-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EMlcgt9lNDl0SIco5yuJPWc74O4gkf+dOwtuHzXBVA6c600GWxeA1wNyypbD9Xpd 2cGfhbdVIfgGAgBxjBaCHQ== /in/edgar/work/20000621/0001045969-00-000445/0001045969-00-000445.txt : 20000920 0001045969-00-000445.hdr.sgml : 20000920 ACCESSION NUMBER: 0001045969-00-000445 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHOWCASE CORP /MN CENTRAL INDEX KEY: 0001060311 STANDARD INDUSTRIAL CLASSIFICATION: [7373 ] IRS NUMBER: 411628214 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-26507 FILM NUMBER: 658241 BUSINESS ADDRESS: STREET 1: 4115 HWY 52 NORTH STREET 2: STE 300 CITY: ROCHESTER STATE: MN ZIP: 55901 BUSINESS PHONE: 5072885922 MAIL ADDRESS: STREET 1: 4115 HWY 52 NORTH STREET 2: STE 300 CITY: ROCHESTER STATE: MN ZIP: 55901 10-K405 1 0001.txt FORM 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES 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 SECURITIESEXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to . Commission File Number: 0-26507 SHOWCASE CORPORATION (Exact name of registrant as specified in its charter) 41-162821 MINNESOTA (I.R.S. Employer (State or other jurisdiction of Identification No.) incorporation or organization) 4115 Highway 52 North, Suite 300 Rochester, Minnesota 55901-0144 (Address of principal executive offices, including zip code) Registrants's telephone number, including area code: (507) 288-5922 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of June 12, 2000, there were 10,568,873 shares of the registrant's Common Stock, $.01 par value, outstanding. The aggregate market value of the registrant's voting stock held by non-affiliates as of June 12, 2000 was approximately $33.5 Million. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for its 2000 annual Meeting of Shareholders, scheduled to be held August 3, 2000, are incorporated by reference in Part III hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I Item 1. Business General We are the leading provider of fully integrated, end-to-end, business intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY product suite and related services are designed to enable organizations to rapidly implement business intelligence solutions that create increased value from their operational and customer data. The sophisticated data warehousing and management capabilities of our product suite provide our clients with highly scalable and tightly integrated solutions. Our products enable enterprise-wide distribution of information and allow end-user access and analysis through familiar applications and Internet browsers. We have nine years of experience delivering business intelligence solutions to our clients. Our ShowCase STRATEGY product suite, introduced in 1996, supports ad hoc information access, enterprise reporting and analytics. Industry Background The rapid growth of the Internet and the proliferation of e-business are transforming the way organizations conduct business, communicate and share information. This transformation is driving broad and immediate demand for better intelligence and information dissemination. In recent years, the deployment of enterprise resource planning applications, the integration of supply chains and the emergence of e-business have increased the amount of data available to companies. Nevertheless, many companies have failed to organize, manage and disseminate this data in an accessible, intuitive manner. Companies require business intelligence to interpret and create value from the vast amounts of available data by better tailoring products and services, identifying business opportunities and improving operational efficiencies. In addition, as organizations have become more closely linked with suppliers and customers, there is an increasing need to extend business intelligence beyond organizational boundaries. Business Intelligence. Employees, customers and suppliers require business intelligence to make faster, smarter business decisions. Business intelligence software enables organizations to transform data from disparate sources into accessible, understandable and useful information. It is also the foundation of an enterprise information portal, a centralized location where users can access necessary corporate information. Business intelligence solutions provide employees, customers and suppliers with useful information through ad hoc information access, enterprise reporting and analytics. Ad hoc information access enables users to customize the manner in which information is viewed and analyzed. Enterprise reporting delivers timely analysis and drill-down capabilities on a structured basis to broad user populations. Finally, analytic applications provide management insight by enabling users to analyze transactional data to identify operational trends and variances. Examples of analytic applications include fraud detection, credit scoring and budgeting applications. To support these functional uses, effective business intelligence solutions require a strong infrastructure of data warehouse generation and management. Business intelligence is deployed in many ways to increase revenues and operating efficiencies. For instance, in e-commerce, companies can use business intelligence to better manage customer relationships by analyzing past purchases, service history, product utilization and demographics. Consumer product companies and retailers use business intelligence to deploy management applications to determine which products to promote in specific markets and channels. Companies engaged in supply chain management use business intelligence to more efficiently manage product and material order flow among distribution facilities, multiple plants and suppliers. Companies from all industries can use business intelligence to benchmark performance against goals and best business practices. Business intelligence solutions are data intensive and draw on a broad range of data sources. A critical foundation technology for business intelligence solutions is a scalable and reliable server platform capable of supporting a broad array of users and environments. 1 The IBM AS/400. The AS/400 is a leading server platform used by mid-market companies to deploy enterprise resource planning, e-business and business intelligence applications. The popularity of the AS/400 as an application and e-business server is a function of its ease of use, reliability, security, scalability and ability to deploy Java and Windows NT business applications. Expanded interoperability with other systems facilitates the use of the AS/400 as a server in heterogeneous computing environments. New models of the AS/400 provide strong price performance and include an expanded multiprocessor architecture and networking capabilities and software products for Internet delivery of applications and e-business. The AS/400's integrated hardware, operating system, database, middleware and software applications provide organizations with the performance and tools to implement a robust business intelligence solution. Problems faced by traditional approaches to business intelligence. Companies have spent extensive time and resources collecting, organizing and delivering operational data through various applications. Nevertheless, many of these companies have been unable to implement and realize the benefits of a business intelligence solution because they lack the necessary technical expertise. This problem is especially prevalent for AS/400 customers because they typically have limited IT staff and resources. Traditionally, companies have implemented business intelligence solutions through the purchase and integration of many software products from multiple vendors. However, these companies are often unable to realize the full potential of business intelligence because of the following challenges: Integrating components from multiple vendors. As a result of the fragmented business intelligence market, implementing a business intelligence solution has traditionally required the evaluation, selection, purchase and integration of many different software products from multiple vendors. Integrating these products requires extensive use of an organization's IT staff and resources and often limits the overall capability of the implemented solution. Furthermore, because these components are supplied by multiple vendors, and use many different interfaces, the solution is often difficult to use. Adapting solutions to evolving end-user needs. The initial implementation of a traditional business intelligence solution frequently provides a limited set of functionality. As organizations realize the benefits of business intelligence, they frequently wish to add more business functionality to their solutions. Integrating this increased functionality may not be possible with an organization's existing tools, or may be extremely costly or laborious. Furthermore, the resulting solution is often of limited overall effectiveness. As a result, end users frequently require sustained IT staff involvement to perform the customized reporting and follow-on analysis necessary to derive increased value from corporate data. Scaling across the enterprise. When implementing traditional business intelligence solutions, organizations frequently do not recognize the importance of strong data warehouse generation and management capabilities. As a result, the data warehouse generation and management infrastructure of a business intelligence solution is often unable to meet the demands placed on it as the diversity and size of the end-user population grows. Without this infrastructure, companies frequently experience significant data integrity and performance problems when they attempt to scale their business intelligence solutions to serve broader user populations. Extending business intelligence through the Internet. Extending business intelligence through the Internet exacerbates the limitations of traditional business intelligence solutions. As companies implement enterprise information portals in an e-business environment, business intelligence solutions must be easy to use and provide a high degree of scalability and adaptability to deliver business intelligence to a growing population of employees, customers and suppliers with diverse needs. To support this large-scale deployment, business intelligence solutions must also have sufficient management, security, intuitive user interfaces and Internet browser-based capabilities. We believe that the demand for business intelligence, the limitations of traditional approaches and the large and growing AS/400 installed base provide a significant opportunity for fully integrated, end-to-end business solutions for AS/400 customers. 2 The ShowCase Solution We are the leading provider of business intelligence solutions for AS/400 customers. Our ShowCase STRATEGY product suite and related services are designed to enable organizations to rapidly implement and deploy business intelligence solutions that create increased value from their operational and customer data. We believe our solution provides the following key benefits: Full integration and end-to-end business intelligence functionality. Our product suite and professional services are designed to provide our clients with a complete, fully integrated, end-to-end business intelligence solution. Our products can be easily integrated with industry leading enterprise software applications provided by vendors such as Fiserv, Infinium Software, J.D. Edwards, Lawson Software, Lotus and SSA. Our end- to-end solution provides each of the three functional business intelligence uses--ad hoc information access, enterprise reporting and analytics. Our business intelligence solutions incorporate a strong infrastructure of data warehouse generation and management. This end-to-end approach eliminates the need for AS/400 customers to evaluate, select, purchase and integrate components from different vendors to realize the benefits of business intelligence. Easy deployment and expansion. Our comprehensive product suite and accompanying professional services enable our clients to quickly and easily deploy a manageable business intelligence solution that minimizes the burden on their IT departments. Our clients can deploy our modular business intelligence solution in stages as their business intelligence needs grow. Companies can start with any one of the above three functional business intelligence uses and extend their solutions to include the other two as end users realize the benefits of and discover other uses for business intelligence. We also offer Deployment Accelerators, which provide adaptable applications for targeted business functions and allow some of our clients to realize benefits of business intelligence within days of deployment. Robust scalability for enterprise-wide deployment. Our product suite addresses the challenges faced by IT departments as business intelligence solutions expand in functionality and in the number of applications and end users supported. Our data warehouse generation and management capabilities and our hub-and-spoke architecture enable modular expansion of data warehouses and data marts, which are simpler implementations of data warehouses, to support additional applications and end users. Further, our product suite supports enterprise performance capabilities and scalability through its tight integration with and leverage of the AS/400 platform. Ease of use and Internet accessibility. Our product suite combines a consistent and intuitive user interface with powerful functionality that allows end users to easily access, customize and analyze information and reports with minimal IT assistance. Because users can realize the benefits of our solution through familiar applications, such as Microsoft Excel, Lotus 1-2-3 and Microsoft Word, organizations are able to leverage existing software applications and user skills. These capabilities are enhanced by our easy-to-use Internet browser-based capabilities, including query and user-defined calculations, powerful graphics and drag-and-drop features. Products The ShowCase STRATEGY product suite includes all of the elements of a complete business intelligence solution. Typical configurations of business intelligence solutions include the following components of our product suite: Ad hoc information access, enterprise reporting and analytics Query. Query provides end users high-performance access to relational data on the AS/400 for ad hoc querying and results-oriented data analysis. Users may access data warehouses and operational data through the product's interface on their desktop computer, or through familiar applications, such as Microsoft Excel, Lotus 1-2-3 and Microsoft Word. Query also provides scheduling and sophisticated search functions for the advanced end user. 3 Report Writer. Report Writer enables end users to create fast, specialized reports for data analysis. Report Writer also combines drag-and-drop features, graphics and calculation capabilities that make report design easy and intuitive. Enterprise Reporting. Enterprise Reporting enables end users to publish and schedule queries and reports in a variety of industry-standard formats to a Web-server. By using Web technology as a repository and gateway, Enterprise Reporting improves information delivery in a cost-effective, managed and secured manner. Analyzer. Analyzer enables end users to analyze relational data--data with two variables and/or multidimensional data--data with more than two variables-- through desktop computers. End users can display data as charts, spreadsheets or custom report forms. The end user can drill down to the underlying data and sort, rank, filter, calculate and graph this data for more in-depth analysis. Analyzer for the Web. Analyzer for the Web is a "thin" version of Analyzer that allows end users to conduct basic data analysis tasks over a company's intranet or extranet. Analyzer for the Web is Java-based and accessible through Internet browsers, such as Microsoft Explorer and Netscape Navigator. Essbase/400. Essbase/400 is a 64-bit implementation of Hyperion Solutions' online analytical processing product, Essbase, on the AS/400. Essbase/400 allows end users to perform multidimensional analysis on AS/400 data. It consists of a multidimensional database server, a desktop-based tool for creating and maintaining the database and Microsoft Excel and Lotus 1-2-3 add- ins that provide end-user access. Essbase/400 can also be used with our Analyzer and Analyzer for the Web products, as well as the many third-party applications developed for use with Hyperion's Essbase product. Essbase/400 is easy to use and deploy rapidly, has robust calculation capabilities, provides rapid responses to end-user requests and incorporates user-generated scenario data. Data warehouse generation and management Warehouse Builder. For clients desiring enterprise-wide business intelligence solutions, Warehouse Builder automates the process of building a centralized data warehouse. Warehouse Builder transforms online transaction processing data from any AS/400 data source into data marts or data warehouses. Warehouse Builder enables clients to create multidimensional data marts or data warehouses by moving data from IBM's DB/2 database for the AS/400 to Essbase/400. Warehouse Manager. Warehouse Manager provides the tools to manage data warehouses and data marts on a day-to-day basis by integrating data simplification, warehouse security, resource allocation and user access. Warehouse Manager also enables administrators to allow users easier access to data in complicated databases and to create a simplified view of any AS/400 database, whether it is used for transaction processing or analysis. In addition, Warehouse Manager provides capabilities to interact with most AS/400 data types and with many third-party database extensions, such as the J.D. Edwards interactive data dictionary and Infinium's security system. Deployment Accelerators Sales and Financial Analysis Deployment Accelerators. ShowCase STRATEGY Deployment Accelerators are pre-configured functional data models or templates that may be used to quickly implement and adapt sales and/or financial analysis applications. These adaptive applications are designed to serve as architectural models for our clients' business intelligence solutions. Sales Analysis Deployment Accelerators provide order and performance/variance analysis, sales, customer and shipping tracking, sales history and forecasting and impact analysis. Financial Analysis Deployment Accelerators provide accounting and financial reporting, profit and loss analysis, budgeting, forecasting and overhead calculation, variance and unit cost analysis and business segmentation. 4 Services Customer Support. Our support team provides comprehensive support services to our clients, including the following services: . unlimited technical support via telephone, facsimile, the Internet and e-mail; . program temporary fixes; . technical documents on demand; and . product upgrades. We have over 2,200 clients on our annual maintenance plan. We offer maintenance support through our regional support centers in North America, Europe, Malaysia and a partnership in Japan. Currently, our regional support offices have access to an integrated customer database that provides each office with real-time information regarding our clients and their installed product base. A client that has a maintenance problem after hours and is unable to contact its regional support office may contact any one of our other regional support offices and obtain maintenance support. Professional Services. Because they often have limited IT staff and resources, our clients require a high level of service and support. To address this need, we offer a full range of educational, consulting and support services. We work with clients to design customized service plans that will enable them to rapidly implement and realize the benefits of business intelligence solutions that can evolve with end-user needs. As an example of this approach, we recently introduced service offerings that allow clients to leverage our Deployment Accelerators to quickly implement pilot applications. For existing clients, we offer services designed to assist them in expanding their use of our product suite and using our product suite in more sophisticated applications. To increase the ability of end users to realize the functionality provided by our product suite, our educational services provide comprehensive, hands-on training through both public and onsite sessions. In addition to our own professional services personnel, we have service partners in North America, Europe and Asia Pacific that provide training and consulting for our clients. Product Development Since our inception, we have made substantial investments in product development. During this time, we have focused on delivering rapid return on investment and enterprise-wide deployment capabilities for our clients. Our core technology competence lies in extracting and transforming raw data from IBM's DB/2 database and other unique AS/400 data structures into business intelligence. We extend the AS/400 operating system to support business intelligence with features such as data simplification, enhanced security and resource management. We also tightly integrate these database management and infrastructure technologies with end user query and reporting products and multidimensional analytical technology. Our product development group is organized into small teams and consists of product managers, software engineers, quality assurance engineers, technical documentation specialists and integration specialists. Our product development process is intended to be repeatable yet flexible thereby allowing us to reuse both source code and the processes used to develop source code. To better serve client needs and incorporate those needs into new releases, we actively solicit product enhancement requests from employees, clients, industry analysts, partners and IBM. Our product development efforts currently focus on continued compatibility with and leverage of new developments in the AS/400. We intend to develop many of our future products in Java, which will enable us to deliver our products to additional platforms such as Microsoft NT or as the opportunity arises. One of our initiatives is to strengthen our product suite's enterprise reporting capabilities to publish specified business intelligence to defined users on a regularly scheduled basis. We also intend to further leverage Internet browser technologies to enable companies to disseminate business intelligence and non- structured information through a 5 portal framework that will enable growing user populations both within and outside the organization to more easily search and receive information through the Internet. We plan to increase our product suite's ability to access additional data sources to ensure that a broad range of information is available to end users. Although we expect that certain of our new products will be developed internally, we may, based on timing and cost considerations, acquire technology or products from third parties. Sales and Marketing Sales. We sell our products and services through our direct sales force and distribution partners including IBM, software application vendors, distributors and resellers. Our direct sales force operates in North America, Belgium, France, Germany, the Netherlands and the United Kingdom. Our North American direct sales force is divided into three units. Each salesperson in the new accounts unit focuses on specific potential accounts. The existing accounts unit targets existing clients. Because many of our clients initially deploy our products on a departmental basis, we believe that our existing clients represent a significant sales opportunity as they discover the potential of business intelligence and look to leverage its benefits enterprise-wide to increase operational efficiency and profitability. Our internal telesales unit focuses primarily on smaller transactions, and generally sells individual components of our product suite to new accounts, additional components of our product suite to existing clients and maintenance services. Our overseas direct sales force consists of a direct sales unit and a telesales unit that target both new clients and existing accounts. Our software application vendor distribution partners include vendors that integrate our products within their own applications and sell the integrated products to their customers, such as A3 Solutions, Fiserv, IBM, Infinium Software, Lawson Software, Silverlake, TSG and Walker Interactive; and vendors with which we have joint marketing and sales arrangements, such as Data Systems International and J.D. Edwards. We also sell our products through IBM's sales force and distributors located in countries not served by our direct sales force, including Eastern European, African and Asian countries. Marketing. We are focused on building market awareness and acceptance of our product suite as the leading provider of business intelligence solutions for the AS/400 customer. Our marketing organization provides a wide range of programs, materials and events that support our sales force. These include extensive public relations activities, user group meetings, conference and trade show appearances, as well as programs to work closely with analysts and other influential third parties. We use our Internet site to augment our market presence, promote our products and services and generate sales leads. Furthermore, we have invested in building a partner and channel marketing function to help recruit, train, support and conduct cooperative marketing with strategic partners, resellers and certified service providers. Strategic Relationships IBM We have maintained a strategic relationship with IBM in sales and marketing and research and development. Our close relationship with IBM's Rochester, Minnesota facility, which has developed the AS/400, has enabled us to quickly leverage new AS/400 capabilities and influence the future direction of the AS/400 for the benefit of our clients. This association with IBM has resulted in our products being recognized as a standard business intelligence technology on the AS/400. For example, our ShowCase STRATEGY product suite is used by IBM in new database release quality control efforts. We also participate in several formal and informal programs with IBM which we believe afford us valuable experience with AS/400 products and insights into IBM's product development and marketing plans. We are one of IBM's designated "Premier Business Partners" and have won several awards from IBM, including, IBM's Powered by AS/400e Award. IBM has been a reseller of several of our products for several years. We entered into an expanded agreement with IBM in December 1998, which was amended in February 2000, under which certain products will be marketed and sold as OEM products by IBM. This agreement has a term of seven years, and expands the scope 6 of our reseller relationship with IBM. Under this agreement, ShowCase has agreed to perform several development enhancements to the Essbase/400 software. Previously, ShowCase had not been a party to any other funded software development arrangements. Hyperion Solutions Our relationship with Hyperion Solutions began in 1995 when we searched the marketplace for a high-performance, multidimensional database server and selected its online analytical processing product, Essbase. We expended significant resources in 1995 and 1996 porting Essbase to and optimizing its performance on the AS/400. We have the exclusive right to distribute the resulting product, Essbase/400, subject to limited distribution rights retained by Hyperion Solutions. The addition of Essbase/400 to our product line provides us with the ability to access a broader customer base, including users of multidimensional analyses. Furthermore, our Essbase/400 product provides us with additional partnering opportunities by extending Essbase to the AS/400 platform. In addition, our Analyzer and Analyzer for the Web products are based on technology licensed from Hyperion Solutions under a non-exclusive license agreement that expires in January 2001. Our exclusive Essbase/400 distribution rights are conditioned upon us paying minimum royalties and are subject to a buy-back right. Hyperion Solutions must give us notice 12 months before exercising this buyback right. If minimum royalty payments are not made, we have the option of paying the remaining balance to retain our exclusive distribution rights. If we do not retain our exclusive distribution rights, we must pay Hyperion Solutions minimum royalty payments to retain non-exclusive distribution rights to Essbase/400. IntraNet Solutions Our relationship with IntraNet Solutions began in late 1999 when we signed a strategic agreement with IntraNet Solutions to resell their market leading content management solution Xpedio to AS/400 customers. ShowCase has exclusive sales and marketing rights to Xpedio for the AS/400 and non exclusive rights on other platforms. The initial product integration development efforts with the Microsoft NT version were completed in the March 31, 2000 quarter. This agreement enables ShowCase to offer our clients the ability to more effectively manage web site content in one integrated solution, including structured business intelligence data and non structured content information. Our exclusive Xpedio distribution rights for the AS/400 are conditioned upon us paying minimum royalties in future years. Competition The markets for our products are intensely competitive and subject to rapidly changing technology. We compete primarily against providers of decision support software and data warehousing and data mart software. The bases of competition in these markets include breadth of solution, functionality, performance, scalability, ease of use, operating platform and cost. Our competitors providing business intelligence solutions for AS/400 customers include Silvon and Infomanager. We also compete with vendors that provide business intelligence products implemented on Unix or Windows NT platforms and then connected to the AS/400. These vendors include Brio Technology, Business Objects, Cognos, Computer Associates, Hyperion Solutions, MicroStrategy, Microsoft, Oracle, Sagent Technology and SAS Institute. In addition, enterprise resource planning software vendors including Baan Company, PeopleSoft and SAP offer decision support and analytical modules primarily to support the analysis of data from their own operational systems. One or more of these companies may expand their technologies to support greater business intelligence functionality. Finally, in the future, IBM may expand the functionality of the operating system for the AS/400, or of its database products, to provide some of the functions provided by our products. Many of our competitors have longer operating histories, significantly greater financial, technical, marketing or other resources and greater name recognition than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements. The business intelligence 7 software industry has recently experienced consolidation and many industry analysts expect this trend to continue. This consolidation may provide our competitors with expanded sales, distribution and marketing capabilities and broader product offerings. Intellectual Property We attempt to protect our software, documentation and other written materials primarily through a combination of trade secret, trademark and copyright laws, confidentiality procedures and contractual provisions. For example, we license rather than sell our software and require licensees to enter into license agreements which impose restrictions on their use of the software. In addition, we have made efforts to avoid disclosure of our trade secrets, including requiring those persons with access to our proprietary information to enter into confidentiality agreements with us and restricting access to our source code. We have one patent issued and one patent application pending in the United States with respect to aspects of our software. The pending patent application may not be issued. In addition, our patents may not survive a legal challenge to their validity or provide us significant protection. Our means of protecting our intellectual property rights may not be adequate or our competitors may independently develop similar technology. Policing unauthorized use of our products is difficult, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. We anticipate that software product developers increasingly will be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. As a result, we may become involved in these claims. Any of these claims, with or without merit, could result in costly litigation, divert our management's time, attention and resources, delay our product shipments or require us to enter into royalty or licensing agreements. If a claim of product infringement against us is successful, our business and operating results could be seriously harmed. Employees As of March 31, 2000, we had a total of 300 employees, including 124 in sales and marketing, 63 in product development, 77 in professional services and customer support and 36 in administration. Our future performance depends in significant part on our ability to attract, train and retain highly qualified personnel. None of our employees are represented by a labor union, and we believe that our relations with our employees are good. Executive Officers of the Company The executive officers of the Company are as follows:
Name Age Position ---- --- -------- President, Chief Executive Officer and Kenneth H. Holec.......... 45 Director Craig W. Allen............ 45 Chief Financial Officer Jonathan P. Otterstatter.. 40 Executive Vice President, Technology Executive Vice President, Worldwide Field Patrick Dauga............. 40 Operations Kevin R. Potrzeba......... 39 Vice President, North America Sales Paul A. Hesser............ 34 Vice President, Global Services Theresa Z. O'Neil......... 37 Vice President, Marketing Alfreda A. Masse.......... 50 Vice President, Human Resources
Kenneth H. Holec has been our President and Chief Executive Officer and a member of our Board of Directors since November 1993. From 1985 to 1993, Mr. Holec was president and chief executive officer of Lawson Software, a provider of high-end financial and human resource management software solutions. Currently, Mr. Holec is a director of IntraNet Solutions, Inc., a maker of Web- based document management products for corporate intranets. Mr. Holec holds a B.S. degree in business administration from the University of Minnesota. 8 Craig W. Allen joined us as Controller in July 1993 and was promoted to Chief Financial Officer in March 1997. From 1982 to 1993, Mr. Allen was vice president of operations at Metafile Information Systems, Inc., a software development and systems integration company. Prior to 1982, Mr. Allen was audit manager at the accounting firm McGladrey Pullen & Co. in Rochester, Minnesota. Mr. Allen holds a B.S. degree in business from the University of Minnesota and is a certified public accountant. Jonathan P. Otterstatter joined us as Vice President, Development in May 1994 and was promoted to Executive Vice President, Technology in May 1999. From 1983 to May 1994, Mr. Otterstatter was employed by IBM where his last position was senior development manager. Mr. Otterstatter holds a B.S. degree in computer science from the University of Wisconsin at LaCrosse and an M.S. degree in management of technology from the Massachusetts Institute of Technology. Patrick Dauga joined us as Vice President, European Operations in June 1997 and was promoted to Vice President, International in March 1998 and recently promoted to Executive Vice President, Worldwide Field Operations. From 1986 to 1997, Mr. Dauga worked at Comshare, Inc., a software company specializing in decision support systems, where his last position was vice president for southern Europe. Mr. Dauga holds a degree from Sup de Co Bordeaux, a business school in France. Kevin R. Potrzeba has been our Vice President, North America Sales since September 1996. From 1987 to August 1996, Mr. Potrzeba was employed by Software AG, a software products company, where his last position was vice president of sales for eastern operations. Mr. Potrzeba holds a B.A. degree in advertising and marketing from Northern Illinois University. Paul A. Hesser has been our Vice President, Global Services since May 1999. From August 1989 to May 1999, Mr. Hesser was employed by IBM, where his last position was services executive for the New York metropolitan area. Mr. Hesser holds an MBA in finance from the University of Minnesota, and a BS degree in marketing from Illinois State University. Theresa Z. O'Neil has been our Vice President, Marketing since November 1999. Ms. O'Neil was employed by Platinum Technology, Inc. from 1989 to 1999 where she held positions as vice president of corporate marketing and vice president of marketing for data warehousing. Ms. O'Neil holds a M.A. degree in English Literature from the University of Chicago and a B.A. degree in English Literature, with Special Honors, from The George Washington University, Washington, D.C.. Alfreda A. Masse has been our Vice President, Human Resources since November 1999. From 1989 to 1994 and again from 1997 until November 1999, Ms. Masse was an organizational effectiveness consultant to companies including; Sun Microsystems, Resource Information Management Systems, NEC Technology and Tandem Corporation. From 1996 to 1997, Ms. Masse was employed by TriMark Technologies, an application software development company, where her position was vice president of organizational development. Ms. Masse holds a B.S. degree in business administration from Northwood University in Michigan and is SPHR certified. Item 2. Facilities Our principal offices currently occupy approximately 27,000 square feet in Rochester, Minnesota under a lease which expires June 30, 2004. In addition, we also lease offices domestically and internationally in a variety of locations, including domestic offices in the metropolitan areas of Atlanta, Boston, Chicago and Dallas and international offices in Belgium, France, Germany, Japan, Malaysia, the Netherlands and the United Kingdom. We believe that our facilities are adequate for the next 12 months and that, if required, suitable additional or alternative space will be available on commercially reasonable terms to accommodate expansion of our operations. 9 Item 3. Legal Proceedings From time to time, in the normal course of business, various claims are made against the Company. At this time, in the opinion of management, there are no pending claims the outcome of which is expected to result in a material adverse effect on the financial position of the Company. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's common stock trades on the Nasdaq National Market under the symbol SHWC. The following table sets forth, for the periods indicated, the high and low sales prices of the common stock as reported on the Nasdaq National Market since the Company's initial public offering of June 29, 1999.
