EXHIBIT 6
SECURITIES PURCHASE AGREEMENT
dated as of March 7, 2002
between
Frontstep, Inc.
and
The Investors named herein
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions...................................................1
ARTICLE 2
PURCHASE AND SALE
Section 2.01. Purchase And Sale.............................................4
Section 2.02. Closings......................................................5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Corporate Existence And Power.................................6
Section 3.02. Corporate Authorization.......................................6
Section 3.03. Governmental Authorization; Consents..........................7
Section 3.04. Non-contravention.............................................8
Section 3.05. Capitalization................................................8
Section 3.06. SEC Filings...................................................9
Section 3.07. Disclosure Documents..........................................9
Section 3.08. Financial Statements.........................................10
Section 3.09. Absence of Certain Changes...................................10
Section 3.10. Litigation...................................................11
Section 3.11. Compliance with Contracts....................................12
Section 3.12. ERISA Representations........................................12
Section 3.13. Tax Representations..........................................13
Section 3.14. Insurance Coverage...........................................15
Section 3.15. Compliance with Laws.........................................15
Section 3.16. Transactions with Affiliates.................................15
Section 3.17. Finders' Fees................................................15
Section 3.18. Antitakeover Statutes........................................16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Section 4.01. Organization And Existence...................................16
Section 4.02. Authorization................................................16
Section 4.03. Governmental Authorization...................................16
Section 4.04. Non-contravention............................................16
Section 4.05. Finders' Fees................................................17
Section 4.06. Financing....................................................17
Section 4.07. Purchased for Investment.....................................17
ARTICLE 5
COVENANTS OF THE COMPANY
Section 5.01. Access to Information........................................18
Section 5.02. Notices of Certain Events....................................18
Section 5.03. Use of Proceeds..............................................19
Section 5.04. Corporate Governing Documents................................19
Section 5.05. Restrictive Agreements Prohibited............................19
Section 5.06. Shareholder Approval.........................................19
Section 5.07. Additional Warrants..........................................19
Section 5.08. Shareholder Meeting; Proxy Material..........................19
Section 5.09. SEC Obligations..............................................20
ARTICLE 6
COVENANTS OF INVESTORS
Section 6.01. Notices of Certain Events....................................20
Section 6.02. Confidentiality..............................................20
Section 6.03. Voting of Shares.............................................21
ARTICLE 7
COVENANTS OF ALL PARTIES
Section 7.01. Reasonable Best Efforts......................................21
Section 7.02. Certain Filings; NASDAQ Listing..............................21
Section 7.03. Public Announcements.........................................21
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.01. Conditions to The Obligations of Each Party..................22
Section 8.02. Conditions to Obligation of Investors........................22
Section 8.03. Conditions to Obligation of The Company......................23
ARTICLE 9
SURVIVAL
Section 9.01. Survival.....................................................24
ARTICLE 10
TERMINATION
Section 10.01. Grounds for Termination.....................................24
Section 10.02. Effect of Termination.......................................24
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ARTICLE 11
MISCELLANEOUS
Section 11.01. Notices.....................................................25
Section 11.02. Amendments; No Waivers......................................25
Section 11.03. Expenses....................................................26
Section 11.04. Successors and Assigns......................................26
Section 11.05. Governing Law...............................................26
Section 11.06. Counterparts................................................26
Section 11.07. Entire Agreement............................................26
Section 11.08. Specific Performance........................................27
Section 11.09. Captions....................................................27
Exhibit A Amended and Restated Investor Rights Agreement
Exhibit B Form of Convertible Note
Exhibit C Form of Initial Note
Exhibit D Form of Warrant
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SECURITIES PURCHASE AGREEMENT
AGREEMENT dated as of March 7, 2002 between Frontstep, Inc., an Ohio
corporation (the "Company"), and the several investors set forth on Schedule I
hereto (individually, an "Investor" and collectively the "Investors").
W I T N E S S E T H :
WHEREAS, the Investors desire to purchase from the Company the Securities
(as hereinafter defined) and the Company desires to sell the Securities to the
Investors, upon the terms and subject to the conditions hereinafter set forth;
WHEREAS, the Investors and the Company desire to enter into certain other
agreements;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, such
Person. For the purposes of this definition, "control" when used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Amended and Restated Investor Rights Agreement" means the Amended and
Restated Investor Rights Agreement dated as of the date hereof among the
Company, the investors named therein, and Xxxxxxxx X. Xxx, substantially in the
form of Exhibit A hereto.
"Beneficial Ownership" and "beneficially own" shall be determined in
accordance with Rule 13d-3 under the 1934 Act.
"Benefit Arrangement" means any employment, severance or similar contract,
arrangement or policy, or any plan or arrangement providing for severance
benefits, insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits that (i) is
not an Employee Plan or Company Stock Plan or made pursuant to an Employee Plan
or Company Stock Plan, (ii) is entered into or maintained, as the case may be,
by the Company or any of its ERISA Affiliates, (iii) covers any employee or
former employee of the Company or any Subsidiary and (iv) involves an
obligation of the Company and/or the Subsidiaries to pay an aggregate amount in
excess of $100,000.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the United States Securities and Exchange Commission.
"Common Shares" means the common shares, no par value, of the Company.
"Company Stock Plans" means any present or future Employee Plan,
employment agreement, restricted stock, stock option, stock purchase or
dividend reinvestment plan or other similar type of plan of the Company which
provides for the issuance of equity securities or options or rights to purchase
equity securities of the Company.
