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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one):
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
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Act of 1934.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
___ 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 0-18674.
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MARCAM CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2711580
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
95 Wells Avenue
Newton, Massachusetts 02159
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 965-0220
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
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1
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock, $.01 Par Value, of the
registrant held by non-affiliates of the registrant as of December 12, 1996
(computed based on the closing price of such stock in the Nasdaq National
Market) was $132,954,125.
The number of shares outstanding of the registrant's Common Stock,
$.01 Par Value, as of December 12, 1996 was 11,436,914 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or indicated portions thereof, have been
incorporated herein by reference:
Specifically identified information in the Registrant's definitive proxy
material for its Annual Meeting of Stockholders to be held on February 12, 1997
is incorporated by reference into Part III hereof.
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PART I
ITEM I. BUSINESS
GENERAL
Marcam is a worldwide provider of enterprise applications and services for
process and discrete manufacturing companies using midrange and personal
computers, and workstations. The Company's PRISM(R), Protean(TM), MAPICS(R), and
Avantis(TM) product lines offer comprehensive business planning and control
solutions to customers' production, logistics, asset management and financial
requirements.
Marcam was incorporated in Massachusetts in 1980. Unless the context
otherwise requires, the terms "Company" and "Marcam" refer to Marcam Corporation
and its subsidiaries. The Company's principal executive offices are located at
95 Wells Avenue, Newton, Massachusetts 02159, and its telephone number is
(617) 965-0220.
The Company was organized in 1980 as a consulting company to help
manufacturers improve manufacturing efficiency through implementation and
customization of International Business Machines Corporation's ("IBM")
manufacturing software. In 1983, the Company recognized a need for business
planning and control software in process manufacturing companies that could not
be met satisfactorily by software then being marketed. At that time, the
Company embarked upon a product development program to design and create
application software specifically for process companies which resulted in the
PRISM family of applications. The first PRISM modules were licensed for
commercial use in the first quarter of fiscal 1987.
In February 1993, Marcam acquired exclusive marketing rights to IBM's
Manufacturing, Accounting, Production, and Information Control System ("MAPICS")
product line. Unlike PRISM, which addresses the requirements of process
manufacturers, MAPICS targets the discrete manufacturing marketplace. The
Company believes that MAPICS is the most widely used Enterprise Resource
Planning (ERP) software package in the world. In April 1993, the Company
announced a new MAPICS version, called MAPICS XA, that included 11 new modules,
extensive enhancements, new technology, and new ease-of-use features. The
Company continues to enhance the applications and add new modules. In September
1995, Marcam acquired all of the outstanding capital stock of Mapics, Inc., the
company which develops and supports the MAPICS product line. As a result of the
acquisition, the Company currently owns (through Mapics, Inc.) all right, title
and interest in the MAPICS product line.
The Company's management structure is organized into six business groups.
Three of these are industry business groups, each of which is based around a
particular market segment to better focus its resources to address specific
needs. The three industry business groups are: Process, MAPICS, and Avantis.
Each industry business group oversees all worldwide activities associated with
its respective products, including sales and marketing, service, development,
and support. In addition to these business groups, Marcam's organization
includes three geographic business groups: Europe, Middle East, Africa (EMEA),
Asia Pacific (AP), and Latin America (LA).
In addition to its internal product development efforts, the Company has
expanded its product offerings by entering into various relationships with
software vendors offering complementary software applications.
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INDUSTRY BACKGROUND
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The Company markets its applications to process and discrete manufacturers
worldwide. Industrial manufacturing companies can be characterized by the type
of manufacturing conducted: process or discrete. Process companies, such as
food, chemical, mining, steel, pulp and paper, consumer product goods,
pharmaceutical, and building material companies, produce products by controlling
chemical reactions, including mixing, separating, heating, and refining.
Discrete companies, such as automotive, appliance, and aerospace companies,
produce products by assembling or machining.
Process and discrete manufacturing differ in three fundamental ways: (1)
the distribution of assets, (2) product cost characteristics, and (3) production
variability and predictability.
Discrete manufacturers typically assemble parts into finished products.
This type of manufacturer has a relatively large investment in inventory to
ensure that the right parts are available when needed. In contrast, process
manufacturers have a small portion of their assets in inventory because they
need smaller on-site quantities of fewer raw materials and do not keep
substantial work-in-progress inventories because production flows through the
plant. Process companies require expensive, dedicated facilities to minimize
cost, maximize production, and control the process.
Process manufacturers therefore have a relatively large portion of their
investment in plant and equipment. Due to this significant investment and their
use of other inputs that are normally part of overhead, such as utilities,
equipment maintenance, and waste disposal, overhead costs represent a relatively
large portion of total costs for process companies.
The procedures used in discrete manufacturing are relatively predictable,
with each product having one defined method of production. In contrast, process
manufacturers may use different manufacturing processes for any given product,
depending on the price and availability of raw materials and equipment.
Additionally, recycled by-products and waste may be produced at various stages
of the process.
The Company believes that the distinct management challenges faced by
industrial process and discrete manufacturers necessitate distinct business
planning and control systems, and builds differentiated products to address
these distinct business requirements.
Until 1992, the Company focused product development efforts exclusively on
solutions for process companies and primarily offered one product line, PRISM,
running on the IBM AS/400 computer. The Company then identified the opportunity
to expand its business focus to providing ERP applications and services for all
types of manufacturing (process and discrete) companies on many computer
platforms. The Company believes that expanding its business in this way offers
advantages, including: (1) additional revenue opportunities which provide
additional potential resources to invest in application technology and worldwide
services, (2) additional computer platforms to provide customers with a choice
of environment, and (3) new industry-focused solutions that maintain the
Company's strategy of creating value by offering products with application
function that best fits process and discrete manufacturing business
requirements.
PRODUCTS
ENTERPRISE RESOURCE PLANNING (ERP) SOLUTIONS FOR PROCESS COMPANIES
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Marcam offers two product lines for process companies: PRISM and Protean.
PRISM is the Company's original product which was introduced in 1987. Protean
is the Company's next-generation product, introduced in 1994. The most
significant difference between the products is the underlying technology: PRISM
remains available exclusively on the IBM AS/400 and is noted for its process
application depth and its strong integration. Protean is an open systems,
client/server application developed in an object-oriented environment and Marcam
believes it is the first business application using this technology introduced
into the enterprise applications market. Protean is available on leading UNIX,
and Microsoft Windows 95 and NT platforms.
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PRISM
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PRISM is a comprehensive product line that offers ERP solutions for
information systems including production, logistics, maintenance management and
finance applications. The Company believes that while the breadth of the PRISM
offering is similar to competitive product lines, there are significant
differences in the depth of the offering, including PRISM's patented production
model. The Company's development of the PRISM product was based upon on-site
research and the Company maintains a proactive process for gathering enhancement
requests from its customers. As a result, the Company believes the advanced
functions of PRISM support modern business practices in the process industries.
PRISM Enhancements and New Applications
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Continued growth in the ERP market in 1997 is expected to be driven by
manufacturers attempting to address the Year 2000 issue in their ERP systems.
PRISM 4.3, released in 1996, provides features that support system issues
relating to the Year 2000. In addition Visual WorkPlace, a new PRISM
application, improves time to value by adding a Windows client to AS/400 servers
running PRISM. PRISM 4.3 also offers a path for adding object technology to
PRISM. Other new functionality includes significant customer order management
enhancements, enterprise manager enhancements to enable easier distribution of
key master files and new International Financial Management applications to
address global financial business processes.
PROTEAN
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Marcam believes that its Protean product line is the first fully object-
oriented, mission-critical set of applications for the ERP market. Protean
products are being designed to provide a complete ERP solution with enterprise-
level capabilities to manage logistics, production, procurement, financial and
maintenance requirements. Created in an object-oriented architecture, Protean
applications are designed to meet a user's current business needs, while
providing the ability to rapidly adapt enterprise applications to fit new and
evolving requirements without the time-consuming and costly process of rewriting
software code. Protean products work on a choice of open platforms and leverage
industry standards, such as Microsoft(R) Object Linking and Embedding (OLE) and
the Windows(R) environment.
The Company began shipping modules of its Protean product family in June
1994. Since that time, the Company has continued to release additional modules.
The Company is currently shipping the following available Protean applications:
Plant Planning, Quick Scheduler, Inventory Control, Inventory Management,
Process Definition, Schedule Management, Schedule Activity Reporting, Entity
Management, Work Order Management, Preventive Maintenance, Maintenance, Repair,
and Overhaul Inventory, Maintenance Scheduling, Requisition Maintenance,
Purchase Order Management, and Invoice Management.
Marcam is working with business partners to leverage the potential of its
new technology. In April 1995, Marcam announced a working relationship with NEC
Corporation (NEC) designed to complement the business goals of each party. The
relationship has focused additional resources on Protean product development,
accelerated delivery of Protean products and expanded the use of Protean
products worldwide. Specifically, Marcam and NEC entered into a Distribution
Agreement under which NEC has the right to distribute Marcam's Protean products
generally to customers in Japan and to Japanese companies located outside Japan.
As part of this agreement, NEC has the right to use Protean to build software
for its customers in non-manufacturing markets. NEC also uses Protean in its
System Integration and Services business. As a result of this partnership, and
to support NEC in its efforts, Marcam is increasing the size of its organization
in Japan. Additionally, Marcam and NEC entered into a Technology Transfer
Agreement under which NEC was granted the right to use certain Protean
technology within NEC and in return, NEC committed significant financial
resources for continued investment in Protean technology, as well as the joint
development of additional applications. Marcam and NEC have also formed Obtech
LLC, a company which offers object integration and services in North America.
The company operates under the direction of a board of directors from NEC and
Marcam. Marcam has provided Protean product and object technology expertise,
skills and training, while NEC has committed certain financial resources in
support of start-up activities. The Company believes that Obtech's object
integration services, along with network and system
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management, project management, training and consulting services, will assist
Marcam in the implementation of Protean-based projects in companies of all
sizes.
Marcam has also joined together with MCI Systemhouse, Digital Equipment
Corporation and Microsoft Corporation to offer its Protean products along with
the products and services of the other parties to address the specialized
business requirements of process manufacturers.
Protean applications are supported on the following platforms: Microsoft
Windows 95 and Windows NT, IBM RS/6000, HP-9000, and the DEC Alpha family of
servers.
ENTERPRISE RESOURCE PLANNING (ERP) SOLUTIONS FOR DISCRETE MANUFACTURING
- -----------------------------------------------------------------------
COMPANIES
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MAPICS XA
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The Company offers the MAPICS XA product line for discrete manufacturing
companies. MAPICS was originally introduced by IBM in 1978. MAPICS Extended
Advantage (XA) currently includes over 45 software modules, an increase from 19
modules in the three and one half years since the product line was acquired by
Marcam. Already Year 2000 enabled, MAPICS XA is a comprehensive solution which
includes applications that satisfy business requirements in the areas of
Marketing and Logistics, Engineering, Production Planning, Plant Operations,
Financial Management, Maintenance Management and Cross Application Solutions.
The Company believes that the MAPICS product line has been licensed to more
manufacturing companies worldwide than any other software solution in its market
segment. In Advanced Manufacturing Research's (AMR) 1995 survey of ERP customer
satisfaction, Marcam's MAPICS manufacturing software received the highest total
score (nearly one-third higher than the next competitor) and was rated highest
in phone support, release management and implementation results.
MAPICS XA Enhancements
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During fiscal 1996, enhancements were made to a number of existing MAPICS
applications. Additional enhancements were made to the Customer Order
Management and International Financial Management applications as a result of
ongoing communication with customers, including extensive internationalization.
Customer requested enhancements were also added to Purchasing, Estimating &
Quote Management, Market Monitoring & Analysis, Knowledge Based Configurator,
Inventory Management and Material Requirements Planning. Continuing performance
improvements to the migration and installation process of MAPICS were also
delivered. The remaining phases of Visual WorkPlace, the graphical user
interface for AS/400-based applications, were delivered, and the entire
reference library became available on CD-ROM. In addition, the Executive
Information System and PowerVision were rewritten using Microsoft Visual
Basic(R), eliminating the dependency on a Forest & Trees run-time license and
adding support for double byte character language.
New MAPICS XA Products
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Electronic Commerce
The first release of Electronic Commerce (EC) supporting ANSI X.12 and
EDIFACT standards was delivered to customers, expanding support in the area of
exchange of business documents and data among customers, suppliers, financial
institutions and MAPICS users. EC manages the trading partner relationship
definition, supports processing of business transactions and provides a
comprehensive set of interfaces with MAPICS and external systems including
Electronic Data Interchange (EDI), FAX and E-Mail. Partnerships are in place
with best-of-breed providers of interfacing applications such as EDI/400 from
Premnos Corporation and Telex/FAX/400 from cma*ettworth. Electronic translator
"maps" for many of the largest EDI hub vendors (K Mart, Walmart, JC Penney,
etc.) may also be licensed through Marcam as part of this offering.
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Info WorkPlace
Strengthening the analytical and reporting capabilities of MAPICS, Info
WorkPlace (IWP), now available to customers, offers users the power to access
the MAPICS database to obtain the information needed for monitoring business
trends and decision making. IWP caters to the needs of both the data processing
professional and the less technically experienced business user. Info WorkPlace
enables report design without technical knowledge of files, keys or database
structure and supports complex data manipulation including percentages, weighted
averages, rankings and comparisons. Users can design, modify and generate
reports that reflect their specifications with run-time prompting of selection
parameters. A client/server extension of this application has been announced.
SOLUTIONS FOR ASSET MANAGEMENT
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AVANTIS
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The Company provides comprehensive asset management solutions for capital
intensive companies. These solutions, previously only marketed as a PRISM
Maintenance Management application, are now also marketed under the brand name
of Avantis for the stand alone asset management market. Avantis.XA, originally
introduced in 1981, remains available exclusively on the IBM AS/400 and is noted
for its application depth and its large base of satisfied customers.
Avantis.Pro is an open systems, client/server application developed with an
object-oriented design, based on the Protean technology. This object-oriented
design offers many advantages to customers that see technology as a key element
of their corporate strategy. Avantis.Pro is available on leading UNIX platforms
and runs Microsoft Windows 95 and Windows NT as its PC client operating systems.
AVANTIS.XA
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Avantis.XA is a comprehensive asset management product line offering
solutions for Maintenance, Maintenance, Repair and Overhaul Inventory,
Procurement, Accounts Payable, Project Accounting, Approval, Imaging and
Executive Information Systems. The Company believes that the high level of
functionality in these applications makes them the choice for large companies
that demand best-in-class solutions.
AVANTIS.PRO
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Avantis.Pro is a next-generation solution for asset management that enables
customers to rapidly and easily reflect business changes within the software.
All objects within the solution will seamlessly integrate to industry leading
solutions for work flow, document management and imaging. This ability to take
advantage of the strength of industry-leading solutions enables Avantis.Pro to
fit into best-of-breed information technology strategies. The Avantis.Pro asset
management solution provides functions comparable to those in the Avantis.XA
solution.
LICENSE FEES
The Company generally licenses its PRISM, Protean and Avantis products for
a one-time fee. The MAPICS XA products are generally licensed by the Company for
an initial license fee with recurring license fees due on an annual basis. The
list prices for the Company's applications vary depending on the size of
processor, number of users, and local pricing variations in international
markets. Modules are licensed individually allowing the customer to select
combinations which best fit their business systems needs. A typical initial
license fee is $50,000 to $1,000,000 depending upon the product line and modules
licensed. The Company receives an additional license fee when the customer
increases the size of the processor or number of users, as well as when
additional modules are licensed.