High Low ---- ---- Fiscal 2000 First quarter........................................ $9 5/8 $ 8 Second quarter....................................... 14 3/8 7 1/4 Third quarter........................................ 10 2 15/16 Fourth quarter....................................... 11 1/4 5 3/4 Fiscal 2001 First quarter (through June 12, 2000)................ $10 $ 3 7/8
As of June 12, 2000, the Company had 109 shareholders of record and approximately 2,200 beneficial holders of its common stock. The Company has never declared or paid any cash dividends on its capital stock. The Company currently intends to retain all earnings to finance future growth and, therefore, does not anticipate paying any cash dividends in the foreseeable future. Our registration statement, filed on Form S-1 under the Securities Act (File No. 333-77223), for the initial public offering of our common stock became effective June 29, 1999. We have invested the net proceeds from the offering of approximately $24.4 million in marketable securities pending the use of such proceeds. 10 Item 6. Selected Consolidated Financial Data
Years Ended March 31, ------------------------------------------ 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (in thousands, except per share data) Statement of operations data: Revenues: License fees..................... $20,498 $21,021 $14,279 $11,639 $ 9,451 Maintenance and support.......... 13,789 10,390 6,651 4,888 2,707 Professional service fees........ 5,236 4,108 2,825 1,500 1,120 ------- ------- ------- ------- ------- Total revenues................. 39,523 35,519 23,755 18,027 13,278 ------- ------- ------- ------- ------- Cost of revenues: License fees..................... 3,837 3,809 2,645 1,365 1,145 Maintenance and support.......... 3,429 2,646 1,572 990 520 Professional service fees........ 4,873 2,990 2,005 1,172 676 ------- ------- ------- ------- ------- Total cost of revenues......... 12,139 9,445 6,222 3,527 2,341 ------- ------- ------- ------- ------- Gross margin....................... 27,384 26,074 17,533 14,500 10,937 Operating expenses: Sales and marketing.............. 22,245 19,050 15,494 9,940 6,661 Product development.............. 5,482 4,371 3,051 2,553 2,070 General and administrative....... 4,466 3,212 2,590 1,971 1,380 ------- ------- ------- ------- ------- Total operating expenses....... 32,193 26,633 21,135 14,464 10,111 ------- ------- ------- ------- ------- Operating income (loss)............ (4,809) (559) (3,602) 36 826 Other income (expense), net........ 1,415 143 543 14 138 ------- ------- ------- ------- ------- Net income (loss) before income taxes............................. (3,394) (416) (3,059) 50 964 Income taxes....................... 700 200 175 -- 150 ------- ------- ------- ------- ------- Net income (loss).................. $(4,094) $ (616) $(3,234) $ 50 $ 814 ======= ======= ======= ======= ======= Net income (loss) per share Basic............................ $ (0.46) $ (0.14) $ (0.82) $ 0.01 $ 0.21 Diluted.......................... $ (0.46) $ (0.14) $ (0.82) $ 0.01 $ 0.13 Shares used in computing basic net income (loss) per share........... 8,884 4,384 3,928 3,847 3,850 Shares used in computing diluted net income (loss) per share....... 8,884 4,384 3,928 6,445 6,457 As of March 31, ------------------------------------------ 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (in thousands) Balance sheet data: Cash and marketable securities..... $30,064 $ 9,039 $ 5,847 $ 2,989 $ 2,587 Working capital.................... 22,129 997 1,579 1,060 1,165 Long-term debt and capital lease obligations, less current portion........................... -- 87 1,157 682 446 Total stockholders' equity......... 23,359 2,272 3,105 2,602 2,519
11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations All statements, trend analysis and other information contained in the following discussion relative to markets for our products and trends in revenues, gross margins and anticipated expense levels, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions constitute forward-looking statements. These forward-looking statements are subject to business and economic risks and uncertainties, including but not limited to those described in Exhibit 99.1 to this Annual Report on Form 10-K (this "Report"). Our actual results of operations may differ materially from those contained in the forward-looking statements. All forward-looking statements included in this Report are based on information available to us on the date of this Report, and we assume no obligation to update these forward-looking statements, or to update the reasons why actual results could differ from those projected in these forward-looking statements. Overview ShowCase develops, markets and supports a fully integrated, end-to-end, business intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY product suite and related services are designed to enable organizations to rapidly implement business intelligence solutions that create increased value from their operational and customer data. The sophisticated data warehousing and management capabilities of our product suite provide our clients with highly scalable and tightly integrated solutions. Our products enable enterprise-wide distribution of information and allow end-user access and analysis through familiar applications and Internet browsers. Results of Operations The following table indicates the percentage of total revenues represented by items reflected in our consolidated statements of operations.
Years Ended March 31, --------------------- 2000 1999 1998 ----- ----- ----- As a Percentage of Total Revenues: Revenues License fees.............. 51.9% 59.2% 60.1% Maintenance and support... 34.9 29.3 28.0 Professional service fees..................... 13.2 11.6 11.9 ----- ----- ----- Total revenues.......... 100.0 100.0 100.0 Cost of revenues: License fees.............. 9.7 10.7 11.1 Maintenance and support... 8.7 7.5 6.6 Professional service fees..................... 12.3 8.4 8.4 ----- ----- ----- Total cost of revenues.. 30.7 26.6 26.2 ----- ----- ----- Gross margin................ 69.3 73.4 73.8 Operating expenses: Sales and marketing....... 56.3 53.6 65.2 Product development....... 13.9 12.3 12.8 General and administrative........... 11.3 9.0 10.9 ----- ----- ----- Total operating expenses............... 81.5 75.0 89.0 ----- ----- ----- Operating loss.............. (12.2) (1.6) (15.2) Other income (expense), net........................ 3.6 0.4 2.3 ----- ----- ----- Net loss before income taxes...................... (8.6) (1.2) (12.9) Income taxes................ 1.8 0.6 0.7 ----- ----- ----- Net loss.................... (10.4)% (1.7)% (13.6)% ===== ===== =====
12 Revenues Total revenues. Revenues increased to $39.5 million in fiscal 2000 from $35.5 million in fiscal 1999 and from $23.8 million in fiscal 1998, representing increases of 11.3% in fiscal 2000 and 49.5% in fiscal 1999. License fees. License fee revenues decreased to $20.5 million in fiscal 2000 from $21.0 million in fiscal 1999, representing a decrease of 2.5%. The license revenues declined in fiscal year 2000 primarily as a result of a decrease in the number of licenses sold, due primarily to the impact of clients and prospects delaying or canceling purchase decisions due to Year 2000. In fiscal year 1999, license fee revenues increased to $21.0 million from $14.3 million in fiscal 1998, representing an increase of 47.2%. This increase is largely attributable to increases in the number of licenses sold, reflecting the results of an expanded direct field sales force and the introduction of new products and product enhancements. We introduced Enterprise Reporting to the market in fiscal year 2000, Analyzer for the Web and Deployment Accelerators to the market in fiscal 1999 and Warehouse Builder to the market in fiscal 1998. Revenues from Essbase/400 licenses comprise a significant percentage of total license fee revenues. License fees for this product were 42.2% of our total license revenue for fiscal 2000, 41.0% for fiscal 1999 and 39.5% for fiscal 1998. License fee revenues derived from our indirect distribution channels were 23.5% of license fee revenues for fiscal 2000, 21.2% for fiscal 1999 and 19.9% for fiscal 1998. Maintenance and support. Maintenance and support revenues increased to $13.8 million in fiscal 2000 from $10.4 million in fiscal 1999 and from $6.7 million in fiscal 1998, representing increases of 32.7 % in fiscal 2000 and 56.2% in fiscal 1999. These increases in maintenance and support revenues were largely a result of the renewal of maintenance and support contracts as our installed base continued to grow, as well as new maintenance and support contracts associated with new product licenses. Professional service fees. Professional service fee revenues increased to $5.2 million in fiscal 2000 from $4.1 million in fiscal 1999 and from $2.8 million in fiscal 1998, representing increases of 27.5% in fiscal 2000 and 45.4% in fiscal 1999. These increases in professional service fee revenues were largely a result of the service revenues associated with the sale of new product licenses. Revenues from clients outside North America represented 39.2% of our total revenues for fiscal 2000, 38.2% of our total revenue for fiscal 1999 and 34.4% of our total revenue for fiscal 1998. A majority of these sales was derived from European sales. Our revenues come from three principal sources: license fees, maintenance and support and professional service fees. We adopted the provisions of Statement of Position ("SOP") No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, with respect to Certain Transactions, effective April 1, 1999. Under SOP No. 97-2, as amended by SOP No. 98-9, we recognize license revenue when the software product has been delivered, if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and product returns are reasonably estimable. License fee revenues that are contingent upon sale to an end user by distributors and other distribution partners are recognized upon receipt of a report of delivery to the end user. Maintenance and support fees committed as part of new product license sales and maintenance resulting from renewed maintenance contracts are deferred and recognized ratably over the contract period. Professional service revenue is recognized when services are performed. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance and support and professional services. The determination of fair value is based on vendor specific objective evidence. When fair value does not exist for one or more of the delivered elements in the arrangement, the "residual method" is used. Under the "residual method", the total fair value of the undelivered elements is deferred and recognized ratably over the contract period and the remaining residual 13 amount is recognized with respect to the delivered elements. The adoption of SOP No. 98-9 did not have a material effect on our operating results. Costs of Revenues Cost of license fees. Cost of license fees consists primarily of the costs of product manuals, media, packaging, shipping and royalties paid to third parties. Cost of license fees was $3.8 million in fiscal 2000 and in fiscal 1999 and to $2.6 million in fiscal 1998. The cost of license fees increased to $3.8 million in fiscal year 1999 from $2.6 million in fiscal year 1998, representing an increase of 44.0% in fiscal 1999. This increase in cost of license fees was attributable to the increase in the number of licenses sold and to the increase in the percentage of our revenues from our Essbase/400 product, which requires us to pay royalties. Cost of maintenance and support. Cost of maintenance and support consists primarily of personnel costs associated with providing maintenance and support services and payments to third parties to provide maintenance and support, primarily with respect to our Essbase/400 product. Cost of maintenance and support increased to $3.4 million in fiscal 2000 from $2.6 million in fiscal 1999 and from $1.6 million in fiscal 1998, representing increases of 29.6% in fiscal 2000 and 68.3% in fiscal 1999. The increases in cost of maintenance and support are primarily due to additional staffing and the increase in the payment of third party maintenance and support fees with respect to Essbase/400. Cost of professional service fees. Cost of professional service fees consists primarily of the costs of providing training and consulting services. Cost of professional service fees increased to $4.9 million in fiscal 2000 from $3.0 million in fiscal 1999 and from $2.0 million in fiscal 1998, representing increases of 63.0% in fiscal 2000 and 49.1% in fiscal 1999. The increases are primarily due to the expansion of our professional services staff. Operating Expenses Sales and marketing. Sales and marketing expenses consist primarily of salaries, benefits, bonuses, commissions and travel and promotional expenses. Sales and marketing expenses have increased to $22.2 million in fiscal 2000 from $19.0 million in fiscal 1999 and from $15.5 million in fiscal 1998, representing increases of 16.8 % in fiscal 2000 and 23.0% in fiscal 1999. The increases reflect the expansion of a direct field sales force and the hiring of additional sales and marketing personnel and, to a lesser extent, the increase of promotional activities. Product development. Product development expenses consist primarily of development personnel compensation and related costs associated with the development of new products, the enhancement of existing products, quality assurance and testing. Product development expenses increased to $5.5 million in fiscal 2000 from $4.4 million in fiscal 1999 and from $3.1 million in fiscal 1998, representing increases of 25.4% in fiscal 2000 and 43.3% in fiscal 1999. The increases are due to expenses associated with the development of new products and the hiring of additional personnel. Product development costs are expensed as incurred. General and administrative. General and administrative expenses consist primarily of salaries of executive, financial, human resource and information services personnel as well as outside professional fees. General and administrative expenses increased to $4.5 million in fiscal 2000 from $3.2 million in fiscal 1999 and from $2.6 million in fiscal 1998, representing increases of 39.0% in fiscal 2000 and 24.0% in fiscal 1999. The increases are primarily due to increased staffing and related expenses necessary to manage and support the expansion of our operations. Other Income (Expense) Other income consists primarily of earnings from investments and sales of securities, equity in net income of unconsolidated affiliates and gains or losses from disposal of fixed assets, net of any interest expense. Other income increased to $1.4 million in fiscal 2000 from $143,000 in fiscal 1999 and from $543,000 in fiscal 1998. 14 The increase in other income in fiscal 2000 is primarily due to earnings on the proceeds from the Company's initial public offering. The decrease in fiscal 1999 was primarily due to the gain on the sale of a security of a third party which occurred in fiscal 1998. Provision (Benefit) for Income Taxes Income taxes increased to $700,000 in fiscal 2000 from $200,000 in fiscal 1999 and from $175,000 in fiscal year 1998. The taxes and the increase are primarily due to foreign income taxes paid which could not be realized as tax credits in the United States due to our consolidated losses from operations. We have deferred tax assets for temporary differences of $4.0 million as of March 31, 2000 and $2.7 million as of March 31, 1999, primarily related to deferred revenue on which taxes have been paid. We periodically evaluate the need for a valuation allowance against these deferred tax assets. Due to uncertainty regarding future taxable income and our operating losses in each of the past three fiscal years, we have determined that it is more likely than not that only a portion of the deferred tax assets will be realized and accordingly, there is a corresponding valuation allowance of $4.0 million as of March 31, 2000 and $2.2 million as of March 31, 1999. The amount recognized as a deferred tax asset at March 31, 1999 approximates the amount of cash refundable that could be generated if we were to continue our operating loss position. Liquidity and Capital Resources To date, the Company has financed its business primarily through cash provided by operations, the sale of equity securities and bank borrowings. Our operating activities used cash of $3.1 million in fiscal 2000, provided cash of $5.3 million in fiscal 1999 and used cash of $817,000 in fiscal 1998. The decrease in cash from operations for fiscal 2000 was due primarily to our net loss in that year, offset in part by an increase in deferred revenue. The increase in cash from operations for fiscal 1999 was due primarily to improved results of operations an increase in deferred revenue, offset in part by an increase in accounts receivable. The decrease in cash from operations for fiscal 1998 was due primarily to our net loss in that year, offset in part by an increase in deferred revenue. In each period, the increase in deferred revenue consisted primarily of prepayment of clients' maintenance and support fees. Our investing activities used cash of $18.7 million in fiscal 2000, $487,000 in fiscal 1999 and $566,000 in fiscal 1998. In fiscal year 2000, $17.9 million of the proceeds from the initial public offering were used to invest in marketable securities and the balance of the cash used for investing activities was for the purchase of equipment. In fiscal 1999 and 1998, the principal use of cash in investing activities was for capital expenditures related to the expansion of our operations. Our financing activities provided cash of $24.6 million in fiscal 2000 used $1.4 million in 1999 and provided $3.8 million in fiscal 1999. For fiscal 2000, financing activities provided cash primarily from issuance of common stock in connection with our initial public offering, which resulted in net proceeds to the Company of $24.4 million. For fiscal 1999, cash used by financing activities consisted primarily of long-term debt repayment and payments under capital lease obligations. For fiscal 1998, financing activities provided cash primarily from proceeds received from the issuance of preferred stock, offset in part by long-term debt repayment and payments under capital lease obligations. Our sources of liquidity as of March 31, 2000 consisted principally of cash, cash equivalents, and marketable securities of $30.0 million. Cash equivalents are comprised primarily of investment-grade commercial paper with varying terms of three months or less. The Company intends to continue to review potential acquisitions and business alliances that it believes would enhance its growth or profitability. We believe that current cash, cash equivalents, and marketable securities, and the funds generated from our operations, if any, will be sufficient to fund operations for at least the next twelve months. 15 Selected Quarterly Operating Results The following table shows unaudited consolidated financial information for each of the four quarters in our fiscal years ended March 31, 2000 and 1999. In management's opinion, this unaudited quarterly information has been prepared on the same basis as the audited consolidated financial statements and related notes and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented in accordance with generally accepted accounting principles.
Three Months Ended -------------------------------------------------------------------------- Mar. 31, Dec. 31, Sept 30, June 30, Mar. 31, Dec. 31, Sept 30, June 30, 2000 1999 1999 1999 1999 1998 1998 1998 -------- -------- -------- -------- -------- -------- -------- -------- (in thousands) Consolidated Statements of Operations Data: Revenues: License fees........... $ 5,416 $ 4,990 $ 4,027 $6,065 $5,944 $5,834 $5,019 $4,224 Maintenance and support............... 3,826 3,456 3,301 3,206 3,088 2,776 2,365 2,161 Professional service fees.................. 1,623 1,201 1,178 1,234 1,225 933 1,037 913 ------- ------- ------- ------ ------ ------ ------ ------ Total revenues......... 10,865 9,647 8,506 10,505 10,257 9,543 8,421 7,298 Cost of revenues: License fees........... 1,017 985 766 1,068 915 1,077 1,000 817 Maintenance and support............... 997 855 753 824 818 658 605 565 Professional service fees.................. 1,531 1,199 1,112 1,032 995 805 577 613 ------- ------- ------- ------ ------ ------ ------ ------ Total cost of revenues.............. 3,545 3,039 2,631 2,924 2,728 2,540 2,182 1,995 ------- ------- ------- ------ ------ ------ ------ ------ Gross margin............ 7,320 6,608 5,875 7,581 7,529 7,003 6,239 5,303 Operating expenses: Sales and marketing.... 6,046 5,691 5,234 5,275 5,327 4,958 4,378 4,387 Product development.... 1,616 1,457 1,247 1,163 1,135 1,038 1,219 979 General and administrative........ 1,228 1,160 1,136 941 873 855 748 736 ------- ------- ------- ------ ------ ------ ------ ------ Total operating expenses.............. 8,890 8,308 7,617 7,379 7,335 6,851 6,345 6,102 ------- ------- ------- ------ ------ ------ ------ ------ Operating income (loss)................. (1,570) (1,700) (1,742) 202 194 152 (106) (799) Other income (expense), net.................... 560 395 362 98 89 23 25 6 ------- ------- ------- ------ ------ ------ ------ ------ Net income (loss) before income taxes........... (1,010) (1,305) (1,380) 300 283 175 (81) (793) Income taxes............ 200 200 185 115 65 50 45 40 Net income (loss)....... $(1,210) $(1,505) $(1,565) $ 185 $ 218 $ 125 $ (126) $ (833) Basic income (loss) per share.................. $ (.12) $ (.15) $ (.15) $ .04 $ .05 $ .03 $ (.03) $ (.20) Diluted income (loss) per share.............. $ (.12) $ (.15) $ (.15) $ .02 $ .03 $ .02 $ (.03) $ (.20) Shares used in basic share calculation...... 10,485 10,368 10,139 4,542 4,495 4,348 4,409 4,190 Shares used in diluted share calculation...... 10,485 10,368 10,139 8,371 8,063 6,906 4,409 4,190
Our operating results have varied and may in the future vary significantly from quarter to quarter. These fluctuations may result in volatility in the price of our common stock. We believe that quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. 16 Item 7A. Quantitative and Qualitative Disclosure About Market Risks We are exposed to market risk from changes in interest rates on borrowings under our revolving line of credit that bear interest from time to time at a variable rate based on a prime rate. In addition, our Belgian subsidiary maintains a small line of credit with a variable interest rate and maximum available borrowings which we do not believe are material. As of March 31, 2000, we had no borrowings outstanding under either of these lines of credit. Because we have no borrowings outstanding under our lines of credit, we believe that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position would not be material. We are exposed to market risk from fluctuations in foreign currency exchange rates. We manage exposure to variability in foreign currency exchange rates primarily through the use of natural hedges, whereby funding obligations and assets are both managed in the local currency. However, different durations in our funding obligations and assets may expose us to the risk of foreign exchange rate fluctuations. We have not entered into any derivative transactions to manage this risk. Based on our overall foreign currency rate exposure at March 31, 2000, we do not believe that a hypothetical 10% change in foreign currency rates would materially adversely affect our financial position. 17 Item 8. Financial Statements and Supplemental Data Independent Auditors' Report The Board of Directors and Stockholders of ShowCase Corporation: We have audited the accompanying consolidated balance sheets of ShowCase Corporation and subsidiaries (the Company) as of March 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2000. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of ShowCase Corporation and subsidiaries as of March 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Minneapolis, Minnesota May 2, 2000 18 SHOWCASE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
March 31, ---------------- 2000 1999 ------- ------- Assets Current assets: Cash and equivalents....................................... $11,677 $ 8,900 Marketable securities...................................... 18,387 139 Accounts receivable, net................................... 8,848 7,070 Prepaid expenses and other current assets.................. 1,380 1,059 Income taxes receivable.................................... 351 -- Deferred income taxes...................................... -- 550 ------- ------- Total current assets................................... 40,643 17,718 ------- ------- Property and equipment, net................................ 2,088 2,092 Goodwill, net of accumulated amortization.................. 56 116 ------- ------- Total assets........................................... $42,787 $19,926 ======= ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable........................................... $ 1,323 $ 1,373 Accrued liabilities........................................ 4,333 4,121 Current portion of long-term debt.......................... 2 5 Current portion of obligations under capital leases........ 78 127 Income taxes payable....................................... -- 295 Deferred revenue........................................... 12,778 10,800 ------- ------- Total current liabilities.............................. 18,514 16,721 ------- ------- Deferred revenue, less current portion....................... 914 846 Long-term debt, less current portion......................... -- 2 Capital lease obligations, less current portion.............. -- 85 ------- ------- Total liabilities...................................... 19,428 17,654 ------- ------- Commitments (note 12) Stockholders' equity: Series A convertible preferred stock; $.01 par value; 473,757 shares authorized, issued, and outstanding; total liquidation preference of $2,400.......................... -- 5 Series B convertible preferred stock; $.01 par value; 1,777,500 shares authorized, 875,000 shares issued and outstanding; total liquidation preference of $3,500....... -- 9 Common stock, $.01 par value, 10,000,000 shares authorized, 10,522,113 and 4,502,867 shares issued and outstanding.... 105 45 Additional paid-in capital................................. 31,443 6,452 Accumulated other comprehensive income (loss): Cumulative translation adjustment........................ 123 47 Unrealized holding loss on securities.................... (9) (181) Deferred compensation...................................... (426) (322) Accumulated deficit........................................ (7,877) (3,783) ------- ------- Total stockholders' equity............................. 23,359 2,272 ------- ------- Total liabilities and stockholders' equity............. $42,787 $19,926 ======= =======
See accompanying notes to consolidated financial statements. 19 SHOWCASE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share amounts)
Years ended March 31, ------------------------- 2000 1999 1998 ------- ------- ------- Revenues: License fees..................................... $20,498 $21,021 $14,279 Maintenance and support.......................... 13,789 10,390 6,651 Professional service fees........................ 5,236 4,108 2,825 ------- ------- ------- Total revenues................................. 39,523 35,519 23,755 ------- ------- ------- Cost of revenues: License fees..................................... 3,837 3,809 2,645 Maintenance and support.......................... 3,429 2,646 1,572 Professional service fees........................ 4,873 2,990 2,005 ------- ------- ------- Total cost of revenues......................... 12,139 9,445 6,222 ------- ------- ------- Gross margin....................................... 27,384 26,074 17,533 ------- ------- ------- Operating expenses: Sales and marketing.............................. 22,245 19,050 15,494 Product development.............................. 5,482 4,371 3,051 General and administrative....................... 4,466 3,212 2,590 ------- ------- ------- Total operating expenses....................... 32,193 26,633 21,135 ------- ------- ------- Operating loss..................................... (4,809) (559) (3,602) ------- ------- ------- Other income (expense), net: Interest expense................................. (21) (164) (123) Interest and investment income................... 1,289 277 74 Equity in income of unconsolidated affiliates.... -- 26 27 Gain on sales of securities...................... 151 32 551 Other income (expense), net...................... (4) (28) 14) ------- ------- ------- Total other income (expense), net.............. 1,415 143 543 ------- ------- ------- Net loss before income taxes....................... (3,394) (416) (3,059) Income taxes....................................... 700 200 175 ------- ------- ------- Net loss........................................... $(4,094) $ (616) $(3,234) ------- ------- ------- Other comprehensive income (loss): Foreign currency translation adjustment.......... 76 (60) 81 Unrealized holding gain (loss) on securities arising during the year......................... 291 (304) 123 Reclassification adjustment for gains included in net loss........................................ (119) -- -- ------- ------- ------- Comprehensive loss................................. $(3,846) $ (980) $(3,030) ======= ======= ======= Net loss per share (note 10): Basic............................................ $ (0.46) $ (0.14) $ (0.82) ======= ======= ======= Diluted.......................................... $ (0.46) $ (0.14) $ (0.82) ======= ======= ======= Weighted average shares outstanding used in computing basic net loss per share................ 8,884 4,384 3,928 Weighted average shares outstanding used in computing diluted net loss per share.............. 8,884 4,384 3,928
See accompanying notes to consolidated financial statements. 20 SHOWCASE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
Series A Series B convertible convertible preferred stock preferred stock Common Stock ---------------- ---------------- ----------------- Accumulated Retained Number Number Additional other earnings of of Number of paid-in comprehensive Deferred (accumulated shares Amount shares Amount shares Amount capital income (loss) compensation deficit) -------- ------ -------- ------ ---------- ------ ---------- ------------- ------------ ------------ Balances at March 31, 1997.. 473,757 $ 5 -- $ -- 3,852,731 $ 39 $ 2,465 $ 26 $ -- $ 67 Net loss........ -- -- -- -- -- -- -- -- -- (3,234) Change in foreign currency translation adjustment...... -- -- -- -- -- -- -- 81 -- -- Unrealized holding gain on marketable securities...... -- -- -- -- -- -- -- 123 -- -- Stock issued pursuant to stock option plan............ -- -- -- -- 135,829 1 32 -- -- -- Preferred Series B stock issued.. -- -- 875,000 9 -- -- 3,491 -- -- -- -------- ----- -------- ----- ---------- ----- ------- ----- ----- ------- Balances at March 31, 1998.. 473,757 5 875,000 9 3,998,560 40 5,988 230 -- (3,167) Net loss........ -- -- -- -- -- -- -- -- -- (616) Change in foreign currency translation adjustment...... -- -- -- -- -- -- -- (60) -- -- Unrealized holding gain (loss) on marketable securities...... -- -- -- -- -- -- -- (304) -- -- Stock issued pursuant to stock option plan............ -- -- -- -- 514,307 5 109 -- -- -- Deferred compensation.... -- -- -- -- -- -- 355 -- (355) -- Amortization of deferred compensation.... -- -- -- -- -- -- -- -- 33 -- -------- ----- -------- ----- ---------- ----- ------- ----- ----- ------- Balances at March 31, 1999.. 473,757 5 875,000 9 4,502,867 45 6,452 (134) (322) (3,783) Net loss........ -- -- -- -- -- -- -- -- -- (4,094) Conversion of preferred to common.......... (473,757) (5) (875,000) (9) 2,759,226 28 (14) -- -- -- Change in foreign currency translation adjustment...... -- -- -- -- -- -- -- 76 -- -- Unrealized holding gain on marketable securities, net of reclassification adjustment...... -- -- -- -- -- -- -- 172 -- -- Stock issued pursuant to initial public offering........ -- -- -- -- 3,000,000 30 24,320 -- -- -- Stock issued pursuant to exercise of warrant......... -- -- -- -- 8,182 -- 78 -- -- -- Stock issued pursuant to stock option plan............ -- -- -- -- 251,838 2 395 -- -- -- Stock options issued to consultant...... -- -- -- -- -- -- 60 -- (60) -- Deferred compensation.... -- -- -- -- -- -- 152 -- (152) -- Amortization of deferred compensation.... -- -- -- -- -- -- -- -- 108 -- -------- ----- -------- ----- ---------- ----- ------- ----- ----- ------- Balances at March 31, 2000.. -- $ -- -- $ -- 10,522,113 $ 105 $31,443 $ 114 $(426) $(7,877) ======== ===== ======== ===== ========== ===== ======= ===== ===== ======= Total stockholders' equity ------------- Balances at March 31, 1997.. $ 2,602 Net loss........ (3,234) Change in foreign currency translation adjustment...... 81 Unrealized holding gain on marketable securities...... 123 Stock issued pursuant to stock option plan............ 33 Preferred Series B stock issued.. 3,500 ------------- Balances at March 31, 1998.. 3,105 Net loss........ (616) Change in foreign currency translation adjustment...... (60) Unrealized holding gain (loss) on marketable securities...... (304) Stock issued pursuant to stock option plan............ 114 Deferred compensation.... -- Amortization of deferred compensation.... 33 ------------- Balances at March 31, 1999.. 2,272 Net loss........ (4,094) Conversion of preferred to common.......... -- Change in foreign currency translation adjustment...... 76 Unrealized holding gain on marketable securities, net of reclassification adjustment...... 172 Stock issued pursuant to initial public offering........ 24,350 Stock issued pursuant to exercise of warrant......... 78 Stock issued pursuant to stock option plan............ 397 Stock options issued to consultant...... -- Deferred compensation.... -- Amortization of deferred compensation.... 108 ------------- Balances at March 31, 2000.. $23,359 =============
See accompanying notes to consolidated financial statements. 21 SHOWCASE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended March 31, ------------------------- 2000 1999 1998 -------- ------ ------- Cash flows from operating activities: Net loss............................................ $ (4,094) $ (616) $(3,234) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization..................... 957 925 749 Provision for returns and doubtful accounts, net of returns and write-offs........................ (90) 305 200 Equity in income of unconsolidated affiliates..... -- (26) (27) Deferred income taxes............................. 550 (210) 300 Gain on sale of securities........................ (151) (32) (551) Deferred compensation amortization and expense related to cashless exercise of warrants 188 33 -- Loss on disposition of property and equipment..... 12 35 14 Changes in operating assets and liabilities, net of effect of foreign exchange rate changes: Accounts receivable.............................. (1,688) (1,214) (1,455) Prepaid expenses and other current assets........ (321) (27) (376) Income taxes receivable.......................... (351) 251 (251) Accounts payable................................. (50) 279 27 Accrued liabilities.............................. 212 1,236 1,375 Deferred revenue................................. 2,046 4,104 2,707 Income taxes payable............................. (295) 295 (295) -------- ------ ------- Net cash provided by (used in) operating activities.................................... (3,075) 5,338 (817) -------- ------ ------- Cash flows from investing activities: Purchase of property and equipment................ (786) (925) (822) Proceeds from dissolution of affiliate............ -- 218 -- Purchase of marketable securities................. (133,496) -- -- Proceeds from maturities and sale of marketable securities....................................... 115,571 32 256 Proceeds from sale of property and equipment...... 6 188 -- -------- ------ ------- Net cash used in investing activities.......... (18,705) (487) (566) -------- ------ ------- Cash flows from financing activities: Proceeds from stock issued pursuant to stock option and employee stock purchase plans......... 397 114 33 Proceeds from initial public offering, net of expenses......................................... 24,350 -- -- Proceeds from issuance of preferred stock......... -- -- 3,500 Proceeds from issuance of long-term debt.......... -- -- 784 Payments on long-term debt........................ (5) (1,334) (342) Payments under capital lease obligations.......... (134) (136) (161) -------- ------ ------- Net cash provided by (used in) financing activities.................................... 24,608 (1,356) 3,814 -------- ------ ------- Effect of foreign exchange rate changes on cash..... (51) 1 (16) -------- ------ ------- Net increase in cash................................ 2,777 3,496 2,415 Cash and equivalents, beginning of year............. 8,900 5,404 2,989 -------- ------ ------- Cash and equivalents, end of year................... $ 11,677 $8,900 $ 5,404 ======== ====== ======= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest......................................... $ 21 $ 164 $ 123 ======== ====== ======= Income taxes..................................... $ 822 $ 259 $ 240 ======== ====== ======= Cash received during the year from income tax refunds.......................................... $ 26 $ 395 $ -- ======== ====== =======
Supplemental disclosure of noncash investment and financing activities: The Company acquired property and equipment totaling $317 under capital lease during 1998. During 1998, the Company sold stock purchase warrants in another company with a basis of $25 in exchange for marketable securities with a fair market value of $320 and cash.