"Convertible Notes" means the 10% subordinated convertible notes due May
10, 2004 in an aggregate principal amount of $3,500,000 issued by the Company,
substantially in the form of Exhibit B hereto.
"Enforceability Exception" means the limitations which may be placed on
enforceability by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and by general principles of equity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of
the Code
"Initial Notes" means the 10% subordinated notes due May 10, 2004 in an
aggregate principal amount of $1,500,000 issued by the Company, substantially
in the form of Exhibit C hereto.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Change" means a material adverse change in the business,
assets, financial condition, prospects or results of operations of the Company
and the Subsidiaries, taken as a whole.
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"Material Adverse Effect" means a material adverse effect on the business,
assets, financial condition, prospects or results of operations of the Company
and the Subsidiaries, taken as a whole.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
3(37) of ERISA.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a corporation, a partnership, limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Securities" means the Initial Notes, the Warrants and the Convertible
Notes.
"Series A Preferred Shares" means the Series A Convertible Participating
Preferred Shares, no par value, of the Company.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
"Tax" (and, with correlative meaning, "Taxes") shall include (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by the Company or any Subsidiary, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with
any interest or any penalty, addition to tax or additional amount due from, or
in respect of the Company or any subsidiary, as the case may be, imposed by any
federal, state, local or foreign governmental authority (a "Taxing Authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability of the Company or any Subsidiary for the payment of any amounts of
the type described in (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period and (iii) any liability
of the Company or any Subsidiary for the payment of any amount as a result of
being a party to any tax sharing agreement or with respect to the payment of
any amount of the type described in (i) as a result of any existing express or
implied agreement or
3
arrangement (including, but not limited to, an indemnification agreement or
arrangement).
"Title IV Plan" means an employee benefit plan, other than any
Multiemployer Plan, subject to Title IV of ERISA.
"Transaction Agreements" means this Agreement and the Amended and Restated
Investor Rights Agreement.
"Warrants" means the warrants to purchase 600,000 Common Shares,
substantially in the form of Exhibit D hereto.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
Balance Sheet 3.08
Balance Sheet Date 3.08
Company Proxy Statement 3.07
Company SEC Documents 3.06
Company 10-K 3.06
Company Securities 3.05
Company Shareholder Meeting 5.08
Convertible Closing 2.02
Convertible Closing Date 2.02
Employee Plans 3.12
GAAP 3.08
Initial Closing 2.02
Initial Closing Date 2.02
Returns 3.13
SEC Letter 3.06
ARTICLE 2
PURCHASE AND SALE
Section 2.01. Purchase And Sale. Upon the terms and subject to the
conditions of this Agreement, the Company agrees to sell to each Investor, and
each Investor severally agrees to purchase from the Company, Initial Notes,
Warrants and Convertible Notes in the amounts and at the aggregate prices set
forth opposite the names of such Investor on Schedule I hereto. The aggregate
purchase price payable by the Investors for all the Securities is $5,000,000 in
cash.
4
Section 2.02. Closings.
(a) The purchase and sale of the Initial Notes and Warrants shall take
place simultaneously with the execution and delivery of this Agreement and the
Amended and Restated Investor Rights Agreement at a closing (the "Initial
Closing") at the offices of Xxxxx Xxxx & Xxxxxxxx in New York City at 2:00 p.m.
on Wednesday March 7, 2002. The date and time of the Initial Closing are
referred to herein as the "Initial Closing Date." At the Initial Closing:
(i) each Investor shall transfer to the Company the applicable
purchase price payable by it, as set forth on Schedule I hereto, in
immediately available funds by wire transfer to an account of the Company
designated by the Company, by notice to the Investors, no later than 5:00
p.m. on Tuesday March 6, 2002;
(ii) the Company shall deliver to each Investor the Initial Notes and
Warrants, in the amounts set forth on Schedule I hereto, being purchased
by such Investor registered in the name of such Investor; and
(iii) The Amended and Restated Investor Rights Agreement shall be
executed and delivered by the parties thereto.
(b) The purchase and sale of the Convertible Notes shall take place at a
closing (the "Convertible Closing") at the offices of Xxxxx Xxxx & Xxxxxxxx in
New York City, as soon as possible, but in no event later than five business
days after satisfaction of the conditions set forth in Article 8, or at such
other time or place as the Investors and the Company may agree. The date and
time of the Convertible Closing are referred to herein as the "Convertible
Closing Date." At the Convertible Closing:
(i) each Investor shall deliver to the Company the applicable
purchase price payable by it, as set forth on Schedule I hereto, in
immediately available funds by wire transfer to an account of the Company
designated by the Company, by notice to the Investors, no later than two
business days prior to the Convertible Closing Date; and
(ii) the Company shall deliver to each Investor the Convertible
Notes, in the amounts set forth on Schedule I hereto, being purchased by
such Investor registered in the name of such Investor.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Investor as of the date
hereof and as of the Convertible Closing Date that:
5
Section 3.01. Corporate Existence And Power. (a) The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, except where the failure to have
such governmental licenses, authorizations, consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities make such qualification necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
has heretofore delivered to the Investors or their counsel true and complete
copies of the articles of incorporation and regulations of the Company as
currently in effect.
