable
contracts and all express and implied warranties, and except as set forth on
Schedule 5.17(b), neither the Company nor any of its Subsidiaries has any
- --------------------------
liability (and, to the Company's Knowledge there is no reasonable basis for any
assertion of liability) for replacement or repair thereof or other damages in
connection therewith.
(c) Except as set forth on Schedule 5.17(c), the Company, its
----------------
Subsidiaries, and its predecessors have not had a claim made or, to the
Knowledge of the
17
<PAGE>
Company, threatened against it based on any theory of product liability or
express or implied warranty. Except as set forth on Schedule 5.17(c), neither
----------------
the Company nor its Subsidiaries or predecessors has breached or violated any
express or implied warranty made to its customers. Schedule 5.17(c) identifies
----------------
and accurately and completely describes all oral, written, express, implied and
other warranties and guarantees (including, without limitation, extended
warranties) made by the Company or its Subsidiaries and identifies each customer
of the Company or its Subsidiaries who has received anything other than such
warranty and guarantee and the terms and duration of such deviation. Schedule
--------
5.17(c) identifies and accurately describes (i) each warranty or guarantee claim
- -------
asserted against the Company or its Subsidiaries during the last five (5) years,
(ii) each warranty or guarantee claim paid (in whole or in part) by the Company
or its Subsidiaries during the last five (5) years, and (iii) each outstanding
warranty or guarantee claim asserted or, to the Knowledge of the Company,
threatened against the Company or its Subsidiaries.
5.18 Inventories. The Company and the Subsidiaries have no inventory other
-----------
than supplies.
5.19 Accounts Receivable. All accounts receivable, notes receivable and
-------------------
other monies due to the Company and each of its Subsidiaries for performance of
services and other business transactions (whether or not on the books of the
Company) on the closing date (the "Accounts Receivable") are (a) validly
existing and (b) enforceable by the Company or its Subsidiaries in accordance
with the terms of the instruments or documents creating them, and (c) other than
as listed on Schedule 5.19, collectible within ninety days (90) after billing at
-------------
the full recorded amount thereof less an allowance for collection losses
disclosed in the Balance Sheet, or in the case of Accounts Receivable arising
after the Balance Sheet Date, an allowance for collection losses accrued on the
books of the Company or the Subsidiaries in the ordinary course of business
consistent with past practices and in accordance with GAAP. The allowance for
collection losses on the Balance Sheet was established in the ordinary course of
business consistent with past practices and in accordance with GAAP. The
Accounts Receivable represent monies due for, and have arisen solely out of,
bona fide sales and deliveries of goods, performance of services and other
business transactions in the ordinary course of business consistent with past
practices. None of the Accounts Receivable represent monies due for goods either
sold on consignment or sold on approval. Except as set forth on Schedule 5.19,
-------------
there are no refunds, discounts or other adjustments payable with respect to any
such Accounts Receivable, and there are no defenses, rights of set-off,
counterclaims, assignments, restrictions, encumbrances, or conditions have been
asserted by third parties on or affecting any Account Receivable.
5.20 Insurance. All of the assets and the operations of the Company and
---------
its Subsidiaries of an insurable nature and of a character usually insured by
companies of similar size and in similar businesses are insured by the Company
in such amounts and against such losses, casualties or risks as is (a) usual in
such companies and for such assets, operations and businesses, (b) required by
any law applicable to the Company, or
18
<PAGE>
(c) required by any contract of the Company. Schedule 5.20 contains a complete
-------------
and accurate list of all insurance policies now in force and held or owned by
the Company or its Subsidiaries, and Schedule 5.20 indicates the name of the
-------------
insurer, the type of policy, the risks covered thereby, the amount of the
premiums, the term of each policy, the policy number and the amounts of coverage
and deductible in each case and all outstanding claims thereunder. Correct and
complete copies of all such policies have been delivered to Merger Corp. and
MAPICS by the Company at least five (5) business days prior to the date of this
Agreement. All such policies are in full force and effect and enforceable in
accordance with their terms. Neither the Company nor any of its Subsidiaries is
now in default regarding the provisions of any such policy, including, without
limitation, failure to make timely payment of any premiums due thereon, and
neither the Company nor any of its Subsidiaries has failed to give any notice or
present any claim thereunder in due and timely fashion. The Company has not been
refused or denied renewal of any insurance coverage. In addition to the
deductibles set forth on Schedule 5.20, such Schedule discloses all risks that
-------------
are self-insured by the Company or any of its Subsidiaries that in the ordinary
course of business could be insured. A list of insurance claims currently
pending is attached as Schedule 5.20(a).
----------------
5.21 Bonds, Letters of Credit and Guarantees. Neither the Company nor any
---------------------------------------
other related Person of the Company or any of the Company's Subsidiaries has
issued any bonds (whether denominated bid, litigation, performance, fidelity,
DD&D, or otherwise), letters of credit, and guarantees for the benefit of the
Company or relating to the Company or its Subsidiaries or business, and no such
bond, letter of credit or guaranty is in force or outstanding.
5.22 Compliance with Law.
-------------------
(a) The Company and each of its Subsidiaries has complied with and is
in compliance in all materials respects with all laws, licenses and orders
applicable to, required of or binding on the Company, its Subsidiaries, its
assets or business, and there is no basis for any claim of current or past
noncompliance with any such law, license or order. No written notices from any
governmental authority with respect to any failure or alleged failure of the
Company, its Subsidiaries, its assets or business to comply with any law,
license or order have been received by the Company or its Subsidiaries, nor, to
the Knowledge of the Company, are any such notices proposed or threatened.
Schedule 5.22 contains a complete and correct list and copies of all licenses
- -------------
and orders applicable to, required of, or binding on the Company, its
Subsidiaries, its assets or business.
(b) The Company and each of its Subsidiaries holds all licenses
necessary for or used in the operations of its business, and each such license
is in full force and effect. No application, action or proceeding is pending for
the renewal or modification of any of such licenses, and no application, action
or proceeding is pending or, to the Knowledge of the Company, threatened that
may result in the denial of the application for renewal, the revocation,
modification, nonrenewal or suspension of any of such licenses, the issuance of
a cease-and-desist order, or the imposition of any
19
<PAGE>
administrative or judicial sanction with respect to the Company or any of its
Subsidiaries that may materially and adversely affect the rights of the Company
or its Subsidiaries under any such license. All returns, reports and statements
required to be filed by the Company or its Subsidiaries with any governmental
authority have been filed and complied with and are complete and correct as
filed.
(c) Except as set forth on Schedule 5.22, there are no capital
expenditures that the Company anticipates will be required to be made in
connection with the Company, its Subsidiaries or its business as now conducted
in order to comply with any law applicable to the Company, its Subsidiaries or
any of its assets or its business as now conducted.
5.23 Benefit Plans.
-------------
(a) Neither the Company nor any member of a group of trades or
businesses under common control ("ERISA Affiliate") (as defined in Sections
4001(a)(14) or 4001(b)(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) with the Company have at any time sponsored,
contributed to, or been obligated under Title I or IV of ERISA to contribute to
a "defined benefit plan" as defined in ERISA Section 3(35), or to any
"multiemployer plan" as defined in ERISA Section 3(37).
(b) Schedule 5.23 lists every Employee Benefit Plan that affects or is
-------------
available to employees or independent contractors performing duties to or for
the Company or its Subsidiaries.
(c) The Company has made available to Merger Corp. and MAPICS (i)
copies of each Employee Benefit Plan, including the Employee Benefit Plans of
any Subsidiary, and any amendments, or, in the case of unwritten Employee
Benefit Plans, a written summaries thereof; (ii) all determination letters,
rulings, opinion letters, information letters or advisory opinions issued by the
IRS or, the Department of Labor in connection with any such Employee Benefit
Plan; (iii) annual reports or returns, audited or unaudited financial
statements, actuarial valuations and reports, and summary annual reports
prepared for any such Employee Benefit Plan with respect to the most recent
three plan years; and (iv) the most recent summary plan description for any such
Employee Benefit Plan and any material modifications thereto.
(d) Each Employee Benefit Plan has been maintained in compliance with
the applicable terms of ERISA, the Code and any other applicable law. Each
Employee Benefit Plan has been administered in accordance with its written terms
except to the extent inconsistent with applicable law. No oral or written
representation or communication with respect to any aspect of any Employee
Benefit Plan has been made to employees of the Company or its Subsidiaries prior
to the Closing that is not in accordance with the written or otherwise
preexisting terms and provisions of such Employee Benefit Plan. There are no
unresolved claims or disputes under the terms of, or
20
<PAGE>
in connection with, Employee Benefit Plans of the Company or its Subsidiaries
other than claims for benefits that are payable in the ordinary course of
business, and no action, proceeding, prosecution, inquiry, hearing or
investigation has been commenced with respect to any of the Employee Benefit
Plans. Each Employee Benefit Plan that is intended to be qualified under Section
401(a) of the Internal Revenue Code has received a determination letter from the
IRS to that effect, and the Company does not Know of any circumstances that
could result in revocation of any such favorable determination letter.
(e) No provision under any Employee Benefit Plan exists that would
prevent the Company or its Subsidiaries from amending or terminating any
Employee Benefit Plan without incurring any liability thereunder.
(f) All contributions and payments accrued under each Employee
Benefit Plan, determined in accordance with prior funding and accrual practices,
as adjusted to include proportional accruals for the period ending on the
Closing Date, will be discharged and paid on or prior to the Closing Date.
(g) Except as set forth on Schedule 5.23, no Employee Benefit Plan
-------------
provides life or health benefits beyond the termination of covered employment
except to the extent required by COBRA.
5.24 Contracts.
---------
(a) Description.
-----------
(i) Purchase Orders -- Non-Capital Assets. Schedule 5.24(a)(i)
------------------------------------- -------------------
contains a list of each outstanding contract of the Company and each of its
Subsidiaries for the acquisition of goods, assets or services other than
purchase orders or other commitments for the acquisition of capital assets
and other than purchase orders and other commitments that do not exceed
$20,000 each or $100,000 in the aggregate, all of which were executed in
the ordinary course of business consistent with past practice by the
Company or its Subsidiaries.
(ii) Purchase Orders -- Capital Assets. Schedule 5.24(a)(ii)
--------------------------------- --------------------
contains a list and brief description of each outstanding contract of the
Company and each of its Subsidiaries for the acquisition of capital assets
that were executed in the ordinary course of business consistent with past
practice of the Company or its Subsidiaries (other than purchase orders and
other commitments that do not exceed $20,000 each or $100,000 in the
aggregate).
(iii) Employment, Other Affiliate Contracts. Schedule
------------------------------------- --------
5.24(a)(iii) contains a list and brief description of each contract of the
------------
Company or any of its Subsidiaries with any trade union, employee, officer,
consultant, independent contractor or Affiliate of the Company.
21
<PAGE>
(iv) Sales Representatives. Schedule 5.24(a)(iv) contains a
--------------------- --------------------
list of each contract of the Company or its Subsidiaries with any agent,
broker, value added reseller company, sales representative, distributor or
dealer of, or any Person in a similar representative capacity for, the
Company or its Subsidiaries.
(v) Powers of Attorney. Schedule 5.24(a)(v) contains a list
------------------ -------------------
and brief description of each power of attorney continuing in effect,
whether limited or general, given to any Person by the Company.
(vi) Intellectual Property Contracts. Schedule 5.24(a)(vi)
------------------------------- --------------------
contains a list and brief description of each contract of the Company or
any of its Subsidiaries that relates to the Intellectual Property of the
Company or its Subsidiaries, including, without limitation, (i) contracts
evidencing Liens, (ii) each contract pursuant to which any of the Company's
or any of its Subsidiaries' Intellectual Property has been licensed or
rights therein have been otherwise transferred to others, and (iii) each
other license, franchise, distributorship or other contract that relates in
whole or in part to any software, patent, trademark, trade name, service
mark or copyright or to any ideas, technical assistance or other know-how
of or used by the Company or any of its Subsidiaries in the conduct of the
business (exclusive of any shrink-wrap license agreements entered into in
the ordinary course of business).
(vii) Other Critical Contracts. Schedule 5.24(a)(vii) contains
------------------------ --------------------
a list and brief description of all contracts not entered into in the
ordinary course and upon which the business, assets, or financial condition
of the Company or any of its Subsidiaries depends on or would be materially
affected.
(viii) Warranty Contracts and Maintenance Contracts. Schedule
-------------------------------------------- --------
5.24(a)(viii) contains a list and brief description of each contract of the
--------------
Company or any of its Subsidiaries that relates to (i) product or service
warranties (including, without limitation, extended warranties) or
guarantees provided to the Company or its Subsidiaries by third parties or
to third parties by the Company or its Subsidiaries or (ii) maintenance of
products for the Company or its Subsidiaries by third parties or for third
parties by the Company or its Subsidiaries. For purposes of this
Agreement, the term "product" shall include Computer Software and Databases
where applicable. Schedule 5.24(a)(viii) also sets forth a schedule of
------------------------
costs incurred by the Company or its Subsidiaries under each such warranty
and maintenance contract described in the preceding sentence for each of
the last three (3) fiscal years in the aggregate for each such year and by
customer for each such year.
(ix) Other Contracts. Schedule 5.24(a)(ix) contains a list and
--------------- --------------------
brief description of each other contract of the Company or its Subsidiaries
that: (A) provides for monthly payments by or to the Company or its
Subsidiaries in excess of $5,000, (B) provides for payments, or under which
payments actually
22
<PAGE>
made were, by or to the Company or its Subsidiaries in any calendar year or
fiscal year, in excess of $50,000, (C) requires performance by the Company
or its Subsidiaries of any obligation for a period of time extending beyond
twelve (12) months from the Closing Date, (D) that is not terminable by the
Company or its Subsidiaries without penalty or liability upon sixty (60)
days or less notice, (E) evidences, creates, guarantees or services
indebtedness of the Company or its Subsidiaries other than current
liabilities, (F) establishes or provides for any joint venture, partnership
or similar arrangement involving the Company or its Subsidiaries, or (G)
guarantees or endorses the liabilities of any other Person.
The lists or descriptions contained in all Schedules referred to above are
correct and complete as of the date unless hereof otherwise noted thereon.
(b) Copies. Correct and complete copies of all the written contracts,
------
and correct and complete descriptions of all oral contracts, in each case as
referred to in Section 5.24(a) (the "Material Contracts") have been delivered to
Merger Corp. and MAPICS on or before the Closing Date.
(c) No Default. Neither the Company nor, to the Knowledge of the
----------
Company, any other party is in default under any of the Material Contracts, and
there is no basis for any claim of default under any of the foregoing. Each of
the Material Contracts (i) is in full force and effect, (ii) constitutes a
valid, legal and binding agreement of the parties thereto, enforceable in
accordance with its terms except enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other laws affecting creditors'
rights generally or equitable principles and as otherwise set forth on Schedule
--------
5.24(c), and (iii) was executed in the ordinary course of business consistent
- -------
with past practice by the Company or its Subsidiaries. Neither the Company nor
any of its Subsidiaries is a party to or bound by any contract or contracts
that, either separately or in the aggregate, causes or will cause a Material
Adverse Effect with respect to the Company, its Subsidiaries, its business or
assets. Except as set forth on Schedule 5.24(c), the continuation, validity and
----------------
effectiveness of each of the Material Contracts will not be affected in any way
by the consummation of the transactions contemplated by this Agreement. The
Company has no Knowledge of any party to any Material Contract with the Company
or its Subsidiaries that intends to cease to perform any material obligation
under such contract or to withhold any payment thereunder.
5.25 Suppliers and Customers. Schedule 5.25 sets forth each supplier to
----------------------- -------------
whom payments were made by the Company or its Subsidiaries that equaled or
exceeded five percent (5%) of the Company's cost of goods sold for the fiscal
years ended December 31, 1997 and December 31, 1998, or to whom payments are
projected to equal or exceed such percentage for the current fiscal year (the
"Large Suppliers") and the percentage of the Company's and each of its
Subsidiaries cost of goods sold allocable to each Large Supplier for each such
fiscal year. Schedule 5.25 sets forth (i) each past and present customer or
-------------
group of related customers that were the twenty-five (25) largest customers of
the Company and the twenty-five (25) largest customers of each of its
Subsidiaries
23
<PAGE>
(other than Thru-Put) for each of the last three (3) fiscal years (for the
Company and Subsidiaries other than Thru-Put, the "Large Customers"), and (ii)
each present customer or group of related customers that that are currently the
ten (10) largest customers of Thru-Put (as to Thru-Put, the "Large Customers").
Schedule 5.25 also reflects the percentage of the Company's or its Subsidiaries
- -------------
gross sales allocable to each such Large Customer for each such fiscal year.
Except as reflected on Schedule 5.25, no supplier is a sole source of supply of
-------------
any good or service to the Company or any of its Subsidiaries. The relationships
of the Company and the Subsidiaries with its Large Suppliers and Large Customers
are good commercial working relationships, and, except as set forth on Schedule
--------
5.25, neither (i) any of the Large Suppliers or any of the Large Customers, nor
- ----
(ii) any supplier who at any time during the last 12 months was or now is the
sole source of supply of any good or service, has terminated, or threatened to
terminate, its relationship with the Company or its Subsidiaries or has during
the last 12 months decreased or limited, or threatened to decrease or limit, its
services, supplies or materials to the Company or its Subsidiaries or its usage
or purchase of the goods or services of the Company, as the case may be (other
than customers whose agreements have been or are being fulfilled). The Company
has no Knowledge that any of the Large Suppliers or any of the Large Customers
intends to terminate or otherwise modify adversely its relationship to the
Company or any of its Subsidiaries or to decrease or limit its services,
supplies or materials to the Company or any of its Subsidiaries or its usage or
purchase of the goods or services of the Company or its Subsidiaries, as the
case may be, and the transactions contemplated by this Agreement will not, to
the Knowledge of the Company, materially adversely affect the relationship of
the Company or its Subsidiaries with any of the Large Suppliers or any of the
Large Customers.
5.26 Labor Matters.
-------------
(a) Schedule 5.26(a) contains a correct and complete (i) list of all
----------------
employees of the Company and each of its Subsidiaries, (ii) list of all
independent contractors of the Company and each of its Subsidiaries, (iii)
schedule of the direct compensation (including wages, salaries and actual or
anticipated bonuses) plus a description of other annual benefits, paid or
provided in the fiscal year ended December 31, 1998 and in the current fiscal
year, to all of the officers, directors and employees of the Company and each of
its Subsidiaries, and (iv) schedule of the direct and indirect compensation paid
or provided in the fiscal year ended December 31, 1998, and in the current
fiscal year, to all independent contractors of the Company and any of its
Subsidiaries. Each independent contractor of the Company or any of its
Subsidiaries meets the standards under all laws, including without limitation
IRS Regulations and federal and state labor regulations) as independent
contractors and no such Person is an employee of the Company or any of its
Subsidiaries under any applicable law.
(b) Except as set forth on Schedule 5.26(b)(i), the employment of
-------------------
each employee and independent contract of the Company and each of its
Subsidiaries is terminable at will by the Company without any penalty, liability
or severance obligation incurred by the Company or its Subsidiaries. Neither the
Company nor its Subsidiaries
24
<PAGE>
will owe any amounts to any of its employees or independent contractors as of
the Closing Date, including, without limitation, any amounts incurred for wages,
bonuses, vacation pay, sick leave or any severance obligations. If each employee
or independent contractor of the Company and its Subsidiaries were to be
terminated as of date of this Agreement, Schedule 5.26(b)(ii) sets forth all
--------------------
obligations the Company and its Subsidiaries would owe to each employee,
including, without limitation, any amounts for wages, bonuses, vacation pay,
sick leave or any severance obligations.
(c) Except as, and to the extent, set forth on Schedule 5.26(c), (i)
----------------
neither the Company nor any of its Subsidiaries is a party to any union
agreement or collective bargaining agreement or work rules or practices agreed
to with any labor organization or employee association applicable to any
employees of the Company or its Subsidiaries, and no attempt to organize any of
the employees of the Business has been made, proposed or threatened, (ii)
neither the Company nor any of its Subsidiaries has ever had any Equal
Employment Opportunity Commission or state fair employment practice agency
charges or other claims of employment discrimination, harassment or wrongful
discharge made against it or any of its employees, (iii) no state or federal
Wage and Hour Department investigations have ever been made of the Company or
its Subsidiaries and no claims or charges relating to wage and hour issues have
been filed or, to the Knowledge of the Company, threatened, (iv) no labor
strike, dispute, slowdown, stoppage or lockout is pending or threatened against
or affecting the Company or any of its Subsidiaries, and during the past five
(5) years there has not been any such action, (v) no unfair labor practice
charge or complaint against the Company or any of its Subsidiaries is pending
or, to the Knowledge of the Company, threatened before the National Labor
Relations Board or any similar Governmental Authority, (vi) no Office of Federal
Contract Compliance Programs compliance review or investigation or other United
States Department of Labor or state department of labor compliance review or
investigation has been made of the Company or any of its Subsidiaries, and
neither the Company nor any of its Subsidiaries has received any notice of any
such compliance review or investigation, (vii) neither the Company nor any of
its Subsidiaries is bound by any consent decree or settlement agreement relating
to employment decisions or relations with employees, independent contractors nor
applicants for employment, (viii) no Occupational Safety and Health
Administration investigations have been made of the Company or any of its
Subsidiaries in the past five (5) years, and (ix) the Company has no Knowledge
that any of the officers, employees, consultants, agents, independent
contractors, or other Persons performing services for the Company or any of its
Subsidiaries, will terminate or contemplates terminating his or her employment
or independent contractor relationship currently or at any time within sixty
(60) days after the Closing Date or will otherwise not be available to the
Company or any of its Subsidiaries on the same terms and conditions as his or
her current employment by, or independent contractor relationship with, the
Company or its Subsidiaries.
(d) Since the enactment of the Worker Adjustment and Retraining
Notification Act (the "WARN Act"), neither the Company nor any of its
Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN Act)
affecting any site of
25
<PAGE>
employment or one or more facilities or operating units within any site of
employment or facility of the Company or its Subsidiaries; or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or its Subsidiaries; and neither the Company nor its
Subsidies has been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law. Except as set forth on Schedule 5.26(d), none of the
----------------
Company's employees or the employees of its Subsidiaries has suffered an
"employment loss" (as defined in the WARN Act) since six (6) months prior to the
Closing Date.
5.27 Brokers and Finders. Except as set forth on Schedule 5.27, no finder
------------------- -------------
or any agent, broker or other Person acting pursuant to authority of the Company
is entitled to any commission or finder's fee in connection with the
transactions contemplated by this Agreement.
5.28 Compliance with the Immigration Reform and Control Act. The Company
------------------------------------------------------
and each of its Subsidiaries is in full compliance with, and has not violated
the terms and provisions of, the Immigration Reform and Control Act of 1986, and
all related regulations promulgated thereunder (the "Immigration laws"). With
respect to each employee (as defined in Section 274a.1(f) of Title 8, Code of
Federal Regulations) of the Company and its Subsidiaries for whom compliance
with the Immigration laws by an employer (as defined in Section 274a.1(g) of
Title 8, Code of Federal Regulations) is required, the Company has supplied to
Merger Corp. and MAPICS such employee's Form I-9 (Employment Eligibility
Verification Form) and all other records, documents or other papers that are
retained with the Form I-9 by the employer pursuant to the Immigration laws.
Neither the Company nor any of its Subsidiaries has ever been the subject of any
inspection or investigation relating to its compliance with or violation of the
Immigration laws, nor has it been warned, fined or otherwise penalized by reason
of any failure to comply with the Immigration laws, nor is any such proceeding
pending or threatened.
5.29 Litigation.
----------
(a) Except as disclosed on Schedule 5.29, there has not been since
-------------
January 1, 1998, and there is no action, administrative or other proceeding,
arbitration, cause of action, claim, complaint, criminal prosecution, inquiry,
hearing, governmental or regulatory investigation, governmental or regulatory
charge, litigation, notice (written or oral) by any Person alleging potential
liability or requesting information relating to or affecting the Company or any
of its Subsidiaries in connection with the business, its assets (including,
without limitation, contracts relating to the Company or its Subsidiaries), the
business or the transactions contemplated by this Agreement ("Litigation")
pending, or to the Knowledge of the Company, threatened against the Company or
any of its Subsidiaries and there is no reasonable basis for any such Litigation
or any facts or the occurrence of any event that might reasonably be expected to
give rise to any Litigation.
26
<PAGE>
(b) There is no outstanding decree, injunction, judgment, order,
ruling, writ, quasi-judicial decision or award or administrative decision or
award of any federal, state, local, foreign or other court, arbitrator,
mediator, tribunal, administrative agency or governmental authority ("Order")
binding on the Company, its Subsidiaries, its assets, business or securities.
(c) None of the pending or threatened Litigation itemized on Schedule
--------
5.29, if adversely determined, would individually or in the aggregate result in
- ----
a loss in excess of $100,000.
(d) There are no pending or, to the Knowledge of the Company,
threatened investigations or inquiries regarding the Company or its
Subsidiaries. Schedule 5.29 identifies and describes all inspection reports,
-------------
questionnaires, inquiries, demands, requests for information, and claims of
violations or noncompliance with any law received by the Company or its
Subsidiaries from any governmental authority and all written statements or
responses of the Company or its Subsidiaries with respect thereto.
5.30 Interested Transactions. Except as set forth on Schedule 5.30, the
----------------------- -------------
Company is not a party to any contract or other transaction with any affiliate
of the Company, any related party of any affiliate of the Company (other than as
a stockholder or employee of the Company), or any Person in which any of the
foregoing (individually or in the aggregate) beneficially or legally owns,
directly or indirectly, five percent (5%) or more of the equity or voting
interests. Except as described on Schedule 5.30, none of the Persons described
-------------
in the first sentence of this Section 5.30 owns, or during the last three (3)
years has owned, directly or indirectly, beneficially or legally, (individually
or in the aggregate) five percent (5%) or more of the equity or voting interests
of any Person that competes with the Company.
5.31 Environmental. Except as set forth on Schedule 5.31:
------------- -------------
(a) There is no Environmental Litigation (as defined below) (or
litigation against any Person whose liability for Environmental Matters (as
defined below), or whose violation of Environmental Laws, hereinafter defined,
the Company or any of its Subsidiaries has or may have retained or assumed
contractually or by operation of law) pending or, to the Knowledge of the
Company, threatened with respect to (i) the ownership, use, condition or
operation of the Company's business, the Company's assets or any asset formerly
held for use or sale by the Company or any of its predecessors or formerly held
for use or sale by the Company; or (ii) violation or alleged violation of any
Environmental Law or any Order related to Environmental Matters. There are no
existing violations of (i) Environmental Law or (ii) Order related to
Environmental Matters, with respect to the ownership, use, condition or
operation of the Company's business, Subsidiaries, assets or any asset formerly
held for use or sale by the Company or any of its predecessors with respect to
its business. There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, any
Environmental Matter, that could form the basis of (i) any Environmental
Litigation
27
<PAGE>
against the Company or its Subsidiaries, or (ii) any litigation against any
Person whose Liability (or any portion thereof) for Environmental Matters or
violation of Environmental Laws the Company has or may have retained or assumed
contractually or by operation of law. Neither the Company nor any of its
Subsidiaries or predecessors nor anyone Known to the Company has used any assets
or premises of the Company or its Subsidiaries or any of its predecessors or any
part thereof for the handling, treatment, storage or disposal of any Hazardous
Substances (as defined below). The disclosure of facts set forth on Schedule
--------
5.31 shall not relieve the Company or any other Person of any of its obligations
- ----
under this Agreement, or otherwise, specifically including, without limitation,
the obligation to indemnify Merger Corp. and MAPICS as set forth in the
indemnification agreement to which reference is made in Section 10.11 hereof.
(i) "Environmental Litigation" means any litigation, regulatory
------------------------
proceeding or enforcement action in any court or before or by any
governmental authority or private arbitrator, mediator or tribunal against
the Company, its Subsidiaries, its business or its assets (including,
without limitation, notice or other communication written or oral by any
Person alleging potential liability for investigatory costs, cleanup costs,
private or governmental response or remedial costs, natural resources
damages, property damages, personal injuries, or penalties) arising out of,
based upon, or resulting from (y) any Environmental Matter or (z) any
circumstances or state of facts forming the basis of liability, or alleged
liability under, or violation or alleged violation under, any Environmental
Law.
(ii) "Environmental Matter" means any matter or circumstances related
--------------------
in any manner whatsoever to (w) the emission, discharge, disposal, release
or threatened release of any hazardous substance, hazardous material,
hazardous waste, regulated substance or toxic substance (as such terms are
defined by the applicable Environmental Laws) and any chemicals,
pollutants, contaminants, petroleum, petroleum products or oil ("Hazardous
Substance") into the environment, or (x) the treatment, storage, recycling
or other handling of any Hazardous Substance, (y) the placement of
structures or materials into waters of the United States, or (z) the
presence of any Hazardous Substance, including, but not limited to,
asbestos, in any building, structure or workplace or on the Real Property.
(iii) "Environmental Laws" means all Laws prohibiting, limiting, or
------------------
regulating pollution or providing protection for the environment or human
health as it relates to the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
-- ---
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws prohibiting, limiting, or
-- ---
regulating emissions, discharges, releases or threatened releases of any
Hazardous Substance, or otherwise prohibiting,
28
<PAGE>
limiting, or regulating the manufacture, generation, processing,
distribution, use, treatment, storage, disposal, transport or handling of
any Hazardous Substance. For purposes of this Section 5.31 the term "Laws"
includes laws, regulations, rules, ordinances, or bylaws at the federal,
state, and local levels.
(b) No release, discharge, spillage or disposal of any Hazardous
Substances has occurred or is occurring at any assets or premises of the Company
or its Subsidiaries or any of its predecessors or any part thereof, while or
before such assets or premises were owned, leased, operated, or managed,
directly or indirectly, by the Company or its Subsidiaries.
(c) No soil or water in, under, or adjacent to any assets or premises
of the Company of its Subsidiaries or assets formerly held for use or sale by
the Company or any of its Subsidiaries or predecessors has been contaminated by
any Hazardous Substance while or before such assets or premises were owned,
leased, operated or managed, directly or indirectly, by the Company or any of
its Subsidiaries or predecessors.
(d) All waste containing any Hazardous Substances generated, used,
handled, stored, treated, or disposed of (directly or indirectly) by the Company
or any of its Subsidiaries or predecessors has been released or disposed of in
compliance with all applicable Environmental Laws including all applicable
reporting requirements, and the Company has no Knowledge of any Environmental
Litigation with respect to any such release or disposal.
(e) All underground tanks and other underground storage facilities
presently or previously located at real property owned, leased, operated, or
managed by the Company or any of its Subsidiaries or predecessors or any such
tanks or facilities located at such real property while any of these properties
was owned, leased, operated, or managed by the Company or any of its
Subsidiaries or predecessors are listed together with the capacity and contents
(former and current) of each such tank or facility on Schedule 5.31. None of
-------------
such underground tanks or facilities is leaking or has ever leaked.
(f) All waste, hazardous or otherwise, has been removed from real
property of the Company and its Subsidiaries or predecessors.
(g) The Company and its Subsidiaries and predecessors have complied
with all applicable reporting requirements under all Environmental laws
concerning the disposal or release of Hazardous Substances, and neither the
Company nor any of its Subsidiaries or predecessors has made any such reports
concerning real property owned, leased, operated, or managed by the Company or
any of its Subsidiaries or concerning the operations or activities of the
Company or any of its Subsidiaries or predecessors.
29
<PAGE>
(h) There is no asbestos containing material at, on, or in any
building or other Improvement on the real property owned, leased, operated, or
managed by the Company or its Subsidiaries.
(i) Without limiting the generality of any of the foregoing, (i) all
on-site and off-site locations where the Company or any of its Subsidiaries or
predecessors has stored, disposed or arranged for the disposal of Hazardous
Substances are identified on Schedule 5.31, and (ii) no polychlorinated
-------------
biphenyls (PCBs) are used or stored at, on or in real property owned, leased,
operated or managed by the Company or any of its Subsidiaries or predecessors.
5.32 Year 2000 Compliance. Except as set forth on Schedule 5.32, all of
-------------------- -------------
the Company's and its Subsidiaries' business systems and products sold, leased
or licensed to customers, including without limitation computer hardware and its
Computer Software and Databases and all prior releases and versions of such
Computer Software and Databases, are "Year 2000 Compliant." The expression
"Year 2000 Compliant" means with respect to any system or product of the Company
or any of its Subsidiaries, to the extent that other third party information
technologies not marketed, licensed or distributed by the Company or its
Subsidiaries and used in combination with such systems or products, properly
exchanges date and time data with them, and excluding products provided by third
Parties which are not marketed, licensed or distributed by the Company or its
Subsidiaries and that extend the functionality beyond that which the Company and
its Subsidiaries products currently provide, that such system or product:
(i) accepts input and provides output of data involving dates or
portions of dates correctly and without ambiguity as to the
twentieth or twenty-first centuries;
(ii) manages, stores, manipulates, sorts, sequences and performs
calculations with respect to data involving dates or portions
of dates before, during, and after January 1, 2000 (including
single-century or multi-century date formulas) without
malfunction, amends or aborts; and
(iii) manages the leap year occurring in the year 2000 and any dates
used by programmers to create exceptions where no date could be
determined as specified (e.g. 12/31/99 or 09/09/99).
"Processing" of date information includes, but is not limited to, accepting
input of dates without ambiguity, outputting all dates in an unambiguous form,
and performing calculations, comparisons or operations or taking action or
making decisions using dates, portions of dates, or time periods. The Company's
Point.Man product and each of the other products of the Company and the
Subsidiaries is Year 2000 compliant pursuant to, and the representation
contained in this Section 5.32 is qualified by, the following warranty:
Point.Man, and each of such other products, was designed from the start to be
30
<PAGE>
Year 2000 compliant. Point.Man utilizes the Microsoft Windows 4-digit "year"
date format on all programs and calculations to ensure dates greater than
December 31, 1999 are properly recognized by the system. To ensure that
Point.Man implementation is set up to utilize the 4-digit "year" dates, all
Microsoft Windows date settings on a user's Control Panel must be set for 4-
digit years and a user must enter 4 digits for years 2000 and beyond. Such
implementation shall not adversely affect any other products with which
Point.Man typically interoperates and, shall not adversely affect any customer's
implementation of Point.Man.
5.33 Accounts Payable. Except as set forth on Schedule 5.33, the trade
---------------- -------------
accounts payable of the Company and its Subsidiaries and all other monies due
from the Company or its Subsidiaries for purchases of goods and the performance
of services (the "Accounts Payable") are (i) validly existing, (ii) enforceable
against the Company or its Subsidiaries in accordance with the terms of the
instruments or documents creating them, and (iii) were created less than sixty
(60) days prior to the date hereof. Schedule 5.33 contains a complete and
-------------
correct list of all Accounts Payable, as of the end of the month preceding the
Closing Date. Except as set forth on Schedule 5.33, the Accounts Payable
-------------
represent monies due from the Company or its Subsidiaries, and have arisen
solely out of, bona fide sales and deliveries of goods, performance of services
and other business transactions with third parties in the ordinary course of
business consistent with past practices. None of the Accounts Payable represent
monies due from the Company or its Subsidiaries for goods either sold on
consignment or sold on approval.
5.34 Thru-Put Transaction. The Purchase and Sale Agreement pursuant to
--------------------
which the Company is to acquire a substantial portion of the assets of Thru-Put
has been authorized, executed and delivered by the Company and any Subsidiary a
party thereto.
5.35 Statements True and Correct. No representation or warranty made by
---------------------------
the Company pursuant to this Agreement or any other document, agreement or
instrument delivered pursuant hereto, including, without limitation, the
Financial Statements, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained therein not misleading.
SECTION 6
REPRESENTATIONS AND WARRANTIES OF MERGER CORP. AND MAPICS
---------------------------------------------------------
Merger Corp. and MAPICS hereby represent and warrant to the Company as
follows and warrants that such representations and warranties are and will be
true on and as of the Closing Date:
6.1 Organization. Merger Corp. is a corporation duly organized, validly
------------
existing, and in good standing under the laws of the Commonwealth of
Massachusetts, with the corporate power and authority to carry on its business
and to own, lease and operate its assets. MAPICS is a corporation duly
organized, validly existing, and in good
31
<PAGE>
standing under the laws of the State of Georgia, with the corporate power and
authority to carry on its business and to own, lease and operate its assets.
6.2 Capacity and Validity.
---------------------
(a) MAPICS has the corporate power, capacity and authority necessary
to enter into and perform its obligations under this Agreement and the other
agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement and the other agreements have been approved by all necessary
action of the directors of MAPICS. This Agreement and the other agreements to
which MAPICS is a party has been executed and delivered by duly authorized
officers of MAPICS, and each constitutes the legal, valid and binding
obligation of MAPICS, enforceable against MAPICS in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally.
(b) Merger Corp. has the corporate power, capacity and authority
necessary to enter into and perform its obligations under this Agreement and the
other agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement and the other agreements have been approved by all necessary
action of the directors and shareholders of Merger Corp. This Agreement and
the other agreements to which Merger Corp. is a party has been executed and
delivered by duly authorized officers of Merger Corp., and each constitutes the
legal, valid and binding obligation of Merger Corp., enforceable against Merger
Corp. in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights generally.
6.3 No Conflict. Neither the execution, delivery and performance of this
-----------
Agreement and the other agreements to which Merger Corp. or MAPICS is a party
nor the consummation of the transactions contemplated hereby or thereby by
Merger Corp. or MAPICS, will (a) conflict with or result in a violation,
contravention or breach of any of the terms, conditions or provisions of the
Articles of Incorporation or Bylaws of Merger Corp. or MAPICS, (b) result in a
default under, any contract or license to which Merger Corp. or MAPICS is a
party or by which Merger Corp. or MAPICS is bound, or (c) result in the
violation of any Law or Order.