See accompanying notes to consolidated financial statements. 22 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) Nature of Operations ShowCase Corporation (the "Company" or "ShowCase") was incorporated in 1988, and in 1991, introduced a Windows-based query tool for the IBM AS/400, ShowCase Vista. The Company has subsequently introduced additional products and services to support an end-to-end business intelligence solution for IBM AS/400 customers. The Company's product suite is sold under the name ShowCase STRATEGY. The Company has wholly owned subsidiaries in Germany, the United Kingdom, Belgium, and France that distribute ShowCase products and provide related services to clients in these countries. During fiscal year 1999, the Company dissolved its 40% ownership position in ShowCase Japan and received an amount equal to the carrying value of the Company's ShowCase Japan investment. In addition, during the fiscal year 1999, the Company also dissolved its 20% ownership interest in ShowCase Italia SpA. The Company's carrying value of its investment in ShowCase Italia SpA was zero prior to dissolution. The Company received no proceeds nor was it required to assume any obligations as a result of the ShowCase Italia SpA dissolution. Prior to dissolution, the Company used the equity method to account for its investment in these two affiliates. (b) Principles of Consolidation The consolidated financial statements include the accounts of ShowCase Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (c) Revenue Recognition The Company recognizes license revenue under the provisions of Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-4, Deferral of the Effective Date of Certain Provisions of SOP No. 97-2. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on its relative fair value. The fair value of the element must be based on objective evidence that is specific to the vendor. The Company adopted the provisions of SOP No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions, effective April 1, 1999. The adoption of SOP No. 98-9 did not have a material effect on the Company's operating results. Under SOP No. 97-2, as amended by SOP Nos. 98-4 and 98-9, the Company recognizes license revenue when the software has been delivered, if a signed contract exists, the fee is fixed and determinable, collection of resulting receivables is probable and product returns are reasonably estimable. License fees that are contingent upon sale to an end user by distributors and other channel partners are recognized upon receipt of a report of delivery to the end user. Maintenance and support fees including product upgrade rights, when and if available, committed as part of new product licenses and maintenance resulting from renewed maintenance contracts are deferred and recognized ratably over the contract period. Professional service revenue is recognized when services are performed. Revenues related to multiple element arrangements are allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance and support and professional services. The determination of fair value is based on vendor specific objective evidence. When fair value 23 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) does not exist for one or more of the delivered elements in the arrangement, the "residual method" is used. Under the "residual method," the total fair value of the undelivered elements is deferred and recognized ratably over the contract period and the remaining residual amount is recognized with respect to the delivered elements. Such arrangements typically do not involve end user cancellation rights, rights of return, or significant acceptance periods. The Company accrues license revenue through the end of the reporting period based upon reseller royalty reports or other forms of customer-specific historical information. The Company does not provide a contractual right of return. However, in limited circumstances, and on a discretionary basis, the Company may grant concessions to its clients. Such concessions are granted to relatively few clients. The Company records an allowance for sales returns to account for estimated concessions. (d) Capitalized Software Costs Costs associated with the planning and designing phase of software development, including coding and testing activities necessary to establish technological feasibility, are classified as research and development and expensed as incurred. Once technological feasibility has been determined, additional costs incurred in development, including coding, testing, and product quality assurance are capitalized. With regard to funded software development arrangements to which the Company is a party for which technological feasibility has been established before the arrangement was entered into, proceeds from the funding party are (i) offset against capitalized costs, (ii) any excess is deferred and credited against future capitalized costs, and (iii) any remaining deferred amount is credited to income upon completion of the related project. During 2000, 1999 and 1998, no software development costs were capitalized. Under a December 1998 agreement, which was amended in February 2000 with IBM, the Company has agreed to perform several development enhancements to its Essbase/400 software. The Company has not completed this project as of March 31, 2000 and therefore has not recognized any income from this arrangement. The Company adopted SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and SOP No. 98-5, Reporting on the Costs of Start-up Activities, effective April 1, 1999. SOP No. 98-1 requires that entities capitalize certain costs related to internal-use software once certain criteria have been met. SOP No. 98-5 requires that all start-up costs related to new operations must be expensed as incurred. In addition, all start-up costs that were capitalized in the past must be written off when SOP No. 98-5 is adopted. The adoption of SOP Nos. 98-1 and 98-5 did not have a material impact on the Company's financial position, results of operations or cash flows. (e) Goodwill The excess of the cost over fair value of net assets acquired is recorded as goodwill and amortized on a straight-line basis over five years. Unamortized goodwill balances are reviewed periodically to determine recoverability based upon forecasted undiscounted cash flows. If it is determined that the asset is believed to be impaired, the Company recognizes an impairment charge to reduce the unamortized balance to its net realizable value. As of March 31, 2000, no impairment charges have been recognized. Accumulated amortization was $244,000 and $184,000 as of March 31, 2000 and 1999, respectively. (f) Income Taxes Deferred taxes are provided on an asset and liability method for temporary differences and operating loss and tax credit carryforwards. Temporary differences are the differences between the reported amounts 24 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. (g) Foreign Currency Translation Exchange adjustments resulting from foreign currency transactions are generally recognized in net income (loss), whereas adjustments resulting from the translation of financial statements are reflected as a separate component of accumulated other comprehensive income within stockholders' equity. Revenues and expenses of foreign subsidiaries are translated at the average exchange rates that prevail over the applicable year. The functional currency of each foreign operation is the local currency. (h) Use of Estimates Management of the Company has made certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from those estimates. (i) Stock-based Compensation Compensation expense for stock option grants is recognized in accordance with Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to Employees. The pro forma effect on net income (loss) is provided as if the fair value based method defined in Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-based Compensation, had been applied. (j) Cash and Equivalents The Company considers all short-term, highly liquid investments that are readily convertible into known amounts of cash and have original maturities of three months or less to be cash equivalents. (k) Marketable Securities All marketable securities are classified as available-for-sale and available to support current operations or to take advantage of other investment opportunities. These securities are stated at the estimated fair value based upon market quotes with unrealized holding gains or losses reported as a separate component of accumulated other comprehensive income within stockholders' equity. Realized gains and losses are included in other income (expense). The cost of securities sold is based on the specific identification method. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. This amortization and accretion is included in interest and investment income. (l) Comprehensive Income (Loss) Comprehensive income (loss) represents the change in stockholders' equity resulting from other than stockholder investments and distributions. For ShowCase, comprehensive income (loss) consists of net earnings or loss plus changes in foreign currency translation adjustment and unrealized holding gains (losses) on marketable securities available for sale as displayed in the accompanying consolidated statements of operations and comprehensive income (loss). Amounts recognized in net income (loss), which previously were reported as other comprehensive income (loss), are reclassified to avoid duplication. The effect of deferred income taxes on other comprehensive income (loss) is not material. 25 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (m) Reclassifications Certain amounts previously reported have been reclassified to conform to the 2000 presentation. (n) New Accounting Pronouncements SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (as amended by SFAS No. 137 with respect to the effective date) established methods of accounting for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. SFAS No. 133 will be effective for the Company in April 2001. The Company is currently reviewing the potential impact of this accounting standard. In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101, as amended by SAB 101A, summarizes certain views of the SEC staff in applying generally accepted accounting principles to revenue recognition in financial statements. Certain aspects of SAB 101 relate to the timing of recognition of revenue and certain expenses with respect to arrangements that involve the receipt of nonrefundable up-front fees. SAB 101 requires that in particular situations the nonrefundable fees and certain associated expenses be recognized over the contractual terms or average life of the underlying arrangement. SAB 101 will be effective for the Company in the first quarter of fiscal year 2001. The Company does not expect SAB 101 to have a material impact on its financial condition or results of operations. (2)Accounts Receivable Accounts receivable consist of the following (in thousands):
March 31, -------------- 2000 1999 ------ ------ Accounts receivable....................................... $9,578 $7,875 Less allowance for sales returns.......................... (400) (520) Less allowance for doubtful accounts...................... (330) (285) ------ ------ Accounts receivable, net.................................. $8,848 $7,070 ====== ======
(3)Profit Sharing and Savings Plan The Company has adopted a profit sharing plan under Section 401(k) of the Internal Revenue Code. This plan allows employees to defer a portion of their income through contributions to this plan. At the Company's board of directors' discretion, the Company may match a percentage of employees' voluntary contributions or may make additional contributions based on profits. In fiscal 1998, the Company initiated a Company match determined annually by the Company's board of directors. This Company match was approximately $193,000, $50,000 and $44,000 in fiscal years 2000, 1999 and 1998, respectively. (4)Significant Customers Revenues from transactions with one of the Company's distributors comprised approximately 11% of total revenues for fiscal year 2000. Accounts receivable from this distributor comprised approximately 18% of total accounts receivable at March 31, 2000. Revenues from the Company's former Japan affiliate comprised approximately 6% of total revenues for fiscal year 1998. 26 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (5) Marketable Securities As of March 31, 2000, the Company's marketable securities were comprised of corporate commercial paper with contractual maturities of less than one year. The amortized cost basis, gross unrealized holding loss, and estimated fair value of such securities were approximately $18,396,000, $9,000, and $18,387,000, respectively, as of March 31, 2000. As of March 31, 1999, the Company's marketable securities were comprised of common stock of one of the Company's vendors. The cost basis, gross unrealized holding loss, and estimated fair value of such stock were approximately $320,000, $181,000, and $139,000, respectively, as of March 31, 1999. The Company sold this stock in January 2000. The gross realized gain related to the sale of this stock was approximately $151,000. (6) Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Property and equipment are summarized as follows (in thousands):
March 31, Estimated ---------------- useful life 2000 1999 ------------- ------- ------- Computers and software.................. 3 to 5 years $ 3,828 $ 3,314 Office furniture and equipment.......... 4 to 10 years 778 610 Leasehold improvements.................. 5 to 9 years 315 172 ------- ------- 4,921 4,096 Less accumulated depreciation and amortization .......................... (2,833) (2,004) ------- ------- Net property and equipment.............. $ 2,088 $ 2,092 ======= =======
(7) Long-term Debt Long-term debt consists of the following (in thousands):
March 31, ---------- 2000 1999 ---- ---- Note payable to IBM, interest at 6.25%, principal and interest payable quarterly through November 2000........... $ 2 $ 7 Less current portion........................................ (2) (5) ---- --- $-- $ 2 ==== ===
The Company has a $3,000,000 revolving line of credit agreement with a bank through August 30, 2001, bearing interest at the bank's base rate (9.0% at March 31, 2000) plus .25%. Borrowings are limited to 75% of eligible accounts receivable and are payable on demand. The revolving line of credit note is secured by substantially all of the Company's assets and contains certain restrictive financial covenants, including liquidity, profitability and the maintenance of prescribed tangible net worth and debt to tangible net worth ratios. No borrowings were outstanding under the line of credit at March 31, 2000. 27 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (8) Income Taxes Loss before income taxes was derived from the following sources (in thousands):
Year Ended March 31, ----------------------- 2000 1999 1998 ------- ----- ------- Domestic......................................... $(3,318) $(421) $(2,597) Foreign.......................................... (76) 5 (462) ------- ----- ------- $(3,394) $(416) $(3,059) ======= ===== =======
The provision for current income tax expense consists of the following (in thousands):
Year Ended March 31, ----------------- 2000 1999 1998 ---- ---- ----- Current: Federal............................................. $(70) $220 $(325) State and local..................................... -- 35 -- Foreign............................................. 220 155 200 Deferred: Federal............................................. 550 (210) 300 ---- ---- ----- $700 $200 $ 175 ==== ==== =====
The provision for income taxes differs from the expected tax expense, computed by applying the federal corporate tax rate of 34% to earnings before income taxes, as follows (in thousands):
Year Ended March 31, ----------------------- 2000 1999 1998 ------- ----- ------- Expected federal income tax benefit............. $(1,154) $(142) $(1,040) State taxes, net of federal benefit............. (40) 23 (52) Change in valuation allowance................... 1,829 678 1,085 Research and experimentation credits............ (189) (203) -- Foreign sales corporation....................... -- (61) -- Foreign operations and withholding taxes........ 246 (135) 152 Other........................................... 8 40 30 ------- ----- ------- $ 700 $ 200 $ 175 ======= ===== =======
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at March 31, 2000 and 1999 are presented below (in thousands):
March 31, ----------- 2000 1999 ----- ----- Deferred tax assets: Accounts receivable allowances............................. $ 211 $ 241 Vacation and other accruals................................ 204 163 Deferred revenues.......................................... 2,828 2,153 Foreign net operating loss carryforwards................... 204 204 Research and experimentation credit carryforwards.......... 378 38 Foreign tax credit carryforwards........................... 220 --
28 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, ---------------- 2000 1999 ------- ------- Other................................................. 39 42 ------- ------- 4,084 2,841 Valuation allowance..................................... (4,007) (2,178) ------- ------- 77 663 Deferred tax liabilities: Depreciation.......................................... (77) (113) ------- ------- Net deferred tax asset.................................. $ -- $ 550 ======= =======
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the level of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management does not believe that it is more likely than not the Company will realize the benefits of these deductible differences. Accordingly, the Company has provided a valuation allowance against the gross deferred tax assets as of March 31, 2000. At March 31, 2000, there are foreign net operating loss carryforwards of approximately $600,000, a portion of which will expire in 2005. (9)Stockholders' Equity (a) Initial Public Offering On June 29, 1999, the Company's registration statement for its initial public offering of 3,000,000 shares of common stock at $9.00 per share was declared effective by the Securities and Exchange Commission. On July 6, 1999, the closing date of the sale of such securities, the Company issued 3,000,000 shares of common stock and received proceeds, net of underwriting discount, of $25,110,000. In connection with the initial public offering, the Company amended and restated its articles of incorporation and increased the number of authorized shares of capital stock to 50,000,000 shares. (b) Series A Convertible Preferred Stock In 1991, the Company issued convertible preferred stock under the terms of an investment agreement. Each preferred share was convertible at the option of the holder at any time at a rate of four shares of common stock for each preferred share, subject to certain adjustments. The Series A convertible preferred stock was converted into 1,895,028 common shares on July 6, 1999. (c) Series B Convertible Preferred Stock In 1998, the Company issued convertible preferred stock under the terms of an investment agreement. Each preferred share was convertible at the option of the holder at any time at a rate of one share of common stock for each preferred share, subject to certain adjustments. The Series B convertible preferred stock was converted into 864,198 common shares on July 6, 1999. 29 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (d) Stock Purchase Warrants In May 1998, the Company issued a warrant to purchase 13,750 shares of Series B Convertible Preferred Stock at an exercise price of $4.00 per share in consideration for the warrant-holder executing certain equipment leases with the Company. The warrant was exercisable through the earlier of May 13, 2008 or five years from the effective date of the Company's initial public offering. The aggregate fair value of the warrant, approximately $9,000 as determined on the date of grant using a Black-Scholes pricing model, is being recognized by the Company as additional lease expense over the related lease term. During fiscal year 2000, the warrant was exercised by the warrant holder pursuant to a cashless exercise provision. The Company recognized an expense of approximately $78,000 and issued an aggregate of 8,182 shares of its common stock as a result of this exercise. (e) Employee Stock Purchase Plan Under the Company's 1999 Employee Stock Purchase Plan, which became effective upon consummation of the initial public offering, substantially all employees may purchase shares of common stock at the end of semiannual purchase periods at a price equal the lower of 85% of the stock's fair market value on the first day or the last day of that period. Plan funding occurs throughout the purchase period by pre-elected payroll deductions of up to 15% of pay. No compensation expense results from the plan. Shares issued under the plan were 35,647 at an average price of $4.91 per share in 2000. At March 31, 2000, 464,353 shares remain reserved for future issuance under the plan. (f) Deferred Compensation In connection with the grant to employees of options to purchase 81,000 shares of common stock in fiscal year 2000 and 527,900 shares of common stock in fiscal year 1999, the Company recorded deferred compensation of $152,000 in fiscal year 2000 and $355,000 in fiscal year 1999. This represents the difference between the deemed value of the common stock for accounting purposes and the option exercise price of such options on the date of grant based upon the intrinsic value method in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Additionally, the Company recorded approximately $60,000 of deferred compensation in fiscal year 2000 related to stock options issued to a consultant as described in Note 9(g). The Company recognized an expense of approximately $108,000 and $33,000 for the fiscal years ended March 31, 2000 and 1999, respectively, for these stock option grants and will recognize the remainder of the deferred compensation cost over the respective vesting periods (four to five years) of the options granted. (g) Stock Options The Company's 1991 Long-Term Incentive and Stock Option Plan and 1999 Stock Incentive Plan (collectively, the "Plan") provides for the granting of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock based awards to eligible participants. The terms and vesting requirements of the awards are subject to the determination of the compensation committee of the Company's board of directors. Options granted under the Company's stock option plan may be incentive stock options or non-qualified stock options. Incentive stock options may be granted to certain employees and directors at a price not less than the fair market value of the common stock on the day the option is granted and must be exercisable no later than ten years after the date of grant. Nonqualified stock options may be granted for terms up to ten years after the date of grant, at prices determined by the stock option committee. 30 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) During fiscal year 2000, the Company granted options to purchase 37,500 shares of the Company's common stock at $8.00 per share to a consultant for services to be received over the four-year vesting period of such options. The Company recorded approximately $60,000 of deferred compensation in fiscal year 2000 related to the fair value of these options as determined by use of a Black-Scholes valuation model, considering the following assumptions: expected dividend yield 0%, risk-free interest rate of 5.65%, and expected option life of four years (see Note 9(f)). At March 31, 2000, the Company has 3,948,619 shares of its common stock reserved for issuance upon the exercise of options granted under the Company's stock option plans. The following table summarizes the activity of the Company's stock option plan:
Weighted average Shares exercise price --------- ---------------- Outstanding--March 31, 1997................... 1,372,953 $ .53 Options granted............................... 181,400 1.42 Options exercised............................. (135,829) .25 Options canceled.............................. (53,740) 1.04 --------- Outstanding--March 31, 1998................... 1,364,784 .65 Options granted............................... 820,900 3.61 Options exercised............................. (514,307) .22 Options canceled.............................. (125,570) 1.10 --------- Outstanding--March 31, 1999................... 1,545,807 2.32 Options granted............................... 430,500 5.04 Options exercised............................. (216,191) 1.03 Options canceled.............................. (203,700) 2.40 --------- Outstanding--March 31, 2000................... 1,556,416 3.23 =========
The following table summarizes the Company's stock options outstanding at March 31, 2000:
Options outstanding Options exercisable ---------------------------------------------- ----------------------------- Range of Number Weighted average Weighted Number Weighted exercise outstanding at remaining average exercisable at average price March 31, 2000 contractual life exercise price March 31, 2000 exercise price -------- -------------- ---------------- -------------- -------------- -------------- $ .07--$1.08 411,032 5.3 years $ .76 264,721 $ .66 $1.42--$1.50 360,084 7.9 years 1.47 95,468 1.46 $2.72--$5.35 569,800 9.2 years 4.61 30,672 4.78 $5.38--$7.12 164,000 9.1 years 7.01 15,300 7.12 $8.00 51,500 9.3 years 8.00 6,249 8.00 --------- ------- 1,556,416 412,410 ========= =======
The Company accounts for options issued to employees in connection with its Plan under APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The following pro forma amounts, in accordance with the disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-based Compensation (SFAS 123), were determined as if the Company had accounted for its stock options issued to employees and for the discount offered to its 31 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) employees under the employee stock purchase plan using the fair value method as described in that statement:
Year Ended March 31, ------------------------ 2000 1999 1998 ------- ------ ------- Net loss (in thousands): As reported................................... $(4,094) $ (616) $(3,234) Pro forma..................................... (4,608) (677) (3,266) Diluted loss per share: As reported................................... $ (0.46) $(0.14) $ (0.82) Pro forma..................................... (0.52) (0.15) (0.83)
Because the method of accounting under SFAS 123 has not been applied to stock options granted prior to April 1, 1995, the resulting pro forma compensation cost may not be representative of compensation cost to be disclosed in future years. The weighted average grant date fair value of stock options granted was $4.64, $1.19 and $.39 per option in 2000, 1999 and 1998, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes stock option pricing model with the following average assumptions: risk-free interest rate ranging from 6.0% to 6.5%, expected dividend yields of 0%, and weighted average expected lives of five years, for 2000, 1999, and 1998; and expected volatility of 121% for 2000 and 0% for both 1999 and 1998. (10) Net Loss per Share For ShowCase, basic income (loss) per share represents net income (loss) divided by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share represents net income (loss) divided by the sum of the weighted average number of common shares outstanding plus shares derived from other potentially dilutive securities. For ShowCase, potentially dilutive securities include "in-the-money" fixed stock options and warrants and the amount of weighted average common shares which would be added by the conversion of outstanding convertible preferred stock. The number of shares added for stock options and warrants is determined by the treasury stock method, which assumes exercise of these options and the use of any proceeds from such exercise to repurchase a portion of these shares at the average market price for the period. When the results of operations are a loss, other potentially dilutive securities are not included in the calculation of loss per share. The total number of weighted average option and warrant shares excluded from the calculation of potentially dilutive securities either because the exercise price exceeded the average market price or because their inclusion in the calculation of net loss per share would have been antidilutive were 1,052,523, 792,138 and 902,469 for fiscal years 2000, 1999 and 1998, respectively. For the years ended March 31, 1999 and 1998, the effect of conversion of the Company's Series A and Series B convertible preferred stock was excluded from the calculation of net loss per diluted share because the resulting impact would have been antidilutive. The Series A and Series B convertible preferred stock were convertible into 1,895,028 and 864,198 common shares, respectively. 32 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (11) Geographic Segment Data The operations of the Company are primarily conducted in the United States, the Company's domicile. Geographic data, determined by references to the location of the Company's operations, as of March 31, 2000 and 1999 and for each of the years for the three-year period ended March 31, 2000 is as follows (in thousands):
Year ended March 31, ----------------------- 2000 1999 1998 ------- ------- ------- Revenues: U.S. operations................................ $27,662 $24,894 $17,890 United Kingdom................................. 3,058 3,695 2,751 France......................................... 3,528 3,166 360 Germany........................................ 2,882 1,777 1,102 Other non-U.S. operations...................... 2,393 1,987 1,652 ------- ------- ------- $39,523 $35,519 $23,755 ======= ======= =======
March 31, 2000 ------------- 2000 1999 ------ ------ Tangible long-lived assets: U. S. operations......................................... $1,693 $1,736 Non-U.S. operations...................................... 395 356 ------ ------ $2,088 $2,092 ====== ======
(12) Commitments (a) Capital Leases The Company has entered into capital lease agreements for computers and software and office furniture and equipment. The following is a summary of the leased property (in thousands):
March 31, ------------ 2000 1999 ----- ----- Computers and software...................................... $ 309 $ 645 Office furniture and equipment.............................. 7 52 ----- ----- 316 697 Less accumulated amortization............................... (188) (419) ----- ----- Net property and equipment.................................. $ 128 $ 278 ===== =====
The following is a schedule of future minimum lease payments under capital leases with the present value of the minimum lease payments as of March 31, 2000 (in thousands):
Total minimum lease payments for year ending March 31, 2001......... $ 83 Less amount representing interest at 5% to 16%...................... (5) Present value of minimum lease payments............................. 78 Less current portion................................................ (78) ---- $-- ====
33 SHOWCASE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (b) Operating Leases The Company leases certain office facilities and equipment under operating leases. Total lease expense aggregated $2,160,000, $1,858,000 and $1,363,000 in 2000, 1999 and 1998, respectively. Minimum future obligations as of March 31, 2000, including operating costs under non-cancelable leases, are approximately as follows (in thousands): Years ending March 31: 2001............................................................. $1,345 2002............................................................. 863 2003............................................................. 422 2004............................................................. 328 Thereafter....................................................... 67 ------ $3,025 ======