(b) Each of the Company's Subsidiaries which would qualify as a
"Significant Subsidiary" pursuant to Regulation S-X under the 1933 Act, all of
which are listed in the Company 10-K, is a business corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has the corporate power and authority to own or lease its
properties and assets and to carry on its business as it is now being
conducted, except where the failure to have such governmental licenses,
authorizations, consents and approvals would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
Section 3.02. Corporate Authorization. (a) The execution, delivery and
performance by the Company of the Transaction Agreements, the Initial Notes,
the Convertible Notes and the Warrants and the consummation by the Company of
the transactions contemplated thereby are within the Company's corporate powers
and, except for corporate authorizations and actions contemplated by this
Agreement to occur subsequent to the date hereof and prior to the Convertible
Closing, including the required approval of the Company's shareholders in
connection with issuance of the Convertible Notes, have been duly authorized by
all necessary corporate action on the part of the Company. The affirmative vote
of the holders of a majority of the total votes cast on the proposal to issue
the Convertible Notes and approval of the issuance of the Warrants to Xxxxxxxx
X. Xxx and Xxxxx X. Xxxxxxxxxx, in person or by proxy, is the only vote of the
holders of any of the Company's capital stock necessary in connection with the
transactions contemplated hereby. Each of the Transaction Agreements
constitutes a valid and binding agreement of the Company, enforceable in
accordance with their respective terms, except as the indemnification
obligation of the Company under the Amended and Restated Investor Rights
Agreement may be limited by applicable law and except for the Enforceability
Exceptions.
(b) At a meeting duly called and held, the Company's Board of Directors
has (i) determined that this Agreement and the transactions contemplated hereby
are fair to and in the best interests of the Company's
6
stockholders, (ii) approved this Agreement and the transactions contemplated
hereby, (iii) resolved to recommend approval and adoption of the issuance of
the Convertible Notes by its shareholders and (iv) resolved to reduce the
conversion price of the Series A Preferred Shares from $12.00 to $6.00
effective upon issuance of the Initial Notes; in each case, with no director
casting a vote against any of the foregoing.
(c) The Initial Notes, when executed, by the Company and issued and
delivered to and paid for by the Investors in accordance with the terms of this
Agreement, will constitute valid and binding obligations of the Company, except
for the Enforceability Exceptions.
(d) The Convertible Notes, when executed by the Company, and issued and
delivered to and paid for by the Investors in accordance with the terms of this
Agreement, will constitute valid and binding obligation of the Company, except
for the Enforceability Exceptions.
(e) The Warrants, when executed and delivered in accordance with the terms
of this Agreement, will constitute valid and binding obligations of the
Company, except for the Enforceability Exceptions.
(f) The Common Shares to be reserved for issuance upon exercise of the
Warrants or conversion of the Convertible Notes, as the case may be, have been
duly authorized by the Company and reserved for issuance upon such exercise or
conversion and, when issued upon such exercise or conversion in accordance with
the terms of the Warrants or the Convertible Notes, as the case may be, will
have been validly issued, fully paid and non-assessable, and such Common Shares
will be free of preemptive or similar rights except as set forth in the Amended
and Restated Investor Rights Agreement.
Section 3.03. Governmental Authorization; Consents. The execution,
delivery and performance by the Company of the Transaction Agreements, the
Initial Notes, the Convertible Notes and the Warrants require no action by or
in respect of, or filing with, any governmental body, agency, official or
authority other than compliance with any applicable requirements of the 1933
Act and applicable state securities laws.
(b) Except for the consent of Foothill Capital Corporation, and the waiver
of the Original Investors (as defined in the Amended and Restated Investor
Rights Agreement) set forth in Section 4.02 of the Amended and Restated
Investor Rights Agreement, and the approval of the shareholders of the Company
as contemplated by Section 5.06 hereof, no consent, approval, waiver or other
action by any Person under any contract, agreement, indenture, lease,
instrument or other document to which the Company or any Subsidiary is a party
or by which any of them is bound is required or necessary for the execution,
delivery and performance of the Transaction Agreements, the Initial Notes, the
Convertible
7
Notes and the Warrants by the Company or the consummation by the Company of the
transactions contemplated thereby.
Section 3.04. Non-contravention. The execution, delivery and performance
by the Company of the Transaction Agreements, the Initial Notes, the
Convertible Notes and the Warrants do not and will not (i) contravene or
conflict with the Amended Articles of Incorporation, or the Amended
Regulations, of the Company; (ii) assuming compliance with the matters referred
to in Section 3.03(a), contravene or conflict with or constitute a violation of
any provision of any law, regulation, judgment, injunction, order or decree
binding upon or applicable to the Company or any Subsidiary; (iii) assuming
receipt of the consent, waiver and approval referred to in Section 3.03(b),
constitute a material default under or give rise to any right of termination,
cancellation or acceleration of any material right or obligation of the Company
or any Subsidiary or to a loss of any material benefit to which the Company or
any Subsidiary is entitled under any provision of any material agreement,
contract or other instrument binding upon the Company or any Subsidiary or any
license, franchise, permit or other similar authorization held by the Company
or any Subsidiary; or (iv) result in the creation or imposition of any Lien on
any asset of the Company or any Subsidiary, except, in the case of those items
specified in (ii) or (iv) above which would not, individually or in the
aggregate, result in a Material Adverse Effect.
