U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
TO __________
Commission file number 0-23438
Effective Management Systems, Inc.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1292200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12000 West Park Place
Milwaukee, WI 53224
(Address of principal executive offices,
including Zip Code)
414-359-9800
(Registrant's telephone number,
including area code)
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 the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Class Outstanding as of August 31, 1997
Common Stock, $.01 par value 4,054,783
<PAGE>
EFFECTIVE MANAGEMENT SYSTEMS, INC.
Form 10-Q
August 31, 1997
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets at
August 31, 1997 and November 30, 1996 3
Consolidated Statements of Income - Three and Nine
Months Ended August 31, 1997 and August 31, 1996 5
Consolidated Statements of Cash Flows - Nine 6
Months Ended August 31, 1997 and August 31, 1996
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
PART I Financial Information
Item 1 Financial Statements
EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) (unaudited except for November 30, 1996 amounts)
ASSETS 31-Aug 30-Nov
1997 1996
CURRENT ASSETS
Cash $406 $866
Investments in available-for-sale
securities 1 505
Accounts Receivable:
Trade, less allowance for
doubtful accounts 9,875 11,146
Related Parties 796 693
Inventories 380 391
Refundable Income Taxes - 159
Deferred Income Taxes 1,257 175
Prepaid Expenses and Other Current
Assets 414 288
-------- --------
TOTAL CURRENT ASSETS 13,129 14,223
LONG TERM ASSETS
Computer Software, net 6,911 5,781
Investments in and Advances to
Unconsolidated Joint Ventures 260 199
Equipment and Leasehold Improvements, net 4,201 3,961
Intangible Assets, net 2,520 2,690
Other Assets 629 592
-------- --------
TOTAL LONG TERM ASSETS 14,521 13,223
-------- --------
TOTAL ASSETS $27,650 $27,446
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (unaudited except for November 30,
1996 amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY 31-Aug 30-Nov
1997 1996
CURRENT LIABILITIES
Accounts Payable $1,359 $2,026
Accrued Liabilities 2,028 2,846
Deferred Revenues 5,005 4,605
Customer Deposits 199 109
Current portion of
Long-term Obligations 5,550 127
-------- -------
TOTAL CURRENT LIABILITIES 14,141 9,713
LONG TERM LIABILITIES
Deferred Revenue and Other
Long-term Liabilities 360 453
Long-term Obligations 168 2,123
Deferred Income Taxes 560 560
------- -------
TOTAL LONG TERM LIABILITIES 1,088 3,136
Commitments and Contingencies - -
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value; authorized
3,000,000 shares; none issued or
outstanding - -
Common Stock, $.01 par value; authorized
20,000,000 shares; issued 4,067,408 and
4,011,018 shares; outstanding 4,054,783
and 4,008,393 shares 41 41
Common Stock Warrants 4 4
Additional Paid-in Capital 11,327 11,137
Retained Earnings 1,109 3,420
Cost of Common Stock in Treasury(12,625
shares) (60) (5)
------- -------
TOTAL STOCKHOLDERS' EQUITY 12,421 14,597
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,650 $27,446
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data) (unaudited)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
31-Aug 31-Aug 31-Aug 31-Aug
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET REVENUES:
Software license fees $ 4,963 $ 4,040 $ 14,491 $ 11,970
Services 4,095 3,755 12,361 11,152
Hardware 624 1,278 2,687 5,297
------- ------- ------- -------
Total net revenues $ 9,682 $ 9,073 $ 29,539 $ 28,419
COST OF PRODUCTS AND SERVICES
Software license fees 1,321 922 3,983 2,587
Services 3,387 3,017 10,584 8,668
Hardware 468 844 2,074 3,932
------- ------- ------- -------
Total cost of products
and services $ 5,176 $ 4,783 $ 16,641 $ 15,187
Selling and marketing expenses 4,259 3,311 11,103 9,825
General and administrative expenses 631 942 2,993 2,736
Product development expenses 621 580 1,817 1,547
------- ------- ------- -------
Total costs and operating
expenses $ 10,687 $ 9,616 $ 32,554 $ 29,295
------- ------- ------- -------
LOSS FROM OPERATIONS $ (1,005) $ (543) $ (3,015) $ (876)
Other (Income)/ Expense
Equity in earnings of
unconsolidated joint ventures (55) 0 (57) (3)
Interest (income) (13) (22) (41) (72)
Interest expense 107 45 274 82
------- ------- ------- -------
39 23 176 7
------- ------- ------- -------
LOSS BEFORE INCOME TAXES $ (1,044) $ (566) $ (3,191) $ (883)
Income Tax Benefit - (233) (883) (372)
------- ------- ------- -------
NET LOSS $ (1,044) $ (333) $ (2,308) $ (511)
======= ======= ======= =======
Loss per share ($0.26) ($0.08) ($0.57) ($0.13)
Weighted average common 4,054 3,973 4,038 3,952
shares outstanding
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
NINE MONTHS ENDED
31-Aug 31-Aug
1997 1996
OPERATING ACTIVITIES
Net Loss ($2,308) ($511)
Adjustments to reconcile net
income(loss) to net cash
provided(used) by operating
activities:
Depreciation and amortization 862 1,010
Amortization of capitalized computer
software development costs 2,077 1,407
Equity in earnings of joint
ventures - -
Goodwill Amortization 170 -
Changes in operating assets and
liabilities:
Accounts Receivable 1,226 38
Inventories and other current
assets (1,266) (353)
Accounts payable and other
liabilities (1,821) (1,431)
-------- -------
Total adjustments 1,248 671
Net cash provided by(used in) in
operating activities (160) 160
INVESTING ACTIVITIES
Additions to equipment and leasehold
improvements (1,101) (1,056)
Proceeds from sale of securities 504 253
Software development costs
capitalized (3,207) (2,431)
Other (97) (9)
------- -------
Net cash used in investing
activities (3,901) (3,243)
FINANCING ACTIVITIES
Proceeds on long-term debt and other
notes payable 3,466 2,734
Additional paid in capital 136 31
------- -------
Net cash provided by financing
activities 3,602 2,765
------- --------
Net decrease in cash ($459) ($318)
Cash-beginning of period 866 335
Cash-end of period 407 17
======== =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
EFFECTIVE MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1997
(Unaudited) (In Thousands)
Note 1 - Basis of Presentation
The accompanying consolidated interim financial statements
included herein have been prepared by Effective Management Systems, Inc.