(c) Royalty Agreement The company is obligated to make royalty payments under certain distribution and license agreements. Minimum royalties required by these agreements in order for them to remain exclusive are $3,300,000 in 2001, increased by 30% per year for each year from 2002 to 2004. One of these agreements contains a buy-back clause under which the vendor would be required to pay the Company an amount, as defined in the agreement, to revoke the exclusive rights. This amount would be recognized as revenue if such revocation should occur. Royalty expense under these agreements was $2,841,000, $3,069,000 and $2,144,000 for years ending March 31, 2000, 1999 and 1998, respectively. During fiscal 2000, ShowCase entered into a distribution and license agreements with another software company, the board of directors of which includes the CEO of ShowCase. The Company prepaid royalties of $250,000 and there was no royalty expense under this agreement for the year ending March 31, 2000. 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant See the sections entitled "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," which are incorporated herein by reference to the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders. See also the section entitled "Executive Officers of the Company" appearing in Part I hereof. Item 11. Executive Compensation See the section entitled "Director Compensation" and "Executive Compensation and Related Information," which are incorporated herein by reference to the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management See the section entitled "Stock Ownership of Certain Beneficial Owners and Management," which is incorporated herein by reference to the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders. Item 13. Certain Relationships and Related Party Transactions See the section entitled "Certain Relationships and Related Party Transactions," which is incorporated herein by reference to the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) The following consolidated financial statements are filed herewith in Item 8. (i) Balance Sheets as of March 31, 2000 and 1999. (ii) Statements of Operations and Comprehensive Income (Loss) for the years ended March 31, 2000, 1999 and 1998. (iii) Statements of Stockholders' Equity for the years ended March 31, 2000, 1999 and 1998. (iv) Statements of Cash Flows for the years ended March 31, 2000, 1999 and 1998. (v) Notes to consolidated financial statements. (a)(2) Financial Statement Schedules Schedule II--Valuation and Qualifying Accounts (a)(3) Exhibits 3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 35 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 4.1 Specimen of Common Stock certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 4.2 Registration Rights Provisions for former preferred shareholders (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.1 Amended 1991 Long-Term Incentive and Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.2 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333- 77223)). 10.3 1999 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.4 Lease Agreement dated as of November 30, 1998 between Mortenson Properties, Inc. as Landlord and the Company as Tenant (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.5 Employment Agreement dated as of November 22, 1993, between the Company and Kenneth H. Holec (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333- 77223)). 10.6 Service Agreement dated as of March 17, 1998, between the Company and Patrick Dauga (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333- 77223)). 10.7 Employment offer letter to Kevin R. Potrzeba dated as of August 23, 1996 (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.8 Employment offer letter to Theresa Z. O'Neil dated as of October 28, 1999 (filed herewith). 10.9 License Agreement, effective as of April 1, 1998, between the Company and Arbor Software Corporation (the "Hyperion License Agreement") (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.10 Amendment No. 1 to the Hyperion License Agreement, effective as of September 14, 1998, between the Company and Hyperion Solutions Corporation (incorporated by reference to Exhibit 10.10 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 36 10.11 Software License and Marketing Agreement, effective as of January 4, 1996, between the Company and AppSource (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.12 Amendment to AppSource/Showcase License Agreement, effective as of March 7, 1997 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.13 Amended and Restated License Agreement, dated as of February 16, 2000, between the Company and International Business Machines Corporation ("IBM") (filed herewith).* 10.14 Outbound License Agreement, dated as of December 9, 1998, between the Company and IBM (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.15 Marketing Relationship Agreement, dated as of May 22, 1997, between the Company and IBM (the "Marketing Relationship Agreement") (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.16 Amendment No. 1, dated as of October 28, 1998, to Marketing Relationship Agreement between the Company and IBM (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.17 Amendment No. 2, dated as of March 15, 1999, to Marketing Relationship Agreement between the Company and IBM (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.18 License and Distribution Agreement, dated as of December 31, 1999, between the Company and IntraNet Solutions, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report for the quarter ended December 31, 1999). 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333- 77223)). 23.1 Consent of Independent Auditors (filed herewith). 24.1 Power of Attorney (filed herewith). 27.1 Financial Data Schedule (filed herewith). 99.1 Cautionary Statement (filed herewith). -------- * Confidential information has been omitted from such Exhibit and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2 of the Exchange Act. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of fiscal 2000. (c) See subitem (a.) above. (d) See subitem (a.) above. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHOWCASE CORPORATION Dated: June 20, 2000 By /s/ Kenneth H. Holec ___________________________________ Kenneth H. Holec President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Kenneth H. Holec Chief Executive Officer June 20, - ------------------------------------- and Director (Principal 2000 Kenneth H. Holec Executive Officer and Director) /s/ Craig W. Allen Chief Financial Officer June 20, - ------------------------------------- and Secretary 2000 Craig W. Allen (Principal Financial and Accounting Officer) * Director - ------------------------------------- Promod Haque * Director - ------------------------------------- C. McKenzie Lewis III * Director - ------------------------------------- Jack Noonan * Director - ------------------------------------- William Binch /s/ Craig W. Allen Dated: June 20, 2000 *By: ________________________________ Craig W. Allen Attorney-in-Fact 38 Item 14(a) (2). Financial Statement Schedule INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Board of Directors of ShowCase Corporation: Under date of May 2, 2000, we reported on the consolidated balance sheets of ShowCase Corporation and subsidiaries as of March 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 2000, as included in ShowCase Corporation's Annual Report on Form 10-K for the fiscal year ended March 31, 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index (see Item 14(a)(2)). This financial statement schedule is the responsibility of ShowCase Corporation's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Minneapolis, Minnesota May 2, 2000 SHOWCASE CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands) Year ended March 31, ------------------------ 2000 1999 1998 ------ ------ ------ Allowance for Sales Returns: Balance at beginning of year.................... $ 520 $ 320 $ 175 Additions charged to revenue.................... 472 319 445 Returns......................................... (592) (119) (300) ------ ------ ------ $ 400 $ 520 $ 320 ====== ====== ====== Allowance for Doubtful Accounts: Balance at beginning of year.................... $ 285 $ 180 $ 125 Additions charged to costs and expenses......... 45 163 55 Write-offs...................................... - (58) - ------ ------ ------ $ 330 $ 285 $ 180 ====== ====== ====== EXHIBIT INDEX Number Description - ------ ----------- 3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 4.1 Specimen of Common Stock certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 4.3 Registration Rights Provisions for former preferred shareholders (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.1 Amended 1991 Long-Term Incentive and Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.2 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.3 1999 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 10.3 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.4 Lease Agreement dated as of November 30, 1998 between Mortenson Properties, Inc. as Landlord and the Company as Tenant (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.5 Employment Agreement dated as of November 22, 1993, between the Company and Kenneth H. Holec (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.6 Service Agreement dated as of March 17, 1998, between the Company and Patrick Dauga (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.7 Employment offer letter to Kevin R. Potrzeba dated as of August 23, 1996 (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.8 Employment offer letter to Theresa Z. O'Neil dated as of October 28, 1999 (filed herewith). 10.9 License Agreement, effective as of April 1, 1998, between the Company and Arbor Software Corporation (the "Hyperion License Agreement") (incorporated by reference to Exhibit 10.9 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.10 Amendment No. 1 to the Hyperion License Agreement, effective as of September 14, 1998, between the Company and Hyperion Solutions Corporation (incorporated by reference to Exhibit 10.10 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.11 Software License and Marketing Agreement, effective as of January 4, 1996, between the Company and AppSource (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.12 Amendment to AppSource/Showcase License Agreement, effective as of March 7, 1997 (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.13 Amended and Restated License Agreement, dated as of February 16, 2000, between the Company and International Business Machines Corporation ("IBM") (filed herewith).* 10.14 Outbound License Agreement, dated as of December 9, 1998, between the Company and IBM (incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.15 Marketing Relationship Agreement, dated as of May 22, 1997, between the Company and IBM (the "Marketing Relationship Agreement") (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 10.16 Amendment No. 1, dated as of October 28, 1998, to Marketing Relationship Agreement between the Company and IBM (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.17 Amendment No. 2, dated as of March 15, 1999, to Marketing Relationship Agreement between the Company and IBM (incorporated by reference to Exhibit 10.17 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed with the SEC on June 28, 1999 (File No. 333-77223)). 10.18 License and Distribution Agreement, dated as of December 31, 1999, between the Company and IntraNet Solutions, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report for the quarter ended December 31, 1999). 21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company's Registration Statement on Form S-1 filed with the SEC on April 28, 1999 (File No. 333-77223)). 23.1 Consent of Independent Auditors (filed herewith). 24.1 Power of Attorney (filed herewith). 27.1 Financial Data Schedule (filed herewith). 99.1 Cautionary Statement (filed herewith). - ---------- * Confidential information has been omitted from such Exhibit and filed separately with the Commission pursuant to a confidential treatment request under Rule 24b-2 of the Exchange Act. EX-10.8 2 0002.txt EMPLOYMENT OFFER LETTER TO THERESA Z. O'NEIL Exhibit 10.8 [Letterhead of ShowCase Corporation] October 28, 1999 Ms. Theresa Zanetti O'Neil 1924 Vassar Drive Naperville, IL 60565 Dear Theresa: On behalf of the ShowCase Corporation Management Team, it is with great pleasure that I extend to you the following Offer of Employment with ShowCase Corporation ("ShowCase"). Compensation I would like to offer you the position of Vice President of Marketing, reporting to Ken Holec, President and CEO of ShowCase Corporation. You will be based at our ShowCase Corporation office at Rosemount, Illinois. This position shall begin on November 1, 1999. Your annual base salary shall be $160,000.00, plus personal annualized target incentives of $50,000. ShowCase employees are paid semi-monthly on the 15th and last day of each month, twenty-four (24) times per year. You will receive your first paycheck on November 30, 1999. In addition, you will also be eligible to participate in the ShowCase Achievement Model (SAM) plan with an annualized target incentive of $32,000, with a minimum of $32,000 annualized being guaranteed for the remainder of our fiscal year 2000. More details are spelled out in the attached ShowCase's Executive Compensation Plan. Probationary Period For the first ninety (90) days of employment with ShowCase Corporation, all new employees work under a probationary status. At the conclusion of this probationary period, your performance shall be reviewed. Your next performance review shall take place at the end of the fiscal year (April 1) and your compensation review will be done at that time also. Severance Pay You are entitled to severance pay if you are terminated for reasons other than "Cause," and on the condition that you sign a general release of claims in a form acceptable to the Company. The Company shall have the right to determine in its sole discretion whether your termination is for "Cause," which shall include: (i) your death, or your disability which results in your inability to perform one or more of the essential functions of your position, with or without reasonable accommodation; (ii) your breach of any obligation or fiduciary duty to the Company, or your violation of any Company policy; (iii) your conviction of any crime involving moral turpitude or any felony; (iv) any conduct by you that is materially detrimental to the Company. Should ShowCase terminate your employment for any reason other than for cause you will be entitled to receive salary continuance equal to your base salary for six (6) months, or until you have secured permanent employment elsewhere, whichever occurs first. To be eligible for the salary continuation you must have made a good faith effort to secure alternate employment. You shall not be entitled to salary continuance should you voluntarily terminate your employment with ShowCase Corporation for any reason other than following a "change of control" of ShowCase. "Change of Control is defined as the acquisition by a person, not currently a shareholder of the Company, of shares of ShowCase stock representing more than 50% of the voting power of the outstanding shares and which results in a substantial change in the scope of your employment responsibilities or job location." Stock Option Plan You will also be eligible to receive 100,000 shares of ShowCase Corporation at the price of $3.75 per share. The options will vest at 1/60th per month over five years. Insurance Programs and 401(k) As a full-time ShowCase employee, you will be entitled to participate in ShowCase's cafeteria style benefits program. You will be eligible for life (required and paid by ShowCase) and, if elected, dental, disability, voluntary term life and health coverage (optional). If you select, your benefits coverage shall begin on November 1. Currently, ShowCase contributes $365 per month towards your selection of health, dental, life and disability insurance coverage(s). Should any sum remain of this contribution after your benefits payment, this amount may be contributed to a 401(k) program or taken in cash. Beginning January 1, 2000 you shall be eligible to contribute to ShowCase's 401(k) plan. The trustee of ShowCase's 401(k) plan is Fidelity Management Trust Company. All insurance elections and 401(k) contributions are handled on a full or partial pre-tax basis. In addition, you may elect to participate in the plans Medical Reimbursement Account and Dependent Care Reimbursement Account on a pre-tax basis. Community Service ShowCase will support one half day per month out of your work day to provide community service. Acceptance Should you accept employment with ShowCase Corporation, Federal law requires you to produce documents establishing your identity and right to work authorization. Our company cannot legally hire you if you do not produce such verifying documentation within three (3) days of your start date. A list of approved identification will be provided for you on the first day of hire. Enclosed with this offer to Employment, you shall find ShowCase Corporations Policy Handbook detailing ShowCase Corporation's major policies and standards of employment. Please read this handbook carefully. By signing the enclosed Letter of Acceptance, you are acknowledging your understanding of these policies and standards and agreeing to abide by them. In addition, you will also find enclosed the ShowCase Confidentiality, Inventions and Restrictive Covenant Agreement. Please sign and return these documents with your signed letter of acceptance. Should you have any questions regarding ShowCase Corporation or this Offer of Employment, please do not hesitate to contact me. Should you choose to do so, please sign and return the enclosed Letter of Acceptance at your earliest convenience. Sincerely, /s/ Ken Holec Ken Holec President and CEO KH:pw EX-10.13 3 0003.txt AMENDED AND RESTATED LICENSE AGREEMENT EXHIBIT 10.13 LICENSE AGREEMENT Agreement Number: STL97307 STL Reference No. 4997ST1740 Restatement and Modification #001 Dated February 16, 2000 between International Business Machines Corporation Santa Teresa Laboratory 555 Bailey Avenue San Jose, CA 95141 and ShowCase Corporation 4115 Highway 52 North, Suite 300 Rochester, MN 55901-0144 IBM CONFIDENTIAL LICENSE AGREEMENT This Agreement dated as of February 16, 2000 ("Effective Date") is between ShowCase Corporation ("SHOWCASE") with an address at 4115 Highway 52 North, Suite 300, Rochester, MN 55901-0144, and International Business Machines Corporation ("IBM") with an address at 555 Bailey Avenue, San Jose, CA 95141. Under this agreement, SHOWCASE will port IBM's Relational Storage Interface (RSI) to the OS/400 platform and integrate it with the SHOWCASE Essbase/400 calculation engine to provide a relational database store, and will integrate it with the Essbase/400 multidimensional store and certain software developed by SHOWCASE, and will license the result to IBM. By signing below, the parties agree to the terms of this Agreement. The complete Agreement between the parties regarding this transaction consists of this License Agreement and the following Attachments: 1. "Description of Licensed Work Number 001"; 2. "Description of Licensed Work Number 002"; 3. "Schedule"; 4. "Acceptance Criteria"; 5. "Testing, Maintenance and Support"; 6. "Royalties"; 7. "Certificate of Originality"; 8. "Source Code Custody Agreement"; and 9. "Description of Escrowed Work." Agreements which are related to this Agreement are: 10. "Agreement for the Exchange of Confidential Information Number M96-2547," as supplemented and 11. "Outbound License Agreement Number STL98095." This Agreement replaces all prior oral or written communications between the parties relating to the subject matter. This Restatement and Modification Number 001 replaces and supersedes the previous Agreement Number STL97307 which was signed on January 6, 1999. Once signed, any reproduction of this Agreement made by reliable means (for example, photocopy or facsimile) is considered an original, unless prohibited by local law. ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS SHOWCASE CORPORATION MACHINES CORPORATION By: /s/ James A. Harding By: /s/ Ken Holec ----------------------------- ------------------------------- Authorized Signature Authorized Signature Print name: James A. Harding Print name: Ken Holec --------------------- ----------------------- Date: 2/18/00 Date: 2/24/00 --------------------------- ----------------------------- 1.0 DEFINITIONS Capitalized terms in the Agreement have the following meanings. 1.01 Code is a computer programming code, including both Object Code and Source Code. a. Object Code is Code substantially in binary form, and includes header files of the type necessary for use or inter operation with other computer programs. It is directly executable by a computer after processing or linking, but without compilation or assembly. Object Code is all Code other than Source Code. b. Source Code is Code in a form which when printed out or displayed is readable and understandable by a programmer of ordinary skills. It includes related source code level system documentation, comments and procedural code. Source Code does not include Object Code. 1.02 Deliverable is any item that SHOWCASE provides under this Agreement. 1.03 Derivative Work is a work that is based on an underlying work and that would be a copyright infringement if prepared without the authorization of the copyright owners of the underlying work. Derivative Works are subject to the ownership rights and licenses of a party or of others in the underlying work. 1.04 Distributors are those authorized or licensed by IBM, IBM Subsidiaries or IBM Distributors to license or distribute Products. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 1.05 Enhancements are changes or additions other than Error Corrections, to the Licensed Work. a. Basic Enhancements are all Enhancements, other than Major Enhancements, including those that support new releases of operating systems and devices. b. Major Enhancements provide substantial additional value and are offered to customers for an additional charge. 1.06 Error Corrections are revisions that correct errors and deficiencies (collectively referred to as "errors") in the Licensed Work. 1.07 Externals are (1) any pictorial, graphic, and audiovisual works (such as icons, screens, sounds, and characters) generated by execution of Code, and (2) any programming interfaces, languages or protocols implemented in Code to enable interaction with other computer programs or the end user. Externals do not include the Code that implements them. 1.08 Licensed Work is (1) any material described in or that conforms to the description in the Attachments entitled "Description of Licensed Work," or that is delivered to IBM as the Licensed Work, including (but not limited to) Code, associated documentation, and Externals, and (2) Error Corrections and Enhancements to be provided to IBM pursuant to this Agreement. 1.09 Product is an offering to customers or other users, whether or not branded by IBM or its Subsidiaries, that includes all or any portion of the Licensed Work. a. OLAP Product is the DB2 OLAP Server for AS/400 including its component offerings that includes the Licensed Work described in the Attachment entitled "Description of Licensed Work #001" or a Derivative Work of such Licensed Work. b. StarterKit Product is the OLAP Starter-kit for AS/400 that includes the Licensed Work described in the Attachment entitled "Description of Licensed Work #002" or a Derivative Work of such Licensed Work. 1.010 Moral Rights are personal rights associated with authorship of a work under applicable law. They include the rights to approve modifications and to require authorship identification. 1.011 SHOWCASE Tag-Line is the following statement for inclusion by IBM on a Product start-up splash screen and marketing deliverables as appropriate: "Developed by ShowCase Corporation." 1.012 Subsidiary is an entity during the time that more than 50% of its voting stock is owned or controlled, directly or indirectly, by another entity. If there is not voting stock, a Subsidiary is an entity during the time that more than 50% of its decision-making power is controlled, directly or indirectly, by another entity. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 1.013 Tools include devices, compilers, programming, documentation, media and other items required for the development, maintenance or implementation of a Deliverable that are not commercially available. 2.0 RESPONSIBILITIES OF SHOWCASE 2.01 SHOWCASE will port IBM's Relational Storage Interface (RSI), provided to SHOWCASE pursuant to Outbound License Agreement Number STL98095, to the OS/400 platform and integrate it with the SHOWCASE Essbase/400 calculation engine and multidimensional database store and certain software as identified in DLW # 001 and DLW # 002. The resulting integrated combination by SHOWCASE will become Licensed Works (LW) which SHOWCASE licenses to IBM under this Agreement and as specified in DLW # 001 and DLW # 002. SHOWCASE will continue to ensure the compatibility of the Licensed Works with the latest versions of OS/400 operating system that are made available including the standards and implementation of installation, maintenance, License Use Management (LUM) and service fix packs for IBM program products on OS/400 and the current version of Essbase by making all needed modifications or Enhancements to the Licensed Work. 2.02 SHOWCASE will provide the following Deliverables to IBM according to the schedule in the Attachment entitled "Schedule" and in accordance with the Attachment entitled "Acceptance Criteria": a. one complete set of each of the Licensed Works described in the Attachments entitled "Description of Licensed Work." The Licensed Works include Object Code deposited on CD-ROM delivered to IBM as the final product build ready for IBM to distribute to Customers. i. SHOWCASE will include in each of the Licensed Works the following in the form provided by IBM: l.) Code a.) on a splash screen at install and at the start of each use of the Product: - IBM Product name - IBM copyright statement - IBM logo - DB2 OLAP Server graphic b.) Help Pull Down Screen - IBM copyright statement (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 2.) All publications (softcopy) a.) Cover Sheet - IBM Product name - IBM logo - DB2 OLAP Server graphic b.) Copyright Notice page - IBM copyright statement. b. Tools for the Licensed Works as identified in the form specified in the Attachment entitled "Tools and Commercially Available Materials." c. any updates to the list identifying any commercially available devices, compilers, programming, documentation, media and other items required for the development, maintenance or implementation of a Deliverable. The commercially available items are identified in the form specified in the Attachment entitled "Tools and Commercially Available Materials." d. completed certificate of originality with the Licensed Work, and with each Enhancement to the Licensed Work, in the form specified in the Attachment entitled "Certificate of Originality." IBM acknowledges that it has received from Arbor Software now known as Hyperion Solutions Corporation (hereinafter "Hyperion"), an appropriate Certificate of Originality for the Essbase Software owned by Hyperion, which is ported to the AS/400 by SHOWCASE and included in the OLAP Product and the StarterKit Product. IBM may suspend payments to SHOWCASE for the Licensed Work if SHOWCASE does not provide a properly completed certificate. Payment will resume after IBM receives and accepts the certificate. e. one complete set of publications in Frame source format of the SHOWCASE administration and install manuals. SHOWCASE will update these publications to include necessary information on operational tasks and AS/400 tuning related to the Relational Storage Manager (RSM). 2.03 For the term of this Agreement, SHOWCASE will provide to IBM testing, maintenance and support for the Licensed Works, as described in this Agreement, including the Attachment entitled "Testing, Maintenance and Support." After IBM receives the initial contact from the customer (Level 0) and provides Level 1 maintenance and support, SHOWCASE will provide Level 2 and Level 3 maintenance and support. In order to facilitate SHOWCASE in performing its Level 2 and Level 3 maintenance and support obligations under DLWs 001 and 002, SHOWCASE will transfer initial relevant SHOWCASE problem records and ongoing relevant PMR and APAR information between (to and from) the IBM RETAIN system and SHOWCASE's existing maintenance support system known as VANTIVE. IBM will share in (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. the expense of these transfer activities as specified in Section 5.02 of this Agreement. SHOWCASE will use it's best judgment in determining which information is relevant with the intent being to make available to IBM's Level 1 that technical information which will increase IBM's Level 1 effectiveness in problem resolution. IBM will review these records and notify SHOWCASE if, in IBM's judgment, they are insufficient. 2.04 SHOWCASE will provide to IBM, at no charge, Enhancements and Error Corrections for the Licensed Works beginning when IBM accepts the Licensed Works including corrections for any problems found during any beta tests. Beta test Object Code for Enhancements will be made available to IBM no later than the earliest date on which SHOWCASE provides such beta test Object Code to any other entity. SHOWCASE will provide IBM a golden master for Enhancements on the same day on which SHOWCASE delivers a golden master for manufacturing of the SHOWCASE logo'd version of the Licensed Work. 2.05 SHOWCASE will implement the License Use Management (LUM) support in a tactical and strategic fashion for the OLAP Product. a. The tactical implementation includes the implementation of code from the DB2 OLAP code base for LUM support in the OLAP Product licensed to IBM. This code will support the IBM trusted user concept for IBM Licensed Program Products -- the code will ask the customer for products / users installed and the output will generate the Hyperion/SHOWCASE key needed to operate the code in question. The generated keys will activate the following features and options: i. If the Customer indicates DB2 OLAP Server for AS/400 then the key will implement the install of Essbase MDSM, RSM, and/or other base Essbase options; ii. If the Customer indicates DB2 OLAP Server Builder then the key will implement the install of Builder; iii. If the Customer indicates DB2 OLAP Server Partitioning then the key will implement the install of Essbase partitioning; iv. If the Customer indicates DB2 OLAP Server Toolkit then the key will implement the install of (1) Currency Conversion, (2) SQL Drill Through, (3) Spreadsheet Toolkit, (4) Application Programming Interface (API), and (5) SQL Interface (or SQL Access in ShowCase Strategy); v. When the Customer indicates Number of Users then the key will implement the number of users the customer has indicated and will automatically enable to an unlimited number of processors. b. The strategic implementation of LUM support is to implement the SLM/400 security features of OS/400 with specifications as documented in the IBM publication, (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. "AS/400 License Management Guideline Document for Software Vendors, Version 1.2." This SLM publication was provided by IBM to SHOWCASE during the week ended November 13, 1998. This should be implemented no later than nine (9) months following the implementation of LUM support by Hyperion on each major release of the products. There may be additional requirements for LUM support coming from SLM/400 covering User management. This would be implemented as the support is available; but such additional requirements will be assessed by both parties and jointly agreed upon, including any appropriate funding. 2.06 SHOWCASE will provide electronic licensing as follows: The "Click to Agree" (License Acceptance Process tool) will be integrated in the Licensed Works starting with the DLW #001 V2.0 and the DLW #002 V2.0 general availability; providing that IBM provides the underlying code and all of the license documents to be included (in various languages as available as specified in Section 3.10). 2.07 SHOWCASE will provide, at no charge, up to (*) "Instructor days" ((*) world wide, staffed by (*) SHOWCASE instructors.) of education to the IBM sales team and IBM partners concerning the Licensed Works , on mutually agreed upon dates, but no later than thirty (30) days prior to the date on which IBM plans to make a Product generally available to customers. SHOWCASE has provided thirty (30) of the "Instructor days" prior to execution of this Restatement and Modification #001. Relevant points concerning these sessions are as follows: a. The education includes topics such as feature/function/benefit education, competitive positioning, demonstration training, and in-depth sales support and technical training. b. Multiple IBM students may attend the classes (Up to 25 students per class). c. Following such sessions SHOWCASE will provide education updates to IBM in Rochester, Minnesota on new releases at such time as SHOWCASE makes them available to any others. SHOWCASE will provide, at no charge one (1) full day of introductory and advanced LWs sales training, for up to twenty-five (25) IBM employees at IBM's Santa Teresa Laboratory, San Jose, CA on mutually agreed to dates, but no later than thirty days prior to the date on which IBM plans to make a Product generally available to customers. If the parties mutually agree to an alternate site, travel expenses will be handled in accordance with 2.07 e. below. d. Further formal education will be provided as jointly agreed. e. For classes not held in Rochester, Minnesota, IBM will reimburse SHOWCASE for the instructors' reasonable travel and living expenses for the desired classes. Charge and payment information will be provided by the group requesting the sessions. i. Travel Expense Guidelines: IBM will reimburse SHOWCASE for the following travel expenses only, provided they are incurred in the performance of this (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Agreement and with IBM's prior written approval: (i) tolls, parking fees, taxis, buses or auto rentals fees for autos rented from a IBM designated rental company; (ii) personal automobile use under the applicable automobile allowance plan, excluding normal commutation; (iii) air transportation at the economy, tourist or coach class rate for the most direct route of a scheduled airline; (iv) reasonable lodging charges commensurate with the average rates charged for the immediate area where classes are held, not to exceed the rate per day provided by the requesting group; (v) reasonable and actual meal expenses not to exceed the rate per day provided by the requesting group; (vi) necessary business calls made on IBM's behalf; (vii) reasonable tipping; (viii) reasonable valet and laundry charges if a trip extends beyond four (4) days. SHOWCASE must submit an invoice listing all travel expenses, such invoice to be accompanied by receipts for lodging, airline travel, rental cars or any other reimbursable expenditures. IBM will not reimburse SHOWCASE for personal expenses f. IBM reserves the right to develop its own education offerings. 