-----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, D6UrnM7RXw5q262Ee9eyhEDp+pwyR+34O1bwL4a1zX2JmtdHvGCJ/MpWmUIKhkoe 68DWzMWrmKi8Th6qAu3eOA== 0000950124-01-504073.txt : 20020410 0000950124-01-504073.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950124-01-504073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMSHARE INC CENTRAL INDEX KEY: 0000201513 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 381804887 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28848 FILM NUMBER: 1790475 BUSINESS ADDRESS: STREET 1: 555 BRIARWOOD CIRCLE STREET 2: P O BOX 1588 CITY: ANN ARBOR STATE: MI ZIP: 48108 BUSINESS PHONE: 3139944800 MAIL ADDRESS: STREET 1: P O BOX 1588 STREET 2: 555 BRIARWOOD CIRCLE CITY: ANN ARBOR STATE: MI ZIP: 48108 10-Q 1 k66087e10-q.txt FORM 10-Q FOR QUARTER ENDING SEPTEMBER 30, 2001 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ---------------- X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . --- --- COMMISSION FILE NUMBER 0-4096 ---------------- COMSHARE, INCORPORATED (Exact name of registrant as specified in its charter) MICHIGAN 38-1804887 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (734) 994-4800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of SEPTEMBER 30, 2001.
OUTSTANDING AT CLASS OF COMMON STOCK OCTOBER 31, 2001 --------------------- ---------------- $1.00 PAR VALUE 10,116,716 SHARES
================================================================================ 1 COMSHARE, INCORPORATED INDEX
Page No. -------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2001 and 2000 3 Consolidated Statements of Comprehensive Loss For the Three Months Ended September 30, 2001 and 2000 4 Condensed Consolidated Balance Sheets as of September 30, 2001 and June 30, 2001 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2001 and 2000 7 Notes to Condensed Consolidated Financial Statements 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURE 18 INDEX TO EXHIBITS 19
2 PART I. - FINANCIAL INFORMATION ITEM 1. - FINANCIAL STATEMENTS COMSHARE, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in thousands, except per share data)
THREE MONTHS ENDED SEPTEMBER 30, ------------------ 2001 2000 ------- ------- REVENUE Software licenses $ 4,093 $ 4,703 Software maintenance 5,750 5,841 Implementation, consulting and other services 5,173 4,899 ------- ------- TOTAL REVENUE 15,016 15,443 COSTS AND EXPENSES Selling and marketing 5,475 5,461 Cost of revenue and support 6,464 6,781 Internal research and product development 2,295 2,056 General and administrative 1,489 1,432 ------- ------- TOTAL COSTS AND EXPENSES 15,723 15,730 ------- ------- LOSS FROM OPERATIONS (707) (287) OTHER INCOME (EXPENSE) Interest income 192 427 Interest expense (1) (2) Exchange loss (14) (15) ------- ------- TOTAL OTHER INCOME 177 410 INCOME (LOSS) BEFORE TAXES (530) 123 Provision for income taxes 8,196 45 ------- ------- NET INCOME (LOSS) $(8,726) $ 78 ======= ======= SHARES USED IN BASIC EPS COMPUTATION 10,111 9,780 ======= ======= SHARES USED IN DILUTED EPS COMPUTATION 10,111 10,007 ======= ======= NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED EPS $ (0.86) $ 0.01 ======= =======
See accompanying notes to condensed consolidated financial statements. 3 COMSHARE, INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited, in thousands)
THREE MONTHS ENDED SEPTEMBER 30, ------------------ 2001 2000 ------- ----- Net income (loss) $(8,726) $ 78 Other comprehensive loss: Currency translation adjustment (66) (430) ------- ----- COMPREHENSIVE LOSS $(8,792) $(352) ======= =====
See accompanying notes to condensed consolidated financial statements. 4 COMSHARE, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
SEPTEMBER 30, JUNE 30, 2001 2001 ------------- --------- (UNAUDITED) (AUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $20,658 $24,106 Accounts receivable, net 19,236 19,541 Deferred income taxes -- 767 Prepaid expenses and other current assets 1,231 1,411 ------- ------- TOTAL CURRENT ASSETS 41,125 45,825 Property and equipment, at cost Computers & other equipment 6,809 6,716 Leasehold improvements 2,753 2,649 ------- ------- 9,562 9,365 Less - Accumulated depreciation 8,221 7,955 ------- ------- Property and equipment, net 1,341 1,410 Goodwill, net 960 977 Deferred income taxes -- 7,355 Other assets 3,577 3,710 ------- ------- TOTAL ASSETS $47,003 $59,277 ======= =======
See accompanying notes to condensed consolidated financial statements. 5 COMSHARE, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
SEPTEMBER 30, JUNE 30, 2001 2001 ------------- --------- (UNAUDITED) (AUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,503 $ 3,047 Accrued liabilities: Payroll 1,360 2,379 Taxes 912 1,370 Other 3,080 3,537 ------- ------- Total accrued liabilities 5,352 7,286 Deferred revenue 10,299 11,166 ------- ------- TOTAL CURRENT LIABILITIES 18,154 21,499 Long-term debt 70 164 Other liabilities 5,866 5,950 SHAREHOLDERS' EQUITY Capital stock: Preferred stock, no par value; authorized 5,000,000 shares; none issued -- -- Common stock, $1.00 par value; authorized 20,000,000 shares; outstanding 10,116,716 shares as of September 30, 2001 and 10,104,626 shares as of June 30, 2001 10,117 10,105 Capital contributed in excess of par value 39,273 39,244 Retained deficit (16,450) (7,724) Accumulated other comprehensive income: Pension liability, net of tax (4,282) (4,282) Cumulative translation adjustment (5,745) (5,679) ------- ------- TOTAL SHAREHOLDERS' EQUITY 22,913 31,664 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $47,003 $59,277 ======= =======
See accompanying notes to condensed consolidated financial statements. 6 COMSHARE, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited; in thousands)
THREE MONTHS ENDED SEPTEMBER 30, ------------------ 2001 2000 ------- ------- OPERATING ACTIVITIES Net income (loss) $(8,726) $ 78 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 188 251 Changes in operating assets and liabilities: Accounts receivable 433 (242) Prepaid expenses and other assets 319 (321) Accounts payable (531) 790 Accrued liabilities (1,878) (2,011) Deferred revenue (774) (1,924) Deferred income taxes 8,122 (398) Other liabilities (84) (24) ------- ------- NET CASH USED IN OPERATING ACTIVITIES (2,931) (3,801) INVESTING ACTIVITIES Payments for property and equipment (29) (9) Other (38) (83) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (67) (92) FINANCING ACTIVITIES Net repayments under debt agreements, capital lease agreements and notes payable (94) (254) Other 41 82 ------- ------- NET CASH USED IN FINANCING ACTIVITIES (53) (172) Effect of exchange rate changes (397) (427) ------- ------- NET DECREASE IN CASH (3,448) (4,492) CASH AT BEGINNING OF PERIOD 24,106 29,506 ------- ------- CASH AT END OF PERIOD $20,658 $25,014 ======= ======= SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 1 $ 2 ======= ======= Cash paid for income taxes $ 215 $ 443 ======= =======