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SERVICES
The Company provides product support services for its products which
consist of comprehensive technical assistance. Product support is provided
pursuant to agreements which customers enter into and renew annually. The
Company bills product support fees annually in advance and recognizes revenue
ratably throughout the year.
The Company also offers its customers implementation consulting, education
and applications integration services. These services are generally not
included in the Company's software license fees and are provided on a project
consulting basis. Similar services are provided by Marcam's worldwide affiliate
network for their customers.
The Company's implementation consulting personnel provide on-site
consulting to assist customers in the installation and use of Marcam products.
Marcam has also developed methods for implementing its applications, including
supplemental materials, plans, and programs, which guide the customer and
increase the efficiency of installation. Educational materials and instruction
are provided both in a classroom environment and at customer sites. The
Company's systems and applications integration personnel provide customized
services. These services generally involve the connection of modules with other
applications used by the customer or the creation of new applications which
complement Marcam's products.
MARKETING AND SALES
Marcam's primary marketing objective is to be the leading provider of
enterprise applications software and services for process and discrete
manufacturing companies worldwide. The Company's strategy is to deliver
solutions that add substantial value to companies in specific market segments:
process and discrete manufacturing companies. Marcam's target customers range
from multi-site, multinational manufacturers to small and medium-size companies
with one or two sites. The Company believes that by creating applications that
best fit the business requirements of specific markets and by offering
technology choices and comprehensive services, the Company will deliver
solutions that create significant value for customers. The Company believes
that its products and services help customers create value by enabling them to
maximize flexibility to take advantage of change, maximize revenue and market
share, and minimize cost and waste.
Below is a representative customer list for each of the Company's industry
business groups:
PROCESS
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Armstrong World Industries, S.A. B.F. Goodrich Specialty Chemicals
Bausch & Lomb/Pharmaceutical Division Ciba-Geigy Corp.
Coca-Cola USA Engelhard Corp.
J. R. Simplot Co. New Zealand Dairy Foods Ltd. and Subsidiaries
Novo Nordisk A/S Rhone-Poulenc, Inc
Rohm and Haas Co. South African Breweries Limited
Sun Chemical Group B. V. Tambrands, Inc.
The Gillette Co. Warner-Lambert Co.
Wyeth-Ayerst International, Inc.
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MAPICS
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Allied Signal Inc. B. F. Goodrich Co.
Bayer Group General Electric Co.
IBM Mitsubishi Caterpillar Forklift America
Philips Lighting Co. Pitney Bowes Inc.
Sanyo Audio Manufacturing Corp. (USA) Teledyne Inc.
Toshiba American Consumer Products Inc. Toyota Industrial
Volvo Construction Equipment Equipment Manufacturing
Corporation subsidiaries Westinghouse Electric Corp.
York International
AVANTIS
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Arco Chemical Co. Avenor Inc.
BHP Copper Co. Borden Inc.
The Gillette Co. The Goodyear Tire & Rubber Co.
Harley-Davidson Inc. Heineken Nederland B. V.
IMC-Agrico Co. Iron Ore Co. of Canada
Molson Breweries Repap Enterprises
Rockwool-Isolation Rohm and Haas Co.
South African Breweries Limited. Tambrands, Inc.
Wyeth-Ayerst International, Inc.
Marcam's marketing and sales organization allows the Company to offer a
coordinated, standardized, worldwide approach to multi-site, multinational
companies, while providing for local support of individual sites.
The Company markets through its 21 direct sales and support offices and more
than 150 affiliates throughout North America, Europe, Africa, the Middle East,
the Asia Pacific region, and Latin America, and is represented in more than 45
countries. Most offices provide sales, consulting, and implementation
assistance.
The headquarters for the Process business group is at the Company's offices
in Newton, Massachusetts. Headquarters for the MAPICS business group is located
at the Company's offices in Atlanta, Georgia. Headquarters for the Avantis
business group is located at the Company's office in Burlington, Ontario,
Canada.
For North American sales and marketing, the Company maintains nine direct
sales and support offices in the following metropolitan areas: Atlanta,
Georgia; Bala Cynwyd, Pennsylvania; Burlington, Ontario; Cleveland, Ohio;
Dallas, Texas; Irvine, California; Lisle, Illinois; Newton, Massachusetts; and
Saddlebrook, New Jersey.
The Company's headquarters for its Europe, Middle East, and Africa ("EMEA")
operations is located in Paris, France. Marcam has subsidiaries in the United
Kingdom, France, Germany, Belgium, and The Netherlands. The Company also has
representatives in Austria, Belgium, Denmark, Egypt, Finland, France, Germany,
Greece, Hungary, Ireland, Israel, Italy, The Netherlands, Poland, Portugal,
South Africa, Spain, Sweden, Switzerland, Turkey, United Arab Emirates, and the
United Kingdom.
Asia Pacific operations are currently headquartered at the Company's
offices in Singapore, with announced plans to further regionalize operations
into two centers located in Tokyo, Japan and Sydney, Australia. Marcam has
subsidiaries in Singapore, Hong Kong, Japan and Australia. The operations
include independent representative offices in Australia, Hong Kong, India,
Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan, the Philippines,
People's Republic of China, Singapore, Taiwan, and Thailand.
Latin American operations are headquartered at the Company's offices in
Atlanta, Georgia. The operations include subsidiaries in Argentina and Brazil
as well as independent representative offices in Argentina, Brazil, Chile,
Colombia, Guatemala, Mexico, Paraguay, Peru, and Venezuela.
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None of the Company's customers accounted for more than 10% of total
revenues in fiscal 1996, 1995, and 1994. The Company generally ships its
products upon the execution of license agreements. Accordingly, the Company
does not believe that its backlog at any particular point in time is indicative
of future sales.
IBM Relationship
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The Company has a number of marketing and product development relationships
with IBM. IBM has also purchased licenses for the Company's products for
internal use, as well as for marketing purposes. Marcam has purchased certain
services, equipment and software licenses from IBM.
Under various agreements with the Company and its representatives, IBM
markets Marcam's products in cooperation with Marcam and its subsidiaries or
representatives in several countries. In each case, Marcam or its
representative pays IBM a fee for marketing the Company's products when a sale
is made with IBM's assistance. The fee is calculated as a percentage of the
license fees received by Marcam and varies based on the agreement's specific
territories. The Company paid IBM aggregate fees of $0 in fiscal year 1996.
The Company's independent representatives paid IBM additional fees.
The Company also has an agreement with IBM in the United Kingdom under
which Marcam assists IBM in the marketing of IBM products, primarily the AS/400
series of computers and associated products. During fiscal 1996, the Company
received $87,000 in such fees.
IBM also markets and distributes some Marcam products on the Company's
behalf in certain geographies, including Europe, Latin America and Asia Pacific.
In fiscal year 1996, IBM paid the Company an aggregate of approximately
$1,208,000 relating to sales of the Company's products.
The Company also licenses products and provides services to IBM in the
ordinary course of business. During fiscal 1996, the Company recognized an
aggregate of approximately $409,000 from licensing products and providing
services to IBM. IBM also sells products and provides services, including
distribution and translation services, to the Company in the ordinary course of
business.
On September 29, 1995, the Company acquired all of the outstanding stock of
Mapics, Inc. ("Mapics"). In the acquisition, the Company ( 1) acquired from IBM
all the outstanding Class B Preferred Shares and Common Shares of Mapics for
$1.00; (2) acquired 4 Class A Preferred Shares and 4 Class C Preferred Shares of
Mapics from Richard C. Cook, the Vice President and General Manager of the
Company's MAPICS Business Group and the President of Mapics, in exchange for the
surrender by the Company to Mr. Cook of a promissory note made by Mr. Cook with
a principal amount of $58,823 and (3) acquired the remaining outstanding Class A
Preferred Shares and Class C Preferred Shares of Mapics from Edison Venture
Fund, L.P. for $1,508,122. As a result of the acquisition, the Company currently
owns (through Mapics) all right, title and interest in the MAPICS product line.
In July 1993, a subsidiary of the Company and IBM United Kingdom Holdings
Limited ("IBM UK") entered into a joint venture agreement to market the
Company's PRISM and MAPICS product lines in the United Kingdom. Under the terms
of the agreement, IBM UK and the Company's subsidiary received specified
percentages of license fees for licenses sold by the joint venture. The parties
mutually agreed to terminate the joint venture in August 1996 at the end of the
contract because the original objectives had been achieved. The Company paid
$78,000 to IBM UK for the buy out of its interest.
PRODUCT DEVELOPMENT
During 1996, the Company continued its significant investments in object
technology. The Company continued to deliver subsequent versions of its Protean
and Avantis.Pro products for production, inventory, and maintenance
applications. A number of Protean and Avantis.Pro customers began to use the
respective products in production. It also delivered its first Japanese,
French, and German versions of Protean and Avantis.Pro. The Company believes
that it is the first provider to deliver mission-critical, object-oriented
applications for the ERP market. Object technology enables the Company to
deliver applications that are flexible, open, and easy to use and, therefore,
the Company believes its use of object technology will enable it to offer
customized
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applications made from standard reusable objects. The benefits of this approach
to customers include a high level of fit and function with support costs
comparable with those of standard applications.
When appropriate, the Company may also enter into development agreements
with current and prospective customers and others as part of its product
development effort. Often, periodic enhancements to products for subscribers to
Marcam's customer support program are provided. Further, custom programming
services are made available for a fee to customers. During fiscal years 1996,
1995, and 1994, gross research and product development expenditures were
$39,913,000, $41,140,000, and $36,405,000, respectively.
PROPRIETARY RIGHTS AND LICENSES
The Company usually provides its PRISM, Protean and Avantis products to end
users under non-exclusive, non-transferable licenses which typically have
perpetual terms. The MAPICS XA product is available under a non-perpetual
license which is renewable pursuant to the payment of annual license fees.
Under the Company's current form of license agreement for the PRISM, Protean and
Avantis products, the licensed software may be installed on customers' computers
and used solely for internal operations by an agreed-upon number of named users.
The MAPICS XA products are licensed for use on designated computers at specified
sites. The Company protects many of the PRISM, Protean, and Avantis software
modules as trade secrets and unpublished copyrighted works. Although the
Company takes steps to protect its trade secrets, there can be no assurance that
misappropriation will not occur. Because of the size and complexity of its
products, the Company typically makes the source code for many of its PRISM,
MAPICS XA and Avantis modules available to its customers. There can be no
assurance, however, that copyright and trade secret protection will be available
in certain countries for the source code or object code versions of the
Company's products. MAPICS XA is protected as a copyrighted work; it is not
protected as a trade secret.
The Company currently relies on a combination of patent, trade secret,
copyright and trademark laws and license agreements to protect its proprietary
rights in its products. Marcam has obtained a patent on a method for modeling
production processes, which is embodied in the PRISM and Protean process
products. The Company has also obtained a patent on a method for managing how
computer programs communicate with each other across dispersed systems and
different release levels of software throughout an enterprise, which is also
embodied in the PRISM database. The Company believes that, because of the rapid
pace of technological change in the computer software industry, patent, trade
secret and copyright protection are less significant than factors such as the
knowledge, ability and experience of the Company's employees, frequent product
enhancements and the timeliness and quality of support services.
COMPETITION
The principal competitive factors in the market for enterprise resource
planning software and services include product functionality, technology,
quality, performance, reliability, ease of use, size of installed base, service,
and vendor reputation and financial stability. The Company believes that its
products currently compete favorably on the foregoing bases, although in certain
instances, it may be at a competitive disadvantage against companies with
greater financial, marketing, service and support, and technological resources.
The Company typically competes against the larger multinational vendors
which offer applications that address the ERP marketplace, including AS/400
solution vendors and vendors which provide open software solutions. The Company
also experiences competition from software developed by the management
information systems departments of its largest potential customers. Marcam
believes its competitive strengths include its process and discrete industry
expertise, its proven functional leadership and customer implementation results,
and its long-term vision and early leadership position with object technology.
Information concerning the results of foreign and domestic operations is
located in Note 10 in the Notes to Consolidated Financial Statements.
11
EMPLOYEES
As of September 30, 1996, the Company employed a total of 963 employees.
None of the Company's employees are represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.
ITEM 2. PROPERTIES
The Company's principal administrative, marketing and product development
and support facilities are located in Newton, Massachusetts, where the Company
leases a total of 121,000 square feet under an agreement that expires in 1999.
The Company also leases office space for its other North American, Latin
American, European and Asian sales, development, and service offices.
The Company believes that its facilities are adequate for its current
needs. See Note 8 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as at December 20, 1996, who are
elected on an annual basis and serve at the discretion of the Board of
Directors, are as follows:
Name Age Position and Offices Served
---- --- -------------------- ------
Michael J. Quinlan 55 President, Chief Executive January 1996 -
Officer and Director Present
George A. Chamberlain, 3d 61 Chief Financial Officer September 1994 -
Present
Richard C. Cook 49 Senior Vice President and October 1994 -
General Manager, MAPICS Present
Business Group
Robert A. Cramer 38 Vice President and General September 1996 -
Manager, Process Present
Business Group
Mr. Quinlan has served as the Company's President and Chief Executive
Officer since January 1996 and a Director since February 1996. Prior to joining
Marcam, Mr. Quinlan was Senior Vice President of Marketing for Telular
Corporation, a developer of fixed wireless phone systems, from June 1994 to
October 1995. From July 1992 to June 1994, he was Director of Technology at the
Wharton School, and Chief Executive Officer of Access Technology Group, a
multimedia production company specializing in executive presentations and sales
tools, from July 1993 and June 1994. Prior to 1992, Mr. Quinlan held a number
of senior management positions including Director of Strategic Planning,
President of the National Accounts Division and Chief Financial Officer of IBM's
Asia Pacific Group.
Mr. Chamberlain has served the Company as its Chief Financial Officer since
September 1994. Prior to joining the Company, Mr. Chamberlain was an Executive
Vice President with Capital Technologies, Inc., a consulting and venture capital
company, during 1993 and 1994. Mr. Chamberlain retired from Digital Equipment
Corporation in 1992, where he had most recently been Vice President of Finance.
Mr. Cook has served as the Company's Vice President and General Manager,
MAPICS Business Group since October 1994. In July 1996 he became Senior Vice
President and General Manager, MAPICS Business Group. Mr. Cook has been the
President, Chief Executive Officer and Chairman of the Board of Mapics, Inc.
since March 1993. Prior to joining Mapics, Mr. Cook was employed by IBM as
Director of its Atlanta Software Development Lab from April 1990 to February
1993 and as Director of its Corporate CIM (Computer Integrated Manufacturing)
Product Office from March 1988 to April 1990.