(the "Company"), without an audit, in accordance with generally accepted
accounting principles for interim financial information and pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading.
In the opinion of management, the information furnished for
the three and nine month periods ended August 31, 1997 and August 31, 1996
includes all adjustments, consisting solely of normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations for the interim periods. The results of operations for the
nine months ended August 31, 1997 are not necessarily indicative of the
results of operations to be expected for the entire fiscal year ending
November 30, 1997. It is suggested that the interim financial statements
be read in conjunction with the audited consolidated financial statements
for the year ended November 30, 1996 included in the Company's Form 10-KSB
filed with the Securities and Exchange Commission.
Note 2 - Additional Financial Disclosure
Equipment and leasehold improvements consisted of the following:
8-31-1997 11-30-1996
Gross $9,276 $8,169
Less: Accumulated Depreciation < 5,075 > < 4,208 >
------- -------
Net $4,201 $3,961
Allowance for doubtful accounts consisted of the following:
8-31-1997 11-30-1996
Balance $ 391 $ 346
Provision for doubtful accounts consisted of the following:
8-31-1997 11-30-1996
Balance $ 49 $ 113
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company recorded an increase in net revenues (6.7%) and a net loss of
$1,044,000 for the third quarter of 1997 compared with a net loss of
$333,000 for the third quarter of 1996. Unlike prior quarters, the third
quarter of 1997 does not reflect a tax benefit relating to the loss since
for book purposes the Company is not in a loss carryforward position.
Overall revenues were under budgeted levels reflecting both a continued
delay in the release of a new version of the Company's software product
and a corresponding decrease in the anticipated level of new account
sales. Software revenues increased by 22.9% over the comparable quarter
of 1996 reflecting a continuing demand for the Company's products.
For the first three quarters of fiscal 1997, the Company recorded an
increase in net revenues (3.9%) and a net loss of $2,308,000 compared
with a net loss of $511,000 for the first three quarters of fiscal 1996.
The increased net loss for all periods presented resulted mainly from the
expense of building the infrastructure necessary to support higher levels
of revenues which did not materialize. These expenses related to strategic
investments in product development and field service infrastructure, which
were related to personnel costs which the Company generally views as fixed
in nature.
In light of the third quarter loss of fiscal 1997, management is taking
additional actions to improve the Company's financial performance,
including a cost reduction program focused on reducing costs by
approximately $2,000,000 on an annual basis. The cost reduction program
involves selective reductions in staff, reduction of expenses in areas of
immediate return and the tabling of marketing development efforts in new
international markets. The Company is also reviewing other strategic
alternatives available to it to deal with its recent financial
performance.
No assurance can be given that these measures will enable the Company to
return to profitability.
Results of Operations
Total Revenues
Net revenues increased to $9,682,000 for the three months ended August 31,
1997, which was an increase of 6.7% from the $9,073,000 for the same
quarter in the previous year. The mix of revenues comparing software,
services, and hardware revenues as a percentage of net revenues improved
to 51.3%, 42.3%, and 6.4%, respectively, in the third quarter of 1997,
from 44.5%, 41.4%, and 14.1%, respectively, in the third quarter of 1996.
The overall increase in revenues for the three months ended August 31,
1997, was attributable, in part, to a $923,000 increase in the level of
relatively high margin software revenues, and a $654,000 decrease in
relatively low margin hardware revenues.
Net revenues increased to $29,539,000 for the first three quarters of
1997, which was an increase of 3.9% from the $28,419,000 for the same
period in the previous year. The increase in revenues was attributable to
a $2,521,000 increase in the level of relatively high margin software
revenues, a $1,209,000 increase in the level of service revenues and a
$2,610,000 decrease in relatively low margin hardware revenues. The mix of
revenues comparing software, services, and hardware revenues as a
percentage of net revenues improved to 49.1%, 41.8%, and 9.1%,
respectively, in the first three quarters of 1997 from 42.1%, 39.2%, and
18.6% , respectively, in the first three quarters of 1996.
International revenues represented less than 10% of net revenues for all
periods presented.
The Company's operating revenues can vary substantially from quarter to
quarter based on the size and timing of customer orders and market
acceptance of new products. The Company has historically operated with
little backlog because software orders are generally shipped as orders are
received. As a result, product revenue in any quarter is substantially
dependent on orders booked and shipped during that quarter.
Software License Fees
Software license fees are customer charges for the right to use the
Company's software products. Software license fees increased 22.9% to
$4,963,000 in the third quarter of 1997 from $4,040,000 in the third
quarter of 1996. Software license fees increased 21.1% to $14,491,000 in
the first three quarters of 1997 from $11,970,000 in the first three
quarters of 1996. The increase in software license fees was attributable
to both higher software sales per system unit of product sold and a rise
in the number of system units sold. The Company also continued its
strategic plan to undertake efforts to incorporate new technologies into
its products and to integrate certain products into its product lines from
its acquisition of Intercim Corporation in fiscal 1995. These activities
are intended to be completed at various times in the future, and
management believes that the successful completion of these efforts will
ultimately provide the Company with significant competitive
differentiation and advantage.
Service Revenues
The Company offers a number of optional services to its customers,
including such services as a telephone support program, systems
integration, custom software development, implementation consulting, and
formal classroom and on-site training. Service revenues increased 9.1% to
$4,095,000 for the three months ended August 31, 1997 from $3,755,000 for
the same period of the prior year. Service revenues increased 10.8% to
$12,361,000 for the nine months ended August 31, 1997 from $11,152,000 for
the same period of the prior year. The increase in service revenues was
mainly the result of new customers, as well as requirements of the
established customer base.
Hardware Revenues
Hardware revenues decreased 51.2% to $624,000 in the third quarter of 1997
compared with $1,278,000 for the corresponding period of 1996. Hardware
revenues decreased 49.3% to $2,687,000 in the first three quarters of 1997
compared with $5,297,000 for the corresponding period of 1996. The
decrease was due to increased sales of software on platforms for which
the Company does not supply hardware and a higher percentage of sales to
established customers for which hardware was sold in a prior period.
Management expects the trend of declining hardware sales to continue as
the popularity of the Microsoft Windows NT platform continues to escalate
as a percentage of Company sales. Hardware used with the Microsoft
Windows NT platform is either already in place at the customer or readily
available from local suppliers who can also provide local support.