2.08 SHOWCASE will: a. participate in a reasonable number of progress reviews, as requested by IBM, to demonstrate SHOWCASE's performance of SHOWCASE's obligations; b. perform a beta test and provide IBM the results of and customer testimonials from the SHOWCASE beta program. IBM will work with SHOWCASE to jointly identify customers for the beta program. The intent of such beta program is to get customer testimonials for IBM as to the merits of the Licensed Work. This should be an extension of the existing ShowCase beta programs and should not constitute an additional program. IBM will provide formats for the customer testimonials and work directly with the customers involved with the testimonials. c. implement a process designed to help prevent any such contamination by Harmful Code. SHOWCASE will promptly provide IBM notice if SHOWCASE suspects any contamination ; d. have agreements with SHOWCASE's personnel and third parties to perform obligations and to grant or assign rights to IBM as required by this Agreement. On request, SHOWCASE will provide IBM with evidence of these agreements; e. acknowledge that IBM's exercise of rights and licenses hereunder shall not violate any Moral Rights of SHOWCASE, and SHOWCASE will agree not to assert any Moral Rights SHOWCASE has or may have in the Licensed Work against IBM in its exercise of rights and licenses hereunder; f. obtain all necessary consents of individuals or entities required for the use of names, likeness, voices, and the like in the Licensed Work; (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. g. maintain records to verify authorship of the Licensed Work for 4 years after the termination or expiration of this Agreement. On request, SHOWCASE will deliver or otherwise make available this information in a form specified by IBM; h. not assign or transfer this Agreement or SHOWCASE's rights under it, or delegate or subcontract SHOWCASE's obligations, without IBM's prior written consent, such consent will not be unreasonably withheld. Any attempt to do so without such written consent is void; i. not provide any information or the fact that SHOWCASE has licensed the Licensed Work to IBM, to the media, or issue any press releases or other publicity, regarding this Agreement or the parties' relationship under it, without IBM's prior written consent (excluded from this restriction is that information which is now or hereafter becomes generally known or available through no act or failure to act on the part of SHOWCASE); and j. not disclose to a third party the terms of this Agreement without IBM's prior written consent except as expressly permitted hereunder. SHOWCASE may, however, make such disclosures (i) to its accountants, lawyers or other professional advisors provided that any such advisor is under a confidentiality obligation and (ii) as required by law provided SHOWCASE obtains any confidentiality treatment for it which is available. k. be allowed to provide customer installation information pertaining to this Agreement to Hyperion solely to fulfill SHOWCASE's contractual obligations to Hyperion providing that Hyperion is subject to the same confidentiality restrictions specified within this Agreement and the Agreement for Exchange of Confidential Information Number M96-2547, as supplemented. l. identify a SHOWCASE employee as the Sales liaison/focal point for DLW 001 and DLW 002 of this Agreement for technical sales matters. The person SHOWCASE initially designates is named in Section 11.04, "SALES LIAISON/FOCAL POINTS." SHOWCASE can change this liaison/focal point anytime by identifying a replacement individual and notifying IBM in writing of such change. m. provide reasonable technical sales assistance by phone to IBM through the IBM Focal point named in Section 11.04. n. SHOWCASE will commit commercially reasonable resources necessary to meet the development, announce and GA schedules of OS/400 for DLW 001 and DLW 002 as specified in the attached Attachment, "Schedule." 2.09 SHOWCASE will execute and meet the deposit requirements of the Source Code Custody Agreement in the Attachment entitled "Source Code Custody Agreement." (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 2.010 SHOWCASE will enable the Licensed Works for National Language Support (NLS) and Double Byte Character Set (DBCS) and provide all foreign language versions of Licensed Works to IBM as, and to the extent, they become available. Currently, English is available. SHOWCASE will arrange for the complete Japanese translation without impacting the IBM GA date; provided that IBM provides to SHOWCASE the English expression to be translated at least fourteen (14) weeks prior to the IBM GA date. The cost of this translation will be shared by IBM and SHOWCASE as specified in Section 5.03. SHOWCASE will provide all such foreign language versions in Machine Readable Interface (MRI) formats to IBM on the master CD-ROM as specified in Section 2.02. Given a justified business case by IBM which SHOWCASE and IBM jointly agree upon, including any appropriate funding, SHOWCASE will provide NLS enablement for additional language versions of the Licensed Works in six (6) months. To assist SHOWCASE, IBM will provide any of those modules or MRI's which have previously been translated and which IBM has the right to share. 2.011 IBM acknowledges and understands that portions of the Licensed Works included in the OLAP Product and the StarterKit Product are based on Code owned by Hyperion and licensed by SHOWCASE. Prior to any release of Source Code for such Licensed Work pursuant to the terms of the Source Code Custody Agreement, IBM hereby agrees to inform Hyperion in writing of such impending release and that Hyperion shall have thirty (30) days to elect in writing one of the following options: 1. modify, in agreement with IBM, that certain IBM Developer Agreement Number STL96204 and its DLW #001 dated September 27, 1996, between Hyperion and IBM (the "Santa Teresa Agreement") by adding the Essbase AS/400 Port as a Licensed Work under the Santa Teresa Agreement. Provided that SHOWCASE provides to IBM the Source Code needed for support and assigns to IBM copyright ownership in the Code ported to OS/400 by SHOWCASE which was based on the code licensed to SHOWCASE pursuant to the Outbound License Agreement Number STL98095 (including Derivative Works thereof - all referred to as "RSI Code"), IBM hereby consents to assuming the obligation to support all portions of the OLAP Product that runs on OS/400 (excluding the Essbase AS/400 Port and any Enhancements and Maintenance Modifications thereto), including any version of RSI Code. And IBM agrees to pay royalties to Hyperion that are the same as those IBM pays Hyperion pursuant to the Santa Teresa Agreement for the Licensed Works thereunder licensed on other platforms, with a minimum OTC royalty established by multiplying the same percentage rate established in the Santa Teresa Agreement for product on other platforms by the minimum SHOWCASE US List Price established in this Agreement for the OLAP Product except that no royalties will be paid for the StarterKit Product which is considered a "Seed product" sponsored jointly by the parties; in such case no further royalties will be due to SHOWCASE under this License Agreement Number STL97307 for licensing of its OLAP Product; or 2. have assigned to it, and assume on behalf of SHOWCASE, all obligations of SHOWCASE under this Agreement, Source Code Custody Agreement, and the (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Outbound License Agreement Number STL98095 with respect to the OLAP Product, including, without limitation, all necessary development and support thereof, and IBM hereby agrees to give its written consent to such assignments. In the event that IBM assumes support of the RSI Code, then SHOWCASE shall deliver to IBM all available Source Code necessary for IBM to support it, and SHOWCASE hereby grants and assigns to IBM, its successors and assigns, all right, title and interest whatsoever, throughout the world, in and under copyright in the Derivative Work of the RSI Code (the Code ported to the OS/400 operating system by SHOWCASE pursuant to the Outbound License Agreement Number STL98095, for the full duration of all such rights and any renewals or extensions thereof. SHOWCASE agrees to cooperate with IBM and execute documents reasonably required to support such assignment and allow IBM to exercise its rights to the Code. Notwithstanding anything to the contrary in this Agreement (including all of its Attachments) or the Agreement for the Exchange of Confidential Information Number M96-2547, as supplemented, upon the occurrence of any of the foregoing events, IBM consents and agrees: a. to cooperate with SHOWCASE and Hyperion in good faith to transfer all Source Code and other information reasonably needed in order for Hyperion to assume such obligations, b. in the event a release condition for the release of the Source Code for the OLAP Product and the StarterKit Product (pursuant to the Source Code Custody Agreement) occurs, to SHOWCASE's disclosure of information related to the Outbound License Agreement, this License Agreement and the Source Code Custody Agreement, solely to the extent required to permit Hyperion to perform SHOWCASE's obligations hereunder with respect to the Licensed Works, including the Essbase Software, provided that any such disclosures are subject to an appropriate nondisclosure agreement between Hyperion and SHOWCASE, which contains terms that are as protective of IBM's confidential information as those set forth in the Agreement for the Exchange of Confidential Information Number M96-2547, as supplemented, and c. In the case of Hyperion electing option number 2 above, IBM shall pay to Hyperion all royalties due to SHOWCASE under this License Agreement for the OLAP Product subsequently distributed; and no further such royalties shall be due to SHOWCASE. The parties agree that upon any release of the Source Code for the OLAP Product and the StarterKit Product pursuant to this Agreement, (a) SHOWCASE shall have no continued obligations under the Outbound License Agreement, this Agreement or the Source Code Custody Agreement to support or maintain any existing Licensed Work included in the OLAP Product and the StarterKit Product, or to create any new Derivative Works of the Licensed Work for inclusion in the OLAP Product and the StarterKit Product; (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. (b) the mere occurrence by itself of such release or termination shall not constitute a breach (although such release may be triggered by a breach) by SHOWCASE of its obligations under this Agreement, the Outbound License Agreement, the Source Code Custody Agreement or any other related agreements between the parties, and this Agreement shall otherwise remain in full force and effect pursuant to its terms; and (c) If Hyperion does not elect in writing one of the above options within thirty (30) days of receipt of IBM's notice, then IBM may obtain the escrowed Materials in accordance with the SCCA. 2.012 SHOWCASE can offer end users the IBM subscription program as part of the standard IBM ISV contract (currently offered to ISVs at committed volumes for a (*) discount). The customer can order and purchase the subscription from SHOWCASE, but the customer agreement will be with IBM; and IBM will provide the updates to the end users in the same fashion as if the order had been placed directly with IBM. In this case, SHOWCASE will pay IBM, as would any other ISV, in accordance with the contract terms for the subscription offering. (This is similar to SHOWCASE remarketing a shrink-wrap product offering.) SHOWCASE may license the RSI as part of its own product offering in accordance with the terms of the existing license agreement with IBM covering that technology. SHOWCASE would pay IBM royalties due under that license agreement. SHOWCASE could offer any sort of its own subscription offering on its own logo'd product. 3.0 IBM'S RESPONSIBILITIES 3.01 IBM will perform reviews and testing of the Licensed Works in accordance with the Attachment entitled "Acceptance Criteria." 3.02 IBM will review results of SHOWCASE's beta test (Section 2.08 above) and may use testimonials therefrom in its marketing efforts. SHOWCASE may provide the test results to IBM as confidential information under the AECI as specified in Section 12.06, provided that IBM shall have no obligation of confidentiality with regard to the customer testimonials. 3.03 IBM will make payments for SHOWCASE's porting activity in accordance with Section 5.0, "Payments." 3.04 IBM will pay royalties to SHOWCASE pursuant to Section 6.0, "Royalties." 3.05 IBM will include the SHOWCASE Tag-Line as defined in Section 1.11 and retain all patent and copyright information displayed in the "About Box" of the OLAP Product. 3.06 IBM will: a. share the IBM translated versions of the Spreadsheet Clients with SHOWCASE, so that they can imbed them in the SHOWCASE OLAP product; (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. b. add appropriate IBM copyright and content to the SHOWCASE publications to create IBM product publications and translate them as IBM deems appropriate; c. create a separate client CD-ROM which will contain the IBM translated Spreadsheet Clients and install as well as OLAP partitioning, SQL drill through, Currency conversion, Spreadsheet Toolkit, SQL interface, etc., plus any IBM publication, English or translated, for the IBM OLAP Product; and d. share the cost of the Japanese translation with SHOWCASE by making payment as specified in Section 5.03. 3.07 IBM will provide SHOWCASE, as specified in the Attachment entitled Testing, Maintenance and Support (Section 3.0), with reasonable access to IBM's RETAIN system (IBM's system used to manage and process PMRs and APARs) as necessary for SHOWCASE to perform its Maintenance and Support obligations as required in this Agreement. 3.08 IBM will announce and bring to market the DB2 OLAP Server for AS/400 as a part of an overall IBM OLAP solution. 3.09 IBM will provide SHOWCASE with RSI Server Source Code solely for the purpose of porting such Code and maintaining the Licensed Works as described in this Agreement, and for distribution as part of SHOWCASE's products in accordance with the Outbound License Agreement Number STL98095. The provision of the RSI Server Source Code will be subject to the terms of AECI Agreement Number M96-2547, and its Supplement Number STL001. 3.010 IBM will provide the following items, along with documentation on how to use them, solely for SHOWCASE's inclusion in the Licensed Works (starting with DLW001 and DLW002 V2.0 Products) for the electronic licensing defined in Section 2.06 above: a. IBM's License Acceptance Process (LAP) tool (object code to imbed in support of online licensing). b. the proper License agreements for the LAP tool to display in all the needed language versions. There will be three different license versions (in all chosen translations): the Product, the demo, and the Starter Kit. 3.011 IBM Data Management Division will not execute an agreement with Hyperion Solutions Corporation (or its successors or assigns) to be the provider of an OLAP Product for the OS/400 platform which uses the specific technology defined in DLW #001 for five (5) years from the date of the execution of this Agreement, unless this Agreement is terminated prior to that time in accordance with Section 10, TERM AND TERMINATION, or pursuant to Section 2.11 of this Agreement, in which case this restriction shall not apply. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 3.012 IBM will provide at no cost to SHOWCASE, as soon as reasonably practicable which may not be until after the General Availability of the OLAP Product, a customer level Product and a license to make additional copies to enable SHOWCASE to perform sales and maintenance/support responsibilities under this Agreement. These are not to be used for productive purposes outside this Agreement. 4.0 OWNERSHIP AND LICENSE 4.01 SHOWCASE will own the changes it develops to the RSI (the initial Code ported to the OS/400 operating system and any and all revisions, releases or new versions of the initial Code) which SHOWCASE will develop and deliver to IBM as part of DLW #001 and DLW #002, subject to IBM's continued ownership of the underlying RSI Code. 4.02 SHOWCASE grants IBM a nonexclusive, worldwide, irrevocable license to prepare Derivative Works of the Licensed Works and to use, execute, reproduce, display, perform, transfer, distribute and sublicense the License Works and such Derivative Works, in any medium or distribution technology whatsoever, whether known or unknown. SHOWCASE grants IBM the right to authorize or sublicense others to exercise any of the rights granted to IBM in this Section. 4.03 SHOWCASE grants IBM a nonexclusive, worldwide, irrevocable, paid-up license to prepare Derivative Works of Tools, and to use, execute, reproduce, display, perform, and distribute internally the Tools and such Derivative Works, in any medium or distribution technology whatsoever, whether known or unknown. The rights and licenses granted by SHOWCASE to IBM hereunder include the right of IBM to authorize or sublicense its Subsidiaries, contractors, and consultants to exercise any of the rights granted to IBM in this Section. 4.04 The grant of rights and licenses to the Licensed Works and Tools includes a nonexclusive, worldwide, irrevocable, paid-up license under any patents and patent applications that are owned or licensable by SHOWCASE now or in the future and are (1) required to make, have made, use and have used the Licensed Works or any Derivative Works or (2) required to license or transfer the Licensed Works or its Derivative Works. This license applies to the Licensed Works and Derivative Works operating alone or in combination with equipment or Code. The license scope is to make, have made, use, have used, sell, license or transfer items, and to practice and have practiced methods, to the extent required to exercise the rights granted hereunder to the Licensed Works and Tools. 4.05 Subject to SHOWCASE's ownership of the Licensed Works and Tools, IBM will own any changes it creates to produce Derivative Works. 4.06 SHOWCASE grants IBM a nonexclusive, worldwide, irrevocable, paid-up license to use the names and trademarks SHOWCASE uses to identify the Licensed Works for IBM's marketing of the Licensed Works and Derivative Works thereof. SHOWCASE grants IBM the right to authorize or sublicense others to exercise any of the rights granted to IBM in this (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Section. If IBM's use of SHOWCASE's names and trademarks is improper and SHOWCASE provides IBM notice that SHOWCASE objects to it, IBM will take all reasonable steps necessary to resolve SHOWCASE's objections. SHOWCASE may reasonably monitor the quality of products bearing its trademark under this license. 4.07 ANY goodwill attaching to IBM's trademarks, service marks, or trade names belongs to IBM and this Agreement does not grant SHOWCASE any right to use them. IBM may state that SHOWCASE has provided the Licensed Works. 5.0 PAYMENT 5.01 IBM will pay SHOWCASE (*) within thirty days of receipt of a SHOWCASE invoice submitted upon or after the execution of this Agreement. This payment was made in January 1999. 5.02 IBM will pay SHOWCASE actual and reasonable cost incurred of up (*) per year for the RETAIN-VANTIVE transfer activity in accordance with Section 2.03. The initial payment will be made within thirty (30) days of receipt of a valid invoice submitted sixty (60) days after execution of this Agreement referencing the purchase order number to be provided by IBM. IBM and SHOWCASE will review this cost annually and if appropriate substitute a programming fix to automate RETAIN updates in lieu of manually-keyed transfer of the information. 5.03 IBM will pay SHOWCASE (*) as IBM's total share of the Japanese translation cost. The payment will be made within thirty (30) days of receipt of a valid invoice submitted after execution of this Agreement referencing the purchase order number to be provided by IBM. 6.0 ROYALTIES 6.01 For OLAP Products: IBM will pay SHOWCASE, (*) of all license fees recorded by IBM for each authorized copy of a Product licensed to an end user by IBM, IBM Subsidiaries or Distributors. An annual minimum royalty amount will be calculated on an annual basis (see Section 6.01 a.) based on (*) of the SHOWCASE list price in effect on the date of the execution of this Agreement or as renegotiated in accordance with Section 10.07, by geography, for each authorized copy of the OLAP Product licensed to an end user by IBM, IBM Subsidiaries or Distributors as specified in the Attachment titled "Royalties." Should SHOWCASE decrease its list price for the SHOWCASE OLAP Server for OS/400 which comprises the Licensed Work under DLW 001, such decreased list price shall apply to calculate amounts due under this Agreement. Any increase in list price shall not affect amounts due under this Agreement, but royalties may be increased as provided in Section 10.07 below. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. a. Within three (3) months following the end of each calendar year, IBM will determine if the minimum royalty amount specified in Section 6.01 is applicable to royalties accrued or paid by IBM to SHOWCASE. Such determination shall be made by multiplying the annual worldwide volume of OLAP Product licenses sold by the minimum royalty amount specified in Section 6.01, and comparing that result to the amount paid to SHOWCASE using the percent of Revenue provision specified in Section 6.01. If the result of multiplying the annual worldwide volume of OLAP Product licenses sold by the minimum royalty amount specified in Section 6.01 exceeds the amount paid to SHOWCASE using the percent of Revenue provision specified in Section 6.01, IBM will pay SHOWCASE the difference by the last day of April. b. When IBM offers the Product combined with other products or services, IBM will pay SHOWCASE (*) of the license fees recorded by IBM and IBM Subsidiaries for each authorized copy of the Product licensed to an end user by IBM, IBM Subsidiaries or Distributors, which Product license fee will be based on the proportionate value of the Product to the complete combined offering, as determined by IBM. 6.02 For StarterKit Products: No royalty or other charge shall be payable by IBM or its Subsidiaries or its or their Affiliates for any copies of a StarterKit Product, or authorized DWs thereof, licensed, sublicensed or otherwise distributed by IBM, IBM Subsidiaries or Distributors. 6.03 In the event that IBM wishes to distribute any other Product, the parties must first negotiate and agree in writing to an appropriate royalty to be paid to SHOWCASE. 6.04 For Major Enhancements not included as part of the Products in Sections 6.01 above, but licensed as a separate priced feature, IBM will pay SHOWCASE (*) of all license fees recorded by IBM for each authorized copy of a Product licensed to an end user by IBM or IBM Personnel. An annual minimum royalty amount will be calculated on an annual basis (see Section 6.01 a.) based on (*) of the SHOWCASE initial list price on the date the Major Enhancement is offered or as renegotiated in accordance with Section 10.07, by geography, for each authorized copy of the Major Enhancement licensed to an end user by IBM, IBM Subsidiaries or Distributors. An Amendment to the Attachment titled "Royalties" will be made at that time to reflect the inclusion of the Major Enhancement. Should SHOWCASE decrease its list price for the SHOWCASE Products for OS/400 which comprise a Major Enhancement, such decreased list price shall apply to calculate amounts due under this Agreement. Any increase in list price shall not affect amounts due under this Agreement, but royalties may be increased as provided in Section 10.07 below. 6.05 Under IBM's Software Subscription offering (however named in the future), customers pay a fee, for which they receive all program (version/release) upgrades for a fixed period of time. Such upgrade protection may be offered for the Products and any Major Enhancements which are separately priced features covered in Section 6.03 above. SHOWCASE royalties specified in Sections 6.01, 6.02, and 6.03 shall not apply to upgrade copies of the (i) Products (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. and (ii) Major Enhancements licensed as separately priced features pursuant to Section 6.03 above, which are provided to Customers who have licensed a Product and/or such a separately priced feature and purchased upgrade protection. IBM will not pay any per copy royalties for upgrade copies received by customers under such Software Subscription offering. SHOWCASE shall receive a royalty for the initial Product or Major Enhancement as a separately priced feature as specified in Sections 6.01, 6.02, or 6.03 above. SHOWCASE shall also receive (*) of the Software Subscription fees recorded by IBM for each authorized copy of a Product licensed to an end user by IBM, IBM Subsidiaries or Distributors. For example, if IBM receives payment for a one year software subscription under the Software Subscription offering for a Product(s) or Major Enhancement as a separately priced feature, IBM will pay SHOWCASE a royalty of (*). If a new version of the Licensed Work is made generally available within the covered period of time, the customer who bought the offering receives the new version of the Product or Major Enhancement as a separately priced feature at no additional charge. IBM will not pay SHOWCASE any additional royalty for such upgrades. 6.06 For use within IBM and IBM Subsidiaries not specifically specified as royalty-free in Section 6.07 below, IBM will pay the minimum royalty amount specified in the Royalty Attachment. 6.07 IBM has no royalty obligation for: a. the Licensed Works or Derivative Works thereof used for: 1.) IBM's and IBM Subsidiaries' (including third parties under contract) development, maintenance or support activities; 2.) marketing demonstrations, customer testing or trial periods (including early support, prerelease, or other similar programs up to a maximum of sixty (60) days), Product training or education (the royalty exclusion in this case applies only to Product training and education which is not generating revenue for IBM and IBM Subsidiaries); or 3.) off-line backup and archival purposes; b. the Licensed Work (or functionally equivalent work) that becomes available generally to third parties without a payment obligation through no action or fault of IBM; c. documentation provided with, contained in, or derived from the Licensed Work; d. Error Corrections or Basic Enhancements; e. warranty replacement copies of the Product; or f. Externals. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 6.08 IBM, IBM Subsidiaries, and Distributors may, without incurring any royalty obligation, copy the Product and distribute it on a CD-ROM, or other media or distribution technology on or through which the Product is secured (e.g., "encrypted" or "locked") to limit a customer's access to or use of the Product. IBM may allow the customer, under a limited license, a limited preview, trial or demonstration use of the Product up to a maximum of sixty (60) days. IBM will have no royalty obligation to SHOWCASE unless IBM, IBM Subsidiaries, or Distributors license the Product to such customer for full productive use. 6.09 SHOWCASE acknowledges that IBM and IBM Subsidiaries are in the business of providing outsourcing services ("Services") to third party customers of IBM ("IBM Customers"), which may involve the access, use or assignment of certain software to IBM or IBM Subsidiaries solely for the provision of the Services. If as a result of the Services, IBM or any IBM Subsidiary accesses, uses or has assigned to it a copy(ies) of the Licensed Works (which copies the IBM Customer has previously licensed and paid the applicable license fee therefor ("IBM Customer Copies")), then SHOWCASE shall not be entitled to receive hereunder any royalties or other amounts (including, without limitation, fees for assignment of a license, upgrade protection or technical support for the Licensed Works) from IBM or any IBM Subsidiaries for the use, access or assignment of the IBM Customer Copies of the Licensed Works as a result of its provision of the Services to the applicable IBM Customer. IBM and any IBM Subsidiaries are not obligated to purchase any maintenance services for the IBM Customer Copies of the Licensed Software, and neither IBM nor IBM Subsidiaries may cancel maintenance services that an IBM Customer has elected to receive for its IBM Customer Copies. IBM and IBM Subsidiaries cannot use any IBM Customer Copies of the Licensed Software to provide IBM ASP services or any other IBM Services to any party other than the party(ies) who is licensed to use such IBM Customer Copies by SHOWCASE. The foregoing restrictions are intended to ensure that through the provision of Services, IBM and IBM Subsidiaries only use and access each IBM Customer Copy in accordance with the use license that was granted by SHOWCASE to the IBM Customer who licensed such IBM Customer Copy(ies) from SHOWCASE. Thus, for example, if an IBM Customer is licensed by SHOWCASE to use a IBM Customer Copy(ies) in its business to provide ASP services to its third party customers, then IBM and IBM Subsidiaries shall be entitled to use such IBM Customer Copy(ies) in the same manner as the IBM Customer is permitted under the applicable license (i.e., to provide ASP services to the IBM Customer's third party customers). 6.010 IBM may request a lower royalty for the Licensed Work when a licensing transaction requires a substantial discount. If SHOWCASE agrees, both parties will sign a letter specifying the licensing transaction and its lower royalty payment. The SHOWCASE Chief Financial Officer is authorized to sign such letters on SHOWCASE's behalf. 6.011 Royalties are paid against revenue recorded by IBM in a royalty payment quarter. In the US, a royalty payment quarter ends on the last business day of the calendar quarter. Outside of the US, a royalty payment quarter is defined according to IBM's current administrative practices. Payment will be made by the last day of the second calendar month following the royalty payment quarter. Royalties will be paid less adjustments and refunds due to IBM. IBM will provide with each payment the standard royalty accounting report which IBM provides to its (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. suppliers; the current report at the time of execution of this Agreement provides information by part number, country code, and royalty rate. All payments will be made in US dollars. Payments based on foreign revenue will be converted to US dollars on a monthly basis at the rate of exchange published by Reuters Financial Service on approximately the same day each month. 6.012 IBM shall maintain relevant records to support payments made to SHOWCASE under this Agreement. The records will be retained for three (3) years after the date of the applicable payment is made to SHOWCASE hereunder. SHOWCASE shall have the right to have an independent certified public accounting firm, chosen and compensated (other than on a contingency basis) by SHOWCASE audit such records. SHOWCASE's request will be in writing, will provide IBM 90 days prior notice, and will not occur more than once each year. The audit will be conducted during normal business hours at IBM's offices and in such a manner as not to interfere with IBM's normal business activities. The auditor will sign a mutually acceptable non-disclosure agreement and will only disclose to SHOWCASE any amounts overpaid or underpaid for the period examined. In the event that such accounting firm reports that its audit(s) of such records demonstrates that SHOWCASE has been underpaid by more than (*) of the amounts actually due during the period covered by such reports, then in addition to any amounts owed and payable to SHOWCASE, IBM agrees to pay all reasonable expenses and costs with respect to such audit. 6.013 Each party will be solely responsible for any taxes incurred by the party, directly or indirectly, associated with its performance of this Agreement. 6.014 SHOWCASE is responsible for making any payments or royalties due to third parties for Code or materials included in the Licensed Work or its Derivative Works; 6.015 The payments defined in this Section fully compensate SHOWCASE for its performance under, and for the rights and licenses granted in, this Agreement. 7.0 TESTING 7.01 SHOWCASE will perform the following tests prior to each delivery of the Licensed Works: a. component testing; b. functional verification testing; c. system testing; d. compatibility testing; and e. performance verification testing. Upon IBM's request, the details of such testing will be mutually agreed to by the parties. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 7.02 SHOWCASE will provide to IBM concurrent with each delivery of the Licensed Works and Tools all test results, test scenarios, test cases, and test reports associated with the pre-delivery testing. Results of these tests will be provided to the IBM Technical Coordinator as specified in 11.03 below. SHOWCASE may provide the test results to IBM as confidential information under the AECI as specified in Section 12.06. 7.03 Upon receipt of the Licensed Works by IBM, IBM may evaluate the Licensed Works for a period of forty five (45) days and perform such tests as indicated in the Attachment entitled "Acceptance Criteria" and as IBM deems appropriate to determine if: a. the Licensed Works meet the specifications described in the Attachments entitled "Description of Licensed Work;" b. the Licensed Works execute repetitively within the system environment described in the Attachments entitled "Description of Licensed Work;" and c. IBM can successfully execute to completion all functional and system test scenarios developed by IBM. IBM's testing does not relieve SHOWCASE of its obligations under this Agreement. IBM has no obligation to identify errors. IBM will accept or reject the Licensed Works within sixty (60) business days from receipt of the Licensed Works. This time period begins the business day following IBM's receipt of the Licensed Works. If IBM does not accept or reject a Licensed Works in writing within sixty (60) business days of receipt, that Licensed Works will be considered accepted by IBM. IBM will clearly state the reason(s) for rejection. Within ten (10) business days of the notice of rejection, SHOWCASE will present a corrective action plan to IBM which is acceptable and approved by IBM. SHOWCASE will then make the corrections and resubmit the Licensed Works to IBM. IBM may withhold any further payments until Licensed Works conform to the acceptance criteria. 