THIRD AMENDMENT TO
                                 LOAN AGREEMENT


     THIS THIRD  AMENDMENT  (this  "Amendment") is entered into as of October 6,
1998, among Effective Management Systems, Inc. ("EMS"), a Wisconsin corporation,
EMS-East, Inc. ("EMS-East"),  a Massachusetts corporation,  Effective Management
Systems of  Illinois,  Inc.  ("EMS-Illinois"),  an  Illinois  corporation  (EMS,
EMS-East and EMS-Illinois are each  individually a "Borrower",  and collectively
"Borrowers"), and Foothill Capital Corporation ("Lender").

     WHEREAS,  Borrowers and Lender are parties to a Loan and Security Agreement
dated as of December 30, 1997 (the "Loan Agreement");

     WHEREAS, Borrowers have requested that Lender amend the Loan Agreement, and
Lender has agreed to do so subject to the terms and conditions contained herein;

     NOW  THEREFORE,  in  consideration  of the premises  and mutual  agreements
herein contained, the parties hereto agree as follows:

     1. Defined Terms.  Unless otherwise defined herein,  capitalized terms used
herein shall have the meanings ascribed to such terms in the Loan Agreement.

     2.  Amendments  to  Loan  Agreement.  Subject  to the  satisfaction  of the
conditions  set forth in  Section 4 hereof,  the Loan  Agreement  is  amended as
follows:

     (a) The  definition  of "Maximum  Revolving  Amount" is hereby  amended and
restated in its entirety as follows:

                  "Maximum Revolving Amount" means $5,000,000.

     (b) Section 2.3 of the Loan Agreement is hereby amended and restated in its
entirety, as follows:

     2.3 Term Loan.

          Foothill  made a term  loan (the  "Term  Loan")  to  Borrowers  in the
     original  principal  amount of  $3,112,500,  consisting  of an  advance  of
     $3,000,000 and the closing fee of $112,500 described in Section 2.11(b). As
     of October 6, 1998, the  outstanding  principal  amount of the Term Loan is
     $2,723,447.  Foothill has agreed to make an additional advance (which shall
     be added to and become  part of the Term Loan) in the amount of $776,553 to
     increase the Term Loan to $3,500,000. The Term Loan, as so increased, shall
     be repaid in 35  installments  of principal  each in the amount of $100,000

<PAGE>

     (except for the last such  installment  which shall be in the amount of the
     unpaid principal  balance of the Term Loan). Each such installment shall be
     due and payable on the tenth day of each month  commencing on the tenth day
     of November, 1998 and continuing on the tenth day of each succeeding month,
     and the final  payment  shall be on the third  anniversary  of the  Closing
     Date. In addition to the  foregoing,  Borrowers  shall make  prepayments of
     principal of the Term Loan such that at all times the outstanding principal
     balance of the Term Loan is less than the  Applicable  Maintenance  Revenue
     Amount.  The  outstanding  principal  balance  and all  accrued  and unpaid
     interest under the Term Loan shall be due and payable upon the  termination
     of this Agreement, whether by its terms, by prepayment, by acceleration, or
     otherwise.  The unpaid principal balance of the Term Loan may be prepaid in
     whole or in part without  penalty or premium at any time during the term of
     this  Agreement upon 30 days prior written notice by Borrowers to Foothill.
     All  prepayments  of  principal  of the Term Loan  shall be  applied to the
     installments  due on the Term Loan in the inverse order of their  maturity.
     All amounts outstanding under the Term Loan shall constitute Obligations.

          (c) The first  sentence of Section 3.4 of the Loan Agreement is hereby
     amended and restated in its entirety, as follows:

          This Agreement shall become  effective upon the execution and delivery
     hereof by  Borrowers  and  Foothill  and shall  continue  in full force and
     effect  for a term  ending on October  31,  2001 (the  "Renewal  Date") and
     automatically  shall be renewed for successive one year periods thereafter,
     unless sooner terminated pursuant to the terms hereof.