Cost of Software License Fees
The cost of software license fees as a percentage of related revenue was
26.6% for the third quarter of 1997, an increase from 22.8% for the
corresponding period of 1996. The cost of software license fees as a
percentage of related revenue was 27.5% for the first three quarters of
1997, an increase from 21.6% for the corresponding period of 1996. Cost
of software license fees is composed of both amortization of past
investment in software development and the third party costs associated
with the software revenues. Software amortization is related to past
investment in software development and does not vary consistently with
variations in software revenues. Due to this relationship, software
amortization accounted for an increase of 3.0 percentage points and 2.8
percentage points in the cost of software license fees as a percent of
software license fee revenues for the third quarter and first three
quarters of 1997, respectively. Software amortization will increase in
future fiscal periods based on the past increases of investment in
capitalized product development. The cost of software license fees is also
dependent on the level of third party costs associated with certain
software revenues and include such items as purchased licenses and other
components. The remaining increases in the cost of software license fees
as a percentage of related revenue was due to these third party costs.
Cost of Services
The cost of services as a percentage of related revenue increased to 82.7%
for the three months ended August 31, 1997 as compared with 80.4% for the
same quarter in the previous year. The cost of services as a percentage of
related revenue increased to 85.6% for the nine months ended August 31,
1997 as compared with 77.7% for the same period in the previous year. The
increase was mainly due to reduced growth in new account business,
allocation of resources to perform warranty work, and additional costs
related to the building of a service infrastructure ($67,000 additional
for the third quarter of 1997 and $256,000 additional for the first three
quarters of 1997) for both ongoing business growth and the establishment
of new third party selling relationships. The Company is restructuring
its service organization to match its costs more closely with its current
revenue levels. The Company is currently slowly reducing the levels of
its people through the natural attrition that has been occurring. The
Company is also refocusing its service staff to reduce the level of
internal non-bill projects and thereby increase the level of billable
customer work.
Cost of Hardware
The cost of hardware as a percentage of related revenue increased from
66.0% in the third quarter of 1996 to 75.0% in the third quarter of 1997.
The cost of hardware as a percentage of related revenue increased from
74.2% in the first three quarters of 1996 to 77.2% in the first three
quarters of 1997. The cost of hardware as a percentage of related revenue
varies with the size of the system, the high versus low margin items
comprising the system being sold, and the competitive pressure of the
customer sale.
Selling and Marketing Expenses
Selling and marketing expenses increased $948,000 or 28.6% from $3,311,000
in the third quarter of 1996 to $4,259,000 in the third quarter of 1997.
Selling and marketing expenses increased $1,278,000 or 13.0% from
$9,825,000 in the first three quarters of 1996 to $11,103,000 in the first
three quarters of 1997. The Company recorded a reclassification of
administrative expense to selling and marketing in the amount of $544,000
in the third period of fiscal 1997. This reclassification was made to
conform all amounts to the 1996 presentation. Exclusive of such
reclassification, the growth in selling and marketing expenses grew at a
slower rate than the growth in software license fees, mainly as a result
of higher software sales per system unit of product sold.
General and Administrative Expenses
General and administrative expenses decreased $311,000 or 33.1%, from
$942,000 in the third quarter of 1996 to $631,000 in the third quarter of
1997. General and administrative expenses increased $257,000 or 9.4%,
from $2,736,000 in the first three quarters of 1996 to $2,993,000 in the
first three quarters of 1997. The Company recorded a reclassification of
administrative expense to selling and marketing in the amount of $544,000
in the third period of fiscal 1997. This reclassification was made to
conform all amounts to the 1996 presentation. Exclusive of the
reclassification, the increases for the three and nine month periods ended
August 31, 1997, were mainly due to rising expenses for telephone service
($40,000, $215,000), computer maintenance ($18,000, $56,000),
reclassification of the salary and expenses of the general manager of the
Intercim division from sales to general expense ($0, $116,000), costs for
internal systems support ($-28,000, $91,000) and other growth in expenses
to support the growing level of revenues in the third quarter and first
three quarters of 1997 as compared to the third quarter and first three
quarters of 1996. As a percentage of net revenues, general and
administrative expenses were 6.5% and 10.4% in the third quarter of 1997
and 1996, respectively, as compared with 10.1% and 9.6% in the first three
quarters of 1997 and 1996, respectively. During the third quarter of
1997, the Company discontinued the practice of providing office space,
accounting and administrative services, computer processing time, and
other miscellaneous services to EMS Solutions, Inc., an affiliated entity.
EMS Solutions, Inc. now operates as a stand-alone entity with no material
ongoing relations to the Company. The amounts received by the Company for
these items were $16,000 in the third quarter of 1997, as compared with
$65,000 in the third quarter of 1996 and were $107,000 in the first three
quarters of 1997, as compared with $203,000 in the first three quarters of
1996. Amounts received from EMS Solutions, Inc. were recorded as a
reduction of general and administrative expenses.
Product Development Expense
Product development expense increased only marginally from $580,000 in the
third quarter of 1996 to $621,000 in the third quarter of 1997. Product
development expense increased 17.5% from $1,547,000 in the first three
quarters of 1996 to $1,817,000 in the first three quarters of 1997. These
increases were focused mainly on the incorporation of various new
technologies into the Company's software products. The Company
capitalizes costs in accordance with Statement of Financial Accounting
Standard (SFAS) No. 86. The Company capitalized $1,045,000 of product
development costs in the third quarter of 1997 compared to $814,000 in the
third quarter of 1996 and $3,207,000 in the first three quarters of 1997
compared to $2,431,000 in the first three quarters of 1996. As a percent
of software license fees, the total amount invested in software
development was 33.6% and 34.5% in the third quarter of 1997 and 1996,
respectively, and was 34.7% and 33.2% in the first three quarters of 1997
and 1996, respectively. Effective during the third quarter of 1997, the
Company reassigned two of its key managers in order to improve both the
time-to-market and the quality of its products. As part of its plan to
control its overall costs, the Company expects to decrease the level of
investment in product development beginning in the fourth quarter of 1997.
Other Income\Expense-Net
Other income\expense-net was $23,000 of expense for the third quarter of
1996 compared to $39,000 of expense for the third quarter of 1997. Other
income\expense-net was $7,000 of expense for the first three quarters of
1996 compared to $176,000 of expense for the first three quarters of 1997.