8.0 REPRESENTATIONS AND WARRANTIES 8.01 SHOWCASE makes the following ongoing representations and warranties: a. SHOWCASE warrants that it has full legal rights to grant the rights granted herein; b. SHOWCASE is not under, and will not assume, any contractual obligation that prevents SHOWCASE from performing its obligations or conflicts with the rights and licenses granted in this Agreement; (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. c. there are no liens, encumbrances or claims pending or threatened against SHOWCASE, or to SHOWCASE's knowledge, anyone else, that relate to the rights and licenses granted to this Agreement; d. SHOWCASE warrants that neither the Licensed Works or Tools infringes any intellectual property rights of a third party including, to the best of SHOWCASE's knowledge, any patents or patent applications. The Deliverables have not been the basis of a claim of infringement threatened or asserted against SHOWCASE or, to the best of SHOWCASE's knowledge, anyone else. SHOWCASE's sole obligation, and IBM's sole remedy, in the event of a breach of this warranty is stated in Sections 9.01, 9.02 and 9.03 below, subject to the limitation in Section 9.05; e. SHOWCASE warrants that the Licensed Works and Tools will perform in material conformance with the requirements set forth in this Agreement, including the Attachment entitled "Description of Licensed Work," and will materially conform to SHOWCASE's user documentation, and any sales and marketing materials provided by SHOWCASE; f. the fully commented Source Code that SHOWCASE provides under the Source Code Custody Agreement corresponds to the current release or version of the Licensed Work provided by SHOWCASE under this Agreement; g. the Licensed Works support the Year 2000; it is capable of correctly providing and receiving date data, as well as properly exchanging accurate date data with all products (for example, hardware, software and firmware) with which the Licensed Work is designed to be used; h. the Licensed Works which interact in any capacity with monetary data are euro ready such that when used in accordance with their associated documentation they are capable of correctly processing monetary data in the euro denomination and respecting the euro currency formatting conventions (including the euro sign); i. SHOWCASE warrants that, to the best of its knowledge, the Licensed Works provided to IBM under this License Agreement are not contaminated by Harmful Code, and that SHOWCASE has implemented a process designed to help prevent any such contamination by Harmful Code. SHOWCASE will promptly provide IBM notice if SHOWCASE suspects any contamination, and will remain liable for any damages resulting from Harmful Code provided by SHOWCASE; and j. SHOWCASE warrants that all SHOWCASE personnel, and to the best of SHOWCASE'S knowledge, authors of third party materials, have waived their Moral Rights in the Licensed Works to the extent permitted by law. SHOWCASE acknowledges that IBM's exercise of rights and licenses hereunder shall not violate any Moral Rights of SHOWCASE, and SHOWCASE agrees not to assert any Moral Rights (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. SHOWCASE has or may have in the Licensed Works against IBM in its exercise of rights and licenses hereunder. SHOWCASE will immediately provide IBM written notice of any change that may affect its representations and warranties. 8.02 Except as provided above, anything either party provides to the other related to this Agreement is "AS IS", without warranty of any kind. 9.0 INDEMNIFICATION AND LIABILITY 9.01 SHOWCASE will defend and indemnify IBM and IBM's Subsidiaries if a third party makes a claim against IBM or its Subsidiaries based on an actual or alleged: a. material failure by SHOWCASE, to the extent not caused by IBM, to perform SHOWCASE's obligations under this Agreement; b. material breach of SHOWCASE's representations and warranties; c. material failure by SHOWCASE to comply with government laws and regulations; d. material infringement by SHOWCASE, the Licensed Works or Tools of patents, copyrights, trademarks, trade secrets, publicity, privacy, and other intellectual property rights; or e. inclusion or misuse of the patent notices and markings that SHOWCASE includes in the "About Box" of the OLAP Product or which are placed in the OLAP Product by SHOWCASE or at SHOWCASE's request. 9.02 IBM will: a. promptly provide SHOWCASE notice of any such claim; and b. allow SHOWCASE to control, and will cooperate with SHOWCASE in the defense of, the claim and settlement negotiations. IBM may participate in the proceedings at its option and expense. 9.03 In addition, if an infringement claim appears likely or is made, SHOWCASE will: a. obtain the necessary rights for IBM, IBM subsidiaries and Distributors and their respective customers to continue to distribute, license, otherwise transfer and use the Licensed Work on an uninterrupted basis and exercise all rights granted in the Licensed Works and Tools; or (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. b. modify the Licensed Works and Tools at SHOWCASE's expense to resolve the claim. This modified Licensed Work will comply with the Attachment entitled "Description of Licensed Work." If SHOWCASE is not able to do either within a reasonable period of time, IBM may terminate this Agreement for SHOWCASE's breach. 9.04 Unless otherwise expressly provided herein, IBM may pursue any other remedy it may have in law or in equity in addition to any remedies specified in this Agreement. 9.05 Regardless of the type of claim, neither party is liable to the other for indirect, incidental, special, or consequential damages, including, but not limited to, lost profits or revenues, under any part of this Agreement, even if informed that they may occur. This limitation does not apply to (a) SHOWCASE's liabilities for indemnity to the extent that damages claimed by a third party might be characterized as damages of the type listed above or (b) any obligations of either party to make a payment which is due under this Agreement. However, with regard to the obligations of indemnification of SHOWCASE under Section 9.01 a. above, the liability of SHOWCASE shall be limited to a total aggregate amount of (*). IBM's total liability is limited to payments due to SHOWCASE under this Agreement unless there is infringement of SHOWCASE's intellectual property rights or confidential information by IBM or IBM infringement of the intellectual property rights of any ShowCase licensor which falls outside of the license grants herein. 10.0 TERM AND TERMINATION 10.01 This Agreement begins on the Effective Date and will remain in effect for seven (7) years, with automatic one (1) year renewal terms, unless terminated sooner under the terms of this Agreement. After the sixth (6th) year, SHOWCASE may terminate the Agreement by providing notice of intent to not renew twelve (12) months prior to any term expiration date. 10.02 SHOWCASE may terminate the Agreement, at any time after two (2) years following the execution of this Agreement, if SHOWCASE reasonably determines that IBM is not actively marketing and promoting the DB2 OLAP Server for the AS/400. Such termination may be made by providing twelve (12) months advance written notice to IBM of SHOWCASE's election to terminate. 10.03 SHOWCASE may terminate this Agreement if SHOWCASE makes a good faith determination that IBM has licensed, on an individual basis, any significant number of DB2 OLAP Product to end users at a charge that has resulted in a royalty to SHOWCASE of less than the minimum royalties listed in the Attachment entitled Royalties; with the exception of any such licenses of DB2 OLAP Product which have been approved in writing in advance by SHOWCASE. SHOWCASE will make its determination based on whatever materials it may have and IBM shall have no obligation to provide any documentation to SHOWCASE beyond what is expressly required in this Agreement. SHOWCASE must provide IBM twelve (12) (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. months advance notice of its election to terminate, and such notice may only be provided to IBM initially within one (1) month of the date which is six (6) months following the execution of the Agreement, or within one (1) month following each subsequent six (6) month anniversary date thereafter. 10.04 SHOWCASE may terminate this Agreement if SHOWCASE makes a good faith determination that IBM has provided, on an individual or aggregate basis over any rolling twelve (12) month time period, its Software Subscription offering (or any replacement for such offering regardless of its name) related to the Products to end users at a charge that has resulted in a royalty to SHOWCASE of less than (*) of the minimum royalties listed in the Attachment entitled Royalties; provided, however, that SHOWCASE will not include in its determination any such subscription offerings offered by IBM to any customer that is at a lower royalty rate and which has been approved in writing in advance by SHOWCASE. SHOWCASE will make its determination based on whatever materials it may have, and IBM shall have no obligation to provide any documentation to SHOWCASE beyond what is expressly required in this Agreement. SHOWCASE must provide IBM twelve (12) months advance notice of its election to terminate under this Section 10.04, and such notice may only be provided to IBM initially within one (1) month of the date which is six (6) months following the Effective Date, or within one (1) month following each subsequent six (6) month anniversary of the Effective Date thereafter. 10.05 Either party may terminate this Agreement for the other's material breach by providing the breaching party with a written notice that describes the breach. The termination will become effective 90 days after receipt of the notice unless the breach is cured within that 90 day period. 10.06 IBM may terminate this Agreement without cause on twelve (12) months written notice to SHOWCASE, provided that the effective date of any such termination may only be on a date which is at least twelve (12) months after the sixth (6th) anniversary of the date on which a Product has been made generally available. 10.07 If, at the end of three (3) years from the Effective Date of this Agreement, (i) SHOWCASE notifies IBM, in writing, that its cost structure based on the distribution of the Licensed Works hereunder has increased significantly, or (ii) if IBM notifies SHOWCASE that it has determined that it needs to renegotiate the royalties due hereunder, both parties agree to renegotiate the list price used for calculation of minimum royalties in Section 6.0 above. If no agreement has been reached within ninety (90) days of receipt of the notification, either party may give notice of termination of this Agreement which will be effective six (6) months from receipt by the other party of such notice of termination. This process may be invoked a maximum of one (1) time per two (2) year period thereafter if required. 10.08 Notwithstanding any expiration or termination of this Agreement, SHOWCASE's obligations of maintenance and support for Products, pursuant to Section 2.03 of this Agreement and Attachment, "Testing, Maintenance, and Support," shall continue at no additional cost to IBM (subject to payment of Royalties associated with upgrade protection purchased by the (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. customer) until the effective date which IBM has announced, in good faith, as the end of Product maintenance and support to customers. 10.09 Expiration or termination of this Agreement does not affect any end-user licenses granted in this Agreement for the Licensed Works or Tools. Termination of this Agreement does not affect any end-user licenses granted in this Agreement for the Licensed Works or Tools delivered or due to IBM prior to the effective date of termination. In the event of termination by IBM for breach by SHOWCASE, IBM will not be obligated to make any payments that would have become due under this Agreement on or after the effective date of termination, other than royalty payments. 10.010 Subject to Subsection 10.06, any provisions of this Agreement that by their nature extend beyond termination or expiration will survive in accordance with their terms. These include Ownership and License, Representations and Warranties, Indemnification and Liability, and General. These terms will apply to either party's successors and assigns. 11.0 COORDINATORS 11.01 Any notice required or permitted to be made by either party to this Agreement must be in writing. Notices are effective when received by the appropriate coordinator as demonstrated by reliable written confirmation (for example, certified mail receipt or facsimile receipt confirmation sheet). 11.02 The Contract Coordinators responsible to receive all notices and administer this Agreement are: For IBM: For SHOWCASE: Name: Robert L. Elliott Name: Janice Lyon Title: Contract Manager Title: Business Alliances Address: 555 Bailey Ave. Address: 9700 Higgins Road W, Suite 1100 San Jose, CA 95141 Rosemont, IL 60018 Phone: (408) 463-2232 Phone: (847) 685-6551 Fax: (408) 463-5605 Fax: (847) 685-6570 Internet: bobellio@US.ibm.com Internet: jlyon@showcasecorp.com 11.03 The Technical Coordinators responsible to accept all Deliverables, coordinate all exchanges of confidential information, and administer and coordinate the technical matters associated with this Agreement are: (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. For IBM: For SHOWCASE: Name: Karen Bradshaw Name: Kristen Knietz Title: DB2 OLAP Product Manager Title: Development Address: 555 Bailey Ave. Address: 4131 Highway 52 North San Jose, CA 95141 Rochester, MN 55901-3144 Phone: (408) 463-3329 Phone: (507) 287-2894 Fax: (408) 463-4081 Fax: (507) 287- Internet: khb@us.ibm.com Internet: knietz@showcasecorp.com Technical Coordinators may propose, accept (by signature or initial), and implement technical changes to this Agreement that do not change dollar amounts or materially change Deliverables or the schedules of this Agreement. 11.04 The Technical Sales Liaison/Focal Points responsible to act as the primary ongoing technical sales liaison for this Agreement are: For IBM: For SHOWCASE: Name: Al Sochard Name: Title: Title: Address: 5 Bedford Farms Address: 4131 Highway 52 North Bedford, NH 03110 Rochester, MN 55901-3144 Phone: (603) 889-2908 Phone: Fax: Fax: Internet ID: ahsochar@us.ibm.com Internet ID: 11.05 A party will provide written notice to the other when its coordinators change. 12.0 GENERAL 12.01 Independent Contractor. Each party is an independent contractor. Neither party is, nor will claim to be, a legal representative, partner, franchisee, agent or employee of the other except as specifically stated in the Subsection entitled "Copyright" below. Neither party will assume or create obligations for the other. Each party is responsible for the direction and compensation of it employees. 12.02 Freedom of Action. Except as otherwise specified in this Agreement, each party may have similar agreements with others. Each party may design, develop, manufacture, acquire or market competitive products and services, and conduct its business in whatever way it chooses. Except as otherwise specified in this Agreement, IBM is not obligated to announce or market any products or services. IBM does not guarantee the success of its marketing efforts. IBM will independently establish prices for its products and services. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 12.03 Reliance. Neither party relies on any promises, inducements or representations made by the other or expectations of more business dealings, except as expressly provided in this Agreement. This Agreement accurately states the parties' agreement. 12.04 Compliance With Applicable Laws. Each party will comply with all applicable laws and regulations at its expense including, to the extent applicable, Executive Order 11246 on Equal Employment Opportunity, as amended, the Occupational Safety and Health Act of 1970, as amended, and the Americans with Disabilities Act of 1990, as amended. This also includes all applicable government export and import laws and regulation. 12.05 Record Keeping and Audit Rights. SHOWCASE will maintain (and provide to IBM within 100 days of IBM's request) relevant accounting records to support invoices under this Agreement but not for less then three (3) years following the date of the related payment. All accounting records will be maintained in accordance with generally accepted accounting principles. 12.06 Confidential Information. The parties agree that information exchanged under this Agreement that is considered by either party to be confidential information will be subject to the terms of the AECI Agreement No. M96-2547 referenced on the first page of this Agreement and its Supplements. In addition, SHOWCASE will not provide IBM with any information which may be considered confidential information of any third party unless provided under the AECI. The obligations set forth in the AECI with regard to confidential information will not limit or preclude the exercise of the licenses granted in this Agreement. 12.07 Copyright. Any publication by IBM of the Licensed Works or a Derivative Work thereof may contain an appropriate copyright notice, as determined by IBM. SHOWCASE will enforce and maintain its copyright protection in the Licensed Works. IBM is not responsible for enforcing and maintaining such copyright protection. However, SHOWCASE authorizes IBM to act as SHOWCASE's agent in the copyright registration of the Licensed Works. At IBM's request, SHOWCASE agrees to provide IBM reasonable assistance in registering any Product. 12.08 Order of Precedence. If there is a conflict among the terms of this base License Agreement and its Attachments, the terms of this base License Agreement prevail over those of the Attachments, unless the parties expressly indicate in the Attachments that particular terms within the Attachments prevail. Terms in IBM's purchase orders and SHOWCASE's invoices or acknowledgments, if any, are void. 12.09 Headings. The headings of this Agreement are for reference only. They will not affect the meaning or interpretation of this Agreement. 12.010 Counterparts. This Agreement may be signed in one or more counterparts, each of which will be considered an original, but all of which together form one and the same instrument. 12.011 Amendment and Waivers. For a change to this Agreement to be valid, both parties must sign it. No approval, consent or waiver will be enforceable unless signed by the granting party. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Failure to insist on strict performance or to exercise a right when entitled does not prevent a party from doing so later for that breach or a future one. 12.012 Actions. Neither party will bring legal action relating to the subject matter of this Agreement, against the other more than 2 years after the cause of action rose, except in the case of indemnification for infringement, in which case this period runs for 2 years after the award or settlement was made. 12.013 Dispute Resolution. Both parties will act in good faith to resolve disputes prior to instituting litigation. Each party waives its rights to a jury trial in any resulting litigation. Litigation will only be commenced in the State of New York. 12.014 Governing Law. This Agreement will be governed by the substantive law of the State of New York applicable to contracts executed in and performed entirely within that State. The United Nations Convention on Contracts for International Sale of Goods does not apply. SHOWCASE will, upon written notice from IBM, submit to personal jurisdiction in any forum where IBM is sued for claims related to this Agreement. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. DESCRIPTION OF LICENSED WORK #001 1.0 GENERAL DESCRIPTION OF LICENSED WORK: DB2 OLAP Server for AS/400 The Licensed Works to be part of the OLAP Product include the following, all as modified to work with and through the Relational and Multidimensional database storage managers. SHOWCASE will provide the Licensed Works on three (3) CD-ROMs. Two (2) CD-ROMs will be for a server, one for "Production" use, and one for "Demonstration" use. SHOWCASE will provide a final build version of these two (2) CD-ROMs including items a), h), i) and j) and will include the documentation for items h), i) and j). This CD-ROM will be delivered to IBM in a final product build ready form for IBM to distribute to Customers. IBM will be responsible for CD duplication and surface artwork. The third CD-ROM will contain Licensed Works items for a client. This CD-ROM will be a version of the SHOWCASE STRATEGY product CD and will include the required client software for items b), c), d), e), f) and g), which IBM will incorporate onto an OLAP Product client CD-ROM for distribution. These items delivered to IBM will contain any modifications SHOWCASE may have made to them to enable them to work with a), h), i) and j) and they will be at the same release and patch levels as the items on the server CD-ROM. IBM will create the final product client CD-ROM containing items b), c), d), e), f) and g); will provide documentation for such items (except for h), i) and j)); and will include the translated spreadsheet clients, translated documentation and translated IBM publications. SHOWCASE fully intends to implement in their STRATEGY product all of the features and functions as outlined in this DLW. Other than what is specified in this DLW, and notwithstanding anything else in this Agreement to the contrary, SHOWCASE is only obligated to provide IBM with function which corresponds to the function SHOWCASE delivers as part of the Essbase and Warehouse Builder related functions of the then current SHOWCASE STRATEGY product. a. DB2 OLAP Server for AS/400 l.) General description: DB2 OLAP Server is an enterprise-scale on-line analytical processing system designed for a wide-range of multidimensional reporting and analysis applications. The DB2 OLAP server is based on the Hyperion Essbase OLAP server with the integrated multidimensional data store of Hyperion Essbase and IBM's Relational Storage Interface (RSI). The relational storage interface enables the DB2 OLAP Server to store data directly in IBM DB2 and other relational databases. The DB2 OLAP Server utilizes the Hyperion Essbase OLAP engine for data access, navigation, application programming interfaces (APIs), application design and management and data calculation. However, while Hyperion Essbase only stores data in a specialized multidimensional data store, DB2 OLAP Server also stores data in a relational database management system using a star schema data structure. Thus, DB2 OLAP Server provides the (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. capacity of industry leading relational databases, and can be managed by familiar RDBMS systems management, backup, and recovery tools. It also offers the advantage of providing access to data in the star schema using standard SQL. The requirement for an underlying relational database also means that the DB2 OLAP Server leverages the existing skills of information technology professionals 2.) Documentation: Softcopy 3.) Format: Object Code 4.) Documentation: on-line documentation, and related printed documentation including the administration and install manuals. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). b. DB2 OLAP Server Partitioning l.) General description: DB2 OLAP Server Partitioning is a collection of features that makes it easy to design and administer databases that span DB2 OLAP Server applications or servers. Partitioning can affect the performance and scalability of Essbase/400 applications and provides more effective response to organizational demands, reduced calculation time, increased reliability and availability, and incorporation of detail and dimensionality. Partitioning can help users to: a.) Synchronize the data in multiple partitioned databases. DB2 OLAP Server tracks changes made to values in a partition and provides tools for updating the data values in related partitions. b.) Synchronize the outlines of multiple partitioned databases. DB2 OLAP Server tracks changes made to the outlines of partitioned databases and provides tools for updating related outlines. c.) Allow users to navigate between databases with differing dimensionality. When users drill across to the new database, they can drill down to more detailed data. 2.) Documentation: Soft copy and hard copy 3.) Format: Object Code 4.) Documentation: Online documentation printed Essbase documentation set, and related printed documentation created with Microsoft Word 97. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). c. DB2 OLAP Server Currency Conversion 1.) General description: DB2 OLAP Server Currency Conversion is an option designed to help multinational companies that conduct business in the local currency of the countries in which they operate. DB2 OLAP Server Currency Conversion enables such companies to convert data entered in the local currency of various countries to a common currency that is used by the world and regional headquarters for consolidation and analysis. Any exchange rate scenario can be modeled and users can even perform ad hoc currency conversions of data directly from their spreadsheets. 2.) Documentation: Soft copy and hard copy 3.) Format: Object Code 4.) Documentation: Online documentation, printed Essbase documentation set, and related printed documentation created with Microsoft Word 97. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). d. DB2 OLAP Server SQL Drill Through 1.) General description - DB2 OLAP Server SQL Drill Through provides tight linking between summary data residing in an Essbase/400 multidimensional database and detail data residing in the relational store for either the OLTP or data warehouse repository. Using SQL Drill Through, users can automatically create an SQL query that retrieves the detail data that corresponds to a specific data cell residing in the DB2 OLAP Server. The combination yields a powerful and full-featured analytical environment. 2.) Documentation: Soft copy and hard copy 3.) Format: Object Code 4.) Documentation: Online documentation, printed Essbase documentation set, and related printed documentation created with Microsoft Word 97. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. e. DB2 OLAP Server Spreadsheet Toolkit l.) General description: The DB2 OLAP Server Spreadsheet Toolkit includes more than 20 macro and VBA functions that let users build customized Microsoft Excel or Lotus 1-2-3 applications that incorporate Essbase/400 commands. Commands such as EssCascade, EssConnect, and EssDisconnect provide all of the functionality of their corresponding Essbase/400 menu commands and allow companies to easily customize the DB2 OLAP Server to meet their particular business needs. 2.) Documentation: Softcopy and hardcopy 3.) Format: Object Code 4.) Documentation: Online documentation, printed Essbase documentation set, and related printed documentation created with Microsoft Word 97. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). f. OLAP Server Application Programming Interface (API) l.) General description - Hyperion Essbase API lets you use standard tools to create custom Hyperion Essbase applications that take advantage of the robust data storage, retrieval, and analytical capabilities of the DB2 OLAP Server. The API supports C, C++, and other application development environments. 2.) Documentation: Soft copy and hard copy 3.) Format: Object Code 4.) Documentation: Online documentation, printed Essbase documentation set, and related printed documentation created with Microsoft Word 97. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). g. SQL Interface (SQL Access) 1.) General description: This provides direct access to DB2 relational databases including DB2 UDB for AS/400, DB2 UDB for S/390, and DB2 UDB for Unix and NT. The SQL Interface moves data and business structures from diverse sources into the DB2 OLAP Server for access and analysis. 2.) Documentation: Softcopy (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 3.) Format: Object Code 4.) Documentation: Online documentation, printed Essbase documentation set, and related printed documentation created with Microsoft Word 97. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). h. Warehouse Manager Server 1.) General Description: Warehouse Manager Server is the OS/400 resident software which enables Warehouse Builder function (see i.) as well as several other SHOWCASE STRATEGY Personal Computer software components which are not covered by this agreement. Functionally, this Deliverable will be similar to the Warehouse Manager Server software provided by SHOWCASE to its customers. The LUM support (described in 2.05) will not permit usage of features other than Warehouse Builder and DB2 OLAP Server and related items. 2.) documentation: Softcopy 3.) format: Object Code 4.) Documentation: Online documentation created with Microsoft Word 95 and RoboHelp 5.0, related printed documentation created with Microsoft Word 97. i. Warehouse Builder 1.) General description: Warehouse Builder is a powerful data transformation product that allows users to convert data into meaningful information within a relational data warehouse. Specifically, Warehouse Builder has the power to transform and simplify data as it is being moved. It can cleanse data to make it more understandable to end users, summarize data at the time of transfer, and track transaction history information. Additionally, Warehouse Builder can automatically populate Essbase/400 multidimensional databases, apply load rules, initiate calculations, and run Essbase/400 routines such as SQL data loads and dimension builds. These direct links to Essbase/400 simplify and speed up the creation of the multidimensional portion of a data warehouse. SHOWCASE will include modules for DB2 NT sources, as well as DB2 AIX and DB2 MVS sources. 2.) Documentation: Softcopy 3.) Format: Object Code (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 4.) Documentation: Online documentation created with Microsoft Word 95 and RoboHelp 5.0, related printed documentation created with Microsoft Word 97. j. Metadata Integration and VWP Processing l.) General description: Using the templates provided by Visual Warehouse (VW), construct the business views and source/target definitions that VW can manage. This process includes the reading of the VW templates, filling in the information required with metadata from the Warehouse Builder. The information required includes: a.) The definition of the source data being manipulated/extracted by Warehouse Builder (Source Information Resource in VW terms). b.) The definition of the target data being produced by Warehouse Builder (Target Information Resource in VW terms). c.) The definitions of the process applied to the source data to produce the target data (Business Views in VW terms). d.) The definition of the applications that will execute the scripts (VWPs in Visual Warehouse terms). e.) The definition of the process flows (business view cascade in VW terms). Creation of the Visual Warehouse programs that will execute the scripts on the OS platform that the scripts were written for. Initially, all of the above must work with Visual Warehouse V5.2 with latest CSD. The metadata integration will be shipped with DLW #001 V2.0 as outlined in the "ShowCase Warehouse Builder's Visual Warehouse metadata Interchange Program" dated 3/25/99. In accordance with Section 2.07(n) of the License Agreement, SHOWCASE will maintain the metadata transformation current with the releases of DB2 Universal Database for UNIX/NT, as Visual Warehouse (in whatever future form or under future names becomes part of that IBM program product. 2.) documentation soft-copy 3.) format: Object Code 4.) documentation: end-user documentation, on-line documentation, and other related written materials (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. k. Other l.) General description: This category represents miscellaneous software and documentation that is required to deliver a complete solution. Examples include: a.) client and host installation and setup software and documentation b.) product tutorials and sample files c.) sample database files 2.) Documentation: Softcopy 3.) Format: Object Code 4.) Documentation: Online client documentation created with Microsoft Word 95 and RoboHelp 5.0, online host documentation, and related printed documentation created with Microsoft Word 97. Note: Some sample files and demo database files are provided and maintained by Hyperion (AppSource). (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. DESCRIPTION OF LICENSED WORK #002 1.0 GENERAL DESCRIPTION OF LICENSED WORK: OLAP Starter-kit for AS/400 The Licensed Works to be part of the StarterKit Product include the following, all as modified to work with and through the Relational and Multidimensional database storage managers. The StarterKit Product will be pre configured for only one user and unlimited processors, will include a limited time usage device limiting operability to one hundred and eighty (180) days from the date of installation, and will be shipped with every new AS/400, beginning with or as near as reasonably practicable to the time of the GA of DLW #001 V2.0 in concert with the AS/400 Division of IBM during at least the initial two (2) years of the contract. a. DB2 OLAP Server 1.) General description: DB2 OLAP Server is an enterprise-scale on-line analytical processing system designed for a wide-range of multidimensional reporting and analysis applications. The DB2 OLAP server is based on the Hyperion Essbase OLAP server with the integrated multidimensional data store of Hyperion Essbase replaced with IBM's Relational Storage Interface (RSI). The relational storage interface enables the DB2 OLAP Server to store data directly in IBM DB2 and other relational databases. The DB2 OLAP Server utilizes the Hyperion Essbase OLAP engine for data access, navigation, application programming interfaces (APIs), application design and management and data calculation. However, while Hyperion Essbase stores data in a specialized multidimensional data store, DB2 OLAP Server also stores data in a relational database management system using a star schema data structure. Thus, DB2 OLAP Server provides the capacity of industry leading relational databases, and can be managed by familiar RDBMS systems management, backup, and recovery tools. It also offers the advantage of providing access to data in the star schema using standard SQL. The requirement for an underlying relational database also means that the DB2 OLAP Server leverages the existing skills of information technology professionals. 