          (d) Section 3.6 of the Loan  Agreement is hereby  amended and restated
     in its entirety, as follows:

          3.6 Early Termination by Borrower.

          The provisions of Section 3.4 that allow termination of this Agreement
     by  Borrowers  only on the Renewal Date and certain  anniversaries  thereof
     notwithstanding,  Borrowers have the option, at any time upon 90 days prior
     written  notice to  Foothill,  to  terminate  this  Agreement  by paying to
     Foothill,  in cash, the  Obligations  (including an amount equal to 102% of
     the  undrawn  amount of the Letters of Credit),  in full,  together  with a
     premium (the "Early  Termination  Premium")  equal to (a) 3% of the Maximum
     Amount if such termination  occurs on or before October 31, 1999, (b) 2% of
     the Maximum Amount if such termination occurs after October 31, 1999 but on
     or  before  October  31,  2000,  and (c) 1% of the  Maximum  Amount if such
     termination  occurs  after  October 31, 2000 but before  October 31,  2001;
     provided,  that if Borrowers refinance the facility provided for under this
     Agreement  after

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<PAGE>

     the eighteen month  anniversary of the date hereof with Norwest Bank,  N.A.
     or any of its subsidiaries, the Early Termination Premium will be waived by
     Foothill.

     (e) Section 7.20 of the Loan  Agreement  is hereby  amended and restated in
its entirety as follows:

     7.20 Financial Covenants.

     Fail to maintain:

          (a) Tangible  Net Worth.  Tangible Net Worth as of the last day of any
     fiscal  quarter  set forth  below of at least the  amount  set forth  below
     opposite such fiscal quarter:

                 Fiscal Quarter                               Amount
   August 31, 1998                                         ($5,000,000)
                                                 plus the Equity Infusion Amount
   November 30, 1998                                       ($3,750,000)
                                                 plus the Equity Infusion Amount
   February 28, 1999                                       ($4,000,000)
                                                 plus the Equity Infusion Amount
   May 31, 1999                                            ($3,500,000)
                                                 plus the Equity Infusion Amount
   August 31, 1999                                         ($2,750,000)
                                                 plus the Equity Infusion Amount
   November 30, 1999 and the last day of                   ($2,500,000)
   each fiscal quarter thereafter                plus the Equity Infusion Amount

         "Equity Infusion Amount" means the amount,  if any, by which the equity
         contributed  to  Borrowers  at any time after  October 6, 1998  exceeds
         $1,000,000.

          (b)  EBITDA.  EBITDA for any  period  set forth  below of at least the
     amount set forth below opposite such period:

                              Period                                   Amount
                              ------                                   ------
          3 month period ending August 31, 1998                     ($1,500,000)

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<PAGE>

                              Period                                   Amount
                              ------                                   ------

          3 month period ending November 30, 1998                         0
          3 month period ending February 28, 1999                    ($500,000)
          3 month period ending May 31, 1999 and 3 month              $500,000
          period ending on the last day of each fiscal
          quarter thereafter

     (f) Section 7.21 of the Loan  Agreement  is hereby  amended and restated in
its entirety as follows:

     7.21 Capital Expenditures.

          Make capital expenditures in any fiscal year set forth below in excess
     of the amount set forth opposite such fiscal year:

                                Period                               Amount
          Fiscal year ending November 30, 1998                     $1,750,000
          Fiscal year ending November 30, 1999 and each            $1,750,000
          fiscal year thereafter

     3. Ratification.  This Amendment, subject to satisfaction of the conditions
provided below, shall constitute amendments to the Loan Agreement and all of the
Loan Documents as appropriate to express the agreements contained herein. In all
other respects, the Loan Agreement and the Loan Documents shall remain unchanged
and in full force and effect in accordance with their original terms.

     4. Conditions to Effectiveness.  Subject to Section 5 below, the amendments
to the Loan Agreement set forth in this Amendment  shall become  effective as of
the date of this Amendment and upon the satisfaction of the following conditions
precedent in form and substance  satisfactory to Lender:

     (a) Modification  Fee.  Borrowers shall have paid Lender a modification fee
in the amount of $20,000.

     (b) Other  Documents.  Borrower shall have executed and delivered to Lender
such other documents, agreements and instruments as Lender shall have requested.