The increase in the level of expense was mainly the result of a reduction
in interest income due to sales of investment securities and an increase
in interest expense as a result of increased borrowings under the
Company's bank line of credit.
Income Tax
No income tax benefit was recorded for the third quarter of 1997 compared
to a benefit of 41.2% for the third quarter of 1996, since the Company,
for book purposes, is in a tax loss carryforward position. Although the
Company has had book profits in the past two years, it has had tax losses
mainly due to the current deductibility of capitalized product
development. Generally accepted accounting principles prohibit the Company
from recording a tax benefit under these circumstances. The effective
income tax rate provided a benefit of 27.7% for the first three quarters
of 1997 compared to a benefit of 42.1% for the first three quarters of
1996. The change in the effective rate was mainly the result of the tax
loss carryforward position.
Liquidity and Capital Resources
At August 31, 1997, the Company had cash and marketable securities
aggregating $407,000. During the first three quarters of 1997, the
Company's operating activities used $160,000 of cash compared to providing
$160,000 of cash for the same period of the prior year. This increase in
the use of cash was mainly attributable to the Company's operating losses.
Investing activities used cash of $3,901,000 in the first three quarters
of 1997 compared to $3,243,000 of cash in the first three quarters of
1996. The principal uses of the cash in the first three quarters of 1997
included $3,207,000 for capitalized product development and $1,101,000 for
purchases of equipment and furniture. The principal uses of the cash in
the first three quarters of 1996 included $2,431,000 for capitalized
product development and $1,056,000 for purchases of equipment and
furniture. Management expects a decrease in the current level of capital
expenditures in conjunction with the cost restructuring plans described
above.
Financing activities provided $3,602,000 of cash in the first three
quarters of 1997 compared with $2,765,000 in the first three quarters of
1996. The cash provided in 1997 reflected borrowings under the Company's
bank line of credit. As of August 31, 1997, the Company had $79,000 of
availability under its $5,500,000 line of credit, which is based on the
level of the eligible accounts receivable. The Company obtained a waiver
from its bank to the existing profitability covenant for the third quarter
of 1997.
During fiscal 1997, the Company entered into several amendments to its
bank line of credit to remain in compliance with certain financial
covenants. In September 1997, the Company signed an amendment with its
bank to provide an additional $1,000,000 of availability to its line of
credit. The line of credit is due on December 31, 1997, and will need to
be refinanced or extended at that time. The Company has instituted a
program to reduce its costs, but will still need to secure additional
sources of financing in the short to medium term to fund its operations in
addition to the increased availability under its existing line of credit.
Although management believes that additional financing can be obtained,
no assurance can be given that such additional financing will be
available to the Company on acceptable terms. The Company is also
reviewing other strategic alternatives available to it to deal with its
current financial status.
In the event that the Company is unable to secure additional financing
sources, it would likely have a material adverse effect on the Company's
liquidity, including its ability to fund continuing operations.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1996
IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT ON FORM 10-Q
CONTAINS "FORWARD-LOOKING STATEMENTS", INCLUDING INFORMATION REGARDING
FUTURE ECONOMIC PERFORMANCE AND PLANS AND OBJECTIVES OF MANAGEMENT, WHICH
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING
STATEMENTS. SUCH UNCERTAINTIES, AND RISKS INCLUDE, BUT ARE NOT LIMITED
TO, PRODUCT DEMAND AND MARKET ACCEPTANCE; THE IMPACT OF COMPETITIVE
PRODUCTS; THE COMPANY'S ABILITY TO MAINTAIN EFFICIENT MARKETING AND
DISTRIBUTION OPERATIONS WITH RESPECT TO NEW PRODUCTS; FUTURE ECONOMIC,
COMPETITIVE AND MARKET CONDITIONS; THE COMPANY'S ABILITY TO RETAIN KEY
TECHNICAL AND MANAGEMENT PERSONNEL; THE COMPANY'S ABILITY TO SUCCESSFULLY
IMPLEMENT ITS COST REDUCTION PROGRAM; THE SUCCESSFUL REFINANCING OR
EXTENSION OF THE COMPANY'S LINE OF CREDIT; TIMING OF PRODUCT DEVELOPMENT;
PRODUCT PRICING AND OTHER FACTORS DETAILED IN THIS QUARTERLY REPORT ON
FORM 10-Q AND IN OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4.1) Ninth Amendment to Loan and Security
Agreement dated September 9, 1997 by and
between Bank One, Milwaukee, NA, and
Effective Management Systems, Inc. and
certain affiliates
(4.2) Tenth Amendment to Loan and Security
Agreement dated September 30, 1997 by and
between Bank One, Milwaukee, NA, and
Effective Management Systems, Inc. and
certain affiliates
(10.1) IBM Market Development Program Agreement
September 3, 1997
(27) Financial Data Schedule [EDGAR version only]
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EFFECTIVE MANAGEMENT SYSTEMS, INC.
October 14, 1997 By: /s/ MICHAEL D. DUNHAM
Michael D. Dunham
President (principal executive
officer)
By: /s/JEFFREY J. FOSSUM
Jeffrey J. Fossum
Chief Financial Officer and
Assistant Treasurer (principal
financial and accounting officer)
<PAGE>
Exhibit Index
Exhibit No. Description
(4.1 ) Ninth Amendment to Loan and Security Agreement dated
September 9, 1997 by and between Bank One, Milwaukee, NA,
and Effective Management Systems, Inc. and certain
affiliates
(4.2) Tenth Amendment to Loan and Security Agreement dated
September 30, 1997 by and between Bank One, Milwaukee, NA,
and Effective Management Systems, Inc. and certain
affiliates
(10.1) IBM Market Development Program Agreement September 3, 1997
(27) Financial Data Schedule [EDGAR version only]
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Ninth Amendment to Loan and Security agreement is dated as of
September 9, 1997 by and between Bank One, Wisconsin successor by merger
to Bank One, Milwaukee, NA, its successors and assigns (the "Secured
Party") and Effective Management Systems, Inc. ("EMS"), Effective
Management Systems of Michigan, Inc., EMS-East, Inc., Intercim Corp.,
Effective Management Systems of Illinois, Inc., and EMS Asia Pacific
Limited (collectively, the "Debtors").
