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
MAY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________TO ____________
Commission file number 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 Identification No.)
incorporation or organization)
12000 West Park Place, Milwaukee, WI 53224
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (414) 359-9800
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 May 31, 1998
Common Stock, $.01 par value 4,082,955
<PAGE>
EFFECTIVE MANAGEMENT SYSTEMS, INC.
Form 10-Q
May 31, 1998
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets at
May 31, 1998 and November 30, 1997 3
Consolidated Statements of Operations Three and Six
Months Ended May 31, 1998 and May 31, 1997 5
Consolidated Statements of Cash Flows - Six 6
Months Ended May 31, 1998 and May 31, 1997
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk 17
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 6 Exhibits and Reports on Form 8-K 18
SIGNATURES 20
<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, 1997
amounts)
ASSETS 31-May 30-Nov
1998 1997
CURRENT ASSETS
Cash $231 $14
Accounts Receivable:
Trade, less allowance for
doubtful accounts 9,110 12,370
Related Parties 1,012 604
Inventories 266 280
Refundable Income Taxes 312 312
Deferred Income Taxes 0 0
Prepaid Expenses and Other
Current Assets 349 146
------- -------
TOTAL CURRENT ASSETS 11,280 13,726
LONG TERM ASSETS
Computer Software, net 3,566 7,717
Investments in and Advances to
Unconsolidated Joint Ventures 182 182
Equipment and Leasehold
Improvements, net 3,478 3,917
Intangible Assets, net 2,327 2,444
Other Assets 795 811
-------- --------
TOTAL LONG TERM ASSETS 10,348 15,071
-------- --------
TOTAL ASSETS $21,628 $28,797
======== ========
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, 1997
amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY 31-May 30-Nov
1998 1997
CURRENT LIABILITIES
Accounts Payable $1,949 $2,272
Accrued Liabilities 2,373 2,773
Deferred Revenues 5,775 5,887
Customer Deposits 538 63
Current portion of
Long-term Obligations 976 946
-------- --------
TOTAL CURRENT LIABILITIES 11,611 11,941
LONG TERM LIABILITIES
Deferred Revenue and Other
Long-term Liabilities 1,113 317
Long-term Obligations 5,219 3,966
Deferred Income Taxes 0 0
------- --------
TOTAL LONG TERM LIABILITIES 6,332 4,283
Commitments and Contingencies 0 0
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value; authorized
3,000,000 shares; none issued or outstanding 0 0
Common Stock, $.01 par value; authorized
20,000,000 shares; issued 4,082,955 and 4,067,310
shares; outstanding 4,070,330 and 4,054,685 shares 41 41
Common Stock Warrants 4 4
Additional Paid- in Capital 11,369 11,328
Retained Earnings (Deficit) (7,669) 1,260
Cost of Common Stock in Treasury(12,625 shares) (60) (60)
------- -------
TOTAL STOCKHOLDERS' EQUITY 3,685 12,573
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $21,628 $28,797
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data) (unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
31-May 31-May 31-May 31-May
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET REVENUES:
Software license fees $4,372 $5,317 $9,707 $9,528
Services 4,532 4,020 8,771 8,266
Hardware 444 1,045 1,116 2,063
------- ------- ------- -------
Total net revenues 9,348 10,382 19,594 19,857
COST OF PRODUCTS AND SERVICES
Software license fees 1,381 1,485 3,104 2,662
Services 3,374 3,496 6,594 7,197
Hardware 353 724 880 1,606
------- ------- ------- -------
Total cost of products
and services 5,108 5,705 10,578 11,465
Selling and marketing expenses 3,401 3,463 7,026 6,844
General and administrative
expenses 1,019 1,297 2,213 2,362
Product development expenses 684 492 1,521 1,196
Restructuring and Other Charges 6,836 0 6,836 0
------- ------- ------- -------
Total costs and operating
expenses 17,048 10,957 28,174 21,867
------- ------- ------- -------
LOSS FROM OPERATIONS (7,700) (575) (8,580) (2,010)
Other (Income)/ Expense
Equity in (earnings)/loss of
unconsolidated joint ventures (1) (4) (1) (2)
Interest (income) (10) (13) (20) (28)
Interest expense 184 92 337 167
------- ------- ------ -------
173 75 316 137
------- ------- ------ -------
LOSS BEFORE INCOME TAXES (7,873) (650) (8,896) (2,147)
Income tax (benefit) expense 0 (269) 33 (883)
------- ------- ------ -------
NET LOSS ($7,873) ($381) ($8,929) ($1,264)
======= ======= ====== =======
Loss per share - basic and diluted ($1.93) ($0.09) ($2.19) ($0.31)
======= ======= ====== =======
</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)
SIX MONTHS ENDED
31-May 31-May
1998 1997
OPERATING ACTIVITIES
Net Loss ($8,929) ($1,264)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 693 570
Amortization of capitalized computer
software development costs 1891 1348
Equity in earnings of joint
ventures 0 0
Goodwill Amortization 117 113
Deferred income taxes 0 0
Restructuring and Other Charges 6836
Changes in operating assets and
liabilities:
Accounts Receivable 2251 1112
Inventories and other current assets (560) (661)
Accounts payable and other liabilities (1,106) (1,792)
------ ------
Total adjustments 10,122 690
------ ------
Net cash provided by(used in) in
operating activities 1193 (574)
INVESTING ACTIVITIES
Additions to equipment and leasehold
improvements (254) (870)
Proceeds from sale of securities - 504
Software development costs
capitalized (2,063) (2,162)
Other 17 (23)
------- -------
Net cash (used in) investing
activities (2,300) (2,551)
FINANCING ACTIVITIES
Proceeds on long-term debt and
other notes payable 1,283 2,455
Proceeds from sale of stock 41 82
------ -------
Net cash provided by financing
activities 1324 2537
------ -------
Net increase(decrease) in cash $217 ($588)
Cash-beginning of period $14 $866
====== ======
Cash-end of period $231 $278
====== ======
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
EFFECTIVE MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1998
(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 six month periods ended May 31, 1998 and May 31, 1997 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 six months
ended May 31, 1998 are not necessarily indicative of the results of
operations to be expected for the entire fiscal year ending November 30,
1998. It is suggested that the interim financial statements be read in
conjunction with the audited consolidated financial statements for the
year ended November 30, 1997 included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
Note 2 - Additional Financial Disclosure
Equipment and leasehold improvements consisted of the following:
31-May-1998 30-Nov-1997
Gross $9,526 $9,359
Less: Accumulated Depreciation (6,048) (5,442)
------ ------
Net $3,478 $3,917
Allowance for doubtful accounts consisted of the following:
31-May-1998 30-Nov-1997
Balance $ 484 $ 462
Provision for doubtful accounts consisted of the following:
31-May-1998 30-Nov-1997
$ 26 $ 17
Note 3 - Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options and warrants. Earnings per share amounts for
all periods have been presented and, where appropriate, restated to
conform to SFAS No. 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share.
Three Months Ended
May 31,
1998 1997
Denominator
Denominator for basic
earnings per share -
weighted average common
shares 4,080 4,041
Effect of dilutive securities
- stock options
and warrants 0 0
------ ------
Denominator for diluted
earnings per share -
adjusted weighted average
common shares 4,080 4,041
====== ======
Six Months Ended
May 31,
1998 1997
Denominator
Denominator for basic
earnings per share -
weighted average common
shares 4,077 4,031
Effect of dilutive
securities - stock options
and warrants 0 0
------ ------
Denominator for diluted
earnings per share -
adjusted weighted average
common shares 4,077 4,031
====== ======
Note 4 - Restructuring and Other Charges
In the second quarter of fiscal 1998, the Company recorded a
restructuring charge aggregating $6,836 related to entering into a
distribution arrangement with the Baan Company and cost reductions
aimed at improving the Company's financial performance. The components
of the restructuring charge are described below.
The restructuring charge includes $553 relating to the closing of
operations in the West and Southwest regions of the United States and
$1,213 for the exit costs and software write-off related to international
operations. The Company established a relationship with former employees
who purchased 80% of EMS Asia Pacific, Inc., a former wholly owned
subsidiary of the Company, to handle future Asian international
operations. The Company is a 20% partner in the venture, but has no
ongoing responsibilities to fund any future operations. EMS-Asia Pacific,
Inc. is responsible for future support, translation efforts and other
activities supporting the Asian marketplace. In return for these efforts,
the Company will transfer all accounts receivable, fixed assets, and cash
to EMS-Asia Pacific, Inc.
In addition, the charge includes $2,656 for both the write-off of
capitalized software pertaining to the large company market, which
software the Company now obtains through its relationship with Baan, and
the write-off of other software whose future value was impaired by
restructuring actions. The charge also reflects costs of $1,841
associated with the write-off of capitalized software mainly related to
technology, the future value of which was impaired by restructuring
actions and management's assumptions regarding future technological
changes.
As part of the restructuring, the Company also reduced certain of its
operating expenses primarily in development, marketing, and administration
though the termination of employees and other expense reductions resulting
in a charge of $573. Approximately $6,402 of the total charge will not
result in future cash expenditures , and the Company expects that all
material restructuring actions will be completed by the end of the third
quarter of fiscal 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company recorded a decrease of 10.0% in net revenues and a net loss of
$7,873,000 for the second quarter of fiscal 1998 compared with a net loss
of $381,000 for the second quarter of fiscal 1997. The second quarter of
fiscal 1998 does not reflect a tax benefit relating to the loss since
because the Company is in a loss carryforward position for financial
reporting purposes. On April 13, 1998, the Company announced a major
restructuring plan in which the Company established a distribution
relationship with the Baan Company (a software developer with over $800
million in revenues) and took steps to reduce expenses to improve the
Company's financial performance (see Restructuring and Other Charges
below). The Baan distribution relationship is intended to enhance the
Company's ability to market its manufacturing execution systems (MES) to
larger size prospects. The Company intends to continue selling its
TCM/MES product line to small to medium sized manufacturers. On May 29,
1998, the Company announced an agreement with former employees to sell a
majority position in the Company's Asian distribution subsidiary. The
former employees have assumed operational control of the venture and will
handle ongoing responsibilities for future support, translation and other
efforts.
Before the restructuring charges, the Company recorded a loss from
operations of $864,000 for the second quarter of fiscal 1998 compared with
a loss from operations of $575,000 for the second quarter of fiscal 1997.
Software revenues were down 17.8% in the second quarter of fiscal 1998
compared to the same period in the prior year. Management believes this
decrease in software revenues was mainly the result of the attention
focused on the restructuring, including the Company's decision to withdraw
from certain geographic markets. The Company expects the restructuring to
be substantially completed during the third fiscal quarter of 1998. The
aggregate savings in operating expenses attributable to the restructuring
are estimated to be $1,400,000 per quarter, although not all of such
savings will be immediately recognizable and such savings may be offset, in
part, by other changes in the Company's operations. The results of the
second quarter of 1998 do not reflect the savings in operating expenses
for the entire period, since the restructuring efforts began on April 13,
1998. The Company recorded a decrease in net revenues of 1.3% and a net
loss of $8,929,000 for the first half of fiscal 1998 compared with a net
loss of $1,264,000 for the first half of fiscal 1997.