6.4 Brokers and Finders. Except as set forth on Schedule 6.4, no finder
-------------------
or any agent, broker or other Person acting pursuant to authority of Merger
Corp. or MAPICS is entitled to any commission or finder's fee in connection with
the transactions contemplated by this Agreement.
6.5 Statements True and Correct. No representation or warranty made by
---------------------------
Merger Corp. or MAPICS, nor any statement, certificate or instrument furnished
or to be furnished to the Company pursuant to this Agreement or any other
document, agreement
32
<PAGE>
or instrument referred to herein or therein, contains or will contain any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained therein not misleading.
6.6 Purchaser Financing. MAPICS and Merger Corp. have, or are in a
-------------------
position to obtain, any and all financing required for purposes of discharging
their respective obligations under this Agreement. In this regard, MAPICS has
received and has provided to the Company for review, a financing commitment
letter issued by BancBoston, N.A. (the "Financing Commitment").
SECTION 7
---------
COVENANTS AND AGREEMENTS
------------------------
7.1 Pre-Closing Negative Covenants. The Company covenants and agrees that
------------------------------
from the date of this Agreement until the Closing Date, except as otherwise
specifically agreed to in writing by MAPICS (which agreement shall not be
unreasonably withheld), the Company will not, and the Company will cause each of
the Subsidiaries not to:
(a) incur or agree to incur any material liability or obligation
(absolute or contingent) except those trade payable obligations incurred in the
ordinary course of business;
(b) authorize or make any capital expenditure in excess of $10,000,
individually, or $25,000, in the aggregate;
(c) create or incur any mortgage, lien, charge or encumbrance on any
of its assets;
(d) increase the salary of any employee except in the ordinary course
of business, pay or agree to pay any bonus, severance or termination pay to any
employee, adopt any new employee benefit plan (except where required by law) or,
employ or enter into any employment contract between the Company or any of its
Subsidiaries and any Person that the Company or its Subsidiaries does not have
the unconditional right to terminate without liability;
(e) amend, alter or terminate any agreement to which it is a party
except in the ordinary course of business;
(f) sell, assign, lease or otherwise transfer or dispose of any of
its property or equipment or its businesses, except in the normal course of
business and with comparable replacement therefor; or
(g) except as indicated in Schedule 7.1(g) merge or consolidate or
--------------
agree to merge or consolidate with or into any other entity;
33
<PAGE>
(h) issue any additional capital stock or other security to any
Person, declare, set aside or pay any dividend or make any other distribution in
respect of its capital stock, directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock, or issue to any Person
options, warrants or other rights to acquire any securities;
(i) amend any of its organizational or governing documents;
(j) purchase any securities or make any material investment, either
by purchase of stock or other securities, contributions to capital, asset
transfers, or purchase of any assets, in any entity, or otherwise acquire direct
or indirect control over any other entity.
(k) make any significant change in any tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to conform
to changes in tax laws or regulatory accounting requirements or GAAP, or enter
into any settlement, accommodation or agreement with the Internal Revenue
Service or any other taxing authority in connection with the Company's 1994-1995
tax returns, which are currently under audit;
(l) commence any litigation other than in accordance with past
practice, settle any litigation involving any liability of the Company or any of
its Subsidiaries for material money damages or restrictions upon the operations
of the Company or any of its Subsidiaries;
(m) take any action, or omit to take any action, which would cause
any of the represe representations and warranties contained in Section 5 to be
untrue or incorrect; or
(n) make any loan to any Person or increase the aggregate amount of
any loan currently outstanding to any Person.
Anything hereinabove to the contrary notwithstanding, the parties acknowledge
and agree that the Company's consummation of the Thru-Put acquisition in
accordance with the executed Purchase and Sale Agreement, a copy of which has
been provided to MAPICS and Merger Corp., will not constitute a breach of this
Agreement.
7.2 Pre-Closing Affirmative Covenants. The Company covenants and agrees
---------------------------------
that from the date of this Agreement until the Closing Date, except as otherwise
specifically agreed in writing by MAPICS (which agreement shall not be
unreasonably withheld), the Company will, and will cause each of the
Subsidiaries to:
(a) maintain in effect the insurance coverage referred to in Section
5.20;
(b) permit MAPICS and its authorized representatives (including,
without limitation, any attorneys and accountants designated by MAPICS) to have
access
34
<PAGE>
(at mutually agreeable times during normal daytime business hours upon at
least 48 hours' prior notice to the Company) to all properties, records and
documents of the Company and the Subsidiaries for the purpose of making such
inspections and examinations as MAPICS shall deem desirable, and furnish to
MAPICS and such representatives financial and other information with respect to
the business and properties of the Company and the Subsidiaries as MAPICS may
from time to time reasonably request. MAPICS and its representative shall keep
confidential any information and documents obtained from the Company or its
Subsidiaries. In the event of termination of this Agreement, MAPICS shall
immediately return to the Company all such information and documents, including
all copies thereof made by MAPICS and the foregoing obligations of
confidentiality and nondisclosure shall remain in effect for a period of two (2)
years beyond such termination,
(c) carry on business in substantially the same manner as heretofore
(during the preceding one-year period) and not make any material change in
personnel, operations, finance, accounting policies, or real or personal
property;
(d) maintain its assets and all parts thereof in as good working
order and condition as at present, ordinary wear and tear excepted;
(e) perform all obligations under agreements with others in the
ordinary course of business;
(f) use its commercially reasonable efforts to retain present
employees, and maintain relationships with suppliers, customers and others
having business relations with it;
(g) pay all accounts payable of the Company and its Subsidiaries in
accordance with past practice and collect all accounts receivable in accordance
with past practice;
(h) cause all tax returns that have not been filed prior to the date
hereof to be prepared and filed on or before the date such tax return is
required to be filed (taking into account any extensions of the filing deadline
granted); provided, however, that any such tax return shall not be filed without
a reasonable opportunity for prior review and comment by MAPICS or Merger Corp.
(i) use its commercially reasonable efforts to (A) convene the
meeting of its stockholders received for authorization of this Agreement and the
contemplated transaction, and (B) obtain the stockholder vote required to effect
such authorization.
7.3 Commercially Reasonable Efforts of the Company. The Company covenants
----------------------------------------------
and agrees to use its commercially reasonable efforts to cause all of its
covenants and agreements and all conditions precedent to MAPICS' and Merger
Corp.'s and the Company's obligations to close hereunder to be performed,
satisfied and fulfilled.
35
<PAGE>
7.4 MAPICS' and Merger Corp.'s Commercially Reasonable Efforts. Each of
----------------------------------------------------------
MAPICS and Merger Corp. covenants and agrees to use its commercially reasonable
efforts to cause all of its covenants and agreements and all conditions
precedent to the Company's and MAPICS' and Merger Corp.'s obligations to close
hereunder to be performed, satisfied and fulfilled.
7.5 Public Announcements. Any public announcement or similar publicity
--------------------
with respect to this Agreement or the transactions contemplated hereby will be
issued, if at all, at such time and in such manner as the parties mutually agree
upon in advance. Unless consented to by the Company, on the one hand, or MAPICS
and Merger Corp., on the other hand, in advance or required by any applicable
legal requirements prior to Closing, MAPICS and Merger Corp., on the one hand,
and the Company, on the other hand, shall, and shall cause all Persons under its
or their control to, keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any Person other than legal, accounting and
other advisors to MAPICS or Merger Corp. and others with a need to know. The
parties will consult with each other concerning the means by which the Company's
and the Subsidiaries' employees, customers, and suppliers and others having
dealings with the Company or the Subsidiaries will be informed, if at all, of
this Agreement and the transactions contemplated hereby, and each of the Company
and MAPICS will have the right to review in advance and approve the general form
and substance of any such written communications or to be present for any such
oral communications.
7.6 Notification. Between the date of this Agreement and the Closing
------------
Date, MAPICS, on the one hand, and the Company, on the other hand, will promptly
notify the other party in writing if MAPICS or Merger Corp., on the one hand, or
the Company, on the other hand, becomes aware of any fact or condition that
causes or constitutes a breach, (a) on the one hand, of any of MAPICS' or Merger
Corp.'s representations and warranties as of the date of this Agreement, or if
MAPICS becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of the occurrence
or discovery of such fact or condition, or (b) on the other hand, of any of the
Company's representations and warranties as of the date of this Agreement, or if
the Company becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the disclosure schedules contemplated by the provisions of this
Agreement as to the Company, or as to MAPICS and Merger Corp., if such
disclosure schedules were dated the date of the occurrence or discovery of any
such fact or condition, the Company, on the one hand, and MAPICS, on the other
hand, will promptly deliver to the other party a supplement to the applicable
disclosure schedule specifying such change, any of which such supplement is
subject to
36
<PAGE>
the approval of MAPICS in its sole discretion, on the one hand, and the Company
in its sole discretion, on the other hand. During the same period, (i) MAPICS
will promptly notify the Company of the occurrence of any breach of any covenant
of MAPICS or Merger Corp. in this Section 7, or of the occurrence of any event
that may make the satisfaction of the conditions in Section 11 hereof impossible
or unlikely, and (ii) the Company will promptly notify MAPICS of the occurrence
or any breach of any covenant of the Company in this Section 7, or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 10 hereof impossible or unlikely.
7.7 Vacation and Holiday Pay, Etc. Prior to the Closing, the Company
------------------------------
shall provide MAPICS with Schedule 7.7 containing all accrued vacation and
------------
holiday pay estimated as of the Closing Date based upon existing employment
policies of the Company and each of its Subsidiaries.
7.8 Risk of Loss. The Company shall maintain all risk of condemnation,
------------
destruction, loss or damage due to fire or other casualty from the date of this
Agreement until the Closing. If a pre-Closing condemnation, destruction, loss
or damage is such that the operation of the Company's facilities or the
facilities of one of its Subsidiaries is materially interrupted or curtailed or
the assets of the Company or its Subsidiaries are materially affected, then
Merger Corp. and the MAPICS shall have the right to terminate this Agreement.
If Merger Corp. and MAPICS nonetheless elect to close, the Company shall remit
all net condemnation proceeds or third party insurance proceeds to MAPICS and
the cash amount indicated on Schedule 3.1 shall be adjusted at Closing to
------------
reflect such condemnation, destruction, loss or damage to the extent that
insurance or condemnation proceeds are not sufficient to cover such destruction,
loss or damage.
7.9 No-Shop. Unless and until this Agreement is terminated pursuant to
-------
Article 8 hereof, the Company shall not directly or indirectly, through any
officer, director, employee, agent, intermediary or otherwise: (i) solicit,
initiate or encourage submission of proposals or offers from any Person or other
entity relating to any purchase of an equity interest in the Company, or any
merger, sale of substantial assets or any similar transaction whether or not
resulting in a change of control of the Company; (ii) participate in any
discussions or negotiations regarding, or furnish to any other Person or other
entity, any information with respect to, or otherwise respond to, cooperate or
encourage, any effort or attempt by any other Person or other entity to purchase
any equity interest in the Company, or engage in a merger, purchase of
substantial assets or any similar transaction whether or not such transaction
contemplates a change of control the Company; or (iii) approve or undertake any
such transaction. The Company shall promptly communicate to MAPICS and Merger
Corp. the terms of any such oral or written proposal or offer upon knowledge or
receipt of such proposal or offer.
7.10 Applications; Antitrust Notification. To the extent required by
------------------------------------
Section 7A of the Clayton Act, as added by Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), each of the
parties has or will promptly file with the United States Federal Trade
Commission and the United States Department of
37
<PAGE>
Justice the notification and report form required for the transactions
contemplated hereby and any supplemental or additional information which may
reasonably be requested in connection therewith pursuant to the HSR Act and will
comply in all material respects with the requirements of HSR Act. The parties
shall cooperate with and deliver to each other copies of all filings,
correspondence and orders to and from all regulatory authorities in connection
with the transactions contemplated hereby.
7.11 Filings with State Offices. Upon the terms and subject to the
--------------------------
conditions of this Agreement, the Company and Merger Corp. shall execute and
file a Certificate of Merger with the Massachusetts Secretary of State in
connection with the Closing, and shall take such other actions as are required
by the laws of such respective states to effect the Merger.
7.12 Indemnification of Company Officers, Directors. At the Effective
-----------------------------------------------
Time, MAPICS and Merger Corp. shall honor the obligations of the Company
(reflected in the Company's by-laws and articles of organization) providing for
indemnification and limitation of liability in favor of Persons who were
officers and directors of the Company prior to the Merger.
7.13 Collection of Company Accounts Receivable. From and after the
-----------------------------------------
Closing, MAPICS and Merger Corp. will exercise commercially reasonable efforts
to collect accounts receivable that were on the books of the Company prior to
the Closing and will otherwise collect such accounts receivable in substantially
the same manner and with the same diligence as are applicable with respect to
collection of MAPICS' other accounts receivable.
7.14 Payment of Certain Indebtedness. MAPICS agrees that, immediately
-------------------------------
following the Closing, it will cause the Company to, or will itself, make the
payments required under paragraphs (vi), (vii), (viii) and (x) in Schedule 3.1
hereto.
SECTION 8
---------
TERMINATION
-----------
8.1 Grounds for Termination. Anything herein or elsewhere to the contrary
-----------------------
notwithstanding, this Agreement and the obligations of the parties hereunder may
be terminated on or prior to the Closing Date, as follows:
(a) By MAPICS (i) in the event that the transactions contemplated
hereunder have been prohibited or enjoined by reason of any final judgment,
decree or order entered or issued by a court of competent jurisdiction in
litigation or proceedings involving either MAPICS or the Company; (ii) in the
event the conditions precedent to MAPICS' obligation to close are not satisfied
and performed in full at or prior to the Closing Date, as required by Section 10
hereof (other than as a result of a breach by MAPICS or Merger Corp. of their
obligations hereunder); or (iii) in the event the Company breaches or violates
any material provision of this Agreement or fails to
38
<PAGE>
perform any material covenant or agreement to be performed by the Company
under the terms of this Agreement and such breach, violation or failure is not
cured within 6 days after written notice thereof or waived by MAPICS prior to
Closing.
(b) By the Company (i) in the event that the transactions
contemplated hereunder have been prohibited or enjoined by reason of any final
judgment, decree or order entered or issued by a court of competent jurisdiction
in litigation or proceedings involving either MAPICS, Merger Corp. or the
Company; (ii) in the event the conditions precedent to the obligation of the
Company to close are not satisfied and performed in full at or prior to the
Closing Date, as required by Section 11 hereof (other than as a result of breach
by the Company of its obligations hereunder); or (iii) in the event MAPICS or
Merger Corp. breaches or violates any material provision of this Agreement or
fails to perform any material covenant or agreement to be performed by MAPICS or
Merger Corp. under the terms of this Agreement, and such breach, violation or
failure is not cured within 10 days after written notice thereof or waived by
the Company prior to Closing.
(c) By the Company and MAPICS by mutual agreement or if the Closing
shall not have occurred by the Outside Closing Date.
8.2 Consequences of Termination. Each party's right of termination under
---------------------------
Section 8.1 hereof is in addition to any other rights such party may have under
this Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to Section
8.1, all further obligations of the parties under this Agreement shall
terminate, except that the obligations in Section 7.2(b) (the last sentence
only), 7.5 and Section 12 will survive; provided, however, that if this
Agreement is terminated by a party because of the breach of this Agreement by
another party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
SECTION 9
---------
AMENDMENT OF AGREEMENT
----------------------
At any time on or prior to the Closing Date, MAPICS and the Company may, by
written agreement:
(a) extend the time for performance of any of the obligations or
other actions of the parties hereto;
(b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant thereto;
(c) waive compliance with any of the covenants or conditions
contained in this Agreement; provided, however, that a party may waive any of
all of the
39
<PAGE>
conditions precedent to its obligation to close without a written amendment
signed by both parties; and
(d) amend this Agreement in any other respect.
Any and all amendments shall be effective if made in writing by all
parties.
SECTION 10
----------
CONDITIONS PRECEDENT TO MAPICS' OBLIGATION TO CLOSE
---------------------------------------------------
The obligation of MAPICS and Merger Corp., acting together, to consummate
the transactions contemplated by this Agreement is subject to and contingent
upon the satisfaction on or before the Closing Date of the following express
conditions precedent:
10.1 Representations, Warranties and Covenants. Each of the
-----------------------------------------
representations and warranties of the Company contained in this Agreement and
the other transaction documents required hereby shall be true and correct,
except for such changes which would not have a material adverse effect on the
Company taken as a whole as reasonably determined by MAPICS as of the date
hereof and as of the Closing Date as though such representations and warranties
had been made on and as of the Closing Date, and the Company shall have
performed all covenants and agreements on its part required to be performed and
shall not be in default under any of the provisions of this Agreement on the
Closing Date.
10.2 Good Standing. MAPICS shall have received good standing and existence
-------------
certificates for the Company and each of the Subsidiaries, issued by the
Secretary of State of its respective state of incorporation and dated not more
than thirty (30) days prior to the Closing.
10.3 Litigation. No action or proceeding shall have been instituted and no
----------
order, decree or judgment of any court, agency, commission or authority shall be
subsisting questioning the validity of this Agreement or seeking to restrain the
consummation thereof which would in MAPICS' good faith opinion render it
impossible or inadvisable to consummate the transactions provided for in this
Agreement.
10.4 Opinion of Counsel. MAPICS shall have received an opinion of
------------------
McDermott, Will & Emery, counsel to the Company, and the Shareholders, in
customary form for transactions of the type contemplated in this Agreement (to
include, without limitation, customary opinion as to capitalization of the
Company and the Subsidiaries) and reasonably satisfactory to MAPICS.
10.5 Resolutions. The Company shall have delivered to MAPICS copies,
-----------
certified by the appropriate authorized officer of the Company of resolutions
adopted by the Board of Directors and the shareholders of the Company approving
this Agreement and the transactions contemplated hereby.
40
<PAGE>
10.6 Governmental Concurrences. MAPICS and/or its assignees shall have
-------------------------
obtained assurances from all the necessary governmental authorities, in form and
substance reasonably satisfactory to MAPICS, that MAPICS and/or its assignees
will be granted all governmental approvals and/or contracts necessary or
appropriate for the operation of the Company as previously operated.
10.7 Adverse Changes. There shall not have occurred any other event or
---------------
condition which has had or which reasonably may be expected to have a material
and adverse effect on the results of operations, condition (financial or
otherwise), assets, properties, business or prospects of the Company or any of
the Subsidiaries, taken as a whole.
10.8 Due Diligence Review. MAPICS and its representatives shall be
--------------------
satisfied, in MAPICS' sole and absolute discretion, with the results of its due
diligence investigation of the Company and the Subsidiaries limited, however, to
the following matters:
(a) Tax returns requested pursuant to MAPICS' written due diligence
request list, provided to the Company on or about November 18, 1999 (the "Due
Diligence Request").
(b) Schedules and financial statements to be attached to or provided
pursuant to (i) the Purchase and Sale Agreement entered into or to be entered
into between the Company, or its subsidiary, and Thru-Put, and (ii) the
acquisition agreement entered into between the Company and Softwave, Inc.
(c) List of all of the Company's general reserves.
(d) List of all of the Company's deferred initial license revenue
amounts.
(e) Documentation relating to third party relationships of Thru-Put
and Softwave, Inc.
Anything hereinabove or elsewhere to the contrary notwithstanding, MAPICS and
Merger Corp. shall be empowered to decline consummation of the transactions
contemplated herein by reason of matters discovered in such due diligence only
in the event that such matters, separately or as a whole, constitute a Material
Adverse Change.
Materials reflecting or including the information described above will be
provided by the Company to MAPICS or Merger Corp., or either of them, as soon as
practicable. In the event that MAPICS or Merger Corp., or either of them intend
to decline consummation of the transactions contemplated herein by reason of
information (the "Adverse Information") received in any such materials, notice
of such intention shall be
41
<PAGE>
provided to the Company, specifying the Adverse Information. Any such notice
shall be effective only if and to the extent that it is received by the Company
no later than fourteen (14) days after the date of receipt by MAPICS or Merger
Corp., or either of them, of the Adverse Information.
10.9 Financing. Reference is made to that certain letter agreement dated
---------
December 10, 1999 from Bank Boston, N.A., (the "Lender") to MAPICS, reflecting a
commitment for financing from the Lender (the "Financing Commitment"). The
Lender shall not have declined to fund the financing described in the Financing
Commitment (the "Financing") in a manner permitted under and pursuant to the
terms of the Financing Commitment; with regard to the foregoing, MAPICS shall
use its reasonable commercial efforts to cause the Lender to close the Financing
in the manner provided in the Financing Commitment.
10.10 Escrow Agreement. The parties hereto and the representative of the
----------------
Shareholders and First Union National Bank, Atlanta, Georgia shall have entered
into the Escrow Agreement provided for under Section 3.1(b) hereof.
10.11 Indemnification Agreement. MAPICS and the representative of the
-------------------------
Shareholders shall have entered into an Indemnification Agreement in
substantially the form of Exhibit 10.11 hereto.
-------------
10.12 Resignations; Releases. All officers and directors of the Company
----------------------
and the Subsidiaries from whom resignations have been requested by MAPICS shall
have submitted resignations from applicable boards of directors and offices.
Each of such Persons shall also have executed and delivered a Release
substantially in the form of Exhibit 10.12, attached hereto and made a part
-------------
hereof.
10.13 Other Agreements. The Company shall have executed and delivered to
----------------
MAPICS all of the other Closing Documents and all other documents, instruments
and certificates required to be delivered by the Company pursuant to any term or
provision of this Agreement.
10.14 Dissenters. No more than (i) 50,000 shares of the Company's Common
----------
Stock shall be held by Persons who have qualified for dissenters' rights under
the Massachusetts Business Corporation Code, and (ii) no holder of Company
Capital Stock other than the Company's Common Stock.
10.15 Thru-Put Closing. The Company's transaction with Thru-Put, Inc.
----------------
shall have been consummated substantially on the terms provided in the Purchase
and Sale Agreement dated December 7, 1999 between the Company, TPTI Acquisition,
Inc. and Thru-Put. In connection with the foregoing, the parties acknowledge
and agree as follows:
42
<PAGE>
(a) The escrow agreement to be delivered in connection with the Thru-
Put transaction will permit substitution of the cash consideration to be
delivered pursuant to this Agreement for the Company's shares to be deposited
into such escrow at the closing of the Thru-Put transaction.
(b) The Company will use its reasonable commercial efforts to close
the Thru-Put transaction expeditiously and as soon as practicable after the
execution of this Agreement, but in any event no later than December 31, 1999.
(c) Any liens that encumber the assets of Thru-Put to be purchased by
the Company or a Subsidiary will be satisfied at or prior to the Closing.
10.16 HSR Act Compliance. The parties shall have complied with all
------------------
waiting periods under the HSR Act.
10.17 Payment of 1998 Taxes. All of the Company's state and federal tax
---------------------
returns for 1998 shall have been properly filed and all taxes payable in
connection with such returns shall have been paid in full.
10.18 Amendment of Employee Benefit Plans. The Company shall have taken
-----------------------------------
all steps necessary to amend the Company's Retirement Savings Plan to provide
that eligibility and participation under the plan are limited to employees of
the Company. The Company shall have filed with the Internal Revenue Service a
request for a determination of the plan's qualified status as an individual
designed plan following the amendment. Additionally, the Company shall have
taken all steps necessary to either terminate the Thru-Put Employee 401(k)
Savings Plan or to amend such plan to provide that eligibility and participation
under the plan are limited to former employees of Thru-Put.
10.19 Pay-Off of Long-Term Debt. Neither the Company nor its Subsidiaries
-------------------------
shall have any long-term debt other than an obligation in favor of Fleet
Financial in an amount not to exceed $2,750,000.
10.20 Stockholders' Agreement. That certain Stockholders' Agreement dated
-----------------------
October 31, 1995 by and among the Company and stockholders named therein shall
have been terminated.
SECTION 11
----------
CONDITIONS PRECEDENT TO OBLIGATION
----------------------------------
OF THE COMPANY TO CLOSE
-----------------------
The obligation of the Company to consummate the transactions contemplated
by this Agreement is subject to and contingent upon the satisfaction on or
before the Closing Date of the following express conditions precedent:
43
<PAGE>
11.1 Representations, Warranties and Covenants. Each of the
-----------------------------------------
representations and warranties of MAPICS and Merger Corp. contained in this
Agreement and the other transaction documents required hereunder shall be true
and correct in all material respects, as reasonably determined by the Company as
of the date hereof and as of the Closing Date, and MAPICS and Merger Corp. shall
have performed all covenants and agreements on its part required to be performed
and shall not be in default under any of the provisions of this Agreement at or
prior to the Closing Date.
11.2 Resolutions.
-----------
(a) MAPICS shall have delivered to the Company copies, certified by
the Secretary or Assistant Secretary of MAPICS, of resolutions adopted by the
Board of Directors of MAPICS and approving this Agreement and the consummation
of the transactions contemplated hereby.
(b) Merger Corp. shall have delivered to the Company copies, certified
by the Secretary or Assistant Secretary of Merger Corp., of resolutions adopted
by the Board of Directors and shareholders of Merger Corp. and approving this
Agreement and the consummation of the transactions contemplated hereby.
11.3 Existence.
---------
(a) The Company shall have received a Certificate of Existence for
MAPICS, issued by the Secretary of State of the State of Georgia, and dated not
more than thirty (30) days prior to the Closing.
(b) The Company shall have received a good standing certificate for
Merger Corp., issued by the Secretary of the Commonwealth of Massachusetts, and
dated not more than thirty (30) days prior to the Closing.
11.4 Opinion of Counsel. The Company shall have received an opinion of
------------------
counsel to MAPICS and Merger Corp. in customary form for transactions of the
type contemplated in this Agreement and reasonably satisfactory to the Company.
11.5 Litigation. No action or proceeding shall have been instituted and no
----------
order, decree or judgment of any court, agency, commission or authority shall be
subsisting questioning the validity of this Agreement or seeking to restrain the
consummation thereof which would, in the Company's good faith opinion, render it
impossible or inadvisable to consummate the transactions provided for in this
Agreement.
11.6 Indemnification Agreement. MAPICS and the representative of the
-------------------------
Shareholders shall have entered into an Indemnification Agreement in
substantially the form of Exhibit 10.11 hereto.
44
<PAGE>
11.7 Appointment of Representative. The Shareholders shall have executed
-----------------------------
an instrument appointing a representative for purposes of the Indemnification
Agreement and the Escrow Agreement.
11.8 Escrow Agreement. The parties hereto, MAPICS, the representative of
----------------
the Shareholders and First Union National Bank, Atlanta, Georgia, shall have
entered into the Escrow Agreement and MAPICS shall have deposited the sum of
$4,800,000 into escrow pursuant to and in accordance with the Escrow Agreement.
11.9 Necessary Consents. The consent of all Persons and entities
------------------
necessary for the consummation of the transactions contemplated hereby shall
have been granted.
11.10 No Material Adverse Change. There shall have been no material
--------------------------
adverse change in the financial condition or operations of MAPICS.
11.11 Other Agreements. MAPICS and Merger Corp. shall have executed and
----------------
delivered to the Company all of the other Closing Documents and all other
documents, instruments, certificates required to be delivered by MAPICS.
11.12 HSR Act Compliance. The parties shall have complied with all
------------------
waiting periods under the HSR Act.
SECTION 12
----------
PAYMENT OF EXPENSES
-------------------
One-half (1/2) of the sum of all legal, accounting and other expenses
incident to this Agreement and the transactions contemplated hereby incurred by
the Shareholders or the Company shall be paid by the Company; the other one-half
shall be offset against the consideration paid by MAPICS and Merger Corp.
Legal, accounting and other expenses incurred by MAPICS and Merger Corp. shall
be paid by MAPICS. Notwithstanding the foregoing provisions of this Section 12,
if the transactions contemplated hereby are not consummated as a result of a
breach of this Agreement by any party, such party shall be liable for expenses
and costs incurred by the other party (or the Shareholders, as the case may be),
together with all reasonable expenses and costs (including attorneys' fees)
incurred by the other party in connection with enforcing its rights under this
Agreement.
SECTION 13
----------
ADDITIONAL DOCUMENTS
--------------------
The parties hereto will, at any time, before, at or after the Closing Date,
sign, execute and deliver all such documents and instruments and do or cause to
be done all such other acts and things as may be necessary to carry out the
provisions of this Agreement.
45
<PAGE>
SECTION 14
----------
NOTICES
-------
Any notice or other communications required or permitted hereunder shall be
sufficiently given if sent by registered or certified mail, postage prepaid, or
by Federal Express, UPS or similar service or by telecopy, addressed as follows:
The Company: Pivotpoint, Inc.
600 West Cummings Park, Suite 5500
Woburn, Massachusetts 01801
Attention: Stephen C. Haley, President
With a Copy (which shall
not constitute notice) to: McDermott, Will & Emery
28 State Street
Boston, Massachusetts 02114
Attention: John J. Egan III, P.C.
MAPICS: MAPICS, Inc.
1000 Windward Concourse Parkway
Alpharetta, Georgia 30005
Fax No.: (404) 678-319-8949
Attention: Martin D. Avallone
With a Copy (which shall Alston & Bird
not constitute notice) to: One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Fax No.: (404) 881-7777
Attention: Jonathan W. Lowe, Esq.
or to such other addresses as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so expressed or telecopied and five (5) business days after the
date so mailed (if mailed).
SECTION 15
----------
MISCELLANEOUS
-------------
15.1 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be one and the same Agreement.
15.2 Headings. The headings in this Agreement are for convenience only and
--------
shall not affect the construction hereof.
46
<PAGE>
15.3 Assignability; Binding Terms and Provisions. This Agreement shall not
-------------------------------------------
be assignable by any of the parties hereto without the prior written consent of
the other parties hereto. All terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the successors
and assigns of the parties hereto.
15.4 Entire Agreement. This Agreement shall constitute the entire
----------------
agreement among the parties with respect to the foregoing and may not be amended
except as provided herein.
15.5 Governance. This Agreement shall be governed by, and construed and
----------
enforced in accordance with, the laws of the State of Georgia.
15.6 Waiver of Breach. The waiver by either party of a breach or violation
----------------
of any provision of this Agreement shall not operate as, or be construed to be,
a waiver of any subsequent breach of the same or other provision hereof.
15.7 Third Party Beneficiaries. Except as expressly provided in this
-------------------------
Agreement, nothing in this Agreement, whether express or implied, is intended to
confer any rights or remedies under or by reason of this Agreement on any
Persons other than the parties to it and the respective successors and assigns,
nor is anything in this Agreement intended to relieve or discharge the
obligation or liability of any third Persons to any party to this Agreement, nor
shall any provision give any third Persons any right of subrogation or action
over or against any party to this Agreement. Anything hereinabove to the
contrary notwithstanding, the parties acknowledge and agree that MAPICS shall
have the right to make a security assignment of its interest in this Agreement
to any financial institution that provides financing for the benefit of MAPICS
in connection with its acquisition of the Company pursuant to this Agreement.
15.8 Dispute Resolution. All disputes arising under this Agreement (other
------------------
than claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the JAMS/ENDISPUTE. Arbitration shall be by a
single arbitrator experienced in the matters at issue and selected by the
Company and MAPICS in accordance with such Rules. The arbitration shall be held
in such place in New York City, New York as may be specified by the arbitrator
(or any place agreed to by the Company, MAPICS and the arbitrator). The
decision of the arbitrator shall be final and binding as to any matters
submitted under this Agreement; provided, however, if necessary, such decision
and satisfaction procedure may be enforced in any court of record having
jurisdiction over the subject matter or over any of the parties to this
Agreement. All costs and expenses incurred in connection with any such
arbitration proceeding (including reasonable attorneys fees) shall be borne by
the party against which the decision is rendered, or, if no decision is
rendered, such costs and expenses shall be borne equally by the Company and
MAPICS. If the arbitrator's decision is a compromise, the determination of
which party or parties bears the costs and expenses incurred in
47
<PAGE>
connection with any such arbitration proceeding shall be made by the arbitrator
on the basis of the arbitrator's assessment of the relative merits of the
parties' positions.
15.9 Knowledge. As used in this Agreement, the term "knowledge" or
---------
"Knowledge," with respect to the Company, means and is deemed to exist as to a
particular matter or fact, if, (i) John Nugent, Stephen C. Haley, Marlene
O'Brien, Michael Taffe or Brian LaRock is actually aware of such fact or other
matter after reasonable inquiry within the Company, or (ii) a prudent individual
could be expected to discover or otherwise become aware of such fact or other
matter in the course of conducting a reasonably comprehensive investigation
concerning the existence of such fact or other matter; and, with respect to any
entity (other than an individual), means and is deemed to exist as to a
particular matter of fact if, any individual who is serving, or who has at any
time served, as a director, officer, partner, executor, or trustee of such
entity (or in any similar capacity), has, or at any time had, knowledge of such
fact or other matter of the sort described above in this Section 15.9.
15.10 Schedules. Each Schedule to this Agreement shall be considered a
---------
part hereof as if set forth herein in full. Each Schedule hereto may be updated
by the Company, subject to approval by MAPICS as of the Closing, in its
discretion.
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by a duly authorized officer on the date first above written.
PIVOTPOINT, INC.
By: /s/ Stephen C. Haley
--------------------
Title: President/CEO
-------------
MAPICS, INC.
By: Richard C. Cook
---------------
Title: President/CEO
-------------
MAPICS MERGER CORP.
By: William J. Gilmour
------------------
Title: President
---------
<PAGE>
Exhibit 10.17
REVOLVING CREDIT
----------------
AND
---
TERM LOAN AGREEMENT
-------------------
Dated as of August 4, 1997
among
MAPICS, INC.