RECITALS
WHEREAS, the Secured Party and certain of the Debtors entered into a
Loan and Security Agreement dated as of November 9, 1992, which agreement
has subsequently been amended as of April 23, 1993, February 8, 1994, May
11, 1995, August 31, 1995, May 31, 1996, October 31, 1996, February 27,
1997, July 11, 1997 and as of the date hereof (as amended and as hereafter
renewed, extended, amended, modified, or supplemented, the "Loan
Agreement"); and
WHEREAS, the Secured Party and the Debtors desire to further amend
the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning
ascribed in the Loan Agreement.
2. Section 5 of the Loan Agreement shall be amended and restated in
its entirety to read as follows:
5. Collections.
(a) Lock Box Service. Debtors have entered into a
Lock Box Service Agreement with Secured Party, pursuant to which
Secured Party shall be granted access to the post office box to
which all Customers shall be instructed to forward payments made
with respect to all Collateral.
(b) Receipt and Credit for Collections. All checks,
drafts, cash, notes, money orders, acceptances and other
remittances ("Collections") in part or full payment of and with
respect to the Collateral received through the Lock Box Service
Agreement shall be retained by Secured Party and processed in
accordance with such Lock Box Service Agreement. All
Collections received directly by a Debtor shall immediately be
delivered by Debtors to Secured Party in precisely the form
received (but endorsed by such Debtor if necessary for
collection), and until such delivery Debtors shall not commingle
any Collections with any other funds or property of any Debtor
but shall hold the Collections in trust for Secured Party. The
amount of any Collections received by or transferred to the
Commercial Finance Department of Secured Party in Milwaukee,
Wisconsin will be applied by Secured Party against the
Obligations within two business days after such receipt by
crediting Debtors's Loan Account. The application of all
Collections with respect to the Obligations shall be conditional
upon actual collection. In the event that any such item, the
amount of which has been credited against the Obligations, is
subsequently dishonored or otherwise returned unpaid, Secured
Party may retroactively debit Debtors' Loan Account or any
deposit account maintained by a Debtor or Debtors at Secured
Party or any Secured Party Affiliate for the amount of such item
plus applicable transaction and interest charges.
(c) Verification and Notification. Secured Party may
confirm and verify all Receivables in any manner, and Debtors
shall assist Secured Party in so doing. Notwithstanding the
existence of any Lock Box Service Agreement, Secured Party may
at any time notify, or require Debtors to notify, all Customers
or any of them to make payment directly to Secured Party, and
Secured Party may enforce collection of, settle, compromise,
extend or renew the indebtedness of any or all Customers without
liability of any kind.
(d) Authority to Perform for Debtors. Each Debtor
appoints each and every officer of Secured Party as Debtor's
attorney-in-fact to endorse the name of Debtor on any notes,
acceptances, checks, drafts, money orders or other instruments
for the payment of money that may come into Secured Party's
possession; to sign Debtor's name on any invoice or bill of
lading relating to any of the Receivables, on drafts against
Customers and on notices to Customers. This power, because it
is coupled with an interest, is irrevocable while any Obligation
remains unpaid. Secured Party is hereby authorized and
empowered to accept the return of goods represented by any of
the Receivables, without notice to or the consent of Debtors and
without discharging or in any way affecting Debtors' liability
hereunder. All acts of Secured Party or its appointee are
hereby ratified and approved, and Secured Party or its appointee
shall not be liable for any acts of commission or omission, nor
for any error of judgment or mistake of fact or law.
3. Debtors represents and warrants that (a) the representations and
warranties contained in the Loan Agreement are true and correct in all
material respects as of the date of this Amendment, (b) except as
disclosed to Secured Party in writing, which defaults or Events of Default
have not been waived by Secured Party (and shall not be waived by the
execution hereof), no condition, act or event which could constitute an
Event of Default under the Loan Agreement exists, and (c) no condition,
event, act or omission has occurred, which, with the giving of notice or
passage of time, would constitute an Event of Default under the Loan
Agreement.
4. Debtors agrees to pay all fees and out-of-pocket disbursements
incurred by the Secured Party in connection with this Amendment, including
legal fees incurred by the Secured Party in the preparation, consummation,
administration and enforcement of this Amendment.
5. This Amendment shall become effective as of September 9, 1997,
notwithstanding the date of execution. Except as amended by this Ninth
Amendment, the Loan Agreement shall remain in full force and effect in
accordance with its terms.
6. This Amendment is a modification only and not a novation.
Except for the above-quoted modification(s), the Loan Agreement, any
agreement or security document, and all the terms and conditions thereof,
shall be and remain in full force and effect with the changes herein
deemed to be incorporated therein. This Amendment is to be considered
attached to the Loan Agreement and made a part thereof. This Amendment
shall not release or affect the liability of any guarantor, surety or
endorser of the Loan Agreement or release any owner of collateral securing
the Loan Agreement. The validity, priority and enforceability of the Loan
Agreement shall not be impaired hereby. To the extent that any provision
of this Amendment conflicts with any term or condition set forth in the
Loan Agreement, or any agreement or security document executed in
conjunction therewith, the provisions of this Amendment shall supersede
and control. Each Debtor acknowledges that as of the date of this
Amendment they have no offsets with respect to all amounts owed by Debtors
to Secured Party and each Debtor waives and releases all claims which they
may have against Secured Party arising under the Loan Agreement on or
prior to the date of this Amendment.
7. The Debtors acknowledge and agree that this Amendment is limited
to the terms outlined above, and shall not be construed as an amendment of
any other terms or provisions of the Loan Agreement. The Debtors hereby
specifically ratify and affirm the terms and provisions of the Loan
Agreement. Each Debtor releases the Secured Party from any and all claims
which may have arisen, known or unknown, in connection with the Loan
Agreement on or prior to the date hereof. This Amendment shall not
establish a course of dealing or be construed as evidence of any
willingness on the Secured Party's part to grant other or future
amendments, should any be requested.
8. All obligations of the Debtors under the Loan Agreement and this
Amendment shall be their joint and several obligations.
IN WITNESS WHEREOF, the parties have entered into this Amendment as
of the day and year first above written.
BANK ONE, WISCONSIN
By: /s/ William E. Shaw
William E. Shaw, Vice President
EFFECTIVE MANAGEMENT SYSTEMS, INC.
By:/s/ Michael D. Dunham
Title:President
EFFECTIVE MANAGEMENT SYSTEMS OF ILLINOIS, INC.
By:/s/ Michael D. Dunham
Title:Secretary
[ ALL OTHER DEBTORS ON ATTACHED SIGNATURE PAGE ]
EFFECTIVE MANAGEMENT SYSTEMS OF MICHIGAN, INC.