Although the goal of the restructuring is to return the Company to
profitability, no assurance can be given that these various measures will
actually result in the achievement of this goal. The Company's long term
success is also dependent on its ability to attract and retain a highly
qualified sales, development and service staff. The Company has recently
experienced attrition at rates higher than its historical experience. The
Company has taken steps to curtail the attrition, but no assurance can be
given that these steps will be successful or that further attrition will
not materially impact the Company's financial performance.
Results of Operations
Total Revenues
Net revenues were $9,348,000 for the three months ended May 31, 1998,
which was a decrease of 10.1% from the $10,382,000 for the same quarter in
the previous year. Net revenues were $19,594,000 for the six months ended
May 31, 1998, which was a decrease of 1.3% from the $19,857,000 for the
same period in the previous year. The overall decrease in revenues for the
three months ended May 31, 1998 was attributable primarily to the
attention and efforts spent planning and executing the restructuring plan.
The mix of revenues comparing software, services and hardware revenues as
a percentage of net revenues was 46.8%, 48.5%, and 4.7%, respectively, in
the second quarter of fiscal 1998, as compared with 51.2%, 38.7%, and
10.1%, respectively, in the second quarter of fiscal 1997. The mix of
revenues comparing software, services and hardware revenues as a
percentage of net revenues was 49.5%, 44.8%, and 5.7%, respectively, in
the first half of fiscal 1998, as compared with 48.0%, 41.6%, and 10.4%,
respectively, in the first half of fiscal 1997. 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 software orders and
market acceptance of new products. The Company has historically operated
with little software backlog because software orders are generally shipped
as orders are received. As a result, product revenue in any quarter is
substantially dependent on software 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 decreased 17.8% to
$4,372,000 in the second quarter of fiscal 1998 from $5,317,000 in the
second quarter of fiscal 1997. The decrease in software license fees was
mainly attributable to the attention and efforts spent in the
restructuring process. In addition, certain sales personnel have begun
training in the Baan products now offered by the Company, which, in turn,
has caused sales productivity to decrease. Management expects that this
decrease in productivity will continue during the next two fiscal quarters
and thereafter productivity is expected to increase. Software license
fees increased 1.9% to $9,707,000 in the first half of fiscal 1998 from
$9,528,000 in the first half of fiscal 1997. The increase was
attributable to increasing revenues from the Company's TCM products.
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 to
$4,532,000 for the three months ended May 31, 1998, as compared with
$4,020,000 for the same period of the prior year. Service revenues
increased to $8,771,000 for the six months ended May 31, 1998, as
compared with $8,266,000 for the same period of the prior year. The
Company has generated a growing backlog of service work, particularly in
the Central region of the United States, and has increased recruiting
efforts to hire additional service personnel.
Hardware Revenues
Hardware revenues decreased 57.5% to $444,000 in the second quarter of
fiscal 1998 compared with $1,045,000 for the corresponding period of 1997.
Hardware revenues decreased 45.9% to $1,116,000 in the first half of
fiscal 1998 compared with $2,063,000 for the corresponding period of 1997.
The decrease was mainly due to increased sales of software on platforms
for which the Company does not supply hardware and the discontinuation of
hardware sales to an affiliate of the Company, EMS Solutions, Inc. (a
decrease of $66,000 and $241,000 from the second quarter and first half of
1997, respectively)(See General and Administrative Expense below).
Management expects the trend of declining hardware sales to continue due
to the increasing sales of software licenses operating on the Microsoft
Windows NT platform. Hardware used with the Microsoft Windows NT platform
is either generally already in place at the customer site 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
31.6% for the second quarter of fiscal 1998, an increase from 27.9% for
the corresponding period of 1997. The cost of software license fees as a
percentage of related revenue was 32.0% for the first half of fiscal 1998,
an increase from 27.9% for the corresponding period of 1997. 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. Software amortization accounted for an increase of
2.1% in the cost of software license fees as a percentage of software
license fee revenues for the second quarter of fiscal 1998 as compared to
the second quarter of fiscal 1997. Software amortization accounted for an
increase of 2.5% in the cost of software license fees as a percentage of
software license fee revenues for the first half of fiscal 1998 as
compared to the first half of fiscal 1997. The Company wrote off a
substantial portion of its past investment in software development in
conjunction with its restructuring efforts. (See Restructuring and Other
Charges below). Software amortization will decrease in future fiscal
quarters as a result of the amounts written off of previously capitalized
development costs in the restructuring. The cost of software license fees
is also dependent on the level of third party costs associated with
certain software revenues and includes 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 decreased to 74.5%
for the three months ended May 31, 1998 as compared with 87.0% for the
same quarter in the previous year. The cost of services as a percentage of
related revenue decreased to 75.2% for the six months ended May 31, 1998
as compared with 87.1% for the same period in the previous year. The
decrease was mainly due to increased levels of customer billing generated
by existing personnel. The Company has experienced increased levels of
service business from its customer base and a reduction in employees
through attrition. The current backlog has grown to the point where the
Company has begun efforts to hire additional service personnel.
Management expects the cost of services as a percentage of related revenue
to increase slightly with the additional training costs associated with
the hiring of new personnel. The Company has also refocused its service
staff to reduce the level of non-billable projects and increase the level
of billable customer work. The Company has also taken further steps to
reduce the level of customer warranty work by enhancing the quality of its
software through improved internal processes.
Cost of Hardware
The cost of hardware as a percentage of related revenue increased to 79.5%
in the second quarter of fiscal 1998 from 69.3% in the second quarter of
fiscal 1997. The cost of hardware as a percentage of related revenue
increased to 78.9% in the first half of fiscal 1998 from 77.8% in the
first half of fiscal 1997. The cost of hardware as a percentage of
related revenue varies with the size of the system, the margin mix of
items comprising the system being sold, and the competitive pressure of
the customer sale. The cost of hardware as a percentage of related
revenue also varies with the amount of low margin hardware sales to
affiliates. Hardware sales to affiliates declined by $61,000 in the
second quarter of fiscal 1998 compared to the second quarter of fiscal
1997 and declined by $226,000 in the first half of fiscal 1998 compared to
the first half of fiscal 1997.
Selling and Marketing Expenses
Selling and marketing expenses decreased $62,000, or 1.8%, from $3,463,000
in the second quarter of fiscal 1997 to $3,401,000 in the second quarter
of fiscal 1998. This decrease was mainly due to reduction in staffing in
the marketing area as a result of the restructuring (See Restructuring
Charges below). Selling and marketing expenses increased $182,000, or
2.7%, from $6,844,000 in the first half of fiscal 1997 to $7,026,000 in
the first half of fiscal 1998. This increase in selling and marketing
expenses was mainly due to increased levels of compensation related to the
corresponding growth in software revenues.
General and Administrative Expenses
General and administrative expenses decreased $278,000, or 21.4%, from
$1,297,000 in the second quarter of fiscal 1997 to $1,019,000 in the
second quarter of fiscal 1998. General and administrative expenses
decreased $149,000, or 6.7%, from $2,362,000 in the first half of fiscal
1997 to $2,213,000 in the first half of fiscal 1998. The decrease in
general and administrative expenses was mainly due to a reduction of
expense related to the restructuring. (See Restructuring and Other Charges
below). As a percentage of net revenues, general and administrative
expenses were 10.9% and 12.5% in the second quarter of fiscal 1998 and
1997, respectively. As a percentage of net revenues, general and
administrative expenses were 11.3% and 11.9% in the first half of fiscal
1998 and 1997, respectively. During the third quarter of fiscal 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 relationship with the Company.
Product Development Expense
Product development expense increased 39.0% from $492,000 in the second
quarter of fiscal 1997 to $684,000 in the second quarter of fiscal 1998.
Product development expense increased 27.2% from $1,196,000 in the first
half of fiscal 1997 to $1,521,000 in the first half of fiscal 1998. The
Company capitalizes costs in accordance with Statement of Financial
Accounting Standard (SFAS) No. 86. The Company capitalized $979,000 of
product development costs in the second quarter of fiscal 1998 compared to
$1,224,000 in the second quarter of fiscal 1997. The Company capitalized
$1,987,000 of product development costs in the first half of fiscal 1998
compared to $2,162,000 in the first half of fiscal 1997. With the
completion of two major development projects and with the cessation of
development of software products for large customers which software is now
supplied through the relationship with Baan, the Company has reduced the
level of investment in product development. (See Restructuring Charges
below).
Restructuring and Other Charges
In the second quarter of fiscal 1998, the Company recorded a restructuring
charge of $6,836,000 related to entering into a new distributor
arrangement for manufacturing software, and a reduction of costs
focused on improving the Company's financial performance. On April 10,
1998, the Company signed an agreement to resell the manufacturing software
of the Baan Company, a developer of software for the manufacturing
industry. The Company intends to combine its manufacturing execution
software (MES) with the Baan software product to serve the high end of the
manufacturing mid-market. The Company has the right to represent the Baan
product in the entire United States, but will focus its offering in a 19-
state market including much of the Midwest and Eastern regions of the
United States. The components of the charges are described below.
The restructuring charge includes $553,000 relating to the refocusing of
the Company's geographic markets and the closing of operations in the West
and Southwest regions of the United States. From a geographic standpoint,
the charge also includes $1,213,000 for exit costs and software write-off
related to international operations. The Company established a
relationship with former employees who purchased 80% of EMS Asia Pacific,
Inc., a former wholly owned subsidiary of the Company, to handle future
Asian international operations. The Company is a 20% partner in the
venture, but has no ongoing responsibilities to fund any future
operations. EMS-Asia Pacific, Inc. is responsible for future support,
translation efforts and other activities supporting the Asian marketplace.
In return, the Company will transfer all accounts receivable, fixed
assets, and cash to EMS-Asia Pacific, Inc.
In line with the introduction of the new product for the high end of the
mid-market, the Company is refocusing its current TCM product to the lower
end of the mid-market and will continue to develop and support the product
for this marketplace. The Company also intends to provide a path to the
Baan product offering for those customers who are or may grow into the
need for a larger company solution. The charge includes $2,656,000 for
both the write-off of capitalized software pertaining to large company
functionality which will now be supplied through the Baan product offering
and the write-off of other software whose future value was impaired by
restructuring actions. The charge also reflects costs of $1,841,000
associated with the write-off of capitalized software mainly related to
technology, the future value of which was impaired by restructuring
actions and management's assumptions regarding future technological
changes.
The Company also reduced certain of its operating expenses primarily in
development, marketing, and administration though the termination of
employees and other expense reductions resulting in a charge of $573,000.
Management expects the level of remaining personnel to be sufficient in
these areas for the short term to provide positive results within the
Company's new strategy and positive results for all new and established
customers. The aggregate savings in operating expenses attributable to
the restructuring are estimated to be $1,400,000 per quarter, although not
all of such savings will be immediately recognizable and such savings may
be offset, in part, by other changes in the Company's operations.
Approximately $6,402,000 of the total charge will not result in
future cash expenditures, and the Company expects that all material
restructuring actions will be completed by the end of the third quarter of
fiscal 1998.