See accompanying notes to condensed consolidated financial statements. 7 COMSHARE, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - GENERAL INFORMATION The condensed consolidated financial statements included herein have been prepared by Comshare, Incorporated (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's most recent Annual Report on Form 10-K. Certain amounts in the fiscal 2001 financial statements have been reclassified to conform to fiscal 2002 presentations. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring items, required to present fairly its consolidated statements of operations and the consolidated statements of comprehensive loss for the three months ended September 30, 2001 and 2000, the consolidated balance sheets as of September 30, 2001 and the consolidated statements of cash flows for the three months ended September 30, 2001 and 2000. The results of operations for the three months ended September 30, 2001 and 2000 are not necessarily indicative of the results to be expected in future quarters or the full fiscal year. The software industry is generally characterized by seasonal trends. NOTE B - COMPUTER SOFTWARE Product upgrades for the Company's products have been released regularly with an almost continuous product development cycle. Based on these continuous product life cycles, the time between establishing technological feasibility and general release to the public is very short. As a result, software costs qualifying for capitalization are not significant. Accordingly, the Company does not capitalize software development costs and does not anticipate capitalization of software costs in future periods. NOTE C - BORROWINGS The Company has a $10 million credit agreement which expires on September 30, 2003. Borrowings are secured by accounts receivable and the credit agreement contains covenants regarding, among other things, earnings leverage, net worth and payment of dividends. Under the terms of the credit agreement, the Company is not permitted to pay cash dividends on its common stock. Borrowings under this credit agreement were approximately $0.1 million and total available borrowings were $10 million at September 30, 2001. Borrowings available at any time are based on the lower of $10 million or a percentage of worldwide eligible accounts receivable and cash. At September 30, 2001, the interest rate on borrowings denominated in Japanese yen, which was used to hedge receivables, was 1.81%. 8 COMSHARE, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE D - FINANCIAL INSTRUMENTS The Company, at various times, enters into forward exchange contracts to hedge certain exposures related to identifiable foreign currency transactions that are relatively certain as to both timing and amount. On July 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, as amended by SFAS No. 137 and SFAS No. 138 and has quantified the impact, determining that there was no material effect on the financial statements. The Company uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange rates. The use of these financial instruments mitigates the Company's exposure to these risks with the intent of reducing the risks and variability of the Company's operating results. Initially, upon adoption of SFAS No. 133, and prospectively, on the date a derivative contract is entered into, the Company designates the derivative as a hedge. The ineffective portion of the hedge is recorded in earnings and reflected in the consolidated statement of operations as exchange gain or loss within other income (expense). The Company formally documents its hedge relationships, including the identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. At September 30, 2001 and June 30, 2001, the Company had forward foreign currency exchange contracts outstanding of approximately $1.3 million and $1.7 million (notional amounts), respectively, denominated in foreign currencies. The contracts outstanding at September 30, 2001 mature at various dates through December 14, 2001 and are intended to hedge various foreign currency commitments due from the Company's distributors. Due to the short-term nature of these financial instruments, the fair value of these contracts is not materially different than their notional amounts at September 30, 2001 and June 30, 2001. NOTE E - PROVISION FOR INCOME TAXES The Company recognized no tax benefit associated with the losses incurred in the three month period ended September 30, 2001. The Company fully reserved its deferred tax asset during the quarter September 30, 2001, resulting in a provision for income taxes of $8.2 million. Realization of deferred tax assets associated with the Company's future deductible temporary differences, net of operating loss carryforwards and tax credit carryforwards, is dependent upon generating sufficient taxable income prior to their expiration. Management now believes it is not likely that the deferred tax assets previously recognized will be realized through future taxable income generated by using a tax strategy available to the Company. This belief is based on a determination that the tax strategy is no longer consistent with the Company's business strategy. The Company's deferred tax assets were previously supported through the valuation of non-core and legacy product lines. Management believed that the sale of those product lines would have resulted in sufficient taxable income to realize the deferred tax assets. The Company's current business strategy, however, is not consistent with the sale of such product lines and, as a result, such tax strategies are no longer available. This change in the Company's business strategy was due to the impact of the continued decline in revenues from legacy product lines experienced in the first quarter of fiscal year 2002, the current economic downturn and reduced market valuations in the technology sector. NOTE F - SEGMENT REPORTING The Company has only one reportable segment - the development, marketing and support of financial analytic applications software for management planning and control. Revenue is derived from the licensing of software and the provision of related services that include product implementation, consulting, training and support. No single customer accounted for more than 10% of the Company's total revenue in the three months ended September 30, 2001 and 2000. In addition, the Company is not dependent on any single customer or group of customers. Geographic segment information is as follows: 9 COMSHARE, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 ------- ------- (IN THOUSANDS) REVENUE FROM EXTERNAL CUSTOMERS: United States $ 9,101 $ 8,861 United Kingdom 2,571 2,919 Other countries 3,344 3,663 ------- ------- TOTAL REVENUE $15,016 $15,443 ======= ======= OPERATING INCOME (LOSS): United States $(1,339) $ 248 United Kingdom 1,169 (153) Other countries 2,195 2,261 ------- ------- TOTAL OPERATING INCOME 2,025 2,356 Unallocated expenses (2,555) (2,233) ------- ------- INCOME (LOSS) BEFORE TAXES $ (530) $ 123 ======= ======= IDENTIFIABLE ASSETS: United States $38,669 $46,471 United Kingdom and other countries 8,334 9,753 ------- ------- TOTAL IDENTIFIABLE ASSETS $47,003 $56,224 ======= =======
Unallocated expenses consist of general corporate expenses, internal research and product development expenses, interest expense and interest income. 10 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis sets forth information for the three months ended September 30, 2001 compared to the three months ended September 30, 2000. This information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001. RESULTS OF OPERATIONS The following table sets forth for the periods indicated, certain financial data as a percentage of total revenue.