Mr. Cramer joined the Company in March 1996 as its Vice President and
General Manager of the Protean Business Group. In September 1996 he became Vice
President and General Manager of the Process Business Group. Prior to joining
the Company, Mr. Cramer was President and Chief Executive Officer of Software
Emancipation Technology, Inc., a developer of CASE software, from May 1994 to
August 1995. From June 1990 to May 1994, Mr. Cramer was Vice President,
Worldwide Marketing, of Centerline Software, Inc. (formerly Saber Software), a
developer of software development and testing tools.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information concerning the market for the Company's common stock, the
market prices of and dividends on the common stock during the past two fiscal
years, and the number of beneficial stockholders as of December 12, 1996 is as
follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
1996
- ----
High $20-3/4 $17 $14-1/2 $13-3/4 $20-3/4
Low 12-5/8 11-1/4 9-1/2 10-3/4 9-1/2
1995
- ----
High 11-1/2 13-7/8 16-5/8 16-3/4 16-3/4
Low 8-1/2 8 12 7-3/4 7-3/4
The Company's common stock is traded on the Nasdaq National Market under
the symbol "MCAM." The Company believes that, as of December 12, 1996, there
were over 5,100 beneficial holders of the Company's common stock. The Company is
precluded from paying dividends under the covenants of the Company's revolving
credit facility and subordinated notes. The Company did not declare or pay any
cash dividends to stockholders in 1996 and 1995, and does not anticipate any
payment of cash dividends in the foreseeable future. See Note 6 to the
Consolidated Financial Statements.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands, Except Per Share Data)
Year Ended September 30, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
Total revenues $201,424 $202,332 $172,876 $124,277 $98,322
Income (loss) before income taxes (21,740)(A) (31,723)(B) (1,756) (14,504)(C) 11,032
Net income (loss) (26,326)(A) (34,357)(B) (1,018) (12,684)(C) 6,678
Net income (loss) per share (2.31)(A) (3.05)(B) (0.09) (1.25)(C) 0.72
Weighted average number of
shares outstanding 11,384 11,268 11,027 10,173 9,337
September 30, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
Total assets $132,202 $146,852 $128,948 $ 97,396 $64,205
Total long-term obligations 26,525 26,359 35,483 22,026 3,956
Total stockholders' equity 11,674 26,646 38,126 36,961 33,789
(A) Fiscal 1996 results include restructuring charges of $10,600, or $.93 per
share, and a litigation settlement of $3,250, or $.29 per share.
(B) Fiscal 1995 results include a restructuring charge of $28,756, or $2.55 per
share.
(C) Fiscal 1993 results include a charge of $5,568, or $.55 per share, for in-
process research and development related to the acquisition of the MAPICS
product line.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues represented by
items reflected in the Company's consolidated statements of operations.
1996 1995 1994
---- ---- ----
Revenues:
Licenses 46.2% 52.0% 53.8%
Services 53.8 48.0 46.2
------ ------ ------
Total revenues 100.0% 100.0% 100.0%
------ ------ ------
Operating expenses:
Cost of license revenues 8.3% 9.2% 7.9%
Cost of services revenues 34.5 31.1 29.3
Selling and marketing 41.1 43.1 47.0
Product development 13.7 12.8 11.4
General and administrative 4.9 4.1 4.6
Restructuring charges 5.3 14.2 -
------ ------ ------
Total operating expenses 107.8% 114.5% 100.2%
------ ------ ------
Operating loss (7.8%) (14.5%) (0.2%)
Litigation settlement (1.6) - -
Interest and other income (expense), net (1.3) (1.2) (0.8)
-------- ------- --------
Loss before income tax expense (benefit) (10.7%) (15.7%) (1.0%)
Income tax expense (benefit) 2.3 1.3 (0.4)
-------- ------- --------
Net loss (13.0%) (17.0%) (0.6%)
-------- ------- -------
RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Factors Affecting Future Performance".
OVERVIEW
- --------
Marcam is a worldwide provider of enterprise applications and services for
manufacturing companies. The Company's products offer comprehensive business
planning and control solutions to customers' production, logistics, asset
management and financial requirements.
The Company's revenues are derived from licensing its Protean, PRISM,
Avantis, and MAPICS XA products. For the first three quarters of 1996, the
Company also derived revenues from its subsidiary, Foresight Software, Inc.
(FSI) and its MXP product line, which was divested effective as of June 30,
1996. Each of these product lines support different customers' technology
strategies. The Protean products, which utilize advanced object technology,
tools and databases, are platform independent. PRISM and MAPICS XA products
provide customer solutions implemented on the IBM AS/400. The Avantis products
provide customer solutions implemented both on the IBM AS/400 and open systems,
utilizing object technology.
Marcam also derives revenue from the sale of product support and related
services. Product support is offered to licensed customers generally based on
agreements that are renewed annually. Related services
15
include assisting with customer implementation of licensed software, providing
custom programming and system integration services, and providing educational
material and instruction in the use of licensed software.
During 1996, Marcam took a number of strategic measures designed to better
address its market opportunities, while balancing the need for short-term
profitability improvement.
The Company continued to invest aggressively in product development. The
major areas of focus included increased development resources in support of
Protean and expenditures on foreign language translation and localization,
particularly in support of MAPICS XA. Gross research and development
expenditures in 1996 totaled $39,913,000, or 19.8% of total revenue.
During 1996, the Company delivered new Protean releases adding production,
inventory management and planning functionality, as well as further enhancements
to Procurement and Maintenance Management applications. As of September 30,
1996, Protean was in full production at nine customer sites. In September 1996,
the Company delivered PRISM Release 4.3, with significant enhancements including
functionality which addresses year 2000 enablement and provides a migration path
to the Company's Protean products. Earlier in the year, the Company delivered
Release 3.0 of MAPICS XA, which included significant enhancements as well as new
modules for Electronic Commerce and the Information WorkPlace.
Also during 1996, the Company increased resources in selected sales and
marketing roles, including senior marketing and sales management executives, to
better position itself for long-term growth.
The Company also completed a review of its operating expense structure and
overall operations. As a result, the Company converted direct sales operations
in Latin America and Asia Pacific to affiliate distribution channels and
implemented staffing reductions in many areas. Additionally, the divestiture of
FSI was completed as of June 30, 1996.
The Company recorded restructuring charges during 1996 totaling $10,600,000
related to the actions described above. Of this amount, approximately $5,500,000
related to the divestiture of FSI, $1,990,000 related to employee severance
payments, $1,040,000 related to the write-off of intangible assets and
$2,070,000 addressed lease cancellations, fixed asset write-offs and other
miscellaneous costs related to the restructuring actions. In total,
approximately $6,870,000 in cash expenditures will result from these actions.
The Company also recorded a charge during fiscal 1996 of $3,250,000 for the
settlement of the shareholders' class action litigation that was filed in 1994.
Marcam also took action to raise additional capital to meet its short-term
objectives. This consisted of the addition of $10,000,000 of equity capital in
the form of preferred stock and warrants which was completed in July 1996. The
Company had $21,817,000 in cash and cash equivalents as of September 30, 1996.
16
1996 COMPARED TO 1995
- ---------------------
Revenues
- --------
Total revenues decreased 0.4% to $201,424,000 in 1996 from $202,332,000 in
1995. Total revenues excluding revenues from the MXP product line, which was
divested as of June 30, 1996, increased 2.8% to $190,280,000 in 1996 from
$185,030,000 in 1995. The increase in total revenues (excluding revenues from
the MXP product line) was due to the increase in services revenues, which was
partially offset by the decrease in license fee revenues.
License fee revenues decreased 11.5% to $93,137,000 in 1996 from $105,232,000
in 1995. License fee revenues excluding revenues from the MXP product line
decreased 7.5% to $86,664,000 in 1996 from $93,685,000 in 1995. The decrease in
license fee revenues resulted from the decline in license fee revenues for PRISM
and Protean products, which more than offset the continued revenue growth for
MAPICS products.
Services revenues increased 11.5% to $108,287,000 in 1996 from $97,100,000 in
1995. Services revenues excluding revenues from the MXP related services
increased 13.4% to $103,616,000 in 1996 from $91,345,000 in 1995. The services
revenues increase, which occurred in all geographies, was primarily due to
growth in the Company's consulting and support businesses. This was primarily
the result of the growth in the installed customer base.
Cost of License Revenues
- ------------------------
Cost of license revenues represented 17.9% and 17.7% of license revenues in
1996 and 1995, respectively. The cost of license revenues as a percentage of
license revenues increased slightly in 1996 primarily due to increased
amortization of capitalized software for the MAPICS and Protean products, and
increased amortization of software translation costs for translating products
into foreign languages.
Cost of Services Revenues
- -------------------------
Cost of services revenues represented 64.2% and 64.8% of services revenues in
1996 and 1995, respectively. The decrease in cost of services revenues as a
percentage of services revenues in 1996 was primarily the result of higher
margins realized in the Company's implementation consulting and customization
businesses. This was due to the decreased use of external resources as compared
to the prior year. External resources, although flexible, are generally more
costly than internal resources.
Selling and Marketing
- ---------------------
Selling and marketing expenses decreased $4,284,000, or 4.9%, in 1996 from
1995. The decrease in total selling and marketing expenses was due to decreased
spending on marketing programs as well as reduced headcount and the decline in
license revenues which led to lower commission expense. As a percentage of
revenues, selling and marketing expenses decreased to 41.1% in 1996 from 43.1%
in 1995. The decrease as a percentage of revenues was primarily due to
decreased spending on marketing programs and reduced headcount.
Product Development
- -------------------
Product development expenses were $27,680,000 and $25,930,000, representing
13.7% and 12.8% of total revenues in 1996 and 1995, respectively. The increase
of $1,750,000 in 1996 was primarily the result of lower amounts qualifying for
capitalization as software development costs under the Company's policies.
Gross research and product development expenditures in 1996 and 1995 were
$39,913,000 and $41,140,000, respectively. The $1,227,000 decrease was primarily
due to the Company's decision in the fourth quarter of 1995 to cease development
of the PRISM Client/Server products and to the FSI divestiture. This decrease
was partially offset by the increased investment in the Company's object
technology. The amounts of software development costs capitalized were
$12,233,000 and $15,210,000 for 1996 and 1995, respectively, representing 30.6%
and 37.0% of gross research and development expenditures.
17
General and Administrative
- --------------------------
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, increased by $1,605,000 in
1996 from 1995. The increase was due primarily to a $1,000,000 charge taken in
the second quarter of 1996 for service contract claims and legal costs, as well
as investments in internal information systems.
Restructuring Charges
- ---------------------
During the third and fourth quarters of fiscal 1996, the Company recorded
restructuring charges of $8,300,000 and $2,300,000, respectively. The
$10,600,000 of charges related to a restructuring of the Company's global
operations and the divestiture of FSI. At September 30, 1996, $3,982,000
related to these charges remained in accrued liabilities. Management believes
that the remaining balance will be adequate to cover future expenditures
associated with the 1996 restructuring actions and expects that the
restructuring actions will be complete by the end of fiscal 1997. See
"Overview".
Litigation Settlement
- ---------------------
During the second quarter of 1996, the Company reached an agreement to settle
the shareholder class action litigation which was brought against the Company in
August 1994. Of the $5,750,000 settlement, the Company contributed $2,750,000
from its own funds, with the remainder provided by insurance. The Company
recorded a charge of $3,250,000 to cover the settlement and other related
expenses.
Interest and Other Income
- -------------------------
Interest and other income increased $732,000 in 1996 from 1995. The increase
was due to higher average cash balances resulting from the financing activities
undertaken during the quarters ended September 30, 1995 and September 30, 1996,
and higher interest rates on invested balances.
Interest and Other Expense
- --------------------------
Interest and other expense increased $1,075,000 in 1996 from 1995. The
increase in 1996 was primarily due to interest expense from capital leases and
other financings, as well as franchise taxes.
Provision for Income Taxes
- --------------------------
The income tax expenses for 1996 of $4,586,000 and 1995 of $2,634,000 were
primarily due to foreign withholding taxes and income taxes on income generated
in foreign jurisdictions for which tax credit utilization is currently
uncertain. There was no tax benefit recorded in 1996 or 1995 for losses
generated during the periods due to the uncertainty of realizing such benefits.
1995 COMPARED TO 1994
- ---------------------
Revenues
- --------
Total revenues increased 17.0% to $202,332,000 in 1995 from $172,876,000 in
1994. License fee revenue increased 13.2% to $105,232,000 in 1995 from
$92,974,000 in 1994. The increase in license fees resulted from license revenue
growth for all product lines, with the most rapid rate of growth in the MAPICS
XA and MXP products. License revenue also grew most rapidly overseas, especially
in Asia Pacific and Latin America.
Services revenue increased 21.5% to $97,100,000 in 1995 from $79,902,000 in
1994. The services revenues increase, which occurred in all geographies, was due
to growth in the Company's consulting and support businesses. This was primarily
the result of the growth in the installed customer base.
Cost of License Revenues
- ------------------------
Cost of license revenues represented 17.7% and 14.7% of license revenues in
1995 and 1994, respectively. The cost of license revenues increased in 1995
primarily due to increased amortization of capitalized software resulting from
newly-released object-technology products, and increased levels of translations
of all products into foreign languages.
18
Cost of Services Revenues
- -------------------------
Cost of services revenues represented 64.8% and 63.3% of services in 1995 and
1994, respectively. The increase in cost of services revenues as a percentage
of services revenues in 1995 was primarily the result of lower margins realized
in the Company's implementation consulting business. This was due to the
increased use of external resources utilized to meet high demand. External
resources, although flexible, are generally more costly than internal resources.
Selling and Marketing
- ---------------------
Selling and marketing expenses increased $5,611,000, or 6.9%, in 1995 from
1994. The modest rate of increase was primarily due to expense controls. These
controls were offset in part by an increase in the percentage of license sales
generated by the Company's indirect selling channel, primarily for the MAPICS XA
product line, which has higher selling and marketing costs than the Company's
direct sales channel.
Product Development
- -------------------
Product development expenses were $25,930,000 and $19,655,000, representing
12.8% and 11.4% of total revenues in 1995 and 1994, respectively. The increase
of $6,275,000 in 1995 was primarily the result of increased investments in the
Company's object technology offset in part by a reduced level of computer
software costs capitalized.
Gross research and product development expenditures in 1995 and 1994 were
$41,140,000 and $36,405,000, respectively. The amounts of computer software
costs capitalized were $15,210,000 and $16,750,000 for 1995 and 1994,
respectively, representing 37.0% and 46.0% of gross research and development
expenditures.
General and Administrative
- --------------------------
General and administrative expenses increased by $512,000 in 1995 from 1994.
The increase was due primarily to increased legal expenses incurred by the
Company.
Restructuring Charge
- --------------------
In the fourth quarter of fiscal 1995, the Company recorded a restructuring
charge of $28,756,000 related to the cessation of development of the PRISM
Client/Server product line, intangible asset write-offs, staffing reductions,
the consolidation of certain facilities and reorganization of the MXP product
organization. This charge reflected costs of approximately $9,100,000
associated with the decision to discontinue PRISM Client/Server development,
including the costs of customer commitments and the write-off of previously
capitalized software. The charge also reflected costs of $16,300,000 associated
with the write-off of capitalized software and other intangible assets, the
future values of which were impaired by restructuring actions or were not
supported due to changes in business outlook. The charge included $2,300,000
related to the closure or consolidation of certain European facilities,
including related write-offs of property and equipment, and $1,100,000 related
to the headcount reduction of forty employees.
Interest and Other Income
- -------------------------
Interest and other income increased $268,000 in 1995 from 1994. The increase
was due to higher average cash balances resulting from the capital raised during
the fourth quarter, and higher interest rates on invested balances.
Interest and Other Expense
- --------------------------
Interest and other expense increased $1,259,000 in 1995 from 1994. The
increase in 1995 was due primarily to a full year of interest expense and
amortization of warrants associated with the $25,000,000 Subordinated Notes
which were issued in May 1994.
Provision for Income Taxes
- --------------------------
The income tax expense for fiscal 1995 of $2,634,000 was primarily due to
foreign withholding taxes and income taxes on income generated in foreign
jurisdictions for which tax credit utilization is currently
19
uncertain. The income tax benefit of $738,000 in fiscal 1994 was primarily due
to the carry-back of operating losses and research and experimentation credits.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has funded its activities primarily from cash generated from
operations, from borrowings and from equity financings.