Other Income\Expense-Net
Other income\expense-net was $173,000 of expense for the second quarter of
fiscal 1997 compared to $75,000 of expense for the second quarter of
fiscal 1998. Other income\expense-net was $137,000 of expense for the
first half of fiscal 1997 compared to $316,000 of expense for the first
half of fiscal 1998. The increase in the level of expense was mainly the
result of an increase in interest expense as a result of increased
borrowings under the Company's borrowing facility.
Income Tax
No income tax benefit was recorded for the second quarter of fiscal 1998
compared to a benefit of $269,000 for the second quarter of fiscal 1997. A
small tax expense of $33,000 (for state and local taxes) and no income tax
benefit was recorded for the first half of fiscal 1998 compared to a
benefit of $883,000 for the first half of fiscal 1997. At May 31, 1998,
the Company, for financial reporting purposes, is in a tax loss
carryforward position. Generally accepted accounting principles prohibit
the Company from recording a tax benefit under these circumstances.
Liquidity and Capital Resources
At May 31, 1998, the Company had cash and marketable securities
aggregating $231,000. During the first half of fiscal 1998, the Company's
operating activities provided $1,117,000 of cash compared to using
$574,000 of cash for the same period of the prior year. This decrease in
the use of cash was mainly attributable to the Company's reduction in
accounts receivable, and an increase in non-cash charges to operating
income.
Investing activities used cash of $2,300,000 in the first half of fiscal
1998 compared to using $2,551,000 of cash in the first half of fiscal
1997. The principal use of the cash in the first half of fiscal 1998
was $2,063,000 for capitalized product development. The principal uses of
cash in the first half of fiscal 1997 included $2,162,000 for capitalized
product development and $870,000 for purchases of equipment and furniture.
Financing activities provided $1,324,000 of cash in the first half of
fiscal 1998 compared with providing $2,537,000 of cash in the first half
of fiscal 1997. The cash provided in fiscal 1998 mainly reflected
borrowings under the Company's borrowing facility. As of May 31, 1998,
the Company, based on the level of of eligible accounts receivables, had
$1,930,000 of availability under its $6,000,000 line of credit. On May 8,
1998, the Company amended its agreement with Foothill Capital Corporation
to allow an additional availability amount up to $750,000 beyond the
current arrangement through August 31, 1998. The availability of
$1,930,000 under the line of credit facility at May 31, 1998 includes the
$750,000 from the amended agreement. As of July 10, 1998, the Company had
$397,000 of availability under its line of credit.
The Company's credit agreement with Foothill Capital Corporation contains
certain restrictive covenants relating to income (EBITDA), tangible net
worth, and level of capital expenditures. On May 8, 1998 and July 9,
1998, the Company obtained waivers from the lender as a result of its
failure to meet the tangible net worth and EBITDA covenants. In order to
meet covenants in the future, the Company will need positive operational
results in the short term. In the event that the Company's performance
does not improve in the short term, the Company will need to secure
additional waivers and/or alternative sources of financing. The Company is
reviewing alternative sources of financing to deal with its current
financial status. Although management believes that waivers and/or
additional financing can be obtained, if needed, no assurance can be given
that waivers or such additional financing will be available to the Company
on acceptable terms. In the event that the Company is unable to secure
necessary waivers or additional financing, it would likely have a material
adverse effect on the Company's liquidity, including its ability to fund
continuing operations at current levels.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995
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.
STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q THAT ARE NOT OF
A HISTORICAL NATURE ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD LOOKING
STATEMENTS 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 FOR THE COMPANY'S AND
THIRD PARTY SUPPLIED PRODUCTS; THE COMPANY'S ABILITY TO SUCCESSFULLY
IMPLEMENT ITS RESTRUCTURING PLAN; THE COMPANY'S ABILITY TO SUCCESSFULLY
TRANSITION TO THE BAAN PRODUCT OFFERINGS; 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 SUCCESS IN IMPROVING ITS
FINANCIAL PERFORMANCE; TO THE EXTENT NECESSARY, THE COMPANY'S ABILITY TO
SECURE AMENDMENTS, WAIVERS AND/OR REFINANCING OR EXTENSION OF ITS 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.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not Applicable
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders held on April 30,
1998, Helmut Adam and Michael D. Dunham were elected as directors of the
Company for terms expiring at the annual meeting in 2001. The following
table sets forth certain information with respect to the election of
Messrs. Adam and Dunham as directors at the annual meeting:
Name of Nominee Shares Voted For Shares Withholding Authority
Helmut M. Adam 3,608,353 16,732
Michael D. Dunham 3,608,353 16,732
The following table sets forth the other directors of the Company
whose terms continued after the 1998 annual meeting:
Name of Director Term Expires
Scott J. Mermel 1999
Robert E. Weisenberg 1999
Thomas M. Dykstra 2000
At the annual meeting, shareholders also approved the Effective Management
Systems, Inc. 1998 Employee Stock Purchase Plan (the "1998 Plan") and the
Effective Management Systems, Inc. 1993 Stock Option Plan, as amended (the
"1993 Plan"). The votes For and Against and Abstentions with respect to the
1998 Plan were 2,417,225, 22,301, and 19,928, respectively, and the broker
non-votes totaled 1,165,631. The votes For and Against and Abstentions
with respect to the 1993 Plan were 2,381,757, 53,879, and 23,818,
respectively, and the broker non-votes totaled 1,165,631.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Waiver and First Amendment to Loan Agreement between Foothill
Capital Corporation and Effective Management Systems, Inc., EMS-
East, Inc., and Effective Management Systems of Illinois, Inc.,
dated May 8, 1998.
4.2 Waiver to Loan Agreement between Foothill Capital Corporation
and Effective Management Systems, Inc., EMS-East, Inc., and
Effective Management Systems of Illinois, Inc., dated July 9,
1998.
10.1 Reseller Agreement and Addendum Number One by and between Baan
Midmarket Solutions, LLC and Effective Management Systems, Inc.,
dated April 10, 1998.
10.2 Distribution Agreement between EMS Asia Pacific Limited and
Effective Management Systems, Inc. dated May 29, 1998
10.3 Effective Management Systems, Inc. 1993 Stock Option Plan, as
amended
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.
July 14, 1998 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
Number
4.1 Waiver and First Amendment to Loan Agreement between Foothill
Capital Corporation and Effective Management Systems, Inc., EMS-
East, Inc., and Effective Management Systems of Illinois, Inc.,
dated May 8, 1998.
4.2 Waiver to Loan Agreement between Foothill Capital Corporation and
Effective Management Systems, Inc., EMS-East, Inc., and Effective
Management Systems of Illinois, Inc., dated July 9, 1998.
10.1 Reseller Agreement and Addendum Number One by and between Baan
Midmarket Solutions, LLC and Effective Management Systems, Inc.,
dated April 10, 1998.
10.2 Distribution Agreement between EMS Asia Pacific Limited and
Effective Management Systems, Inc. dated May 29, 1998
10.3 Effective Management Systems, Inc. 1993 Stock Option Plan, as
amended
27 Financial Data Schedule [EDGAR version only]
WAIVER AND FIRST AMENDMENT TO
LOAN AGREEMENT
THIS WAIVER AND FIRST AMENDMENT (this "Amendment") is entered into as
of May 8, 1998, among Effective Management Systems, Inc. ("EMS"), a
Wisconsin corporation, EMS-East, Inc. ("EMS-East"), a Massachusetts
corporation, Effective Management Systems of Illinois, Inc. ("EMS-
Illinois"), an Illinois corporation (EMS, EMS-East and EMS-Illinois are
each individually a "Borrower", and collectively "Borrowers"), and
Foothill Capital Corporation ("Lender").
WHEREAS, Borrowers and Lender are parties to a Loan and Security
Agreement dated as of December 30, 1997 (the "Loan Agreement");
WHEREAS, Borrowers have executed a Secured Promissory Note dated
December 30, 1997 (the "Note");
WHEREAS, Borrowers have requested that Lender consent to the deferral
of the two installment payments of principal due on May 10, 1998 and June
10, 1998 under the Note until the third anniversary of the Closing Date
(as defined in the Loan Agreement); and
WHEREAS, Borrowers have requested that Lender amend the Loan
Agreement, and Lender has agreed to do so subject to the terms and
conditions contained herein;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the
Loan Agreement.
2. Consent. Subject to the satisfaction of the conditions set
forth in Section 5 hereof, Lender hereby consents to the deferral of the
two installment payments of principal due on May 10, 1998 and June 10,
1998 under the Note until the third anniversary of the Closing Date.
3. Amendments to Loan Agreement. Subject to the satisfaction of
the conditions set forth in Section 5 hereof, the Loan Agreement is
amended as follows:
(a) Section 2.1(a) of the Loan Agreement if hereby amended and
restated in its entirety, as follows:
"(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to make advances ("Advances") to Borrowers in an amount outstanding
not to exceed at any one time the lesser of (i) the Maximum Revolving
Amount less the outstanding balance of all undrawn or unreimbursed Letters
of Credit, or (ii) the Borrowing Base less (A) the aggregate amount of all
undrawn or unreimbursed Letters of Credit. For purposes of this
Agreement, "Borrowing Base", as of any date of determination, shall mean
the result of:
(x) the lesser of (i) 80% of Eligible Accounts of Borrowers,
less the amount, if any, of the Dilution Reserve, and (ii) and amount
equal to Borrowers' Collections with respect to Accounts of Borrowers
for the immediately preceding 100 day period (provided, that such
period may be adjusted for seasonality in Foothill's reasonable
credit judgement), minus
(y) the aggregate amount of reserves, if any, established by
Foothill under Section 2.1(b), plus.
(z) the "Additional Availability Amount" (as defined below).
The "Additional Availability Amount" means (i) during the period
commencing on May 8, 1998 and ending on August 31, 1998 (the
"Additional Availability Termination Date"), an amount up to $750,000
as designated in writing by EMS to Foothill, provided that such
designation shall be in increments of $250,000 and (ii) at all times
on and after the Additional Availability Termination Date, an amount
equal to zero."
(b) Section 2.11 of the Loan Agreement is hereby amended to add the
following sentence at the end of said section, as follows:
"(e) Additional Availability Fees. At the time EMS designates an
Additional Availability Amount, a fee of $2,500 per $250,000 so
designated."
4. Ratification. This Amendment, subject to satisfaction of the
conditions provided below, shall constitute amendments to the Loan
Agreement and all of the Loan Documents as appropriate to express the
agreements contained herein. In all other respects, the Loan Agreement
and the Loan Documents shall remain unchanged and in full force and effect
in accordance with their original terms. Without limiting the foregoing,
Borrower acknowledges that Eligible Accounts do not include Accounts with
respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold (unless the Account Debtor with
respect to such bill and hold goods has unconditionally agreed in writing
to purchase such goods), or other terms by reason of which the payment by
the Account Debtor may be conditional.