THREE MONTHS ENDED SEPTEMBER 30, ----------------------- 2001 2000 ----- ----- REVENUE Software licenses 27.3% 30.5% Software maintenance 38.3 37.8 Implementation, consulting and other services 34.4 31.7 ----- ----- TOTAL REVENUE 100.0 100.0 COSTS AND EXPENSES Selling and marketing 36.5 35.4 Cost of revenue and support 43.0 43.9 Internal research and product development 15.3 13.3 General and administrative 9.9 9.3 ----- ----- TOTAL COSTS AND EXPENSES 104.7 101.9 LOSS FROM OPERATIONS (4.7) (1.9) OTHER INCOME (EXPENSE) Interest income 1.3 2.8 Interest expense -- -- Exchange loss (0.1) (0.1) ----- ----- TOTAL OTHER INCOME 1.2 2.7 INCOME (LOSS) BEFORE TAXES (3.5) 0.8 Provision for income taxes 54.6 0.3 ----- ----- NET INCOME (LOSS) (58.1)% 0.5% ===== =====
11 REVENUE The following table shows revenue for the Company during the quarters ended September 30, 2001 and 2000:
THREE MONTHS ENDED SEPTEMBER 30, -------------------- PERCENT 2001 2000 CHANGE ------- ------- ------- (IN THOUSANDS) MPC REVENUE Software licenses $ 3,548 $ 3,222 10.1 Software maintenance 3,317 2,688 23.4 Implementation, consulting and other services 4,906 4,379 12.0 ------- ------- TOTAL MPC REVENUE $11,771 $10,289 14.4% ======= ======= LEGACY REVENUE Software licenses $ 545 $ 1,481 (63.2) Software maintenance 2,433 3,153 (22.8) Implementation, consulting and other services 267 520 (48.7) ------- ------- TOTAL LEGACY REVENUE $ 3,245 $ 5,154 (37.0)% ======= ======= TOTAL REVENUE Software licenses $ 4,093 $ 4,703 (13.0) Software maintenance 5,750 5,841 (1.6) Implementation, consulting and other services 5,173 4,899 5.6 ------- ------- TOTAL REVENUE $15,016 $15,443 (2.8)% ======= =======
The decline in total revenue in the quarter ended September 30, 2001 of 3% from the quarter ended September 30, 2000 was primarily due to a 37% decline in revenue from the Company's older desktop ("legacy") products, offset by a 14% growth in revenue from the Company's management planning and control software applications ("MPC"). Revenue growth in the three months ended September 30, 2001 was also impaired by the general economic slowdown during the quarter. The Company's MPC suite of software applications is comprised of Comshare MPC (formerly BudgetPLUS), Comshare FDC and Comshare Decision. MPC revenue was $11.8 million for the quarter ended September 30, 2001, representing 78% of total revenue. The 13% decline in the Company's license fees for the first quarter of fiscal year 2002 was primarily due to a decrease in legacy license fees of 63% from the three months ended September 30, 2000. This decrease was partially offset by an increase of 10% in the Company's MPC license fees. MPC license fees represented 87% of total license fees for the quarter ended September 30, 2001. License fees of legacy products declined 63%, from $1.5 million to $0.5 million, for the quarter ended September 30, 2001 versus the quarter ended September 30, 2000. MPC license fees showed slower growth in the quarter, primarily due to the slowdown in the economy. License fees in the Company's direct operations, which include North America and the United Kingdom, grew 2% to $2.7 million for the quarter ended September 30, 2001. Direct license fee growth was offset by the decline in distributor license fees of 31% to $1.4 million for the same time period, primarily reflecting a decline in sales of the Company's legacy products by distributors, limited sales by distributors of MPC products, and global economic uncertainty. The first quarter of the Company's fiscal year is historically the slowest from a license fee perspective 12 due to the reduced demand for our financial budgeting and analytic applications in the third quarter of the calendar year. Software maintenance revenues decreased 2% for the quarter ended September 30, 2001 primarily due to a 23% decrease in legacy product maintenance due to mainframe and desktop maintenance cancellations and continued customer migration to other platforms. During the quarter ended September 30, 2001, the Company experienced 23% growth in maintenance revenues of the Company's MPC products to $3.3 million due to MPC license fee growth in fiscal 2001. MPC product maintenance accounted for 58% of total maintenance revenue for the three months ended September 30, 2001. Legacy software maintenance represented 42% of total software maintenance revenue for the quarter ended September 30, 2001 as compared to 54% for the quarter ended September 30, 2000. Implementation, consulting and other services revenues grew 6% primarily due to the growth in license fees in the Company's direct operations in the previous two quarters. During the quarter ended September 30, 2001, 95% of total implementation services revenue was related to MPC products, which grew 12%. Implementation, consulting and other services revenues for MPC products were $4.9 million and $4.4 million for the quarters ended September 30, 2001 and 2000, respectively. COSTS AND EXPENSES
THREE MONTHS ENDED SEPTEMBER 30, ----------------------- PERCENT 2001 2000 CHANGE ------- ------- -------- (IN THOUSANDS) COST AND EXPENSES Selling and marketing $ 5,475 $ 5,461 (0.3)% Cost of revenue and support 6,464 6,781 (4.7) Internal research and product development 2,295 2,056 11.6 General and administrative 1,489 1,432 4.0 ------- ------- TOTAL COSTS AND EXPENSES $15,723 $15,730 --% ======= =======
Total costs and expenses remained relatively flat from the first quarter of the prior year. Selling and marketing expenses remained relatively flat for the quarters ended September 30, 2001 and 2000. Cost of revenue and support expenses decreased 5% from the first quarter of the prior year. The decrease was primarily due to a decrease in royalty expenses resulting from lower sales of Hyperion Solutions Corporation's Essbase database and to a lesser extent, a reduction in cost of goods sold due to the lower license fees for the quarter. The Company licenses the Essbase database from Hyperion under an agreement that expires in December 2002, and resells it in connection with many of its Comshare MPC products. Internal research and product development costs increased 12% to $2.3 million from $2.1 million for the quarters ended September 30, 2001 and 2000, respectively. The increase was primarily due increased employee costs attributable to additional staffing. General and administrative expenses increased 4% from the first quarter of fiscal year 2001 to $1.5 million for the quarter ended September 30, 2001. The increase is primarily attributable to an increase in general facilities costs and increased employee costs from the first quarter of the prior year. During the first quarter of fiscal year 2001, the Company benefited from a nonrecurring credit resulting from negotiation with a third party vendor. The Company anticipates that it will take an estimated $0.6 to $0.8 million restructuring charge in the second quarter ending December 31, 2001 designed to bring costs in line with revenues. The restructuring charge is expected to consist primarily of employee termination payments to be paid during the second and third quarters