Current assets decreased by $15,941,000 during 1996 to $78,551,000 from
$94,492,000. This decrease was primarily due to lower cash and accounts
receivable balances. Total cash and short-term investments of $21,817,000 at
September 30, 1996 decreased by $7,514,000 from $29,331,000 at September 30,
1995. The decrease in cash is attributable to cash used for restructuring
related payments and investments during the year, principally for computer
software costs and capital equipment, offset in part by the Company's
$10,000,000 preferred stock and warrant financing which occurred during the
fourth quarter of 1996. Accounts receivable at September 30, 1996 of
$50,602,000 decreased by $9,725,000 from $60,327,000 at September 30, 1995.
Days sales outstanding decreased from ninety-nine days for the quarter ended
September 30, 1995 to eighty-six days for the quarter ended September 30, 1996.
The decrease in accounts receivable and days sales outstanding was due primarily
to better collections experience.
Current liabilities increased by $156,000 during fiscal 1996 to $94,003,000.
This increase was due primarily to increases in deferred revenue of $1,007,000,
partially offset by net decreases in accounts payable, accrued expenses and
other current liabilities of $851,000. The increase in deferred revenue was
primarily due to the growth in demand for Marcam's support services. The net
decrease in accounts payable, accrued expenses and other current liabilities was
principally attributable to decreases in the restructuring reserves. As of
September 30, 1996, the Company had no material commitments for capital
expenditures. As a result of the changes in current assets and current
liabilities, working capital decreased by $16,097,000 from $645,000 at September
30, 1995 to a working capital deficit of $15,452,000 at September 30, 1996.
At September 30, 1996, the Company had outstanding debt of $25,000,000 in
9.82% unsecured subordinated notes due April 30, 2001. The terms of the
subordinated debt contain financial covenants which, among things, require the
maintenance of certain financial ratios, limit the Company's ability to incur
additional debt, and preclude the payment of dividends. The Company is in
compliance with these covenants, as amended.
In addition, the Company has a revolving credit facility of $12,000,000, with
borrowing availability equal to 80% of qualifying accounts receivable.
Borrowings under this facility bear interest at a designated prime rate plus 1%
per annum. The maximum borrowing availability under this facility was increased
from $7,500,000 to $12,000,000 in December 1996. This credit facility expires
August 31, 1997. The Company's obligations under this credit facility are
secured by liens on substantially all of the Company's assets. Additionally,
this credit facility contains covenants which, among other things, impose
certain limitations or prohibitions on the Company with respect to the
additional indebtedness, liens and capital leases; the payment of dividends on,
and the redemption or repurchase of capital stock of the Company; investments
and acquisitions; the merger or consolidation of the Company with any person or
entity, and the disposition of any of the Company's property or assets. As of
September 30, 1996, the Company had no borrowings outstanding under this
revolving credit facility.
In July 1996, the Company issued and sold 100,000 shares of Series E
Convertible Preferred Stock, par value $1.00 per share, for an aggregate price
of $9,500,000, and warrants to purchase an aggregate of 1,000,000 shares of
common stock of the Company for an aggregate purchase price of $500,000. Each
share of Series E Convertible Preferred Stock is convertible at any time at the
option of the holder into 10 shares of the Company's common stock, subject to
adjustment in the event of certain reorganizations or reclassifications of the
Company's capital stock. The warrants are exercisable at any time during the
period commencing July 23, 1996 and ending July 23, 2003, at an exercise price
of $15.36 per share of common stock.
20
In fiscal 1996 the Company recorded restructuring charges totaling
$10,600,000. Of this amount approximately $2,890,000 has resulted in cash
expenditures. As of September 30, 1996, a balance of $3,982,000 associated
with these charges remained in accrued liabilities. In fiscal 1995, the Company
recorded a restructuring charge of $28,756,000. As of September 30, 1996, a
balance of $595,000 associated with this charge remained in accrued liabilities.
The remaining restructuring accrual balances are expected to result in cash
expenditures during fiscal 1997.
The Company has used cash during fiscal 1996 and 1995 to fund strategic
investments, in particular substantial expenditures for new product development,
and operating losses. During fiscal years 1996 and 1995 the Company's product
development expenditures were $39,913,000 and $41,140,000, respectively. During
1997, the Company currently intends to make similar investments in product
development. The Company's objective is to fund these investments primarily
with cash from improved operations. The Company's ability to generate cash from
operations depends upon, among other things, revenue growth, completion and
market acceptance of new products, success in enhancing and selling its current
AS/400-based families of products, improvements in operating productivity, and
payment terms and collection of accounts receivable. There can be no assurance
that the Company's operations will generate sufficient cash to finance these
activities. Until operations improve to meet its cash requirements, the Company
will need to rely on existing cash resources and borrowings under its credit
facility. The Company currently anticipates that its available cash and
borrowing capacity will be sufficient to fund operations in 1997. If, however,
such sources prove insufficient in 1997, or over the longer term, the Company
will be required to make changes in operations or seek additional debt or equity
financing. There can be no assurances that additional debt or equity financing
will be available or available with terms acceptable to the Company.
Other Matters
- -------------
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("FAS 123"), was issued which will
require the Company to elect either expense recognition under FAS 123 or its
disclosure-only alternative for stock-based employee compensation. The expense
recognition provision encouraged by FAS 123 would require fair-value based
financial accounting to recognize compensation expense for employee stock
compensation plans. The Company has determined that it will elect the
disclosure-only alternative. The Company will be required to disclose the pro
forma net income (loss) and pro forma income (loss) per share in the notes to
the financial statements using the fair-value based method beginning in fiscal
1997 with comparable disclosures for fiscal 1996. The Company has not
determined the impact of these pro forma adjustments to its net income (loss) or
income (loss) per share.
To date, management believes inflation has not had a material impact on the
Company's operations.
21
FACTORS AFFECTING FUTURE PERFORMANCE
- ------------------------------------
In addition to other information contained in this Form 10-K, the following
factors should be carefully considered.
Recent Operating Losses/Liquidity
- ---------------------------------
The Company has incurred operating losses of $15,795,000 and $29,371,000
for the fiscal years ended September 30, 1996 and 1995, respectively. At
September 30, 1996, the Company's accumulated deficit was $62,795,000. There
can be no assurance that the Company will be able to operate profitably or
achieve sustained profitability in the future.
The Company has used cash during fiscal years 1996 and 1995 to fund
strategic investments, in particular substantial expenditures for new product
development, and operating losses. For the fiscal years ended September 30, 1996
and 1995 the Company's product development expenditures were approximately
$39,913,000 and $41,140,000, respectively. During 1997, the Company currently
intends to make similar investments in product development. The Company's
objective is to fund these investments primarily with cash from improved
operations. The Company's ability to generate cash from operations depends upon,
among other things, revenue growth, completion and market acceptance of new
products, success in enhancing and selling its current AS/400-based families of
products, improvements in operating productivity, and payment terms and
collection of accounts receivable.
The Company continues to focus its resources on the Protean, MAPICS XA,
PRISM and Avantis product families. The Company's ability to successfully
continue this strategy will impact its future results of operations and
liquidity position. The continuation of this strategy will depend upon, among
other things, its ability to maintain and enhance its major product lines, to
develop and introduce new products that keep pace with technological
developments, and to satisfy increasingly sophisticated customer requirements.
There can be no assurance that the Company's operations will generate
sufficient cash to finance its activities. Until operations improve to meet
its cash requirements, the Company will need to rely on existing cash
resources and borrowings under its credit facility. The Company currently
anticipates that its available cash and borrowing capacity will be sufficient to
fund operations in 1997. If, however, such sources prove insufficient in 1997,
or over the longer term, the Company will be required to make changes in
operations or seek additional debt or equity financing. There can be no
assurances that additional debt or equity financing will be available or
available with terms acceptable to the Company.
Variability of Quarterly Results
- --------------------------------
The Company's sales cycle typically ranges from three to twelve months, and
the cost of acquiring Marcam's software and associated computer hardware, and of
training system users, represents a significant expenditure for customers. The
Company's relatively long sales cycle and variable average revenue per
transaction, together with fixed short-term expenses, such as product
development expenditures, can cause significant variations in operating results
from quarter to quarter, if projected revenues are not realized in the expected
period. There can be no assurance that the Company will be able to achieve or
maintain profitability in the future or that its levels of profitability will
not vary significantly among quarterly periods. Further, it is possible that in
some future quarters the Company's revenues or operating results will be below
the expectations of securities analysts and investors. In such event, the price
of the Company's common stock could be materially adversely affected.
New Products and Technological Change
- -------------------------------------
The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards in computer hardware and
software technology, changes in customer requirements, and frequent new product
line introductions and enhancements. The Company's future success will depend
on its ability to enhance its current product lines and to develop and introduce
new products that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
There can be no assurance that the Company will be successful in developing and
marketing, on a timely and cost-effective basis, product enhancements or new
products that respond to technological advances by others, or that its new
products will achieve market acceptance.
The Company is currently facing the challenges of a product and technology
transition. In particular, many of the Company's software products (such as
PRISM and MAPICS) are designed to operate on IBM proprietary hardware, including
IBM's AS/400 computer systems. The Company must continue to invest in
enhancements and support for these products in a cost-effective manner. The
Company's newest products are designed to be platform independent and utilize
advanced object technology. Products embodying this technology are just
beginning to be introduced into the existing ERP marketplace. Although the
Company believes that its new object technology products will enjoy increased
acceptance by users in the ERP marketplace, there can be no assurance that such
products will be accepted by users to a significant degree or at all. Major new
product enhancements and new products can require long development and testing
periods to achieve market acceptance. In addition, software
22
programs as complex as those offered by the Company may contain errors which are
undetected when the products are first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. There can be no assurance that
errors will not impair the market acceptance of these products or adversely
affect the Company's operating results. The Company has from time to time
experienced problems with customers not being able to install or implement
certain of the Company's new product releases and with product performance,
including problems related to product functionality, product response time and
program errors. Currently, Marcam is not aware of any product implementation
issues which have not been addressed or are not currently being addressed by
Marcam. There can be no assurance that the problems encountered by customers
installing and implementing new releases or with the performance of the
Company's products will not arise in the future, and if such problems arise,
that such problems will not have a material adverse effect on the Company's
business and operating results.
Relationship with and Dependence on IBM
- ---------------------------------------
A substantial majority of Marcam's software license revenues is derived from
products designed to operate on IBM's proprietary AS/400 series of computers.
Marcam's current business is therefore affected by IBM's success in designing
and marketing these computer systems.
International Activities
- ------------------------
A material portion of the Company's business comes from outside the United
States. Risks inherent in the Company's international business activities
include imposition of government controls, restrictions on the export of
critical technology, political and economic instability (including fluctuations
in foreign currency exchange rates), trade restrictions, changes in tariffs and
taxes, difficulties in staffing and managing international companies, longer
accounts receivable collection cycles and the burdens of complying with a wide
variety of foreign laws and regulations. Effective patent, copyright and trade
secret protection may not be available in every foreign country in which the
Company sells its products. The Company's business, financial condition, and
results of operations could be materially adversely effected by any of these
risks.
Dependence on Proprietary Technology
- ------------------------------------
Marcam's success is heavily dependent upon its proprietary software. Marcam
relies on a combination of patent, trade secret, copyright, and trademark laws,
and non-disclosure and license agreements, to protect its products. Marcam
enters into confidentiality and/or license agreements with its employees,
distributors, customers and potential customers, and limits access to and
distribution of its software, documentation, and other proprietary information.
There can be no assurance that steps taken by Marcam in this regard will be
adequate to deter misappropriation or independent third party development of its
technology.
Although the Company believes that its products and technology do not infringe
any existing proprietary rights of others, there can be no assurance that third
parties will not assert such claims against the Company in the future or that
such future claims will not be successful. The Company could incur substantial
costs and diversion of management resources with respect to the defense of any
claims relating to proprietary rights, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Furthermore, parties making such claims could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief, which
could effectively block the Company's ability to make, use, sell, distribute or
market its products and services in the U.S. or abroad. Such a judgment could
have a material adverse effect on the Company's business, financial condition
and results of operations. In the event a claim relating to proprietary
technology or information is asserted against the Company, the Company may seek
licenses to such intellectual property. There can be no assurance, however,
that such a license could be obtained on commercially reasonable terms, if at
all, or that the terms of any offered licenses will be acceptable to the
Company. The failure to obtain the necessary licenses or other rights could
preclude the sale, manufacture or distribution of the Company's products and,
therefore, could have a material adverse effect on the Company's business,
financial condition and results of operations. The cost of responding to any
such claim may be material, whether or not the assertion of such claim is valid.
23
Competition
- -----------
The market of application software to support manufacturers and distributors
is highly competitive. Some of Marcam's current and potential competitors have
significantly greater development, marketing and capital resources than Marcam.
In addition, most of Marcam's existing and potential customers have a variety of
software developed by their management information systems departments. Marcam's
success depends, in part, on its ability to persuade existing and potential
customers to replace or augment their internally developed software with
Marcam's products, and there can be no assurance that Marcam will be able to
accomplish this objective.
Attraction and Retention of Key Personnel
- -----------------------------------------
Marcam believes that its success will depend in large part on its ability to
attract and retain highly-skilled technical, managerial, and marketing
personnel. Competition for such personnel is intense. None of Marcam's
employees are bound by an employment agreement. All key employees, however, are
bound by a non-competition agreement which extends for one year after
termination of their employment with Marcam. There can be no assurance that
Marcam will be successful in attracting and retaining the personnel it requires
to continue to grow and to operate profitably.