Section 3.05. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 Common Shares and 1,000,000 preferred shares, no par
value. As of February 28, 2002, there were outstanding 7,568,218 Common Shares,
566,933 Series A Preferred Shares, Warrants to purchase 1,003,556 Common Shares
and employee stock options to purchase an aggregate of 1,752,147 Common Shares
(of which, options to purchase an aggregate of 1,280,496 Common Shares were
exercisable). All outstanding Common Shares and Series A Preferred Shares have
been duly authorized and validly issued and are fully paid. Except (a) as set
forth in this Section 3.05 and Schedule 3.05, (b) for changes since February
28, 2002 resulting from the exercise of employee stock options outstanding on
such date and (c) for any Company Stock Plans or securities issued pursuant
thereto, there are no outstanding (i) shares of capital stock or other voting
securities of the Company, (ii) securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company or
(iii) options or other rights to acquire from the Company, and there is no
obligation of the Company to issue (other than any obligation that may arise
under the Amended and Restated Investor Rights Agreement), any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). Except as
contemplated by the Mitsui Transaction as described on Schedule 3.05 and as
contemplated by the Transaction Documents and the Company Stock Plans, there
are no outstanding obligations of the Company or any Subsidiary to issue or
deliver or to repurchase, redeem or otherwise acquire any Company securities.
8
Section 3.06. SEC Filings. The Company has delivered to each Investor or
its counsel (i) the Company's annual report on Form 10-K for its fiscal year
ended June 30, 2001 (the "Company 10-K"), (ii) its quarterly reports on Form
10-Q for its fiscal quarters ended September 30, 2001 and December 31, 2001,
respectively, (iii) its proxy or information statements relating to meetings
of, or actions taken without a meeting by, the shareholders of the Company held
since June 30, 2001, and (iv) all of its other reports, statements, schedules
and registration statements filed with the SEC since June 30, 2001 (the
documents referred to in this Section 3.06(a), collectively, the "Company SEC
Documents").
(b) Except for the deficiencies in the Company 10-K and Form S-3 filed on
October 11, 2001 set forth in that certain letter dated November 14, 2001 from
the Securities and Exchange Commission to Xxxxxx X. Xxxxxxx, Vice President and
Chief Financial Officer of the Company (the "SEC Letter"), as of its filing
date, each Company SEC Document complied as to form in all material respects
with the applicable requirements of the 1933 Act and the 1934 Act, as the case
may be.
(c) As of its filing date (or, if amended or superceded by a filing prior
to the date hereof, on the date of such filing), each Company SEC Document
filed pursuant to the 1934 Act did not, and each such Company SEC Document
filed subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.
(d) Each Company SEC Document that is a registration statement, as amended
or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date
such registration statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading.
(e) Except for an amendment to the Company 10-K, which amendment is
necessitated by the SEC Letter, since July 1, 2001, the Company and its
Subsidiaries, as applicable, have filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were required to be filed with the Commission.
(f) The Company satisfies all applicable requirements of the 1933 Act and
the 1934 Act, as the case may be, such that it is eligible to register
securities on Form S-3 for resale by the Investors.
Section 3.07. Disclosure Documents. The proxy or information statement of
the Company to be filed with the SEC in connection with the Company Shareholder
Meeting (the "Company Proxy Statement") and any amendments or supplements
thereto will, when filed, comply as to form in all material respects with the
applicable requirements of the 1934 Act. At the time the Company
9
Proxy Statement or any amendment or supplement thereto is first mailed to
shareholders of the Company, and at the time such shareholders vote on the
issuance of the Convertible Notes, the Company Proxy Statement, as supplemented
or amended, if applicable, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. The representations and warranties contained in this
Section 3.07 will not apply to statements or omissions included in the Company
Proxy Statement based upon information furnished to the Company in writing by
the Investors specifically for use therein.
Section 3.08. Financial Statements. (a) The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company SEC Documents fairly present, in conformity
with generally accepted accounting principles ("GAAP") applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended (subject to normal year-end adjustments in the case of
any unaudited interim financial statements). For purposes of this Agreement,
"Balance Sheet" means the consolidated balance sheet of the Company (and
consolidated Subsidiaries) as of December 31, 2001 set forth in the Company
10-Q and "Balance Sheet Date" means December 31, 2001.
(b) Absence of Undisclosed Liabilities. Other than liabilities disclosed,
or provided for, in the Company SEC Documents, (i) there are no liabilities of
the Company or the Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and (ii) there is
no existing condition, situation or set of circumstances which would result in
such a liability, except in the case of each of clauses (i) and (ii) for
liabilities that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.
Section 3.09. Absence of Certain Changes. Since the Balance Sheet Date,
other than as disclosed, or provided for, in the Company SEC Documents, the
Company and the Subsidiaries have conducted their businesses in the ordinary
course and there has not been:
(a) any Material Adverse Change or any event, occurrence, development or
state of circumstances or facts which would reasonably be expected to result in
a Material Adverse Change, other than those relating to the economy generally
and regulatory changes;
(b) (i) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or
(ii) any repurchase, redemption or other acquisition by the Company or any
10
Subsidiary of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any Subsidiary;
(c) any amendment of any material term of any outstanding equity security
of the Company;
(d) any (i) grant of any material severance or termination pay to (or
amendment to any existing arrangement with) any director, officer or employee
of the Company or any of its Subsidiaries, (ii) material increase in benefits
payable under any existing severance or termination pay policies or employment
agreements, (iii) entering into any employment, deferred compensation or other
similar agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any of the Subsidiaries, other
than in the ordinary course of business consistent with past practice; (iv)
establishment, adoption or amendment (except as required by applicable law) of
any collective bargaining, bonus, profit-sharing, thrift, pension, retirement,
deferred compensation, compensation, stock option, restricted stock or other
benefit plan or arrangement covering any director, officer or employee of the
Company or any of its Subsidiaries, other than in the ordinary course of
business consistent with past practice, or (v) increase in compensation, bonus
or other benefits payable to any director, officer or employee of the Company
or any of its Subsidiaries, other than in the ordinary course of business
consistent with past practice;
(e) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of the Company or any Subsidiary
which, individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect after giving effect to insurance; or
(f) any loss of a customer, client or business partner that, individually
or in aggregate, would be material to the business or financial condition of
the Company and its Subsidiaries, taken as a whole; or
(g) any change in any method of accounting or accounting practice by the
Company or any Subsidiary, except for any such change after the date hereof
required by reason of a concurrent change in or application of generally
accepted accounting principles.