of the 2002 fiscal year. These payments will be funded from the Company's available cash. The restructuring charge is part of cost reduction actions aimed at reducing annual operating costs by $2.5 million, primarily through personnel reductions, attrition and selected third party cost cuts. Planned personnel reductions include approximately 28 employees Company-wide, principally in the United States. The Company does not expect to realize the full benefit of these actions until the third quarter of the 2002 fiscal year. The decision was made in response to the decline in revenue experienced in the first quarter of fiscal 2002. The charge was not recorded in the first quarter as the criteria of EITF 94-3 had not been met. The Company does not expect the personnel reductions to have a material negative effect on its operations because they were made in areas where the Company believes fewer employees are required to support the Company's current level of revenues. The Company's expectation as to the impact of its cost reduction actions and the impact of those actions on its operations are "forward looking statements" within the meaning of the Securities and Exchange Act of 1934, as amended. Such expectations are subject to a number of uncertainties described in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Safe Harbor Statement." 13 OTHER INCOME AND EXPENSE
THREE MONTHS ENDED SEPTEMBER 30, -------------------- 2001 2000 ---- ---- (IN THOUSANDS) OTHER INCOME (EXPENSE) Interest income $192 $427 Interest expense (1) (2) Exchange loss (14) (15) ---- ---- TOTAL OTHER INCOME $177 $410 ==== ====
Lower interest rates on short-term investments and lower average cash balances during the three months ended September 30, 2001 resulted in decreased interest income for the quarter ended September 30, 2001, compared to the three months ended September 30, 2000. FOREIGN CURRENCY For the three months ended September 30, 2001, 39% of the Company's total revenue was from outside North America compared with 43% for the three months ended September 30, 2000. Most of the Company's international revenue is denominated in foreign currencies. The Company recognizes currency transaction gains and losses in the period of occurrence. As currency rates are constantly changing, these gains and losses can, at times, fluctuate greatly. The Company's future operating results may be adversely impacted by the overall strengthening of the U.S. dollar against foreign currencies of countries where the Company conducts business; conversely, future operating results may be favorably impacted by an overall weakening of the U.S. dollar against foreign currencies. For the three months ended September 30, 2001, foreign currency fluctuations did not have a material impact on the Company's revenues, operating expenses or net loss. The Company had several forward exchange contracts totaling a notional amount of $1.3 million, outstanding at September 30, 2001. See Note D of Notes to Condensed Consolidated Financial Statements. PROVISION FOR INCOME TAXES The Company recognized no tax benefit associated with the losses incurred in the three month period ended September 30, 2001. The Company fully reserved its deferred tax asset during the quarter ended September 30, 2001, resulting in a provision for income taxes of $8.2 million. Realization of deferred tax assets associated with the Company's future deductible temporary differences, net of operating loss carryforwards and tax credit carryforwards, is dependent upon generating sufficient taxable income prior to their expiration. Management now believes it is not likely that the deferred tax assets previously recognized will be realized through future taxable income generated by using a tax strategy available to the Company. This belief is based on a determination that the tax strategy is no longer consistent with the Company's business strategy. The Company's deferred tax assets were previously supported through the valuation of non-core and legacy product liens. Management believed that the sale of those product lines would have resulted in sufficient taxable income to realize the deferred tax assets. The Company's current business strategy, however, is not consistent with the sale of such product lines and, as a result, such tax strategies are no longer available. This change in the Company's business strategy was due to the impact of the continued decline in revenues from legacy product lines experienced in the first quarter of fiscal year 2002, the current economic downturn and reduced market valuations in the technology sector. 14 LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, cash and cash equivalents were $20.7 million, compared with cash and cash equivalents of $24.1 million at June 30, 2001. The $3.4 million decrease resulted primarily from $2.9 million used in operating activities. Net cash of $2.9 million was used in operating activities in the three months ended September 30, 2001. The cash used in operating activities consisted primarily of a net loss of $8.7 million adjusted for non-cash items of $8.3 million, including the write-down of the Company's deferred tax asset, and $2.5 million used in working capital and other activities. Net cash used in working capital and other activities resulted primarily from a decrease in accrued payroll and deferred revenue, partially offset by a decrease in accounts receivable. The decrease in accrued payroll is primarily due to payment of incentive accruals related to sales in the fourth quarter of fiscal 2001. Deferred revenue and accounts receivable decreased primarily as a result of the decline in license fee and maintenance revenue for the quarter. Net cash of $0.1 million was used in investing activities for the three months ended September 30, 2001. The Company purchases most of its computer equipment under operating leases. At September 30, 2001, the Company did not have any material capital expenditure commitments. Net cash of $0.1 million was used in financing activities in the three months ended September 30, 2001 and consisted primarily of repayments of bank borrowings. Total assets were $47 million at September 30, 2001, compared with total assets of $59.3 million at June 30, 2001. Working capital as of September 30, 2001 was $23.0 million, compared with $24.3 million as of June 30, 2001. The decrease in total assets from June 30, 2001 to September 30, 2001 was primarily due to the write-down of the deferred tax asset by $8.2 million and the decline in cash and cash equivalents during the three months ended September 30, 2001. The decline in working capital from June 30, 2001 to September 30, 2001 was primarily due to the decline in cash and cash equivalents during that period. The Company has a $10 million credit agreement which expires on September 30, 2003. Borrowings under the agreement are secured by accounts receivable and the credit agreement contains covenants regarding, among other things, earnings leverage, net worth and payment of dividends. Under the terms of the credit agreement, the Company is not permitted to pay cash dividends