5. Conditions to Effectiveness. Subject to Section 6 below, the
amendments to the Loan Agreement set forth in this Amendment shall become
effective as of the date of this Amendment and upon the satisfaction of
the following conditions precedent in form and substance satisfactory to
Lender:
(a) Deferral Fee. Borrower shall pay to Lender a deferral fee equal
to Two Thousand Five Hundred Dollars ($2,500)
(b) No Default. No Event of Default or event which, with the giving
of notice or the passage of time, or both would become an Event of
Default, shall have occurred and be continuing, and, after giving effect
to the amendments contained herein, no Event of Default or event which,
with the giving of notice or the passage of time, or both, would become an
Event of Default, shall have occurred and be continuing.
6. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce Lender
to enter into this Amendment, each Borrower hereby warrants to Lender, as
of the date hereof, that:
(i) The warranties of such Borrower contained in the Loan
Agreement, as herein amended, are true and correct as of the date
hereof as if made on the date hereof.
(ii) All information, reports and other papers and data
heretofore furnished to Lender by such Borrower in connection with
this Amendment, the Loan Agreement and the other Loan Documents are
accurate and correct in all material respects and complete insofar as
may be necessary to give Lender true and accurate knowledge of the
subject matter thereof. Such Borrower has disclosed to Lender every
fact of which it is aware which would reasonably be expected to
materially and adversely affect the business, operations or financial
condition of such Borrower or the ability of such Borrower to perform
its obligations under this Amendment, the Loan Agreement or under any
of the other Loan Documents. None of the information furnished to
Lender by or on behalf of such Borrower contained any material
misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained herein or therein not
materially misleading.
(iii) No Event of Default or event which, with giving of
notice or the passage of time, or both would become an Event of
Default, exists as of the date hereof.
(b) Expenses. Borrowers agree to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation,
execution, delivery and administration of the Amendment and all other
instruments or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith. In addition, Borrowers
agree to pay, and save Lender harmless from all liability for, any stamp
or other taxes which may be payable in connection with the execution or
delivery of this Amendment or the Loan Agreement, as amended hereby, and
the execution and delivery of any instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection
herewith. All obligations provided in this Section 6 (b) shall survive
any termination of this Amendment and the Loan Agreement as amended
hereby.
(c) Governing Law. This Amendment shall be a contract made under
and governed by the internal laws of the State of California.
(d) Counterparts. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered,
shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Amendment.
(e) Reference to Loan Agreement. On and after the effectiveness of
the amendment to the Loan Agreement accomplished hereby, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or
words of like import, and each reference to the Loan Agreement in any Loan
Documents, or other agreements, documents or other instruments executed
and delivered pursuant to the Loan Agreement, shall mean and be a
reference tot he Loan Agreement, as amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrowers,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrowers, Lender and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized and
delivered as of the date first above written.
EFFECTIVE MANAGEMENT SYSTEMS, INC.,
a Wisconsin corporation
By
Its President
EMS-EAST, Inc., a Massachusetts
corporation
By
Its Secretary
EFFECTIVE MANAGEMENT SYSTEMS OF
ILLINOIS, an Illinois corporation
By
Its Secretary
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
Its Vice President
WAIVER
THIS WAIVER (this "Waiver") is entered into as of July 9, 1998,
between Effective Management Systems, Inc. ("EMS"), a Wisconsin
corporation EMS-East, Inc. ("EMS-East"), a Massachusetts corporation,
Effective Management Systems of Illinois, Inc. ("EMS-Illinois"), and
Illinois corporation (EMS, EMS-East and EMS-Illinois are each individually
a "Borrower", and collectively "Borrowers"), and Foothill Capital
Corporation ("Lender").
WHEREAS, Borrowers and Lender are parties to a Loan and Security
agreement dated as of December 30, 1997, as amended by that certain Waiver
and First Amendment dated as of May 8, 1998 (the "Loan Agreement");
WHEREAS, Borrower has informed Lender that Borrowers' Tangible Net
Worth (as defined in the Loan Agreement) for the fiscal quarter ended May
31, 1998 is approximately negative Four Million Five Hundred Forty-Six
Thousand Dollars (-$4,546,000);
WHEREAS, Borrower has informed Lender that Borrowers' EBITDA (as
defined in the Loan Agreement) for the six month period ending May 31,
1998 is approximately negative Eight Million Fifty-Nine Thousand Dollars
(-$8,059,000);
WHEREAS, as a result of the foregoing, Events of Default exist under
Sections 7.20(a), 7.20(b) and 8.2 of the Loan Agreement;
WHEREAS, Borrower has requested that Lender waive the foregoing
Events of Default and Lender has agreed to do so subject to the terms
hereof,
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows;
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the
Loan Agreement.
2. Waiver. Subject to the reaffirmation by each Borrower of its
representations and warranties under the Loan Agreement and its
representations and warranties set forth herein and receipt by Lender of
the waiver fee referred to below, Lender hereby waives the Events of
Default arising solely as a result of the (i) Tangible Net Worth of
Borrowers not being at least Two Hundred Fifty Thousand Dollars ($250,000)
for the fiscal quarter ended May 31, 1998 and (ii) EBITDA of Borrowers not
being at least Zero Dollars ($0) for the six month period ending May 31,
1998. The foregoing waiver shall not constitute a waiver of any other
Event of Default that may exist, or a waiver of any future Event of
Default that may occur.
3. Representations. In order to induce Lender to enter into this
Waiver, Borrower hereby represents and warrants to Lender that;
(a) The representations and warranties of each Borrower
contained in the Loan Agreement, are true and correct as of the date
hereof as if made on the date hereof;
(b) No Event of Default or event which, with giving of notice
or the passage of time, or both would become an Event of Default, exists
as of the date hereof (other than as described in Section 2 above);
(c) The Tangible Net Worth of Borrowers as of May 31, 1998 is
approximately negative Four Million Five Hundred Forty-Six Thousand
Dollars (-$4,546,000); and
(d) The EBITDA of Borrowers for the six month ending May 31,
1998 was approximately negative Eight Million Fifty-Nine Thousand Dollars
(-$8,059,000).
4. Waiver Fee. In consideration of the waiver described above,
Borrowers agree to pay Lender a waiver fee of Five Hundred Dollars ($500)
on the date hereof.
The remainder of the page is intentionally left blank
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be executed by their respective officers thereunto duly authorized and
delivered as of the date first above written.
EFFECTIVE MANAGEMENT SYSTEMS, INC.,
a Wisconsin corporation
By
Its Secretary
EMS-EAST, Inc., a Massachusetts corporation
By
Its Secretary
EFFECTIVE MANAGEMENT SYSTEMS OF
ILLINOIS, an Illinois corporation
By
Its Treasurer
FOOTHILL CAPITAL CORPORATION
By
Its Senior Vice President
Exhibit 10.1
Baan Business Partner Authorization Agreement
______________________________________________________________________
Reseller Name
This authorization is intended by the Reseller name above as an addition
and amendment to any other terms and conditions of sales to which they may
mutually agree with regard to Reseller purchase of products supplied by
Baan. If Baan approved Distributor's sale of these products to Reseller,
Baan will be regarded as a third-party beneficiary of the agreements and
commitments made herein. Subject to such approval, and for good and
valuable consideration, including Distributor's willingness to sell these
products to Reseller, Reseller certifies and agrees as follows:
A. The following limitations will apply to approved Reseller sales
activity:
1. Reseller will not advertise, promote Baan products outside any
geographic or vertical area(s) recognized and agreed to in
writing by Baan.
2. Reseller will sell Baan products only to end-user customers
(other than Reseller's corporate parent, division, or any
subsidiary of corporate parent) in North America for use in
North America.
3. Target Market
4. Quota
Relationships
A. Distributor and Reseller are independent contractors engaged in
purchasing Baan products for resale to their respective customers.
Neither Distributor nor Reseller is an agent or legal representative
of Baan for any purpose, and neither has any authority to act for,
bind or commit Baan.
B. Neither Distributor nor Reseller has any authority to make any
commitment on behalf of Baan with respect to quantities, deliveries,
modifications, interfacing capability, suitability of software, or
suitability in specific applications. Reseller has no authority to
modify the warranty offered with Baan products. Reseller will
indemnify Distributor and Baan from liability for any modified
warranty or other commitment by Reseller.
C. Reseller will not represent itself in any way that implies Reseller
is an agent or branch of Baan. Reseller will immediately change or
discontinue any representation or business practice found to be
misleading or deceptive by Distributor or Baan.
D. For the term of this authorization, software only Resellers will only
be authorized to purchase Baan products from Distributor.
E. If software only Reseller's relationship with Distributor is
terminated during the term of this authorization, Reseller may only
change its purchasing relationship to another Distributor once during
the remaining term.
F. This authorization is effective upon notice of approval by Baan.
This authorization will expire automatically upon the earliest of the
following dates: the "anniversary date" of any agreement between
Baan, or 12 months from the date of Baan's notice of approval.
G. Baan may, from time to time, give Reseller written notice of
amendments to this authorization. Any such amendment will
automatically become a part of this authorization 30 days from the
date of the notice, unless otherwise specified in the notice.
H. Any change in the Reseller's vertical market(s), primary reselling
geography, must be approved in writing by Baan.
I. Baan, Distributor or Reseller may terminate this authorization
without cause at any time upon 30 days written notice or with cause
at any time upon 15 days written notice.
J. This authorization will terminate immediately if Reseller ceases to
have a buying relationship with Distributor, or Baan's agreement with
Distributor terminates.
K. Upon expiration without renewal or termination of this authorization
for any reason, Reseller will immediately cease to be a Baan Reseller
and will refrain from representing itself as such and from using any
Baan trademark or trade name.
L. Upon expiration without renewal or termination of this authorization,
all rights to any accrued Baan market expansion funds will
automatically lapse.
Reseller Obligations
A. At Baan's discretion, and upon reasonable notice to Reseller, Baan or
Baan's designate will be given on-site access to Reseller's customer
lists, mailing lists, customers satisfaction files, inventory
records, invoices, and other books and records of account as
necessary to enable Baan to verify and audit Reseller's compliance
with the terms of this authorization. Failure to comply with Baan's
request will be considered a repudiation of this authorization
justifying Baan's termination of this authorization.
B. The following criteria apply to all Resellers in order to obtain and
maintain Baan authorization to sell Baan products.
1. Reseller must comply with all training requirements designated
by Baan on each product line the Reseller carries.
2. Reseller's sale of "Baan Software Support Options" and other
support services to its end-user customers is subject to the
terms and conditions set forth in the applicable Baan support
reference materials.
3. Reseller is responsible for maintaining support services for the
added-value portion of the system.
4. Reseller will provide the following information to Distributor
(or upon request to Baan), at time of order or prior to shipment
of Baan products to end-user customer:
a. Name and address of end-user customer
b. Ship date of Baan products to end-user customer
c. Baan product numbers and serial numbers
d. Primary and alternate end-user customer Response Center
caller
e. Other information which Baan may reasonably require
Licensing
A. Unless prior written consent is obtained from Baan, Reseller will not
copy or modify any Baan materials supplied through Distributor,
except that software materials may be copied for archival purposes,
to replace a defective copy, or for program error verification.
Reseller will not remove, omit, or alter any label or copyright
notice on these materials.