Section 3.10. Litigation. Except as set forth in the Company SEC Documents
filed prior to the date hereof, there is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or, to the knowledge of the
Company, threatened against or affecting, the Company, any of the Subsidiaries,
any present or former officer, director or employee of the Company or any of
the Subsidiaries or any Person for whom the Company or any Subsidiary may be
liable or any of their respective properties before any court or arbitrator or
before or by any governmental body, agency or official, domestic, foreign or
supranational, that, if determined or resolved adversely in accordance with the
11
plaintiff's demands, would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect or that in any manner challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated hereby.
Section 3.11. Compliance with Contracts. Neither the Company nor any
Subsidiary is in default under, and no condition exists that with notice or
lapse of time or both would constitute a default under, (i) any mortgage, loan
agreement, indenture or evidence of indebtedness for borrowed money to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any material amount of their assets is bound or (ii) any
judgment, order or injunction of any court, arbitrator or governmental body,
agency, official or authority which defaults or potential defaults under either
clauses (i) or (ii), individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
Section 3.12. ERISA Representations. (a) Schedule 3.12 sets forth each
"employee benefit plan", as defined in Section 3(3) of ERISA, that (i) is
subject to any provision of ERISA, (ii) is maintained, administered or
contributed to by the Company or any of its ERISA Affiliates and (iii) covers
any employee or former employee of the Company or any Subsidiary. Such plans
are hereinafter referred to as the "Employee Plans". The Company has furnished
or made available to the Investors or their counsel copies of such plans (and,
if applicable, related trust agreements) and all amendments thereto and written
interpretations thereof together with the most recent annual report prepared in
connection with any such plan (Form 5500 including, if applicable, Schedule B
thereto). Except as set forth in Schedule 3.12, no Employee Plan is and neither
the Company nor any of its ERISA Affiliates maintains, sponsors, or is
obligated to contributed to, or has at any time maintained, sponsored or been
obligated to contribute to, a Multiemployer Plan, a Title IV Plan or an
employee benefit plan or arrangement maintained in connection with any trust
described in Section 501(c)(9) of the Code.
(b) No "prohibited transaction", as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan
excluding transactions effected pursuant to a statutory or administrative
exemption, which, assuming the taxable period of such transaction expired as of
the date hereof, when considered individually or in the aggregate with any
other such prohibited transaction, could subject the Company or any of its
Subsidiaries to a penalty or tax imposed by either Section 502(i) of ERISA or
Section 4975 of the Code in an amount which would be material.
(c) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust created under any such Employee Plan
is exempt from tax under Section 501(a) of the Code and has been so exempt
during the period from creation to date. The Company has furnished or made
available to the Investors or their counsel with the most recent determination
letters of the
12
Internal Revenue Service relating to each such Employee Plan. Each Employee
Plan has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(d) Schedule 3.12 sets forth each Benefit Arrangement. The Company has
furnished or made available to the Investors or their counsel copies or
descriptions of each Benefit Arrangement. Each Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all applicable statutes, orders, rules and regulations.
(e) Neither the Company nor any of its ERISA Affiliates has any current or
projected liability in respect of post-employment or post-retirement welfare
benefits for retired or former employees of the Company and any Subsidiary,
except as required to avoid excise tax under Section 4980B of the Code or as
previously disclosed by the Company in writing to the Investors.
(f) Except as disclosed in writing to the Investors prior to the date
hereof, there has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company or any of its ERISA
Affiliates relating to, or change in employee participation or coverage under,
any Employee Plan or Benefit Arrangement that would increase materially the
expense of maintaining such Employee Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended
prior to the date hereof.
(g) Except as set forth in Schedule 3.12, there is no contract, agreement,
plan or arrangement covering any employee or former employee of the Company or
any of its subsidiaries that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to the terms of
Section 280G of the Code, except as previously disclosed by the Company in
writing to the Investors.
(h) No material tax under Section 4980B of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.
(i) No employee or former employee of the Company or any of its ERISA
Affiliates will become entitled to any bonus, retirement, severance, job
security or similar benefit or enhancement of such a benefit solely as a result
of the transactions contemplated by this Agreement.