on its common stock. Borrowings under the credit agreement were approximately $0.1 million and total available borrowings were $10 million at September 30, 2001. Borrowings available at any time are based on the lower of $10 million or a percentage of worldwide eligible accounts receivable and cash. At September 30, 2001, the interest rate on borrowings denominated in Japanese yen, which were used to hedge receivables in those currencies, was 1.81%. The Company believes that the combination of present cash balances and amounts available under credit facilities will be sufficient to meet the Company's currently anticipated cash requirements for at least the next twelve months. The foregoing statement is a "forward looking statement" within the meaning of the Securities and Exchange Act of 1934, as amended. The extent to which such sources will be sufficient to meet the Company's anticipated cash requirements is subject to a number of uncertainties, including the ability of the Company's operations to generate sufficient cash to support operations, and other uncertainties described in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Safe Harbor Statement." MARKET SENSITIVITY ANALYSIS The Company is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, the Company selectively uses financial instruments. The Company does not hold or issue financial instruments for trading purposes. The Company, at various times, denominates borrowings in foreign currencies and enters into forward exchange contracts to hedge exposures related to foreign currency transactions. The Company does not use any other types of derivatives to hedge such exposures nor does it speculate in foreign currency. In general, the Company uses forward exchange contracts to hedge against large selective transactions that present the most exposure to exchange rate fluctuations. At September 30, 2001 and June 30, 2001, the Company had forward contracts of approximately $1.3 million and $1.7 million (notional amounts), respectively, denominated in foreign currencies. The contracts outstanding at September 30, 2001 mature through December 14, 2001 and are intended to hedge various foreign 15 currency commitments due from the Company's distributors. Due to the short-term nature of these financial instruments, the fair value of these contracts is not materially different than their notional amounts at September 30, 2001 and June 30, 2001. Gains and losses on the forward contracts are largely offset by gains and losses on the underlying exposure. The Company conducts business in approximately 7 foreign currencies, predominately British pounds, the Euro, Australian dollars and Japanese yen. A hypothetical 10 percent appreciation of the U.S. dollar from September 30, 2001 market rates would increase the unrealized value of the Company's forward contracts by an immaterial amount and a hypothetical 10 percent depreciation of the U.S. dollar from September 30, 2001 market rates would decrease the unrealized value of the Company's forward contracts by an immaterial amount. In either scenario, the gains or losses on the forward contracts would be largely offset by the gains or losses on the underlying transactions. The Company maintains its cash and cash equivalents in highly liquid investments with maturities of ninety days or less. The Company has the ability to hold its fixed income investments until maturity, and therefore the Company would not expect its operating results or cash flows to be affected to any significant degree by the effect of a hypothetical 10 percent change in market interest rates on its cash and cash equivalents. SAFE HARBOR STATEMENT Certain information in this Form 10-Q Report contains "forward looking statements" within the meaning of the Securities Exchange Act of 1934, as amended, including those concerning the Company's future results, the impact of cost reduction actions, the ability to use net operating losses and other tax benefits and product releases. Actual results could differ materially from those in the forward looking statements due to a number of uncertainties, including, but not limited to, the demand for the Company's products and services; the size, timing and recognition of revenue from significant orders; the impact that cost reductions may have on the Company's revenues and operating results; increased competition and pricing pressures from competitors; the Company's success in and expense associated with developing, introducing and shipping new products; new product introductions and announcements by the Company's competitors; the level of interest and success of the Company's distributors in marketing and selling the Company's products; changes in Company strategy; product life cycles; the cost and continued availability of third party software and technology incorporated into the Company's products, including the impact of the expiration of the license for Essbase in December 2002; the impact of rapid technological advances, evolving industry standards and changes in customer requirements, including the impact on the Company's revenues of Microsoft's OLAP database; the overall competition for key employees; cancellations of maintenance and support agreements; software defects; changes in operating expenses; fluctuations in foreign exchange rates; and the high degree of economic uncertainty at this time and economic conditions generally or in specific industry segments. The level of annual expense reductions resulting from cost reduction actions may vary due to a number of factors, including unanticipated increases in costs resulting from such actions, or otherwise. In addition, a significant portion of the Company's revenue in any quarter is typically derived from non-recurring license fees, a substantial portion of which is booked in the last month of a quarter. Since the purchase of the Company's products is relatively discretionary and generally involves a significant commitment of capital, in the event of any downturn in any potential customer's business or the economy in general, purchases of the Company's products may be deferred or cancelled. Further, the Company's expense levels are based, in part, on its expectations as to future revenue and a significant portion of the Company's expenses do not vary with revenue. As a result, if revenue is below expectations, results of operations are likely to be materially, adversely affected. 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) The exhibits included with this Form 10-Q are set forth on the Index to Exhibits. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the quarter ended September 30, 2001. 17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 14, 2001 Comshare, Incorporated (Registrant) /s/ Brian Jarzynski ------------------- Brian Jarzynski Vice President, Chief Financial Officer and Treasurer 18 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.01 Seventh Amendment to Credit Agreement, dated September 28, 2001, between the Registrant, Comshare Limited and Harris Trust and Savings Bank. 10.01 Summary of 2002 Senior Executive Incentive Plan.
