Special Compensation and Separation Agreement

This Special  Compensation and Separation  Agreement  (Agreement) is executed by
Jeffrey  J.  Fossum  (Employee)  and  Effective  Management  Systems,  Inc.  its
operations,  divisions,  subsidiaries,  and other affiliated organizations;  its
successors, assigns, and transferees; and its directors, officers, shareholders,
partners, agents, employees, or representatives (Company). It is effective as of
January 1, 1998 (the Effective Date).

In  light  of  the  Company's   pursuit  of  additional   financing  and  needed
responsiveness  to  potential  alliance  partner  inquiries  and the  effort and
continuity  required  for  that  effort,  the  parties  find  the  terms of this
Agreement to be in their mutual best interests.

The terms of this Agreement are as follows:

1. Ongoing  Services.  From the Effective Date until the  Separation  Date ( the
Term),  Employee shall continue to faithfully and diligently perform his present
duties as CFO, or such other  duties as are assigned to him from time to time so
long as such  duties are  reasonably  within his  skills  and  capabilities  and
involve,  overall, a position of reasonably equivalent title and responsibility,
from his present or an equivalent substitute Milwaukee area location.

2. Consideration. In consideration for Employee's Ongoing Services, but only for
so long as the parties  mutually  agree to continue  this  relationship  (Term),
Employee shall be compensated,  with associated benefits,  at a level consistent
with his  position in relation  to other  executives.  Except as affected by the
occurrence  of a Special  Event as hereafter  set forth,  this  Agreement may be
terminated  (Separation  Date) by either  party at any time for no reason or any
reason, without any severance or similar payment obligation.

3. Special  Event.  A Special Event shall have  occurred  when a Board  approved
transaction  has closed with an alliance  partner  prior to July 1, 1999 unless,
prior  to the  closing,  Employee  voluntarily  resigns  effective  prior to the
closing.

4.   Special Event  Obligations.  Upon the  occurrence of a Special  Event,  the
     following  shall apply;  a. Lump Sum Payment.  A special bonus in the gross
     amount of twenty-five thousand dollars ($25,000.) shall be due and payable,
     subject  to  federal,  state,  and local  income  tax  withholding  and the
     withholding  of Employee's  share of FICA taxes,  and any other  deductions
     either  required by law or consistent  with past  practices for  Employee's
     share of costs for benefits elected. b. Contingent on Actions Subsequent to
     Occurrence.  If, subsequent to the related definitive  agreement and within
     twenty-four  (24)  months of the  Special  Event  occurrence,  Employee  is
     terminated,  as defined below, Employee shall be entitled to the following:
     i) immediate  vesting of all then  outstanding  but not then vested Company
     stock  options;  ii) full  tuition  reimbursement  for the period  Employee
     reasonably pursues  completion,  whether part time or full time, of his MBA
     or  equivalent  degree at the actual cost of such tuition not to exceed the
     then  equivalent  cost at the University of  Wisconsin-Milwaukee;  and iii)
     continuation  of  Employee's  base salary and all  insurance  benefits (eg.
     medical,  life,  disability,  etc.) as they existed prior to the earlier of
     the  termination  or such an  occurrence,  and  use of an  executive  level
     Company  supplied  automobile,  for a period  of  twelve  months  from such
     termination,   except  that,  if  Employee  obtains  alternative  full-time
     employment,  though not  obligated  to pursue  such  employment,  then such
     continuation  shall cease upon the earlier of the expiration of such twelve
     month  period  or  four  months  after  commencement  of  such  alternative
     employment. c. Termination.  For purposes of this provision,  `termination'
     shall include, in addition to an actual  termination,  for whatever reason,
     by the  Company,  a physical  relocation  outside  the  Milwaukee  area,  a
     reduction in overall  compensation and benefits,  or a reduction in overall
     level of job content,  title,  and  responsibility.  Employee may elect the
     provisions  in b) above  at any  time  within  ninety  (90)  days of such a
     termination by written notice to the Company's  President  referencing this
     Agreement.

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5. Limitation.  Except as specifically set forth above, Employee will be paid no
further wages, bonuses, commissions,  benefits, compensation, or remuneration of
any kind, other than those required by law, specifically provided above, and any
earned  benefits which  Employee is otherwise  entitled to pursuant to a plan or
policy sponsored by the Company, such as 401K, as of the Separation Date.

6.   In exchange,  Employee specifically agrees to the following:
     a. Release of All Claims.  Employee hereby irrevocably and  unconditionally
     releases  and  discharges  forever the Company  from any and all claims and
     expenses, known or unknown, which Employee now has on account of Employee's
     employment or termination.  This Release  includes,  but is not limited to,
     any claim arising  under any federal,  state,  or local law,  including the
     Civil Rights Act, the Age Discrimination in Employment Act, and Section 510
     of the Employee Retirement Income Security Act.
     b.  Return of  Company  Property.  Employee  agrees to return  any  Company
     property  in his  possession  by the  Separation  Date  except as set forth
     above.
     c. Confidentiality.  Employee is under a Confidentiality agreement with the
     Company and agrees to abide by the terms of that agreement.
     d. No  Denigration.  Employee  agrees  that he will  not at any time in the
     future make any statements to former,  current, or prospective customers or
     employees of Company or the media or to anyone in the industry or community
     in general which could be construed by a reasonable  person as being in any
     way  derogatory  or  negative  about the  Company. 
     e.  Confidentiality  of Agreement.  Employee agrees that this Agreement and
     its terms are strictly confidential and shall not be divulged to any person
     other  than to his  legal  counsel  and  accountant,  but  subject  to this
     confidentiality provision, solely for purposes of advice.

8. Complete  Agreement.  The parties understand and agree that this Agreement is
final and complete, with respect to the matters set forth herein, and may not be
amended  except in writing  referencing  this Agreement and is binding upon them
and  their   heirs,   successors,   and  assigns.   The   parties'   preexisting
Confidentiality agreement remains in full force and effect.

9. Voluntary Act and Revocation.  Employee acknowledges that he has been given a
copy of this Agreement  with a period of twenty-one  days to review and consider
it before signing it, and an  opportunity  to consult with an attorney,  that he
has carefully read the entire  document and  understands  its provisions and has
signed it as his free act and deed.  Employee may revoke this  Agreement  within
seven days of signing by written notice  delivered to Mike Dunham,  President at
the Company's Milwaukee office.

10. Other.  This Agreement  shall be  interpreted  and construed and enforced in
accordance  with the laws of the  State of  Wisconsin,  except as  preempted  by
federal law, and before the tribunals of the State of Wisconsin.
It has been executed in duplicate originals.

In Witness  Whereof,  the parties herein executed this Special  Compensation and
Separation Agreement as of the Effective Date.

Effective Management Systems, Inc.          Jeffrey J. Fossum, an individual

by: /s/ Michael D. Dunham                   /s/ Jeffrey J. Fossum   
     Michael D. Dunham, President                    Jeffrey J. Fossum

                                            Witness: /s/ Patricia L. Hoppe   
                                                     Patricia L. Hoppe