By:/s/ Michael D. Dunham
Title:Secretary
EMS-EAST, INC.
By:/s/ Michael D. Dunham
Title:Treasurer
EMS ASIA PACIFIC LIMITED
By:/s/ Michael D. Dunham
Title:President
TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Tenth Amendment to Loan and Security Agreement is dated as of
September 30, 1997 by and between Bank One, Wisconsin, successor by merger
to Bank One, Milwaukee, NA, its successors and assigns (the "Secured
Party") and Effective Management Systems, Inc. ("EMS"), Effective
Management Systems of Michigan, Inc., EMS-East, Inc., Effective Management
Systems of Illinois, Inc., and EMS Asia Pacific Limited (collectively, the
"Debtors").
RECITALS
WHEREAS, the Secured Party and certain of the Debtors entered into a
Loan and Security Agreement dated as of November 9, 1992, which agreement
has subsequently been amended as of April 23, 1993, February 8, 1994, May
11, 1995, August 31, 1995, May 31, 1996, October 31, 1996, February 27,
1997, July 11, 1997, September 9, 1997 and as of the date hereof (as
amended and as hereafter renewed, extended, amended, modified, or
supplemented, the "Loan Agreement"); and
WHEREAS, Intercim Corp. has been merged with and into EMS; and
WHEREAS, the Secured Party and the Debtors desire to further amend
the Loan Agreement as hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Capitalized terms not defined herein shall have
the meaning ascribed in the Loan Agreement.
2. Note A. The maturity date of Note A is hereby amended to be
December 31, 1997. Notwithstanding anything to the contrary contained
therein or in the Loan Agreement, Secured Party's obligation to lend
monies to the Debtors shall terminate December 31, 1997, at which time all
of the Obligations shall be due and payable.
3. Interest Rate. The LIBOR interest rate option is hereby
deleted. Notwithstanding anything to the contrary in the Loan Agreement,
Debtors shall not be liable for any breakage fees as a result of the
conversion of LIBOR Borrowings prior to the end of the applicable Interest
Periods. Effective October 1, 1997, Section 2(c) of the Loan Agreement is
hereby amended to read in its entirety as follows:
"(c) Interest Rate and Payment. The interest rate
hereunder on Note A shall be equal to three-quarters percentage
points (.75%) per annum in excess of the Reference Rate. The
unpaid balances shall bear interest after default or maturity at
two and one-half percentage points (2.5%) per annum in excess of
Secured Party's Reference Rate as announced from time to time.
Interest shall be computed daily based upon a 360-day year and
the Reference Rate and the outstanding loan balances as they
exist at the end of each day. Interest for each calendar month
on Note A shall be due and payable to Secured Party by Debtors
as of the first day of the next succeeding month, and at Secured
Party's sole option may be debited to Debtors' loan account
ledger for Credit Facility A or debited against any Debtor's
commercial demand account maintained with Secured Party."
4. New Financing. So long as no event of default has occurred and
is continuing, Secured Party agrees to lend Debtors up to an additional
$1,000,000 (in addition to monies available under Credit Facility A),
repayable in accordance with the terms set forth in the Promissory Note
attached hereto. The Debtors' obligations under that note shall
constitute "Obligations" as such term is used in the Loan Agreement and
Secured Party's advances thereunder shall be cross-collateralized and
cross-defaulted with all other Obligations.
5. Security Interests. Each of the Debtors hereby acknowledges
that they have, by virtue of becoming party to the Loan Agreement, granted
Secured Party a security interest in the Collateral and each of them
hereby grants Secured Party a security interest and lien in all of the
Collateral to secure all of the Obligations.
6. Consolidated Net Earnings from Operations. Secured Party hereby
acknowledges that it waived effective August 31, 1997 the failure of the
Debtors to comply with the "Default" levels of Consolidated Adjusted Net
Earnings From Operations through August 31, 1997. EMS shall achieve
Consolidated Adjusted Net Earnings From Operations of at least (or, where
negative, not exceeding) the following amounts for the periods set forth
below:
Consolidated Adjusted
Period Net Earnings from Operations
Month ending September 30, 1997 ($ 725,000)
Two Months ending October 31, 1997 ($1,150,000)
Three Months ending November 30, 1997 $ 125,000
Failure to achieve such levels shall constitute an event of default under
the Loan Agreement.
7. Operating Leases. Section 8(d) of the Loan Agreement is hereby
amended to read in its entirety as follows:
"(d) Operating Leases. Expend or contract to expend in any
fiscal year in the aggregate for all Debtors under all operating
leases more than $500,000."
8. Representations and Warranties. Debtor represents and warrants
that (a) each Debtor's respective chief executive office and the
respective places in which Collateral owned by it is located is as set
forth in Schedule I hereto, (b) the representations and warranties
contained in the Loan Agreement are true and correct in all material
respects as of the date of this Amendment, (c) except as disclosed to
Secured Party in writing, which defaults or events of default have not
been waived by Secured Party (and shall not be waived by the execution
hereof), no condition, act or event which could constitute an event of
default under the Loan Agreement exists, and (d) no condition, event, act
or omission has occurred, which, with the giving of notice or passage of
time, would constitute an event of default under the Loan Agreement.
9. Termination. Section 10 of the Loan Agreement is amended by
deleting "February 28, 1998" appearing therein and inserting "December 31,
1997" in its place.
10. Conditions Precedent. This Amendment shall become effective
September 30, 1997 notwithstanding the date of execution, and every other
provision of this Amendment shall be effective as of the date hereof, but
only after it is fully executed by the Debtors and the Secured Party, and
the Secured Party shall have received from the Debtors, in form
satisfactory to Secured Party, the following:
(a) The Promissory Note in the form attached hereto, duly
executed by an authorized officer of each Debtor.
(b) A $25,000.00 Amendment Fee (which may be debited to
Debtor's loan account for Credit Facility A or debited against
any Debtor's commercial demand account maintained with Secured
Party).
(c) An Officer's Certificate for each Debtor, certified by
an authorized officer of such Debtor.
(d) An Amendment to General Intangibles Mortgage and
Security Agreement.
(e) A Collateral Assignment Agreement, together with the
Assigned Note referenced therein, duly endorsed, accompanied with
proof of corporate authority for EMS Solutions, Inc.