19 EX-4.01 3 k66087ex4-01.txt 7TH AMENDMENT TO CREDIT AGREEMENT EXHIBIT 4.01 SEVENTH AMENDMENT TO CREDIT AGREEMENT Harris Trust and Savings Bank Chicago, Illinois Ladies and Gentlemen: Reference is hereby made to that certain Credit Agreement (as amended, supplemented, modified or restated from time to time, the "Credit Agreement"), dated as of September 23, 1997, by and among Comshare, Incorporated (the "Company") and Comshare Limited (the "Borrowing Subsidiary") (together the "Borrowers") and Harris Trust and Savings Bank (the "Bank"). All capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement. The Borrowers have requested that the Bank amend the Credit Agreement to provide for the issuance of standby and commercial letters of credit upon the application of the Company under the Revolving Credit, and the Bank will do so under the terms and conditions set forth in this Amendment. 1. AMENDMENTS. Subject to the satisfaction of the conditions precedent set forth in Section 2 below, the Credit Agreement shall be and hereby is amended as follows: 1.1 The second sentence of Section 1.1 of the Credit Agreement shall be amended to read in its entirety as follows: The Revolving Credit may be utilized by each Borrower in the form of loans (individually a "Loan" and collectively the "Loans") on a revolving basis in U.S. Dollars and Optional Currencies, all as more fully hereinafter set forth; provided, however, that the sum of (i) the aggregate Original Dollar Amount of Loans outstanding at any one time to the Borrowers (taken together) and (ii) the aggregate outstanding amount of Letters of Credit (as determined pursuant to Section 1.4(a) hereof) at any one time shall not exceed the lesser of (x) $10,000,000 (such amount, as the same may be reduced pursuant to Section 3.4 hereof, being hereinafter referred to as the "Commitment") and (y) the Borrowing Base as then determined and computed. 1.2 Section 1 of the Credit Agreement shall be amended by adding a new Section 1.4 thereto, reading in its entirety as follows: Section 1.4. Letters of Credit. (a) General Terms. Subject to the terms and conditions hereof, the Revolving Credit may be availed of by the Company (and only the Company) in the form of standby and commercial letters of credit issued by the Bank for the account of the Company (individually a "Letter of Credit" and collectively the "Letters of Credit"), provided that the aggregate amount of Letters of Credit issued and outstanding hereunder shall not at any one time exceed $1,000,000 and each Letter of Credit shall be in an initial stated amount of not less than $10,000. For purposes of this Agreement, a Letter of Credit shall be deemed outstanding as of any time in an amount equal to the maximum amount which could be drawn thereunder under any circumstances and over any period of time plus any unreimbursed drawings then outstanding with respect thereto. If and to the extent any Letter of Credit expires or otherwise terminates without having been drawn upon, the availability under the Commitment shall to such extent be reinstated. (b) Term. Each Letter of Credit issued hereunder shall expire not later than the earlier of (i) 12 months from the date of issuance (or be cancelable not later than 12 months from the date of issuance and each renewal) or (ii) the Termination Date. (c) General Characteristics. Each Letter of Credit issued hereunder shall be payable in U.S. Dollars, conform to the general requirements of the Bank for the issuance of a standby or commercial letter of credit, as the case may be, as to form and substance, and be a letter of credit which the Bank may lawfully issue. (d) Applications. At the time the Company requests each Letter of Credit to be issued (or prior to the first issuance of a Letter of Credit in the case of a continuing application), the Company shall execute and deliver to the Bank an application for such Letter of Credit in the form then customarily prescribed by the Bank (individually an "Application" and collectively the "Applications"). Subject to the other provisions of this subsection, the obligation of the Company to reimburse the Bank for drawings under a Letter of Credit shall be governed by the Application for such Letter of Credit. Anything contained in the Applications to the contrary notwithstanding, (i) in the event the Bank is not reimbursed by the Company for the amount the Bank pays on any drawing made under a Letter of Credit issued hereunder by 11:00 a.m. (Chicago time) on the date when such drawing is paid, the obligation of the Company to reimburse the Bank for the amount of such drawing shall bear interest (which the Company hereby promises to pay on demand) from and after the date of the drawing is paid by the Bank until repayment in full thereof at the fluctuating rate per annum determined by adding 2% to the - 2 - Domestic Rate as from time to time in effect (computed on the basis of a year of 360 days for the actual number of days elapsed), (ii) the Company shall pay fees in connection with each Letter of Credit as set forth in Section 3 hereof, (iii) prior to the occurrence of a Default or an Event of Default, the Bank will not call for the funding of a Letter of Credit by the Company prior to being presented with a drawing thereunder (or, in the event the drawing is a time draft, prior to its due date). 1.3. Section 3.1 of the Credit Agreement shall be amended by adding a new subsection 3.1(d) thereto, reading in its entirety as follows: (d) Letter of Credit Fees. Quarterly in arrears, on the last Business Day of each calender quarter of each year and on the Termination Date, the Company shall pay to the Bank a letter of credit fee at a rate per annum equal to the Applicable Margin for Eurocurrency Portions (computed on the basis of a year of 360 days and the actual number of days elapsed) in effect during each day of such quarter applied to the daily average face amount of Letters of Credit outstanding during such quarter. In addition, the Company shall pay to the Bank the Bank's standard drawing, negotiation, amendment, and other administrative fees for each Letter of Credit. Such standard fees referred to in the preceding sentence may be established by the Bank from time to time. 1.4. Section 3.3 of the Credit Agreement shall be amended to read in its entirety as follows: Section 3.3 Mandatory Prepayment. The Borrowers covenant and agree that if at any time the sum of (i) the aggregate Original Dollar Amount of Loans outstanding at any one time and (ii) the aggregate amount of Letters of Credit outstanding at any one time shall be in excess of the lesser of (x) the Borrowing Base as then determined and computed or (y) the Commitment then in effect, the Borrowers shall immediately and without notice or demand pay over the amount of the amount of the excess to the Bank as and for a mandatory prepayment on the Note until payment in full thereof. Each such prepayment shall be accompanied by accrued interest on the amount prepaid to the date of prepayment plus any amounts due to the Bank under Section 11.5 hereof. -3- 1.5. Section 3.4 of the Credit Agreement shall be amended to read in its entirety as follows: Section 3.4. Terminations. The Company shall have the right at any time and from time to time, upon 1 Business Day's prior notice to the Bank, to terminate without premium or penalty and in whole or in part (but if in part, then in an amount not less than $500,000) the Commitment, provided that the Commitment may not be reduced to an amount less than the sum of (i) the aggregate Original Dollar Amount of Loans outstanding at such time and (ii) the aggregate amount of Letters of Credit outstanding at such time. No termination of the Commitment pursuant to this Section may be reinstated. 