BANKBOSTON, N.A.
and the other lending institutions
set forth on Schedule 1 hereto
----------
and
BANKBOSTON, N.A. as Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION......................................................... 1
---------------------------------------
1.1. Definitions.......................................................................... 1
-----------
1.2. Rules of Interpretation.............................................................. 19
-----------------------
2. THE REVOLVING CREDIT FACILITY................................................................... 20
-----------------------------
2.1. Commitment to Lend................................................................... 20
------------------
2.2. Commitment Fee....................................................................... 21
--------------
2.3. Reduction of Total Commitment........................................................ 21
-----------------------------
2.4. The Revolving Credit Notes........................................................... 21
--------------------------
2.5. Interest on Revolving Credit Loans................................................... 22
----------------------------------
2.6. Requests for Revolving Credit Loans.................................................. 22
-----------------------------------
2.7. Conversion Options................................................................... 23
------------------
2.7.1. Conversion to Different Type of Revolving Credit Loan..................... 23
-----------------------------------------------------
2.7.2. Continuation of Type of Revolving Credit Loan............................. 23
---------------------------------------------
2.7.3. Eurodollar Rate Loans..................................................... 23
---------------------
2.8. Funds for Revolving Credit Loan...................................................... 24
-------------------------------
2.8.1. Funding Procedures........................................................ 24
-----------------
2.8.2. Advances by Agent......................................................... 24
----------------
2.9. Change in Borrowing Base............................................................. 25
------------------------
3. REPAYMENT OF THE REVOLVING CREDIT LOANS......................................................... 25
---------------------------------------
3.1. Maturity............................................................................. 25
--------
3.2. Mandatory Repayments of Revolving Credit Loans....................................... 25
----------------------------------------------
3.3. Optional Repayments of Revolving Credit Loans........................................ 25
---------------------------------------------
4. THE TERM LOAN................................................................................... 26
-------------
4.1. Commitment to Lend................................................................... 26
------------------
4.2. The Term Notes....................................................................... 26
--------------
4.3. Repayments of the Term Loan.......................................................... 26
---------------------------
4.3.1 Schedule of Installment Payments of Principal of Term Loan.................. 26
----------------------------------------------------------
4.3.2 Proceeds.................................................................... 27
--------
4.4. Optional Prepayment of Term Loan..................................................... 27
--------------------------------
4.5. Interest on Term Loan................................................................ 27
---------------------
4.5.1. Interest Rates............................................................ 27
--------------
4.5.2. Notification by Borrower.................................................. 28
------------------------
4.5.3. Amounts, etc.............................................................. 28
------------
5. LETTERS OF CREDIT............................................................................... 28
-----------------
5.1. Letter of Credit Commitments......................................................... 28
---------------------------
5.1.1. Commitment to Issue Letters of Credit..................................... 28
-------------------------------------
5.1.2. Letter of Credit Applications............................................. 29
-----------------------------
5.1.3. Terms of Letters of Credit................................................ 29
--------------------------
5.1.4. Reimbursement Obligations of Banks........................................ 29
----------------------------------
5.1.5. Participations of Banks................................................... 29
-----------------------
5.2. Reimbursement Obligation of the Borrower............................................. 30
----------------------------------------
</TABLE>
<PAGE>
-ii-
<TABLE>
<S> <C>
5.3. Letter of Credit Payments............................................................ 30
-------------------------
5.4. Obligations Absolute................................................................. 31
--------------------
5.5. Reliance by Issuer................................................................... 31
------------------
5.6. Letter of Credit Fee................................................................. 32
--------------------
6. CERTAIN GENERAL PROVISIONS...................................................................... 32
--------------------------
6.1. Drawdown Fee......................................................................... 32
------------
6.2. [Reserved]........................................................................... 32
6.3. Funds for Payments................................................................... 32
------------------
6.3.1. Payments to Agent......................................................... 32
-----------------
6.3.2. No Offset, etc............................................................ 33
--------------
6.4. Computations......................................................................... 33
------------
6.5. Inability to Determine Eurodollar Rate............................................... 33
--------------------------------------
6.6. Illegality........................................................................... 34
----------
6.7. Additional Costs, etc................................................................ 34
---------------------
6.8. Capital Adequacy..................................................................... 35
----------------
6.9. Certificate.......................................................................... 36
-----------
6.10. Indemnity........................................................................... 36
---------
6.11. Interest After Default.............................................................. 36
----------------------
6.11.1. Overdue Amounts.......................................................... 36
---------------
6.11.2. Amounts Not Overdue...................................................... 36
-------------------
7. COLLATERAL SECURITY AND GUARANTIES.............................................................. 37
----------------------------------
7.1. Security of Borrower................................................................. 37
--------------------
7.2. Guaranties and Security of Domestic Subsidiaries..................................... 37
------------------------------------------------
8. REPRESENTATIONS AND WARRANTIES.................................................................. 37
------------------------------
8.1. Corporate Authority.................................................................. 37
-------------------
8.1.1. Incorporation; Good Standing.............................................. 37
----------------------------
8.1.2. Authorization............................................................. 37
-------------
8.1.3. Enforceability............................................................ 38
--------------
8.2. Governmental Approvals............................................................... 38
----------------------
8.3. Title to Properties; Leases.......................................................... 38
---------------------------
8.4. Financial Statements and Projections................................................. 38
------------------------------------
8.4.1. Fiscal Year............................................................... 38
-----------
8.4.2. Financial Statements...................................................... 38
--------------------
8.4.3. Projections............................................................... 39
-----------
8.5. No Material Changes, etc............................................................. 39
------------------------
8.6. Franchises, Patents, Copyrights, etc................................................. 39
------------------------------------
8.7. Litigation........................................................................... 39
----------
8.8. No Materially Adverse Contracts, etc................................................. 39
------------------------------------
8.9. Compliance with Other Instruments, Laws, etc......................................... 40
--------------------------------------------
8.10. Tax Status.......................................................................... 40
----------
8.11. No Event of Default................................................................. 40
-------------------
8.12. Holding Company and Investment Company Acts......................................... 40
-------------------------------------------
8.13. Absence of Financing Statements, etc................................................ 40
------------------------------------
8.14. Perfection of Security Interest..................................................... 41
-------------------------------
8.15. Certain Transactions................................................................ 41
--------------------
8.16. Employee Benefit Plans.............................................................. 41
----------------------
</TABLE>
<PAGE>
-iii-
<TABLE>
<S> <C>
8.16.1. In General............................................................... 41
----------
8.16.2. Terminability of Welfare Plans........................................... 41
------------------------------
8.16.3. Guaranteed Pension Plans................................................. 41
------------------------
8.16.4. Multiemployer Plans...................................................... 42
-------------------
8.17. Use of Proceeds..................................................................... 42
---------------
8.17.1. General.................................................................. 42
-------
8.17.2. Regulations U and X...................................................... 42
-------------------
8.17.3. Ineligible Securities.................................................... 42
---------------------
8.18. Environmental Compliance............................................................ 43
------------------------
8.19. Subsidiaries, etc................................................................... 44
-----------------
8.20. Bank Accounts....................................................................... 44
-------------
8.21. Additional Representations.......................................................... 44
--------------------------
8.22. Disclosure.......................................................................... 45
----------
9. AFFIRMATIVE COVENANTS OF THE BORROWER........................................................... 45
-------------------------------------
9.1. Punctual Payment..................................................................... 45
----------------
9.2. Maintenance of Office................................................................ 45
---------------------
9.3. Records and Accounts................................................................. 46
--------------------
9.4. Financial Statements, Certificates and Information................................... 46
--------------------------------------------------
9.5. Notices.............................................................................. 47
-------
9.5.1. Defaults.................................................................. 47
--------
9.5.2. Environmental Events...................................................... 48
--------------------
9.5.3. Notification of Claim against Collateral.................................. 48
----------------------------------------
9.5.4. Notice of Litigation and Judgments........................................ 48
----------------------------------
9.6. Corporate Existence; Maintenance of Properties....................................... 48
----------------------------------------------
9.7. Insurance............................................................................ 49
---------
9.8. Taxes................................................................................ 49
-----
9.9. Inspection of Properties and Books, etc.............................................. 49
---------------------------------------
9.9.1. General................................................................... 49
-------
9.9.2. Collateral Reports........................................................ 50
------------------
9.9.3. Environmental Assessments................................................. 50
-------------------------
9.9.4. Communications with Accountants........................................... 50
-------------------------------
9.10. Compliance with Laws, Contracts, Licenses, and Permits.............................. 51
------------------------------------------------------
9.11. Employee Benefit Plans.............................................................. 51
----------------------
9.12. Use of Proceeds..................................................................... 51
---------------
9.13. Bank Accounts....................................................................... 51
-------------
9.14. New Guarantors...................................................................... 51
--------------
9.15. Copyright Registration.............................................................. 52
--------- ------------
9.16. Further Assurances.................................................................. 52
------------------
10. CERTAIN NEGATIVE COVENANTS OF THE BORROWER..................................................... 52
------------------------------------------
10.1. Restrictions on Indebtedness........................................................ 52
----------------------------
10.2. Restrictions on Liens............................................................... 53
---------------------
10.3. Restrictions on Investments......................................................... 54
---------------------------
10.4. Distributions....................................................................... 56
-------------
10.5. Merger, Consolidation and Disposition of Assets..................................... 56
-----------------------------------------------
10.5.1. Mergers and Acquisitions................................................. 56
------------------------
10.5.2. Disposition of Assets.................................................... 57
---------------------
</TABLE>
<PAGE>
-iv-
<TABLE>
<S> <C>
10.6. Sale and Leaseback.................................................................. 57
------------------
10.7. Compliance with Environmental Laws.................................................. 57
----------------------------------
10.8. Subordinated Debt................................................................... 57
-----------------
10.9. Employee Benefit Plans.............................................................. 57
----------------------
10.10. Business Activities................................................................ 58
-------------------
10.11. Fiscal Year........................................................................ 58
-----------
10.12. Transactions with Affiliates....................................................... 58
----------------------------
10.13. Upstream Limitations............................................................... 58
--------------------
11. FINANCIAL COVENANTS OF THE BORROWER............................................................ 58
-----------------------------------
11.1. Leverage Ratio...................................................................... 58
--------------
11.2. Consolidated Operating Cash Flow to Debt Service.................................... 59
------------------------------------------------
11.3. Profitable Operations............................................................... 59
---------------------
11.4. Quick Ratio......................................................................... 59
-----------
12. CLOSING CONDITIONS............................................................................. 59
------------------
12.1. Loan Documents...................................................................... 59
--------------
12.2. Certified Copies of Charter Documents............................................... 59
-------------------------------------
12.3. Corporate, Action................................................................... 59
-----------------
12.4. Incumbency Certificate.............................................................. 59
----------------------
12.5. Validity of Liens................................................................... 60
-----------------
12.6. Perfection Certificates and UCC Search Results...................................... 60
----------------------------------------------
12.7. Certificates of Insurance........................................................... 60
-------------------------
12.8. Agency Account Agreements........................................................... 60
-------------------------
12.9. Borrowing Base Report............................................................... 60
---------------------
12.10. Accounts Receivable Aging Report................................................... 60
--------------------------------
12.11. Solvency Certificate............................................................... 60
--------------------
12.12. Opinion of Counsel................................................................. 61
------------------
12.13. Disbursement Instructions.......................................................... 61
-------------------------
13. CONDITIONS TO ALL BORROWINGS................................................................... 61
----------------------------
13.1. Representations True; No Event of Default........................................... 61
-----------------------------------------
13.2. No Legal Impediment................................................................. 61
-------------------
13.3. Governmental Regulation............................................................. 61
-----------------------
13.4. Proceedings and Documents........................................................... 62
-------------------------
13.5. Borrowing Base Report............................................................... 62
---------------------
13.6. Commercial Finance Exam............................................................. 62
-----------------------
14. EVENTS OF DEFAULT; ACCELERATION; ETC........................................................... 62
------------------------------------
14.1. Events of Default and Acceleration.................................................. 62
----------------------------------
14.2. Termination of Commitments.......................................................... 65
--------------------------
14.3. Remedies............................................................................ 66
--------
14.4. Distribution of Collateral Proceeds................................................. 66
-----------------------------------
15. SETOFF......................................................................................... 67
------
16. THE AGENT...................................................................................... 68
---------
16.1. Authorization....................................................................... 68
-------------
16.2. Employees and Agents................................................................ 68
--------------------
16.3. No Liability........................................................................ 68
------------
16.4. No Representations.................................................................. 69
------------------
16.4.1. General.................................................................. 69
-------
</TABLE>
<PAGE>
-v-
<TABLE>
<S> <C>
16.4.2. Closing Documentation, etc............................................... 69
--------------------------
16.5. Payments............................................................................ 70
--------
16.5.1. Payments to Agent........................................................ 70
-----------------
16.5.2. Distribution by Agent.................................................... 70
---------------------
16.5.3. Delinquent Banks......................................................... 70
----------------
16.6. Holders of Notes.................................................................... 71
----------------
16.7. Indemnity........................................................................... 71
---------
16.8. Agent as Bank....................................................................... 71
-------------
16.9. Resignation......................................................................... 71
-----------
16.10. Notification of Defaults and Events of Default..................................... 71
----------------------------------------------
16.11. Duties in the Case of Enforcement.................................................. 72
---------------------------------
17. EXPENSES AND INDEMNIFICATION................................................................... 72
----------------------------
17.1. Expenses............................................................................ 72
--------
17.2. Indemnification..................................................................... 73
---------------
17.3. Survival............................................................................ 73
--------
18. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.................................................. 74
---------------------------------------------
18.1. Sharing of Information with Section 20 Subsidiary................................... 74
-------------------------------------------------
18.2. Confidentiality..................................................................... 74
---------------
18.3. Prior Notification.................................................................. 74
------------------
18.4. Other............................................................................... 74
-----
19. SURVIVAL OF COVENANTS, ETC..................................................................... 75
--------------------------
20. ASSIGNMENT AND PARTICIPATION................................................................... 75
----------------------------
20.1. Conditions to Assignment by Banks................................................... 75
---------------------------------
20.2. Certain Representations and Warranties; Limitations; Covenants...................... 76
--------------------------------------------------------------
20.3. Register............................................................................ 77
--------
20.4. New Notes........................................................................... 77
---------
20.5. Participations...................................................................... 78
--------------
20.6. Disclosure.......................................................................... 78
----------
20.7. Assignee or Participant Affiliated with the Borrower................................ 78
----------------------------------------------------
20.8. Miscellaneous Assignment Provisions................................................. 79
-----------------------------------
20.9. Assignment by Borrower.............................................................. 79
----------------------
21. NOTICES, ETC................................................................................... 79
------------
22. GOVERNING LAW.................................................................................. 80
-------------
23. HEADINGS....................................................................................... 80
--------
24. COUNTERPARTS................................................................................... 80
------------
25. ENTIRE AGREEMENT, ETC.......................................................................... 81
---------------------
26. WAIVER OF JURY TRIAL........................................................................... 81
--------------------
27. CONSENTS, AMENDMENTS, WAIVERS, ETC............................................................. 81
----------------------------------
28. SEVERABILITY................................................................................... 82
------------
</TABLE>
<PAGE>
REVOLVING CREDIT
----------------
AND
---
TERM LOAN AGREEMENT
-------------------
This REVOLVING CREDIT AND TERM LOAN AGREEMENT is made as of August 4, 1997,
by and among MAPICS, INC. (the "Borrower"), a Massachusetts corporation having
its principal place of business at 1000 Windward Concourse Parkway, Suite 100,
Alpharetta, Georgia 30005 (formerly known as Marcam Corporation), BANKBOSTON,
N.A. and the other lending institutions listed on Schedule 1 hereto and
-------- -
BANKBOSTON, N.A. as agent for itself and such other lending institutions.
1. DEFINITIONS AND RULES OF INTERPRETATION.
---------------------------------------
1.1. Definitions. The following terms shall have the meanings set forth in
-----------
this (S)1 or elsewhere in the provisions of this Credit Agreement referred to
below:
Accounts Receivable. All rights of the Borrower or any of its Subsidiaries
-------------------
which are party to a Security Agreement to payment for goods sold, leased,
licensed or otherwise marketed in the ordinary course of business or services
rendered in the ordinary course of business and all sums of money or other
proceeds due thereon pursuant to transactions with account debtors, except for
that portion of the sum of money or other proceeds due thereon that relate to
sales, use or property taxes in conjunction with such transactions, recorded on
books of account in accordance with generally accepted accounting principles.
Adjustment Date. The first day of the month immediately following the
---------------
month in which a Compliance Certificate is to be delivered by the Borrower
pursuant to (S)9.4(d).
Affiliate. Any Person that would be considered to be an affiliate of the
---------
Borrower under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
Agency Account Agreement. See (S)9.14.1.
------------------------
Agent's Head Office. The Agent's head office located at 100 Federal
-------------------
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agent. BankBoston, N.A. acting as agent for the Banks.
-----
<PAGE>
-2-
Agent's Special Counsel. Bingham, Dana & Gould LLP or such other counsel
-----------------------
as may be approved by the Agent.
Applicable Margin. For each period commencing on an Adjustment Date
-----------------
through the date immediately preceding the next Adjustment Date (each a "Rate
Adjustment Period"), the Applicable Margin shall be the applicable margin set
forth below with respect to the Borrower's Leverage Ratio, as determined for the
fiscal period of the Borrower and its Subsidiaries ending immediately prior to
the applicable Rate Adjustment Period.
<TABLE>
<CAPTION>
Eurodollar Rate Letter of Credit
Base Rate Loans loans Fee
Tier Leverage Ratio (basis points) basic points (basis points)
- ------------------ ------------------------- ------------------------ ------------------- -------------------
<S> <S> <C> <C> <C>
1 Less than 2.00:1.00 0 125 125
- --------------------------------------------------------------------------------------------------------------------
2 Less than 2.50:1.00 but 150 150
greater than or equal to
2.00:1.00 0
- --------------------------------------------------------------------------------------------------------------------
3 Greater than or equal to 200 200
2.50:1.00 50
</TABLE>
Notwithstanding the foregoing, (a) Loans outstanding and Letter of Credit
Fees payable during the period commencing on the Closing Date through the date
immediately preceding the first Adjustment Date to occur after the fiscal
quarter ending September 30, 1997, the Applicable Margin shall be a Tier 2, and
(b) if the Borrower fails to deliver any Compliance Certificate pursuant to
(S)9.4(d) hereof then, for the period commencing on the next Adjustment Date to
occur subsequent to such failure through the date immediately following the date
on which such Compliance Certificate is delivered, the Applicable Margin shall
be the highest Applicable Margin set forth above.
Asset Sale. Any one or series of related transactions on which any Person
-----------
conveys, sells, transfers or otherwise disposes of, directly or indirectly, any
of its properties, businesses or assets (including the sale or issuance of
capital stock of any Subsidiary other than to the Borrower or any Subsidiary)
whether owned on the Closing Date or thereafter acquired.
Assignment and Acceptance. See (S)20.1.
-------------------------
Balance Sheet Date. March 31, 1997.
------------------
Banks. BKB and the other lending institutions listed on Schedule 1 hereto
----- -------- -
and any other Person who becomes an assignee of any rights and obligations of a
Bank pursuant to (S)20.
Base Rate. The higher of (i) the annual rate of interest announced from
---------
time to time by BKB at its head office in Boston, Massachusetts, as its "base
rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the
<PAGE>
-3-
purposes of this definition, "Federal Funds Effective Rate" shall mean for any
day, the rate per annum equal to the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day on such transactions received by
the Agent from three funds brokers of recognized standing selected by the Agent.
Base Rate Loans. Revolving Credit Loans and all or any portion of the Term
---------------
Loan bearing interest calculated by reference to the Base Rate.
BKB. BankBoston, N.A. a national banking association, in its individual
---
capacity.
BKB Concentration Account. See (S)9.14.1.
-------------------------
Borrower. As defined in the preamble hereto.
--------
Borrowing Base. At the relevant time of reference thereto, an amount
--------------
determined by the Agent by reference to the most recent Borrowing Base Report
delivered to the Banks and the Agent pursuant to (S)9.4(h), as adjusted pursuant
to the provisions below, which is equal to eighty percent (80%) of Eligible
Accounts Receivable for which invoices have been issued and are payable.
The Agent may, in accordance with its standard commercial practices, from time
to time, upon five (5) days' prior notice to the Borrower, reduce the lending
formula with respect to Eligible Accounts Receivable to the extent that the
Agent determines that: (i) the dilution with respect of the Accounts Receivable
for any period has increased in any material respect or may be reasonably
anticipated to increase in any material respect above historical levels, or (ii)
the general creditworthiness of account debtors or other obligors of the
Borrower has declined in any material respect. In determining whether to reduce
the lending formula, the Agent may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts Receivable.
Borrowing Base Report. A Borrowing Base Report signed by the chief
---------------------
financial officer of the Borrower and in substantially the form of Exhibit A
------- -
hereto.
Business Day. Any day on which banking institutions in Boston,
------------
Massachusetts, are open for the transaction of banking business and, in the case
of Eurodollar Rate Loans, also a day which is a Eurodollar Business Day.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
--------------
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
--------
include any item
<PAGE>
-4-
customarily charged directly to expense or depreciated over a useful life of
twelve (12) months or less in accordance with generally accepted accounting
principles.
Capital Expenditures. Amounts paid or Indebtedness incurred by the
--------------------
Borrower or any of its Subsidiaries in connection with (i) the purchase or lease
by the Borrower or any of its Subsidiaries of Capital Assets that would be
required to be capitalized and shown on the balance sheet of such Person in
accordance with generally accepted accounting principles or (ii) the lease of
any assets by the Borrower or any of its Subsidiaries as lessee under any
synthetic lease referred to in clause (vi) of the definition of the term
"Indebtedness" to the extent that such assets would have been Capital Assets had
the synthetic lease been treated for accounting purposes as a Capitalized Lease.
Capitalized Leases. Leases under which the Borrower or any of its
------------------
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
CERCLA. See (S)8.18(a).
------
Closing Date. The first date on which the conditions set forth in (S)12
------------
have been satisfied and any Revolving Credit Loans and the Term Loan are to be
made or any Letter of Credit is to be issued hereunder.
Code. The Internal Revenue Code of 1986.
----
Collateral. All of the property, rights and interests of the Borrower and
----------
its Subsidiaries that are or are intended to be subject to the security
interests created by the Security Documents.
Commitment. With respect to each Bank, the amount set forth on Schedule 1
---------- -------- -
hereto as the amount of such Bank's commitment to make Loans to, and to
participate in the issuance, extension and renewal of Letters of Credit for the
account of, the Borrower, as the same may be reduced from time to time; or if
such commitment is terminated pursuant to the provisions hereof, zero.
Commitment Percentage. With respect to each Bank, the percentage set forth
---------------------
on Schedule 1 hereto as such Bank's percentage of the aggregate Commitments of
-------- -
all of the Banks.
Compliance Certificate. A certificate delivered pursuant to (S)9.4(d).
----------------------
Consolidated or consolidated. With reference to any term defined herein,
----------------------------
shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles; provided, however, that such terms shall mean and refer to the
-------- -------
accounts of MAPICS, Inc., combined in accordance with generally accepted
accounting
<PAGE>
-5-
principles on a basis consistent with the audited financial statements of
MAPICS, Inc. contained in the Borrower's Registration Statement on Form S-3 (No.
333-26203) for all periods that include periods prior to July 30, 1997, unless
and until the audited financial statements of the Borrower and its Subsidiaries
are subsequently presented as consolidated in accordance with generally accepted
accounting principles.
Consolidated Financial Obligations. With respect to any fiscal quarter, an
----------------------------------
amount equal to the sum of all payments on Indebtedness that become due and
payable or that are to become due and payable during the such fiscal quarter
pursuant to any agreement or instrument to which the Borrower or any of its
Subsidiaries is a party relating to the borrowing of money or the obtaining of
credit or in respect of any Capitalized Lease, or of any synthetic lease
referred to in clause (vi) of the definition of the term "Indebtedness."
(collectively, "Borrowed Money Indebtedness"). For purposes of this definition,
any obligations in respect of Borrowed Money Indebtedness which are on a demand
basis shall be deemed to be due and payable during any fiscal quarter during
which such obligations are outstanding. In addition, for the avoidance of
doubt, Consolidated Financial Obligations do not include (a) trade accounts
payable or accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith; and (b) voluntary
repayments of any amounts outstanding under the Credit Agreement.
Consolidated Current Liabilities. All liabilities and other Indebtedness
--------------------------------
of the Borrower and its Subsidiaries, excluding deferred revenue, on a
consolidated basis maturing on demand or within one (1) year from the date as of
which Consolidated Current Liabilities are to be determined, and such other
liabilities as may properly be classified as current liabilities in accordance
with generally accepted accounting principles.
Consolidated Net Income (or Deficit). The consolidated net income (or
------------------------------------
deficit) of the Borrower and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with generally
accepted accounting principles, after eliminating therefrom all extraordinary
nonrecurring items of income.
Consolidated Net Worth. The excess of (a) all assets of a Person and its
----------------------
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles over (b) all liabilities of such Person and its
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles, and all Indebtedness of such Person and its
Subsidiaries, whether or not so classified, less, to the extent otherwise
includable in the computations of Consolidated Net Worth, any subscriptions
receivable.
Consolidated Operating Cash Flow. For any period, an amount equal to (i)
--------------------------------
EBITDA for such period, less (ii) the sum of (A) cash payments for all taxes
----
paid during such period, plus (B) Capital Expenditures made during such period
----
to the
<PAGE>
-6-
extent permitted by (S)11.6, plus (C) the portion of the costs of software
development required to be capitalized pursuant to FASB Statement No. 86.
Consolidated Quick Assets. All cash and Accounts Receivable of the
-------------------------
Borrower and its Subsidiaries on a consolidated basis that, in accordance with
generally accepted accounting principles, are properly classified as current
assets, provided that accounts receivable shall be included only if good and
--------
collectible as determined by the Borrower in accordance with established
practice consistently applied; and such accounts receivable shall be taken at
their face value less reserves determined to be sufficient in accordance with
generally accepted accounting principles.
Consolidated Tangible Net Worth. Consolidated Net Worth of the Borrower
-------------------------------
and its Subsidiaries, and less the sum of:
(a) the total book value of all assets of the Borrower and its
Subsidiaries properly classified as intangible assets under generally
accepted accounting principles, including such items as good will, the
purchase price of acquired assets in excess of the fair market value
thereof, trademarks, trade names, service marks, brand names, copyrights,
patents and licenses, and rights with respect to the foregoing, provided,
--------
however, for purposes of this Credit Agreement, any deffered tax assets of
-------
the Borrower or any Subsidiaries shall not be considered intangible assets;
plus
----
(b) all amounts representing any write-up in the book value of any
assets of the Borrower or its Subsidiaries resulting from a revaluation
thereof subsequent to the Balance Sheet Date, excluding adjustments to
translate foreign assets and liabilities for changes in foreign exchange
rates made in accordance with Financial Accounting Standards Board
Statement No. 52; plus
----
(c) all amounts representing the book value of computer software
development costs and the book value of other computer software costs of
the Borrower and its Subsidiaries; plus
----
(d) to the extent otherwise includable in the computation of
Consolidated Tangible Net Worth, any stock subscription receivables;
provided, however, to the extent the Borrower's Consolidated Tangible Net Worth
- -------- -------
is reduced as a result of the Borrower making any permitted repurchases of its
capital stock, the amount of such reduction, up to an aggregate amount not to
exceed $20,000,000, shall be added back to Consolidated Tangible Net Worth for
purposes of this Credit Agreement.
Consolidated Total Interest Expense. For any period, the aggregate amount
-----------------------------------
of interest required to be paid or accrued by the Borrower and its Subsidiaries
during such period on all Indebtedness of the Borrower and its Subsidiaries
<PAGE>
-7-
outstanding during all or any part of such period, whether such interest was or
is required to be reflected as an item of expense or capitalized, including
payments consisting of interest in respect of any Capitalized Lease, or any
synthetic lease referred to in clause (vi) of the definition of the term
"Indebtedness," and including commitment fees, agency fees, facility fees,
balance deficiency fees and similar fees or expenses in connection with the
borrowing of money.
Consolidated Total Liabilities. All liabilities of the Borrower and its
------------------------------
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles and classified as such on the consolidated
balance sheet of the Borrower and its Subsidiaries, and all other Indebtedness
of the Borrower and its Subsidiaries, whether or not so classified, provided,
---------
however, for purposes of this Credit Agreement, Consolidated Total Liabilities
- -------
shall not include any amounts relating to deferred revenues of the Borrower or
any Subsidiary.
Conversion Request. A notice given by the Borrower to the Agent of the
------------------
Borrower's election to convert or continue a Loan in accordance with (S)2.7.
Copyright Mortgages. The several Copyright Mortgage and Security
-------------------
Agreements, dated or to be dated on or prior to the Closing Date, made by the
Borrower and its domestic Subsidiaries, if any, in favor of the Agent and in
form and substance satisfactory to the Banks and the Agent.
Credit Agreement. This Revolving Credit and Term Loan Agreement, including
----------------
the Schedules and Exhibits hereto.
Default. See (S)14.1.
-------
Delinquent Bank. See (S)16.5.3.
---------------
DeMinimis Subsidiary. See (S)14.1 hereof.
--------------------
Distribution. The declaration or payment of any dividend on or in respect
------------
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.
Distribution Agreement. The Distribution Agreement dated as of July 17,
----------------------
1997 between the Borrower and Marcam Solutions, Inc.
Dollars or $. Dollars in lawful currency of the United States of America.
------- -
<PAGE>
-8-
Domestic Lending Office. Initially, the office of each Bank designated as
-----------------------
such in Schedule 1 hereto; thereafter, such other office of such Bank, if any,
-------- -
located within the United States that will be making or maintaining Base Rate
Loans.
Drawdown Date. The date on which any Revolving Credit Loan or the Term
-------------
Loan is made or is to be made, and the date on which any Revolving Credit Loan
is converted or continued in accordance with (S)2.7 or all or any portion of the
Term Loan is converted or continued in accordance with (S)4.5(b).
Earnings Before Interest and Taxes. The consolidated earnings (or loss)
----------------------------------
from the operations of the Borrower and its Subsidiaries for any period, after
all expenses and other proper charges but before payment or provision for any
income taxes or interest expense for such period, determined in accordance with
generally accepted accounting principles.
EBITDA. With respect to any fiscal period, an amount equal to the sum of
-------
(a) Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal
period, plus (b) in each case to the extent deducted in the calculation of such
----
Person's Consolidated Net Income and without duplication (i) amortization and
depreciation for such period, plus (ii) tax expense for such period, plus (iii)
---- ----
Consolidated Total Interest Expense paid or accrued during such period, all as
determined in accordance with generally accepted accounting principles.
Eligible Accounts Receivable. The aggregate of the unpaid portions of
----------------------------
Accounts Receivable (net of any credits, rebates, offsets, holdbacks or other
adjustments or commissions payable to third parties that are adjustments to such
Accounts Receivable) (i) that the Borrower reasonably and in good faith
determines to be collectible; (ii) that are with account debtors or other
obligors that (A) are not Affiliates of the Borrower, (B) purchased or licensed
the goods or services giving rise to the relevant Account Receivable in an arm's
length transaction, (C) are not insolvent or involved in any case or proceeding,
whether voluntary or involuntary, under any bankruptcy, reorganization,
arrangement, insolvency, adjustment of debt, dissolution, liquidation or similar
law of any jurisdiction and (D) are, in the Agent's reasonable judgment in
accordance with standard commercial practices, creditworthy; (iii) that are in
payment of obligations that have been fully performed, do not consist of
progress billings or bill and hold invoices and are not subject to dispute or
any other similar claims that would reduce the cash amount payable therefor;
(iv) that are not subject to any pledge, restriction, security interest or other
lien or encumbrance other than those created by the Loan Documents; (v) in which
the Agent has a valid and perfected first priority security interest; (vi) that
are not outstanding for more than ninety (90) days past the earlier to occur of
(A) the date of the respective invoices therefor and (B) the date of shipment
thereof in the case of goods or the end of the calendar month following the
provision thereof in the case of services; (vii) that are not due from an
account debtor or other obligor located in Minnesota or New Jersey unless the
Borrower (A) has received a certificate of authority to do business and is in
good standing in such state or (B) has filed a notice of business activities
report with the appropriate office or agency
<PAGE>
-9-
of such state for the current year; (viii) that are not due from any single
account debtor or other obligor if more than fifteen percent (15%) of the
aggregate amount of all Accounts Receivable owing from such account debtor or
other obligor would otherwise not be Eligible Accounts Receivable; (ix) that are
payable in Dollars; (x) that are not payable from an office outside of the
United States unless the Agent in its discretion approves the inclusion of such
foreign receivables; and (xi) that are not secured by a letter of credit unless
the Agent has a prior, perfected security interest in such letter of credit.
General criteria for Eligible Accounts Receivable may be established and revised
from time to time by the Agent.
Eligible Assignee. Any of (i) a commercial bank or finance company
-----------------
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (ii)
a savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting principles; (iii) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, provided that such
--------
bank is acting through a branch or agency located in the country in which it is
organized or another country which is also a member of the OECD; (iv) the
central bank of any country which is a member of the OECD; and (v) if, but only
if, any Event of Default has occurred and is continuing, any other bank,
insurance company, commercial finance company or other financial institution or
other Person approved by the Agent, such approval not to be unreasonably
withheld.
Employee Benefit Plan. Any employee benefit plan within the meaning of
---------------------
(S)3(3) of ERISA maintained of contributed to by the Borrower or any ERISA
Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.
Environmental Laws. See (S)8.18(a).
------------------
EPA. See (S)8.18(b).
---
ERISA. The Employee Retirement Income Security Act of 1974.
-----
ERISA Affiliate. Any Person which is treated as a single employer with the
---------------
Borrower under (S)414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
----------------------
Pension Plan within the meaning of (S)4043 of ERISA and the regulations
promulgated thereunder.
Eurocurrency Reserve Rate. For any day with respect to a Eurodollar Rate
-------------------------
Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of
<PAGE>
-10-
Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
Eurodollar Business Day. Any day on which commercial banks are open for
-----------------------
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
Eurodollar Lending Office. Initially, the office of each Bank designated
-------------------------
as such in Schedule 1 hereto; thereafter, such other office of such Bank, if
-------- -
any, that shall be making or maintaining Eurodollar Rate Loans.
Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate
---------------
Loan, the rate of interest equal to (i) the arithmetic average of the rates per
annum for each Reference Bank (rounded upwards to the nearest 1/16 of one
percent) of the rate at which such Reference Bank's Eurodollar Lending Office is
offered Dollar deposits two Eurodollar Business Days prior to the beginning of
such Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations of such Eurodollar Lending Office are
customarily conducted, for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of the Eurodollar Rate Loan of such Reference Bank to which such Interest Period
applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve
Rate, if applicable.
Eurodollar Rate Loans. Revolving Credit Loans and all or any portion of
---------------------
the Term Loan bearing interest calculated by reference to the Eurodollar Rate.
Event of Default. See (S)14.1.
----------------
Fee Letter. The fee letter agreement between the Borrower and the Agent
----------
dated on or prior to the Closing Date.
generally accepted accounting principles. (i) When used in (S)11, whether
----------------------------------------
directly or indirectly through reference to a capitalized term used therein,
means (A) principles that are consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, in
effect for the fiscal periods ended on the Balance Sheet Date, and (B) to the
extent consistent with such principles, the accounting practice of the Borrower
reflected in its financial statements for the fiscal period ended on the Balance
Sheet Date, and (ii) when used in general, other than as provided above, means
principles that are (A) consistent with the principles promulgated or adopted by
the Financial Accounting Standards Board and its predecessors, as in effect from
time to time, and (B) consistently applied with past financial statements of the
Borrower adopting the same
<PAGE>
-11-
principles, provided that in each case referred to in this definition of
"generally accepted accounting principles" a certified public accountant would,
insofar as the use of such accounting principles is pertinent, be in a position
to deliver an unqualified opinion (other than a qualification regarding changes
in generally accepted accounting principles) as to financial statements in which
such principles have been properly applied, provided, however, that all
references to accounting practices of the Borrower or financial statements of
the Borrower that include periods prior to July 30, 1997 shall refer only to
those, and be consistent with those, as set forth in the audited financial
statements of MAPICS, Inc. contained in the Borrower's Registration Statement on
Form S-3 (No. 333-26203).
Guaranteed Pension Plan. Any employee pension benefit plan within the
-----------------------
meaning of (S)3(2) of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Hazardous Substances. See (S)8.18(b).
--------------------
Indebtedness. As to any Person and whether recourse is secured by or is
------------
otherwise available against all or only a portion of the assets of such Person
and whether or not contingent, but without duplication:
(i) every obligation of such Person for money borrowed,
(ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses,
(iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person,
(iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (including securities
repurchase agreements but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith),
(v) every obligation of such Person under any Capitalized Lease,
(vi) every obligation of such Person under any lease (a "synthetic
lease") treated as an operating lease under generally accepted accounting
principles and as a loan or financing for U.S. income tax purposes,
(vii) all sales by such Person of (A) accounts or general intangibles
for money due or to become due, (B) chattel paper, instruments or documents
creating or evidencing a right to payment of money or (C) other
<PAGE>
-12-
receivables (collectively "receivables"), whether pursuant to a purchase
facility or otherwise, other than in connection with the disposition of the
business operations of such Person relating thereto or a disposition of
defaulted receivables for collection and not as a financing arrangement,
and together with any obligation of such Person to pay any discount,
interest, fees, indemnities, penalties, recourse, expenses or other amounts
in connection therewith,
(viii) every obligation of such Person (an "equity related purchase
obligation") to purchase, redeem, retire or otherwise acquire for value any
shares of capital stock of any class issued by such Person, any warrants,
options or other rights to acquire any such shares, or any rights measured
by the value of such shares, warrants, options or other rights,
(ix) every obligation of such Person under any forward contract,
futures contract, swap, option or other financing agreement or arrangement
(including, without limitation, caps, floors, collars and similar
agreements), the value of which is dependent upon interest rates, currency
exchange rates, commodities or other indices,
(x) every obligation in respect of Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to
the extent that such Person is liable therefor as a result of such Person's
ownership interest in or other relationship with such entity, except to the
extent that the terms of such Indebtedness provide that such Person is not
liable therefor and such terms are enforceable under applicable law,
(xi) every obligation, contingent or otherwise, of such Person
guaranteeing, or having the economic effect of guarantying or otherwise
acting as surety for, any obligation of a type described in any of clauses
(i) through (x) (the "primary obligation") of another Person (the "primary
obligor"), in any manner, whether directly or indirectly, and including,
without limitation, any obligation of such Person (A) to purchase or pay
(or advance or supply funds for the purchase of) any security for the
payment of such primary obligation, (B) to purchase property, securities or
services for the purpose of assuring the payment of such primary
obligation, or (C) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such primary obligation.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (v) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (w) any Capitalized Lease shall be the principal
component of the aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject to termination by the
lessee, (x) any sale of
<PAGE>
-13-
receivables shall be the amount of unrecovered capital or principal investment
of the purchaser (other than the Borrower or any of its wholly-owned
Subsidiaries) thereof, excluding amounts representative of yield or interest
earned on such investment, (y) any synthetic lease shall be the stipulated loss
value, termination value or other equivalent amount and (z) any equity related
purchase obligation shall be the maximum fixed redemption or purchase price
thereof inclusive of any accrued and unpaid dividends to be comprised in such
redemption or purchase price.
Ineligible Securities. Securities which may not be underwritten or dealt
---------------------
in by member banks of the Federal Reserve System under Section 16 of the Banking
Act of 1993 (12 U.S.C. (S)24, Seventh), as amended.
Interest Payment Date. (i) As to any Base Rate Loan, the last day of the
---------------------
calendar quarter with respect to interest accrued during such calendar quarter,
including, without limitation, the calendar quarter which includes the Drawdown
Date of such Base Rate Loan; and (ii) as to any Eurodollar Rate Loan in respect
of which the Interest Period is (A) 3 months or less, the last day of such
Interest Period and (B) more than 3 months, the date that is 3 months from the
first day of such Interest Period and, in addition, the last day of such
Interest Period.
Interest Period. With respect to each Revolving Credit Loan or all or any
---------------
relevant portion of the Term Loan, (i) initially, the period commencing on the
Drawdown Date of such Loan and ending on the last day of one of the periods set
forth below, as selected by the Borrower in a Loan Request or as otherwise
required by the terms of this Credit Agreement (A) for any Base Rate Loan, the
last day of the calendar quarter; and (B) for any Eurodollar Rate Loan, 1, 2, 3,
or 6 months; and (ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Revolving Credit Loan or all
or such portion of the Term Loan and ending on the last day of one of the
periods set forth above, as selected by the Borrower in a Conversion Request;
provided that all of the foregoing provisions relating to Interest Periods are
- --------
subject to the following:
(a) if any Interest Period with respect to a Eurodollar Rate Loan
would otherwise end on a day that is not a Eurodollar Business Day, that
Interest Period shall be extended to the next succeeding Eurodollar
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Eurodollar Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would end
on a day that is not a Business Day, that Interest Period shall end on the
next succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in (S)2.7,
the Borrower shall be deemed to have requested a conversion of the affected
Eurodollar Rate Loan to a Base Rate Loan and the continuance of all Base
<PAGE>
-14-
Rate Loans as Base Rate Loans on the last day of the then current Interest
Period with respect thereto;
(d) any Interest Period relating to any Eurodollar Rate Loan that
begins on the last Eurodollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Eurodollar
Business Day of a calendar month; and
(e) any Interest Period that would otherwise extend beyond the
Revolving Credit Loan Maturity Date (if comprising a Revolving Credit Loan)
or the Term Loan Maturity Date (if comprising the Term Loan or a portion
thereof) shall end on the Revolving Credit Loan Maturity Date or (as the
case may be) the Term Loan Maturity Date.