11. Deliveries Subsequent. Within two business days of Secured
Party's request, Debtors agree to execute and deliver such UCC financing
statements as may be necessary to perfect Secured Party's security
interest in all of the jurisdictions noted on Schedule I.
12. Expenses. Debtors agrees to pay all fees and out-of-pocket
disbursements incurred by the Secured Party in connection with this
Amendment, including legal fees incurred by the Secured Party in the
preparation, consummation, administration and enforcement of this
Amendment.
13. Other Terms; Release; Effect. Except as amended by this Tenth
Amendment, the Loan Agreement shall remain in full force and effect in
accordance with its terms. All Collateral Agreements shall remain in full
force and effective and shall continue to secure all of the Obligations.
Each Debtor releases the Secured Party from any and all claims which may
have arisen, known or unknown, in connection with the Loan Agreement on or
prior to the date hereof. This Amendment shall not establish a course of
dealing or be construed as evidence of any willingness on the Secured
Party's part to grant other or future amendments, should any be requested.
14. Joint and Several. All obligations of the Debtors under the
Loan Agreement and this Amendment shall be their joint and several
obligations.
BANK ONE, WISCONSIN EFFECTIVE MANAGEMENT SYSTEMS,
INC.
By: /s/ William E. Shaw By:/s/ Michael D. Dunham
William E. Shaw, Vice President
Title:President
EFFECTIVE MANAGEMENT SYSTEMS
OF MICHIGAN, INC.
By:/s/ Michael D. Dunham
Title:Secretary
EMS-EAST, INC.
By:/s/ Michael D. Dunham
Title:Treasurer
EFFECTIVE MANAGEMENT SYSTEMS
OF ILLINOIS, INC.
By:/s/ Michael D. Dunham
Title:Secretary
EMS ASIA PACIFIC LIMITED
By:/s/ Michael D. Dunham
Title:President
Market Development Program Agreement
Market Development Program Profile
We welcome you as an IBM Business Partner whom we approve as a participant
in our Market Development Program.
By signing below, each of us agrees to the terms of the following
(collectively called the "Agreement"):
(a) this Profile; and
(b) Market Development Program General Terms (Z125-5156-03 4/97).
This Agreement and its applicable Transaction Documents (e.g. the Market
Development Program Supplement) are the complete agreement regarding this
relationship, and replace any prior oral or written communications between
us. Once this Profile is signed, any reproduction of this Agreement made
by reliable means (for example, photocopy or facsimile) is considered an
original.
DETAILS OF OUR RELATIONSHIP
1. Contract-Period Start Date (month/year): 9/97 End Date 12/31/97
The start date is always the first day of a month and may not be
earlier than the month we sign this Profile. The end date is December
31 of the current year.
2. Confidential Information Disclosure:
You may have access to our confidential information. If you have such
access, you must sign the IBM Agreement for Exchange of Confidential
Information (Z125-4322), unless you have already done so.
Agreed to: (IBM Business Partner name) Agreed to: /s/_________________
International Business Machines
Corporation
By /s/___________________________ By /s/______________________
Authorized signature Authorized signature
Name (type or print): Name (type or print):
Date: September 3, 1997 Date: September 3, 1997
IBM Business Partner number: IBM Office address:
IBM Business Partner address: IBM CORP.
1140 Burnet Road
EMS Mailstop 1007
12000 W. Park Place Austin, TX 78758
Milwaukee, WI 53224 ATTN: J. B. Miles
After signing, please return a copy of this Profile to the local "IBM
Office address" shown above.
<PAGE>
Market Development Program Agreement
General Terms
Table of Contents
Section Title Page
1. Definitions 2
2. Agreement Structure 2
3. Authorization 2
4. Mutual Responsibilities 2
5. Our Other Responsibilities 3
6. Your Other Responsibilities 3
7. Demonstration Products 3
8. Fund Processing and Reporting 3
9. Tademarks 4
10. No Property Rights 4
11. Limitation of Liability 4
12. Changes to the Agreement Terms 5
13. Ending the Agreement 5
14. Electronic Communications 5
15. Geographic Scope 5
16. Governing Law 5
<PAGE>
Market Development Program Agreement
General Terms
1. Definitions
Customer is either an end user who acquires a Product from or our
remartketer.
Product is a machine or program
2. Agreement Structure
We specify the details of our relationship (for example, the contract
period) in a document called a "Profile." Each of us agrees to the
terms of the Profile and the Market Development Program Agreement
General Terms (collectively called the "agreement"), by signing the
Profile.
Transaction Documents
We will provide to you the appropriate "Transaction Documents" (such
as a Supplement) that provide the details of a specific relationship
between us. You accept the terms in a Transaction Document by
signing it.
Conflicting Terms
If there is a conflict among the terms in the various documents,
those of the Profile prevail over those of the Market Development
Program Agreement General Terms. The terms of a Transaction Document
prevail over those of all the documents.
3. Authorization
We may authorize you to perform market development activities with a
transaction Document called a "Market Development Program
Supplement." We may only change our Maximum Dollar Amount, as
specified in the Supplement, on three months' written notice.
Otherwise, changes to the Supplement will be made only upon mutual
agreement.
4. Mutual Responsibilities
Each of us agrees that under this Agreement:
1. each of us is an independent contractor and will be
responsible for the direction and compensation of our
respective employees. Each of us is free to have similar
agreements with others and offer products competitive to
those covered by this Agreement. Each of us will
independently set the prices for our own products;
2. each of us will identify coordinators to represent us for
various aspects of this Agreement. Each of us will notify
the other if these coordinators change;
3. all information exchanged is nonconfidential, unless it is
exchanged under a confidentially agreement signed by each
of us. However, you agree not to disclose the existence
of terms of this Agreement;
4. the purpose is to encourage you to promote the fact that
your products operate with our Product. This Agreement
dose not, however, grant either of us the right to use the
other's patents, copyrights, trademarks, trade names,
service marks or other designations, expect as explicitly
stated in this Agreement; and
5. neither of us will bring a legal action more than two
years after the cause of action arose.
Our Other Responsibilities
We will:
1. work with you to develop a market support plan designed to
help you successfully market your products that work in
conjunction with our Products. This may include revenue
forecasts and revenue reporting for your products.
2. at our discretion, participate n marketing activities with
you.