2.) Documentation: Softcopy 3.) Format: Object Code 4.) Documentation: on-line documentation, and related printed documentation. Note: Online documentation and the printed Essbase documentation set are provided and maintained by Hyperion (AppSource). b. Warehouse Builder 1.) General description: Warehouse Builder is a powerful data transformation product that allows users to convert data into meaningful information within a relational data warehouse. Specifically, Warehouse Builder has the power to transform and simplify data as it is being moved. It can cleanse data to make it more understandable to end users, summarize data at the time of transfer, and (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. track transaction history information. Additionally, Warehouse Builder can automatically populate Essbase/400 multidimensional databases, apply load rules, initiate calculations, and run Essbase/400 routines such as SQL data loads and dimension builds. These direct links to Essbase/400 simplify and speed up the creation of the multidimensional portion of a data warehouse. 2.) Documentation: Softcopy 3.) Format: Object Code 4.) Documentation: Online documentation created with Microsoft Word 95 and RoboHelp 5.0, related printed documentation created with Microsoft Word 97. c. Other 1.) General description: This category represents miscellaneous SHOWCASE STRATEGY software and documentation that is required to deliver a complete solution. Examples include: a.) client and host installation and setup software and documentation b.) product tutorials and sample files c.) sample database files 2.) Documentation: Softcopy 3.) Format: Object Code 4.) Documentation: Online client documentation created with Microsoft Word 95 and RoboHelp 5.0, online host documentation, and related printed documentation created with Microsoft Word 97. Note: Some sample files and demo database files are provided and maintained by Hyperion (AppSource). (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. ATTACHMENT IBM Acceptance Criteria Prior to IBM's acceptance of SHOWCASE's version of the Licensed Works, the execution of SHOWCASE's tests must have been successfully demonstrated and documented by SHOWCASE. Prior to the start of acceptance test at IBM for each Licensed Work, all SHOWCASE Deliverables for that Licensed Work (including executables, manuals, online help and messages) must be available. IBM's acceptance test of the Licensed Work as documented below initially targets the DB2 OLAP Server for AS/400 and OLAP Starter-Kit for AS/400 driving the integration points with Visual Warehouse and the DB2 OLAP Server. A. DB2 OLAP SERVER For AS/400 1.0 Installation and Configuration 1. Installation Installation procedures for the Licensed Work will be followed as provided in the SHOWCASE documentation. Install tests will be performed, at the discretion of IBM, using all pre-requisite levels of OS/400 and NT operating systems. US English configurations will initially be tested, followed by non-English configurations to demonstrate NLS (SBCS, DBCS) enablement and install. IBM may, at its discretion, also run installation verification programs (IVP), according to documentation, to demonstrate successful installation of the "Licensed Works" on the AS/400 platform. 2. Configuration Network configurations, using TCP/IP, will be tested to demonstrate the inter-operability of the 13132 OLAP/400 Server with: l.) the ESSBASE Application Manager and ESSCMD on a non-AS/400 operating platform (IBM prefers that WinNT be used.) 2.) the SQL Interface for loading DB2 relational data from a local DB2/400, remote DB2/400, DB2/390 and DB2/UDB on AIX. Various installation and configuration error scenarios must be tested to ensure proper operation of exception handling routines, error messages to log, end-user notifications, and documented Help to guide problem resolution. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 3. Removal Verify the "un-install" of the DB2 OLAP/400 Server per supplied documentation. 2.0 Information SHOWCASE will provide IBM with all SHOWCASE product documentation. Such information to include all program functions completely described; all ordinary publication component content (such as the table of contents, index, appendices, and so on); all information categories (book, on-line help, messages) in their final form; and all graphics which will not require re-work. If IBM needs to create any additional documents, IBM will create this work but may reuse SHOWCASE documentation as necessary. 3.0 National Language Support 1. Run National Language Support (NLS) and localization tests, per supplied documentation and supplied sample data. National language versions of the DB2 OLAP/400 server include English/NLS, Japanese, and other language versions when available. 2. SHOWCASE must follow IBM's Designing International Software (6X09-1220) document or guidelines and report to IBM any deviation for follow-up response/resolution. 4.0 Year 2000 Support DB2 OLAP/400 must be shown to have the ability to handle date values beyond Year 2000 and dates in and between the 20th and 21st centuries. 5.0 Performance, Scalability, and Reliability 1. Reliability Expectations: a. Reliability is to be demonstrated by running without incident the existing Hyperion ESSBASE tests suite. These tests can be found on a CD from Hyperion under the directory REGRESS. These tests cover server as well as client testing. Most of the server tests run directly on the server, although there are some client-side tests whose purpose is to test the server. Therefore, in order to do complete server testing, there are tests to be run from both the server and the client. b. The tests include the Basic and Extended Acceptance test suite (SACCEPT) as well as the Basic Regression test suite (CALCS, CONTROL, (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. DATALOAD, DIMLOAD, LOGS, MULTCUBE, OUTLINES, REPORTS, and VIRTUAL). c. Concurrence and code quality are focus acceptance items in this test. This test will be based on the test buckets described above. At IBM's discretion, some or all of the above may also be run by IBM. In such a case, IBM will obtain a reasonable amount of assistance from SHOWCASE personnel for the configuration and deployment of the Product components. IBM and SHOWCASE will negotiate the required assistance on Product documentation. d. The AS/400 version of the Hyperion Test suites will be provided to IBM by SHOWCASE. 2. Performance Expectations: Using the OLAP Council's APB I Benchmark, APB1 metrics will be collected by SHOWCASE for both the DB2 OLAP/400 Server and Essbase/400. The difference between the performance metrics of the two servers on the AS 400 platform will be a similar ratio as that experienced between the native Essbase and the DB2 OLAP server on other platforms to constitute successful performance exit criteria. Notwithstanding anything to the contrary in this Agreement, SHOWCASE shall have no liability or responsibility under or as a result of this Agreement (whether pursuant to a warranty or any other term of this Agreement) for any failure of the Products to meet the performance requirements stated in the prior sentence, if such failure is caused by limitations in the design of the OS/400 operating system, DB2 400, and the C compiler software, or the AS/400 hardware. 6.0 CUPRIMDSO Measurements 1. Will be measured throughout the Beta program. 2. No Severity-1 problem remains open at Beta Program start. SHOWCASE will also have bypasses available for all Severity-2 problems including a plan to resolve within 2 weeks after Beta start. 3. Satisfaction level at the end of the program must be: Very satisfied or Satisfied. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. B. OLAP Starter-Kit For AS/400 1.0 Installation and Configuration 1. Installation Installation procedures for the Licensed Work will be followed as provided in the SHOWCASE documentation. Install tests will be performed, at the discretion of IBM, using all pre-requisite levels of OS/400 and NT operating systems. US English configurations will initially be tested, followed by non-English configurations to demonstrate NLS (SBCS, DBCS) enablement and install. IBM may, at its discretion, also run installation verification programs (IVP), according to documentation, to demonstrate successful installation of the "Licensed Works" on the AS/400 platform. 2. Configuration Network configurations, using TCP/IP, will be tested to demonstrate the inter-operability of the DB2 OLAP/400 Server with: 1.) the ESSBASE Application Manager and ESSCMD on a non-AS/400 operating platform (IBM prefers that WinNT be used). 2.) the SQL Interface for loading DB2 relational data from a local DB2/400, remote DB2/400, DB2/390 and DB2/UDB on AIX. Various installation and configuration error scenarios must be tested to ensure proper operation of exception handling routines, error messages to log, end-user notifications, and documented Help to guide problem resolution. 3. Removal Verify the "un-install" of the DB2 OLAP/400 Server per supplied documentation. 2.0 Information SHOWCASE will provide IBM with all SHOWCASE product documentation. Such information to include all program functions completely described; all ordinary publication component content (such as the table of contents, index, appendices, and so on); all information categories (book, on-line help, messages) in their final form; and all graphics which will not require re-work. If IBM needs to create any additional documents, IBM will create this work but may reuse SHOWCASE documentation as necessary. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 3.0 National Language Support 1. Run National Language Support (NILS) and localization tests, per supplied documentation and supplied sample data. National language versions of the "Licensed Works" include English/NLS, Japanese, and other language versions when available. 2. IBM will report any significant deviations from IBM's Designing International Software (6X09-1220) document or guidelines to SHOWCASE for response/resolution. 4.0 Year 2000 Support Licensed Works will be tested for ability to handle date values beyond Year 2000 and dates in and between the 20th and 21st centuries. 5.0 Performance, Scalability, and Reliability 1. Reliability Expectations: a. Reliability is to be demonstrated by running without incident the existing Hyperion ESSBASE tests suite. These tests can be found on a CD from Hyperion under the directory REGRESS. These tests cover server as well as client testing. Most of the server tests run directly on the server, although there are some client-side tests whose purpose is to test the server. Therefore, in order to do complete server testing, there are tests to be run from both the server and the client. b. The tests include the Basic and Extended Acceptance test suite (SACCEPT) as well as the Basic Regression test suite (CALCS, CONTROL, DATALOAD, DIMLOAD, LOGS, MULTCUBE, OUTLINES, REPORTS, and VIRTUAL). c. Concurrence and code quality are focus acceptance items in this test. This test will be based on the test buckets described above. At IBM's discretion, some or all of the above may also be run by IBM. In such a case, IBM will obtain a reasonable amount of assistance from SHOWCASE personnel for the configuration and deployment of the Product components. IBM and SHOWCASE will negotiate the required assistance on Product documentation. d. The AS/400 version of the Hyperion Test suites will be provided to IBM by SHOWCASE. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 2. Performance Expectations: Using the OLAP Council's APB I Benchmark, APBI metrics will be collected by SHOWCASE for both the DB2 OLAP/400 Server and Essbase/400. The difference between the performance metrics of the two servers on the AS 400 platform will be a similar ratio as that experienced between the native Essbase and the DB2 OLAP server on other platforms to constitute successful performance exit criteria. 6.0 New Function The Product must perform to specifications as documented in SHOWCASE documentation supplied to IBM. Tests will be run to test enhancements and new functions. The list below itemizes the areas to be tested, but testing is not necessarily limited to these functions: 1. Multi-user operation as described in scalability section above; 2. Performance related functions to be verified as described in performance section above; 3. Use of any system exit routines for accounting, access validation, debugging, and performance monitoring; and 4. Security and authentication testing of multi-user data servers. 7.0 CUPRIMDSO Measurements 1. Will be measured throughout the Beta program. 2. No Severity-1 problem remains open at Beta Program start. SHOWCASE will also have bypasses available for all Severity-2 problems including a plan to resolve within 2 weeks after Beta start. 3. Satisfaction level at the end of the program must be: Very satisfied or Satisfied. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. ATTACHMENT ROYALTIES Product Minimum Royalties
Royalty ------- US EMEA AP LA -- ---- -- -- DB2 OLAP for OS/400 (*) OLAP Toolkit which includes the following: (*) Partitioning Option (*) Warehouse Builder (*)
(*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. ATTACHMENT Schedule
Milestones Date ---------- ---- a. Execution of this Agreement (*) b. SHOWCASE's delivery of the Licensed Works in DLW #001 V1.1 which substantially complies (*) with its specifications c. Successful completion of IBM's testing of the Licensed Work for DLW #001 V1.1 (*) d. Receipt of the completed Certificate of Originality for the Licensed Work for DLW #001 (*) e. Receipt of the completed Certificate of Originality for the Licensed Work for DLW #002 (*) f. Receipt of documentation for translation of DLW #001 V1.1 (*) g. Planned start of beta customer test for DB2 OLAP Server V1.1 (*) h. Planned end of beta customer test for DB2 OLAP Server V1.1 (*) i. SHOWCASE's delivery of the RSI OS/400 ported Source Code (*) j. Receipt of Japanese translation and documentation for DLW #001 V1.1 (*) k. SHOWCASE to fix reported Sev 1 & 2 problems for DLW #001 V 1.1 English version (*) 1. Receipt of final build of media and documentation by IBM for DLW # 001 V1.1 English (*) version m. Planned announcement of DB2 OLAP Server V1.1 (*) n. SHOWCASE to fix reported Sev 1 & 2 problems for DLW #001 V 1.1 Japanese version (*) o. Receipt of final build of media and documentation by IBM for DLW # 001 V 1.1 Japanese (*) version p. Planned GA of DB2 OLAP Server V1.1 - English Version (*) q. Planned GA of DB2 OLAP Server V1.1 - NLV (*) r. SHOWCASE's delivery of the Licensed Works in DLW #001 V 2.0 which substantially complies (*) with its specifications s. SHOWCASE's delivery of the Licensed Works in DLW #002 V 2.0 which substantially complies (*) with its specifications t. Successful completion of IBM's testing of the Licensed Work for DLW #001 V2.0 (*) u. Successful completion of IBM's testing of the Licensed Work for DLW #002 V2.0 (*) v. Planned start of beta customer test for DB2 OLAP Server V2.0 (*) w. Planned start of beta customer test for StarterKit V2.0 (*) x. Receipt of final build of media and documentation by IBM for DLW #001 V2.0 and DLW #002 (*) V2.0 y. Planned announcement of DB2 OLAP Server V2.0 (*) z. Planned GA of DB2 OLAP Server V2.0 & StarterKit V2.0 (*)
This schedule is for planning purposes and may be changed upon mutual agreement of the parties. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. ATTACHMENT TESTING, MAINTENANCE AND SUPPORT The following are SHOWCASE's and IBM's maintenance and support responsibilities with regard to a Product once it is made generally available to customers; SHOWCASE's responsibilities are limited to that Code and documentation which were supplied to IBM by SHOWCASE, specifically excluding that Code and documentation initially provided to SHOWCASE by IBM. 1.0 Definitions Capitalized terms in this Attachment have the following meanings. 1.1 APAR is the completed form entitled "Authorized Program Analysis Report" that is used to report suspected Code or documentation errors, and to request their correction. 1.2 APAR Closing Codes are the established set of codes used to denote the final resolution of an APAR. IBM will identify APAR Closing Codes prior to the start of the maintenance obligations. 1.3 APAR/PMR Severity Levels are designations assigned by IBM to errors to indicate the seriousness of the error based on the impact that the error has on the customer's operation: a. Severity 1 is a critical problem. The customer cannot use the Product or there is a critical impact on the customer's operations which requires an immediate solution; b. Severity 2 is a major problem. The customer can use the Product, but an important function is not available or the customer's operations are severely impacted; c. Severity 3 is a non-critical problem. The customer can use the Product with some functional restrictions, but it does not have a severe or critical impact on the customer's operations; d. Severity 4 is a minor problem that is not significant to the customer's operations. The customer may be able to circumvent the problem. 1.4 APAR Correction Times are the objectives that SHOWCASE must achieve for the resolution of errors and distribution of the correction to IBM. a. "Severity 1" requires maximum effort support until an emergency fix or bypass is developed and available for shipment to IBM. Critical situations may require customer, IBM and SHOWCASE personnel to be at their respective work locations or available on an around-the-clock basis. The objective will be to provide relief to the customer within 24 hours and provide a final solution or fix within 7 days; (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. b. "Severity 2" on a best effort basis, be resolved (i.e. fixed or bypassed) within fourteen (14) calendar days; c. "Severity 3" on a best effort basis, be resolved (i.e. fixed or bypassed) within fourteen (14) calendar days; d. "Severity 4" on a best effort basis, be resolved (i.e. fixed or bypassed) within twenty one (21) calendar days. The calendar days begin when SHOWCASE creates the APAR and supporting documentation and end when the Error Correction or other resolution is shipped to IBM. IBM will consider exceptions from these objectives when warranted by technical or business considerations. 1.5 Developer Test Systems are an appropriate configuration of installed hardware and software that SHOWCASE maintains which is representative of typical customer installations for the Product. These Developer Test Systems will contain, at a minimum, the following: a. the current and current minus 1 level of the Product; b. the current and current minus 1 level of the prerequisite/co-requisite hardware and software that IBM specifies to SHOWCASE; and c. specific fix-packs as required. The Developer Test Systems will consist of the appropriate configured workstations only unless IBM specifies and provides SHOWCASE other equipment at no charge. 1.6 IBM Test Systems are an appropriate configuration of installed hardware and software that IBM maintains which is representative of typical IBM customer installations using the Product. These test systems will contain, at a minimum, a level of prerequisite/co-requisite hardware and software that is correspondent with that of the Developer Test Systems. 1.7 Maintenance Level Service is the service provided when a customer identifies an error. a. Level 0 is the service provided on the phone with a customer when the customer first reports a problem or issue. b. Level 1 is the service provided in response to the customer's initial phone call identifying an error. c. Level 2 is the service provided to reproduce and attempt to correct the error or to find that the service provider cannot reproduce the error. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. d. Level 3 is the service provided to isolate the error at the component level of the Code. The service provider distributes the Error Correction or circumvention or gives notice if no Error Correction or circumvention is found. 1.8 Problem Determination is the process of determining whether a problem is being caused by hardware, software or documentation. 1.9 Problem Management Record ("PMR") is a record created when a customer makes the initial support request. This record becomes a part of the Problem Management System database and records the essential information about the customer question or problem. 1.10 Problem Management System ("PMS") is an internal IBM developed software system used to record customer demographic information and encode data about the reported question or problem. The PMS will contain call records and document call activity, including the recording and tracking of all questions and problems to final resolution. The PMS can be used to verify that each customer is "entitled" to program support. 1.11 Problem Source Identification is the process of determining which software or documentation component is failing or attributing the failure to some external cause such as a customer error or no trouble found. 1.12 Reader Comment Form ("RCF") is the form which is used to record errors and comments on the documentation. The RCF is generally the last page of a manual or brochure. The customer completes it and mails it to the address specified. 2.0 Maintenance and Support Responsibilities 2.1 The parties will agree to the specific details of the process flow each will follow to resolve customer calls for requests for support 30 days prior to the general availability of the Product. 2.2 SHOWCASE will provide IBM electronic (soft copy) information on any known problems in the Licensed Work and the workarounds and solutions, if available, within 30 days of the Effective Date of this Agreement. 2.3 Product customers will initiate requests for support by contacting IBM. IBM will perform the following maintenance Level 0 support responsibilities, as described below. IBM will: a. ensure customer entitlement; b. create the PMR; and c. obtain from the customer a brief description of the problem. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Note: The parties agree that subsequent contact by a customer for an existing PMR will also be via Level 0. Level 0 will create a secondary PMR and pass to Level 1, who will handle or route to Level 2 as appropriate. If Level 2 or Level 3 have feedback for a customer on an existing problem, they may contact the customer directly (at their discretion) and update the PMR accordingly, or they may create a secondary PMR and route it back to Level 1 for routing to the customer. IBM will perform the following Level 1 support responsibilities to verify its severity: d. search the IBM database for known problems; e. respond to customer within defined response objectives below; Responsiveness* ON-SHIFT OFF-SHIFT Priority Time Objective Time Objective Priority 1 60 Minutes 120 Minutes Priority 2 120 Minutes 240 Minutes Priority 3\4 120 Minutes 240 Minutes * Note: The On-Shift is considered to be IBM's normal support hours which are defined to be Monday through Friday, 5:00am to 5:00pm Pacific Time excluding national holidays. All other times are considered to be off-shift. OFF-SHIFT procedures are documented in the DB2 OLAP Contact Reference File (CRF) on RETAIN. This file lists hours of business, queue names and IBM contact information for both Level 1 and management escalation (names, phone/fax/beeper numbers and e-mail addresses). This information will be made available to SHOWCASE. f. provide the available resolution to the customer if the problem is known; g. gather relevant customer documentation where possible; h. update the PMR, documenting Level 1 actions; i. recommend local IBM assistance as required; and j. if no resolution, pass the PMR to Level 2. IBM will be the initial customer contact point for questions, problems and assistance concerning the Product. IBM may use a third party to perform its obligations. 2.4 Thirty days prior to general availability of the Product, SHOWCASE will establish a process to check incoming electronic requests for Level 2 and Level 3 support at least twice daily. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 2.5 SHOWCASE will perform the following Level 2 and Level 3 support responsibilities. a. Level 2 SHOWCASE will: 1.) receive the PMR from IBM Level 1 within the following defined response objectives; Responsiveness* ON-SHIFT OFF-SHIFT Priority Time Objective Time Objective Priority 1 60 Minutes 120 Minutes Priority 2 120 Minutes 240 Minutes Priority 3\4 120 Minutes 240 Minutes * Note: The On-Shift is considered to be SHOWCASE's normal support hours which are defined to be Monday through Friday, 8:30am to 5:00pm CST excluding national holidays. All other times are considered to be Off-shift. OFF-SHIFT procedures will be supplied to IBM and documented in the DB2 OLAP Contact Reference File (CRF) on RETAIN. Information will include hours of business, queue name and SHOWCASE contact information for both Level 2 and management escalation (names, phone/fax/beeper numbers and e-mail addresses). 2.) analyze problem symptoms and gather additional data from the customer as required; 3.) recreate the problem on the Developer Test System; 4.) determine if the error is due to improper installation of the Product by the customer; 5.) determine if the suspected error is due to prerequisite or operationally related equipment or software at the customer location; 6.) attempt a bypass or circumvention for high impact problems, i.e., Severity 1 and 2; 7.) if no resolution and the problem appears to be a newly discovered Code or documentation error, create an APAR record and set APAR severity; and 8.) update the PMR, documenting Level 2 actions. Daily updates by Level 2 SHOWCASE personnel are required for Severity 1 PMRs. b. Level 3 SHOWCASE will: 1.) receive the APAR/PMR and supporting documentation and materials; 2.) analyze the problem symptoms and diagnose the suspected error; (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 3.) notify Level 2 if additional information, materials or documentation are required; 4.) attempt to recreate the problem on the Developer Test System, if required; 5.) assist in Level 2 in attempting to develop a bypass or circumvention for high impact problems, e.g., Severity 1 and 2; 6.) determine if Error Corrections are required to the Licensed Work; 7.) if Error Corrections are required to the Licensed Work, provide Error Corrections to IBM in the APAR format specified by IBM (SHOWCASE will provide such Error Corrections for the English language version and the Japanese version as translated by SHOWCASE in accordance with Section 2.10 of this Agreement); 8.) return all APARs to IBM with one of the defined APAR Closing Codes assigned, including text describing the resolution of the error. In the event a Code error was found, provide the rationale for the closing of the APAR; 9.) provide resolution to APARs according to the assigned APAR Severity Level and within the defined APAR Correction Time. The APAR Correction Times include building, testing, certifying successful tests of Error Corrections, and packaging for shipment to IBM any applicable Error Corrections in the format specified by IBM; 10.) receive technical questions, and supporting documentation and materials; 11.) analyze the technical questions and provide answers to IBM; 12.) provide technical backup support to IBM on the Product as provided above. In addition, SHOWCASE will provide assistance in answering questions that may arise concerning the operation and use of the Licensed Work that cannot be resolved by IBM; and 13.) close out the problem record with the customer. 2.6 If SHOWCASE is in need of IBM sales/account management assistance, SHOWCASE should notify Level 1, via a PMR and/or phone call. Level 1 will determine what action will be taken. 2.7 For IBM World Trade customers the problem flow will differ as follows to that described in Sections 2.3, 2.4 and 2.5. IBM World Trade customers will call their own Level 0 in-country, who will create a PMR which will be handled initially by the in-country Level 1. If unresolved, the in-country Level 1 passes the PMR to the designated Level 1 queue (as per Section 2.3(d) to (j) of this Attachment). If unresolved by Level 1, procedures continue as per this Attachment to (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Level 2 and 3. When Level 2/3 have feedback for the World Trade customer, the PMR is passed via Level 1 to the in-country Level 1 for relay to World Trade customer. 2.8 At least twice a year , SHOWCASE will provide a corrected version of the Licensed Work that includes all Error Corrections to the Licensed Work. Additional corrected versions of the Licensed Work will be provided as determined and mutually agreed to by IBM and SHOWCASE in the event they become necessary due to the frequency or severity of newly discovered defects. In order to provide Error Corrections, SHOWCASE will maintain a current copy of the Product. PTF Maintenance Strategy should be as closely in-line with that for the AS/400 platform as possible. The Program Maintenance Strategy should include: o Preventive Service (Cumulative PTF packages, service packs, and group PTF packages) o Corrective Service (Single PTFs including high-impact and pervasive (HIPER) PTFs) SHOWCASE commits to the following strategy: Scheduled fixes are cumulative and a new fix includes and supersedes all previous fixes. Client fixes are self-extracting executable patch programs. Host (OS/400) fixes are self-extracting executables that can be uploaded from the PC to the AS/400 into a save file and applied using the STRATEGY PTF application program. Emergency fixes (Severity 1) are not cumulative when distributed initially, and are typically included as well in the next scheduled cumulative patch build. This is very similar to how the AS/400 PTF strategy works today. 2.9 SHOWCASE will maintain procedures to ensure that new Error Corrections are compatible with previous Error Corrections. 2.10 Packaging and distribution of Error Corrections (PTFs) and migration Code will be done as mutually agreed to by IBM and SHOWCASE. 2.11 SHOWCASE will create APARs in the RETAIN system that record product failures that have occurred since the base level of code that the Licensed Work is based on. These APARs will be created prior to GA of the product. 3.0 RETAIN Access and APAR Management 3.1 IBM will provide SHOWCASE with access to IBM's RETAIN system (IBM's system used to manage and process PMRs and APARs) as necessary for SHOWCASE to perform its Maintenance and Support obligations as required in this Agreement. IBM will set up a unique RETAIN queue for SHOWCASE use, to facilitate this access and enable SHOWCASE-IBM communications on the RETAIN database. Thirty (30) days prior to general availability of the Licensed Works, SHOWCASE will establish a process to check PMR activity on the IBM RETAIN system during normal business hours and provide IBM with a number to call for offshift hours. IBM will provide sign-on IDs for the IBM RETAIN system. SHOWCASE will (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. be responsible for the connection to the IBM network and all hardware and software used to connect and communicate with the IBM RETAIN system. SHOWCASE will be responsible for any charges or expenses relating to the hookup and network charges for accessing the system. 3.2 Generally, APARs will originate from IBM customers reporting problems or sending in Reader Comment Forms. SHOWCASE will also report to IBM as APARs all valid errors discovered by SHOWCASE or SHOWCASE's customers, and will open AFAR records on RETAIN in these instances. After receiving an APAR, IBM/SHOWCASE will assign an APAR number and Severity Level, and forward the APAR to SHOWCASE/IBM for attention and action. 3.3 For verified APARs for the Licensed Work, SHOWCASE will provide Error Corrections as set out below within the applicable APAR Correction Times: a. the fix to the Object Code in machine-readable form including a hard copy description of the Error Corrections (which may include a paper submission of the Error Corrections) and b. for a procedural workaround, the corrected procedure in machine-readable form. 3.4 Reader Comment Forms received by IBM that do not form the basis of an APAR will be forwarded to SHOWCASE for proper and prompt handling as appropriate. 4.0 General 4.1 SHOWCASE will provide to IBM the name and phone numbers of SHOWCASE's personnel to contact when high priority problems are encountered outside of normal working hours that require immediate assistance. SHOWCASE's normal working hours are defined as 8:30 AM to 5:00 PM, Monday through Friday, Central Time. 4.2 SHOWCASE will provide to IBM, on request, information regarding the status of reported APARs related to the Licensed Work. 4.3 It is desirable that IBM report APARs and status requests to SHOWCASE via an electronic interface and that SHOWCASE send APAR Error Corrections, status updates and requests for additional documentation to IBM via the same interface. IBM and SHOWCASE will jointly plan the electronic system. Each party is responsible for funding the costs of this interface at its location. 4.4 Critical situations may require the parties to use the telephone for immediate communications. The parties will follow such communications via the electronic interface for tracking and recording purposes. Each party is responsible for funding the costs of this communication at its location. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Critical Situation Support is now known as Customer Complaint Support within IBM. If a Customer Complaint is received during prime shift periods, and may require on-site support, the IBM Software Solutions Customer Satisfaction Office (SWS CSPO) will assign a Resolution Team Leader (RTL) to manage the Customer Complaint. A Customer Complaint or Complaint in Critical Status can be identified by either an IBM Representative or by a customer, and may exist with identified Severity 1 conditions. An IBM representative can enter the customer complaint via the IBM INTRANET website or directly into the worldwide customer complaint Management Tool (CMT). The customer may call 1-800-IBM-4YOU and they will enter a complaint for them. When a Customer Complaint is identified by an entry into CMT, the entry requires the complaint entry person to identify the customer's dissatisfaction, product or area, and any specific PMR causing distress. The complaint is then routed to the appropriate Customer Satisfaction Project Office (CSPO). The CSPO will then assign a Resolution Team Leader (RTL) to manage the complaint. The Santa Teresa Laboratory (STL) Duty Manager (after hours) can and will receive Customer Complaints if the customer has called IBM Support offshift for assistance and identified their problem as a complaint. It will be routed to the STL Duty Manager (after hours only) as identified in the CONTACT REFERENCE FILE on RETAIN. The management points of any Customer Complaint involving the Product will be between the Manager of Support in the U.S., the SWS CSPO, and SHOWCASE as needed. It is mutually understood that the ownership of the account belongs to IBM and therefore management of a customer complaint will be the responsibility of IBM. SHOWCASE's part in any customer complaint resolution will be limited to resolving the product defects that may be part of the customer's dissatisfaction. 4.5 In circumstances where materials have to be exchanged using facsimile or courier services, each party is responsible for funding the costs of these exchanges via facsimile or courier services at its location. 4.6 SHOWCASE will participate in monthly telephone conference calls with IBM to review the status and performance of the parties' obligations. These calls may be scheduled more or less frequently as agreed to by the Technical Coordinators. Each party is responsible for funding the costs of these conference calls at its location. (*) Denotes confidential information that has been omitted and filed separately, accompanied by a confidential treatment request, with the Securities Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. EX-23.1 4 0004.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors of ShowCase Corporation: We consent to incorporation by reference in Registration Statement No. 333-82897 on Form S-8 of ShowCase Corporation of our reports dated May 2, 2000. Such reports relate to the consolidated financial statements and related financial statement schedule of ShowCase Corporation and subsidiaries as of March 31, 2000 and 1999 and for each of the years in the three-year period ended March 31, 2000 and are included in the Annual Report on Form 10-K of ShowCase Corporation for the fiscal year ended March 31, 2000. /s/ KPMG LLP Minneapolis, Minnesota June 16, 2000 EX-24.1 5 0005.txt POWER OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Kenneth H. Holec and Craig W. Allen, with full power to each to act without the other, his true and lawful attorney-in-fact and agent with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K of Showcase Corporation (the "Company") for the Company's fiscal year ended March 31, 2000, and any or all amendments to said Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and to file the same with such other authorities as necessary, granting unto each such attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each such attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, this Power of Attorney has been signed on this 9th day of June, 2000, by the following persons. /s/ Kenneth H. Holec /s/ Jack Noonan ------------------------------ ------------------------------ Kenneth H. Holec Jack Noonan /s/ Craig W. Allen /s/ William Binch ------------------------------ ------------------------------ Craig W. Allen William Binch /s/ Promod Haque /s/ C. McKenzie Lewis III ------------------------------ ------------------------------ Promod Haque C. McKenzie Lewis III EX-27.1 6 0006.txt FINANCIAL DATA SCHEDULE