Interim Concentration Account. See (S)9.14.1.
-----------------------------
Investments. All expenditures made and all liabilities incurred
-----------
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (i) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (ii) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(iii) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (iv) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (ii) may be
deducted when paid; and (v) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof. Notwithstanding
anything to the contrary contained in this definition, for purposes of this
Credit Agreement, Investments shall exclude any prepaid royalties or advanced
commissions paid by the Borrower to any Person.
Letter of Credit. See (S)5.1.1.
----------------
Letter of Credit Application. See (S)5.6.
----------------------------
Letter of Credit Fee. See (S)5.1.1.
--------------------
Letter of Credit Participation. See (S)5.1.4.
------------------------------
<PAGE>
-15-
Leverage Ratio. For any fiscal quarter, the ratio of (a) Consolidated
--------------
Total Liabilities for such fiscal quarter to (b) Consolidated Tangible Net Worth
for such fiscal quarter.
Loan Documents. This Credit Agreement, the Notes, the Letter of Credit
--------------
Applications, the Letters of Credit and the Security Documents.
Loan Request. See (S)2.6.
------------
Loans. The Revolving Credit Loans and the Term Loan.
-----
Local Account. See (S)9.14.1.
-------------
Majority Banks. As of any date, the Banks holding at least sixty-six and
--------------
two-thirds percent (66 2/3%) of the outstanding principal amount of the Notes on
such date; and if no such principal is outstanding, the Banks whose aggregate
Commitments constitutes at least sixty-six and two-thirds percent (66 2/3%) of
the Total Commitment.
Maximum Drawing Amount. The maximum aggregate amount that the
----------------------
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
Multiemployer Plan. Any multiemployer plan within the meaning of (S)3(37)
------------------
of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate.
Net Cash Proceeds. With respect to any sale of stock, partnership
-----------------
interests or other equity issuances, the excess of the gross cash proceeds
received by such Person for such issuance after deduction of all reasonable and
customary transaction expenses (including without limitation, underwriting
discounts and commissions) actually incurred in connection with such a sale or
other issuance.
Net Cash Sale Proceeds. The net cash proceeds received by a Person in
----------------------
respect of any Asset Sale, less the sum of (a) all reasonable out-of-pocket
fees, commissions and other reasonably and customary expenses actually incurred
in connection with such Asset Sale, including the amount of income, franchise,
sales and other applicable taxes required to be paid by such Person in
connection with such Asset Sale, and (b) the aggregate amount of cash so
received by such Person which is required to be used to retire (in whole or in
part) any Indebtedness (other than under the Loan Documents) of such Person
permitted by this Credit Agreement that was secured by a lien or security
interest permitted by this Credit Agreement having priority over the liens and
security interests (if any) of the Agent (for the benefit of the Agent and the
Banks) with respect to such assets transferred and which is required to be
repaid in whole or in part (which repayment, in the case of any other revolving
credit arrangement or multiple advance arrangement, reduces the commitment
thereunder) in connection with such Asset Sale.
<PAGE>
-16-
Non-Material Subsidiary. At the relevant time of determination, any
-----------------------
Subsidiary with a Consolidated Net Worth of less than $500,000
Notes. The Term Notes and the Revolving Credit Notes.
-----
Obligations. All indebtedness, obligations and liabilities of any of the
-----------
Borrower and its Subsidiaries to any of the Banks and the Agent, individually or
collectively, existing on the date of this Credit Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this
Credit Agreement or any of the other Loan Documents or in respect of any of the
Loans made or Reimbursement Obligations incurred or any of the Notes, Letter of
Credit Application, Letter of Credit or other instruments at any time evidencing
any thereof or under any interest rate swap, cap or other hedging agreements
between the Borrower and any of the Banks.
Operating Account. See (S)2.6.2.
-----------------
outstanding. With respect to the Loans, the aggregate unpaid principal
-----------
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of ERISA
----
and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificates as defined in the
-----------------------
Security Agreements.
Permitted Liens. Liens, security interests and other encumbrances
---------------
permitted by (S)10.2.
Person. Any individual, corporation, partnership, trust, unincorporated
------
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Rate Adjustment Period. See the definition of Applicable Margin.
----------------------
RCRA. See (S)8.18(a).
----
Real Estate. All real property at any time owned or leased (as lessee or
-----------
sublessee) by the Borrower or any of its Subsidiaries.
Record. The grid attached to a Note, or the continuation of such grid, or
------
any other similar record, including computer records, maintained by any Bank
with respect to any Loan referred to in such Note.
Reference Bank. BKB
--------------
<PAGE>
-17-
Register. See (S)20.3.
--------
Reimbursement Obligation. The Borrower's obligation to reimburse the Agent
------------------------
and the Banks on account of any drawing under any Letter of Credit as provided
in (S)5.2.
Rental Obligations. All present or future obligations of the Borrower or
------------------
any of its Subsidiaries under any rental agreements or leases of real or
personal property, other than (i) obligations that can be terminated by the
giving of notice without liability to the Borrower or such Subsidiary in excess
of the liability for rent due as of the date on which such notice is given and
under which no penalty or premium is paid as a result of any such termination,
and (ii) obligations in respect of any Capitalized Leases or any synthetic
leases referred to in clause (vi) of the definition of the term "Indebtedness".
Reserves. As determined by the Agent, such amounts as the Agent may from
--------
time to time establish and revise (a) to reflect events, conditions,
contingencies or risks which do or may (i) adversely affect either (A) any
Collateral, the rights of the Agent or any of the Banks in any Collateral or its
value or (B) the security interest and other rights of the Agent or any of the
Banks in the Collateral (including the enforceability, perfection and priority
thereof) or (ii) adversely affect in any material respect the assets (other than
any Collateral) or business or financial condition of the Borrower or any of its
Subsidiaries or (b) to reflect the belief of the Agent that any Borrowing Base
Report or other collateral report or financial information furnished by or on
behalf of the Borrower to the Agent or any of the Banks is or may have been
incomplete, inaccurate or misleading in any material respect.
Revolving Credit Loan Maturity Date. June 30, 2001.
-----------------------------------
Revolving Credit Loans. Revolving credit loans made or to be made by the
----------------------
Banks to the Borrower pursuant to (S)2.
Revolving Credit Note Record. A Record with respect to a Revolving Credit
----------------------------
Note.
Revolving Credit Notes. See (S)2.4.
----------------------
SARA. See (S)8.18(a).
----
Section 20 Subsidiary. A Subsidiary of the bank holding company
---------------------
controlling any Bank, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.
Security Agreements. The several Security Agreements, dated or to be dated
-------------------
on or prior to the Closing Date, between the Borrower and its domestic
Subsidiaries and the Agent and in form and substance satisfactory to the Banks
and the Agent.
<PAGE>
-18-
Security Documents. The Security Agreements, the Trademark Assignments,
------------------
the Copyright Mortgages and all other instruments and documents, including
without limitation Uniform Commercial Code financing statements, required to be
executed or delivered pursuant to any Security Document.
Subordinated Debt. Unsecured Indebtedness of the Borrower or any of its
-----------------
Subsidiaries that is expressly subordinated and made junior to the payment and
performance in full of the Obligations, and evidenced as such by a written
instrument containing subordination provisions in form and substance approved by
the Agent and the Majority Banks in writing.
Subsidiary. Any corporation, association, trust, or other business entity
----------
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding Voting Stock.
Term Loan. The term loan made or to be made by the Banks to the Borrower
---------
on the Closing Date in the aggregate principal amount of $15,000,000 pursuant to
(S)4.1.
Term Loan Maturity Date. September 30, 2000.
-----------------------
Term Notes. See (S)4.2.
----------
Term Note Record. A Record with respect to a Term Note.
----------------
Total Commitment. The sum of the Commitments of the Banks, as in effect
----------------
from time to time.
Total Funded Indebtedness. All Indebtedness of the Borrower and its
-------------------------
Subsidiaries for borrowed money, purchase money Indebtedness and with respect to
Capitalized Leases, determined on a consolidated basis in accordance with
generally accepted accounting principles.
Trademark Assignments. The several Trademark Assignments, dated or to be
---------------------
dated on or prior to the Closing Date, made by the Borrower and its domestic
Subsidiaries, if any, in favor of the Agent and in form and substance
satisfactory to the Banks and the Agent.
Type. As to any Revolving Credit Loan or all or any portion of the Term
----
Loan, its nature as a Base Rate Loan or a Eurodollar Rate Loan.
Uniform Customs. With respect to any Letter of Credit, the Uniform Customs
---------------
and Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 or any successor version thereto adopted by the
Agent in the ordinary course of its business as a letter of credit issuer and in
effect at the time of issuance of such Letter of Credit.
<PAGE>
-19-
Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which
-------------------------------
the Borrower does not reimburse the Agent and the Banks on the date specified
in, and in accordance with, (S)5.2.
Voting Stock. Stock or similar interests, of any class or classes (however
------------
designated), the holders of which are at the time entitled, as such holders, to
vote for the election of a majority of the directors (or persons performing
similar functions) of the corporation, association, trust or other business
entity involved, whether or not the right so to vote exists by reason of the
happening of a contingency.
1.2. Rules of Interpretation.
-----------------------
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer; provided,
however, that, in the case of the Borrower and its Subsidiaries, applied on
a basis consistent with that set forth in the audited financial statements
of MAPICS, Inc. contained in the Borrower's Registration Statement on Form
S-3 (No. 333-26203). Accounting terms referring to the Borrower and its
Subsidiaries (i) shall give retroactive effect to the transactions
contemplated by the Distribution Agreement for all fiscal periods, and (ii)
shall not include any payments with respect to or Indebtedness under the
Promissory Note dated as of July 25, 1997 made by the Borrower to
BankBoston, N.A.
(f) The words "include", "includes" and "including" are not limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have the
meanings assigned to them therein, with the term "instrument" being that
defined under Article 9 of the Uniform Commercial Code.
<PAGE>
-20-
(h) Reference to a particular "(S)" refers to that section of this
Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Credit Agreement as a whole and not to any
particular section or subdivision of this Credit Agreement.
(j) Unless otherwise expressly indicated, in the computation of
periods of time from a specified date to a later specified date, the word
"from" means "from and including," the words "to" and "until" each mean "to
but excluding," and the word "through" means "to and including."
(k) This Credit Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the same
or similar matters. All such limitations, tests and measurements are,
however, cumulative and are to be performed in accordance with the terms
thereof.
(l) This Credit Agreement and the other Loan Documents are the result
of negotiation among, and have been reviewed by counsel to, among others,
the Agent and the Borrower and are the product of discussions and
negotiations among all parties. Accordingly, this Credit Agreement and the
other Loan Documents are not intended to be construed against the Agent or
any of the Banks merely on account of the Agent's or any Bank's involvement
in the preparation of such documents.
(m) Notwithstanding any other provision of this Credit Agreement, the
other Loan Documents and the Security Documents, the Borrower shall not be
prohibited from completing the transactions contemplated by the
Distribution Agreement.
2. THE REVOLVING CREDIT FACILITY.
-----------------------------
2.1. Commitment to Lend. Subject to the terms and conditions set forth in
this Credit Agreement, each of the Banks severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time from
the Closing Date up to but not including the Revolving Credit Loan Maturity Date
upon notice by the Borrower to the Agent given in accordance with (S)2.6, such
sums as are requested by the Borrower up to a maximum aggregate amount
outstanding (after giving effect to all amounts requested) at any one time equal
to such Bank's Commitment minus such Bank's Commitment Percentage of the sum of
-----
the Maximum Drawing Amount and all Unpaid Reimbursement Obligations, provided
--------
that the sum of the outstanding amount of the Revolving Credit Loans (after
giving effect to all amounts requested) plus the Maximum Drawing Amount and all
----
Unpaid Reimbursement Obligations shall not at any time exceed the lesser of (i)
the Total Commitment and (ii) the Borrowing Base. The Revolving Credit Loans
shall be made pro rata in accordance with each Bank's Commitment Percentage.
--- ----
Each request for a Revolving Credit Loan hereunder shall constitute a
representation and
<PAGE>
-21-
warranty by the Borrower that the conditions set forth in (S)12 and (S)13, in
the case of the initial Revolving Credit Loans to be made on the Closing Date,
and (S)13, in the case of all other Revolving Credit Loans, have been satisfied
on the date of such request.
2.2. Commitment Fee. The Borrower agrees to pay to the Agent for the
--------------
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee (a) from the Closing Date through June 30, 1999 calculated at
the rate of 37.5 basis points (.375%) per annum on the average daily amount
during each calendar quarter or portion thereof from the Closing Date through
June 30, 1999 by which the Total Commitment minus the sum of the Maximum Drawing
-----
Amount and all Unpaid Reimbursement Obligations exceeds the outstanding amount
of Revolving Credit Loans during such calendar quarter; (b) from June 30, 1999
through the date on which the Borrower makes its initial request for a Revolving
Credit Loan to be made hereunder or requests the Agent to issue any Letter of
Credit (such date being hereinafter referred to as the "Initial Borrowing
Date"), calculated at the rate of 31.25 basis points (.3125%) per annum on the
Total Commitment for such period; and (c) at any time after the Initial
Borrowing Date, calculated at a rate of 37.5 basis points (.375%) per annum on
the average daily amount during each calendar quarter or portion thereof from
the Initial Borrowing Date to the Revolving Credit Loan Maturity Date by which
the Total Commitment minus the sum of the Maximum Drawing Amount and all Unpaid
-----
Reimbursement Obligations exceeds the outstanding amount of Revolving Credit
Loans during such calendar quarter. The commitment fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the first such date
following the date hereof, with a final payment on the Revolving Credit Maturity
Date or any earlier date on which the Commitments shall terminate.
2.3. Reduction of Total Commitment. The Borrower shall have the right at
-----------------------------
any time and from time to time upon five (5) Business Days prior written notice
to the Agent to reduce by $5,000,000 or an integral multiple of $1,000,000 in
excess thereof or terminate entirely the Total Commitment, whereupon the
Commitments of the Banks shall be reduced pro rata in accordance with their
--- ----
respective Commitment Percentages of the amount specified in such notice or, as
the case may be, terminated. Promptly after receiving any notice of the Borrower
delivered pursuant to this (S)2.3, the Agent will notify the Banks of the
substance thereof. Upon the effective date of any such reduction or termination,
the Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction.
No reduction or termination of the Commitments may be reinstated.
2.4. The Revolving Credit Notes. The Revolving Credit Loans shall be
--------------------------
evidenced by separate promissory notes of the Borrower in substantially the form
of Exhibit B hereto (each a "Revolving Credit Note"), dated as of the Closing
------- -
Date and completed with appropriate insertions. One Revolving Credit Note shall
be payable
<PAGE>
-22-
to the order of each Bank in a principal amount equal to such Bank's Commitment
or, if less, the outstanding amount of all Revolving Credit Loans made by such
Bank, plus interest accrued thereon, as set forth below. The Borrower
irrevocably authorizes each Bank to make or cause to be made, at or about the
time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt
of any payment of principal on such Bank's Revolving Credit Note, an appropriate
notation on such Bank's Revolving Credit Note Record reflecting the making of
such Revolving Credit Loan or (as the case may be) the receipt of such payment.
The outstanding amount of the Revolving Credit Loans set forth on such Bank's
Revolving Credit Note Record shall be prima facie evidence of the principal
----- -----
amount thereof owing and unpaid to such Bank, but the failure to record, or any
error in so recording, any such amount on such Bank's Revolving Credit Note
Record shall not limit or otherwise affect the obligations of the Borrower
hereunder or under any Revolving Credit Note to make payments of principal of or
interest on any Revolving Credit Note when due.
2.5. Interest on Revolving Credit Loans. Except as otherwise provided in
----------------------------------
(S)6.11,
(a) Each Base Rate Loan shall bear interest for the period commencing
with the Drawdown Date thereof and ending on the last day of the Interest
Period with respect thereto at the rate per annum equal to the Base Rate
plus the Applicable Margin.
(b) Each Eurodollar Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of the
Interest Period with respect thereto at the rate per annum equal to the
Eurodollar Rate determined for such Interest Period plus the Applicable
Margin.
(c) The Borrower promises to pay interest on each Revolving Credit
Loan in arrears on each Interest Payment Date with respect thereto.
2.6. Requests for Revolving Credit Loans. The Borrower shall give to the
-----------------------------------
Agent written notice in the form of Exhibit C hereto (or telephonic notice
------- -
confirmed in a writing in the form of Exhibit C hereto) of each Revolving Credit
------- -
Loan requested hereunder (a "Loan Request") no less than (i) one (1) Business
Day prior to the proposed Drawdown Date of any Base Rate Loan and (ii) three (3)
Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar
Rate Loan. Each such notice shall specify (A) the principal amount of the
Revolving Credit Loan requested, (B) the proposed Drawdown Date of such
Revolving Credit Loan, (C) the Interest Period for such Revolving Credit Loan
and (D) the Type of such Revolving Credit Loan. Promptly upon receipt of any
such notice, the Agent shall notify each of the Banks thereof. Each Loan Request
shall be irrevocable and binding on the Borrower and shall obligate the Borrower
to accept the Revolving Credit Loan requested from the Banks on the proposed
Drawdown Date. Each Loan
<PAGE>
-23-
Request shall be in a minimum aggregate amount of $1,000,000 or an integral
multiple thereof.
2.7. Conversion Options.
------------------
2.7.1. Conversion to Different Type of Revolving Credit Loan. The
-----------------------------------------------------
Borrower may elect from time to time to convert any outstanding Revolving
Credit Loan to a Revolving Credit Loan of another Type, provided that (i)
--------
with respect to any such conversion of a Revolving Credit Loan to a Base
Rate Loan, the Borrower shall give the Agent at least one (1) Business Day
prior written notice of such election; (ii) with respect to any such
conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrower
shall give the Agent at least three (3) Eurodollar Business Days prior
written notice of such election; (iii) with respect to any such conversion
of a Eurodollar Rate Loan into a Revolving Credit Loan of another Type,
such conversion shall only be made on the last day of the Interest Period
with respect thereto and (iv) no Loan may be converted into a Eurodollar
Rate Loan when any Default or Event of Default has occurred and is
continuing. On the date on which such conversion is being made each Bank
shall take such action as is necessary to transfer its Commitment
Percentage of such Revolving Credit Loans to its Domestic Lending Office or
its Eurodollar Lending Office, as the case may be. All or any part of
outstanding Revolving Credit Loans of any Type may be converted into a
Revolving Credit Loan of another Type as provided herein, provided that any
--------
partial conversion shall be in an aggregate principal amount of $1,000,000
or a whole multiple thereof. Each Conversion Request relating to the
conversion of a Revolving Credit Loan to a Eurodollar Rate Loan shall be
irrevocable by the Borrower.
2.7.2. Continuation of Type of Revolving Credit Loan. Any Revolving
---------------------------------------------
Credit Loan of any Type may be continued as a Revolving Credit Loan of the
same Type upon the expiration of an Interest Period with respect thereto by
compliance by the Borrower with the notice provisions contained in
(S)2.7.1; provided that no Eurodollar Rate Loan may be continued as such
--------
when any Default or Event of Default has occurred and is continuing, but
shall be automatically converted to a Base Rate Loan on the last day of the
first Interest Period relating thereto ending during the continuance of any
Default or Event of Default of which officers of the Agent active upon the
Borrower's account have actual knowledge. In the event that the Borrower
fails to provide any such notice with respect to the continuation of any
Eurodollar Rate Loan as such, then such Eurodollar Rate Loan shall be
automatically converted to a Base Rate Loan on the last day of the first
Interest Period relating thereto. The Agent shall notify the Banks promptly
when any such automatic conversion contemplated by this (S)2.7 is scheduled
to occur.
2.7.3. Eurodollar Rate Loans. Any conversion to or from Eurodollar
---------------------
Rate Loans shall be in such amounts and be made pursuant to such elections
<PAGE>
-24-
so that, after giving effect thereto, the aggregate principal amount of all
Eurodollar Rate Loans having the same Interest Period shall not be less
than $5,000,000 or a whole multiple of $1,000,000 in excess thereof. In
addition, there shall not be more than ten (10) Eurodollar Rate Loans
outstanding at any one time.
2.8. Funds for Revolving Credit Loan.
-------------------------------
2.8.1. Funding Procedures. Not later than 11:00 a.m. (Boston time) on
------------------
the proposed Drawdown Date of any Revolving Credit Loans, each of the Banks
will make available to the Agent, at the Agent's Head Office, in
immediately available funds, the amount of such Bank's Commitment
Percentage of the amount of the requested Revolving Credit Loans. Upon
receipt from each Bank of such amount, and upon receipt of the documents
required by (S)(S)12 and 13 and the satisfaction of the other conditions
set forth therein, to the extent applicable, the Agent will make available
to the Borrower the aggregate amount of such Revolving Credit Loans made
available to the Agent by the Banks. The failure or refusal of any Bank to
make available to the Agent at the aforesaid time and place on any Drawdown
Date the amount of its Commitment Percentage of the requested Revolving
Credit Loans shall not relieve any other Bank from its several obligation
hereunder to make available to the Agent the amount of such other Bank's
Commitment Percentage of any requested Revolving Credit Loans.
2.8.2. Advances by Agent. The Agent may, unless notified to the
-----------------
contrary by any Bank prior to a Drawdown Date, assume that such Bank has
made available to the Agent on such Drawdown Date the amount of such Bank's
Commitment Percentage of the Revolving Credit Loans to be made on such
Drawdown Date, and the Agent may (but it shall not be required to), in
reliance upon such assumption, make available to the Borrower a
corresponding amount. If any Bank makes available to the Agent such amount
on a date after such Drawdown Date, such Bank shall pay to the Agent on
demand an amount equal to the product of (i) the average computed for the
period referred to in clause (iii) below, of the weighted average interest
rate paid by the Agent for federal funds acquired by the Agent during each
day included in such period, times (ii) the amount of such Bank's
-----
Commitment Percentage of such Revolving Credit Loans, times (iii) a
-----
fraction, the numerator of which is the number of days that elapse from and
including such Drawdown Date to the date on which the amount of such Bank's
Commitment Percentage of such Revolving Credit Loans shall become
immediately available to the Agent, and the denominator of which is 365. A
statement of the Agent submitted to such Bank with respect to any amounts
owing under this paragraph shall be prima facie evidence of the amount due
----- -----
and owing to the Agent by such Bank. If the amount of such Bank's
Commitment Percentage of such Revolving Credit Loans is not made
<PAGE>
-25-
available to the Agent by such Bank within three (3) Business Days
following such Drawdown Date, the Agent shall be entitled to recover such
amount from the Borrower on demand, with interest thereon at the rate per
annum applicable to the Revolving Credit Loans made on such Drawdown Date.
2.9. Change in Borrowing Base. The Borrowing Base shall be determined
------------------------
monthly (or at such other interval as may be specified pursuant to (S)9.4(f)) by
the Agent by reference to the Borrowing Base Report delivered to the Banks and
the Agent pursuant to (S)9.4(f). The Agent shall give to the Borrower written
notice of any change in the Borrowing Base determined by the Agent. In the case
of a reduction in the lending formula with respect to Eligible Accounts
Receivable, such notice shall be effective 5 Business Days after its receipt by
the Borrower, and in the case of any change in the general criteria for Eligible
Accounts Receivable, such notice shall be effective upon its receipt by the
Borrower. Prior to the time that such notice becomes effective the Borrowing
Base shall be computed as it would have been computed in the absence of such
notice.
3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
---------------------------------------
3.1. Maturity. The Borrower promises to pay on the Revolving Credit Loan
--------
Maturity Date, and there shall become absolutely due and payable on the
Revolving Credit Loan Maturity Date, all of the Revolving Credit Loans
outstanding on such date, together with any and all accrued and unpaid interest
thereon.
3.2. Mandatory Repayments of Revolving Credit Loans. If at any time the
----------------------------------------------
sum of the outstanding amount of the Revolving Credit Loans, the Maximum Drawing
Amount and all Unpaid Reimbursement Obligations exceeds the lesser of (i) the
Total Commitment and (ii) the Borrowing Base, then the Borrower shall
immediately pay the amount of such excess to the Agent for the respective
accounts of the Banks for application: first, to any Unpaid Reimbursement
Obligations; second, to the Revolving Credit Loans; and third, to provide to the
Agent cash collateral for Reimbursement Obligations as contemplated by (S)5.2(b)
and (c). Each payment of any Unpaid Reimbursement Obligations or prepayment of
Revolving Credit Loans shall be allocated among the Banks, in proportion, as
nearly as practicable, to each Reimbursement Obligation or (as the case may be)
the respective unpaid principal amount of each Bank's Revolving Credit Note,
with adjustments to the extent practicable to equalize any prior payments or
repayments not exactly in proportion.
3.3. Optional Repayments of Revolving Credit Loans. The Borrower shall
---------------------------------------------
have the right, at its election, to repay the outstanding amount of the
Revolving Credit Loans, as a whole or in part, at any time without penalty or
premium, provided that any full or partial prepayment of the outstanding amount
--------
of any Eurodollar Rate Loans pursuant to this (S)3.3 may be made only on the
last day of the Interest Period relating thereto. The Borrower shall give the
Agent, no later than 10:00 a.m., Boston time, at least one (1) Business Day
prior written notice of any proposed prepayment pursuant to this (S)3.3 of Base
Rate Loans, and three (3)
<PAGE>
-26-
Eurodollar Business Days notice of any proposed prepayment pursuant to this
(S)3.3 of Eurodollar Rate Loans, in each case specifying the proposed date of
prepayment of Revolving Credit Loans and the principal amount to be prepaid.
Each such partial prepayment of the Revolving Credit Loans shall be in an
integral multiple of $1,000,000, shall be accompanied by the payment of accrued
interest on the principal prepaid to the date of prepayment and shall be
applied, in the absence of instruction by the Borrower, first to the principal
of Base Rate Loans and then to the principal of Eurodollar Rate Loans, at the
Agent's option. Each partial prepayment shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid principal amount
of each Bank's Revolving Credit Note, with adjustments to the extent practicable
to equalize any prior repayments not exactly in proportion.
4. THE TERM LOAN.
-------------
4.1. Commitment to Lend. Subject to the terms and conditions set forth in
------------------
this Credit Agreement, each Bank agrees to lend to the Borrower on the Closing
Date the amount of its Commitment Percentage of the principal amount of
$15,000,000.
4.2. The Term Notes. The Term Loan shall be evidenced by separate
--------------
promissory notes of the Borrower in substantially the form of Exhibit D hereto
------- -
(each a "Term Note"), dated the Closing Date and completed with appropriate
insertions. One Term Note shall be payable to the order of each Bank in a
principal amount equal to such Bank's Commitment Percentage of the Term Loan and
representing the obligation of the Borrower to pay to such Bank such principal
amount or, if less, the outstanding amount of such Bank's Commitment Percentage
of the Term Loan, plus interest accrued thereon, as set forth below. The
Borrower irrevocably authorizes each Bank to make or cause to be made a notation
on such Bank's Term Note Record reflecting the original principal amount of such
Bank's Commitment Percentage of the Term Loan and, at or about the time of such
Bank's receipt of any principal payment on such Bank's Term Note, an appropriate
notation on such Bank's Term Note Record reflecting such payment. The aggregate
unpaid amount set forth on such Bank's Term Note Record shall be prima facie
----- -----
evidence of the principal amount thereof owing and unpaid to such Bank, but the
failure to record, or any error in so recording, any such amount on such Bank's
Term Note Record shall not affect the obligations of the Borrower hereunder or
under any Term Note to make payments of principal of and interest on any Term
Note when due.
4.3. Repayments of the Term Loan.
---------------------------
4.3.1 Schedule of Installment Payments of Principal of Term Loan. The
----------------------------------------------------------
Borrower promises to pay to the Agent for the account of the Banks the
principal amount of the Term Loan in eight (8) consecutive quarterly
payments of $1,250,000, such installments to be due and payable on the last
day of each calendar quarter of each calendar year, commencing on
<PAGE>
-27-
September 30, 1998, with a final payment on the Term Loan Maturity Date in
an amount equal to the unpaid balance of the Term Loan.
4.3.2 Proceeds. Concurrently with the receipt by the Borrower or any
--------
of its Subsidiaries of (a) Net Cash Sale Proceeds from Assets Sales or
other dispositions of assets (other than the sale or disposition of assets
in the ordinary course of business consistent with past practices), (b) Net
Cash Proceeds from the sale of stock, partnership interests or other equity
issuances of the Borrower or any of its Subsidiaries or (c) cash proceeds
received from insurance claims received by the Borrower or any of its
Subsidiaries which have not been applied by the Borrower or such Subsidiary
within 180 days of receipt by such Person of such proceeds (provided,
--------
however, if a Default or Event of Default has occurred and is continuing,
-------
such proceeds shall be immediately paid to the Agent), the Borrower shall
pay to the Agent for the respective accounts of the Banks an amount equal
to 100% of such proceeds, to be applied against the scheduled installments
of principal on the Term Loan in the inverse order of maturity.
4.4. Optional Prepayment of Term Loan. The Borrower shall have the right
--------------------------------
at any time to prepay the Term Notes on or before the Term Loan Maturity Date,
as a whole, or in part, upon not less than five (5) Business Days prior written
notice to the Agent, without premium or penalty, provided that (i) each partial
--------
prepayment shall be in the principal amount of $1,000,000.00 or an integral
multiple thereof, (ii) any portion of the Term Loan bearing interest at the
Eurodollar Rate prepaid pursuant to this (S)4.4 except on the last day of the
Interest Period relating thereto shall be subject to the indemnity requirement
in (S)6.10, and (iii) each partial prepayment shall be allocated among the
Banks, in proportion, as nearly as practicable, to the respective outstanding
amount of each Bank's Term Note, with adjustments to the extent practicable to
equalize any prior prepayments not exactly in proportion. Any prepayment of
principal of the Term Loan shall include all interest accrued to the date of
prepayment and shall be applied against the scheduled installments of principal
due on the Term Loan in the inverse order of maturity. No amount repaid with
respect to the Term Loan may be reborrowed as a Term Loan.
4.5. Interest on Term Loan.
---------------------
4.5.1. Interest Rates. Except as otherwise provided in (S)6.11, the
--------------
Term Loan shall bear interest during each Interest Period relating to all
or any portion of the Term Loan at the following rates:
(a) To the extent that all or any portion of the Term Loan
bears interest during such Interest Period at the Base Rate, the Term
Loan or such portion shall bear interest during such Interest Period
at the rate of per annum equal to the Base Rate plus the Applicable
Margin.
<PAGE>
-28-
(b) To the extent that all or any portion of the Term Loan
bears interest during such Interest Period at the Eurodollar Rate, the
Term Loan or such portion shall bear interest during such Interest
Period at the rate of per annum equal to the Eurodollar Rate plus the
Applicable Margin.
The Borrower promises to pay interest on the Term Loan or any portion
thereof outstanding during each Interest Period in arrears on each Interest
Payment Date applicable to such Interest Period.
4.5.2. Notification by Borrower. The Borrower shall notify the Agent,
------------------------
such notice to be irrevocable, at least three (3) Eurodollar Business Days
prior to the Drawdown Date of the Term Loan if all or any portion of the
Term Loan is to bear interest at the Eurodollar Rate. After the Term Loan
has been made, the provisions of (S)2.7 shall apply mutatis mutandis with
------- --------
respect to all or any portion of the Term Loan so that the Borrower may
have the same interest rate options with respect to all or any portion of
the Term Loan as it would be entitled to with respect to the Revolving
Credit Loans.
4.5.3. Amounts, etc. Any portion of the Term Loan bearing interest at
-------------
the Eurodollar Rate relating to any Interest Period shall be in the amount
of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. No
Interest Period relating to the Term Loan or any portion thereof bearing
interest at the Eurodollar Rate shall extend beyond the date on which a
regularly scheduled installment payment of the principal of the Term Loan
is to be made unless a portion of the Term Loan at least equal to such
installment payment has an Interest Period ending on such date or is then
bearing interest at the Base Rate.
5. LETTERS OF CREDIT.
-----------------
5.1. Letter of Credit Commitments.
----------------------------
5.1.1. Commitment to Issue Letters of Credit. Subject to the terms
-------------------------------------
and conditions hereof and the execution and delivery by the Borrower of a
letter of credit application on the Agent's customary form (a "Letter of
Credit Application"), the Agent on behalf of the Banks and in reliance upon
the agreement of the Banks set forth in (S)5.1.4 and upon the
representations and warranties of the Borrower contained herein, agrees, in
its individual capacity, to issue, extend and renew for the account of the
Borrower one or more standby or documentary letters of credit
(individually, a "Letter of Credit"), in such form as may be requested from
time to time by the Borrower and agreed to by the Agent; provided, however,
-------- -------
that, after giving effect to such request, (a) the sum of the aggregate
Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not
exceed $5,000,000 at any one time and (b) the sum of (i) the Maximum
Drawing Amount on all Letters of Credit, (ii) all Unpaid Reimbursement
Obligations,
<PAGE>
-29-
and (iii) the amount of all Revolving Credit Loans outstanding shall not
exceed the lesser of (A) the Total Commitment and (B) the Borrowing Base.
Notwithstanding the foregoing, the Agent shall have no obligation to issue
any Letter of Credit to support or secure any Indebtedness of the Borrower
or any of its Subsidiaries to the extent that such Indebtedness was
incurred prior to the proposed issuance date of such Letter of Credit,
unless in any such case the Borrower demonstrates to the satisfaction of
the Agent that (x) such prior incurred Indebtedness were then fully secured
by a prior perfected and unavoidable security interest in collateral
provided by the Borrower or such Subsidiary to the proposed beneficiary of
such Letter of Credit or (y) such prior incurred Indebtedness were then
secured or supported by a letter of credit issued for the account of the
Borrower or such Subsidiary and the reimbursement obligation with respect
to such letter of credit was fully secured by a prior perfected and
unavoidable security interest in collateral provided to the issuer of such
letter of credit by the Borrower or such Subsidiary.
5.1.2. Letter of Credit Applications. Each Letter of Credit
-----------------------------
Application shall be completed to the satisfaction of the Agent. In the
event that any provision of any Letter of Credit Application shall be
inconsistent with any provision of this Credit Agreement, then the
provisions of this Credit Agreement shall, to the extent of any such
inconsistency, govern.
5.1.3. Terms of Letters of Credit. Each Letter of Credit issued,
--------------------------
extended or renewed hereunder shall, among other things, (i) provide for
the payment of sight drafts for honor thereunder when presented in
accordance with the terms thereof and when accompanied by the documents
described therein, and (ii) have an expiry date no later than the date
which is fourteen (14) days (or, if the Letter of Credit is confirmed by a
confirmer or otherwise provides for one or more nominated persons, forty-
five (45) days) prior to the Revolving Credit Loan Maturity Date. Each
Letter of Credit so issued, extended or renewed shall be subject to the
Uniform Customs.
5.1.4. Reimbursement Obligations of Banks. Each Bank severally agrees
----------------------------------
that it shall be absolutely liable, without regard to the occurrence of any
Default or Event of Default or any other condition precedent whatsoever, to
the extent of such Bank's Commitment Percentage, to reimburse the Agent on
demand for the amount of each draft paid by the Agent under each Letter of
Credit to the extent that such amount is not reimbursed by the Borrower
pursuant to (S)5.2 (such agreement for a Bank being called herein the
"Letter of Credit Participation" of such Bank).
5.1.5. Participations of Banks. Each such payment made by a Bank
-----------------------
shall be treated as the purchase by such Bank of a participating interest
in the Borrower's Reimbursement Obligation under (S)5.2 in an amount equal
to such payment. Each Bank shall share in accordance with its participating
interest in any interest which accrues pursuant to (S)5.2.
<PAGE>
-30-
5.2. Reimbursement Obligation of the Borrower. In order to induce the
----------------------------------------
Agent to issue, extend and renew each Letter of Credit and the Banks to
participate therein, the Borrower hereby agrees to reimburse or pay to the
Agent, for the account of the Agent or (as the case may be) the Banks, with
respect to each Letter of Credit issued, extended or renewed by the Agent
hereunder,
(a) except as otherwise expressly provided in (S)5.2(b) and (c), on
each date that any draft presented under such Letter of Credit is honored
by the Agent, or the Agent otherwise makes a payment with respect thereto,
(i) the amount paid by the Agent under or with respect to such Letter of
Credit, and (ii) the amount of any taxes, fees, charges or other costs and
expenses whatsoever incurred by the Agent or any Bank in connection with
any payment made by the Agent or any Bank under, or with respect to, such
Letter of Credit,
(b) upon the reduction (but not termination) of the Total Commitment
to an amount less than the Maximum Drawing Amount, an amount equal to such
difference, which amount shall be held by the Agent for the benefit of the
Banks and the Agent as cash collateral for all Reimbursement Obligations,
and
(c) upon the termination of the Total Commitment, or the acceleration
of the Reimbursement Obligations with respect to all Letters of Credit in
accordance with (S)14, an amount equal to the then Maximum Drawing Amount
on all Letters of Credit, which amount shall be held by the Agent for the
benefit of the Banks and the Agent as cash collateral for all Reimbursement
Obligations.