B. Reseller is granted the right to distribute software materials
supplied by Baan in accordance with the Software License Agreement
attached hereto. Reseller may also use the materials for
demonstration purposes in accordance with that Software License
Agreement.
1. Where an end-user agreement is supplied with the software, the
user must sign the agreement or indicate acceptance by opening
the media package in order to obtain a license to use the
software. Use of the software will be subject to the terms of
the agreement.
2. Where the software is designated as confidential or trade secret
in its license terms, Reseller will safeguard the software in
accordance with industry standards and applicable law, using the
same degree of care to prevent unauthorized disclosure as it
uses with its own trade secrets and those of other suppliers.
Trademarks; Logos; Trade Names
A. From time to time, Baan may authorize Reseller in writing to use one
or more designated Baan trademarks, logotypes, trade names, and
insignia (Baan Marks). Reseller is authorized, upon Baan's execution
of this authorization to use the Baan Mark, known as the Baan
Solution Partner Insignia. Reseller may use the Baan Marks solely in
connection with the sales, advertisement, and promotion of the Baan
products purchased from Distributor. Any use of the Baan Marks must
be in good taste, in a manner that preserves their value as Baan
Marks, and in accordance with all standards and guidelines provided
by Baan for their use.
B. Reseller will not use any Baan Mark or symbol in a way that may imply
that Distributor or Reseller is an agency or branch of Baan. Upon
Baan's request, Reseller will discontinue the use of any Baan Mark or
symbol. Any rights or purported rights in any Baan Marks acquired
through Distributor's or Reseller's use belong solely to Baan. All
rights to use the Baan Marks shall cease upon expiration or
termination of this authorization, at which time Reseller will
immediately cease to be a Baan authorized Baan Business Partner and
will refrain from representing itself as such.
C. Reseller agrees not to resell demonstration Baan products.
Authorized Signatures
The exhibit listed below is attached to and made part of this
authorization:
Reseller
Authorized signature: /s/ Thomas M. Dykstra
------------------------------------------------------------------------
Date: 2/10/98
------------------------------------------------------------------------
Print name: Thomas M. Dykstra
------------------------------------------------------------------------
Title: CTO/VP
------------------------------------------------------------------------
Distributor
Company name: Pioneer-Standard Electronics, Inc.
------------------------------------------------------------------------
Authorized signature: /s/ William J. Macchione
------------------------------------------------------------------------
Date: 4/10/98
------------------------------------------------------------------------
Print name: William J. Macchione
------------------------------------------------------------------------
Title: Corporate Marketing Manager
------------------------------------------------------------------------
Baan hereby approves Reseller as an authorized Reseller of Baan products
through Distributor named herein.
Baan Company
Authorized signature: /s/ Lou Sassano
------------------------------------------------------------------------
Date: 4-10-98
------------------------------------------------------------------------
Printed name: Lou Sassano
------------------------------------------------------------------------
Title: Dir. Channel Development
------------------------------------------------------------------------
TARGET MARKET: (City & State) Michigan, Illinois, Wisconsin, Minnesota,
Iowa, Missouri, Maine, New Hampshire, Vermont, Massachusetts, Rhode
Island, New York, Pennsylvania, Virginia, North Carolina, South Carolina,
Florida, Ohio, Indiana
APPROVED QUOTA: 1,200 Seats by December 31, 1998 (not including installed-
base migrations)
<PAGE>
ADDENDUM NUMBER ONE TO
RESELLER AUTHORIZATION
This is Addendum Number One (the "Addendum") dated 4/10/98 to that certain
Authorization dated 4/10/98 (the "Agreement"), by and between Effective
Management Systems, Inc. ("Reseller") and Baan MidMarket Solutions, LLC.
("Baan").
In consideration of the mutual covenants set forth herein and in the
Authorization, Reseller and Baan agree as follows:
Priority. The parties agree that the Authorization is hereby amended as
set forth in this Addendum Number One. Any inconsistency between this
Addendum and the Authorization shall be resolved in favor of the intent of
the parties as expressed by this Addendum. Terms used herein with the
initial letter capitalized which are not otherwise defined herein, shall
have the meaning given said terms in the Authorization. The Authorization
as amended by this Addendum Number One shall remain in full force and
effect.
Reseller Name
Section A.1. At the end of the Section after "agreed to in writing by
Baan" insert "with the following three exceptions:
1. Reseller can advertise and promote any value added product
that Reseller has developed to function in conjunction with the
Baan product. In such advertisement or promotion, Reseller can
state that the Reseller is a Baan Reseller and that the
Reseller's value added product functions in conjunction with the
Baan product.
2. Reseller can create and distribute an introductory
marketing piece that may be sent to Reseller's existing user
base outside the territories stated in A.3 below, in an effort
to educate the user base as to the new offerings and status of
Reseller's business.
3. Reseller can advertise and promote their Baan-related
services to their existing user base outside the territories
stated in A.3 below, with the prior consent of Baan management
and if it is in conjunction with a Baan sponsored or supported
marketing program targeted at the Reseller existing user base."
Relationships
Section F. Delete the Section in its entirety and replace with the
following: "This authorization is effective upon notice of approval by
Baan, and shall remain in effect for an initial term of one (1) year.
This Authorization will automatically renew at the end of the initial term
and any subsequent term for a renewal term of one (1) year, unless
terminated by either Baan, Distributor or Reseller in accordance with the
terms set forth in this agreement."
Paragraph G. At the end of the Section insert "It is Baan's general
purpose to make such changes as are reasonably necessary to improve Baan's
reseller program, in Baan's sole opinion. The intent of changes to the
program is not to negatively impact any reseller."
Paragraph I. Delete "30 days" and insert "180 days".
Section J. At the end of this Section, after "terminates" insert a
period. Insert the following sentence at the end of the Section: "If
Baan's agreement with Distributor is terminated, Reseller may immediately
apply with another approved Baan Distributor, and a new Authorization may
need to be executed."
Reseller Obligations
Section A. After the phrase "Baan's designate will be given on-site
access to Reseller's" insert the phrase "Baan-related". In the
second sentence after the phrase "the terms of this Authorization"
insert the phrase "is mandatory". At the end of the Section insert
"Baan shall use reasonable care to prevent any unauthorized
disclosures of any Reseller confidential information which Baan may
have access to pursuant to this Section. Baan shall use the same
degree of care in protecting Reseller's trade secrets as it would use
with its own trade secrets."
Licensing
Section B.2. Delete "reseller" and insert "Reseller".
At the end of the Authorization, insert the following:
"Miscellaneous
A. Baan recognizes that Reseller has considerable Hot Line
Telephone Support resources and capability. Both Baan and
Reseller may wish to exploit this capability to rapidly
penetrate the market for companies in the $10-100mm sales range
with the Baan product. To this end, Baan and Reseller agree to
investigate opportunities to use Reseller resources either as a
subcontracting resource to Baan, or as a direct supplier of Hot
Line Telephone Support to Reseller's new and existing customers
that have licensed the Baan Software.
B. Baan recognizes the urgency of creating a program for the
migration of Reseller's customers to the Baan Product.
Therefore, Baan and Reseller will use reasonable best efforts to
create and announce, prior to April 30, 1998, a migration
promotion for new and existing Reseller customers, such that
they will have an attractive growth path from the Reseller
product line to the Baan product. This promotion should allow
the Reseller customer to migrate at their option.
C. Baan and Reseller will use best efforts to meet within the
next thirty (30) days to discuss the possibility of providing
Reseller with a current copy of the Baan source code, and
keeping Reseller current on any new releases.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first written above.
Effective Management Systems, Inc. Baan U.S.A., Inc.
By: /s/ Thomas M. Dykstra By: /s/ Lou Sassano
Name: Thomas M. Dykstra Name: Lou Sassano
Title: CTO/VP Title: Dir. Channel Development
Distributor: Pioneer-Standard Electronics, Inc.
By: /s/ William J. Macchione
Name: William J. Macchione
Title: Corporate Marketing Manager
EMS Asia Distribution Agreement
*
This EMS Asia Distribution Agreement ("Agreement") is entered into as of
the 29th day of May, 1998 by Effective Management Systems, Inc. ("EMS"), a
Wisconsin corporation with its principal place of business at 12000 West
Park Place, Milwaukee, Wisconsin 53224, and EMS Asia Pacific Limited
("MARKETING PARTNER" or "MP"), a Hong Kong company with its Hong Kong
business address located at 114 Tower II, The Gateway, 25-27 Canton Road,
Kowloon, Hong Kong.
1. Definitions
1.1 "Products" shall mean the EMS computer software system known
as TCM/TM/ and any MES technology based software developed by EMS which
would attach to Baan software ("Software"), and any Improvements to the
Software as defined below. It includes object code and, except with
respect to those portions which it is standard EMS U.S. practice to
withhold, source code. It shall also include the right to any updates
when generally made available from time to time as point releases and the
right to use the development language Synergy', in which the Software is
written, in connection with authorized uses of the Software.
1.2 "Technical Information" shall mean i) the knowledge, experience,
and information of EMS, not in written or printed form, relating to the
servicing, use, or sale of the Products ("Know-How") and ii) any written
materials containing information relating to the servicing, use, or sale
of Products ("Technical Data").
1.3 "Improvements" shall mean any change or modification, whether or
not patentable, copyrightable or susceptible to any other form of
protection, in or relating to the design, manufacture, composition,
assembly or servicing of the Software, including all derivative works
thereof, regardless by whom made or paid for, the ownership of which shall
solely belong to EMS.
1.4 "End Users" shall mean any entity which uses the Software in
their own business for their own internal operational purposes as
authorized under this Agreement.
2. Authority. MP is hereby authorized, on an exclusive basis in the
Territory' (as defined in the attached Exhibit A-1) and subject to the
terms of this Agreement, to i) sell licenses of Software under
circumstances which insure that basic support will be available to the
licensee, ii) solicit orders for services, including support, related to
the Products ( Services'), to be performed by EMS certified providers of
such Services in the Territory, iii) appoint resellers with EMS prior
approval, iv) use the Products in its own internal operations as an End
User without additional cost, but under the same restrictions as any other
user, v) utilize EMS' proprietary translation tool on a non-exclusive
basis and solely in furtherance of this relationship. MP shall use its
best efforts to obtain such sales and orders and otherwise perform its
obligations under this Agreement, and vi) to the extent EMS has such
authority, the right to sell any third party software EMS is selling,
without any EMS markup.
3. End User License. MP agrees to utilize, present to, and obtain the
signature of End Users on the form of EMS license agreement attached to
this Agreement as Exhibit B ("License") as amended from time to time by
EMS in its sole discretion. Except as permitted herein, the terms of the
License may not be changed by MP in any respect without EMS' prior written
consent.
4. License Payment Terms and Cost Payment to EMS.
4.1 MP shall make reasonable effort to require payment terms from
End Users under Licenses calling for full payment due 90 days after
Installation.
4.2 Pursuant to such Licenses, MP shall collect all payments called
for thereunder unless EMS instructs the End User and MP otherwise. MP
shall be obligated to pay EMS the amounts due EMS on each such License
within 30 days of MP's receipt of any such payments and shall make every
reasonable effort to enforce each License Agreement's payment terms.