1.6. Section 5.1 of the Credit Agreement shall be amended by adding the following new definitions, each in its appropriate place in the alphabetical sequence: "Application" is defined in Section 1.4(d) hereof. "Letter of Credit" is defined in Section 1.4(a) hereof. 1.7. Section 5.1 of the Credit Agreement shall be amended by amending the following definitions to read in their entirety as follows: "Loan Documents" means this Agreement, the Note, the Applications, each Subsidiary Guaranty Agreement, the Collateral Documents and each other instrument or document to be delivered hereunder or thereunder or otherwise in connection therewith. "Obligations" means all obligations of the Borrowers and either of them to pay principal and interest on the Loans, all obligations of the Company to reimburse the Bank with respect to draws on any Letter of Credit, all fees and charges payable hereunder, and all other payment obligations of the Company arising under or in relation to any Loan Document, in each case whether now existing or hereafter arising, due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired. 1.8. Section 6.4 of the Credit Agreement shall be amended by adding the words "and the Letters of Credit" following the word "Loans" in the first sentence thereof. 1.9. The introductory clause of Section 7 and Section 7.1 of the Credit Agreement shall be amended to read in their entirety as follows: SECTION 7. CONDITIONS PRECEDENT. -4- The obligation of the Bank to make any Loan or issue or extend the expiration date (including by not giving notice of non-renewal) of any Letter of Credit under this Agreement is subject to the following conditions precedent: Section 7.1. All Advances. As of the time of the making of each extension of credit (including the initial extension of credit) hereunder: (a) each of the representations and warranties set forth in Section 6 hereof and in the other Loan Documents shall be true and correct as of such time, except to the extent the same expressly relate to an earlier date; (b) the relevant Borrower's request for such credit shall be made in full compliance with all of the terms and conditions of Sections 1 and 2 of this Agreement, in the case of any request for issuance of a Letter of Credit, the Bank shall have received a duly completed Application therefor together with any fees called for by Section 3.1(d) hereof, and, in the case of an extension or increase in the amount of a Letter of Credit, a written request therefor in a form acceptable to the Bank together with any fees called for by Section 3.1(d) hereof, and no Default or Event of Default shall have occurred and be continuing or would occur as a result of making such extension of credit; (c) in the case of any request for a Loan or for issuance of a Letter of Credit, after giving effect to such extension of credit, the sum of (1) greater of (x) the aggregate U.S. Dollar Equivalent of all Loans outstanding under this Agreement and (y) the aggregate Original Dollar Amount of all Loans outstanding under this Agreement, plus (2) the aggregate amount of Letters of Credit outstanding at any one time, shall not exceed the lesser of (i) the Commitment and (ii) the Borrowing Base; (d) such extension of credit shall not violate any order, judgment or decree of any court or other authority or any provision of law or regulation applicable to the Bank (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System) as then in effect. A Borrower's request for any Loan or the Company's request for any Letter of Credit shall constitute its warranty as to the facts specified in subsections (a) through (c), both inclusive, above. -5- 1.10 Clause (a) of Section 9.1 of the Credit Agreement shall be amended to read in its entirety as follows: (a) default in the payment when due of all or any part of the principal of the Note or of any reimbursement obligation with respect to any Letter of Credit (whether at the stated maturity of the Note or at any other time provided for in this Agreement); 1.11. Section 9 of the Credit Agreement shall be amended by adding a new Section 9.4 thereto, reading in its entirety as follows: Section 9.4. Collateral for Undrawn Letters of Credit. When any Event of Default, other than an Event of Default described in subsection (p) or (q) of Section 9.1, has occurred and is continuing, the Company shall, upon demand of the Bank, and when any Event of Default described in subsection (p) or (q) of Section 9.1 has occurred the Company shall, without notice or demand from the Bank, immediately pay to the Bank the full amount of each Letter of Credit then outstanding, the Company agreeing to immediately make such payment and acknowledging and agreeing that the Bank would not have an adequate remedy at law for failure of the Company to honor any such demand and that the Bank shall have the right to require the Company to specifically perform such undertaking whether or not any draws have been made under any such Letters of Credit. 1.12. Section 11.4 of the Credit Agreement shall be amended to read in its entirety as follows: Section 11.4. Taxes and Increased Costs. With respect to any Eurocurrency Portion or any Letter of Credit, if the Bank shall determine in good faith that any change in any applicable law, treaty, regulation or guideline (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System) or any new law, treaty, regulation or guideline, or any interpretation of any of the foregoing by any governmental authority charged with the administration thereof or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or its lending branch or the Eurocurrency Portions or Letters of Credit contemplated by this Agreement (whether or not having the force of law), shall: (i) impose, increase, or deem applicable any reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, or any other acquisition of funds or disbursements by, the Bank which is not in -6- any instance already accounted for in computing the interest rate applicable to such Eurocurrency Portion or fee applicable to such Letter of Credit; (ii) subject the Bank, any Letter of Credit, any Eurocurrency Portion or the Note to the extent it evidences such a Portion to any tax, duty, charge, stamp tax, fee, deduction or withholding in respect of this Agreement, any Letter of Credit, any Eurocurrency Portion or the Note to the extent it evidences such a Portion, except such taxes as may be measured by the overall net income or gross receipts of the Bank or its lending branches and imposed by the jurisdiction, or any political subdivision or taxing authority thereof, in which the Bank's principal executive office or its lending branch is located; (iii) change the basis of taxation of payments of principal and interest due from the Company to the Bank hereunder, with respect to any Letter of Credit or under the Note to the extent it evidences any Eurocurrency Portion (other than by a change in taxation of the overall net income or gross receipts of the Bank); or (iv) impose on the Bank any penalty with respect to the foregoing or any other condition regarding this Agreement, any Letter of Credit, any Eurocurrency Portion, or its disbursement, or the Note to the extent it evidences any Eurocurrency Portion; and the Bank shall determine in good faith that the result or any of the foregoing is to increase the cost (whether by incurring a cost or adding to a cost) to the Bank, within five (5) days after the Bank's written demand therefor, of creating or maintaining any Eurocurrency Portion or any Letter of Credit hereunder or to reduce the amount of principal or interest or fees received or receivable by the Bank (without benefit of, or credit for, any prorations, exemption, credits or other offsets available under any such laws, treaties, regulations, guidelines or interpretations thereof), then the Borrowers shall pay to the Bank from time to time as specified by the Bank such additional amounts as the Bank shall reasonably determine are sufficient to compensate and indemnify it for such increased cost or reduced amount. If the bank makes such a claim for compensation, it shall provide to the company a certificate setting forth the computation of the increased cost or reduced amount as a result of any event mentioned herein in reasonable detail and such certificate shall be conclusive if reasonably determined. - 7 - 1.13. The first sentence of Section 11.6 of the Credit Agreement shall be amended to read in its entirety as follows: Subject to the immediately following sentence, the Bank may, at its option, elect to make, fund or maintain Portions of the Loans or issue Letters of Credit hereunder at such of its branches or offices as the Bank may from time to time elect. 