Section 3.13. Tax Representations. Except for liabilities and penalties
which would not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect, (i) all Tax returns, statements, reports
and forms (including estimated tax returns and reports) required to be filed
with any Taxing Authority by or on behalf of the Company or any Subsidiary
(collectively,
13
the "Returns"), have been or will be filed when due (taking into account any
extension of a required filing date) in accordance with all applicable laws
except where failure so to file would not subject the Company or any Subsidiary
to liabilities or penalties; (ii) as of the time of filing, the Returns
correctly reflected (and, as to any Returns not filed as of the date hereof,
will correctly reflect) the facts regarding the income, business, assets,
operations, activities and status of the Company, the Subsidiaries and any
other information required to be shown therein and complete in all material
respects; (iii) the Company and the Subsidiaries have timely paid, withheld or
made provision for all Taxes shown as due and payable on the Returns that have
been filed; (iv) the Company and the Subsidiaries have made or will on or
before the Initial Closing Date or the Convertible Closing Date, as the case
may be, make provision for all Taxes payable by the Company and the
Subsidiaries for any Tax period (or portion thereof) ending on or before the
Initial Closing Date or the Convertible Closing Date, as the case may be, for
which no Return has yet been filed; (v) the charges, accruals and reserves for
Taxes with respect to the Company and its Subsidiaries for any Tax period (or
portion thereof) ending on or before the Initial Closing Date or the
Convertible Closing Date, as the case may be, (excluding any provision for
deferred income taxes) reflected on the books of the Company and the
Subsidiaries are adequate to cover such Taxes; (vi) all consolidated federal
income tax Returns filed with respect to taxable years of the Company and the
Subsidiaries through the taxable year ended June 30, 1998 have been examined
and closed or are Returns with respect to which the applicable period for
assessment under applicable law, after giving effect to extensions or waivers,
has expired; (vii) neither the Company nor any Subsidiary is delinquent in the
payment of any Tax; (viii) neither the Company nor any Subsidiary (or any
member of any affiliated or combined group of which the Company or any
Subsidiary is or has been a member) has granted any extension or waiver of the
limitation period applicable to any Returns; (ix) there is no claim, audit,
action, suit, proceeding or investigation now pending or threatened against or
with respect to the Company or any Subsidiary of which the Company is aware in
respect of any Tax or assessment; (x) there are no liens for Taxes upon the
assets of the Company or any Subsidiary except liens for current Taxes not yet
due; (xi) neither the Company nor any of its Subsidiaries has any obligation
under any Tax sharing agreement, Tax allocation agreement or Tax indemnity
agreement or any other agreement or arrangement in respect of any Tax with any
Person other than the Company or its Subsidiaries; (xii) neither the Company
nor any of its Subsidiaries has been a member of an affiliated, consolidated,
combined or unitary group other than one of which the Company was the common
parent; (xiii) proper and adequate amounts have been withheld by the Company
and its Subsidiaries from their respective employees and other Persons for all
periods in compliance in all material respects with the Tax, social security
and unemployment, excise and other withholding provisions of all federal,
state, local and foreign laws; and (xiv) the Company is not now and has not
been within the past five years, a "United States Real Property Holding
Corporation" as defined in the Code and applicable Treasury regulations
thereunder.
14
Section 3.14. Insurance Coverage. The Company has insurance policies and
fidelity bonds covering its assets, business, equipment, properties,
operations, employees, officers and directors of the type and in amounts
customarily carried by Persons conducting businesses similar to those of the
Company and the Subsidiaries. All premiums due and payable under all such
policies and bonds have been paid, and the Company and the Subsidiaries are
otherwise in full compliance with the terms and conditions of all such policies
and bonds, except where the failure to have made payment or to be in full
compliance would not reasonably be expected to result in a Material Adverse
Effect.
Section 3.15. Compliance with Laws. Neither the Company nor any of the
Subsidiaries is in violation of, or has since the Balance Sheet Date violated,
any applicable provisions of any laws, statutes, ordinances, regulations,
administrative interpretations, orders, judgments, policies or decrees of any
court or governmental or administrative authority that are applicable to the
Company, any of the Subsidiaries or their respective properties, other than
violations which do not have and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. The Company and
the Subsidiaries have all permits, licenses, certificates of authority, orders
and approvals of, and have made all filings, applications and registrations
with federal, state, local or foreign governmental or regulatory bodies that
are required in order to permit them to carry on their business substantially
as presently conducted, except for such permits, licenses, certificates of
authority, orders, appraisals, filings, applications or registrations the
failure so to have or to make would not reasonably be expected to have a
Material Adverse Effect. All such permits, licenses, certificates of authority,
orders and approvals are in full force and effect, and, to the knowledge of the
Company, no suspension or cancellation of any of them is threatened, and all
such filings, applications and registrations are current in all material
respects, except for such filings, applications and registrations which the
failure to have would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.
Section 3.16. Transactions with Affiliates. Except as set forth on
Schedule 3.16, and as contemplated hereby, no director or officer of the
Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Company or any
Subsidiary, including any contract, agreement or other arrangement providing
for the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm, other
than employment-at-will arrangements or stock option agreements entered into in
the ordinary course of business.
Section 3.17. Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
15
behalf of the Company or any Subsidiary who might be entitled to any fee or
commission from the Investors, the Company or any of their respective
Affiliates upon consummation of the transactions contemplated by this
Agreement.