4.3 The License fee amount due EMS shall, unless otherwise agreed in
writing, be the percentage set forth on Exhibit A-2 for the Products at
the prices set forth on the applicable License, regardless of the actual
License payments collected. However, MP may not manipulate the price of
Services, beyond market standard such that the price of a License has been
reduced below market standard, thereby reducing the fee to EMS.
5. MARKETING PARTNER Retention. MP shall retain as applicable i) on all
License payments received, an amount equal to the difference between the
actual License payment amount and the amount it owes EMS, and ii) on all
Services it sells the actual Services payments it receives.
6. Business Plan and Forecast. The parties shall annually develop a
mutually acceptable Business plan to be reviewed quarterly which shall
include a sales level performance target, the first of which is set forth
on Exhibit A-3. Such target is a forecast of payments to be received by
EMS during each year of this Agreement.
7. EMS Obligations.
7.1 Liaison. Except as specifically advised otherwise, all
requests, communications, and issues relating to EMS's responsibilities
under this Agreement, as well as with third party software vendors whose
products are sublicensed pursuant to this Agreement, will be administered
directly by EMS.
7.2 MARKETING PARTNER Support.
7.2.1 EMS will provide, at standard charge, technical phone, fax,
and E-mail support through EMS' international help desk offices in
Milwaukee, WI.
7.2.2 MP may purchase EMS consulting and training services from EMS
at the then current daily charge for such services plus travel expenses.
7.2.3 EMS will provide, at no cost to MP, one set of available
English training videos.
7.3 Demonstration Licenses. EMS will make available, at no charge
to MP, a reasonable number of run time demonstration licenses for the
Products for use on EMS supported hardware configurations.
7.4 Promotional Materials and International Customer Conference.
EMS will make available, at no charge to MP, one copy of standard released
EMS promotional literature art work, and three admissions to each EMS'
International Customer Conference and Technology Seminar which is held
annually in the United States. Participants are responsible for all their
travel and related expenses.
7.5 Product and Market Information Updates. EMS will make
available, at no charge to MP, by hard copy, monthly, information on the
Products and EMS' markets, and information on the Products and the
company.
7.6 Technical Certification. EMS will make available a technical
support personnel certification program, and agrees to assist MP in the
certification of its personnel.
7.7 Business and Marketing Consultation. EMS will share appropriate
reference information profiles and competitive information with MP.
7.8 Documentation. EMS will provide, at no charge to MP, two sets
of available user and technical documentation in English, and to the
extent available, in local language. The technical documentation includes
training seminar material. Additional copies of the documentation may be
purchased at EMS cost. English language user documentation, in electronic
or hard copy form, as released for Asia use, will be made available with
each license purchased.
7.9 Existing Market Penetration Resources. EMS shall provide to MP
such existing market materials and information, as set forth on Exhibit A-
4, as will assist MP in maintaining and penetrating the Territory.
8. MARKETING PARTNER Obligations.
8.1 Order Handling. MP shall place all orders for Products with
EMS from a location in the USA in US dollars or upcharge minimum License
Payments by any local country required tax or royalty withholding. Any
and all taxes or other fees, costs, or expenses relating to the purchase,
export, transfer, and import of the Products from EMS to final location
shall be the sole responsibility of MP.
8.2. Non-Competition. MP may not offer products which compete with
the Products or Services to any prospect or account registered to MP.
During the Term, MP agrees not to directly or indirectly develop or market
any product which competes with the Software, and for Five years
thereafter not to develop such a product. Not withstanding this
limitation, MP may enter into a distribution arrangement with Baan for its
application software product in the Territory at any time.
8.3 MARKETING PARTNER Personnel, Offices, and Capabilities. MP
represents that it has and will use experienced software professionals
familiar with the market and its needs with respect to sales and service
personnel, and agrees to have the necessary qualified full time dedicated
sales personnel and systems engineers available in order to effectively
perform its obligations under this Agreement in support of the Business
Plan. MP also agrees to maintain at least one office in a strategic area
of the Territory and agrees to provide sales and pre-sales services to
prospects with demonstrations utilizing appropriate hardware and software.
8.4 Expenses and Taxes. MP agrees to pay for all travel and related
expenses of any EMS pre-sales services requested by MP and any and all
local taxes and duties relating to MP's responsibilities and obligations.
8.5 Account Management. MP shall act as Account Manager during each
License implementation period. Such responsibility shall include first
line response and liaison to all inquiries from the End User relating to
EMS or the Products.
8.6 Representing EMS and the Products, and Software Security. MP
shall appropriately represent EMS and the Products by limiting all of its
statements, whether written or verbal, relating to EMS or the Products to
those set forth in the current Technical Data and other written technical
and marketing literature provided to MP by EMS pursuant to this Agreement.
MP shall install and activate Software security for each license.
8.7 Territory, Prospect, and Account Management Plan. As part of
its regular business plan activities, MP agrees to develop and adhere to
an appropriate Territory, Prospect, and Account Management Plan.
8.8 End User Support. MP acknowledges it has full responsibility to
support its End Users, agrees to work to ensure the highest level of
customer satisfaction possible, and only market and sell the Products to
prospects where there is a good fit with the prospect's needs.
8.9 Localization. MP shall be responsible to perform, at its own
expense, and at all times during the Term of this Agreement, the
appropriate and necessary work to adapt or improve and enhance the
Products, as updated and revised by EMS from time to time, for local
language, currency, and any other localization needs, such that the
Products become and remain competitive in the Territory for fully
integrated manufacturing operations computer software systems. Upon
release by MP, MP shall furnish to EMS a copy of all such localized
Products and corresponding Technical Data.
8.10 Existing Market Obligations Assumption. MP shall assume the
existing service and assistance obligations and relationship
responsibilities to customers and prospects in the Territory in order to
provide a smooth transition to MP from preexisting conditions while
maintaining a positive attitude toward and perception of EMS and the
Products.
9. Accounting, Record-keeping, and Confidentiality.
9.1 Maintenance of Records and Review. The MP shall maintain all
appropriate books, records, and correspondence with respect to the
performance of its obligations hereunder, and EMS shall have the right,
upon reasonable request, to review or have reviewed, at its own expense,
such materials.
9.2 Confidentiality. MP acknowledges that all the Products and
Technical Information, and information relating to EMS' business,
marketing, and future plans, are and constitute valuable assets and Trade
Secrets of EMS which are proprietary to EMS and may also be subject to an
assertion of confidentiality by one or more licensors of EMS
("Confidential Information"). Accordingly, MP agrees that any disclosure
of any nature it may make of Confidential Information would constitute a
serious and material loss to EMS and is good cause for immediate
termination. Likewise, EMS acknowledges that it may receive similar
proprietary information from MP and, therefore, each agrees; i) not to
disclose any Confidential Information to any employee, agent, or other
party, including a prospect, except as permitted by and in furtherance of
this Agreement, and then only to such people or entities who have a need
to know and are subject to a Confidentiality Agreement' in the form
approved by the other party from time to time and attached in current
approved form as Exhibit C, and ii) to take all reasonable precautions to
prevent unauthorized parties from discovering, acquiring, or using
Confidential Information.
9.3 Survival of Confidentiality. Notwithstanding any other
provisions of this Agreement, the obligations of confidentiality of this
paragraph shall survive the termination or expiration of this Agreement.
10. Term.
10.1 Initial Term. The initial Term of this Agreement is three years
unless earlier terminated. This Agreement may be earlier terminated by
either party if the other materially breaches it and does not cure the
breach within 30 days after written notice. It shall be considered a
material breach and there shall be no cure period if Confidentiality has
been breached by either party, either party becomes insolvent, MP violates
or permits the violation of EMS's Software security system, or MP fails to
achieve its annual Business Plan's performance target as set forth in
Exhibit A-3 and the next two quarters, leveled, of the following year's
annual performance target.
10.2 Subsequent Terms. After the initial Term, this Agreement may be
renewed for one year Terms if both parties mutually agree to do so in
writing prior the expiration of the current Term.
11. Disputes. All disputes, controversies, or differences which may arise
between the parties which cannot be settled amicably by conciliation
between them shall be heard, settled, and decided by arbitration in
Milwaukee, WI in accordance with the Commercial Rules of American
Arbitration Association, and under the laws of the State of Wisconsin,
USA Such arbitration shall be conducted in English. Each party must
supply all documents in English and will have interpreters available if
necessary. The decision of the arbitrator will be accepted as final and
binding upon the parties, and enforceable in any court of competent
jurisdiction. Each party will bear its own costs of arbitration pending
the award of the arbitrator, which award may include costs.
12. Export Control. The Parties acknowledge that the export and re-export
of the Technical Information and the Software may become subject to United
States (USA) export controls. MP shall comply at all times with any
applicable USA export controls and furnish and supply such information to
EMS as EMS may reasonably request in order to satisfy its obligations
under any such USA law.
13. Limitation on Remedies. Under no circumstances shall either party be
liable to the other party by reason of breach, termination, or non-renewal
of this Agreement for any consequential, general, or special damages even
though the Parties may be aware of the possibility of such damages.
14. Miscellaneous.
14.1 Independence and Authority. The parties hereto are independent
contractors solely responsible for their own business operation and
compliance obligations. Each represents to the other full authority to
enter into this Agreement and all proper and required authority to perform
its obligations hereunder.
14.2 Severability. If any provision of this Agreement shall be
deemed illegal or unenforceable, such illegality or unenforceability shall
not affect the validity and enforceability of any legal and enforceable
provisions hereof, this Agreement shall be construed as if such illegal
and unenforceable provisions had not been inserted herein, unless such
illegality or unenforceability shall destroy the Agreement's underlying
business purpose.
14.3 Assignment. This Agreement may not be assigned in whole or in
part by any party hereto without the prior written consent of all parties.
14.4 Entire Agreement. This Agreement, including the referenced
and attached Exhibits, constitutes the entire agreement between the
Parties with respect to the matters herein and supersedes all prior
understandings and agreements relating to such matters. No modification
of this Agreement will be effective unless in writing signed by both
Parties and referencing this Agreement. Except as otherwise set forth,
all communications and information called for to be provided one party to
the other, shall be in English.
14.5 Non-Recruitment. Both parties agree, during the Term and for a
one year period thereafter, not to recruit or hire, without the written
approval of the other, any employee or agent acting on behalf of the other
during the Term.
Agreed to as of the above date by:
EMS Asia Pacific Limited
By __________________________________________
Donald W. Vahlsing, Director
Agreed to and Accepted at Milwaukee, WI by:
Effective Management Systems, Inc.