Each such payment shall be made to the Agent at the Agent's Head Office in
immediately available funds. Interest on any and all amounts remaining unpaid by
the Borrower under this (S)5.2 at any time from the date such amounts become due
and payable (whether as stated in this (S)5.2, by acceleration or otherwise)
until payment in full (whether before or after judgment) shall be payable to the
Agent on demand at the rate specified in (S)6.11 for overdue principal on the
Revolving Credit Loans.
5.3. Letter of Credit Payments. If any draft shall be presented or other
-------------------------
demand for payment shall be made under any Letter of Credit, the Agent shall
notify the Borrower of the date and amount of the draft presented or demand for
payment and of the date and time when it expects to pay such draft or honor such
demand for payment. If the Borrower fails to reimburse the Agent as provided in
(S)5.2 on or before the date that such draft is paid or other payment is made by
the Agent, the Agent may at any time thereafter notify the Banks of the amount
of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston
time) on the Business Day next following the receipt of such notice, each Bank
shall make available to the Agent, at the Agent's Head Office, in immediately
available funds, such Bank's Commitment Percentage of such Unpaid Reimbursement
Obligation,
<PAGE>
-31-
together with an amount equal to the product of (i) the average, computed for
the period referred to in clause (iii) below, of the weighted average interest
rate paid by the Agent for federal funds acquired by the Agent during each day
included in such period, times (ii) the amount equal to such Bank's Commitment
-----
Percentage of such Unpaid Reimbursement Obligation, times (iii) a fraction, the
-----
numerator of which is the number of days that elapse from and including the date
the Agent paid the draft presented for honor or otherwise made payment to the
date on which such Bank's Commitment Percentage of such Unpaid Reimbursement
obligation shall become immediately available to the Agent, and the denominator
of which is 360. The responsibility of the Agent to the Borrower and the Banks
shall be only to determine that the documents (including each draft) delivered
under each Letter of Credit in connection with such presentment shall be in
conformity in all material respects with such Letter of Credit.
5.4. Obligations Absolute. The Borrower's obligations under this (S)5
--------------------
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Agent, any Bank or any
beneficiary of a Letter of Credit. The Borrower further agrees with the Agent
and the Banks that the Agent and the Banks shall not be responsible for, and the
Borrower's Reimbursement Obligations under (S)5.2 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among
the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrower against the beneficiary of any
Letter of Credit or any such transferee. The Agent and the Banks shall not be
liable for any error, omission, interruption or delay in transmission, dispatch
or delivery of any message or advice, however transmitted, in connection with
any Letter of Credit, except if such error was the direct result of the Agent or
any Bank's gross negligence or willful misconduct. The Borrower agrees that any
action taken or omitted by the Agent or any Bank under or in connection with
each Letter of Credit and the related drafts and documents, if done in good
faith and absent the Agent's or such Bank's gross negligence and willful
misconduct, shall be binding upon the Borrower and shall not result in any
liability on the part of the Agent or any Bank to the Borrower.
5.5. Reliance by Issuer. To the extent not inconsistent with (S)5.4, the
------------------
Agent shall be entitled to rely, and shall be fully protected in relying upon,
any Letter of Credit, draft, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed in good faith by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel, independent accountants
and other experts selected by the Agent. The Agent shall be fully justified in
failing or refusing to take any action
<PAGE>
-32-
under this Credit Agreement unless it shall first have received such advice or
concurrence of the Majority Banks as it reasonably deems appropriate or it shall
first be indemnified to its reasonable satisfaction by the Banks against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Credit Agreement
in accordance with a request of the Majority Banks, and such request and any
action taken or failure to act pursuant thereto shall be binding upon the Banks
and all future holders of the Revolving Credit Notes or of a Letter of Credit
Participation.
5.6. Letter of Credit Fee. The Borrower shall, on the date of issuance or
--------------------
any extension or renewal of any Letter of Credit pay a fee (in each case, a
"Letter of Credit Fee") to the Agent (i) in respect of each standby Letter of
Credit calculated at the Applicable Margin per annum of the face amount of such
standby Letter of Credit, plus a fee equal to one-quarter of one percent (1/4%)
----
per annum of the face amount of such standby Letter of Credit for the account of
the Agent, as a fronting fee, and the balance of which Letter of Credit Fee
shall be for the accounts of the Banks in accordance with their respective
Commitment Percentages and (ii) in respect of each documentary Letter of Credit
calculated at the rate of the Applicable Margin per annum on the face amount of
such documentary Letter of Credit, plus a fee equal to one-quarter of one
----
percent (1/4%) per annum of the face amount of such documentary Letter of Credit
for the account of the Agent, as a fronting fee, and the balance of which Letter
of Credit Fee shall be for the accounts of the Banks in accordance with their
respective Commitment Percentages. In respect of each Letter of Credit, the
Borrower shall also pay to the Agent for the Agent's own account, at such other
time or times as such charges are customarily made by the Agent, the Agent's
customary issuance, amendment, negotiation or document examination and other
administrative fees as in effect from time to time.
6. CERTAIN GENERAL PROVISIONS.
--------------------------
6.1. Drawdown Fee. The Borrower shall pay to the Agent for the respective
------------
accounts of the Banks a drawdown fee of $10,000 on the Initial Borrowing Date.
6.2. [Reserved]
6.3. Funds for Payments.
------------------
6.3.1. Payments to Agent. All payments of principal, interest,
-----------------
Reimbursement Obligations, commitment fees, Letter of Credit Fees and any
other amounts due hereunder or under any of the other Loan Documents shall
be made to the Agent, for the respective accounts of the Banks and the
Agent, at the Agent's Head Office or at such other location in the Boston,
Massachusetts, area that the Agent may from time to time designate, in each
case in immediately available funds.
<PAGE>
-33-
6.3.2. No Offset, etc. All payments by the Borrower hereunder and
---------------
under any of the other Loan Documents shall be made without setoff or
counterclaim and free and clear of and without deduction for any taxes,
levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or hereafter
imposed or levied by any jurisdiction or any political subdivision thereof
or taxing or other authority therein unless the Borrower is compelled by
law to make such deduction or withholding. If any such obligation is
imposed upon the Borrower with respect to any amount payable by it
hereunder or under any of the other Loan Documents, the Borrower will pay
to the Agent, for the account of the Banks or (as the case may be) the
Agent, on the date on which such amount is due and payable hereunder or
under such other Loan Document, such additional amount in Dollars as shall
be necessary to enable the Banks or the Agent to receive the same net
amount which the Banks or the Agent would have received on such due date
had no such obligation been imposed upon the Borrower. The Borrower will
deliver promptly to the Agent certificates or other valid vouchers for all
taxes or other charges deducted from or paid with respect to payments made
by the Borrower hereunder or under such other Loan Document.
6.4. Computations. All computations of interest on the Loans and of
------------
commitment fees, Letter of Credit Fees or other fees shall, be based on a 360-
day year and paid for the actual number of days elapsed. Except as otherwise
provided in the definition of the term "Interest Period" with respect to
Eurodollar Rate Loans, whenever a payment hereunder or under any of the other
Loan Documents becomes due on a day that is not a Business Day, the due date for
such payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The outstanding amount of the Loans as
reflected on the Revolving Credit Note Records and the Term Note Records from
time to time shall be considered correct and binding on the Borrower unless
within five (5) Business Days after receipt of any notice by the Borrower of
such outstanding amount, the Borrower shall notify the Agent or any Bank to the
contrary.
6.5. Inability to Determine Eurodollar Rate. In the event, prior to the
--------------------------------------
commencement of any Interest Period relating to any Eurodollar Rate Loan, the
Agent shall determine in accordance with its standard commercial practice that
adequate and reasonable methods do not exist for ascertaining the Eurodollar
Rate that would otherwise determine the rate of interest to be applicable to any
Eurodollar Rate Loan during any Interest Period, the Agent shall forthwith give
notice of such determination (which shall be conclusive and binding on the
Borrower and the Banks) to the Borrower and the Banks. In such event (i) any
Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall
be automatically withdrawn and shall be deemed a request for Base Rate Loans,
(ii) each Eurodollar Rate Loan will automatically, on the last day of the then
current Interest Period relating thereto, become a Base Rate Loan, and (iii) the
obligations of the Banks to make Eurodollar Rate Loans shall be suspended until
the Agent
<PAGE>
-34-
determines in accordance with its standard commercial practice that the
circumstances giving rise to such suspension no longer exist, whereupon the
Agent shall so notify the Borrower and the Banks.
6.6. Illegality. Notwithstanding any other provisions herein, if any
----------
present or future law, regulation, treaty or directive or in the interpretation
or application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Rate Loans, such Bank shall forthwith give notice of such
circumstances to the Borrower and the other Banks and thereupon (i) the
commitment of such Bank to make Eurodollar Rate Loans or convert Loans of
another Type to Eurodollar Rate Loans shall forthwith be suspended and (ii) such
Bank's Revolving Credit Loans then outstanding as Eurodollar Rate Loans, if any,
shall be converted automatically to Base Rate Loans on the last day of each
Interest Period applicable to such Eurodollar Rate Loans or within such earlier
period as may be required by law. The Borrower hereby agrees promptly to pay the
Agent for the account of such Bank, upon demand by such Bank, any additional
amounts necessary to compensate such Bank for any costs incurred by such Bank in
making any conversion in accordance with this (S)6.6, including any interest or
fees payable by such Bank to lenders of funds obtained by it in order to make or
maintain its Eurodollar Rate Loans hereunder.
6.7. Additional Costs, etc. If any present or future applicable law, which
---------------------
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to any Bank or
the Agent by any central bank or other fiscal, monetary or other authority
(whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Credit Agreement, the other Loan Documents, any Letters of Credit, such
Bank's Commitment or the Loans (other than taxes based upon or measured by
the income or profits of such Bank or the Agent), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to any Bank of the principal of or
the interest on any Loans or any other amounts payable to any Bank or the
Agent under this Credit Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or other
similar requirements (whether or not having the force of law) against
assets held by, or deposits in or for the account of, or loans by, or
letters of credit issued by, or commitments of an office of any Bank, or
<PAGE>
-35-
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan
Documents, any Letters of Credit, the Loans, such Bank's Commitment, or any
class of loans, letters of credit or commitments of which any of the Loans
or such Bank's Commitment forms a part, and the result of any of the
foregoing is
(i) to materially increase the cost to any Bank of making,
funding, issuing, renewing, extending or maintaining any of the Loans
or such Bank's Commitment or any Letter of Credit, or
(ii) to reduce the amount of principal, interest, Reimbursement
Obligation or other amount payable to such Bank or the Agent hereunder
on account of such Bank's Commitment, any Letter of Credit or any of
the Loans, or
(iii) to require such Bank or the Agent to make any payment or
to forego any interest or Reimbursement Obligation or other sum
payable hereunder, the amount of which payment or foregone interest or
Reimbursement Obligation or other sum is calculated by reference to
the gross amount of any sum receivable or deemed received by such Bank
or the Agent from the Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by such Bank or
(as the case may be) the Agent at any time within one hundred eighty (180) days
of the event giving rise thereto and from time to time and as often as the
occasion therefor may arise, pay to such Bank or the Agent such additional
amounts as will be sufficient to compensate such Bank or the Agent for such
additional cost, reduction, payment or foregone interest or Reimbursement
Obligation or other sum.
6.8. Capital Adequacy. If after the date hereof any Bank or the Agent
----------------
determines that (i) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (ii) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
effect of reducing the return on such Bank's or the Agent's commitment with
respect to any Loans to a level below that which such Bank or the Agent could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or the Agent's then existing policies with respect to
capital adequacy and assuming full utilization of such entity's capital) by any
amount reasonably deemed by such Bank or (as the case may be) the Agent in
accordance with its standard commercial practices to be material, then such Bank
or the Agent may notify the Borrower of such fact within one hundred eighty
(180) days of the event giving rise thereto. To the extent that
<PAGE>
-36-
the amount of such reduction in the return on capital is not reflected in the
Base Rate, the Borrower agrees to pay such Bank or (as the case may be) the
Agent for the amount of such reduction in the return on capital as and when such
reduction is determined upon presentation by such Bank or (as the case may be)
the Agent of a certificate in accordance with (S)6.9 hereof. Each Bank shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
6.9. Certificate. A certificate setting forth any additional amounts
-----------
payable pursuant to (S)(S)6.7 or 6.8 and a brief explanation of such amounts
which are due, submitted by any Bank or the Agent to the Borrower, shall be
conclusive, absent manifest error, that such amounts are due and owing.
6.10. Indemnity. The Borrower agrees to indemnify each Bank and to hold
---------
each Bank harmless from and against any loss, cost or expense (including loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (i)
default by the Borrower in payment of the principal amount of or any interest on
any Eurodollar Rate Loans as and when due and payable, including any such loss
or expense arising from interest or fees payable by such Bank to lenders of
funds obtained by it in order to maintain its Eurodollar Rate Loans, (ii)
default by the Borrower in making a borrowing or conversion after the Borrower
has given (or is deemed to have given) a Loan Request, notice (in the case of
all or any portion of the Term Loans pursuant to (S)4.5.2) or a Conversion
Request relating thereto in accordance with (S)2.6 or (S)2.7 or (S)4.5 or (iii)
the making of any payment of a Eurodollar Rate Loan or the making of any
conversion of any such Loan to a Base Rate Loan on a day that is not the last
day of the applicable Interest Period with respect thereto, including interest
or fees payable by such Bank to lenders of funds obtained by it in order to
maintain any such Loans.
6.11. Interest After Default.
----------------------
6.11.1. Overdue Amounts. Overdue principal and (to the extent
---------------
permitted by applicable law) interest on the Loans and all other overdue
amounts payable hereunder or under any of the other Loan Documents shall
bear interest compounded monthly and payable on demand at a rate per annum
equal to three percent (3%) above the Base Rate until such amount shall be
paid in full (after as well as before judgment).
6.11.2. Amounts Not Overdue. During the continuance of a Default or
-------------------
an Event of Default the principal of the Revolving Credit Loans and the
Term Loan not overdue shall, until such Default or Event of Default has
been cured or remedied or such Default or Event of Default has been waived
by the Majority Banks pursuant to (S)27, bear interest at a rate per annum
equal to the greater of (i) three percent (3%) above the rate of interest
otherwise applicable to such Revolving Credit Loans pursuant to (S)2.5 and
the Term Loan pursuant to (S)4.5 and (ii) the rate of interest applicable
to overdue principal pursuant to (S)6.11.1.
<PAGE>
-37-
7. COLLATERAL SECURITY AND GUARANTIES.
----------------------------------
7.1. Security of Borrower. The Obligations shall be secured by a perfected
--------------------
first priority security interest (subject only to Permitted Liens entitled to
priority under applicable law) in all of the assets of the Borrower, whether now
owned or hereafter acquired, pursuant to the terms of the Security Documents to
which the Borrower is a party.
7.2. Guaranties and Security of Domestic Subsidiaries. If the Borrower
------------------------------------------------
shall have in the future any Subsidiaries which operate in the United States,
the Obligations shall also be guaranteed by such domestic Subsidiary pursuant to
the terms of a guaranty in a form satisfactory to the Agent. The obligations of
the Borrower's domestic Subsidiaries under the Guaranty shall be in turn secured
by a perfected first priority security interest (subject only to Permitted Liens
entitled to priority under applicable law) in all of the assets of each such
Subsidiary, whether now owned or hereafter acquired, pursuant to the terms of
the Security Documents to which such Subsidiary is a party.
8. REPRESENTATIONS AND WARRANTIES.
------------------------------
The Borrower represents and warrants to the Banks and the Agent as follows:
8.1. Corporate Authority.
-------------------
8.1.1. Incorporation; Good Standing. Except as set forth on Schedule
--------
8.1.1 hereto, each of the Borrower and its Subsidiaries (i) ia a
-----
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, (ii) has all requisite corporate power
to own its property and conduct its business as now conducted and as
presently contemplated, and (iii) is in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction
where such qualification is necessary except where a failure to be so
qualified would not have a materially adverse effect on the business,
assets or financial condition of the Borrower or such Subsidiary.
8.1.2. Authorization. The execution, delivery and performance of this
-------------
Credit Agreement and the other Loan Documents to which the Borrower or any
of its Subsidiaries is or is to become a party and the transactions
contemplated hereby and thereby (i) are within the corporate authority of
such Person, (ii) have been duly authorized by all necessary corporate
proceedings, (iii) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to which
the Borrower or any of its Subsidiaries is subject or any judgment, order,
writ, injunction, license or permit applicable to the Borrower or any of
its Subsidiaries and (iv) do not conflict with any provision of the
corporate
<PAGE>
-38-
charter or bylaws of, or any agreement or other instrument binding upon,
the Borrower or any of its Subsidiaries.
8.1.3. Enforceability. The execution and delivery of this Credit
--------------
Agreement and the other Loan Documents to which the Borrower or any of its
Subsidiaries is or is to become a party will result in valid and legally
binding obligations of such Person enforceable against it in accordance
with the respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement
of creditors' rights and except to the extent that availability of the
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be
brought.
8.2. Governmental Approvals. The execution, delivery and performance by
----------------------
the Borrower and any of its Subsidiaries of this Credit Agreement and the other
Loan Documents to which the Borrower or any of its Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
8.3. Title to Properties; Leases. The Borrower and its Subsidiaries own
---------------------------
all of the assets reflected in the combined balance sheet of the Borrower and
its Subsidiaries as at the Balance Sheet Date or acquired since that date
(except property and assets sold or otherwise disposed of in the ordinary course
of business since that date), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances except Permitted Liens.
8.4. Financial Statements and Projections.
------------------------------------
8.4.1. Fiscal Year. The Borrower and each of its Subsidiaries
-----------
has a fiscal year which is the twelve months ending on September 30 of each
calendar year.
8.4.2. Financial Statements. There has been furnished to each of
--------------------
the Banks a combined balance sheet of the Borrower and its Subsidiaries as
at the Balance Sheet Date, and a combined statement of income of the
Borrower and its Subsidiaries for the fiscal period then ended, certified
by Coopers & Lybrand LLP. Such balance sheet and statement of income have
been prepared in accordance with generally accepted accounting principles
and fairly present the financial condition of the Borrower as at the close
of business on the date thereof and the results of operations for the
fiscal period then ended. There are no contingent liabilities of the
Borrower or any of its Subsidiaries as of such date involving material
amounts, known to the officers of the Borrower, which were not disclosed in
such balance sheet and the notes related thereto.
<PAGE>
-39-
8.4.3. Projections. The projections of the annual operating
-----------
budgets of the Borrower and its Subsidiaries on a combined basis, balance
sheets and cash flow statements for the 1997 to 2000 fiscal years, copies
of which have been delivered to each Bank, disclose all assumptions made
with respect to general economic, financial and market conditions used in
formulating such projections. To the knowledge of the Borrower or any of
its Subsidiaries, no facts exist that (individually or in the aggregate)
would result in any material change in any of such projections. The
projections are based upon reasonable estimates and assumptions, have been
prepared on the basis of the assumptions stated therein and reflect the
reasonable estimates of the Borrower and its Subsidiaries (as of the date
thereof) of the results of operations and other information projected
therein.
8.5. No Material Changes, etc. Since the Balance Sheet Date there has
------------------------
occurred no materially adverse change in the financial condition or business of
the Borrower and its Subsidiaries as shown on or reflected in the consolidated
balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date,
or the combined statement of income for the fiscal period then ended, other than
changes contemplated by the Distribution Agreement or in the ordinary course of
business that have not had any materially adverse effect either individually or
in the aggregate on the business or financial condition of the Borrower or any
of its Subsidiaries. Since the Balance Sheet Date, the Borrower has not made any
Distributions, except as contemplated by the Distribution Agreement or except as
expressly permitted by the terms of this Credit Agreement.
8.6. Franchises, Patents, Copyrights, etc. Each of the Borrower and its
------------------------------------
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
8.7. Litigation. Except as set forth in Schedule 8.7 hereto, there are no
---------- -------- ---
actions, suits, proceedings or investigations of any kind pending or threatened
against the Borrower or any of its Subsidiaries before any court, tribunal or
administrative agency or board that, if adversely determined, might, either in
any case or in the aggregate, materially adversely affect the properties,
assets, financial condition or business of the Borrower and its Subsidiaries,
considered as a whole, or materially impair the right of the Borrower and its
Subsidiaries, considered as a whole, to carry on business substantially as now
conducted by them, or result in any substantial liability not adequately covered
by insurance, or for which adequate reserves are not maintained on the
consolidated balance sheet of the Borrower and its Subsidiaries, or which
question the validity of this Credit Agreement or any of the other Loan
Documents, or any action taken or to be taken pursuant hereto or thereto.
8.8. No Materially Adverse Contracts, etc. Neither the Borrower nor any of
------------------------------------
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any
<PAGE>
-40-
judgment, decree, order, rule or regulation that has or is expected in the
future to have a materially adverse effect on the business, assets or financial
condition of the Borrower or any of its Subsidiaries. Except as previously
disclosed to the Agent in writing, neither the Borrower nor any of its
Subsidiaries is a party to any contract or agreement that has or is expected, in
the judgment of the Borrower's officers, to have any materially adverse effect
on the business of the Borrower or any of its Subsidiaries.
8.9. Compliance with Other Instruments, Laws, etc. Except as previously
--------------------------------------------
disclosed to the Agent in writing, neither the Borrower nor any of its
Subsidiaries is in violation of any provision of its charter documents, bylaws,
or any agreement or instrument to which it may be subject or by which it or any
of its properties may be bound or any decree, order, judgment, statute, license,
rule or regulation, in any of the foregoing cases in a manner that could result
in the imposition of substantial penalties or materially and adversely affect
the financial condition, properties or business of the Borrower or any of its
Subsidiaries.
8.10. Tax Status. The Borrower and its Subsidiaries (i) have made or filed
----------
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which any of them is subject, (ii) have paid all
taxes and other governmental assessments and charges shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and by appropriate proceedings and (iii) have set aside on their
books provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Borrower know of no basis
for any such claim.
8.11. No Event of Default. No Event of Default has occurred and is
-------------------
continuing.
8.12. Holding Company and Investment Company Acts. Neither the Borrower
-------------------------------------------
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
8.13. Absence of Financing Statements, etc. Except with respect to
------------------------------------
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Subsidiaries or any
rights relating thereto.
<PAGE>
-41-
8.14. Perfection of Security Interest. All filings, assignments, pledges
-------------------------------
and deposits of documents or instruments have been made and all other actions
have been taken, or arrangements satisfactory to the Agent have been made for
taking, that are necessary or advisable, under applicable law, to establish and
perfect the Agent's security interest in the Collateral. The Collateral and the
Agent's rights with respect to the Collateral are not subject to any setoff,
claims, withholdings or other defenses. The Borrower or a Subsidiary of the
Borrower party to one of the Security Agreements is the owner of the Collateral
free from any lien, security interest, encumbrance and any other claim or
demand, except for Permitted Liens.
8.15. Certain Transactions. None of the officers, directors, or employees
--------------------
of the Borrower or any of its Subsidiaries is presently a party to any
transaction with the Borrower or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Borrower, any corporation, partnership, trust or other entity
in which any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
8.16. Employee Benefit Plans.
----------------------
8.16.1. In General. Each Employee Benefit Plan and each
----------
Guaranteed Pension Plan has been maintained and operated in compliance in
all material respects with the provisions of ERISA and, to the extent
applicable, the Code, including but not limited to the provisions
thereunder respecting prohibited transactions and the bonding of
fiduciaries and other persons handling plan funds as required by (S)412 of
ERISA. The Borrower has heretofore delivered to the Agent the most recently
completed annual report, Form 5500, with all required attachments, and
actuarial statement required to be submitted under (S)103(d) of ERISA, with
respect to each Guaranteed Pension Plan.
8.16.2. Terminability of Welfare Plans. No Employee Benefit Plan,
------------------------------
which is an employee welfare benefit plan within the meaning of (S)3(1) or
(S)3(2)(B) of ERISA, provides benefit coverage subsequent to termination of
employment, except as required by Title I, Part 6 of ERISA or the
applicable state insurance laws. The Borrower may terminate each such Plan
at any time (or at any time subsequent to the expiration of any applicable
bargaining agreement) in the discretion of the Borrower without liability
to any Person other than for claims arising prior to termination.
8.16.3. Guaranteed Pension Plans. Each contribution required to
------------------------
be made to a Guaranteed Pension Plan, whether required to be made to avoid
the incurrence of an accumulated funding deficiency, the notice or lien
provisions of (S)302(f) of ERISA, or otherwise, has been timely made. No
waiver of an accumulated funding deficiency or extension of amortization
periods has been received with respect to any Guaranteed Pension Plan, and
<PAGE>
-42-
neither the Borrower nor any ERISA Affiliate is obligated to or has posted
security in connection with an amendment to a Guaranteed Pension Plan
pursuant to (S)307 of ERISA or (S)401(a)(29) of the Code. No liability to
the PBGC (other than required insurance premiums, all of which have been
paid) has been incurred by the Borrower or any ERISA Affiliate with respect
to any Guaranteed Pension Plan and there has not been any ERISA Reportable
Event (other than an ERISA Reportable Event as to which the requirement of
30 days notice has been waived), or any other event or condition which
presents a material risk of termination of any Guaranteed Pension Plan by
the PBGC. Based on the latest valuation of each Guaranteed Pension Plan
(which in each case occurred within twelve months of the date of this
representation), and on the actuarial methods and assumptions employed for
that valuation, the aggregate benefit liabilities of all such Guaranteed
Pension Plans within the meaning of (S)4001 of ERISA did not exceed the
aggregate value of the assets of all such Guaranteed Pension Plans,
disregarding for this purpose the benefit liabilities and assets of any
Guaranteed Pension Plan with assets in excess of benefit liabilities.
8.16.4. Multiemployer Plans. Neither the Borrower nor any ERISA
-------------------
Affiliate has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan under (S)4201 of ERISA or as a
result of a sale of assets described in (S)4204 of ERISA. Neither the
Borrower nor any ERISA Affiliate has been notified that any Multiemployer
Plan is in reorganization or insolvent under and within the meaning of
(S)4241 or (S)4245 of ERISA or is at risk of entering reorganization or
becoming insolvent, or that any Multiemployer Plan intends to terminate or
has been terminated under (S)4041A of ERISA.
8.17. Use of Proceeds.
---------------
8.17.1. General. The proceeds of the Loans, together with the
-------
proceeds of the Borrower's public offering shall be used on the Closing
Date to pay in full any Indebtedness which remains outstanding under a
$64,000,000 note payable to BankBoston, N.A. and thereafter for working
capital and general corporate purposes. The Borrower will obtain Letters of
Credit solely for general corporate purposes.
8.17.2. Regulations U and X. No portion of any Loan is to be
-------------------
used, and no portion of any Letter of Credit is to be obtained, for the
purpose of purchasing or carrying any "margin security" or "margin stock"
as such terms are used in Regulations U and X of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
8.17.3. Ineligible Securities. No portion of the proceeds of any
---------------------
Loans is to be used, and no portion of any Letter of Credit is to be
obtained, for the purpose of (a) knowingly purchasing, or providing credit
support for
<PAGE>
-43-
the purchase of, Ineligible Securities from a Section 20 Subsidiary during
any period in which such Section 20 Subsidiary makes a market in such
Ineligible Securities, (b) knowingly purchasing, or providing credit
support for the purchase of, during the underwriting or placement period,
any Ineligible Securities being underwritten or privately placed by a
Section 20 Subsidiary, or (c) making, or providing credit support for the
making of, payments of principal or interest on Ineligible Securities
underwritten or privately placed by a Section 20 Subsidiary and issued by
or for the benefit of the Borrower or any Subsidiary or other Affiliate of
the Borrower.
8.18. Environmental Compliance. To the Borrower's knowledge, and except as
------------------------
set forth on Schedule 8.18 attached hereto:
-------------
(a) none of the Borrower, its Subsidiaries or any of their
operations at the Real Estate is in violation, or alleged violation, of any
judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those arising under
the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any state or local statute, regulation,
ordinance, order or decree relating to health, safety or the environment
(hereinafter "Environmental Laws"), which violation would have a material
adverse effect on the environment or the business, assets or financial
condition of the Borrower or any of its Subsidiaries;
(b) neither the Borrower nor any of its Subsidiaries has received
notice from any third party including, without limitation, any federal,
state or local governmental authority, (i) that any one of them has been
identified by the United States Environmental Protection Agency ("EPA") as
a potentially responsible party under CERCLA with respect to a site listed
on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that
any hazardous waste, as defined by 42 U.S.C. (S)6903(5), any hazardous
substances as defined by 42 U.S.C. (S)9601(14), any pollutant or
contaminant as defined by 42 U.S.C. (S)9601(33) and any toxic substances,
oil or hazardous materials or other chemicals or substances regulated by
any Environmental Laws ("Hazardous Substances") which any one of them has
generated, transported or disposed of has been found at any site at which a
federal, state or local agency or other third party has conducted or has
ordered that any Borrower or any of its Subsidiaries conduct a remedial
investigation, removal or other response action pursuant to any
Environmental Law; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, or legal or administrative
proceeding (in each case, contingent or otherwise) arising out of any third
party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances;
<PAGE>
-44-
(c) (i) no portion of the Real Estate has been used for the
handling, processing, storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; and no underground tank or
other underground storage receptacle for Hazardous Substances is located on
any portion of the Real Estate; (ii) in the course of any activities
conducted by the Borrower or its Subsidiaries, no Hazardous Substances have
been generated or are being used on the Real Estate except in accordance
with applicable Environmental Laws; (iii) there have been no releases (i.e.
any past or present releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or dumping)
or threatened releases of Hazardous Substances on, upon, into or from the
properties of the Borrower or its Subsidiaries, which releases would have a
material adverse effect on the value of any of the Real Estate or adjacent
properties or the environment; (iv) to the best of the Borrower's
knowledge, there have been no releases on, upon, from or into any real
property in the vicinity of any of the Real Estate which, through soil or
groundwater contamination, may have come to be located on, and which would
have a material adverse effect on the value of, the Real Estate; and (v) in
addition, any Hazardous Substances that have been generated on any of the
Real Estate have been transported offsite only by carriers having an
identification number issued by the EPA, treated or disposed of only by
treatment or disposal facilities maintaining valid permits as required
under applicable Environmental Laws, which transporters and facilities have
been and are, to the best of the Borrower's knowledge, operating in
compliance with such permits and applicable Environmental Laws; and
(d) None of the Borrower and its Subsidiaries or any of the Real
Estate is subject to any applicable environmental law requiring the
performance of Hazardous Substances site assessments, or the removal or
remediation of Hazardous Substances, or the giving of notice to any
governmental agency or the recording or delivery to other Persons of an
environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby or to the
effectiveness of any other transactions contemplated hereby.
8.19. Subsidiaries, etc. The only Subsidiaries of the Borrower are listed
-----------------
on Schedule 8.19. Neither the Borrower nor any Subsidiary of the Borrower is
-------------
engaged in any joint venture or partnership with any other Person.
8.20. Bank Accounts. Schedule 8.20 sets forth the account numbers and
------------- -------- ----
location of all Local Accounts, Interim Concentration Accounts and other bank
accounts of the Borrower or any of its Subsidiaries.
8.21. Additional Representations. (a) The Borrower has in all material
--------------------------
respects transferred the business, assets and liabilities relating to its PRISM,
Protean and Avantis product lines to Marcam Solutions, Inc. and has contributed
<PAGE>
-45-
$39,000,000 in cash to Marcam Solutions, Inc. pursuant to the Distribution
Agreement.
(b) The shares of Marcam Solutions, Inc. have been distributed to
stockholders of the Borrower in a tax-free distribution under Section 355 of the
Code.
(c) The Borrower and Marcam Solutions, Inc. are party to a Distribution
Agreement, a General Services Agreement, an International Facilities Sharing
Agreement, and a Tax Sharing Agreement, copies of which have been delivered to
the Agent on or prior to the Closing Date.
(d) The Borrower's Earnings Before Interest and Taxes for the four fiscal
quarters ended prior to the Closing Date exceeded $19,000,000.
(e) The Borrower has completed a public offering and received Net Cash
Proceeds therefrom in excess of $34,000,000.
8.22. Disclosure. None of this Credit Agreement or any of the other Loan
----------
Documents contains any untrue statement of a material fact or omits to state a
material fact (known to the Borrower or any of its Subsidiaries in the case of
any document or information not furnished by it or any of its Subsidiaries)
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made not misleading. Except as otherwise
disclosed to the Agent on or prior to the Closing Date, there is no fact known
to the Borrower or any of its Subsidiaries which materially adversely affects,
or which is reasonably likely in the future to materially adversely affect, the
business, assets, financial condition or prospects of the Borrower or any of its
Subsidiaries, exclusive of effects resulting from changes in general economic
conditions, legal standards or regulatory conditions.
9. AFFIRMATIVE COVENANTS OF THE BORROWER.
-------------------------------------
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Loans or the Agent has any obligation to issue,
extend or renew any Letters of Credit:
9.1. Punctual Payment. The Borrower will duly and punctually pay or cause
----------------
to be paid the principal and interest on the Loans, all Reimbursement
Obligations, the Letter of Credit Fees, the commitment fees, the Agent's fee and
all other amounts provided for in this Credit Agreement and the other Loan
Documents to which the Borrower or any of its Subsidiaries is a party, all in
accordance with the terms of this Credit Agreement and such other Loan
Documents.
9.2. Maintenance of Office. The Borrower will maintain its chief executive
---------------------
office in Alpharetta, Georgia, or at such other place in the United States of
America
<PAGE>
-46-
as the Borrower shall designate upon written notice to the Agent, where notices,
presentations and demands to or upon the Borrower in respect of the Loan
Documents to which the Borrower is a party may be given or made.
9.3. Records and Accounts. The Borrower will (i) keep, and cause each of
--------------------
its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles, (ii) maintain adequate accounts and reserves for
all taxes (including income taxes), depreciation, depletion, obsolescence and
amortization of its properties and the properties of its Subsidiaries,
contingencies, and other reserves, and (iii) at all times engage Coopers &
Lybrand LLP or other independent certified public accountants satisfactory to
the Agent as the independent certified public accountants of the Borrower and
its Subsidiaries and will not permit more than thirty (30) days to elapse
between the cessation of such firm's (or any successor firm's) engagement as the
independent certified public accountants of the Borrower and its Subsidiaries
and the appointment in such capacity of a successor firm as shall be
satisfactory to the Agent.
9.4. Financial Statements, Certificates and Information. The Borrower will
--------------------------------------------------
deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than
ninety (90) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries, each as at
the end of such year, and the related consolidated statement of income and
consolidated statement of cash flow for such year, each setting forth in
comparative form the figures for the previous fiscal year and all such
consolidated and consolidating statements to be in reasonable detail,
prepared in accordance with generally accepted accounting principles, and
certified without qualification by Coopers & Lybrand LLP or by other
independent certified public accountants satisfactory to the Agent,
together with a written statement from such accountants to the effect that
they have read a copy of this Credit Agreement, and that, in making the
examination necessary to said certification, they have obtained no
knowledge of any Default or Event of Default, or, if such accountants shall
have obtained knowledge of any then existing Default or Event of Default
they shall disclose in such statement any such Default or Event of Default;
provided that such accountants shall not be liable to the Banks for failure
--------
to obtain knowledge of any Default or Event of Default; and, provided
--------
further that the information required by this paragraph may be satisfied by
-------
delivery by the Borrower within such ninety (90) day period of the
Borrower's Form 10-K for such fiscal year;
(b) as soon as practicable, but in any event not later than forty-five
(45) days after the end of each of the fiscal quarters of the Borrower,
copies of the unaudited consolidated balance sheet of the Borrower and its
Subsidiaries, each as at the end of such quarter, and the related
consolidated statement of income and consolidated statement of cash flow
for the portion
<PAGE>
-47-
of the Borrower's fiscal year then elapsed, all in reasonable detail and
prepared in accordance with generally accepted accounting principles,
together with a certification by the principal financial or accounting
officer of the Borrower that the information contained in such financial
statements fairly presents the financial position of the Borrower and its
Subsidiaries on the date thereof (subject to year-end adjustments);
provided that the information required by this paragraph may be satisfied
--------
by the Borrower within such forty-five (45) day period of the Borrower's
Form 10-Q for such fiscal quarter;
(c) [Reserved]
(d) simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified by the
principal financial or accounting officer of the Borrower in substantially
the form of Exhibit E hereto and setting forth in reasonable detail
------- -
computations evidencing compliance with the covenants contained in (S)11
and (if applicable) reconciliations to reflect changes in generally
accepted accounting principles since the Balance Sheet Date;
(e) contemporaneously with the filing or mailing thereof, copies of
all publicly available material of a financial nature filed with the
Securities and Exchange Commission or sent to the stockholders of the
Borrower;
(f) if any Revolving Credit Loans are outstanding or requested,
within twenty (20) days after the end of each calendar month or at such
earlier time as the Agent may reasonably request, a Borrowing Base Report
setting forth the Borrowing Base as at the end of such calendar month or
other date so requested by the Agent;
(g) if any Revolving Credit Loans are outstanding or requested,
within twenty (20) days after the end of each calendar month, an Accounts
Receivable aging report; and
(h) from time to time such other financial data and information
(including accountants, management letters) as the Agent or any Bank may
reasonably request.
9.5. Notices.
-------
9.5.1. Defaults. The Borrower will promptly notify the Agent and
--------
each of the Banks in writing of the occurrence of any Default or Event of
Default. If any Person shall give any notice or take any other action in
respect of a claimed default (whether or not constituting an Event of
Default) under this Credit Agreement or any other note, evidence of
indebtedness, indenture or other obligation to which or with respect to
which the Borrower or any of its Subsidiaries is a party or obligor,
whether as principal,
<PAGE>
-48-
guarantor, surety or otherwise, the Borrower shall forthwith give written
notice thereof to the Agent and each of the Banks, describing the notice or
action and the nature of the claimed default.