1.14. Section 12.10 of the Credit Agreement shall be amended by adding the words "" and the Letters of Credit" immediately following the word "Loans" in the third line thereof. 2. CONDITIONS PRECEDENT. The effectiveness of this Amendment is subject to the satisfaction of all of the following conditions precedent: (a) The Borrowers and the Bank shall have executed and delivered this Amendment. (b) The Guarantors and each party signatory to that certain Debt Subordination Agreement dated September 23, 1997 shall have each executed and delivered to the Bank their consent to this Amendment in the forms set forth below. (c) Legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Bank and its counsel. (d) All accrued and unpaid legal fees of the Bank incurred in connection with this Amendment or earlier amendments or matters relating to the Credit Agreement shall have been paid by the Borrowers. 3. REPRESENTATIONS. In order to induce the Bank to execute and deliver this Amendment, the Borrowers hereby represent to the Bank that as of the date hereof the representations and warranties set forth in Section 6 of the Credit Agreement are and shall be and remain true and correct (except that the representations contained in Section 6.5 shall be deemed to refer to the most recent financial statements of the Borrowers delivered to the Bank) and, except as waived herein, the Borrowers are in compliance with the terms and conditions of the Credit Agreement and no Default or Event of Default has occurred and is continuing under the Credit Agreement or shall result after giving effect to this Amendment. 4. MISCELLANEOUS. 4.1 The Borrowers heretofore executed and delivered to the Bank the Security Agreement, Pledge Agreement and certain other Collateral Documents. The Borrowers hereby acknowledge and agree that the Liens created and provided for by the Collateral Documents -8- continue to secure, among other things, the Obligations arising under the Credit Agreement as amended hereby; and the Collateral Documents and the rights and remedies of the Bank thereunder, the obligations of the Borrowers thereunder, and the Liens created and provided for thereunder remain in full force and effect and shall not be affected, impaired or discharged hereby. Nothing herein contained shall in any manner affect or impair the priority of the liens and security interests created and provided for by the Collateral Documents as to the indebtedness which would be secured thereby prior to giving effect to this Amendment. 4.2. Except as specifically amended herein, the Credit Agreement shall continue in full force and effect in accordance with its original terms. Reference to this specific Amendment need not be made in the Credit Agreement, the Note, or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to or with respect to the Credit Agreement, any reference in any of such items to the Credit Agreement being sufficient to refer to the Credit Agreement as amended hereby. 4.3. The Borrowers agree to pay on demand all costs and expenses of or incurred by the Bank in connection with the negotiation, preparation, execution and delivery of this Amendment, including the fees and expenses of counsel for the Bank. 4.4. This Amendment may be executed in any number of counterparts, and by the different parties on different counterpart signature pages, all of which taken together shall constitute one and the same agreement. Any of the parties hereto may execute this Amendment by signing any such counterpart and each of such counterparts shall for all purposes be deemed to be an original. This Amendment shall be governed by the internal laws of the State of Illinois. [SIGNATURE PAGE TO FOLLOW] -9- Dated as of this 28th day of September, 2001. COMSHARE, INCORPORATED By Name /s/ Brian Jarzynski Title VP & CFO COMSHARE LIMITED By Name /s/ Brian Jarzynski Title Director Accepted and agreed to as of the date last above written. HARRIS TRUST AND SAVINGS BANK By /s/ Kirby M. Law Name Title Vice President GUARANTORS' ACKNOWLEDGEMENT AND CONSENT Each of the undersigned Guarantors heretofore executed and delivered to the Bank a separate Guaranty Agreement each dated September 23, 1997. Each of the undersigned hereby consent to the Seventh Amendment to Credit Agreement as set forth above and confirm that its Guaranty Agreement and all of the undersigned's obligations thereunder remain in full force and effect. Each of the undersigned further agree that the consent of the undersigned to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained, except to the extent, if any, required by the Guaranty Agreement referred to above. COMSHARE (U.S.), INC. COMSHARE LIMITED (CANADA) COMSHARE HOLDINGS COMPANY BY /s/ Brian Jarzynski ------------------------ Name: Brian Jarzynski ----------------- Title: VP & CFO ----------------- SUBORDINATED CREDITORS' ACKNOWLEDGEMENT AND CONSENT Each of the undersigned heretofore executed in favor of the Bank a Debt Subordination Agreement dated September 23, 1997. Each of the undersigned hereby consent to the Seventh Amendment to Credit Agreement as set forth above and confirms that the Debt Subordination Agreement and all of the undersigned's obligations thereunder remain in full force and effect. Each of the undersigned further agree that the consent of the undersigned to any further amendments to the Credit Agreement shall not be required as a result of this consent having been obtained, except to the extent, if any, required by the Debt Subordination Agreement referred to above. COMSHARE INCORPORATED COMSHARE (U.S.), INC. COMSHARE LIMITED COMSHARE HOLDINGS COMPANY COMSHARE LIMITED (CANADA) BY /s/ Brian Jarzynski ------------------------ Name: Brian Jarzynski ----------------- Title: VP & CFO ----------------- EX-10.01 4 k66087ex10-01.txt SUMMARY OF 2002 SENIOR EXECUTIVE INCENTIVE PLAN EXHIBIT 10.01 SUMMARY OF 2002 SENIOR EXECUTIVE INCENTIVE PLAN A targeted bonus equal to 50% of Dennis Ganster's base compensation and 40% of the base compensation of the other senior executives is payable for the fiscal year 2002 upon achievement of performance goals. At the targeted bonus level, fifty percent of the bonus is based upon achievement of targeted net revenue growth (net of third party royalties) and fifty percent is based upon achievement of targeted earnings per share levels. Actual bonuses may be greater or lesser than the targeted bonus levels, dependent upon deviation in actual performance from performance goals. Participating senior executives must be employed by the Company at the date of the payment of the bonus. -----END PRIVACY-ENHANCED MESSAGE-----