By __________________________________________
Michael D. Dunham, President
<PAGE>
Exhibit A
to EMS Asia Distribution Agreement
dated 5/29/98
1. (P 2.0) TERRITORY shall mean:
Korea, Japan, China, Taiwan, the South East Asia countries (including
Singapore, Malaysia, Thailand, and Vietnam), Indonesia, Philippines,
Australia, and New Zealand
2. (P 4.3) MARKETING PARTNER'S required License fee payments to EMS is
composed of a) $2,000 per month for 30 months following MP achieving
Gross Margin Base, except that, if terminated early by EMS for breach by
MP, any remaining payments shall be immediately due and, if terminated by
MP for breach by EMS, no further payments shall thereafter be due, and b)
the following % of License payments called for, as collected, starting the
month following MP achieving Gross Margin Base:
first 12 months: . . . . . . . . . 20 %
Next 12 months: . . . . . . . . . 25 %
thereafter: . . . . . . . . . . . 30 %
where 'Gross Margin' is calculated according to U.S. gaap, consistently
applied with EMS past practices, and Gross Margin Base' equals the
earlier to occur of $100,000 for three consecutive quarters or $200,000 in
any one quarter.
3. (P 6.0) MARKETING PARTNER'S forecast of Payments to be actually
received by MARKETING PARTNER during the Term is:
year 1 . . . . . . . . . . . . . . . . $_________________.
year 2 . . . . . . . . . . . . . . . . $_________________.
year 3 . . . . . . . . . . . . . . . . $_________________.
4. (P 7.9) Existing Market Resources to be provided by EMS to MP:
Existing receivables, fixed assets, contracts rights and obligations,
leases, cash amounts which EMS deems reasonable for these purposes, all as
listed in the Attachment to this Exhibit, and other non material
assistance in establishing and maintaining government permissions and
registrations, personal relationships with existing vendors, suppliers,
and qualified personnel previously performing and providing the selling
and servicing obligations required under this Agreement, all to maintain
and enhance the Products' market position and growth objectives envisioned
by this Agreement.
________ ________
(Exhibit A initials)
<PAGE>
Exhibit B
to EMS Asia Distribution Agreement
dated 5/29/98
(P 3.0) The approved EMS End User License Agreement to be used by
MARKETING PARTNER hereunder in current form is attached hereto or will be
provided.
________ ________
(Exhibit B initials)
<PAGE>
Exhibit C
to EMS Asia Distribution Agreement
dated 5/29/98
(P 9.2) Confidentiality Agreements (as currently approved by the
respective parties) are attached hereto or will be provided)
_________ _________
(Exhibit C initials)
EFFECTIVE MANAGEMENT SYSTEMS, INC.
1993 STOCK OPTION PLAN
AS AMENDED
1. Purpose. The purpose of the Effective Management Systems, Inc.
1993 Stock Option Plan (the "Plan") is to promote the best interests of
Effective Management Systems, Inc. (the "Company") and its shareholders by
providing employees of the Company and its subsidiaries and members of the
Company's Board of Directors who are not employees of the Company or its
subsidiaries with an opportunity to acquire a proprietary interest in the
Company. It is intended that the Plan will promote continuity of
management and increased incentive and personal interest in the welfare of
the Company by employees of the Company and its subsidiaries. In
addition, by encouraging stock ownership by non-employee directors, the
Company seeks both to attract and retain on its Board of Directors (the
"Board") persons of exceptional competence and to provide a further
incentive to serve as a director of the Company.
It is intended that certain of the options issued pursuant to the
Plan will constitute incentive stock options ("Incentive Stock Options")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, and successor provisions thereto (the "Code"), and the remainder
of the options issued under the Plan will constitute nonstatutory stock
options.
2. Administration. The Plan shall be administered by a committee
designated by the Board (the "Committee"). The Committee shall consist of
not less than two members of the Board who are "non-employee directors" as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. A majority of the members of the Committee shall constitute a
quorum. All determinations of the Committee shall be made by at least a
majority of its members. Any decision or determination reduced to writing
and signed by all of the members of the Committee shall be fully as
effective as if it had been made by a unanimous vote at a meeting duly
called and held.
In accordance with the provisions of the Plan, the Committee shall:
select the employees to whom options are granted; determine the number of
shares to be covered by each option, the time at which the option is to be
granted, the type of option, the option period, the option exercise price
and the manner and time in which options become exercisable; and establish
such other provisions of the option agreements as the Committee may deem
necessary or desirable. Grants of options to non-employee directors, all
of which options shall be nonstatutory stock options, shall be automatic
and the amount and the terms of such awards shall be determined in
accordance with Section 5 hereof.
The Committee may adopt such rules and regulations for carrying out
the Plan as it may deem proper and in the best interests of the Company.
The interpretation of any provision of the Plan by the Committee and any
determination made by the Committee on the matters referred to in this
Section 2 shall be final.
3. Shares Subject to the Plan. The shares to be subject to options
under the Plan shall be shares of the Company's Common Stock ("Stock").
The total number of shares of Stock which may be purchased pursuant to
options granted under the Plan shall not exceed an aggregate of 750,025
shares, subject to adjustment as provided in Section 8 hereof. Shares of
Stock delivered upon exercise of an option under the Plan may consist, in
whole or in part, of authorized but unissued shares or of treasury shares.
In the event that an option granted under the Plan expires, is cancelled
or terminates unexercised as to any shares of Stock covered thereby, such
shares shall thereafter be available for the granting of additional
options under the Plan.
4. Grants to Employees.
(a) Eligibility. Any employee ("Employee") of the Company or
its present and future subsidiaries, as defined in Section 424(f) of the
Code ("Subsidiaries"), including any such Employee who is also an officer
or director of the Company, whose judgment, initiative and efforts
contribute to the successful performance of the Company shall be eligible
to receive options under the Plan. Notwithstanding any provision to the
contrary herein, no Employee shall be granted options that could result in
such Employee receiving more than 200,000 shares of Stock under the Plan
(such number of Shares shall be subject to adjustment as provided in
Section 8 hereof).
(b) Option Price. The option exercise price per share of Stock
shall be fixed by the Committee, but shall not be less than 100% of the
fair market value of a share of Stock on the date the option is granted;
provided, however, that no Incentive Stock Option shall be granted to any
Employee who, at the time such Incentive Stock Option is granted, owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent corporation or
Subsidiaries unless the option exercise price of such Incentive Stock
Option is at least 110% of the fair market value of a share of Stock on
the date of grant. Unless otherwise determined by the Committee, the
"fair market value" of a share of Stock on the date of grant shall be the
last sale price for shares of Stock in the NASDAQ National Market System
on the trading date next preceding the date on which the option is
granted, as reported in The Wall Street Journal (Midwest Edition);
provided, however, that if the principal market for the Stock is then a
national securities exchange, the "fair market value" shall be the closing
price for shares of Stock on the principal securities exchange on which
the Stock is traded on the trading date next preceding the date of grant,
or, in either case above, if no trading occurred on the trading date next
preceding the date of grant, then the option price per share shall be
determined with reference to the next preceding date on which the Stock is
traded.
(c) Grant of Options. Subject to the terms and conditions of
the Plan, the Committee may, from time to time, grant to Employees options
to purchase such number of shares of Stock and on such terms and
conditions as the Committee may determine; provided, however, that any
option granted to an Employee who is subject to the provisions of
Section 16 of the Securities Exchange Act of 1934, as amended, on the date
of the grant shall not become exercisable (except as otherwise
specifically set forth in the option agreement) until at least six months
elapse from the date of grant. More than one option may be granted to the
same Employee. The date on which an option is granted shall be the date
the Committee approves the granting of the option or if the Committee so
specifies, such later date as the Committee may determine. Options
granted to Employees may be either Incentive Stock Options or nonstatutory
stock options as determined by the Committee. The terms of any Incentive
Stock Option granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision thereto,
and any regulations promulgated thereunder.
(d) Option Period. The Committee shall determine the
expiration date of each option, but such expiration date shall be not
later than ten years after the date such option is granted; provided,
however, that no Incentive Stock Option shall be granted to any Employee
who, at the time such Incentive Stock Option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of its parent corporation or Subsidiaries
unless such Incentive Stock Option by its terms is not exercisable after
the expiration of five years from the date of grant.
(e) Maximum Per Participant. The aggregate fair market value
(determined as of the date the option is granted) of the Stock with
respect to which any Incentive Stock Options are exercisable for the first
time by an Employee during any calendar year under the Plan or any other
plan of the Company or any parent corporation or Subsidiary shall not
exceed $100,000.
(f) Exercise of Options. An option may be exercised, subject
to its terms and conditions and the terms and conditions of the Plan, in
full at any time or in part from time to time by delivery to the Assistant
Secretary of the Company at the Company's principal office in Milwaukee,
Wisconsin, of a written notice of exercise specifying the number of shares
with respect to which the option is being exercised. Any notice of
exercise shall be accompanied by full payment of the option price of the
shares being purchased (i) in cash or its equivalent; (ii) with the
consent of the Committee (as set forth in the option agreement or
otherwise), by tendering previously acquired shares of Stock (valued at
their fair market value as of the date of exercise, as determined by the
Committee consistent with the method of valuation set forth in
Section 4(b) above); or (iii) with the consent of the Committee (as set
forth in the option agreement or otherwise), by any combination of the
means of payment set forth in subparagraphs (i) and (ii). For purposes of
this Section 4, the term "previously acquired shares of Stock" shall only
include Stock owned by the Employee prior to the exercise of the option
for which payment is being made and shall not include shares of Stock
which are being acquired pursuant to the exercise of said option. No
shares shall be issued until full payment therefor has been made.
5. Grants to Non-Employee Directors.
(a) Eligibility. Each member of the Board who is not an
employee of the Company or any of its Subsidiaries or any parent
corporation of the Company (a "Non-Employee Director") shall be eligible
to be granted nonstatutory stock options under the Plan. A Non-Employee
Director may hold more than one option, but only on the terms and subject
to any restrictions set forth in this Section 5.
(b) Option Price. The option exercise price per share of Stock
shall be equal to 100% of the fair market value of a share of Stock on the
date the option is granted. For purposes of this Section 5, the "fair
market value" of a share of Stock shall be determined in the manner set
forth in Section 4(b) hereof; provided, however, that, to the extent
applicable, the fair market value of a share of Stock shall be determined
with reference to the reported market price of the Stock determined in the
manner provided in Section 4(b).
(c) Grant of Options. Any person who is first elected as a
Non-Employee Director after the date of approval of the Plan by the Board
shall automatically on the date of such election be granted an option to
purchase 2,030 shares of Stock (which number of shares shall be subject to
adjustment in the manner as provided in Section 8). Thereafter, in
consideration for serving on the Board, each Non-Employee Director (if he
or she continues to serve in such capacity) shall automatically be granted
an option on the day following the annual meeting of shareholders in each
year commencing with the 1995 annual meeting and continuing for so long as
the Plan remains in effect and a sufficient number of shares are available
thereunder for the granting of such option. Such option shall entitle the
Non-Employee Director to purchase 1,500 shares of Stock (which number of
shares shall be subject to adjustment in the manner as provided in Section
8). In addition, in consideration for serving on committees of the Board,
each Non-Employee Director (if he or she continues to serve in such
capacity) shall automatically be granted an additional option on the day
following the annual meeting of shareholders in each year commencing with
the 1995 annual meeting and continuing for so long as the Plan remains in
effect and a sufficient number of shares are available thereunder for the
granting of such option. Such option shall entitle the Non-Employee
Director to purchase a number of shares of Stock equal to the product of
(i) 1,000 shares of Stock (which number of shares shall be subject to
adjustment in the manner as provided in Section 8) multiplied by (ii) the
number of committees of the Board on which the Non-Employee Director is
then serving.