Section 3.18. Antitakeover Statutes. The Company has taken all action
necessary to exempt the Transaction Agreements and the purchase of the
Securities or the transactions contemplated thereby from Section 1701.831 of
the Ohio Revised Code, and, accordingly, neither such Section nor any other
antitakeover or similar statute or regulation applies or purports to apply to
any such transactions. No other "control share acquisition," "fair price,"
"moratorium" or other antitakeover laws or regulations enacted under U.S. state
or federal laws apply to the Transaction Agreements and the purchase of the
Securities or any of the transactions contemplated thereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Each Investor, severally and not jointly, represents and warrants to the
Company as of the date hereof and as of the Convertible Closing Date that:
Section 4.01. Organization And Existence. Each Investor (other than
Xxxxxxxx X. Xxx and Xxxxx X. Xxxxxxxxxx) is a limited partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
Section 4.02. Authorization. The execution, delivery and performance by
Investor of the Transaction Agreements and the consummation by Investor of the
transactions contemplated thereby are within the powers of Investor and have
been duly authorized by all necessary action on the part of Investor. Each
Transaction Agreement constitutes a valid and binding agreement of each
Investor a party thereto, enforceable against such Investor in accordance with
their respective terms, except for the Enforceability Exceptions.
Section 4.03. Governmental Authorization. The execution, delivery and
performance by Investor of the Transaction Agreements require no action by or
in respect of, or filing with, any governmental body, agency, official or
authority other than compliance with any applicable requirements of the 1933
Act and applicable state securities laws.
Section 4.04. Non-contravention. The execution, delivery and performance
by Investor of the Transaction Agreements do not and will not (i) contravene or
conflict with any agreement of limited partnership of such Investor (other than
Xxxxxxxx X. Xxx and Xxxxx X. Xxxxxxxxxx) (ii) assuming compliance with the
matters referred to in Section 4.03, contravene or conflict with or
16
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to Investor or (iii)
contravene any agreement, contract or other instrument of Investor, except, in
the case of those items specified in (ii) or (iii) above which would not,
individually or in the aggregate, either result in a material adverse effect on
the assets or financial condition of Investor and its subsidiaries, if any,
taken as a whole, or entitle any party to challenge or hinder the transactions
contemplated hereby.
Section 4.05. Finders' Fees. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Investor who might be entitled to any fee or commission from
Investor, the Company or any of their respective Affiliates upon consummation
of the transactions contemplated by this Agreement.
Section 4.06. Financing. Investor will have at the Initial Closing and the
Convertible Closing sufficient funds available to purchase the Securities
allocated to such Investor.
Section 4.07. Purchased for Investment. (a) Investor is an "accredited
investor" within the meaning of Rule 501 under the 1933 Act and Investor was
not organized for the specific purpose of acquiring the Securities (including
the Common Shares issuable upon exercise or conversion of the Securities);
(b) Investor has sufficient knowledge and experience in investing in
companies similar to the Company so as to be able to evaluate the risks and
merits of its investment in the Company and Investor is able financially to
bear the risks thereof;
(c) Investor has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management and to obtain
whatever information concerning the Company and the Securities (including the
Common Shares issuable upon exercise or conversion of the Securities) as has
been requested by Investor in order to make its investment decision with
respect to the Securities (including the Common Shares issuable upon exercise
or conversion of the Securities);
(d) the Securities (including the Common Shares issuable upon exercise or
conversion of the Securities) being purchased by Investor are being acquired
for its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof;
(e) Investor understands that (i) the Securities (including the Common
Shares issuable upon exercise or conversion of the Securities) have not been
registered under the 1933 Act and are being sold and issued to Investor in
reliance upon an exemption from the registration requirements of the 1933 Act
pursuant to Section 4(2) thereof or Rule 506 promulgated under the 1933 Act and
under applicable state securities laws, (ii) the Securities (including the
Common Shares
17
issuable upon exercise or conversion of the Securities) must be held
indefinitely unless a subsequent disposition thereof is registered under the
1933 Act and under applicable state securities laws or is exempt from such
registration, (iii) the Securities (including the Common Shares issuable upon
exercise or conversion of the Securities) will bear a legend to such effect,
and (iv) the Company will make a notation on its transfer books to such effect.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
Section 5.01. Access to Information. From the date hereof until the
Convertible Closing Date, the Company (a) will give, and will cause each
Subsidiary to give, the Investors, their counsel, financial advisors, auditors
and other authorized representatives reasonable access to the offices,
properties, books and records of the Company and the Subsidiaries, (b) will
furnish, and will cause each Subsidiary to furnish, to the Investors, their
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to the Company and
the Subsidiaries as such Persons may reasonably request and (c) will instruct
the employees, counsel and financial advisors of the Company and the
Subsidiaries to cooperate in all reasonable respects with the Investors in
their investigation of the Company and the Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by the Company hereunder. Notwithstanding the foregoing, the
Investors shall not have access to personnel records of the Company or any
Subsidiary relating to individual performance or evaluation records, medical
histories or other information which in the Company's good faith opinion is
sensitive or the disclosure of which could subject the Company to risk of
liability.
Section 5.02. Notices of Certain Events. The Company shall promptly notify
Investors of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced
or, to the Company's knowledge, threatened against, relating to or involving or
otherwise affecting the Company or any Subsidiary that, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
18
Section 3.10 or 3.13 or that relate to the consummation of the transactions
contemplated by this Agreement.
Section 5.03. Use of Proceeds. The Company shall use the proceeds from the
sale of the Securities solely for working capital and general business
purposes.
Section 5.04. Corporate Governing Documents. The Company shall at all
times maintain provisions in its code of regulations and/or articles of
incorporation indemnifying all directors and officers against liability and
absolving all directors and officers from liability to the Company and its
shareholders to the maximum extent permitted under the laws of the State of
Ohio.