9.5.2. Environmental Events. The Borrower will promptly give
--------------------
notice to the Agent and each of the Banks (i) of any violation of any
Environmental Law that the Borrower or any of its Subsidiaries reports in
writing or is reportable by such Person in writing (or for which any
written report supplemental to any oral report is made) to any federal,
state or local environmental agency and (ii) upon becoming aware thereof,
of any inquiry, proceeding, investigation, or other action, including a
notice from any agency of potential environmental liability, of any
federal, state or local environmental agency or board, that has the
potential to materially adversely affect the assets, liabilities, financial
conditions or operations of the Borrower or any of its Subsidiaries.
9.5.3. Notification of Claim against Collateral. The Borrower
----------------------------------------
will, immediately upon becoming aware thereof, notify the Agent and each of
the Banks in writing of any setoff, claims (including, with respect to the
Real Estate, environmental claims), withholdings or other defenses to which
any of the Collateral, or the Agent's rights with respect to the
Collateral, are subject.
9.5.4. Notice of Litigation and Judgments. The Borrower will, and
----------------------------------
will cause each of its Subsidiaries to, give notice to the Agent and each
of the Banks in writing within fifteen (15) days of becoming aware of any
litigation or proceedings threatened in writing or any pending litigation
and proceedings affecting the Borrower or any of its Subsidiaries or to
which the Borrower or any of its Subsidiaries is or becomes a party
involving an uninsured claim against the Borrower or any of its
Subsidiaries that could reasonably be expected to have a materially adverse
effect on the Borrower or any of its Subsidiaries and stating the nature
and status of such litigation or proceedings. The Borrower will, and will
cause each of its Subsidiaries to, give notice to the Agent and each of the
Banks, in writing, in form and detail satisfactory to the Agent, within ten
(10) days of any judgment not covered by insurance, final or otherwise,
against the Borrower or any of its Subsidiaries in an amount in excess of
$1,000,000.
9.6. Corporate Existence; Maintenance of Properties. The Borrower will do
----------------------------------------------
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence (provided, simultaneously with the execution and
delivery by the Borrower to the Agent of an assumption agreement in
substantially the form of Exhibit G hereto, the Borrower shall be permitted to
merge with and into MAPICS, Inc., a Georgia corporation ("Mapics-Georgia"), with
the survivor of such merger being Mapics-Georgia, for the purpose of changing
the Borrower's state of incorporation from Massachusetts to Georgia), rights and
franchises and those of its Subsidiaries and will not, and will not cause or
permit any of its Subsidiaries to,
<PAGE>
-49-
convert to a limited liability company. It (i) will cause all of its properties
and those of its Subsidiaries used or useful in the conduct of its business or
the business of its Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment, (ii) will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Borrower may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times, and (iii) will, and will cause each of
its Subsidiaries to, continue to engage primarily in the businesses now
conducted by them and in related businesses; provided that nothing in this
--------
(S)9.6 shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties or any of those of its Subsidiaries if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its or their business and that do not in the aggregate materially adversely
affect the business of the Borrower and its Subsidiaries on a consolidated
basis.
9.7. Insurance. The Borrower will, and will cause each of its Subsidiaries
---------
to, maintain with financially sound and reputable insurers insurance with
respect to its properties and business against such casualties and contingencies
as shall be in accordance with the general practices of businesses engaged in
similar activities in similar geographic areas and in amounts, containing such
terms, in such forms and for such periods as may be reasonable and prudent and
in accordance with the terms of the Security Agreements.
9.8. Taxes. The Borrower will, and will cause each of its Subsidiaries to,
-----
duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by law become a lien or
charge upon any of its property; provided that any such tax, assessment, charge,
--------
levy or claim need not be paid if the validity or amount thereof shall currently
be contested in good faith by appropriate proceedings and if the Borrower or
such Subsidiary shall have set aside on its books adequate reserves with respect
thereto; and provided further that the Borrower and each Subsidiary of the
------- --------
Borrower will pay all such taxes, assessments, charges, levies or claims
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor.
9.9. Inspection of Properties and Books, etc.
---------------------------------------
9.9.1. General. The Borrower shall permit the Banks, through the
-------
Agent or any of the Banks' other designated representatives, to visit and
inspect any of the properties of the Borrower or any of its Subsidiaries,
to examine the books of account of the Borrower and its Subsidiaries (and
to make copies thereof and extracts therefrom), and to discuss the affairs,
finances and accounts of the Borrower and its Subsidiaries with, and to be
advised as to the same by, its and their officers, all at such reasonable
times during regular business hours and intervals as the Agent or any Bank
may
<PAGE>
-50-
reasonably request and, so long as no Event of Default has occurred and
is continuing, upon reasonable prior notice.
9.9.2. Collateral Reports. No more frequently than once during
------------------
each calendar year, or more frequently as determined by the Agent if an
Event of Default shall have occurred and be continuing, upon the request of
the Agent, the Borrower will obtain and deliver to the Agent, or, if the
Agent so elects, will cooperate with the Agent in the Agent's obtaining, a
report of an independent collateral auditor satisfactory to the Agent
(which may be affiliated with one of the Banks) with respect to the
Accounts Receivable and inventory components included in the Borrowing
Base, which report shall indicate whether or not the information set forth
in the Borrowing Base Report most recently delivered is accurate and
complete in all material respects based upon a review by such auditors of
the Accounts Receivable (including verification with respect to the amount,
aging, identity and credit of the respective account debtors and the
billing practices of the Borrower or its applicable Subsidiary). All such
collateral value reports shall be conducted and made at the expense of the
Borrower.
9.9.3. Environmental Assessments. Whether or not an Event of Default
-------------------------
shall have occurred, the Agent may, from time to time, obtain one or more
environmental assessments or audits of the Real Estate prepared by a
hydrogeologist, an independent engineer or other qualified consultant or
expert approved by the Agent to evaluate or confirm (i) whether any
Hazardous Materials are present in the soil or water at such property and
(ii) whether the use and operation of such property complies with all
Environmental Laws; provided, however, notwithstanding anything to the
-------- -------
contrary contained in this (S)9.9.3, the Agent shall not obtain any
assessment or audit on any leased Real Estate if the Lease pertaining to
such Real Estate prohibits the Borrower from permitting the Agent to obtain
such assessments or audits. Environmental assessments may include without
limitation detailed visual inspections of such property including any and
all storage areas, storage tanks, drains, dry wells and leaching areas, and
the taking of soil samples, surface water samples and ground water samples,
as well as such other investigations or analyses as the Agent deems
appropriate. All such environmental assessments shall be conducted and made
at the expense of the Borrower.
9.9.4. Communications with Accountants. The Borrower authorizes the
-------------------------------
Agent and, if accompanied by the Agent, the Banks to communicate directly
with the Borrower's independent certified public accountants and authorizes
such accountants to disclose to the Agent and the Banks any and all
financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of the Borrower or any of its
Subsidiaries. At the request of the Agent, the Borrower shall deliver a
letter
<PAGE>
-51-
addressed to such accountants instructing them to comply with the
provisions of this (S)9.9.4.
9.10. Compliance with Laws, Contracts, Licenses, and Permits. The Borrower
------------------------------------------------------
will, and will cause each of its Subsidiaries to, comply with (i) the applicable
laws and regulations wherever its business is conducted, including all
Environmental Laws, (ii) the provisions of its charter documents and by-laws,
(iii) all agreements and instruments by which it or any of its properties may be
bound and (iv) all applicable decrees, orders, and judgments. If any
authorization, consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or required in order
that the Borrower or any of its Subsidiaries may fulfill any of its obligations
hereunder or any of the other Loan Documents to which the Borrower or such
Subsidiary is a party, the Borrower will, or (as the case may be) will cause
such Subsidiary to, immediately take or cause to be taken all reasonable steps
within the power of the Borrower or such Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Banks with evidence thereof.
9.11. Employee Benefit Plans. The Borrower will (i) promptly upon filing
----------------------
the same with the Department of Labor or Internal Revenue Service upon request
of the Agent, furnish to the Agent a copy of the most recent actuarial statement
required to be submitted under (S)103(d) of ERISA and Annual Report, Form 5500,
with all required attachments, in respect of each Guaranteed Pension Plan and
(ii) promptly upon receipt or dispatch, furnish to the Agent any notice, report
or demand sent or received in respect of a Guaranteed Pension Plan under
(S)(S)302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect
of a Multiemployer Plan, under (S)(S)4041A, 4202, 4219, 4242, or 4245 of ERISA.
9.12. Use of Proceeds. The Borrower will use the proceeds of the Loans
---------------
solely for the purposes specified in (S)8.17.1. The Borrower will obtain Letters
of Credit solely for general corporate purposes.
9.13. Bank Accounts. The Borrower will, and will cause each of its
-------------
Subsidiaries to, together with the employees, agents and other Persons acting on
behalf of the Borrower or such Subsidiary, receive and hold in trust for the
Agent and the Banks all payments constituting proceeds of Accounts Receivable or
other Collateral which come into their possession or under their control and,
immediately upon receipt thereof, deposit such payments in the form received,
with any appropriate endorsements, in one of the accounts designated as a
central depositary account on Schedule 8.20.
-------- ----
9.14. New Guarantors. In the event any Subsidiary organized under the laws
--------------
of the United States of America or any State thereof is formed or acquired after
the date hereof, such Subsidiary shall, on the date of its formation or
acquisition, guarantee the Obligations and shall execute and deliver to the
Agent a joinder to the Guaranty in form and substance satisfactory to the Agent.
<PAGE>
-52-
9.15. Copyright Registration. The Borrower hereby agrees to, and to cause
----------------------
each of its Subsidiaries to, register copyrights for all software products with
the United States Copyright Office not later than sixty (60) days after the
Closing Date with respect to products existing on the date hereof and within
sixty (60) days of marketing any new product and the Borrower shall, and shall
cause each of its Subsidiaries to, simultaneously with such registration,
execute and deliver to the Bank for recordation with the United States Copyright
Office an amendment to the Copyright Memorandum covering such registered
copyrights in form and substance satisfactory to the Agent.
9.16. Further Assurances. The Borrower will, and will cause each of its
------------------
Subsidiaries to, cooperate with the Banks and the Agent and execute such further
instruments and documents as the Banks or the Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.
10. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
------------------------------------------
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Loans or the Agent has any obligations to issue,
extend or renew any Letters of Credit:
10.1. Restrictions on Indebtedness. The Borrower will not, and will not
----------------------------
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Banks and the Agent arising under any of
the Loan Documents;
(b) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary
course of business;
(c) Subordinated Debt in an amount and on terms and conditions
approved by the Majority Banks in writing;
(d) Indebtedness incurred in connection with the acquisition
after the date hereof of any real or personal property by the Borrower or
such Subsidiary or under any Capitalized Lease, provided that the aggregate
--------
principal amount of such Indebtedness of the Borrower and its Subsidiaries
shall not exceed the aggregate amount of $1,000,000 at any one time;
(e) Indebtedness existing on the date hereof and listed and
described on Schedule 10.1 hereto;
-------- ----
<PAGE>
-53-
(f) Indebtedness of a Subsidiary of the Borrower existing on the
date hereof to the Borrower; and
(g) Indebtedness of the Borrower consisting of a guaranty by the
Borrower of loans to employees of the Borrower, provided that the aggregate
principal amount of such Indebtedness of the Borrower shall not exceed the
aggregate amount of $500,000 at any one time
10.2. Restrictions on Liens. The Borrower will not, and will not permit
---------------------
any of its Subsidiaries to, (i) create or incur or suffer to be created or
incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (ii) transfer any of such property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (iii) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (iv) suffer to
exist for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (v) sell, assign, pledge or otherwise
transfer any "receivables" as defined in clause (vii) of the definition of the
term "Indebtedness," with or without recourse; or (vi) enter into or permit to
exist any arrangement or agreement, enforceable under applicable law, which
directly or indirectly prohibits the Borrower or any of its Subsidiaries from
creating or incurring any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest other than in favor of the Agent for the
benefit of the Banks and the Agent under the Loan Documents and other than
customary anti-assignment provisions in leases and licensing agreements entered
into by the Borrower or such Subsidiary in the ordinary course of its business,
provided that the Borrower or any of its Subsidiaries may create or incur or
- --------
suffer to be created or incurred or to exist:
(a) liens in favor of the Borrower on all or part of the assets
of Subsidiaries of the Borrower securing Indebtedness owing by Subsidiaries
of the Borrower to the Borrower;
(b) liens to secure taxes, assessments and other government
charges in respect of obligations not overdue or liens on properties to
secure claims for labor, material or supplies in respect of obligations not
overdue;
(c) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations or deposits made in
connection with performance bonds obtained in the ordinary course of
business;
<PAGE>
-54-
(d) liens on properties in respect of judgments or awards that
have been in force for less than the applicable period for taking an appeal
so long as execution is not levied thereunder or in respect of which the
Borrower or such Subsidiary shall at the time in good faith be prosecuting
an appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review;
(e) liens of carriers, warehousemen, mechanics and materialmen,
and other like liens, in existence less than 120 days from the date of
creation thereof in respect of obligations not overdue;
(f) encumbrances on Real Estate consisting of easements, rights
of way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's
liens under leases to which the Borrower or a Subsidiary of the Borrower is
a party, and other minor liens or encumbrances none of which in the opinion
of the Borrower interferes materially with the use of the property affected
in the ordinary conduct of the business of the Borrower and its
Subsidiaries, which defects do not individually or in the aggregate have a
materially adverse effect on the business of the Borrower individually or
of the Borrower and its Subsidiaries on a consolidated basis;
(g) liens existing on the date hereof and listed on Schedule 10.2
-------- ----
hereto;
(h) purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof to
secure purchase money Indebtedness of the type and amount permitted by
(S)10.1(d), incurred in connection with the acquisition of such property,
which security interests or mortgages cover only the real or personal
property so acquired and liens in favor of lessors under Capitalized Leases
on assets subject to Capitalized Leases permitted by (S)10.1(d) hereof;
(i) liens in favor of the Agent for the benefit of the Banks and
the Agent under the Loan Documents; and
(j) liens to secure Indebtedness of the type and amount permitted
by (S)10.1(g).
10.3. Restrictions on Investments. The Borrower will not, and will not
---------------------------
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United
States of America that mature within one (1) year from the date of purchase
by the Borrower;
<PAGE>
-55-
(b) demand deposits, certificates of deposit, bankers acceptances
and time deposits of United States banks or banks organized under the laws
of any country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any
such country, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is
also a member of the OECD, having in each case total capital and surplus in
excess of $1,000,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Service, Inc., and not less than "A 1" if rated by Standard and
Poor's Rating Group;
(d) Investments existing on the date hereof and listed on
Schedule 10.3 hereto;
-------- ----
(e) Investments with respect to Indebtedness permitted by
(S)10.1(f) so long as such entities remain Subsidiaries of the Borrower;
(f) Investments consisting of the Guaranty or Investments by the
Borrower in Subsidiaries of the Borrower existing on the Closing Date or
Investments by the Borrower in domestic Subsidiaries of the Borrower
existing after the Closing Date, so long as the Borrower and such
Subsidiary shall have complied with the provisions of (S)7.2 hereof;
(g) Investments consisting of promissory notes received as
proceeds of asset dispositions permitted by (S)10.5.2;
(h) Investments consisting of loans and advances to employees for
moving, entertainment, travel and other similar expenses in the ordinary
course of business not to exceed $1,000,000 in the aggregate at any time
outstanding;
(i) Investments consisting of Investments in money-market mutual
funds consisting entirely of (i) United States treasury or agency funds;
(ii) Boston 1784 funds; (iii) Fidelity Investment money-market funds which
are open-end investment companies registered under the Investment Company
Act of 1940, as amended; and (iv) other money market mutual funds
acceptable to the Agent; and
(j) Investments existing on the date hereof and listed on
Schedule 10.3(j) hereto and other similar Investments in Persons which are
-------- -------
or which are intended to be sales affiliates of the Borrower (including,
without limitation, joint venture entities), provided, the principal amount
--------
of all such
<PAGE>
-56-
Investments made pursuant to this (S)10.3(j) (including, without
limitation, those Investments on Schedule 10.3(j)) shall not exceed
----------------
$40,000,000 in the aggregate at any time outstanding and, provided, further
-----------------
that the principal amount of all such Investments made pursuant to this
(S)10.3(j) (including, without limitation, those Investments on Schedule
--------
10.3(j)) which are made with any consideration other than the capital stock
-------
of the Borrower shall not exceed $20,000,000 in the aggregate at any time
outstanding;
provided, however, that, with the exception of demand deposits referred to in
- -------- -------
(S)10.3(b) and loans and advances referred to in (S)10.3(h), such Investments
will be considered Investments permitted by this (S)10.3 only if all actions
have been taken to the satisfaction of the Agent to provide to the Agent, for
the benefit of the Banks and the Agent, a first priority perfected security
interest in all of such Investments free of all encumbrances other than
Permitted Liens.
10.4. Distributions. The Borrower will not make any Distributions except
-------------
as provided in the Distribution Agreement; provided, however, notwithstanding
anything to the contrary contained in this Credit Agreement, so long as no
Default or Event of Default has occurred and is continuing or would exist as a
result thereof, the Borrower shall be permitted to repurchase shares of its
capital stock provided that the aggregate amount of all such Distributions made
--------
in connection with all such repurchases permitted by this (S)10.4 does not
exceed, in the aggregate, (a) $25,546,930 from the Closing Date through and
including June 30, 1999; (b) $8,000,000 for the period of July 1, 1999 through
September 30, 1999; and (c) $2,000,000 for each fiscal quarter ending
thereafter, but in no event shall there be more than $16,000,000 in
Distributions made from July 1, 1999 through the end of this facility, provided,
--------
however, that, if during any fiscal quarter the amount of Distributions
- -------
permitted for that fiscal quarter to repurchase capital stock is not so
utilized, such unutilized amount may be utilized in the next succeeding fiscal
quarters.
10.5. Merger, Consolidation and Disposition of Assets.
-----------------------------------------------
10.5.1. Mergers and Acquisitions. The Borrower will not, and
------------------------
will not permit any of its Subsidiaries to, become a party to any merger or
consolidation, or agree to or effect any asset acquisition or stock
acquisition (other than the acquisition of assets in the ordinary course of
business consistent with past practices) except the merger or consolidation
of one or more of the Subsidiaries of the Borrower with and into the
Borrower, or the merger or consolidation of two or more Subsidiaries of the
Borrower or, so long as the Borrower has duly executed and delivered to the
Agent an assumption agreement in substantially the form of Exhibit G
hereto, the Borrower shall be permitted to merge with and into MAPICS,
Inc., a Georgia corporation, ("Mapics-Georgia"), with the survivor of such
merger being Mapics-Georgia, for the purpose of changing the Borrower's
state of incorporation from Massachusetts to Georgia.
<PAGE>
-57-
10.5.2. Disposition of Assets. The Borrower will not, and will not
---------------------
permit any of its Subsidiaries to, become a party to or agree to or effect
any disposition of assets, other than the sale of inventory, the licensing
of intellectual property and the disposition of obsolete assets, in each
case in the ordinary course of business consistent with past practices,
except as contemplated by the Distribution Agreement.
10.6. Sale and Leaseback. The Borrower will not, and will not permit any
------------------
of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property that the Borrower or any Subsidiary of the Borrower intends
to use for substantially the same purpose as the property being sold or
transferred.
10.7. Compliance with Environmental Laws. The Borrower will not, and will
----------------------------------
not permit any of its Subsidiaries to, (i) use any of the Real Estate or any
portion thereof for the handling, processing, storage or disposal of Hazardous
Substances, (ii) cause or permit to be located on any of the Real Estate any
underground tank or other underground storage receptacle for Hazardous
Substances, (iii) generate any Hazardous Substances on any of the Real Estate,
(iv) conduct any activity at any Real Estate or use any Real Estate in any
manner so as to cause a release (i.e. releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
disposing or dumping) or threatened release of Hazardous Substances on, upon or
into the Real Estate or (v) otherwise conduct any activity at any Real Estate or
use any Real Estate in any manner that would violate any Environmental Law or
bring such Real Estate in violation of any Environmental Law.
10.8. Subordinated Debt. The Borrower will not, and will not permit any of
-----------------
its Subsidiaries to, amend, supplement or otherwise modify the terms of any of
the Subordinated Debt or prepay, redeem or repurchase any of the Subordinated
Debt.
10.9. Employee Benefit Plans. Neither the Borrower nor any ERISA Affiliate
----------------------
will
(a) engage in any "prohibited transaction" within the meaning of
(S)406 of ERISA or (S)4975 of the Code which could result in a material
liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in (S)302 of ERISA, whether or
not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an
extent which, or terminate any Guaranteed Pension Plan in a manner which,
could result in the imposition of a lien or encumbrance on the assets of
the Borrower or any of its Subsidiaries pursuant to (S)302(f) or (S)4068 of
ERISA; or
<PAGE>
-58-
(d) amend any Guaranteed Pension Plan in circumstances requiring
the posting of security pursuant to (S)307 of ERISA or (S)401(a)(29) of the
Code; or
(e) permit or take any action which would result in the aggregate
benefit liabilities (with the meaning of (S)4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets of
such Plans, disregarding for this purpose the benefit liabilities and
assets of any such Plan with assets in excess of benefit liabilities.
10.10. Business Activities. The Borrower will not, and will not permit any
-------------------
of its Subsidiaries to, engage directly or indirectly (whether through
Subsidiaries or otherwise) in any type of business other than the businesses
conducted by them on the Closing Date and in related businesses.
10.11. Fiscal Year. The Borrower will not, and will not permit any of it
-----------
Subsidiaries to, without the written consent of the Agent, change the date of
the end of its fiscal year from that set forth in (S)8.4.1.
10.12. Transactions with Affiliates. The Borrower will not, and will not
----------------------------
permit any of its Subsidiaries to, engage in any transaction with any Affiliate
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such Affiliate or, to the
knowledge of the Borrower, any corporation, partnership, trust or other entity
in which any such Affiliate has a substantial interest or is an officer,
director, trustee or partner, on terms more favorable to such Person than would
have been obtainable on an arm's-length basis in the ordinary course of
business.
10.13. Upstream Limitations. Neither the Borrower nor any of its
--------------------
Subsidiaries will enter into any agreement, contract or arrangement (other than
the Credit Agreement and the other Loan Documents) restricting the ability of
any Subsidiary to pay or make dividends or distributions in cash or kind to the
Borrower, to make loans, advances or other payments of whatsoever nature to the
Borrower, or to make transfer or distributions of all or any part of its assets
to the Borrower.
11. FINANCIAL COVENANTS OF THE BORROWER.
-----------------------------------
The Borrower covenants and agrees that, so long as any Loan, Unpaid
Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank
has any obligation to make any Loans or the Agent has any obligation to issue,
extend or renew any Letters of Credit:
11.1. Leverage Ratio. The Borrower will not permit the Leverage Ratio to
--------------
exceed 2.50:1.00 at the end of any fiscal quarter.
<PAGE>
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11.2. Consolidated Operating Cash Flow to Debt Service. The Borrower will
------------------------------------------------
not permit the ratio of Consolidated Operating Cash Flow to the sum of
Consolidated Financial Obligations plus Consolidated Total Interest Expense for
----
any fiscal quarter ending on or prior to December 31, 1997 to exceed 2:1 and for
any fiscal quarter ending thereafter to be less than 2.50:1.
11.3. Profitable Operations. The Borrower will not permit Consolidated Net
---------------------
Income at the end of each fiscal quarter for such quarter and the immediately
preceding three fiscal quarters to be less than $4,000,000.
11.4. Quick Ratio. The Borrower will not permit the ratio of Consolidated
-----------
Quick Assets to Consolidated Current Liabilities to be less than 1.25 to 1 at
any time.
12. CLOSING CONDITIONS.
------------------
The obligations of the Banks to make the initial Revolving Credit Loans and
the Term Loan and of the Agent to issue any initial Letters of Credit shall be
subject to the satisfaction of the following conditions precedent on or prior to
August 4, 1997:
12.1. Loan Documents. Each of the Loan Documents shall have been duly
--------------
executed and delivered by the respective parties thereto, shall be in full force
and effect and shall be in form and substance satisfactory to each of the Banks.
Each Bank shall have received a fully executed copy of each such document.
12.2. Certified Copies of Charter Documents. Each of the Banks shall have
-------------------------------------
received from the Borrower and each of its Subsidiaries party to and Loan
Document, unless otherwise agreed by the Agent, a copy, certified by a duly
authorized officer of such Person to be true and complete on the Closing Date,
of each of (i) its charter or other incorporation documents as in effect on such
date of certification, and (ii) its by-laws as in effect on such date.
12.3. Corporate, Action. All corporate action necessary for the valid
-----------------
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.
12.4. Incumbency Certificate. Each of the Banks shall have received from
----------------------
the Borrower and each of its Subsidiaries party to any Loan Document an
incumbency certificate, dated as of the Closing Date, signed by a duly
authorized officer of the Borrower or such Subsidiary, and giving the name and
bearing a specimen signature of each individual who shall be authorized: (i) to
sign, in the name and on behalf of each of the Borrower of such Subsidiary, each
of the Loan Documents to which the Borrower or such Subsidiary is or is to
become a party; (ii) in the case of the Borrower, to make Loan Requests and
Conversion Requests and to
<PAGE>
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apply for Letters of Credit; and (iii) to give notices and to take other action
on its behalf under the Loan Documents.
12.5. Validity of Liens. The Security Documents shall be effective to
-----------------
create in favor of the Agent a legal, valid and enforceable first (except for
Permitted Liens entitled to priority under applicable law) security interest in
and lien upon the Collateral. All filings, recordings, deliveries of instruments
and other actions necessary or desirable in the opinion of the Agent to protect
and preserve such security interests shall have been duly effected. The Agent
shall have received evidence thereof in form and substance satisfactory to the
Agent.
12.6. Perfection Certificates and UCC Search Results. The Agent shall have
----------------------------------------------
received from each of the Borrower and its Subsidiaries a completed and fully
executed Perfection Certificate and the results of UCC searches with respect to
the Collateral, indicating no liens other than Permitted Liens and otherwise in
form and substance satisfactory to the Agent.
12.7. Certificates of Insurance. The Agent shall have received (i) a
-------------------------
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained and naming the
Agent as loss payee and additional insured in accordance with the provisions of
the Security Agreements and (ii) certified copies of all policies evidencing
such insurance (or certificates therefore signed by the insurer or an agent
authorized to bind the insurer).
12.8. Agency Account Agreements. The Borrower shall have established the
-------------------------
BKB Concentration Account, and the Agent shall have received an Agency Account
Agreement executed by each depository institution with a Local Account or an
Interim Concentration Account.
12.9. Borrowing Base Report. The Agent shall have received from the
---------------------
Borrower the initial Borrowing Base Report dated as of the Closing Date.
12.10. Accounts Receivable Aging Report. The Agent shall have received
--------------------------------
from the Borrower the most recent Accounts Receivable aging report of the
Borrower and its Subsidiaries dated as of a date which shall be no more than
fifteen (15) days prior to the Closing Date and the Borrower shall have notified
the Agent in writing on the Closing Date of any material deviation from the
Accounts Receivable values reflected in such Accounts Receivable aging report
and shall have provided the Agent with such supplementary documentation as the
Agent may reasonably request.
12.11. Solvency Certificate. Each of the Banks shall have received a
--------------------
certificate of an officer of the Borrower dated not less than one (1) day prior
to the Closing Date, describing in detail the solvency of the Borrower and its
Subsidiaries
<PAGE>
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12.12. Opinion of Counsel. Each of the Banks and the Agent shall have
------------------
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from Testa, Hurwitz & Thibeault, LLP, counsel to the Borrower and its
Subsidiaries.
12.13. Disbursement Instructions. The Agent shall have received
-------------------------
disbursement instructions from the Borrower, indicating that a portion of the
proceeds of the Loans are paid to satisfy the obligations described in
(S)8.17.1.
13. CONDITIONS TO ALL BORROWINGS.
----------------------------
The obligations of the Banks to make any Loan, including the Revolving
Credit Loan and the Term Loan, and of the Agent to issue, extend or renew any
Letter of Credit, in each case whether on or after the Closing Date, shall also
be subject to the satisfaction of the following conditions precedent:
13.1. Representations True; No Event of Default. Each of the
-----------------------------------------
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which they were made and shall also be true
at and as of the time of the making of such Loan or the issuance, extension or
renewal of such Letter of Credit, with the same effect as if made at and as of
that time (except to the extent of changes resulting from transactions
contemplated or permitted by this Credit Agreement and the other Loan Documents
and changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing.
13.2. No Legal Impediment. No change shall have occurred in any law or
-------------------
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal for such Bank to make such Loan or to
participate in the issuance, extension or renewal of such Letter of Credit or in
the reasonable opinion of the Agent would make it illegal for the Agent to
issue, extend or renew such Letter of Credit.
13.3. Governmental Regulation. Each Bank shall have received such
-----------------------
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
<PAGE>
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13.4. Proceedings and Documents. All proceedings in connection with the
-------------------------
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
form to the Banks and to the Agent and the Agent's Special Counsel, and the
Banks, the Agent and such counsel shall have received all information and such
counterpart originals or certified or other copies of such documents as the
Agent may reasonably request.
13.5. Borrowing Base Report. Prior to the making of any Revolving Credit
---------------------
Loan, Agent shall have received the most recent Borrowing Base Report required
to be delivered to the Agent in accordance with (S)9.4(f) and, if requested by
the Agent, a Borrowing Base Report dated within three (3) days of the Drawdown
Date of such Loan or of the date of issuance, extension or renewal of such
Letter of Credit.
13.6. Commercial Finance Exam. The Agent shall have completed a commercial
-----------------------
finance exam of the Borrower and the results thereof shall be satisfactory to
the Agent.
14. EVENTS OF DEFAULT; ACCELERATION; ETC.
------------------------------------
14.1. Events of Default and Acceleration. If any of the following events
----------------------------------
("Events of Default" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time, "Defaults") shall occur:
(a) the Borrower shall fail to pay any principal of the Loans or any
Reimbursement Obligation when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of maturity
or at any other date fixed for payment;
(b) the Borrower or any of its Subsidiaries shall fail to pay any
interest on the Loans, the commitment fee, any Letter of Credit Fee, the
Agent's fee, or other sums due hereunder or under any of the other Loan
Documents, when the same shall become due and payable, whether at the
stated date of maturity or any accelerated date of maturity or at any other
date fixed for payment;
(c) the Borrower shall fail to comply with any of its covenants
contained in (S)9, 10 or 11;
(d) the Borrower or any of its Subsidiaries shall fail to perform
any term, covenant or agreement contained herein or in any of the other
Loan Documents (other than those specified elsewhere in this (S)14.1) for
fifteen (15) days after written notice of such failure has been given to
the Borrower by the Agent;
(e) any representation or warranty of the Borrower or any of its
Subsidiaries in this Credit Agreement or any of the other Loan Documents or
<PAGE>
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in any other document or instrument delivered pursuant to or in connection
with this Credit Agreement shall prove to have been false in any material
respect upon the date when made or deemed to have been made or repeated;
(f) the Borrower or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation for
borrowed money or credit received or in respect of any Capitalized Leases,
or fail to observe or perform any material term, covenant or agreement
contained in any agreement by which it is bound, evidencing or securing
borrowed money or credit received or in respect of any Capitalized Leases
for such period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations
issued thereunder to accelerate the maturity thereof;
(g) the Borrower or any of its Subsidiaries (other than a Non-
Material Subsidiary unless the Borrower or any other Subsidiary has been
adversely effected by the occurrence of such event (a "Deminimis
Subsidiary")) shall make an assignment for the benefit of creditors, or
admit in writing its inability to pay or generally fail to pay its debts as
they mature or become due, or shall petition or apply for the appointment
of a trustee or other custodian, liquidator or receiver of the Borrower or
any of its Subsidiaries (other than a Deminimis Subsidiary) or of any
substantial part of the assets of the Borrower or any of its Subsidiaries
(other than a Deminimis Subsidiary) or shall commence any case or other
proceeding relating to the Borrower or any of its Subsidiaries (other than
a Deminimis Subsidiary) under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law
of any jurisdiction, now or hereafter in effect, or shall take any action
to authorize or in furtherance of any of the foregoing, or if any such
petition or application shall be filed or any such case or other proceeding
shall be commenced against the Borrower or any of its Subsidiaries (other
than a Deminimis Subsidiary) and the Borrower or any of its Subsidiaries
(other than a Deminimis Subsidiary) shall indicate its approval thereof,
consent thereto or acquiescence therein or such petition or application
shall not have been dismissed within forty-five (45) days following the
filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any of
its Subsidiaries (other than a Deminimis Subsidiary) bankrupt or insolvent,
or approving a petition in any such case or other proceeding, or a decree
or order for relief is entered in respect of the Borrower or any Subsidiary
(other than a Deminimis Subsidiary) of the Borrower in an involuntary case
under federal bankruptcy laws as now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any final
judgment against the Borrower or any of its Subsidiaries (other than a
<PAGE>
-64-
Deminimis Subsidiary) that, with other outstanding final judgments,
undischarged, against the Borrower or any of its Subsidiaries (other than a
Deminimis Subsidiary) exceeds in the aggregate $1,000,000;
(j) the holders of all or any part of the Subordinated Debt shall
accelerate the maturity of all or any part of the Subordinated Debt or the
Subordinated Debt shall be prepaid, redeemed or repurchased in whole or in
part;
(k) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Agent's security interests, mortgages or liens
in a substantial portion of the Collateral shall cease to be perfected, or
shall cease to have the priority contemplated by the Security Documents, in
each case otherwise than in accordance with the terms thereof or with the
express prior written agreement, consent or approval of the Banks, or any
action at law, suit or in equity or other legal proceeding to cancel,
revoke or rescind any of the Loan Documents shall be commenced by or on
behalf of the Borrower or any of its Subsidiaries party thereto or any of
their respective stockholders, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the
effect that, any one or more of the Loan Documents is illegal, invalid or
unenforceable in accordance with the terms thereof;
(l) the Borrower or any ERISA Affiliate incurs any liability to the
PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA, or the
Borrower or any ERISA Affiliate is assessed withdrawal liability pursuant
to Title IV of ERISA by a Multiemployer Plan, or any of the following
occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable
Event, or a failure to make a required installment or other payment (within
the meaning of (S)302(f)(1) of ERISA), provided that the Agent determines
--------
in its reasonable discretion that such event (A) could be expected to
result in liability of the Borrower or any of its Subsidiaries to the PBGC
or such Guaranteed Pension Plan in an aggregate amount exceeding $1,000,000
and (B) could constitute grounds for the termination of such Guaranteed
Pension Plan by the PBGC, for the appointment by the appropriate United
States District Court of a trustee to administer such Guaranteed Pension
Plan or for the imposition of a lien in favor of such Guaranteed Pension
Plan; or (ii) the appointment by a United States District Court of a
trustee to administer such Guaranteed Pension Plan; or (iii) the
institution by the PBGC of proceedings to terminate such Guaranteed Pension
Plan;
(m) the Borrower or any of its Subsidiaries (other than a Deminimis
Subsidiary) shall be enjoined, restrained or in any way prevented by the
order of any court or any administrative or regulatory agency from
conducting any material part of its business and such order shall continue
in effect for more than thirty (30) days;
<PAGE>
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(n) there shall occur any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy,
or other casualty, which in any such case causes, for more than fifteen
(15) consecutive days, the cessation or substantial curtailment of revenue
producing activities at any facility of the Borrower or any of its
Subsidiaries if such event or circumstance is not covered by business
interruption insurance and would have a material adverse effect on the
business or financial condition of the Borrower or such Subsidiary;
(o) there shall occur the loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired by
the Borrower or any of its Subsidiaries if such loss, suspension,
revocation or failure to renew would have a material adverse effect on the
business or financial condition of the Borrower and its Subsidiaries, taken
as a whole;
(p) the Borrower or any of its Subsidiaries shall be indicted for a
state or federal crime, or any civil or criminal action shall otherwise
have been brought or threatened against the Borrower or any of its
Subsidiaries, a punishment for which in any such case could include the
forfeiture of any assets of the Borrower or such Subsidiary included in the
Borrowing Base or any assets of the Borrower or such Subsidiary not
included in the Borrowing Base but having a fair market value in excess of
$1,000,000; or
(q) any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange Commission under said Act) of 30% or more of
the outstanding shares of common stock of the Borrower; or, during any
period of twelve consecutive calendar months, individuals who were
directors of the Borrower on the first day of such period shall cease to
constitute a majority of the board of directors of the Borrower;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Notes and the other Loan Documents and all Reimbursement Obligations to be,
and they shall thereupon forthwith become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the event of any Event
--------
of Default specified in (S)(S)14.1(g), 14.1(h) or 14.1(j), all such amounts
shall become immediately due and payable automatically and without any
requirement of notice from the Agent or any Bank.
14.2. Termination of Commitments. If any one or more of the Events of
--------------------------
Default specified in (S)14.1(g), (S)14.1(h) or (S)14.1(j) shall occur, any
unused portion of the credit hereunder shall forthwith terminate and each of the
Banks shall be relieved of all further obligations to make Loans to the Borrower
and the Agent shall be
<PAGE>
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relieved of all further obligations to issue, extend or renew Letters of Credit.
If any other Event of Default shall have occurred and be continuing, the Agent
may and, upon the request of the Majority Banks, shall, by notice to the
Borrower, terminate the unused portion of the credit hereunder, and upon such
notice being given such unused portion of the credit hereunder shall terminate
immediately and each of the Banks shall be relieved of all further obligations
to make Loans and the Agent shall be relieved of all further obligations to
issue, extend or renew Letters of Credit. No termination of the credit hereunder
shall relieve the Borrower or any of its Subsidiaries of any of the Obligations.