Possible Volatility of Stock Price
- ----------------------------------
The stock market from time to time experiences extreme price and volume
fluctuations, particularly in the high technology sector. In addition, factors
such as announcements of technological innovations or new products by Marcam or
its competitors, quarterly financial releases, as well as market conditions in
the computer software or hardware industries, may have a significant impact on
the market price of Marcam's common stock. Marcam's common stock has
experienced, and may in the future exhibit, price volatility because of factors
related, as well as unrelated, to Marcam's operating performance.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following is a list of the Consolidated Financial Statements and
Supplementary Data appearing herein:
Page
----
Reports of Independent Accountants...................................................26
Consolidated Balance Sheets, September 30, 1996 and 1995.............................28
Consolidated Statements of Operations for each of the three years in the period
ended September 30, 1996.............................................................29
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended September 30, 1996..................................................30
Consolidated Statements of Cash Flows for each of the three years in
the period ended September 30, 1996..................................................31
Notes to Consolidated Financial Statements...........................................32
Supplemental Financial Information...................................................48
25
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MARCAM CORPORATION:
We have audited the accompanying consolidated balance sheets of Marcam
Corporation as of September 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Marcam Corporation
as of September 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
October 24, 1996
26
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF MARCAM CORPORATION:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Marcam Corporation and subsidiaries for
the year ended September 30, 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Marcam Corporation and subsidiaries for the year ended September 30, 1994, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 20, 1994
27
MARCAM CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30,
ASSETS 1996 1995
-------------------
Current assets:
Cash and cash equivalents (Note 2) $ 21,817 $ 27,312
Short-term investments (Note 2) - 2,019
Accounts receivable, net of
allowances of $2,472 in 1996
and $3,005 in 1995 (Note 3) 50,602 60,327
Prepaid expenses and other current 6,132 4,834
assets -------- --------
Total current assets 78,551 94,492
-------- --------
Property and equipment, net (Notes 2
and 4) 10,954 10,127
Computer software costs, net (Note 2) 31,292 30,183
MAPICS intangible costs, net (Notes 2
and 13) 5,325 5,965
Other assets 6,080 6,085
-------- --------
Total assets $132,202 $146,852
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,496 $ 11,077
Accrued expenses and other current
liabilities (Note 5) 41,272 44,542
Deferred revenue 39,235 38,228
-------- --------
Total current liabilities 94,003 93,847
-------- --------
Long-term debt (Note 6) 25,764 25,209
Deferred income taxes (Note 7) 761 1,150
-------- --------
Total liabilities 120,528 120,206
-------- --------
Commitments and contingencies (Note 8)
Stockholders' equity (Notes 6 and 9):
Preferred stock, $1.00 par value;
1,000 shares authorized
Series D Convertible Preferred
Stock, 225 shares issued and
outstanding at September 30,
1996 and 1995 (liquidation
preference of $22,500) 225 225
Series E Convertible Preferred
Stock, 100 shares issued and
outstanding at September 30,
1996 (liquidation preference
of $10,000) 100 -
Common stock, $.01 par value; 30,000
shares authorized at September 30,
1996 and 1995; 11,431 and 11,271
shares issued and outstanding at
September 30, 1996 and 1995 114 113
Additional paid-in capital 76,602 65,672
Accumulated deficit (62,795) (36,469)
Unamortized deferred compensation (585) (1,100)
Cumulative translation adjustment (1,987) (1,795)
-------- --------
Total stockholders' equity 11,674 26,646
-------- --------
Total liabilities and
stockholders' equity $132,202 $146,852
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
28
MARCAM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended September 30,
1996 1995 1994
------------------------------
Revenues:
Licenses $ 93,137 $105,232 $ 92,974
Services 108,287 97,100 79,902
-------- -------- --------
Total revenues 201,424 202,332 172,876
-------- -------- --------
Operating expenses:
Cost of license revenues 16,669 18,657 13,700
Cost of services revenues 69,493 62,904 50,583
Selling and marketing (Note 3) 82,790 87,074 81,463
Product development 27,680 25,930 19,655
General and administrative 9,987 8,382 7,870
Restructuring charges (Note 5) 10,600 28,756 -
-------- -------- --------
Total operating expenses 217,219 231,703 173,271
-------- -------- --------
Operating loss (15,795) (29,371) (395)
Litigation settlement (Note 8) (3,250) - -
Interest and other income 1,443 711 443
Interest and other expense (4,138) (3,063) (1,804)
-------- -------- --------
Loss before income tax expense (benefit) (21,740) (31,723) (1,756)
Income tax expense (benefit) (Note 7) 4,586 2,634 (738)
-------- -------- --------
Net loss $(26,326) $(34,357) $ (1,018)
======== ======== ========
Net loss per share $(2.31) $(3.05) $(0.09)
======== ======== ========
Weighted average number of
shares outstanding 11,384 11,268 11,027
The accompanying notes are an integral part of the consolidated financial
statements.
29
MARCAM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Series D and E
Convertible Additional Unamortized
Preferred Stock Common Stock Paid-In Accumulated Deferred
Shares Per Value Shares Par Value Capital Deficit Compensation
------ --------- ------ --------- ------- ------- ------------
Balance at September 30, 1993 10,894 $109 $38,726 $ (1,094) $ (40)
Exercise of stock options, including tax
benefit of non-qualifying dispositions 16 - 60 - -
Sale of common stock under the
Employee Stock Purchase Plan 99 1 971 - -
Issuance of warrants with
subordinated debt (Note 9) - - 1,300 - -
Stock grants issued and compensation
expense (Note 9) 110 1 986 - (836)
Effect of foreign currency translation - - - - -
Net loss - - - (1,018) -
-------- ----------- ----------- --------------- -------------------
Balance at September 30, 1994 11,119 111 42,043 (2,112) (876)
-------- ----------- ----------- --------------- -------------------
Sale of convertible preferred
stock (Note 9) 225 $225 - - 22,275 - -
Exercise of stock options - - 11 - 108 - -
Sale of common stock under the
Employee Stock Purchase Plan - - 101 1 788 - -
Stock grants issued and compensation
expense (Note 9) - - 40 1 458 - (224)
Effect of foreign currency translation - - - - - - -
Net loss - - - - - (34,357) -
-------- ---------- ------- ----------- ----------- --------------- -------------------
Balance at September 30, 1995 225 225 11,271 113 65,672 (36,469) (1,100)
-------- ---------- ------- ----------- ----------- --------------- -------------------
Sale of convertible preferred
stock (Note 9) 100 100 - - 9,400 - -
Issuance of warrants with preferred
stock (Note 9) - - - - 500 - -
Exercise of stock options - - 113 1 566 - -
Sale of common stock under the
Employee Stock Purchase Plan - - 86 - 791 - -
Stock grants canceled and
compensation expense (Note 9) - - (39) - (327) - 515
Effect of foreign currency translation - - - - - - -
Net loss - - - - - (26,326) -
-------- ---------- ------- ----------- ----------- --------------- -------------------
Balance at September 30, 1996 325 $325 11,431 $114 $76,602 $(62,795) $ (585)
======== ========== ======= =========== =========== =============== ===================
Cumulative Total
Translation Stockholders'
Adjustment Equity
---------- ------
Balance at September 30, 1993 $ (740) $ 36,961
Exercise of stock options, including tax
benefit of non-qualifying dispositions - 60
Sale of common stock under the
Employee Stock Purchase Plan - 972
Issuance of warrants with
subordinated debt (Note 9) - 1,300
Stock grants issued and compensation
expense (Note 9) - 151
Effect of foreign currency translation (300) (300)
Net loss - (1,018)
---------- ---------------
Balance at September 30, 1994 (1,040) 38,126
---------- ---------------
Sale of convertible preferred
stock (Note 9) - 22,500
Exercise of stock options - 108
Sale of common stock under the
Employee Stock Purchase Plan - 789
Stock grants issued and compensation
expense (Note 9) - 235
Effect of foreign currency translation (755) (755)
Net loss - (34,357)
---------- ---------------
Balance at September 30, 1995 (1,795) 26,646
---------- ---------------
Sale of convertible preferred
stock (Note 9) - 9,500
Issuance of warrants with preferred
stock (Note 9) - 500
Exercise of stock options - 567
Sale of common stock under the
Employee Stock Purchase Plan - 791
Stock grants canceled and
compensation expense (Note 9) - 188
Effect of foreign currency translation (192) (192)
Net loss - (26,326)
---------- ---------------
Balance at September 30, 1996 $(1,987) $ 11,674
========== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
30
MARCAM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended September 30,
1996 1995 1994
----------------------------
Cash flows from operating activities:
Net loss $(26,326) $(34,357) $ (1,018)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 15,877 12,743 9,292
Provision for restructuring charges, non-cash portion 3,730 20,680 -
Provision for bad debts 3,828 1,449 4,512
Deferred income taxes (459) (1,128) (2,815)
Changes in operating assets and liabilities, net of effects
of acquisitions and divestitures:
Accounts receivable 1,779 (9,957) (13,046)
Prepaid expenses and other assets (2,648) (3,506) (997)
Accounts payable 2,748 (5,969) 3,572
Accrued expenses and other current liabilities (148) 30,866 4,951
Deferred revenue 2,220 7,435 6,977
-------- -------- --------
Net cash provided by operating activities 601 18,256 11,428
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (6,114) (3,946) (2,977)
Additions to computer software costs (12,233) (15,210) (16,750)
Payments for MAPICS intangible costs - - 259
Purchases of short-term investments (6,909) (2,019) -
Proceeds from the sale of short-term investments 8,928 - -
Payments for acquisitions, net of cash acquired - (1,282) (491)
Proceeds from sale of subsidiary, net of cash divested (461) - -
Payments for other assets - - (102)
-------- -------- --------
Net cash used for investing activities (16,789) (22,457) (20,061)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock 9,500 22,500 -
Proceeds from issuance of warrants 500 - -
Proceeds from issuance of Subordinated Notes - - 25,000
Principal borrowings on debt - 5,305 2,911
Principal payments on debt and
capital lease obligations (379) (7,719) (13,753)
Common stock issued under
Employee Stock Purchase Plan 791 789 972
Proceeds from stock option exercises 567 108 60
Repayment of notes receivable from shareholders - 14 -
-------- -------- --------
Net cash provided by financing activities 10,979 20,997 15,190
-------- -------- --------
Effect of exchange rate changes on
cash and cash equivalents (286) 53 (314)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (5,495) 16,849 6,243
Cash and cash equivalents at beginning of year 27,312 10,463 4,220
-------- -------- --------
Cash and cash equivalents at end of year $ 21,817 $ 27,312 $ 10,463
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
31
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Marcam Corporation and subsidiaries (the "Company") is a leading worldwide
provider of enterprise application software and services for manufacturing
companies. The Company also provides product support, implementation
consulting, education, and programming services to its customers. The Company's
products offer comprehensive business planning and control solutions for
customers' production, logistics, asset management and financial requirements.
The Company's primary geographic markets include North America, Latin America,
Europe, Asia Pacific, Africa and the Middle East.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Marcam
Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts in the prior
year financial statements have been reclassified to conform with the current
year presentation.
(b) Use of Estimates by Management
------------------------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. The most significant
estimates included in these financial statements are the valuation of
capitalized software, intangible assets, accounts receivable and deferred tax
assets. Actual results may differ from estimates.
(c) Revenue Recognition
-------------------
The Company recognizes revenues from the sale of its software licenses upon
the signing of license agreements, delivery of the software and determination
that collection of the related receivable is probable. Under the terms of the
Company's license agreements, the customer is responsible for installation and
training. At the time the Company recognizes revenues from the sale of software
licenses, no significant vendor obligations remain, and the costs of
insignificant support obligations are accrued.
The Company recognizes revenues from license renewals (which typically
include some customer support obligation) and post-contract customer support
agreements as services revenues ratably over the terms of the agreements.
Revenues from consulting and custom programming services are recognized as
services are performed. Related expenses are included in cost of services
revenues.
Revenues from sales through third party representatives are included in
revenues, and related commissions are included in selling and marketing
expenses.
(d) Cash and Short-Term Investments
-------------------------------
Cash equivalents consist of highly liquid investments with maturities of
three months or less from the date of purchase. Investments with maturities
greater than three months and less than twelve months are considered to
32
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
be short-term investments. Cash equivalents and short-term investments consist
primarily of commercial paper, municipal bonds, time deposits and money market
investments.
The Company classifies all securities that mature in less than one year as
"held to maturity" securities. At September 30, 1995, held to maturity
securities consisted of municipal bonds recorded at an amortized cost of
$2,019,000, which approximated fair value. At September 30, 1996, the Company
held no securities.
(e) Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company provides credit, in the normal course of business, to various types
and sizes of manufacturers located throughout the world. Management does not
believe significant credit risk exists at September 30, 1996.
(f) Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method based upon the following estimated useful lives:
Furniture and fixtures 5 to 7 years
Computer equipment 3 to 5 years
Leasehold improvements Shorter of lease or useful life of asset
(g) Computer Software Costs
-----------------------
The Company charges all costs of establishing technological feasibility of
computer software products to product development expense as they are incurred.
Thereafter, computer software costs are capitalized and reported at the lower of
unamortized cost or net realizable value. Computer software costs include in-
house software development costs and the costs incurred to translate software
into various foreign languages. Amortization of computer software costs
commences upon general release of the product to customers and is computed on a
product-by-product basis using the greater of the amount determined using (a)
the ratio that current period gross revenues bear to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
estimated economic life of the product. Amortization and related write-offs are
charged to cost of license revenues. Capitalized software is subject to rapid
technological obsolescence and, as a result, amortization periods could
ultimately shorten to reflect the change in future technology.
Computer software costs capitalized during 1996, 1995 and 1994 amounted to
approximately $12,233,000, $15,210,000 and $16,750,000, respectively.
Amortization of computer software costs during those periods was approximately
$9,034,000, $8,453,000 and $5,461,000, respectively, including the write-down of
certain costs in 1994 of $1,429,000. Additionally, in 1996, capitalized
software and translation costs with a net book value of $2,090,000 were written
off as part of the 1996 restructuring charges described in Note 5. In fiscal
1995, capitalized software and translation costs with a net book value of
$18,253,000 were written-off as part of the 1995 restructuring charge described
in Note 5, and computer software valued at $9,391,000 was recorded in connection
with the acquisition of Mapics, Inc., as described in Note 13. Accumulated
amortization at September 30, 1996 and 1995 totaled $23,581,000 and $18,540,000,
respectively.
(h) MAPICS Intangible Costs
-----------------------
The MAPICS intangible costs represent intangibles that are being amortized
to cost of license revenues using the straight-line method over the estimated
lives of the intangibles, ranging from 5 to 15 years, as described in Note 13.
33
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAPICS intangible costs are shown net of accumulated amortization of $2,707,000
and $2,067,000 as of September 30, 1996 and 1995, respectively.
(i) Goodwill
--------
The excess of the cost of businesses acquired over the fair market value of
net assets acquired is being amortized to expense on a straight-line basis over
eight years.
(j) Intangible Assets
-----------------
The Company evaluates the net realizable value of capitalized software and
other intangibles on a quarterly basis using undiscounted cash flows. The
Company's review of intangible assets includes an analysis of past operating
results, business plans and budgets related to recoverability of the specific
assets.
(k) Foreign Currency Translation
----------------------------
The functional currency for each of the Company's foreign operations is
generally its local currency. Assets and liabilities of foreign subsidiaries
are translated into U.S. dollars at year-end rates of exchange. Revenues and
expenses are translated into U.S. dollars at the average rates for the periods.
The resultant translation adjustments are reflected as a separate component of
stockholders' equity on the consolidated balance sheets.
(l) Income Taxes
------------
The Company accounts for income taxes using the asset and liability method,
pursuant to which deferred income taxes are recognized for the tax consequences
of differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on deferred income taxes
of a change in tax rates is recognized in the period that includes the enactment
date.
The Company does not provide for U.S. income taxes on the undistributed
earnings of foreign subsidiaries which the Company considers to be permanent
investments.
(m) Net Income (Loss) Per Share
---------------------------
Net income per share is computed based upon the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares are included in the per share calculations where the effect of
their inclusion would have been dilutive. Net loss per share is based upon the
weighted average number of common shares outstanding during the period. Common
equivalent shares result from the assumed exercise of outstanding stock options,
warrants and convertible preferred stock, the proceeds of which are then assumed
to have been used to repurchase outstanding common stock using the treasury
stock method.
(n) New Accounting Pronouncement
----------------------------
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("FAS 123"), was issued which will
require the Company to elect either expense recognition under FAS 123 or its
disclosure-only alternative for stock-based employee compensation. The expense
recognition provision encouraged by FAS 123 would require fair-value based
financial accounting to recognize compensation expense for employee stock
compensation plans. The Company has determined that it will elect the
disclosure-only alternative. The Company will be required to disclose the pro
forma net income (loss) and pro forma income (loss) per share in the notes to
the financial statements using the fair-value based method beginning in fiscal
1997 with comparable disclosures for fiscal 1996. The Company has not
determined the impact of these pro forma adjustments to its net income (loss) or
income (loss) per share.