6. Your Other Responsibilities
You agree not to do any of the following:
1. assign this Agreement or your rights under it without our
prior written consent. Any attempt to do so is void;
2. assume or create any obligations on our behalf, or make
any representations or warranties about us or our
Products, other than those we authorize; or
3. conduct your business in a way that adversely affects our
reputation or goodwill (for example, failure to maintain
the highest quality professionalism in all your dealings
with Customers).
You agree to:
1. perform the marketing activities specified in each signed
Supplement. All marketing activities will highlight your
product's performance in conjunction with our Products and
will portray our Products in a positive manner. You will
be responsible for the costs of the marketing activities
to the extent they exceed the amount to be paid by us.
2. use commercially reasonable efforts to optimize the
performance of your products with our Products and ensure
that each new release of your products will operate in
conjunction with our Products.
3. ensure that your personnel can answer basic questions
about our Products and will engage us as required. Upon
request, you will participate with us in demonstrating the
use of your products with our Products.
4. maintain the financial records relevant to this Agreement
for two years and will make those records available to us
upon request.
7. Demonstration Products
We may offer selected Products (called "Demonstration Products"),
and/or their associated upgrades, available to you under special
terms pursuant to your IBM Customer Agreement, in support of your
activities under this Agreement. The license for each program
acquired as a Demonstration Product terminates at the end of this
Agreement, unless you keep the program; if you do so, you may be
required to pay the full license charge. We may limit the
availability of Demonstration Products to you under this relationship
an other IBM relationships.
8. Fund Processing and Reporting
When a Supplement is executed, we will allocate a fixed dollar amount
to be used for approved marketing activities during the year. We
will pay you all amounts specified in the Supplement after receipt of
an acceptable invoice from you. Allocated amounts are not carried
over to subsequent years, so invoices must be dated no later than
November 15 and must be received by us no later than December 1 of
the current year. The allocation of funds by us does not guarantee
that all such funds will be disbursed.
Reconciliation
We reconcile at the end of a contract period. We will deduct amounts
due us from future credits or ask you to pay. You agree to promptly
pay us amounts due.
9. Trademarks
We will notify you in written guidelines of the IBM Business Partner
title and emblem which you are authorized to use. You may not modify
the emblem in any way. You may use our Trademarks (which include the
title and emblem) only:
1. within the geographic scope of this Agreement; and
2. as described in the written guidelines provided to you.
The royalty normally associated with non-exclusive use of the
Trademarks will be waived, since the use of this asset is in
conjunction with marketing activities for Products.
You agree to promptly modify any advertising or promotional materials
that do not comply with our guidelines. If you receive any
complaints about your use of a Trademark, you agree to promptly
notify us. When this Agreement ends, you agree to promptly stop
using our Trademarks. If you do not, you agree to pay any expenses
and fees we incur in getting you to stop. You agree not to register
or use any mark that is confusingly similar to any of our Trademarks.
Our Trademarks, and any goodwill resulting from your use of them,
belong to us.
10. No Property Rights
Your rights under this Agreement are not property rights and cannot
be transferred to anyone else. For example, you may not sell your
right to use our Trademarks.
11. Limitation of Liability
Circumstances may arise where, because of a default or other
liability, one of us is entitled to recover damages from the other.
In each such instance, regardless of the basis on which damages can
be claimed, the following terms apply as your exclusive remedy and
our exclusive liability.
Our Liability
We are responsible only for:
1. bodily injury (including death), ad damage to real property and
tangible personal property, and
2. the amount of any other actual loss or damage, up to $100,000.
This limit also applies to any of our subcontractors and program
developers. It is the maximum for which we are collectively
responsible.
Items for Which we are Not Liable
Under no circumstances are we liable for either of the following:
1. third-party claims against you for losses or damages (other than
those under the first item listed above); or
2. special, incidental, or indirect damages, or for any economic
consequential damages (including lost profits or savings) even if
we are informed of their possibility.
Your Liability
In addition to damages for which you are liable under law and the
terms of this Agreement, you will indemnify us for claims made
against us by others (particularly regarding statement,
representation, or warranties not authorized by us) arising out of
your conduct under this Agreement or as a result of your relations
with anyone else.
12. Changes to the Agreement Terms
In order to maintain flexibility in our relationship, we may change
the terms of this Agreement by giving you one month's written notice.
However, changes are not retroactive. The apply as of the effective
date we specify in the notice.
Otherwise, for a change to be valid; both of us must sign it.
Additional or different terms in any order or written communication
from you are void.
13. Ending the Agreement
This Agreement ends when terminated or when the contract period ends.
When it does, all Supplements under it will also end.
If a Supplement ends, you may submit preapproved, invoiced expenses
prior to the Supplement's end.
If a supplement ends, or is terminated, and funds are due us, you
agree to pay us that amount.
We may offset any amounts due you against amounts due us or any of
our subsidiaries. Any terms of this Agreement which by their nature
extend beyond its end, remain in effect until fulfilled, and apply to
respective successors and assignees.
Termination
You may terminate this Agreement or a Supplement, with or without
cause, on one month's written notice.
We may terminate this Agreement or a Supplement, with or without
cause, on three months' written notice. If the termination is for
cause, we may (at our discretion) allow you a reasonable opportunity
to cure. If you fail to do so, the date of termination is that
specified in the notice. If we terminate for cause, you will not
receive any additional advances or reimbursements from the Fund.
Certain acts or omissions are so serious as to warrant immediate
termination. If you repudiate this Agreement, materially breach any
of its terms or make any material misrepresentation to us, we may
terminated this Agreement or a Supplement at any time, on written
notice. In such event, you will not receive any additional advances
or reimbursements from the Fund.
An example of a material breach is you violation of our trademark
terms. You agree that our only obligation is to provide the notice
called for in this section and we are not liable for any claims or
losses if we do so.
14. Electronic Communications
Each of us may communicate with the other by electronic means, and
such communication is acceptable as a signed writing to the extent
permissible under applicable law. Both of us agree that for all
electronic communications, an identification code (called a "user
ID") contained in an electronic document is legally sufficient to
verify the sender's identity and the document's authenticity.
15. Geographic Scope
All your rights and all our obligations are valid only in the United
States and Puerto Rico.
16. Governing Law
The laws of the State of New York govern this Agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF EFFECTIVE MANAGEMENT SYSTEMS, INC. AS
OF AND FOR THE NINE MONTHS ENDED AUGUST 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<CHANGES> 0
<NET-INCOME> (1,857)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not required to be calculated in accordance with generally accepted
accounting principles.
</FN>
</TABLE>