(d) Exercisability and Termination of Options. Options granted
to Non-Employee Directors shall vest and become exercisable, but only
during the time that the Non-Employee Director serves in such capacity, as
to 10% of the shares of Stock subject thereto after one year has elapsed
from the date of grant, as to an additional 20% after the second year has
elapsed from the date of grant, as to an additional 30% after the third
year has elapsed from the date of grant, and as to the final 40% after the
fourth calendar year has elapsed from the date of grant; provided,
however, that if a Non-Employee Director ceases to be a director of the
Company by reason of death, disability or retirement within four years
after the date of grant or in the event of a Change in Control (as defined
in Section 5(f) below), the option shall become immediately exercisable in
full. Options granted to Non-Employee Directors shall terminate on the
earlier of:
(i) ten years after the date of grant;
(ii) six months after the Non-Employee Director ceases
to be a director of the Company by reason of death; or
(iii) three months after the Non-Employee Director
ceases to be a director of the Company for any reason other than
death.
(e) Exercise of Options. An option may be exercised, subject
to its terms and conditions and the terms and conditions of the Plan, in
full at any time or in part from time to time by delivery to the Assistant
Secretary of the Company at the Company's principal office in Milwaukee,
Wisconsin, of a written notice of exercise specifying the number of shares
with respect to which the option is being exercised. Any notice of
exercise shall be accompanied by full payment of the option price of the
shares being purchased (i) in cash or its equivalent; (ii) by tendering
previously acquired shares of Stock (valued at their fair market value as
of the date of exercise as determined in the manner set forth in
Section 4(b) above; provided, however, that, to the extent applicable, the
fair market value of a share of Stock shall be determined with reference
to the reported market price of the Stock determined in the manner
provided in Section 4(b)); or (iii) by any combination of the means of
payment set forth in subparagraphs (i) and (ii). For purposes of
subparagraphs (ii) and (iii) above, the term "previously acquired shares
of Stock" shall only include Stock owned by the Non-Employee Director
prior to the exercise of the option for which payment is being made and
shall not include shares of Stock which are being acquired pursuant to the
exercise of said option. No shares shall be issued until full payment
therefor has been made.
(f) Change in Control. A "Change in Control" shall be deemed
to have occurred if the events set forth in any one of the following
paragraphs shall have occurred:
(i) any "Person" (as such term is defined in section
3(a)(9) of the Securities Exchange Act of 1934, as amended, as
modified and used in sections 13(d) and 14(d) thereof), other
than (A) the Company or any Subsidiaries, (B) a trustee or other
fiduciary holding securities under any employee benefit plan of
the Company or any Subsidiaries, (C) an underwriter temporarily
holding securities pursuant to an offering of such securities or
(D) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportion
as their ownership of Stock in the Company ("Excluded Persons"),
is or becomes the "Beneficial Owner" (as defined in rule 13d-3
under the Securities Exchange Act of 1934, as amended), directly
or indirectly, of securities of the Company representing 25% or
more of either the then outstanding shares of Stock or the
combined voting power of the Company's then outstanding voting
securities; or
(ii) the shareholders of the Company approve a merger
or consolidation of the Company with any other corporation or
approve the issuance of voting securities of the Company in
connection with a merger or consolidation of the Company (or any
direct or indirect Subsidiary) pursuant to applicable stock
exchange requirements, other than (i) a merger or consolidation
that would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity
or any parent thereof) at least 50% of the combined voting power
of the voting securities of the Company or such surviving entity
or any parent thereof outstanding immediately after such merger
or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person (other than an Excluded Person)
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing 25% or more of either the
then outstanding shares of Stock or the combined voting power of
the Company's then outstanding voting securities; or
(iii) the shareholders of the Company approve a
plan of complete liquidation or dissolution of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (in one transaction or
a series of related transactions within any period of 24
consecutive months), other than a sale or disposition by the
Company of all or substantially all of the Company's assets to
an entity at least 75% of the combined voting power of the
voting securities of which are owned by Persons in substantially
the same proportion as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control" shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders of
the Stock immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an
entity that owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
6. Nontransferability of Options. No option shall be transferable
by an optionee other than by will or the laws of descent and distribution.
Options under the Plan may be exercised during the life of the optionee
only by the optionee or his guardian or legal representative.
7. Powers of the Company Not Affected. The existence of the Plan
or any options granted under the Plan shall not affect in any way the
right or power of the Company or its shareholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issuance of bonds, debentures, or
preferred or prior preference stock ahead of or affecting the Stock or the
rights thereof, or any dissolution or liquidation of the Company, or any
sale or transfer of all or any part of the Company's assets or business or
any other corporate act or proceeding, whether of a similar character or
otherwise.
8. Capital Adjustments Affecting Stock. In the event of a capital
adjustment resulting from a stock dividend (other than a stock dividend in
lieu of an ordinary cash dividend), stock split, reorganization, spin-off,
split up or distribution of assets to shareholders, recapitalization,
merger, consolidation, combination or exchange of shares or the like
following Board approval of the Plan, the number of shares of Stock
subject to the Plan, the number of shares referenced in the limitation in
Section 4(a) hereof, the number of shares subject to options to be granted
to Non-Employee Directors pursuant to Section 5(c) hereof, and the number
of shares under option in outstanding option agreements shall be adjusted
in a manner consistent with such capital adjustment; provided, however,
that no such adjustment shall require the Company to sell any fractional
shares and the adjustment shall be limited accordingly. The price of any
shares under option shall be adjusted so that there will be no change in
the aggregate purchase price payable upon exercise of any such option.
The determination of the Committee as to any adjustment shall be final.
9. Corporate Mergers and Other Consolidations. The Committee may
also grant options having terms and provisions which vary from those
specified in the Plan provided that any options granted pursuant to this
Section 9 are granted in substitution for, or in connection with the
assumption of, existing options granted by another corporation and assumed
or otherwise agreed to be provided for by the Company pursuant to or by
reason of a transaction involving a corporate merger, consolidation,
acquisition or other combination or reorganization to which the Company is
a party.
10. Option Agreements. All options granted under the Plan shall be
evidenced by written agreements (which need not be identical) in such form
as the Committee shall determine. Each option agreement shall specify
whether the option granted thereunder is intended to constitute an
Incentive Stock Option or a nonstatutory stock option.
11. Rights as a Shareholder; Rights as an Employee or a Director.
An optionee shall have no rights as a shareholder with respect to shares
covered by an option until the date of issuance of stock certificates to
him or her and only after such shares are fully paid. Neither the Plan
nor any option granted hereunder shall confer upon any optionee the right
to continue as an employee or as a director of the Company.
12. Transfer Restrictions. Shares of Stock purchased under the Plan
and held by any person who is an officer or director of the Company, or
who directly or indirectly controls the Company, may not be sold or
otherwise disposed of except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or except in a
transaction which, in the opinion of counsel for the Company, is exempt
from registration under said Act. The Committee may waive the foregoing
restrictions in whole or in part in any particular case or cases or may
terminate such restrictions whenever the Committee determines that such
restrictions afford no substantial benefit to the Company.
13. Amendment of Plan. The Board shall have the right to amend the
Plan at any time and for any reason; provided, however, that the
provisions of Section 5 of the Plan shall not be amended more than once
every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
promulgated thereunder; and provided further that shareholder approval of
any amendment to the Plan shall also be obtained: (a) if otherwise
required by (i) the rules and/or regulations promulgated under Section 16
of the Securities Exchange Act of 1934, as amended (in order for the Plan
to remain qualified under Rule 16b-3 or any successor provision under such
Act), (ii) the Code, or any rules promulgated thereunder (in order to
allow for Incentive Stock Options to be granted under the Plan) or (iii)
the quotation or listing requirements of NASDAQ or any principal
securities exchange or market on which the Stock is then traded (in order
to maintain the Stock's quotation or listing thereon); (b) if such
amendment materially modifies the eligibility requirements as provided in
Sections 4(a) and 5(a) hereof; (c) if such amendment increases the total
number of shares of Stock, except as provided in Section 8 hereof, which
may be purchased pursuant to the exercise of options granted under the
Plan; or (d) if such amendment reduces the minimum option price per share
at which options may be granted as provided in Sections 4(b) and 5(b)
hereof. Any amendment of the Plan shall not, without the consent of the
optionee, alter or impair any of the rights or obligations under any
option previously granted to the optionee.
14. Termination of Plan. The Board shall have the right to suspend
or terminate the Plan at any time; provided, however, that no Incentive
Stock Options may be granted after the tenth anniversary of the effective
date of the Plan. Termination of the Plan shall not affect the rights of
optionees under options previously granted to them, and all unexpired
options shall continue in force and operation after termination of the
Plan except as they may lapse or be terminated by their own terms and
conditions.
15. Effective Date. The Plan shall become effective on the date of
adoption by the Board, subject to approval and ratification by the
shareholders of the Company within twelve months of the date of adoption
by the Board. All options granted prior to shareholder approval and
ratification of the Plan shall be subject to such approval and
ratification and shall not be exercisable until after such approval and
ratification.
16. Tax Withholding. The Company may deduct and withhold from any
cash otherwise payable to the optionee (whether payable as salary, bonus
or other compensation) such amount as may be required for the purpose of
satisfying the Company's obligation to withhold Federal, state or local
taxes. Further, in the event the amount so withheld is insufficient for
such purpose, the Company may require that the optionee pay to the Company
upon its demand or otherwise make arrangements satisfactory to the Company
for payment of such amount as may be requested by the Company in order to
satisfy its obligation to withhold any such taxes.
With the consent of the Committee, an Employee may be permitted to
satisfy the Company's withholding tax requirements by electing to have the
Company withhold shares of Stock otherwise issuable to the Employee or to
deliver to the Company shares of Stock having a fair market value on the
date income is recognized pursuant to the exercise of an option equal to
the amount required to be withheld. The election shall be made in writing
and shall be made according to such rules and in such form as the
Committee may determine.
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 231
<SECURITIES> 0
<RECEIVABLES> 10,606
<ALLOWANCES> (484)
<INVENTORY> 266
<CURRENT-ASSETS> 11,280
<PP&E> 9,526
<DEPRECIATION> (6048)
<TOTAL-ASSETS> 21,628
<CURRENT-LIABILITIES> 11,611
<BONDS> 0
0
0
<COMMON> 41
<OTHER-SE> 3,685
<TOTAL-LIABILITY-AND-EQUITY> 21,628
<SALES> 1,116
<TOTAL-REVENUES> 19,594
<CGS> 880
<TOTAL-COSTS> 28,174
<OTHER-EXPENSES> 316
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 337
<INCOME-PRETAX> (8,896)
<INCOME-TAX> 33
<INCOME-CONTINUING> (8,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,929)
<EPS-PRIMARY> (2.19)
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not required to be calculated in accordance with generally accepted accounting
principles.
</FN>
</TABLE>