14.3. Remedies. In case any one or more of the Events of Default shall
--------
have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to (S)14.1, each Bank, if owed
any amount with respect to the Loans or the Reimbursement Obligations, may, with
the consent of the Majority Banks but not otherwise, proceed to protect and
enforce its rights by suit in equity, action at law or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Credit Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Bank are evidenced,
including as permitted by applicable law the obtaining of the ex parte
-- -----
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of such Bank. No remedy herein conferred upon any Bank
or the Agent or the holder of any Note or purchaser of any Letter of Credit
Participation is intended to be exclusive of any other remedy and each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or any
other provision of law.
14.4. Distribution of Collateral Proceeds. In the event that, following
-----------------------------------
the occurrence or during the continuance of any Default or Event of Default, the
Agent or any Bank, as the case may be, receives any monies in connection with
the enforcement of any the Security Documents, or otherwise with respect to the
realization upon any of the Collateral, such monies shall be distributed for
application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies by
the Agent, for the exercise, protection or enforcement by the Agent of all
or any of the rights, remedies, powers and privileges of the Agent under
this Credit Agreement or any of the other Loan Documents or in respect of
the Collateral or in support of any provision of adequate indemnity to the
Agent against any taxes or liens which by law shall have, or may have,
priority over the rights of the Agent to such monies;
<PAGE>
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(b) Second, to all other Obligations in such order or preference as
the Majority Banks may determine; provided, however, that (i) distributions
-------- -------
shall be made (A) pari passu among Obligations with respect to the Agent's
---- -----
fee payable pursuant to (S)6.2 and all other Obligations and (B) with
respect to each type of Obligation owing to the Banks, such as interest,
principal, fees and expenses, among the Banks pro rata, and (ii) the Agent
--- ----
may in its discretion make proper allowance to take into account any
Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other
provisions for payment in full satisfactory to the Banks and the Agent of
all of the Obligations, to the payment of any obligations required to be
paid pursuant to (S)9-504(1)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the Borrower
or to such other Persons as are entitled thereto.
15. SETOFF.
------
Regardless of the adequacy of any collateral, during the continuance of any
Event of Default, any deposits or other sums credited by or due from any of the
Banks to the Borrower and any securities or other property of the Borrower in
the possession of such Bank may be applied to or set off by such Bank against
the payment of Obligations and any and all other liabilities then due, direct,
or indirect, absolute or contingent, now existing or hereafter arising, of the
Borrower to such Bank. Each of the Banks agrees with each other Bank that (i)
if an amount to be set off is to be applied to Indebtedness of the Borrower to
such Bank, other than Indebtedness evidenced by the Notes held by such Bank or
constituting Reimbursement Obligations owed to such Bank, such amount shall be
applied ratably to such other Indebtedness and to the Indebtedness evidenced by
all such Notes held by such Bank or constituting Reimbursement Obligations owed
to such Bank, and (ii) if such Bank shall receive from the Borrower, whether by
voluntary payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Notes held by, or constituting
Reimbursement Obligations owed to, such Bank by proceedings against the Borrower
at law or in equity or by proof thereof in bankruptcy, reorganization,
liquidation, receivership or similar proceedings, or otherwise, and shall retain
and apply to the payment of the Note or Notes held by, or Reimbursement
Obligations owed to, such Bank any amount in excess of its ratable portion of
the payments received by all of the Banks with respect to the Notes held by, and
Reimbursement Obligations owed to, all of the Banks, such Bank will make such
disposition and arrangements with the other Banks with respect to such excess,
either by way of distribution, pro tanto assignment of claims, subrogation or
--- -----
otherwise as shall result in each Bank receiving in respect of the Notes held by
it or Reimbursement obligations owed it, its proportionate payment as
contemplated by this Credit Agreement; provided that if all or any part of such
--------
excess payment is thereafter recovered from such Bank,
<PAGE>
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such disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
16. THE AGENT.
---------
16.1. Authorization.
-------------
(a) The Agent is authorized to take such action on behalf of each
of the Banks and to exercise all such powers as are hereunder and under any
of the other Loan Documents and any related documents delegated to the
Agent, together with such powers as are reasonably incident thereto,
provided that no duties or responsibilities not expressly assumed herein or
--------
therein shall be implied to have been assumed by the Agent.
(b) The relationship between the Agent and each of the Banks is
that of an independent contractor. The use of the term "Agent" is for
convenience only and is used to describe, as a form of convention, the
independent contractual relationship between the Agent and each of the
Banks. Nothing contained in this Credit Agreement nor the other Loan
Documents shall be construed to create an agency, trust or other fiduciary
relationship between the Agent and any of the Banks.
(c) As an independent contractor empowered by the Banks to exercise
certain rights and perform certain duties and responsibilities hereunder
and under the other Loan Documents, the Agent is nevertheless a
"representative" of the Banks, as that term is defined in Article 1 of the
Uniform Commercial Code, for purposes of actions for the benefit of the
Banks and the Agent with respect to all collateral security and guaranties
contemplated by the Loan Documents. Such actions include the designation of
the Agent as "secured party", "mortgagee" or the like on all financing
statements and other documents and instruments, whether recorded or
otherwise, relating to the attachment, perfection, priority or enforcement
of any security interests, mortgages or deeds of trust in collateral
security intended to secure the payment or performance of any of the
Obligations, all for the benefit of the Banks and the Agent.
16.2. Employees and Agents. The Agent may exercise its powers and execute
--------------------
its duties by or through employees or agents and shall be entitled to take, and
to rely on, advice of counsel concerning all matters pertaining to its rights
and duties under this Credit Agreement and the other Loan Documents. The Agent
may utilize the services of such Persons as the Agent in its sole discretion may
reasonably determine, and all reasonable fees and expenses of any such Persons
shall be paid by the Borrower.
16.3. No Liability. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given
<PAGE>
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or any action taken, or omitted to be taken, in good faith by it or them
hereunder or under any of the other Loan Documents, or in connection herewith or
therewith, or be responsible for the consequences of any oversight or error of
judgment whatsoever, except that the Agent or such other Person, as the case may
be, may be liable for losses due to its willful misconduct or gross negligence.
16.4. No Representations.
------------------
16.4.1. General. The Agent shall not be responsible for the execution
-------
or validity or enforceability of this Credit Agreement, the Notes, the
Letters of Credit, any of the other Loan Documents or any instrument at any
time constituting, or intended to constitute, collateral security for the
Notes, or for the value of any such collateral security or for the
validity, enforceability or collectability of any such amounts owing with
respect to the Notes, or for any recitals or statements, warranties or
representations made herein or in any of the other Loan Documents or in any
certificate or instrument hereafter furnished to it by or on behalf of the
Borrower or any of its Subsidiaries, or be bound to ascertain or inquire as
to the performance or observance of any of the terms, conditions, covenants
or agreements herein or in any instrument at any time constituting, or
intended to constitute, collateral security for the Notes or to inspect any
of the properties, books or records of the Borrower or any of its
Subsidiaries. The Agent shall not be bound to ascertain whether any notice,
consent, waiver or request delivered to it by the Borrower or any holder of
any of the Notes shall have been duly authorized or is true, accurate and
complete. The Agent has not made nor does it now make any representations
or warranties, express or implied, nor does it assume any liability to the
Banks, with respect to the credit worthiness or financial conditions of the
Borrower or any of its Subsidiaries. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and
based upon such information and documents as it has deemed appropriate,
made its own credit analysis and decision to enter into this Credit
Agreement.
16.4.2. Closing Documentation, etc. For purposes of determining
--------------------------
compliance with the conditions set forth in (S)12, each Bank that has
executed this Credit Agreement shall be deemed to have consented to,
approved or accepted, or to be satisfied with, each document and matter
either sent, or made available, by the Agent or BancBoston Securities,
Inc., as arranger to such Bank for consent, approval, acceptance or
satisfaction, or required thereunder to be to be consent to or approved by
or acceptable or satisfactory to such Bank, unless an officer of the Agent
or BancBoston Securities, Inc. active upon the Borrower's account shall
have received notice from such Bank not less than two days prior to the
Closing Date specifying such Bank's objection thereto and such objection
shall not have been withdrawn by notice to the Agent or BancBoston
Securities, Inc. to such effect on or prior to the Closing Date.
<PAGE>
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16.5. Payments.
--------
16.5.1. Payments to Agent. A payment by the Borrower to the Agent
-----------------
hereunder or any of the other Loan Documents for the account of any Bank
shall constitute a payment to such Bank. The Agent agrees promptly to
distribute to each Bank such Bank's pro rata share of payments received by
--- ----
the Agent for the account of the Banks except as otherwise expressly
provided herein or in any of the other Loan Documents.
16.5.2. Distribution by Agent. If in the opinion of the Agent the
---------------------
distribution of any amount received by it in such capacity hereunder, under
the Notes or under any of the other Loan Documents might involve it in
liability, it may refrain from making distribution until its right to make
distribution shall have been adjudicated by a court of competent
jurisdiction. If a court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be repaid, each Person
to whom any such distribution shall have been made shall either repay to
the Agent its proportionate share of the amount so adjudged to be repaid or
shall pay over the same in such manner and to such Persons as shall be
determined by such court.
16.5.3. Delinquent Banks. Notwithstanding anything to the contrary
----------------
contained in this Credit Agreement or any of the other Loan Documents, any
Bank that fails (i) to make available to the Agent its pro rata share of
--- ----
any Loan or to purchase any Letter of Credit Participation or (ii) to
comply with the provisions of (S)15 with respect to making dispositions and
arrangements with the other Banks, where such Bank's share of any payment
received, whether by setoff or otherwise, is in excess of its pro rata
--- ----
share of such payments due and payable to all of the Banks, in each case
as, when and to the full extent required by the provisions of this Credit
Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be
deemed a Delinquent Bank until such time as such delinquency is satisfied.
A Delinquent Bank shall be deemed to have assigned any and all payments due
to it from the Borrower, whether on account of outstanding Loans, Unpaid
Reimbursement Obligations, interest, fees or otherwise, to the remaining
nondelinquent Banks for application to, and reduction of, their respective
pro rata shares of all outstanding Loans and Unpaid Reimbursement
--- ----
Obligations. The Delinquent Bank hereby authorizes the Agent to distribute
such payments to the nondelinquent Banks in proportion to their respective
pro rata shares of all outstanding Loans and Unpaid Reimbursement
--- ----
Obligations. A Delinquent Bank shall be deemed to have satisfied in full a
delinquency when and if, as a result of application of the assigned
payments to all outstanding Loans and Unpaid Reimbursement Obligations of
the nondelinquent Banks, the Banks' respective pro rata shares of all
--- ----
outstanding Loans and Unpaid Reimbursement Obligations have returned to
those in
<PAGE>
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effect immediately prior to such delinquency and without giving effect to
the nonpayment causing such delinquency.
16.6. Holders of Notes. The Agent may deem and treat the payee of any Note
----------------
or the purchaser of any Letter of Credit Participation as the absolute owner or
purchaser thereof for all purposes hereof until it shall have been furnished in
writing with a different name by such payee or by a subsequent holder, assignee
or transferee.
16.7. Indemnity. The Banks ratably agree hereby to indemnify and hold
---------
harmless the Agent and its affiliates from and against any and all claims,
actions and suits (whether groundless or otherwise), losses, damages, costs,
expenses (including any expenses for which the Agent or such affiliate has not
been reimbursed by the Borrower as required by (S)17), and liabilities of every
nature and character arising out of or related to this Credit Agreement, the
Notes, or any of the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Agent's actions taken hereunder or
thereunder, except to the extent that any of the same shall be directly caused
by the Agent's willful misconduct or gross negligence.
16.8. Agent as Bank. In its individual capacity, BKB shall have the same
-------------
obligations and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the Notes and
as the purchaser of any Letter of Credit Participations, as it would have were
it not also the Agent.
16.9. Resignation. The Agent may resign at any time by giving sixty (60)
-----------
days prior written notice thereof to the Banks and the Borrower. Upon any such
resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
16.10. Notification of Defaults and Events of Default. Each Bank hereby
----------------------------------------------
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt
<PAGE>
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of any notice under this (S)16.10 it shall promptly notify the other Banks of
the existence of such Default or Event of Default.
16.11. Duties in the Case of Enforcement. In case one of more Events of
---------------------------------
Default have occurred and shall be continuing, and whether or not acceleration
of the Obligations shall have occurred, the Agent shall, if (i) so requested by
the Majority Banks and (ii) the Banks have provided to the Agent such additional
indemnities and assurances against expenses and liabilities as the Agent may
reasonably request, proceed to enforce the provisions of the Security Documents
authorizing the sale or other disposition of all or any part of the Collateral
and exercise all or any such other legal and equitable and other rights or
remedies as it may have in respect of such Collateral. The Majority Banks may
direct the Agent in writing as to the method and the extent of any such sale or
other disposition, the Banks hereby agreeing to indemnify and hold the Agent,
harmless from all liabilities incurred in respect of all actions taken or
omitted in accordance with such directions, provided that the Agent need not
--------
comply with any such direction to the extent that the Agent reasonably believes
the Agent's compliance with such direction to be unlawful or commercially
unreasonable in any applicable jurisdiction.
17. EXPENSES AND INDEMNIFICATION.
----------------------------
17.1. Expenses. The Borrower agrees to pay (i) the reasonable costs of
--------
producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (ii) any taxes (including
any interest and penalties in respect thereto) payable by the Agent or any of
the Banks (other than taxes based upon the Agent's or any Bank's net income) on
or with respect to the transactions contemplated by this Credit Agreement (the
Borrower hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (iii) the reasonable fees, expenses and disbursements of the Agent's
Special Counsel or any local counsel to the Agent reasonably incurred in
connection with the preparation, syndication, administration or interpretation
of the Loan Documents and other instruments mentioned herein, each closing
hereunder, any amendments, modifications, approvals, consents or waivers hereto
or hereunder, or the cancellation of any Loan Document upon payment in full in
cash of all of the Obligations or pursuant to any terms of such Loan Document
for providing for such cancellation, (iv) the fees, expenses and disbursements
of the Agent or any of its affiliates reasonably incurred by the Agent or such
affiliate in connection with the preparation, syndication, administration or
interpretation of the Loan Documents and other instruments mentioned herein,
including all title insurance premiums and surveyor, engineering and appraisal
charges, (v) any fees, costs, expenses and bank charges, including bank charges
for returned checks reasonably incurred by the Agent in establishing,
maintaining or handling agency accounts, lock box accounts and other accounts
for the collection of any of the Collateral; (vi) all reasonable out-of-pocket
expenses (including without limitation reasonable attorneys' fees and costs,
which attorneys may be employees of any Bank or the Agent, and reasonable
<PAGE>
-73-
consulting, accounting, appraisal, investment banking and similar professional
fees and charges) reasonably incurred by any Bank or the Agent in connection
with (A) the enforcement of or preservation of rights under any of the Loan
Documents against the Borrower or any of its Subsidiaries or the administration
thereof after the occurrence of a Default or Event of Default and (B) any
litigation, proceeding or dispute whether arising hereunder or otherwise, in any
way related to any Bank's or the Agent's relationship with the Borrower or any
of its Subsidiaries and (vii) all reasonable fees, expenses and disbursements of
any Bank or the Agent reasonably incurred in connection with UCC searches, UCC
filings or mortgage recordings.
17.2. Indemnification. The Borrower agrees to indemnify and hold harmless
---------------
the Agent, its affiliates and the Banks from and against any and all claims,
actions and suits whether groundless or otherwise, and from and against any and
all liabilities, losses, damages and expenses of every nature and character
arising out of this Credit Agreement or any of the other Loan Documents or the
transactions contemplated hereby including, without limitation, (i) any actual
or proposed use by the Borrower or any of its Subsidiaries of the proceeds of
any of the Loans or Letters of Credit, (ii) the reversal or withdrawal of any
provisional credits granted by the Agent upon the transfer of funds from lock
box, bank agency or concentration accounts or in connection with the provisional
honoring of checks or other items, (iii) any actual or alleged infringement of
any patent, copyright, trademark, service mark or similar right of the Borrower
or any of its Subsidiaries comprised in the Collateral, (iv) the Borrower or any
of its Subsidiaries entering into or performing this Credit Agreement or any of
the other Loan Documents or (v) with respect to the Borrower and its
Subsidiaries and their respective properties and assets, the violation of any
Environmental Law, the presence, disposal, escape, seepage, leakage, spillage,
discharge, emission, release or threatened release of any Hazardous Substances
or any action, suit, proceeding or investigation brought or threatened with
respect to any Hazardous Substances (including, but not limited to, claims with
respect to wrongful death, personal injury or damage to property), in each case
including, without limitation, the reasonable fees and disbursements of counsel
and allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding. In litigation, or the preparation
therefor, the Banks and the Agent and its affiliates shall be entitled to select
their own counsel and, in addition to the foregoing indemnity, the Borrower
agrees to pay promptly the reasonable fees and expenses of such counsel. If, and
to the extent that the obligations of the Borrower under this (S)17.2 are
unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment in satisfaction of such obligations which is
permissible under applicable law.
17.3. Survival. The covenants contained in this (S)17 shall survive
--------
payment or satisfaction in full of all other Obligations.
<PAGE>
-74-
18. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
---------------------------------------------
18.1. Sharing of Information with Section 20 Subsidiary. The Borrower
-------------------------------------------------
acknowledges that from time to time financial advisory, investment banking and
other services may be offered or provided to the Borrower or one or more of its
Subsidiaries, in connection with this Credit Agreement or otherwise, by a
Section 20 Subsidiary. The Borrower, for itself and each of its Subsidiaries,
hereby authorizes (a) such Section 20 Subsidiary to share with the Agent and
each Bank any information delivered to such Section 20 Subsidiary by the
Borrower or any of its Subsidiaries, and (b) the Agent and each Bank to share
with such Section 20 Subsidiary any information delivered to the Agent or such
Bank by the Borrower or any of its Subsidiaries pursuant to this Credit
Agreement, or in connection with the decision of such Bank to enter into this
Credit Agreement; it being understood, in each case, that any such Section 20
Subsidiary receiving such information shall be bound by the confidentiality
provisions of this Credit Agreement. Such authorization shall survive the
payment and satisfaction in full of all of Obligations.
18.2. Confidentiality. Each of the Banks and the Agent agrees, on behalf
---------------
of itself and each of its affiliates, directors, officers, employees and
representatives, to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Borrower or any of its Subsidiaries
pursuant to this Credit Agreement that is identified by such Person as being
confidential at the time the same is delivered to the Banks or the Agent,
provided that nothing herein shall limit the disclosure of any such information
- --------
(a) after such information shall have become public other than through a
violation of this (S)18, (b) to the extent required by statute, rule, regulation
or judicial process, (c) to counsel for any of the Banks or the Agent, (d) to
bank examiners or any other regulatory authority having jurisdiction over any
Bank or the Agent, or to auditors or accountants, (e) to the Agent, any Bank or
any Section 20 Subsidiary, (f) in connection with any litigation to which any
one or more of the Banks, the Agent or any Section 20 Subsidiary is a party, or
in connection with the enforcement of rights or remedies hereunder or under any
other Loan Document, (g) to a Subsidiary or affiliate of such Bank as provided
in (S)18.1 or (h) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant agrees to be bound by the
provisions of (S)20.6.
18.3. Prior Notification. Unless specifically prohibited by applicable law
------------------
or court order, each of the Banks and the Agent shall, prior to disclosure
thereof, notify the Borrower of any request for disclosure of any such non-
public information by any governmental agency or representative thereof (other
than any such request in connection with an examination of the financial
condition of such Bank by such governmental agency) or pursuant to legal
process.
18.4. Other. In no event shall any Bank or the Agent be obligated or
-----
required to return any materials furnished to it or any Section 20 Subsidiary by
the Borrower or any of its Subsidiaries. The obligations of each Bank under this
(S)18
<PAGE>
-75-
shall supersede and replace the obligations of such Bank under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Borrower prior to the date hereof and shall be binding upon any
assignee of, or purchaser of any participation in, any interest in any of the
Loans or Reimbursement Obligations from any Bank.
19. SURVIVAL OF COVENANTS, ETC.
--------------------------
All covenants, agreements, representations and warranties made herein, in
the Notes, in any of the other Loan Documents or in any documents or other
papers delivered by or on behalf of the Borrower or any of its Subsidiaries
pursuant hereto shall be deemed to have been relied upon by the Banks and the
Agent, notwithstanding any investigation heretofore or hereafter made by any of
them, and shall survive the making by the Banks of any of the Loans and the
issuance, extension or renewal of any Letters of Credit, as herein contemplated,
and shall continue in full force and effect so long as any Letter of Credit or
any amount due under this Credit Agreement or the Notes or any of the other Loan
Documents remains outstanding or any Bank has any obligation to make any Loans
or the Agent has any obligation to issue, extend or renew any Letter of Credit,
and for such further time as may be otherwise expressly specified in this Credit
Agreement. All statements contained in any certificate or other paper delivered
to any Bank or the Agent at any time by or on behalf of the Borrower or any of
its Subsidiaries pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrower or such Subsidiary hereunder.
20. ASSIGNMENT AND PARTICIPATION.
----------------------------
20.1. Conditions to Assignment by Banks. Except as provided herein, each
---------------------------------
Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Loans at the time owing to it, the Notes held by it and its participating
interest in the risk relating to any Letters of Credit); provided that (i) each
--------
of the Agent and, unless a Default or Event of Default shall have
occurred and be continuing, the Borrower shall have given its prior written
consent to such assignment, which consent, in the case of the Borrower, will not
be unreasonably withheld, (ii) each such assignment shall be of a constant, and
not a varying, percentage of all the assigning Bank's rights and obligations
under this Credit Agreement, (iii) each assignment shall be either such Bank's
entire interest or be in an amount that is $5,000,000 or a multiple of
$1,000,000 in excess thereof, and (iv) the parties to such assignment shall
execute and deliver to the Agent, for recording in the Register (as hereinafter
defined), an Assignment and Acceptance, substantially in the form of Exhibit F
------- -
hereto (an "Assignment and Acceptance"), together with any Notes subject to such
assignment. Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five (5) Business Days after the execution
thereof, (i)
<PAGE>
-76-
the assignee thereunder shall be a party hereto and, to the extent provided in
such Assignment and Acceptance, have the rights and obligations of a Bank
hereunder, and (ii) the assigning Bank shall, to the extent provided in such
assignment and upon payment to the Agent of the registration fee referred to in
(S)20.3, be released from its obligations under this Credit Agreement.
20.2. Certain Representations and Warranties; Limitations; Covenants. By
--------------------------------------------------------------
executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, the assigning Bank makes no representation or
warranty, express or implied, and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
this Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Credit Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or
the attachment, perfection or priority of any security interest or
mortgage,
(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower and its Subsidiaries or any other Person primarily or secondarily
liable in respect of any of the Obligations, or the performance or
observance by the Borrower and its Subsidiaries or any other Person
primarily or secondarily liable in respect of any of the Obligations of any
of their obligations under this Credit Agreement or any of the other Loan
Documents or any other instrument or document furnished pursuant hereto or
thereto;
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in (S)8.4 and (S)9.4 and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance upon
the assigning Bank, the Agent or any other Bank and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under this Credit
Agreement;
(e) such assignee represents and warrants that it is an Eligible
Assignee;
(f) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Credit
<PAGE>
-77-
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof or thereof, together with such powers as are reasonably
incidental thereto;
(g) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Credit
Agreement are required to be performed by it as a Bank;
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; and
(i) such assignee acknowledges that it has made arrangements with
the assigning Bank satisfactory to such assignee with respect to its pro
---
rata share of Letter of Credit Fees in respect of outstanding Letters of
----
Credit.
20.3. Register. The Agent shall maintain a copy of each Assignment and
--------
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to and
Letter of Credit Participations purchased by, the Banks from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Banks may treat each Person whose name is
recorded in the Register as a Bank hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by the Borrower and
the Banks at any reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assigning Bank agrees to pay to the
Agent a registration fee in the sum of $3,500.
20.4. New Notes. Upon its receipt of an Assignment and Acceptance executed
---------
by the parties to such assignment, together with each Note subject to such
assignment, the Agent shall (i) record the information contained therein in the
Register, and (ii) give prompt notice thereof to the Borrower and the Banks
(other than the assigning Bank). Within five (5) Business Days after receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Note to the order
of the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such in Assignment and Acceptance and shall otherwise be substantially the form
of the assigned Notes. Within five (5) days of issuance of any new Notes
pursuant to this (S)20.4, the Borrower shall deliver an opinion of counsel,
addressed to the Banks and the Agent, relating to the due authorization,
execution and delivery of such new Notes and the
<PAGE>
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legality, validity and binding effect thereof, in form and substance
satisfactory to the Banks. The surrendered Notes shall be cancelled and returned
to the Borrower.
20.5. Participations. Each Bank may sell participations to one or more
--------------
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
--------
that (i) each such participation shall be in an amount of not less than
$5,000,000, (ii) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (iii) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any commitment fees or Letter of Credit Fees to which such
participant is entitled or extend any regularly scheduled payment date for
principal or interest.
20.6. Disclosure. The Borrower agrees that in addition to disclosures made
----------
in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants and potential assignees or participants hereunder;
provided that such assignees or participants or potential assignees or
- --------
participants shall agree (i) to treat in confidence such information unless such
information otherwise becomes public knowledge, (ii) not to disclose such
information to a third party, except as required by law or legal process and
(iii) not to make use of such information for purposes of transactions unrelated
to such contemplated assignment or participation.
20.7. Assignee or Participant Affiliated with the Borrower. If any
----------------------------------------------------
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to (S)14.1 or (S)14.2, and
the determination of the Majority Banks shall for all purposes of this Credit
Agreement and the other Loan Documents be made without regard to such assignee
Bank's interest in any of the Loans or Reimbursement Obligations. If any Bank
sells a participating interest in any of the Loans or Reimbursement Obligations
to a participant, and such participant is the Borrower or an Affiliate of the
Borrower, then such transferor Bank shall promptly notify the Agent of the sale
of such participation. A transferor Bank shall have no right to vote as a Bank
hereunder or under any of the other Loan Documents for purposes of granting
consents or waivers or for purposes of agreeing to amendments or modifications
to any of the Loan Documents or for purposes of making requests to the Agent
pursuant to (S)14.1 or (S)14.2 to the extent that such participation is
beneficially owned by the Borrower or any Affiliate of the Borrower, and the
determination of the Majority Banks shall for all purposes of this Credit
<PAGE>
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Agreement and the other Loan Documents be made without regard to the interest of
such transferor Bank in the Loans or Reimbursement Obligations to the extent of
such participation.
20.8. Miscellaneous Assignment Provisions. Any assigning Bank shall retain
-----------------------------------
its rights to be indemnified pursuant to (S)17 with respect to any claims or
actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. If any Reference Bank
transfers all of its interest, rights and obligations under this Credit
Agreement, the Agent shall, in consultation with the Borrower and with the
consent of the Borrower and the Majority Banks, appoint another Bank to act as a
Reference Bank hereunder. Anything contained in this (S)20 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion of its
interest and rights under this Credit Agreement (including all or any portion of
its Notes) to any of the twelve Federal Reserve Banks organized under (S)4 of
the Federal Reserve Act, 12 U.S.C. (S)341. No such pledge or the enforcement
thereof shall release the pledgor Bank from its obligations hereunder or under
any of the other Loan Documents.
20.9. Assignment by Borrower. The Borrower shall not assign or transfer
----------------------
any of its rights or obligations under any of the Loan Documents without the
prior written consent of each of the Banks.
21. NOTICES, ETC.
------------
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes or any Letter of Credit Applications shall be in
writing and shall be delivered in hand, mailed by United States registered or
certified first class mail, postage prepaid, sent by overnight courier, or sent
by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier
or postal service, addressed as follows:
(a) if to the Borrower, at 1000 Windward Concourse Parkway, Suite
100, Alpharetta, Georgia 30005, Attention: William J. Gilmour, Chief
Financial Officer and Vice President of Finance, or at such other address
for notice as the Borrower shall last have furnished in writing to the
Person giving the notice;
(b) if to the Agent, at 100 Federal Street, Boston, Massachusetts
02110, USA, Attention: Joseph L. Massimo, Vice President, or such other
address for notice as the Agent shall last have furnished in writing to the
Person giving the notice; and
<PAGE>
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(c) if to any Bank, at such Bank's address set forth on Schedule 1
-------- -
hereto, or such other address for notice as such Bank shall have last
furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
22. GOVERNING LAW.
-------------
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN (S)21. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
23. HEADINGS.
--------
The captions in this Credit Agreement are for convenience of reference only
and shall not define or limit the provisions hereof.
24. COUNTERPARTS.
------------
This Credit Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Credit Agreement it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom enforcement is sought.
<PAGE>
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25. ENTIRE AGREEMENT, ETC.
---------------------
The Loan Documents and any other documents executed in connection herewith
or therewith express the entire understanding of the parties with respect to the
transactions contemplated hereby. Neither this Credit Agreement nor any term
hereof may be changed, waived, discharged or terminated, except as provided in
(S)27.
26. WAIVER OF JURY TRIAL.
--------------------
The Borrower hereby waives its right to a jury trial with respect to any
action or claim arising out of any dispute in connection with this Credit
Agreement, the Notes or any of the other Loan Documents, any rights or
obligations hereunder or thereunder or the performance of which rights and
obligations. Except as prohibited by law, the Borrower hereby waives any right
it may have to claim or recover in any litigation referred to in the preceding
sentence any special, exemplary, punitive or consequential damages or any
damages other than, or in addition to, actual damages. The Borrower (i)
certifies that no representative, agent or attorney of any Bank or the Agent has
represented, expressly or otherwise, that such Bank or the Agent would not, in
the event of litigation, seek to enforce the foregoing waivers and (ii)
acknowledges that the Agent and the Banks have been induced to enter into this
Credit Agreement, the other Loan Documents to which it is a party by, among
other things, the waivers and certifications contained herein.
27. CONSENTS, AMENDMENTS, WAIVERS, ETC.
----------------------------------
Any consent or approval required or permitted by this Credit Agreement to
be given by the Banks may be given, and any term of this Credit Agreement, the
other Loan Documents or any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by the Borrower or any of its
Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or
such other instrument or the continuance of any Default or Event of Default may
be waived (either generally or in a particular instance and either retroactively
or prospectively) with, but only with, the written consent of the Borrower and
the written consent of the Majority Banks. Notwithstanding the foregoing, the
rate of interest on the Notes (other than interest accruing pursuant to
(S)6.11.2 following the effective date of any waiver by the Majority Banks of
the Default or Event of Default relating thereto), the amount of the Commitments
of the Banks, and the amount of commitment fee or Letter of Credit Fees
hereunder may not be changed without the written consent of the Borrower and the
written consent of each Bank affected thereby; the Revolving Credit Loan
Maturity Date and the Term Loan Maturity Date may not be postponed without the
written consent of each Bank affected thereby; this (S)27 and the definition of
Majority Banks may not be amended, without the written consent of all of the
Banks; all or substantially all of the Collateral may not be released without
the written consent of all of the Banks; and the amount of the Agent's Fee or
any Letter of Credit Fees payable for the Agent's account and (S)16 may not be
amended without the written consent of the Agent. No waiver shall
<PAGE>
-82-
extend to or affect any obligation not expressly waived or impair any right
consequent thereon. No course of dealing or delay or omission on the part of the
Agent or any Bank in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall
entitle the Borrower to other or further notice or demand in similar or other
circumstances.
28. SEVERABILITY.
------------
The provisions of this Credit Agreement are severable and if any one clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction, and shall not
in any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Credit Agreement in any jurisdiction.
<PAGE>
-83-
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
MAPICS, INC.
By: /s/ William J. Gilmour
----------------------------------
Name: William J. Gilmour
Title: Chief Financial Officer
BANKBOSTON, N.A., individually and
as Agent
By: /s/ Jay L. Massimo
-----------------------------------
Name: Jay L. Massimo
Director
<PAGE>
SCHEDULE 1
----------
Banks/Commitments
-----------------
<TABLE>
<CAPTION>
Commitment
Revolving Percentage of Revolving Credit
Credit Loan Loans, Term Loan and Letters
Banks Commitment of Credit
<S> <C> <C>
===========================================================================================
BankBoston, N.A. $15,000,000 100%
Domestic Lending Office:
100 Federal Street, 01-08-06
Boston, Massachusetts 02110
Attn: Joseph L. Massimo, Vice
President,
Eurodollar Lending Office:
Same as above
===========================================================================================
Totals: $15,000,000 100%
</TABLE>
<PAGE>
SCHEDULE 10.3(j)
SALES AFFILIATES INVESTMENTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Investment Type Investment To: Date: Amount:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loan Trimin Systems 09/09/99 $ 350,000
- ---------------------------------------------------------------------------------------------------------------------
Loan to joint venture entity Mapics China 07/01/99 $2,500,000
- ---------------------------------------------------------------------------------------------------------------------
Equity Investment by Mapics Hong Kong in JV Mapics China 09/99 HKD50,000
- ---------------------------------------------------------------------------------------------------------------------
Loan to assist in purchase of computer equipment Trimin Systems 04/05/99 $ 42,750
- ---------------------------------------------------------------------------------------------------------------------
Loan to assist in purchase of computer equipment Trimin Systems 12/98 $ 29,025
- ---------------------------------------------------------------------------------------------------------------------
Loan Ekip Mapics Turkey 2/1/99-7/31/99 $ 200,000
- ---------------------------------------------------------------------------------------------------------------------
Equity Investment Mapics Espana 3/99 EUR22,800
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.39
Amendment No. 2
to the
MAPICS, Inc. 1998 Employee Stock Purchase Plan
This Amendment No. 2 ("Amendment") to the MAPICS, Inc. 1998 Employee Stock
Purchase Plan is made and executed this 1/st/ day of December, 1999, to be
effective as of December 1, 1999.
WHEREAS, the Compensation Committee of the Board of Directors of MAPICS,
Inc. (the "Corporation"), deems it to be in the best interests of the
Corporation and its shareholders to effect certain amendments to the MAPICS,
Inc. 1998 Employee Stock Purchase Plan (the "Plan") pursuant to Article 15 of
the Plan, which amendments do not require approval of the shareholders of the
Corporation;
NOW, THEREFORE, in accordance with Article 15 of the Plan, the Plan is
hereby amended as follows:
1. Amendment to Article 11. Article 11 of the Plan is hereby deleted and
replaced as follows:
Article 11 - Record of Stock.
- ----------------------------
As soon as practicable after each Payment Period, the Company shall in its
discretion either a) have the Company's transfer agent deliver a certificate for
stock issued to participants, or b) transfer the stock in book form to a broker
retained by the Company. Stock purchased under the Plan will be issued only in
the name of the employee.
2. Effect of Amendment. As modified hereby, the provisions of the Plan
shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Amendment to be duly
executed as of the date first above written.
MAPICS, Inc.
/s/ Martin D. Avallone
------------------------
By: Martin D. Avallone
Title: Vice President, General Counsel
and Secretary
<PAGE>
Exhibit 10.40
Amendment to
Convertible Preferred Stock Purchase Agreement
Among
MAPICS, Inc. (formerly Marcam Corporation)
General Atlantic Partners 21, L.P.
GAP Coinvestment Partners, L.P.
And
The Northwestern Mutual Life Insurance Company
Effective Date of Amendment: August 4, 1999
This is an Amendment to the Convertible Preferred Stock Agreement dated
September 20, 1995 (the "Agreement") among MAPICS, Inc. (formerly Marcam
Corporation), a Georgia corporation (the "Company"), General Atlantic Partners
21, L.P., a Delaware limited partnership ("GAP LP"), GAP Coinvestment Partners,
L.P., a New York limited partnership ("GAP Coinvestment") and The Northwestern
Mutual Life Insurance Company, a Wisconsin corporation ("Northwestern Mutual",
and together with GAP LP and GAP Coinvestment, the "Purchasers").
WHEREAS, the General Atlantic Designee to the Company's Board of Directors
as named by GAP LP and GAP Coinvestment has resigned as a director of the
Company; and
WHEREAS, GAP LP and GAP Coinvestment desire to forfeit their right under
Section 8.5 of the Agreement to designate a replacement director to serve the
remainder of the term of the General Atlantic Designee who resigned; and
WHEREAS, the Purchasers, as the holders of all of the Series D Convertible
Preferred Stock, desire to forfeit their rights under Section 2(b) of Annex A to
the Company's Articles of Incorporation (the "Articles") to elect as a separate
series one director to the Company; and
WHEREAS, the parties desire to amend the Agreement to reflect such
understanding.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Forfeiture of Rights to Designate a Director.
- -----------------------------------------------
The Purchasers, as the holders of all of the Company's Series D Convertible
Preferred Stock, hereby forfeit all rights to elect or designate as a separate
series one director of the Company pursuant to the Agreement, Annex A to the
Articles, or otherwise.
2. Amendment to Section 8.5.
- ------------------------------
Section 8.5 of the Agreement is hereby deleted in its entirety and replaced as
follows:
"8.5 Purposely Omitted".
3. Amendment to Exhibit A - Series D Convertible Preferred Stock Certificate of
- -------------------------------------------------------------------------------
Designation.
- ------------
Section 2(b) of Exhibit A to the Agreement is deleted in its entirety and
replaced as follows:
"(b) Purposely omitted."
1
<PAGE>
4. Modification to Articles of Incorporation.
- ---------------------------------------------
The Company shall submit a proposal to amend the Company's Articles to remove
Section 2(b) from Annex A of such Articles for vote by the shareholders at the
2000 Annual Meeting of Shareholders. The Purchasers hereby agree to vote their
shares in favor of such proposal.