5 1,000 YEAR MAR-31-2000 APR-01-1999 MAR-31-2000 11,677 18,387 9,578 730 0 40,643 4,921 2,833 42,787 18,514 0 0 0 105 23,254 42,787 39,523 39,523 0 12,139 32,193 0 21 (3,394) 700 (3,394) 0 0 0 (3,394) (.46) (.46)
EX-99.1 7 0007.txt CAUTIONARY STATEMENT EXHIBIT 99.1 CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 ("Act"), ShowCase Corporation (the "Company") is filing cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward- looking statements made by, or on behalf of the Company. When used in this Annual Report on Form 10-K for the fiscal year ended March 31, 2000 and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases, other communications, and in oral statements made by or with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", "believe" or similar expressions are intended to identify forward-looking statements within the meaning of the Act. The following cautionary statements are for use as a reference to a readily available written document in connection with forward looking statements as defined in the Act. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement. We have a history of losses and we may not be able to achieve profitability We incurred net losses from operations of approximately $3.6 million for the fiscal year ended March 31, 1998, $559,000 for the fiscal year ended March 31, 1999 and $4.8 million for the fiscal year ended March 31, 2000. We expect to continue to incur significant sales and marketing, product development and general and administrative expenses. In particular, we intend to substantially increase our direct field sales force, and accordingly increase our sales and marketing expenses. As a result, we may experience losses and negative cash flows. If we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future. Our future operating results may not follow past trends due to many factors The relatively recent introduction of a substantial portion of our current product suite and our history of losses make prediction of future results difficult. In the past, our revenues and operating results have varied significantly, and we expect these fluctuations to continue. Although our revenues have grown significantly in recent periods, you should not rely on past performance as any indication of future growth rates or operating results. Future operating results will depend on many factors, including: . demand for the IBM AS/400 platform; . growth of the market for business intelligence solutions; . demand for and acceptance of our products, product enhancements and services; . maintenance and development of our strategic relationships with application vendors, resellers and distributors; . the introduction, timing and competitive pricing of products and services by us and our competitors; . the level of non-proprietary products as a percentage of total revenue; . expansion and rate of success of our direct sales force and indirect distribution channels both domestically and internationally; . integration of web-based content management into our operating strategy; and . attraction and retention of key personnel. 1 Our quarterly operating results fluctuate significantly and are difficult to predict Quarterly operating results. Our operating results have varied and in the future are likely to vary significantly from quarter to quarter for a number of reasons, including: . the size and timing of significant orders; . the length of our sales cycles and the sales cycles of our distribution partners; . the mix of products and services that we sell and the mix between direct and indirect sales of our products; . our ability to control costs; . our ability to introduce new products and enhancements in a timely manner; . the rate of success of our international expansion and the effect of foreign currency exchange rate fluctuations; . the discovery of software defects; and . general economic conditions as well as those specific to our customers and markets. Revenues. We cannot predict our quarterly revenues with any significant degree of accuracy for several reasons. We have historically operated with a low software order backlog because we generally ship our software products shortly after we receive orders. Accordingly, our product license revenues for any quarter depend significantly on orders booked and shipped during that quarter. In recent periods, we have experienced an increase in the average size of our licenses, and we expect this trend to continue. Moreover, we often recognize a substantial portion of our quarterly product license revenues in the last few weeks of a quarter. As a result, delays in booking customer orders can adversely affect our reported revenues for a particular quarter. Finally, a significant percentage of our sales are through indirect channels that are less predictable than sales through our direct sales force. We have often realized a greater percentage of our license revenue and operating income in our third fiscal quarter than in other quarters due to client purchasing patterns. In addition, due to seasonal factors, our sales often tend to slow during the summer months. We expect these trends to continue. Product license revenues also vary because the market for our products is evolving rapidly and because sales cycles, which may last many months, vary widely from client to client. Sales cycles are affected by many factors, including: . our clients' budgetary constraints; . the timing of our clients' budget cycles; . our clients' decisions as to whether, and on what scale, to adopt business intelligence solutions; . our clients' concerns about the introduction of new products by us or our competitors; and . potential downturns in the economy, which may reduce demand for our products. Maintenance and support fees depend largely on revenues from our existing clients and vary with their maintenance and support needs. Professional service revenues are often unpredictable because they depend in part on the scope of the services we provide and whether our customers utilize those services. Expenses. Because we plan to expand our business, we anticipate substantial increases in operating costs and expenses, including administration, consulting and training, maintenance and technical support, product development and sales and marketing expenses. In general, we base our operating expense budgets on anticipated revenue trends, and we may not be able to reduce these expenses in the short term. Because our expenses are relatively fixed in the near term, any shortfall from anticipated revenues or any delay in recognition of revenues could result in significant variations in quarterly operating results. 2 For the foregoing reasons, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is likely that in one or more future quarters, our operating results may not meet the expectations of analysts and investors. In this event, the price of our common stock may fall. The growth of our business depends on the growth of the market for business intelligence software All of our revenues to date have been attributable to the sale of business intelligence software and related maintenance, support, consulting and professional services. Business intelligence software enables organizations to transform data from disparate sources into accessible, understandable and useful information. We expect such software and services to continue to account for substantially all of our revenues for the foreseeable future. Although demand for business intelligence software has grown in recent years, we cannot assure that the market will continue to grow or that, even if the market does grow, businesses will adopt our products. If such growth does not materialize, our business and operating results would be seriously harmed. We believe that future growth in the market for business intelligence software will depend in large part on the growth of e-business--business-to- business, business-to-employee and business-to-customer communications and transactions over the Internet, corporate intranets and extranets. E-business has only recently emerged, and may not continue to grow. Continued grow in e- business depends on a number of factors, including the Internet's ability to efficiently handle increased activity and to operate as a fast, reliable and secure network. Critical issues concerning the commercial use of the Internet, including data corruption, security, bandwidth availability and quality of service, remain and may negatively affect the growth of e-business, and accordingly, the demand for business intelligence software. If the current levels of use of the IBM AS/400 and IBM's support of the AS/400 do not continue, we may not be able to increase our sale The server components of our products currently operate only on the IBM AS/400. To date, virtually all of our revenues have been derived from the AS/400 customer base. Therefore, our ability to increase sales of our products will depend on the continued use of the AS/400 and the continued support of the AS/400 by IBM. Instead of using the AS/400, many computer users have implemented client/server computer systems based on the UNIX or Windows NT platforms. The current levels of use by AS/400 customers and support of the AS/400 by IBM may not continue and the use of the AS/400 may not increase in the future. To develop products that operate on platforms other than the AS/400 would require us to commit a substantial investment of resources, and we may not successfully introduce these products on a timely or cost-effective basis or at all. We may lose existing clients or be unable to attract new clients if we do not develop new products and enhance our current products We compete in markets where technology changes rapidly, competitors make frequent new product introductions and enhancements, products have uncertain life cycles and customer demands change unexpectedly. Our future success depends on our ability to satisfy diverse and evolving customer requirements and achieve market acceptance. It will also depend on our ability to improve and expand our product line to keep pace with our competitors' product introductions and technological developments. We cannot be certain that we will be successful in developing and marketing product enhancements or new products on a timely or cost-effective basis, or that these products, if developed, will achieve market acceptance. As a result of the complexities of business intelligence software, major new products and product enhancements can require long development and testings periods. In addition, clients may delay their purchasing decisions in anticipation of the general availability of new or enhanced versions of our products and services. We have experienced delays in releasing new products and product enhancements and may experience similar delays in the future. Delays or problems in releasing our new products, or significant problems in the installation or implementation of our products, may cause clients to delay or cancel purchases or to purchase products from our competitors, which would seriously harm our business and operating results. 3 If our relationships with distribution partners are not successful and if we cannot recruit additional channel partners we may not be able to expand our sales In addition to our direct sales force, we rely on distribution partners including application vendors, resellers and distributors to license and support our products in the United States and internationally. Our ability to expand the sales of our products and our future success will depend in part upon recruiting distribution partners and maintaining successful relationships with these partners. Our distribution partners may offer products of several different companies, including, in some cases, products that compete with our products. In addition, in the future, our distribution partners may develop products that compete with our products. Our existing and potential distribution partners may be influenced to scale back or end their relationships with us by our competitors who may have significantly greater resources and market clout than we do. These distribution partners may not devote adequate resources to selling our products. If we are unable to retain our existing distribution partners or enter into additional relationships, we may have to devote substantially more resources to the distribution, sale and marketing of our products and services. Sales through distribution partners typically are at lower margins for us than those through direct sales. Therefore, if we are successful in increasing the amount of sales through our distribution partners our operating margins could decrease. Our relationships with Hyperion Solutions Corporation and IBM are important to our revenue, which would be harmed by a deterioration in these relationships Maintaining our strategic relationships with Hyperion Solutions Corporation and IBM is important to our continued success, and a deterioration in or termination of these relationships could seriously harm our business and operating results. We have a contractual relationship with Hyperion Solutions that grants us the exclusive right to distribute its analytical online processing product, Essbase, as ported by us to the AS/400, subject to limited distribution rights retained by Hyperion Solutions. Licensing fees for this product, Essbase/400, have been a significant percentage of our total license fees and are expected to continue. Hyperion Solutions has retained the right, upon twelve months notice, to terminate the exclusivity of our distribution rights. Furthermore, we must pay Hyperion Solutions minimum royalty payments, which increase over the term of our license agreement, to maintain our distribution rights to Essbase/400. The loss of our right to distribute Essbase/400 would seriously harm our business and operating results. Finally, our Analyzer and Analyzer for the Web products are based on technology licensed from Hyperion Solutions under a non-exclusive 1996 license agreement that expires in January 2001. In order to continue to offer products with the capabilities provided by our Analyzer and Analyzer for the Web products after January 2001, we would need to develop the necessary technology internally, extend or replace our license agreement with Hyperion Solutions or license technology from a third party. If we are unable to do so, the capabilities of our product suite would be significantly reduced, which would seriously harm our business and operating results. We entered into an expanded agreement with IBM in December 1998, which was amended in February 2000, under which certain products are marketed and sold as OEM IBM products by IBM. This agreement has a term of seven years, and expands the scope of our reseller relationship with IBM. Also, we have engaged in joint marketing campaigns and research and development projects with IBM since our inception. We believe our relationship with IBM has been a significant factor in our success to date, and any deterioration or termination of this relationship would seriously harm our business and operating results. We need to increase the size of our direct sales force, which has a limited operating history, to grow our sales We intend to increase sales of our products by growing our direct sales force. Because it has only existed since September 1996, our direct field sales force has a limited operating history and may be unsuccessful in implementing our strategy of focusing sales efforts on potential clients that will deploy our product suite on a large scale. Typically, our salespeople have taken approximately six months from their respective hiring dates to become productive selling our products. Furthermore, we believe that there is significant competition for 4 direct sales personnel with the advanced sales skills and technical knowledge we need. Our inability to hire or develop competent sales personnel who are successful at generating business application oriented sales, or our failure to retain them, would seriously harm our business and operating results. Our markets are highly competitive which may lead to lower prices, reduced gross margins and loss of market share The markets for our products are intensely competitive and subject to rapidly changing technology. We compete primarily against providers of decision support software and data warehousing and data mart software. Our competitors providing business intelligence solutions for AS/400 customers include Silvon and Infomanager. We also compete with vendors that provide business intelligence products implemented on Unix or Windows NT platforms and then connected to the AS/400. These vendors include Brio Technology, Business Objects, Cognos, Computer Associates, Hyperion Solutions, MicroStrategy, Microsoft, Oracle, Sagent Technology and SAS Institute. In addition, enterprise resource planning software vendors including Baan Company, PeopleSoft and SAP are beginning to offer decision support and analytical modules primarily to support the analysis of data from its own operational systems. One or more of these companies may expand their technologies to support greater business intelligence functionality. Application service providers and companies offering web-based content management solutions may become additional sources of competition. Finally, in the future, IBM may expand the functionality of the operating system for the AS/400, or of its database products, to provide some of the functions provided by our products. Many of our competitors have longer operating histories, significantly greater financial, technical, marketing or other resources and greater name recognition than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements. Increased competition may harm our ability to sell additional software and maintenance and support renewals on terms favorable to us and lead to price cuts, reduced gross margins and loss of market share, which may seriously harm our business and operating results. Our competitors may make strategic acquisitions or establish cooperative relationships among themselves or other parties that may increase their ability to meet the needs of our current and potential clients. The business intelligence software industry has recently experienced consolidation and may industry analysts expect this trend to continue. This consolidation may provide our competitors with expanded sales, distribution and marketing capabilities and broader product offerings. In addition, our current or future distribution partners may establish cooperative relationships with our competitors, which may limit our ability to sell our products through various distribution channels. Our length sales cycles can result in uncertainty and delays with regard to our product licenses and expected revenues Our clients often take an extended time evaluating our products before licensing them. The period of time between initial client contact and a purchase order may span from one month to over twelve months. During this period, clients may decide not to purchase or may scale down their orders of our products for various reasons, including: . reductions in demand for business intelligence solutions; . new products introduced or announced by competitors; . price competition; . decisions to use hardware platforms other than the AS/400 for their business intelligence solutions; . changes in our clients' budgets and purchasing priorities; and . diversion of clients' resources and management's attention to other information technology issues, including Year 2000 compliance issues. 5 In addition, we often must provide a significant level of education to our prospective clients regarding the use and benefit of our products, which may cause additional delays during the evaluation and acceptance process. These and other factors make it difficult for us to forecast the timing and recognition of revenues from sales of our products and services. In recent periods, we have experienced an increase in the average size of our licenses, and we expect this trend to continue. This focus on larger licenses will lengthen our average sales cycle. We need to expand our management systems and controls to support our anticipated growth Our operations are growing rapidly, and we expect this expansion to continue as we execute our business strategy. Our total number of employees grew from 125 on March 31, 1996 to 300 on March 31, 2000, and we anticipate further increases in the number of employees. Sustaining our growth has placed significant demands on management and our administrative, operational, personnel and financial resources. We may not be able to successfully manage our growth which could lead to customer dissatisfaction. Therefore, the inability to sustain or manage our growth could seriously harm our business and operating results Difficulties presented by international economic, political, legal, accounting and business factors could negatively affect our business in international markets Sales to clients outside North America historically have represented a significant percentage of our total revenues. We currently have wholly-owned subsidiaries in Belgium, Germany, France and the United Kingdom. We plan to expand our existing international operations and enter into additional international markets, which will require significant management attention and financial resources. In order to expand our international operations successfully, we will have to hire additional personnel and recruit additional international resellers and distributors. Our failure to do so in a timely manner may limit the growth of our international operations. We may not be able to maintain or increase international market demand for our products. In addition, our products must be localized--customized to meet user needs--in order to be sold in particular foreign countries. Our international operations also are subject to other inherent risks, including: . the impact of recessions in economies outside the United States; . greater difficulty in collecting accounts receivable and longer collection periods; . unexpected changes in regulatory requirements, tariffs or other trade barriers; . difficulties and costs in staffing and managing foreign operations; . weaker intellectual property right protection in some countries; . potentially adverse tax consequences; . political and economic instability; . costs of localizing products for foreign countries; . the effect of foreign currency exchange rate fluctuations; and . the burden of complying with a wide variety of foreign laws. Any of these risks could seriously harm our future international sales and therefore our business. Our international revenues and expenses are subject to fluctuations in foreign currency exchange rates may lead to reduced operating margins Our international revenues and expenses are denominated in foreign currencies. The functional currency of each of our foreign subsidiaries is its local currency. We currently do not engage in foreign exchange hedging activities. Therefore, our international revenues and expenses currently are subject to foreign currency 6 fluctuations. Our foreign currency translation gains and losses have so far been immaterial. However, future fluctuations in exchange rates between the U.S. dollar and foreign currencies may seriously harm our business and operating results, particularly our operating margins. We are currently unable to predict the possible consequences of euro conversion on our business and operating results On January 1, 1999, eleven of the fifteen member countries of the European Union set fixed conversion rates between their existing sovereign currencies and the euro, the only currency that will be used in the European Union countries starting July 1, 2002, and adopted the euro as their legal currency. Currently, we are assessing the impact of these events on our company. In addition to tax and accounting issues, we are considering: . the technical challenges of adapting our systems to accommodate euro- denominated transactions; . the impact on currency exchange costs and currency exchange rate risk; and . the impact on existing contracts. At this time, we cannot yet predict the consequences of euro conversion on our business and operating results. Our executive officers and key personnel are critical to our business and these officers and key personnel may not remain with us in the future Our future success depends on our ability to hire, train, assimilate and retain highly qualified employees. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain additional highly qualified personnel in the future. Because our executive offices are located in Rochester, Minnesota, with a population of approximately 80,000, we must frequently recruit qualified employees from outside the vicinity of our headquarters, which may put us at a competitive disadvantage. Our success is highly dependent upon the continued service and skills of key management, technical, sales and marketing personnel, none of whom, except Patrick Dauga and Kenneth H. Holec, are bound by formal employment agreements. If we lose the services of any of these key personnel, it may have a negative impact on our business. Mr. Holec's employment agreement is a year-to-year agreement which either party may elect not to renew by giving the other party notice at least 30 days before the termination of any one-year term. Mr. Dauga may terminate his employment agreement at any time by giving us notice at least three months before this termiation. We do not maintain life insurance policies covering any of our employees. We may face increased competition if we are unable to protect our intellectual property rights, and we may be subject to intellectual property infringement claims Our success and ability to compete depend substantially upon our internally developed technology. We attempt to protect our software, documentation and other written materials primarily through a combination of trade secret, trademark and copyright laws, confidentiality procedures and contractual provisions, which afford only limited protection. We have one patent issued and one patent application pending in the United States with respect to aspects of our software. The pending patent application may not be issued, or, if issued, it and our previously issued patent may not survive a legal challenge to their validity or provide us significant protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or otherwise obtain and use our products and technology. Policing unauthorized use of our products is difficult, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Our means of protecting our intellectual property rights may not be adequate or our competitors may independently develop similar technology. 7 We anticipate that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. As a result, we may become involved in these claims from time to time. Any of these claims, with or without merit, could result in costly litigation, divert our management's time, attention and resources, delay our product shipments, or require us to enter into royalty or licensing agreements. A third party may not be willing to enter into a royalty or licensing agreement on acceptable terms, or at all. If a claim of product infringement against us is successful and we fail to obtain a license or to develop or license non-infringing technology, our business and operating results could be seriously harmed. If we discover software defects, we may have product-related liabilities and marketing difficulties which may lead to a loss of revenue or delay in market acceptance for our products Our software products are complex and may contain errors, defects or failures, especially when first introduced or when new versions are released. In the past we have discovered software errors in some of our products after their introduction. Despite extensive testing, we may not be able to detect and correct errors in products or releases before commencing commercial shipments, which may result in harm to our reputation and loss of revenue or delay in market acceptance. Our license agreements with customers typically contain provisions designed to limit our exposure to potential product liability claims. Various domestic and international jurisdictions may not enforce these limitations. Although we have not experienced any product liability claims to date, we may encounter such claims in the future. Product liability claims, whether or not successful, brought against us could have a material adverse effect on our business. Defending a suit, regardless of its merits, could entail substantial expense and require the time and attention of key management personnel. Concentration of ownership of our company may give some shareholders substantial influence and may prevent or delay a change in control Our executive officers and directors, together with their affiliates, in the aggregate, beneficially own over 37% of our outstanding common stock. These shareholders may be able to exercise substantial influence over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control of ShowCase. Our shareholders may be adversely affected by provisions of our charter documents and Minnesota law may discourage an acquisition of our company Provisions of our articles of incorporation, bylaws and Minnesota law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders. For instance, our bylaws provide for a classified board of directors with each class of directors subject to re- election every three years. This will make it more difficult for third parties to insert their representatives on our board of directors and gain control of our company. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors and take other corporate actions. The price of our common stock could be highly volatile due to a number of variables The trading price of our common stock may fluctuate widely as a result of a number of factors, including: . quarterly variations in our operating results; . technological innovations or new products; . market perception and customer acceptance of business intelligence software; . increased competition; 8 . disputes concerning intellectual property rights; . demand for the IBM AS/400 platform; . general conditions in the software industry; and . changes in earnings estimates by analysts. In addition, the stock market has experienced extreme price and volume fluctuations, which have particularly affected the market prices of many computer software companies and which have often been unrelated to the operating performance of such companies. 9 -----END PRIVACY-ENHANCED MESSAGE-----