34
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides reserves for customer receivable balances which are
considered potentially uncollectible. The Company's allowance for doubtful
accounts amounted to $2,472,000, $3,005,000 and $2,930,000 at September 30,
1996, 1995 and 1994, respectively. The provision charged to bad debt expense,
which is generally included in selling and marketing expenses, was $3,828,000,
$1,449,000 and $4,512,000 for fiscal 1996, 1995 and 1994, respectively, and
write-offs against the allowance were $4,361,000, $1,374,000 and $2,213,000 for
fiscal 1996, 1995 and 1994, respectively.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of:
September 30,
1996 1995
-------- --------
(In thousands)
Furniture and fixtures $ 3,198 $ 3,664
Computer equipment 23,523 18,111
Leasehold improvements 2,033 2,240
-------- --------
28,754 24,015
Accumulated depreciation and amortization (17,800) (13,888)
-------- --------
$ 10,954 $ 10,127
======== ========
The carrying value of assets under capital leases included in the above was
$973,000 at September 30, 1996, which was net of accumulated amortization of
$415,000. There were no capital leases for property or equipment at
September 30, 1995.
(5) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of:
September 30,
1996 1995
--------------------
(In thousands)
Accrued commissions and royalties $13,938 $14,509
Accrued payroll and related expenses 7,376 6,208
Accrued restructuring cost 4,577 6,196
Accrued taxes 5,894 1,969
Other 9,487 15,660
------- -------
$41,272 $44,542
======= =======
In the third and fourth quarters of 1996, the Company recorded
restructuring charges of $8,300,000 and $2,300,000, respectively. These charges
resulted from the Company's completion of a review of its operating expenses and
overall operations. As a result, the Company divested its MXP product line and
committed to the restructuring of global operations. Approximately $6,870,000 of
the total 1996 restructuring charges has resulted in or is expected to result in
cash expenditures. At September 30, 1996, $3,982,000 related to these charges
remained in accrued liabilities. Management believes that this remaining balance
will be adequate to cover future expenditures associated with the 1996
restructuring actions and expects that the restructuring actions will be
completed by the end of fiscal 1997.
35
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Included in the 1996 restructuring charges is $5,500,000 associated with
the Company's decision to divest itself of the MXP product line, represented by
its Foresight Software, Inc. subsidiary. This charge represents the net loss
incurred in connection with the disposition of the stock of Foresight Software,
Inc. in a sale effective as of June 30, 1996, as well as additional costs of
divestiture. The Company received a promissory note in the amount of $2,775,000
from Foresight Software, Inc. and may be entitled to future royalties. The
Company will recognize the proceeds from the note and any future royalties as
cash payments are received, due to the uncertainty of collection. The results of
operations for fiscal 1996 and 1995 and the net assets divested were immaterial
to the Company's consolidated results of operations and financial position.
The remaining $5,100,000 of the 1996 restructuring charges related to the
conversion of certain direct sales operations in the Asia Pacific region and in
Latin America to affiliate distribution channels and a headcount reduction in
Europe and North America. Of this amount, $570,000 related to the cost of
customer commitments, $1,990,000 related to employee severance payments for
approximately ninety employees, $1,370,000 related to lease cancellations and
other costs, and $1,170,000 related to the write-off of certain related fixed
assets and intangible assets.
In September 1995, the Company recorded a restructuring charge of
$28,756,000 related to the cessation of development of the PRISM Client/Server
product line, the write-off of intangible assets, staffing reductions, the
consolidation of certain facilities and reorganization of the MXP product
organization. This charge reflected costs of approximately $9,100,000 associated
with the decision to discontinue PRISM Client/Server development, including the
cost of customer commitments and the write-off of previously capitalized
software. The charge also reflected costs of $16,300,000 associated with the
write-off of capitalized software and other intangible assets, the future values
of which were impaired by restructuring actions or were not supported due to
changes in business outlook. The charge includes $2,300,000 related to the
closure or consolidation of certain European facilities, including the related
write-off of property and equipment, and $1,100,000 related to the headcount
reduction of forty employees. Approximately $8,076,000 of the total charge has
or is expected to result in cash expenditures. As of September 30, 1996,
approximately $595,000 related to this charge remained in accrued liabilities.
Management believes that this remaining balance will be adequate to cover future
expenditures associated with the 1995 restructuring actions and expects that the
restructuring actions will be completed by the end of fiscal 1997.
36
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
September 30,
1996 1995
--------------------
(In thousands)
9.82% unsecured Subordinated Notes due April 30, 2001,
interest only payments of $1,227,500 due semi-annually
on April 30 and October 31 of each year until maturity $25,000 $25,000
Capital leases and other 1,156 209
------- -------
26,156 25,209
Less current maturities 392 -
------- -------
Long-term debt $25,764 $25,209
======= =======
In May 1994, the Company issued to institutional investors $25,000,000 of
9.82% unsecured Subordinated Notes due April 30, 2001 and warrants to purchase
383,333 shares of the Company's common stock. See Note 9. The terms of the
subordinated debt contain financial covenants which, among other things, require
the maintenance of certain financial ratios, limit the Company's ability to
incur additional debt and preclude the payment of dividends.
In July 1996, the Company renewed its existing revolving credit facility of
$7,500,000, with borrowing availability equal to 80% of qualifying accounts
receivable. In December 1996, the borrowing availability under this credit
facility was increased to $12,000,000. Borrowings under this facility bear
interest at a designated prime rate plus 1% per annum. This credit facility
expires on August 31, 1997. The Company's obligations under this credit
facility are secured by liens on substantially all of the Company's assets.
Additionally, this credit facility contains covenants which, among other things,
impose certain limitations or prohibitions on the Company with respect to
additional indebtedness, liens and capital leases; the payment of dividends on,
and the redemption or repurchase of, capital stock of the Company; investments
and acquisitions; the merger or consolidation of the Company with any person or
entity and the disposition of any of the Company's property or assets. At
September 30, 1996 and 1995, the Company had no borrowings outstanding under
this credit facility.
37
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
The components of the provision for (benefit from) income taxes are as
follows:
Year Ended September 30,
1996 1995 1994
--------------------------
(In thousands)
Federal:
Current $ - $ - $ -
Deferred - (390) (2,800)
------ ------ -------
Total - (390) (2,800)
------ ------ -------
State:
Current - - -
Deferred - - (418)
------ ------ -------
Total - - (418)
------ ------ -------
Foreign:
Current 4,975 3,344 350
Deferred (389) (320) 2,130
------ ------ -------
Total 4,586 3,024 2,480
------ ------ -------
Total: $4,586 $2,634 $ (738)
====== ====== =======
The components of income from domestic and foreign operations before
provision for (benefit from) income taxes are as follows:
1996 1995 1994
--------------------------
(In thousands)
Domestic $(25,593) $(31,173) $(10,204)
Foreign 3,853 (550) 8,448
-------- -------- --------
Total $(21,740) $(31,723) $ (1,756)
======== ======== ========
The Company's effective income tax rates of 21.1%, 8.3% and (42.0%) for the
years ended September 30, 1996, 1995 and 1994, respectively, differ from the
expected income taxes for those years calculated by applying the Federal
statutory rate of 34% to income (loss) before income taxes as follows:
38
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended September 30,
1996 1995 1994
---------------------------
(In thousands)
Expected tax (benefit) $(7,392) $(10,786) $(597)
Losses not benefited 8,503 9,078 -
Research and experimentation credits - - (400)
State taxes, net - - (276)
Tax effect of foreign activities 3,272 4,131 393
Tax effect of Mapics Transaction 79 136 137
Other 124 75 5
------- -------- -----
$ 4,586 $ 2,634 $(738)
======= ======== =====
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the net deferred income tax liability at September 30, 1996 and 1995 relate to
the following:
September 30,
1996 1995
-------------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 16,879 $ 8,108
Foreign, research and experimentation and other tax credits 6,903 5,366
Deferred revenue 3,572 4,007
Restructuring reserves 2,946 2,273
Other reserves 1,046 3,096
Intangible assets 593 1,483
Accrued vacation 358 530
Other 1,804 458
-------- --------
34,101 25,321
Less: Valuation reserve (25,639) (20,905)
-------- --------
Net deferred tax assets 8,462 4,416
Deferred tax liabilities:
Capitalized software (8,813) (5,093)
Other (410) (473)
-------- --------
(9,223) (5,566)
-------- --------
Net deferred tax liabilities $ (761) $ (1,150)
======== ========
In assessing the realizability of deferred assets, management considers
whether it is more likely than not that some or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and other matters in making this assessment. As a result of its evaluation of
these factors, at September 30, 1996, management recorded a valuation reserve
for deferred tax assets of $25,639,000. The increase in 1996 was the result of
management's assessment that some portion of the benefits from the net operating
losses incurred and foreign taxes paid by the Company during the year may not be
realized in future periods.
At September 30, 1996, the Company had operating loss carryforwards of
approximately $42,000,000, foreign tax credit carryforwards of approximately
$4,300,000, and research and experimentation credit carryforwards of
approximately $2,600,000, expiring between 1997 and 2011. The current year net
operating loss includes amounts related to stock option exercises, the benefit
of which will be allocated to additional paid-in capital when
39
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
realized. If certain substantial changes in the Company's ownership should
occur, there could be an annual limitation on the amount of carryforwards
available for utilization.
A provision has not been made for U.S. or additional foreign taxes on
$13,000,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S., because the Company plans to keep
these amounts permanently reinvested overseas.
(8) COMMITMENTS AND CONTINGENCIES
Lease Commitments
- -----------------
The Company leases certain equipment and office space under noncancelable
agreements and leases which expire at various dates through 2004. At September
30, 1996, future minimum lease payments under noncancelable operating and
capital leases were as follows:
Operating leases Capital leases
----------------------------------
(In thousands)
Year ending September 30:
1997 ..............$ 7,801 $ 425
1998 ................4,991 419
1999 ................1,731 199
2000 ..................592 106
2001 ..................528 50
Thereafter ................1,117 -
------- ------
Total minimum lease payments $16,760 $1,199
======= ======
less amounts representing interest
(annual rates ranging from 6% to 12%) (140)
------
Present value of minimum capital lease
obligations 1,059
less current maturities (392)
------
Capital lease obligations, less current
maturities $ 667
======
Total rental expense charged to operations was $9,087,000, $13,998,000 and
$8,178,000 for 1996, 1995 and 1994, respectively.
Litigation
- ----------
On May 20, 1996, the Company entered into a definitive agreement to settle
the shareholder class action litigation brought against the Company and certain
of its former officers. An order of Final Approval and Final Judgment and an
Order of Dismissal has been issued by the Federal District Court in
Massachusetts. The litigation, which was brought in August 1994, alleged
violations of federal securities law. Of the $5,750,000 settlement, the Company
contributed $2,750,000 from its own funds, with the remainder provided by
insurance. The Company recorded a charge of $3,250,000 in the second quarter of
fiscal 1996 to cover the settlement and other expenses incurred in connection
therewith.
The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. While the outcome of these matters
cannot be predicted with certainty, management does not believe the
40
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
outcome of any of these other legal matters will have a material adverse effect
on the Company's financial position or results of operations.
(9) STOCKHOLDER'S EQUITY
(a) Preferred Stock
---------------
In September 1995, the Company issued and sold 225,000 shares of Series D
Convertible Preferred Stock, par value $1.00 per share, for an aggregate
purchase price of $22,500,000. Each share of Series D Convertible Preferred
Stock is convertible at any time at the option of the holder into 10 shares of
the Company's common stock, subject to adjustment in the event of certain
reorganizations or reclassifications of the Company's capital stock. The
holders of Series D Convertible Preferred Stock are generally entitled to vote
on an as converted basis and are entitled to receive dividends at the same rate
as dividends are paid with respect to common stock. If at any time after
September 30, 1998, for a period of not less than 30 consecutive trading days,
the market value of the Company's common stock exceeds $40 per share, the
Company may elect that all then outstanding shares of Series D Convertible
Preferred Stock be mandatorily converted into shares of common stock. Holders of
Series D Convertible Preferred Stock are entitled to elect one Director of the
Company. The Company has 2,250,000 shares of common stock reserved for issuance
upon conversion of the Series D Convertible Preferred Stock.
In July 1996, the Company issued and sold 100,000 shares of Series E
Convertible Preferred Stock, par value $1.00 per share, for an aggregate price
of $9,500,000, and warrants to purchase an aggregate of 1,000,000 shares of the
Company's common stock for an aggregate purchase price of $500,000. See Note
9(d). Each share of Series E Convertible Preferred Stock is convertible at any
time at the option of the holder into 10 shares of the Company's common stock,
subject to adjustment in the event of certain reorganizations or
reclassifications of the Company's capital stock. The holders of Series E
Convertible Preferred Stock are generally entitled to vote on an as converted
basis and they are entitled to receive dividends at the same rate as dividends
are paid with respect to common stock. If at any time after July 23, 1999, for
a period of not less than 30 consecutive trading days, the market value of the
Company's common stock exceeds $40 per share, the Company may elect that all
then outstanding shares of Series E Convertible Preferred Stock be mandatorily
converted into shares of common stock. The Company has 1,000,000 shares of
common stock reserved for issuance upon conversion of the Series E Convertible
Preferred Stock.
Upon any event of liquidation or dissolution of the Company, holders of
Series D Convertible Preferred Stock and Series E Convertible Preferred Stock
are entitled to receive, before any distribution is made upon stock ranking
junior to the Series D Convertible Preferred Stock and Series E Convertible
Preferred Stock, the greater of (i) $100 per share plus an amount per share
equal to any dividends declared but unpaid thereon or (ii) such amounts per
share as would have been payable had each such share been converted to common
stock.
(b) Stock Option Plans
------------------
The 1987 Stock Plan (the "1987 Plan") provides that the Board of Directors
may grant incentive options to key employees and non-qualified options and stock
awards to officers, employees, and consultants to purchase up to 1,750,000
shares of the Company's common stock. Incentive stock options must be granted at
not less than the fair market value of the common stock at the time of the
grant. Non-qualified options must be granted at not less than the lesser of the
book value per share of common stock as of the end of the fiscal year of the
Company immediately preceding the date of such grant or 50% of the fair market
value of the common stock at the time of the grant. The 1987 Plan expires on
December 31, 1996.
41
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the 1987 Plan, an aggregate of 120,000 restricted stock grants to
various individuals were issued; 10,000 and 110,000 were issued in fiscal 1995
and fiscal 1994, respectively. These grants become 50% vested in 4-1/2 years
and 100% vested in 5-1/2 years. In fiscal 1996, 45,000 of the restricted stock
grants were canceled.
In April 1991, the Board of Directors adopted the 1991 Non-Employee
Director Stock Option Plan (the "Directors Plan"). The Directors Plan, as
amended, provides for the issuance of options to purchase up to 210,000 shares
of common stock only to eligible members of the Company's Board of Directors who
are neither employees nor officers of the Company.
In November 1994, the Board of Directors adopted the 1994 Stock Plan (the
"1994 Plan"). The 1994 Plan, as amended, provides that the Board of Directors
may grant incentive options to key employees and non-qualified options and stock
awards to officers, employees and consultants to purchase up to 2,000,000 shares
of the Company's common stock. Incentive stock options must be granted at not
less than the fair market value of the common stock at the time of the grant.
Non-qualified options must be granted at not less than the lesser of the book
value per share of common stock as of the end of the fiscal year of the Company
immediately preceding the date of such grant or 50% of the fair market value of
the common stock at the time of the grant. The 1994 Plan expires on September
30, 2004.