5. Miscellaneous.
- -----------------
All the provisions of this Amendment by or for the benefit of the parties hereto
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
This Amendment may be executed in one or more counterparts, all of which taken
together shall constitute a single instrument.
Except as expressly provided herein, no other terms and provisions of the
Agreement shall be modified or changed by this Amendment and the terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
written above.
MAPICS, Inc.
/s/ William J. Gilmour
- ------------------------------------
William J. Gilmour
Chief Financial Officer
General Atlantic Partners 21, L.P.
By: General Atlantic Partners, LLC, its General Partner
By: /s/ Steven A. Denning
---------------------------------
Name: Steven A. Denning
-------------------------------
Title: A Managing Member
------------------------------
GAP Coinvestment Partners, L.P.
By: /s/ Steven A. Denning
---------------------------------
Name: Steven A. Denning
-------------------------------
Title: A General Partner
------------------------------
The Northwestern Mutual Life Insurance Company
By: /s/ A. Kipp Koesler
---------------------------------
Name: A. Kipp Koesler
-------------------------------
Title: Its Authorized Representative
------------------------------
2
<PAGE>
Exhibit 10.41
Amendment to
Convertible Preferred Stock and Warrant Purchase Agreement
Among
MAPICS, Inc. (formerly Marcam Corporation)
General Atlantic Partners 32, L.P.
And
GAP Coinvestment Partners, L.P.
Effective Date of Amendment: August 4, 1999
This is an Amendment to the Convertible Preferred Stock and Warrant
Purchase Agreement dated July 19, 1996 (the "Agreement") among MAPICS, Inc.
(formerly Marcam Corporation), a Georgia corporation (the "Company"), General
Atlantic Partners 32, L.P., a Delaware limited partnership ("GAP LP"), and GAP
Coinvestment Partners, L.P., a New York limited partnership ("GAP Coinvestment",
and together with GAP LP, the "Purchasers").
WHEREAS, the General Atlantic Designee to the Company's Board of Directors
as named by the Purchasers has resigned as a director of the Company; and
WHEREAS, the Purchasers, as holders of all of the Series E Convertible
Preferred Stock, desire to forfeit their rights under Section 2(b) of Annex B to
the Company's Articles of Incorporation (the "Articles") to elect as a separate
series one director of the Company; and
WHEREAS, the parties desire to amend the Agreement to reflect such
understanding.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Forfeiture of Rights to Designate a Director.
- ------------------------------------------------
The Purchasers, as the holders of all of the Company's Series E Convertible
Preferred Stock, hereby forfeit all rights to elect or designate as a separate
series one director of the Company pursuant to Annex B of the Articles or
otherwise.
2. Amendment to Exhibit B - Series E Convertible Preferred Stock Certificate of
- -------------------------------------------------------------------------------
Designation.
- ------------
Section 2(b) of Exhibit B to the Agreement is deleted in its entirety and
replaced as follows:
"(b) Purposely omitted."
3. Modification to Articles of Incorporation.
- ---------------------------------------------
The Company shall submit a proposal to amend the Company's Articles to remove
Section 2(b) from Annex B of such Articles for vote by the shareholders at the
2000 Annual Meeting of Shareholders. The Purchasers hereby agree to vote their
shares in favor of such proposal.
4. Miscellaneous.
- -----------------
All the provisions of this Amendment by or for the benefit of the parties hereto
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
1
<PAGE>
This Amendment may be executed in one or more counterparts, all of which taken
together shall constitute a single instrument.
Except as expressly provided herein, no other terms and provisions of the
Agreement shall be modified or changed by this Amendment and the terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
written above.
MAPICS, Inc.
/s/ William J. Gilmour
- -------------------------
William J. Gilmour
Chief Financial Officer
General Atlantic Partners 32, L.P.
By: /s/ Steven A. Denning
----------------------
Name: Steven A. Denning
--------------------
Title: A Managing Member
-------------------
GAP Coinvestment Partners, L.P.
By: /s/ Steven A. Denning
----------------------
Name: Steven A. Denning
--------------------
Title: A General Partner
-------------------
2
<PAGE>
EXHIBIT 10.42
December 10, 1999
MAPICS, Inc.
100 Windward Concourse Parkway
Suite 100
Alpharetta, Georgia 30005
Ladies and Gentlemen:
We are pleased to confirm the commitment of BankBoston, N.A. ("BKB")
subject to the terms and conditions in this letter and in the Term Sheet (as
defined and referred to below), to provide financing in an aggregate amount of
up to $55,000,000 (the "Financing") to MAPICS, Inc. (the "Borrower") in
connection with the acquisition by the Borrower of all or substantially all the
capital stock of Pivotpoint, Inc. (the "Target") (such transaction being
hereinafter referred to as the "Acquisition") and for general corporate and
working capital purposes and the other purposes described in the Term Sheet.
The aggregate amount of the Financing shall be permitted to be increased on the
Closing Date to $60,000,000 if not less than $40,000,000 of the Financing is
funded on the Closing Date by one or more lending institutions (other than BKB)
reasonably acceptable to the Agent and the Arranger. In addition, to the extent
the Financing closes at an amount of $55,000,000, the definitive loan
documentation will contain a provision permitting the aggregate size of the
Financing to increase to $60,000,000 so long as at the time of such increase not
less than $40,000,000 of the Financing is funded by one or more lending
institutions (other than BKB) acceptable to the Agent and the Arranger. All of
the Borrower's and the Target's domestic subsidiaries will guaranty the
Financing. The Borrower, the Target and all such domestic subsidiaries will
secure their obligations with a security interest in substantially all their
assets, including, without limitation, a pledge of all of the stock of their
respective domestic subsidiaries and 65% of the stock of any foreign
subsidiaries. BankBoston, N.A. will act as agent (the "Agent") for itself and
any other lending institutions which may become party to the financing
(collectively, the "Lenders") with respect to such Financing and BancBoston
Robertson Stephens Inc. will act as the exclusive syndication agent and arranger
for the Lenders (in such capacity, the "Arranger") with respect to the
Financing. The proceeds of the Financing shall be used to provide funds for the
Acquisition, to refinance existing debt and related obligations, to pay related
transaction expenses, and for working capital and general corporate purposes.
BKB will provide the full amount of such Financing, but intends to syndicate the
Financing either before or after closing. Based on our discussions and on the
financial statements, projections and other information and documents previously
furnished to us, we are enclosing herewith a summary of terms and conditions
(the "Term Sheet"), which Term Sheet sets forth the principal terms on which BKB
will
<PAGE>
MAPICS, Inc.
December 10, 1999
Page 2
provide the proposed Financing of an aggregate amount not to exceed $55,000,000
and BancBoston Robertson Stephens Inc. will act as the Arranger hereunder. This
letter, along with the Term Sheet, shall be referred to as the "Commitment
Letter".
Although the Term Sheet sets forth the principal terms of the proposed
Financing, you should understand that BKB, the Agent and the Arranger reserve
the right to propose terms in addition to these terms which will not
substantially change or alter the terms of this commitment and the Term Sheet.
Moreover, the Term Sheet does not purport to include all of the customary
representations, warranties, conditions, defaults, definitions and other terms
which will be contained in the definitive documents for the transaction, all of
which must be satisfactory in form and substance to us and our counsel and to
you and your counsel prior to proceeding with the proposed Financing.
Our willingness to proceed with the proposed Financing is conditioned on
there being no material misstatements in or omissions from the materials which
have previously been furnished to us for our review, there being in our judgment
no material adverse change in the assets, business or condition (financial or
otherwise) or prospects of the Borrower, the Target and their subsidiaries or
the assets and business to be acquired in the Acquisition since the most recent
audited financial statements for the Borrower's fiscal year ended September 30,
1999 and the most recent unaudited financial statements for the Target's fiscal
period ended September 30, 1999 provided to the Agent or in the ability of the
Borrower or any subsidiary to perform their respective obligations described in
the Term Sheet. In addition, the proposed Financing is subject to the condition
that no material changes in governmental regulation or policy affecting us, any
Lender, the Borrower, the Target, any subsidiary or you, and no material changes
or disruptions in the syndication, financial or capital markets that could
materially impair the syndication of the Financing occurs prior to the closing.
By your signature below, you agree to assist and cooperate with the
Arranger in its syndication efforts, including, but not limited to, promptly
preparing and providing materials and information reasonably deemed necessary by
the Arranger to successfully complete and otherwise facilitate the syndication
of the proposed Financing described herein with a group of Lenders satisfactory
to the Agent and the Arranger. Without limiting the foregoing, you hereby agree
(a) that the Arranger shall have the exclusive right to syndicate the proposed
Financing contemplated by this Commitment Letter and manage all aspects of such
syndication (including, without limitation, decisions as to the selection of
institutions to be approached and when they will be approached, when their
commitments will be accepted, which institutions will participate, the
allocations of the commitments among the syndicate lenders and any titles to be
given to any lender participating in the facility) and that you will assist the
Arranger in
<PAGE>
MAPICS, Inc.
December 10, 1999
Page 3
contacting and soliciting potential co-lenders and will provide to the Arranger,
at its reasonable request, financial and organizational information as well as
financial projections needed for syndication purposes; (b) that the Arranger
shall be expressly permitted to distribute any and all documents and information
relating to the transactions contemplated hereby and received from you or any
other source to any potential lender, participant or assignee, on a confidential
basis and subject to reasonable confidentiality agreements requested by you; (c)
to make available the relevant management personnel related to the proposed
Financing or operations of the Borrower, the Target and their subsidiaries for
meetings with potential syndicate members upon reasonable notification; (d) to
permit the Arranger to publicize information in respect of this facility
(including the Agent's and the Arranger's role in the structuring and the
proposed Financing thereof) subject to your prior reasonable approval of the
form and content thereof; and (e) that prior to or after the execution of the
definitive documentation for the facilities, BKB reserves the right to syndicate
all or any portion of its commitment hereunder to one or more financial
institutions after consultation with the Borrower and the Arranger, and, upon
the acceptance by BKB of a written commitment of any lender to provide a portion
of the Financing, BKB shall be released from a portion of its commitment
hereunder in an aggregate amount equal to the commitment of such lender. The
Arranger agrees to keep the Borrower advised as to the syndication efforts. You
agree that, prior to and during the syndication of the facilities, you will not
permit any offering, placement or arrangement of any competing issues of debt
securities or commercial bank facilities of the Borrower, the Target or any of
their subsidiaries.
By your signature below, you agree to pay all reasonable out-of-pocket
costs and expenses incurred by BKB, the Agent, the Arranger and their respective
affiliates and agents (including, without limitation, any consultants or other
third parties engaged by BKB, the Agent or the Arranger) in connection with this
Commitment Letter, the transactions contemplated hereby and BKB's, the Agent's
and the Arranger's ongoing due diligence in connection therewith (the
"Expenses") (including, without limitation, reasonable attorneys' fees and
expenses, fees of the Agent's commercial finance examiners, appraisers,
syndication fees and expenses, consultant fees and other reasonable charges and
disbursements and any other reasonable out-of-pocket costs and expenses) whether
or not such transactions are consummated; provided, however, BKB agrees that
-----------------
from the date hereof through the date which is the earliest to occur of (a) the
expiration or termination of this Commitment Letter and (b) on which the
definitive loan documentation is executed and delivered, it shall not engage a
third-party provider of professional services other than outside legal counsel
without your consent, such consent not to be unreasonably withhold, and before
such service provider provides a written estimate of the costs of such services.
Further, in consideration of and as a condition to the commitment contained
herein, you agree to pay BKB, the Agent and the Arranger the fees described in
the fee letter dated as of the date hereof by
<PAGE>
MAPICS, Inc.
December 10, 1999
Page 4
and among the Borrower, the Agent and the Arranger (the "Fee Letter") at the
times and in the amounts provided therein and to comply with all other
agreements contained therein.
By your signature below, you further agree to indemnify and hold harmless
each of BKB, the Agent and the Arranger and their respective officers,
directors, employees, affiliates, agents and controlling persons from and
against any and all losses, claims, damages and liabilities to which any such
person may become subject arising out of, or in connection with, the
Acquisition, this Commitment Letter, the transactions contemplated hereby or any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any of such indemnified persons is a party thereto, and to
reimburse each of such indemnified persons, from time to time upon their demand,
for any reasonable legal or other expenses incurred in connection with
investigating or defending any of the foregoing, whether or not the transactions
contemplated hereby are consummated, provided that the foregoing indemnity will
--------
not, as to any indemnified person, apply to losses, claims, damages, liabilities
or related expenses to the extent that they have been determined by a court of
competent jurisdiction by final order to arise from the bad faith, willful
misconduct or gross negligence of such indemnified person.
You agree that this Commitment Letter is for your confidential use only and
that it will not be disclosed by you to any person (including any lender bidding
for the financing contemplated by this Commitment Letter) other than any of your
employees, officers, directors, accountants, attorneys, and other advisors, and
then only in connection with the transactions contemplated hereby and on a
confidential basis, provided that nothing herein shall prevent you from
--------
disclosing such information if such disclosure would be required by law.
Each of BKB, the Agent and the Arranger agrees to keep any confidential
information delivered or made available by you to it regarding the Borrower
confidential from anyone other than their respective employees, affiliates,
officers, attorneys and other advisors who are or are expected to become engaged
in evaluating, approving, structuring or administering the facilities or
rendering legal advice in connection therewith, provided that nothing herein
--------
shall prevent BKB, the Agent, the Arranger or any affiliate from disclosing such
information (a) to potential participants in and assignees of the facilities,
provided that the Agent and the Arranger shall not disclose the terms of the Fee
Letter to such potential participants in and assignees of the facilities (unless
permitted or required to do so pursuant to subparagraphs (b) - (e) hereof), (b)
upon the order of any court or administrative agency or upon the request of any
administrative agency or authority, (c) upon the request or demand of any
regulatory agency or authority, (d) to the extent that such information has been
publicly disclosed, other than as a
<PAGE>
MAPICS, Inc.
December 10, 1999
Page 5
result of a disclosure by BKB, the Agent or the Arranger either because the
information became available to BKB, the Agent or the Arranger on a non
confidential basis or is generally available to the public, or (e) otherwise as
required by law.
This letter is issued with the specific understanding that, until accepted
by you and except as specifically set forth in the preceding paragraphs, it is
not intended to give rise to any legal liability on the part of either you or
BKB, the Agent or the Arranger and that the proposal set forth herein shall be
considered withdrawn if for any reason you fail to return it to the Agent's
office at 100 Federal Street, Boston, Massachusetts 02110 by 5:00 p.m. (Boston
time) on December 15, 1999 (the "Expiration Date") the enclosed copy of this
letter signed by you.
<PAGE>
MAPICS, Inc.
December 10, 1999
Page 6
If the foregoing is in accordance with your understanding, please accept
this letter in the space indicated below and return it, together with the signed
Fee Letter and that portion of the closing fees due on the acceptance of this
Commitment Letter, to us on or prior to the Expiration Date. This letter
supersedes all of our prior letters and communications to you, including without
limitation the letter dated earlier today, regarding the subject matter of this
letter.
Very truly yours,
BANKBOSTON, N.A.
By: /s/ Jay L. Massimo
------------------------------
Title: Director
BANCBOSTON ROBERTSON
STEPHENS INC.
By: /s/ Christopher G. Mathon
------------------------------
Title: Director
Accepted and Agreed to this
15th day of December, 1999
MAPICS, INC.
By: /s/ William J. Gilmour
----------------------------
Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.43
MAPICS, Inc.
Summary of Proposed Terms and Conditions
For Proposed Up To $60,000,000 Senior Secured Credit Facilities
December 10, 1999
- --------------------------------------------------------------------------------
Borrower: MAPICS, Inc.
- --------
Facilities: Up to $60,000,000 Senior Secured Credit
- ----------
Facilities, as follows:
(A) $40,000,000 Term Loan ("Term Loan")
(B) Revolving Credit Loan (the "Revolver" or
"Revolving Credit Loans") in the maximum
original principal amount of up to
$20,000,000 (the "Maximum Commitment") with a
sublimit of up to $5,000,000 for Letters of
Credit ("L/C's"), with availability under the
Revolver to be limited to the lesser of (i)
the Maximum Commitment and (ii) the Borrowing
Base (as defined under the heading
"Availability").
BankBoston, N.A. has committed to an aggregate
amount of not more than $55,000,000 of the
Facilities. The aggregate amount of the Facilities
shall be permitted to be increased on the Closing
Date to $60,000,000 if not less than $40,000,000
of the Facilities are funded on the Closing Date
by one or more lending institutions (other than
BKB) acceptable to the Agent and the Arranger. In
addition, to the extent the Facilities closes at
an amount of $55,000,000, the definitive loan
documentation will contain a provision permitting
the aggregate size of the Facilities to increase
to $60,000,000 so long as at the time of such
increase not less than $40,000,000 of the
Facilities are funded by one or more lending
institutions (other than BKB) acceptable to the
Agent and the Arranger. The Agent and the Arranger
will use its best efforts to arrange for the
placement of that portion of the Facilities which
exceed $55,000,000 to lending institutions
acceptable to the Lenders, the Agent, the Arranger
and the Borrower. All costs and expenses of the
Agent and the Arranger incurred in connection with
assisting the Borrower in arranging such
additional $5,000,000 of the Facilities shall be
for the Borrower's account, and any all fees
(including underwriting fees, upfront fees and
closing fees) required by any lender or lenders
funding such $5,000,000 shall be for the account
of the Borrower.
Use of Proceeds: The Facilities shall be used to partially finance
- ---------------
the acquisition (the "Acquisition") of Pivotpoint,
Inc. (the "Target"), refinance the Borrower's
existing senior secured credit facility, and for
working capital and general corporate purposes.
Agent: BankBoston, N.A. (the "Agent")
- -----
<PAGE>
-2-
Arranger: BancBoston Robertson Stephens Inc. ("BRS" or the
- --------
"Arranger")
L/C Issuing
- -----------
Bank: BankBoston, N.A.
- ----
Lenders: BankBoston, N.A. ("BKB") and a group of financial
- -------
institutions reasonably acceptable to the Agent,
BRS and the Borrower.
Guarantors: The Facilities shall be jointly and severally
- ----------
guaranteed by all of the domestic direct and
indirect subsidiaries of the Borrower (including,
without limitation, the Target) and Target, as
well as the Borrower's parent, if any. Any future
domestic direct or indirect subsidiaries of the
Borrower will be added as a guarantor of the
Facilities and will be subject to the provisions
under the heading of "Security".
Closing Date: On or about January 7, 2000, or such other
- ------------
mutually agreeable date, but not later than
January 31, 2000.
Final Maturity
- --------------
Date: (A) Three years from the Closing Date
- ----
(B) Four years from the Closing Date
Availability: (A) To be drawn in full on the Closing Date.
- ------------
(B) Subject to Borrowing Base availability and
conditions precedent, Revolving Credit Loans
may be borrowed, repaid, and reborrowed from
the Closing Date through the Final Maturity
Date and L/Cs may be issued extended and/or
renewed at any time prior to the Final
Maturity Date, provided that, no L/C shall
-------------
have an expiration date beyond 14 days prior
to the Final Maturity Date. The Borrowing
Base shall be equal to an amount not to
exceed 80% of Eligible Accounts Receivables
(definition to be determined by the Agent)
for which invoices have been issued and are
payable. Eligibility shall be determined by
the Agent and based upon, among other things,
a commercial finance exam performed by the
Agent or other independent third party
acceptable to the Agent. Subject to such
commercial finance exam, the loan
documentation will contain certain
eligibility criteria and advance rates for
Eligible Accounts Receivable similar to that
in the existing credit agreement between the
Borrower and BKB dated as of August 4, 1997,
as amended.
<PAGE>
-3-
Amortization: (A) The Term Loan shall amortize in quarterly
- ------------
payments (in such amounts for each such
quarter to be determined by the Agent)
aggregating in the following annual amounts:
Term Loan
-----------
Year 1 $ 9,500,000
Year 2 14,500,000
Year 3 16,000,000
-----------
Total $40,000,000
(B) Due and payable in full at the Final Maturity
Date.
Mandatory
- ---------
Prepayments: If at any time the sum of outstanding Revolving
- -----------
Credit Loans plus the face amount of all issued
and outstanding L/C's exceed the lesser of the
Maximum Commitment and the Borrowing Base, the
amount of such excess will be immediately paid to
the Agent for the pro rata accounts of the
--- ----
Lenders.
Mandatory prepayment of the Term Loan and
Revolving Credit Loans (with a concurrent
reduction in the Maximum Commitment) shall be
required from the net cash proceeds of asset sales
(other than in the ordinary course of business) in
excess of 15% of total net assets in the aggregate
over the life of the facilities (provided, the
Borrower shall be required to reinvest the net
cash proceeds of any assets sold within 180 days
of such sale or will otherwise have to apply such
proceeds not so reinvested to the Term Loan and
the Revolving Credit Loans), and equity or new
debt offerings. In addition, mandatory prepayments
of the Term Loan shall be required from 50% of
annual Excess Cash Flow (definition to be
determined by the Agent).
Mandatory prepayments from net cash proceeds
arising from the preceding paragraph shall be
applied first to the Term Loan on a pro rata basis
to each of the remaining scheduled principal
payments and second to the Revolver (with a
concurrent reduction in the Maximum Commitment).
Voluntary
- ---------
Prepayments: Permitted, subject to payment of breakage costs,
- -----------
if any, in the case of Eurodollar Rate loans. No
reduction or termination of any commitment may be
reinstated.
Security: The obligations under the Facilities, as well as
- --------
required interest rate protection agreements with
the Lenders, and the guarantee obligations shall
be secured by a first perfected priority security
interest in all assets of the Borrower, Target and
the Guarantors, whether now owned or hereafter
acquired, including without limitation a pledge of
all intercompany notes of the Borrower, Target and
their subsidiaries, and a pledge of 100% of the
stock of the Borrower's and Target's direct and
indirect domestic subsidiaries, and 65% of the
stock of the Borrower's and Target's direct and
indirect foreign subsidiaries.
<PAGE>
-4-
Interest Rates: The Alternate Base Rate (as defined below), or, at
- --------------
the Borrower's option, the reserve adjusted
Eurodollar Rate or other applicable funding rates
acceptable to the Agent plus the Applicable Margin
shall be determined quarterly upon receipt of a
compliance certificate in accordance with the
following Pricing Grid:
<TABLE>
<CAPTION>
Total Funded Debt
-----------------
Level to Adj. EBITDA ALT Base + Euro + Commit. Fee
----- -------------- ---------- ------ -----------
<S> <C> <C> <C> <C>
I. greater than or equal to 1.75x 1.75% 3.00% 0.500%
II. greater than or equal to 1.25x less than 1.75x 1.50% 2.75% 0.500%
III. more than or greater than 1.25x 1.25% 2.50% 0.375%
</TABLE>
The Pricing Grid notwithstanding, pricing would
not be lower than Level I until the reset date
following the delivery of the compliance
certificate for the fiscal quarter ending June 30,
2000, provided, solely for the fiscal quarter
ending June 30, 2000, if at the time of the
delivery of the Compliance Certificate for such
quarter the Borrower demonstrates that they are
entitled to a lower pricing level, the Lenders
shall make such a decrease in the pricing
retroactive to July 1, 1999. Total Funded Debt
shall include on a consolidated basis for the
Borrower, Guarantors and subsidiaries' funded
indebtedness, and contingent obligations for
funded indebtedness. Adjusted EBITDA shall be (i)
measured on a consolidated basis for the Borrower
and their subsidiaries on a rolling four-quarter
basis, (ii) reduced by the amount of capitalized
software costs and (iii) adjusted for one-time
non-recurring noncash charges (which may be taken
in one or more than one fiscal quarter) related to
the Acquisition in an amount satisfactory to the
Agent and the Arranger.
Alternate Base Rate shall mean the higher of the
Agent's Base Rate as announced from time to time,
or the Federal Funds rate plus 0.50%.
Default Rate: Upon the occurrence and continuation of any event
- ------------
of default (including any payment default), the
Applicable Margin will be increased by 2.00% per
annum above the otherwise applicable rate.
Interest Payments: For Alternate Base Rate loans the end of each
- -----------------
fiscal quarter. For Eurodollar Rate loans at the
end of each Interest Period, or quarterly, if
earlier. Interest will be calculated on an
actual/360 day basis.
Interest Periods: For Eurodollar Rate loans, 1, 2, 3 or 6 months,
- ----------------
subject to availability, provided, however, the
Borrower will only be permitted to select 1 month
interest periods until the successful completion
of the syndication.
Interest Rate
- --------------
Protection: Within 90 days of the Closing Date, the Borrower
- ----------
will obtain interest rate protection for an
amount, rate level, and duration reasonably
satisfactory to the Agent.
Agent's Fee: Per Fee Letter delivered by the Borrower to the
- -----------
Agent (the "Fee Letter")
<PAGE>
-5-
Closing Fee: Per Fee Letter
- ------------
Commitment Fee: Payable quarterly in arrears on the average daily
- --------------
unused portion of the Maximum Commitment at a rate
per annum determined in accordance with the
Pricing Grid.
Letter of
Credit Fees: Per annum fees payable pro rata to the Lenders
- -----------
equal to the Applicable Margin for Eurodollar Rate
Loans, as in effect from time to time, times the
maximum amount to be drawn under each letter of
credit. In addition, the Borrower will pay to the
L/C Issuing Bank a fronting fee equal to 0.25% per
annum times maximum amount to be drawn under each
such letter of credit and the Letter of Credit L/C
Issuing Bank's customary charges for issuance,
amendments and processing. All letter of credit
fees will be payable quarterly in arrears.
Conditions
Precedent: Usual and customary in transactions of this type,
- ---------
including without limitation, the following:
. Satisfactory completion of due diligence,
including without limitation, review of the
Borrower's and Target's historical and
projected financials, legal and tax
structure, labor, industry issues,
environmental, ERISA, significant contracts
and other legal matters, management,
customer, and supplier checkings,
satisfactory third party asset appraisals,
satisfactory commercial finance exam and
environmental surveys, if applicable;
. Satisfactory documentation, including without
limitation, security agreements and credit
agreement containing covenants,
representation and warranties, events of
default, and provisions regarding such
matters as increased costs, illegality,
indemnifications, capital adequacy, tax
withholding gross-up, and funding losses as
are customary in financing of this kind;
. On the Closing Date, the Borrower shall have
successfully completed the Acquisition on
terms, structure and documentation of
acquisition satisfactory to the Agent and
Arranger, for a total purchase price not to
exceed $48,000,000 plus the assumption of
accounts payable and certain transaction
expenses of the Target not to exceed an
amount acceptable to the Agent and certain
other liabilities acceptable to the Agent of
the Target (in amounts acceptable to the
Agent) and the assumption of senior secured
funded indebtedness of the Target in an
amount not to exceed $2,800,000 and on terms
acceptable to the Agent (which senior secured
funded indebtedness shall be immediately
repaid on the Closing Date) and excluding
fees (which fees must be satisfactory to the
Agent), plus;
. Satisfactory capital and corporate structure,
including without limitation, no funded
indebtedness on the Closing Date, other than
amounts drawn under the Facilities.
Additionally, after giving effect to the
borrowings on the Closing Date; (i) the ratio
of Total Funded Debt to trailing four
quarters adjusted EBITDA shall not exceed
2.15 times, (ii) trailing four quarters pro
forma adjusted EBITDA shall not be less than
$19,300,000, (iii) borrowing under the
Revolving Credit Loans shall not exceed
<PAGE>
-6-
$3,000,000 and (iv) there shall be a minimum
amount (to be determined by the Agent) of
unused borrowing availability under the
Revolving Credit Loans.
. Satisfactory 3-year consolidating Projections
dated as of December 9, 1999 prepared by
management of the Borrowers in good faith
based upon reasonable assumptions and no
material misstatements in or material
omissions from materials previously delivered
to the Agent or Arranger. The Agent
acknowledges that the Projections dated as of
December 9, 1999 and delivered to the Agent
on such date are satisfactory, provided, that
--------
nothing contained herein shall be construed
or interpreted as an agreement on the part of
the Lenders, the Agent and the Arranger as to
any projected or planned actions on the part
of the Borrower contained therein, including
without limitation its proposed investments
in sales affiliates.
. The Lenders' receipt of evidence satisfactory
to them as to the perfection and priority of
all security interests and stock pledges
described herein.
. There being no material misrepresentations or
omissions from any of the materials furnished
to the Agent, Arranger, or Lenders for their
review prior to December 10, 1999; and no
material adverse change, in the reasonable
judgement of the Agent or Arranger, shall
have occurred in the condition (financial or
otherwise), business, or (with respect to
changes which have occurred or are reasonably
likely, based upon pending or threatened
governmental, judicial regulatory action, to
occur) prospects of the Borrower, Target or
their Subsidiaries taken as a whole since the
most recent audited financial statements (for
the fiscal year ended September 30, 1999)
provided to the Agent (or in the case of the
Target, the most recent unaudited financial
statements for the fiscal period ended
September 30, 1999), except for material
developments and changes disclosed to the
Agent in writing prior to December 10, 1999.
. Solvency certificate from an authorized
officer of the Borrower demonstrating
satisfactory assurances of solvency.
. Absence of any litigation or other proceeding
the result of which might impair or prevent
the consummation of the transactions
contemplated hereby.
. The Agent's receipt of satisfactory evidence
of compliance with all applicable laws,
applicable third party consents have been
obtained, appropriate corporate approval as
well as opinions of counsel satisfactory as
to, the due consummation of the transactions,
legality, validity and binding effect of all
loan and related documents, and the absence
of any violation of any law or regulation
applicable to the parties to the transaction.
. The proposed financing is subject to the
conditions no material changes in
governmental regulations or policies
affecting the Borrower, the Agent, Arranger
or Lenders involved in this transaction occur
prior to the Closing Date.
<PAGE>
-7-
. No default or event of default shall exist
(pro forma for the Acquisition) under the
Facilities or under any other material
indebtedness of the Borrower or its
subsidiaries.
. The Borrower shall have paid to the Agent all
fees and reasonable expenses payable in
connection with the Facilities described
herein and shall comply with all of its
covenants contained in the Fee Letter.
Reporting
Requirements: Periodic financial reporting of the Borrower and
- ------------
its Subsidiaries, including, but not limited to,
the following: certified annual audited
consolidated and consolidating financials by an
independent auditing firm of recognized national
standing, annual budgets prepared by management,
quarterly unaudited consolidated and consolidating
financials, quarterly compliance certificates,
monthly (or more frequently if reasonably
requested by the Agent) borrowing base certificate
and other information that may from time to time
be reasonably requested by the Agent, Arranger and
Lenders.
Financial
Covenants: Financial covenants measured on a consolidated
- ---------
basis, to be determined by the Agent upon review
of Projections, will be typical of those found in
senior credit agreements of this type and will
include, but not be limited to:
. Maximum Funded Debt/Adjusted EBITDA
initially set at 2.25x
. Minimum Adjusted EBITDA - Capital
Expenditures - Cash Taxes/Interest
Expense + Required Principal Payments
. Minimum Adjusted EBITDA
. Minimum Quick Ratio
Financial covenant levels shall include step-ups
(in the case of minimum permitted levels) and
step-downs (in the case of maximum permitted
levels) in amounts and at intervals to be
determined by the Agent.
Other Terms
and Conditions: Customary for facilities of this type, including,
- --------------
but not limited to, the following:
. Limitations on liens, indebtedness,
contingent liabilities, operating
leases, dividends and restricted
payments, distributions and management
fees (with certain exceptions agreed to
by the Agent for intercompany management
fees pertaining to foreign
subsidiaries), affiliate transactions,
investments, negative pledges, mergers,
consolidations, acquisitions, asset
sales and other dispositions of assets,
sale leasebacks, etc. and other
covenants to be determined by the Agent;
. Covenants regarding compliance with laws
(including ERISA, and environmental
laws), maintenance of corporate
existence, payment of taxes, and
notification of material adverse change
and other covenants to be determined by
the Agent;
<PAGE>
-8-
. Covenant requiring maintenance of
insurance in amounts and with terms
satisfactory to the Agent and the
Borrower
. Customary events of default including
without limitation payment and covenant
defaults, untruth of representations and
warranties, a cross-default to other
indebtedness, bankruptcy and insolvency,
judgments and a change in control
default and other events of default to
be reasonably determined by the Agent.
. Customary representations and
warranties, including without
limitation, corporate existence,
governmental and corporate
authorizations and consents, financial
information, no material adverse change,
payment of taxes, compliance with laws,
no material litigation, etc.
. Without limiting the foregoing, such
additional terms and conditions as may
be necessary to complete a successful
syndication of the Facilities in the
reasonable judgement of the Agent and
the Arranger.
Assignments and
Participations: Usual and customary for transactions of this type
- --------------
and size. Each Lender may assign all or a portion
of its loans and commitments under the Facilities,
or sell participations therein, to another person
or persons, provided that each such assignment
shall be in a minimum amount of $1,000,000 (or if
less, such Lender's entire commitment) and shall
be subject to certain conditions, including but
not limited to, the approval of the Borrower (so
long as no Event of Default has occurred) and the
Agent, such approvals not to be unreasonably
withheld. Each assignment shall be subject to
payment to the Agent by the assigning Lender of an
assignment fee of $3,500.
Syndication: BankBoston will act as the exclusive agent for the
- -----------
Facilities and BRS will act as the exclusive
arranger, adviser and syndication manager for the
Facilities and, in such capacities, each of
BankBoston and BRS will perform the duties and
exercise the authority customarily associated with
such roles. No additional agents, co-agents,
arrangers or syndication managers will be
appointed, unless the Borrower and each of
BankBoston and BRS so agree.
BRS will manage all aspects of the syndication,
including the selection of Lenders, the
determination of when BRS will approach potential
Lenders and the final allocations among the
Lenders. The Borrower agrees to assist BRS
actively in achieving a timely syndication that is
reasonably satisfactory to BRS, such assistance to
include, among other things, (a) direct contact
during the syndication between the Borrower's, and
Target's senior officers, representatives and
advisors, on the one hand, and prospective
Lenders, on the other hand at such times and
places as BRS may reasonably request, (b)
providing to BRS all financial and other
information with respect to the Borrower, Target
and Guarantor and the transactions contemplated
that BRS may reasonably request, including but not
limited to financial projections relating to the
foregoing, and (c) assistance in the preparation
of a confidential information memorandum and other
marketing materials to be used in connection with
the syndication.
<PAGE>
-9-
The Borrower agree that, subsequent to the
issuance of the commitment by BKB and until the
completion of the successful syndication of the
Facilities, the Borrower will not permit any
offering, placement or arrangement of any
competing issues of debt securities or commercial
bank facilities of the Borrower, Target and any of
their subsidiaries, without the prior consent of
BankBoston and BRS.
Voting Rights: Waivers and amendments must be approved by the
- -------------
Required Lenders provided, however, that increases
of commitments, reductions in interest rates or
fees, extensions of maturity, release of any
substantial part of the collateral, or change to
the definition of Required Lenders will require
consent from the Lenders affected thereby.
Required Lenders means any two or more Lenders
holding at least 51% of the outstanding loans and
unused commitments.
Expenses &
- ----------
Indemnification: Borrower will pay all reasonable fees and expenses
- ---------------
incurred by the Agent and Arranger in connection
with the preparation and execution of the
Facilities, whether or not the transaction closes.
These will include, without limitation, legal,
syndication, collateral examination, appraisal,
environmental survey and other direct out-of-
pocket expenses.
The Borrower will indemnify and hold harmless the
Agent, Arranger and the Lenders (and their
respective directors, officers, employees and
agents) against any damages, loss, liability, cost
or expense incurred in respect of the financing
contemplated hereby or the use or the proposed use
of proceeds thereof (except to the extent
resulting from the gross negligence or willful
misconduct of the indemnified party).
Governing Law: Commonwealth of Massachusetts.
- -------------
Agent and
Arranger's Counsel: Bingham Dana
- ------------------
<PAGE>
Exhibit 21
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 do Brasil Ltda. Brazil MAPICS do Brasil Ltda.
3566196 Canada, Inc. Canada 3566196 Canada, Inc.
MAPICS EMEA Support Center B.V. Netherlands MAPICS EMEA Support Center B.V.
MAPICS Sweden Sweden MAPICS Sweden
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
MAPICS, Hong Kong Limited Hong Kong MAPICS, Hong Kong Limited
MAPICS Merger Corp. Massachusetts MAPICS Merger Corp.
</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 25,
1999, except as to Note 17 for which he date is December 15, 1999, on our audits
of the consolidated financial statements of MAPICS, Inc. and its subsidiaries as
of September 30, 1998 and 1999, and for each of the three years in the period
ended September 30, 1999, which report is included in this Annual Report on Form
10-K.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF MAPICS, INC. FOR THE YEAR ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 21,351
<SECURITIES> 0
<RECEIVABLES> 32,585
<ALLOWANCES> 1,781
<INVENTORY> 0
<CURRENT-ASSETS> 63,467
<PP&E> 11,974
<DEPRECIATION> 5,955
<TOTAL-ASSETS> 95,394
<CURRENT-LIABILITIES> 57,135
<BONDS> 0
0
175
<COMMON> 204
<OTHER-SE> 37,880
<TOTAL-LIABILITY-AND-EQUITY> 95,394
<SALES> 71,195
<TOTAL-REVENUES> 134,718
<CGS> 13,689
<TOTAL-COSTS> 32,701
<OTHER-EXPENSES> 18,083
<LOSS-PROVISION> 1,387
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 21,461
<INCOME-TAX> 8,262
<INCOME-CONTINUING> 13,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,199
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.62
</TABLE>