     (c) No  Default.  No Event of  Default or event  which,  with the giving of
notice or the passage of time, or both, would become an Event of Default,  Shall
have

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<PAGE>

occurred and be continuing, and, after giving effect to the amendments contained
herein,  no Event of  Default or event  which,  with the giving of notice or the
passage of time, or both, would become an Event of Default,  shall have occurred
and be continuing.

5. Miscellaneous.

     (a) Warranties and Absence of Defaults.  In order to induce Lender to enter
into this Amendment,  each Borrower  hereby  warrants to Lender,  as of the date
hereof, that:

          (i) The warranties of such Borrower  contained in the Loan  Agreement,
     as herein amended, are true and correct as of the date hereof as if made on
     the date hereof.

          (ii) All  information,  reports and other  papers and data  heretofore
     furnished to Lender by such Borrower in connection with this Amendment, the
     Loan Agreement and the other Loan Documents are accurate and correct in all
     material  respects and complete  insofar as may be necessary to give Lender
     true and accurate  knowledge of the subject matter  thereof.  Such Borrower
     has  disclosed  to  Lender  every  fact of which it is  aware  which  would
     reasonably  be expected to materially  and  adversely  affect the business,
     operations  or financial  condition of such Borrower or the ability of such
     Borrower  to  perform  its  obligations  under  this  Amendment,  the  Loan
     Agreement or under any of the other Loan Documents. None of the information
     furnished to Lender by or on behalf of such Borrower contained any material
     misstatement  of fact or  omitted  to  state a  material  fact or any  fact
     necessary to make the statements contained herein or therein not materially
     misleading.

          (iii) No Event of Default or event which, with giving of notice or the
     passage of time, or both would become an Event of Default, exists as of the
     date hereof.

     (b)  Expenses.  Borrowers  agree to pay on demand all costs and expenses of
Lender  (including  the  reasonable  fees and  expenses  of outside  counsel for
Lender) in connection with the preparation, negotiation, execution, delivery and
administration of this Amendment and all other instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection  herewith.
In addition, Borrowers agree to pay, and save Lender harmless from all liability
for,  any stamp or other  taxes  which may be  payable  in  connection  with the
execution  or  delivery  of this  Amendment  or the Loan  Agreement,  as amended
hereby,  and the execution and delivery of any instruments or documents provided
for herein or delivered or to be delivered hereunder or in connection  herewith.
All  obligations  provided in this Section 5(b) shall survive any termination of
this Amendment and the Loan Agreement as amended hereby.

     (c)  Governing  Law.  This  Amendment  shall be a  contract  made under and
governed by the internal laws of the State of California.

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<PAGE>

     (d)  Counterparts.  This  Amendment  may  be  executed  in  any  number  of
counterparts,  and by the parties  hereto on the same or separate  counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original,  but all such counterparts  shall together  constitute but one and the
same Amendment.

     (e)  Reference to Loan  Agreement.  On and after the  effectiveness  of the
amendment to the Loan Agreement  accomplished hereby, each reference in the Loan
Agreement to "this Agreement,"  "hereunder," "hereof," "herein" or words of like
import, and each reference to the Loan Agreement in any Loan Documents, or other
agreements,  documents or other instruments  executed and delivered  pursuant to
the Loan  Agreement,  shall mean and be a reference  to the Loan  Agreement,  as
amended by this Amendment.

     (f) Successors.  This Amendment shall be binding upon Borrowers, Lender and
their  respective  successors  and  assigns,  and shall  inure to the benefit of
Borrowers, Lender and their respective successors and assigns.

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<PAGE>

          IN WITNESS  WHEREOF,  the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized and delivered
as of the date first above written.


                                            EFFECTIVE MANAGEMENT SYSTEMS, INC.,
                                            a Wisconsin corporation


                                            BY  /S/
                                            Title


                                            EMS-EAST, INC., a Massachusetts
                                            corporation


                                            By  /S/
                                            Title


                                            EFFECTIVE MANAGEMENT SYSTEMS OF
                                            ILLINOIS, INC., an Illinois
                                            corporation


                                            By  /S/
                                            Title


                                            FOOTHILL CAPITAL CORPORATION,
                                            a California corporation


                                            By  /S/
                                            Title