Under the 1994 Plan, an aggregate of 6,000 and 30,000 restricted stock
grants were issued to various individuals in fiscal years 1996 and 1995,
respectively. These grants become 50% vested in 4-1/2 years and 100% vested in
5- 1/2 years.
During 1996 the Board of Directors authorized options to purchase 25,260
shares of the Company's common stock which were granted outside of the three
existing stock option plans.
42
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option transactions follows:
Number of Option
Shares Under Prices Per
Options Share ($)
------- ---------
Balance, September 30, 1993 1,162,666 .20 - 29.25
Granted 517,142 8.75 - 12.25
Exercised (15,784) 1.50 - 12.25
Canceled (227,943) 10.50 - 20.50
---------
Balance, September 30, 1994 1,436,081 .20 - 29.25
Granted 577,289 9.00 - 14.63
Exercised (11,395) 1.00 - 12.25
Canceled (64,040) 9.50 - 20.50
---------
Balance, September 30, 1995 1,937,935 .20 - 29.25
Granted 739,704 10.88 - 15.25
Exercised (112,789) .20 - 14.75
Canceled (455,371) 8.75 - 22.50
---------
Balance, September 30, 1996 2,109,479 1.00 - 29.25
=========
At September 30, 1996, 623,254 options were exercisable under the plans,
and options for 1,463,796 shares were available for grant.
(c) Stock Purchase Plan
-------------------
The 1990 Employee Stock Purchase Plan ("1990 Plan") permits each full-time
employee, excluding those owning 5% or more of the Company's stock, to purchase,
at 85% of fair market value, up to 500 shares of common stock for each six-month
period. A total of 600,000 shares of common stock are authorized for issuance
under the 1990 Plan. In fiscal years 1996, 1995 and 1994, 86,440, 100,638 and
99,002 shares were issued, respectively.
(d) Warrants
--------
Warrants issued in connection with the Subordinated Notes described in Note
6 were valued in May 1994 at $1,300,000 and were recorded as other assets (long-
term) and additional paid-in capital. The asset is being amortized over the term
of the subordinated debt. The warrants may be exercised any time between June
30, 1994 and April 30, 2001 at $8.92 per share, as adjusted from time to time.
The warrants issued in connection with the Series E Convertible Preferred Stock
were recorded as additional paid-in capital in the amount of $500,000. The
warrants may be exercised anytime between July 23, 1996 and July 23, 2003 at
$15.36 per share. No warrants have been exercised as of September 30, 1996.
(e) Stockholder Rights Plan
-----------------------
On December 3, 1996, the Company's Board of Directors adopted a Stockholder
Rights Plan and declared a dividend of (i) one preferred stock purchase right (a
"Right") for each outstanding share of common stock, and (ii) for each
outstanding share of convertible preferred stock, a number of Rights equal to
the number of shares of common stock issuable upon conversion of such
convertible preferred stock, to stockholders of record at the close of business
on December 16, 1996. Each Right entitles holders to purchase one one-
thousandth of a share (a "Unit") of a new series of junior participating
preferred stock, par value $1.00 per share, at an exercise price of $60 per
Unit, subject to adjustment. The Rights become exercisable for common stock
only under certain circumstances and in the event of particular events relating
to a change in control of the Company. The Rights may
43
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
be redeemed by the Company under certain circumstances pursuant to the Plan.
The Rights expire on December 16, 2006 unless earlier redeemed or exchanged.
The Rights have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire a significant
interest in the Company on terms not approved by the Board of Directors.
(10) MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company had no customers which accounted for 10% or more of total
revenues in 1996, 1995 and 1994.
The Company markets its products worldwide. Revenues are grouped into three
main geographic segments: U.S., Europe and All Other. Financial data by
geographic area is as follows (in thousands):
U.S. Europe All Other Elimination Total
--- ------ --------- ----------- -----
1996
- ----
Net sales to unaffiliated customers $119,021 $51,990 $30,413 $ - $201,424
Transfers between geographic areas 6,169 - 6,493 (12,662) -
-------- ------- ------- -------- --------
Total revenues 125,190 51,990 36,906 (12,662) 201,424
-------- ------- ------- -------- --------
Net income (loss) (24,662) 7,804 6,016 (15,484) (26,326)
Identifiable assets 94,135 28,399 9,668 - 132,202
1995
- ----
Net sales to unaffiliated customers $113,061 $48,102 $41,169 $ - $202,332
Transfers between geographic areas 7,637 - 6,811 (14,448) -
-------- ------- ------- -------- --------
Total revenues 120,698 48,102 47,980 (14,448) 202,332
-------- ------- ------- -------- --------
Net income (loss) (20,133) 1,485 11,128 (26,837) (34,357)
Identifiable assets 114,082 25,650 7,120 - 146,852
1994
- ----
Net sales to unaffiliated customers $109,223 $34,035 $29,618 $ - $172,876
Transfers between geographic areas 19,179 - 4,664 (23,843) -
-------- ------- ------- -------- --------
Total revenues 128,402 34,035 34,282 (23,843) 172,876
-------- ------- ------- -------- --------
Net income (loss) 8,017 43 8,452 (17,530) (1,018)
Identifiable assets 89,957 19,968 19,023 - 128,948
44
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for income taxes and interest and non-cash investing and financing
activities for the years ended September 30, 1996, 1995 and 1994 are summarized
as follows (in thousands):
1996 1995 1994
---------------------------
Cash paid during the years for:
Income taxes $1,241 $ 159 $ 966
Interest 2,793 2,295 283
Capital lease obligations incurred $1,388 $ - $ -
Increase in MAPICS software and intangible costs $ - $ 1,184 $ 2,443
Issuance of warrants with subordinated notes $ - $ - $ 1,300
Installment purchase of MAPICS product line $ - $ 4,673 $ 3,776
Assumption of obligation - (4,673) (3,776)
------ ------- -------
Net cash paid $ - $ - $ -
====== ======= =======
Acquisitions:
Purchase price $ - $ - $ 1,082
Assumption of obligations - - 591
------ ------- -------
Net cash paid $ - $ - $ 491
====== ======= =======
(12) EMPLOYEE BENEFIT PLAN
In fiscal 1995, the Company began to sponsor for eligible employees a
profit sharing retirement plan (the "Plan") established under the provisions of
Internal Revenue Code Section 401(k). Participants may defer a portion of their
annual compensation on a pre-tax basis. The Company may elect to make matching
contributions based on a percentage of employees' contributions, subject to
limitations as defined in the Plan. Company matching contributions amounted to
$431,000 and $295,000 for the years ended September 30, 1996 and 1995,
respectively.
(13) ACQUISITIONS
Mapics Transaction
- ------------------
On February 26, 1993, the Company entered into a series of transactions
(collectively, the "Mapics Transaction") relating to International Business
Machines Corporation's ("IBM") Manufacturing, Accounting, Production, and
Information Control System ("MAPICS") product line. As part of the Mapics
Transaction, the Company acquired the exclusive worldwide marketing rights to
the MAPICS product line for 25 years. In connection with the acquisition of
these rights, the Company issued 1,615,000 shares of its common stock to IBM and
agreed to pay certain royalties, and to make certain contingent payments in the
future, based upon specified end-user revenues related to the MAPICS product
line. The Company also acquired the option to purchase the MAPICS product line
and certain related intellectual property rights. The Mapics Transaction was
accounted for as an installment purchase of the MAPICS product line, in-process
research and development and certain other related intangible assets. The value
of the common stock issued to IBM (valued by the Company at $14,940,000) plus
transaction costs and the present value of future estimated net payments to be
made by the Company upon exercise of its purchase option, was allocated, based
on an independent valuation report, as follows:
45
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Useful Lives
(In thousands) Amortization Period
-------------- -------------------
Installed customer base and affiliation network $ 6,034 15 Years
Trade names and trade marks 1,712 10 Years
Software technology 2,667 5 Years
Goodwill 286 10 Years
In-process research and development 5,568
-------
$16,267
=======
At the acquisition date, the Company expensed the amount of the purchase
price allocated to in-process research and development and recorded the
intangible assets acquired. The $5,568,000 of expensed in-process research and
development had not reached technological feasibility and had no alternative
future uses at the acquisition date.
In connection with the Mapics Transaction, IBM transferred certain assets
and liabilities related to the MAPICS product line to Mapics, Inc. ("Mapics"), a
Delaware corporation. IBM received 49% of the total voting power and certain
other non-voting securities of Mapics in exchange for such assets. Until
September 29, 1995 when Mapics was acquired by the Company, the Company recorded
a liability for its option to purchase the MAPICS software, which included the
purchase of any additional capitalized and purchased software developed or
acquired by Mapics subsequent to February 26, 1993. The exercise price for the
option was based upon, among other things (i) specified end-user revenues
generated by the Company, (ii) the liquidation preference of certain classes of
capital stock of Mapics, Inc. and (iii) an amount such that the net worth of
Mapics, Inc. was $1.00 (net of certain taxes) after all liquidation preferences
of all Mapics, Inc. preferred stock were paid in full. If the Company did not
exercise the option, the royalty rates payable by the Company to Mapics, Inc.
increased. The Company also provided management and consulting services to
Mapics for a management fee which was based, in part, on the operating results
of Mapics. The Company was obligated under the management agreement to advance
funds to Mapics on a secured basis if Mapics required funds for operations
beyond those it could provide from its own resources.
Pursuant to the management agreement with Mapics, the Company (i) recorded
Mapics' customer license renewal revenues as related party revenues; (ii) paid
royalties to Mapics generally based on license and maintenance revenues relating
to the MAPICS product line; and (iii) received from Mapics management fees
based, in part, on the operating results of Mapics. For financial reporting
purposes, the management fees were not recognized as revenue by the Company but
instead were treated as a reduction of the royalties the Company paid to Mapics.
The net royalties were recorded as product development expense to the extent
Mapics incurred such expenses, and the balance was recorded as cost of services
revenue. The amounts recorded for fiscal 1995 and 1994 are as follows:
1995 1994
------------------
(In thousands)
Net payments by Marcam to Mapics:
Royalties $24,682 $21,290
Management fees (9,893) (9,288)
------- -------
$14,789 $12,002
======= =======
Expenses recorded by Marcam:
Cost of services revenue $ 5,986 $ 5,804
Product development 8,803 6,198
------- -------
$14,789 $12,002
======= =======
Marcam also incurred expenses in connection with certain management
services provided to Mapics which are not included in the table above.
46
MARCAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Acquisition of Mapics, Inc.
- ---------------------------
On September 29, 1995, the Company acquired all of the outstanding stock of
Mapics, Inc. This transaction was accounted for using the purchase method of
accounting; accordingly, the purchase price, which was immaterial, was allocated
to assets and liabilities based on their estimated fair values as of the date of
acquisition. Prior to this acquisition, the Company had been accounting for the
Mapics Transaction as an installment purchase of the MAPICS product line. As
such, the Company had recorded MAPICS software and intangibles in its balance
sheet which represented the MAPICS software and intangibles acquired at
February 23, 1993, plus additional capitalized and purchased software developed
or acquired subsequent to February 23, 1993, as well as a MAPICS software
purchase obligation. As part of the accounting for the acquisition of the
outstanding stock of Mapics, Inc., the MAPICS software ($11,204,000) and MAPICS
software purchase obligation ($13,026,000) were eliminated.
(14) RELATED PARTY TRANSACTIONS
The Company has a number of marketing and product development relationships
with IBM. IBM has also purchased licenses for the Company's product for internal
use, as well as for marketing purposes. Marcam has purchased certain services,
equipment and software licenses from IBM.
Under various agreements with the Company and its representatives, IBM
markets Marcam's products in cooperation with Marcam and its subsidiaries or
representatives in several countries. In each case, Marcam or its
representative pays IBM a fee for marketing the Company's products when a sale
is made with IBM's assistance. The fee is calculated as a percentage of the
license fees received by Marcam and varies based on the agreement's specific
territories. The Company paid IBM aggregate fees of $0, $547,000 and $1,800,000
in fiscal years 1996, 1995 and 1994, respectively. The Company's independent
representatives paid IBM additional fees.
The Company also has an agreement with IBM in the United Kingdom under
which Marcam assists IBM in the marketing of IBM products, primarily the AS/400
series of computers and associated products. During fiscal 1996, 1995 and 1994,
the Company received $87,000, $159,000 and $88,000, respectively, in such fees.
IBM also markets and distributes some Marcam products on the Company's
behalf in certain geographies, including Europe, Latin America and Asia Pacific.
In fiscal years 1996, 1995 and 1994, IBM paid the Company an aggregate of
approximately $1,208,000, $8,041,000 and $11,350,000, respectively, relating to
sales of the Company's products.
The Company also licenses products and provides services to IBM in the
ordinary course of business. During fiscal years 1996, 1995 and 1994, the
Company recognized an aggregate of approximately $409,000, $185,000 and
$3,500,000, respectively, from licensing products and providing services to IBM.
IBM also sells products and provides services, including distribution and
translation services, to the Company in the ordinary course of business.
The Company's total revenues that were derived from transactions with IBM
were $1,704,000, $8,395,000 and $14,938,000 for fiscal 1996, 1995 and 1994,
respectively.
On September 29, 1995, the Company acquired all of the outstanding stock of
Mapics, Inc. In the acquisition, the Company (1) acquired from IBM all the
outstanding Class B Preferred Shares and Common Shares of Mapics for $1.00; (2)
acquired 4 Class A Preferred Shares and 4 Class C Preferred Shares of Mapics
from Richard C. Cook, the Vice President and General Manager of the Company's
MAPICS Business Group and the President of Mapics, in exchange for the surrender
by the Company to Mr. Cook of a promissory note made by Mr. Cook with a
principal amount of $58,823 and (3) acquired the remaining outstanding Class A
Preferred Shares and Class C Preferred Shares of Mapics from Edison Venture
Fund, L.P. for $1,508,122. As a result of the acquisition, the Company owned
(through Mapics) all right, title and interest in the MAPICS product line.
47
SUPPLEMENTAL FINANCIAL INFORMATION
The following quarterly information is unaudited and, in the opinion of
management, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the operating results for each quarter.
The length of the Company's sales cycle, which typically ranges from three to
twelve months, and the timing of major contracts are factors in the variability
in quarterly results.
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
(In thousands, except per share data)
1996:
Revenues $50,003 $47,426 $51,184 $52,811 $201,424
Operating income (loss) (1,433) (5,882)(A) (8,779)(B) 299 (C) (15,795)
Net loss (2,849) (10,759)(A) (10,582)(B) (2,136)(C) (26,326)
Net loss per share (.25) (.94)(A) (.93)(B) (.19)(C) (2.31)
1995:
Revenues $47,614 $49,393 $49,670 $55,655 $202,332
Operating income (loss) (663) 1,108 (1,945) (27,871)(D) (29,371)
Net income (loss) (905) 346 (2,912) (30,886)(D) (34,357)
Net income (loss) per share (.08) .03 (.26) (2.68)(D) (3.05)
(A) Second Quarter 1996 results include a litigation settlement charge of
$3,250, or $.29 per share.
(B) Third Quarter 1996 results include a restructuring charge of $8,300, or
$.73 per share.
(C) Fourth Quarter 1996 results include a restructuring charge of $2,300, or
$.20 per share.
(D) Fourth Quarter 1995 results include a restructuring charge of $28,756, or
$2.55 per share.
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors will be set forth under the
captions "Election of Directors" and "The Board of Directors and its Committees"
in the Company's definitive proxy statement for its annual meeting of
stockholders to be held on February 12, 1997 which will be filed with the
Securities and Exchange Commission within 120 days of September 30, 1996, and is
incorporated herein by reference.
Information regarding the Company's executive officers is contained in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will appear under the caption "Executive
Compensation" in the Company's definitive proxy statement for its annual meeting
of stockholders to be held on February 12, 1997 which will be filed with the
Securities and Exchange Commission within 120 days of September 30, 1996, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will appear under the caption "Securities
Ownership of Certain Beneficial Owners and Management" in the Company's
definitive proxy statement for its annual meeting of stockholders to be held on
February 12, 1997 which will be filed with the Securities and Exchange
Commission within 120 days of September 30, 1996, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will appear under the caption "Certain
Relationships and Related Transactions" in the Company's definitive proxy
statement for its annual meeting of stockholders to be held on February 12, 1997
which will be filed with the Securities and Exchange Commission within 120 days
of September 30, 1996, and is incorporated herein by reference.
50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) LIST OF FINANCIAL STATEMENTS
----------------------------
The following are the consolidated financial statements of Marcam
Corporation and its subsidiaries appearing elsewhere herein:
Reports of Independent Accountants
Consolidated Balance Sheets as of September 30, 1996 and 1995
Consolidated Statements of Operations for the Years Ended September
30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1996, 1995
and 1994
Consolidated Statements of Cash Flows for the Years Ended September
30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(A)(2) LIST OF SCHEDULES
-----------------
All other schedules to the consolidated financial statements are omitted as
the required information is either inapplicable or presented in the consolidated
financial statements or related notes.
(A)(3) LIST OF EXHIBITS
----------------
The Exhibits which are filed with this report or which are incorporated by
reference are set forth in the Exhibit Index hereto.
(B) REPORTS ON FORM 8-K:
-------------------
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission dated July 23, 1996, which reported pursuant to Item 5 the
Company's issuance of an aggregate of 100,000 shares of Series E Convertible
Preferred Stock, par value $1.00 per share, for an aggregate purchase price of
$9,500,000 and warrants to purchase an aggregate of 1,000,000 shares of common
stock, par value $.01 per share, for an aggregate purchase price of $500,000.
The Company filed a Current Report on Form 8-K with the Securities and
Exchange Commission dated December 3, 1996, which reported pursuant to Item 5
the adoption by the Company of a stockholder rights plan and in connection
therewith the declaration by the Board of Directors of a dividend of one
preferred stock purchase right (a "Right") for each outstanding share of common
stock, and for each outstanding share of convertible preferred stock, a number
of Rights equal to the number of shares of common stock issuable upon conversion
of such convertible preferred stock.
51
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, therunto duly authorized, this 20th day of December,
1996.
MARCAM CORPORATION
/s/ Michael J. Quinlan
----------------------------------------
Michael J. Quinlan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
on this 20th day of December, 1996 in the capacities indicated.
Signature Title(s)
- --------- --------
/s/ Michael J. Quinlan
- ---------------------------------- President and Chief Executive Officer,
Michael J. Quinlan and Director (principal executive
officer)
/s/ George A. Chamberlain
- ---------------------------------- Chief Financial Officer (principal
George A. Chamberlain, 3d financial and accounting officer)
/s/ Paul A. Margolis
- ---------------------------------- Chairman of the Board of Directors
Paul A. Margolis
/s/ Robert G. Barrett
- ---------------------------------- Director
Robert G. Barrett
/s/ John Campbell
- ---------------------------------- Director
John Campbell
/s/ William E. Ford
- ---------------------------------- Director
William E. Ford
/s/ William O. Grabe
- ---------------------------------- Director
William O. Grabe
/s/ Richard S. Hickok
- ---------------------------------- Director
Richard S. Hickok
/s/ Edward J. Kfoury
- ---------------------------------- Director
Edward J. Kfoury
/s/ Dean R. McKay
- ---------------------------------- Director
Dean R. McKay
52
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.
Exhibit No. Description SEC Document Reference
- ----------- ----------- ----------------------
2.1, 10.5 Stock Purchase Agreement 0-18674
dated as of September 29, Exhibit 2.1 to Current Report on Form
1995 by and among Marcam 8-K Dated September 29, 1995
Corporation, International
Buisness Machines
Corporation, Edison
Venture Fund, L.P.,
Richard C. Cook, Paul A.
Margolis, John Campbell
and Mapics, Inc
3.1, 4.1 Restated Articles of 33-5666
Organization of the Exhibits 3.2, 4.2
Registrant
3.2, 4.2 By-laws, as amended and 33-5666
restated, of the Registrant Exhibits 3.3, 4.3
3.3, 4.3 Certificate of Vote of 0-18674
Directors Establishing a Exhibits 3.1, 4.2 to Current Report
Series or a Class of Stock on Form 8-K Dated June 18, 1993
of the Registrant
3.4, 4.4 Certificate of Vote of 0-18674
Directors Establishing a Exhibits 3.4, 4.4 to Annual Report on
Series or a Class of Stock Form 10-K for the fiscal year ended
of the Registrant September 30, 1993
4.5 Specimen certificate 33-35666
representing the Common Exhibit 4.4
Stock
4.6 Stock Exchange Agreement 0-18674
dated as of April 9, 1991 Exhibits 2.2, 4.1 to Current Report
by and among the on Form 8-K Dated April 9, 1991
Registrant Marcam Canada
Holding Corporation and
William A. Shaw, Linda Pia
Shaw, Randy Reeve, Denise
Reeve, John P. Williamson,
and Sheila Kathleen
Williamson
1
4.7 Certificate of Vote of 0-18674
Directors Establishing a Exhibit 4 to Current Report on Form
Series of a Class of Stock 8-K Dated September 29, 1995
for the Series D
Convertible Preferred
Stock of Marcam Corporation
4.8 Certificate of Vote of 0-18674
Directors Establishing a Exhibit 4 to Current Report on Form
Series of a Class of Stock 8-K Dated July 23, 1996
for the Series E
Convertible Preferred
Stock of Marcam Corporation
4.9, 10.6 Rights Agreement, dated as 0-18674
of December 3, 1996, Exhibit 4 to Current Report on Form
between Marcam Corporation 8-K Dated December 3, 1996
and The First National
Bank of Boston, which
includes as Exhibit A the
form of Certificate of
Vote of Directors
Establishing a Series of a
Class of Stock, as Exhibit
B the Form of Rights
Certificate, and as
Exhibit C the Summary of
Rights to Purchase
Preferred Stock
10.1 Form of Lease Agreements 33-35666
entered into by the Exhibit 10.1
Registrant with various
partnerships in which
Messrs. Margolis, Campbell
and Ebling have an interest
10.2 Form of Stock Purchase 33-35666
Agreements entered into by Exhibit 10.5
the Registrant with
Messrs. Margolis, Stoner,
Ebling and certain other
persons
10.3 Lease by and between the 33-35666
Registrant and Dominic J. Exhibit 10.7
Saraceno, as amended,
dated June 13, 1988
10.4 Form of Indemnity 33-35666
Agreements entered into by Exhibit 10.9
the Registrant with
Messrs. Margolis,
Campbell, Barrett, de
Chazal, Hickok, McKay and
Ebling
2
10.7 Letter Agreement dated as 33-35666
of January 31, 1989 by and Exhibit 10.15
between the Registrant and
Paul A. Margolis
10.8 Second and Third 0-18674
Amendments, each dated as Exhibit 10.17 to Annual Report on
of August 29, 1990, to Form 10-K for the fiscal year ended
Lease by and between September 30, 1990
Registrant and Dominic J.
Saraceno, as amended,
dated June 13, 1988
10.09 1990 Employee Stock 0-18674
Purchase Plan, as amended Exhibit 10.21 to Annual Report on
and restated Form 10-K for the fiscal year ended
September 30, 1991
10.10 Deferred Compensation 0-18674
Plan, as amended and Exhibit 10.22 to Annual Report on
restated Form 10-K for the fiscal year ended
September 30, 1991
10.11 Fourth Amendment, dated 0-18674
June 30, 1992, to Lease by Exhibit 10.19 to Annual Report on
and between Registrant and Form 10-K for the fiscal year ended
Dominic J. Saraceno, as September 30, 1992
amended, dated June 13,
1988
3
10.12 Fifth Amendment, dated May 0-18674
10, 1993 to Lease by and Exhibit 10.27 to Annual Report on
Between Registrant and Form 10-K for the fiscal year ended
Dominic J. Saraceno, as September 30, 1993 as amended
amended, dated June 13,
1988
10.13 Complementary Marketing 0-18674
Agreement dated as of Exhibit 10.27 to Annual Report on
December 26, 1990 by and Form 10-K for the fiscal year ended
between the Registrant and September 30, 1993 as amended
International Business
Machines Corporation
10.14, 4.10 Note and Warrant Purchase 0-18674
Agreement entered into by Exhibit 10.1 to Quarterly Report on
Marcam Corporation and Form 10-Q dated May 12, 1994 as
each of The Northwestern amended by Form 10-Q/A dated
Mutual Life Insurance October 6, 1994
Company, John Hancock
Mutual Life Insurance
Company and John Hancock
Life Insurance Company of
America dated as of May
12, 1994
10.15 Amendment Agreement dated 0-18674
as of August 19, 1994 by Exhibit 10.1 to Quarterly Report on
and among the Registrant, Form 10-Q dated August 22, 1994
The Northwestern Mutual
Life Insurance Company,
John Hancock Mutual Life
insurance Company and John
Hancock Life Insurance
Company of America
4
10.16 Amendment Agreement dated 0-18674
as of July 29, 1995 by and Exhibit 10.36 to Annual Report of Form 10-K
among the Registrant, The for the fiscal year ended September 30,
Northwestern Mutual Life 1994 as amended
Insurance Company, John
Hancock Mutual Life
Insurance Company and John
Hancock Life Insurance
Company of America
10.17 Loan and Security 0-18674
Agreement dated as of Exhibit 10.37 to Annual Report of Form 10-K
August 29, 1995 by and for the fiscal year ended September 30,
between Greyrock Business 1994 as amended
Credit, a division of
Greyrock Capital Group
Inc., and the Registrant
10.18 Convertible Preferred 0-18674
Stock Purchase Agreement Exhibit 10.2 to Current Report on Form 8-K
dated September 20, 1995 Dated September 29, 1995
by and among Marcam
Corporation, General
Atlantic Partners 21,
L.P., GAP Coinvestment
Partners, L.P. and The
Northwestern Mutual Life
Insurance Company
5
10.19 Amendment Agreement dated 33-90670
as of September 29, 1995 Exhibit 10.4
by and among the
Registrant, The
Northwestern Mutual Life
Insurance Company, John
Hancock Mutual Life
Insurance Company, John
Hancock Life Insurance
Company of America and
Barnett & Co.
10.20 Amendment Agreement dated 0-18674
as of November 14,1995 by Exhibit 10.31 to Annual Report on Form
and among the Registrant, 10-K for the fiscal year ended September
The Northwestern Mutual 30, 1995 as amended
Life Insurance Company,
John Hancock Mutual Life
Insurance Company, John
Hancock Life Insurance
Company of America and
Barnett & Co.
10.21* Marcam/NEC Distribution 0-18674
Agreement between Marcam Exhibit 10.33 to Annual Report on Form
World Trade Corporation 10-K for the fiscal year ended September
and NEC Corporation dated 30, 1995 as amended
as of March 31, 1995
10.22* Marcam/NEC Technology 0-18674
Transfer and License Exhibit 10.34 to Annual Report on Form
Agreement by and between 10-K for the fiscal year ended September
the Registrant and NEC 30, 1995 as amended
Corporation dated as of
Marcam 31, 1995
6
10.23 Form of Memoranda dated 0-18674
December 7, 1995 regarding Exhibit 10.37 to Annual Report on
Compensation Plans for Form 10-K for the fiscal year ended
fiscal year 1996 from September 30, 1995 as amended
Registrant to each of
Messrs. Margolis,
Campbell, Chamberlain,
Cook, and Ebling
10.24 Amendment Agreement dated 0-18674
as of December 15, 1995 by Exhibit 10.38 to Annual Report on
and among the Registrant, Form 10-K for the fiscal year ended
The Northwestern Mutual September 30, 1995 as amended
Life Insurance Company,
John Hancock Mutual Life
Insurance Company, John
Hancock Life Insurance
Company of America and
Barnett & Co.
10.25 Letter dated March 29, 0-18674
1996 to Northwestern Exhibit 10.1 to Quarterly Report on
Mutual Life Insurance Form 10-Q dated May 14, 1996
Company, John Hancock Life
Insurance Company of
America and Barnett & Co.
from Marcam Corporation
10.26 Amendment dated as of 0-18674
March 30, 1996 to Loan and Exhibit 10.2 to Quarterly Report on
Security Agreement dated Form 10-Q dated May 14, 1996
as of August 29, 1995 by
and between Greyrock
Business Credit, a
division of Greyrock
Capital Group, and the
Registrant
10.27 Letter Agreement dated May 0-18674
3, 1996 by and between Exhibit 10.3 to Quarterly Report on
Marcam Corporation and Form 10-Q dated May 14, 1996
Paul A. Margolis
10.28, 4.11 Convertible Preferred 0-18674
Stock and Warrant Purchase Exhibit 10.1 to Current Report on
Agreement dated July 19, Form 8-K Dated July 23, 1996
1996 among Marcam
Corporation, General
Atlantic Partners 32, L.P.
and GAP Coinvestments
Partners, L.P., including
the form of Marcam
Corporation Common Stock
Purchase Warrants
7
10.29 Amended and Restated 0-18674
Registration Rights Exhibit 10.2 to Current Report on Form
Agreement dated July 23, 8-K Dated July 23, 1996
1996 by and among Marcam
Corporation, General
Atlantic Partners 21,
L.P., General Atlantic
Partners 32, L.P., GAP
Coinvestments Partners,
L.P. and The Northwestern
Mutual Life Insurance
Company
10.30 Amendment and Waiver 0-18674
Agreement dated as of July Exhibit 10.1 to Quarterly Report on Form
16, 1996 by and among the 10-Q dated August 14, 1996
Registrant, The
Northwestern Mutual Life
Insurance Company, John
Hancock Mutual Life
Insurance Company, John
Hancock Life Insurance
Company of America and
Barnett & Co.
10.31 Amendment dated July 23, 0-18674
1996 to Loan and Security Exhibit 10.2 to Quarterly Report on Form
Agreement by and between 10-Q dated August 14, 1996
Greyrock Business Credit,
a division of Greyrock
Capital Group, and the
Registrant
10.32 1994 Stock Plan, as 333-02158
amended and restated Exhibit 4.4
10.33 1987 Stock Plan, as
amended and restated
10.34 1991 Non-Employee Director
Stock Option Plan, as
amended and restated
10.35 Amendment dated December
16, 1996 to Loan and
Security Agreement by and
between Greyrock Business
Credit, a division of
Greyrock Capital Group,
and the Registrant
10.36 Amendment dated December
16, 1996 to Loan and
Security Agreement by and
between Greyrock Business
Credit, a division of
Greyrock Capital Group,
and the Registrant
8
10.37 Amendment Agreement dated as of
December 23, 1996 by and among the
Registrant, The Northwestern Mutual
Life Insurance Company, John Hancock
Mutual Life Insurance Company, John
Hancock Life Insurance Company of
America and Barnett & Co.
11 Statement re Computation of Earnings
(Loss) Per Share
21 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand LLP
23.2 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
----------------------------------------
* Confidential treatment granted
9