Section 5.05. Restrictive Agreements Prohibited. After the date hereof,
except for modifications to the Foothill Capital Corporation loan documents,
the Company shall not become a party to any agreement which by its terms
restricts the Company's performance of any of the Transaction Agreements, the
Initial Notes, the Convertible Notes, the Warrants or the Company's Amended
Articles of Incorporation.
Section 5.06. Shareholder Approval. The Company shall use its reasonable
best efforts to obtain approval of the Company's shareholders and to take such
other action in accordance with Ohio law as required to allow the issuance of
the Convertible Notes and issuance of the Warrants to Xxxxxxxx X. Xxx and Xxxxx
X. Xxxxxxxxxx and approval of the transactions as contemplated hereby.
Section 5.07. Additional Warrants. If the Company, by dividend to holders
of the Common Shares, transfers ownership of all or a part of any Subsidiary to
shareholders of the Company, then promptly after the effective date of such
dividend the Company shall issue to the holders of any Warrants then
outstanding subsequent to such dividend additional warrants to purchase common
shares in such Subsidiary having substantially the same terms and conditions as
the Warrants except as provided in this Section 5.07. The number of common
shares of such Subsidiary covered by the additional warrants issued to each
such holder shall be sufficient to give the holder the same percentage
ownership in the outstanding common shares (calculated on a fully diluted
basis) of the Subsidiary that such holder has in the outstanding Common Shares
(calculated on a fully diluted basis) under the Warrants as of the effective
date of the dividend. The exercise price of each such additional warrant shall
be a xxxxx.
Section 5.08. Shareholder Meeting; Proxy Material. The Company shall cause
a meeting of its shareholders (the "Company Shareholder Meeting") to be duly
called and held as soon as reasonably practicable for the purpose of voting on
the approval of this Agreement, the issuance of the Convertible Notes to the
Investors and the issuance of the Warrants to Xxxxxxxx X. Xxx and Xxxxx X.
Xxxxxxxxxx. The Board of Directors of the Company shall recommend approval
19
by the Company's shareholders of this Agreement and issuance of the Convertible
Notes. In connection with such meeting, the Company will (i) promptly prepare
and file with the SEC, use its best efforts to have cleared by the SEC and
thereafter mail to its stockholders as promptly as practicable the Company
Proxy `Statement and all other proxy materials for such meeting, (ii) use its
best efforts to obtain the necessary approvals by its shareholders of this
Agreement and the transactions as contemplated hereby and (iii) otherwise
comply with all legal requirements applicable to such meeting.
Section 5.09. SEC Obligations. The Company shall use its reasonable best
efforts to correct as promptly as practicable the deficiencies in the Company
10-K raised by the SEC Letter.
ARTICLE 6
COVENANTS OF INVESTORS
Each Investor agrees that:
Section 6.01. Notices of Certain Events. Investor shall promptly notify
the Company of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(c) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge threatened against, relating to or involving or otherwise
affecting Investor that relate to the consummation of the transactions
contemplated by this Agreement.
Section 6.02. Confidentiality. Investors shall keep confidential any
information (unless readily ascertainable from public information sources,
otherwise required by law to be disclosed or necessary in connection with any
litigation among the parties hereto) obtained from the Company and/or the
Subsidiaries in connection with the transactions contemplated by the
Transaction Agreements. The confidentiality obligations of Investors shall not
be construed to prevent an Investor from disclosing information concerning the
Company and the Subsidiaries, the Transaction Agreements, the Initial Notes,
the Convertible Notes or the Warrants to its respective employees, officers,
directors, partners (general and limited), counsel, accountants, professional
advisors and regulatory authorities if the Investor making such disclosure
takes reasonable measures to ensure that such confidential information is not
misused by the recipients thereof
20
and the recipients otherwise abide by the restrictions on disclosure imposed on
the Investor hereunder as if such restrictions were imposed directly on the
recipients.
Section 6.03. Voting of Shares. Each Investor agrees to vote any Common
Shares and Series A Preferred Shares beneficially owned by it in favor of
approval of this Agreement, issuance of the Convertible Notes to the Investors
and issuance of the Warrants to Xxxxxxxx X. Xxx and Xxxxx X. Xxxxxxxxxx at the
Company Shareholder Meeting.
ARTICLE 7
COVENANTS OF ALL PARTIES
The parties hereto agree that:
Section 7.01. Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to satisfy all
conditions to closing set forth in Article 8 of this Agreement applicable to
such party and to consummate the transactions contemplated by this Agreement.
The Company and each Investor agree to execute and deliver such other
documents, certificates, agreements and other writings and to take such other
actions as may be necessary or desirable in order to consummate or implement
expeditiously the transactions contemplated by this Agreement.
Section 7.02. Certain Filings; NASDAQ Listing. The Company and the
Investors shall cooperate with one another (a) in connection with the
preparation of the Company Proxy Statement, (b) in determining whether any
actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement, (c) in taking such actions or
making any such filings, furnishing information required in connection
therewith or with the Company Proxy Statement and seeking timely to obtain any
such actions, consents, approvals or waivers, and (d) in causing the Common
Shares underlying the Convertible Notes and the Warrants to be listed on the
NASDAQ Stock Market in accordance with the rules and regulations of the NASDAQ
Stock Market.
Section 7.03. Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except
as may be required by applicable law or any listing agreement with any national
securities exchange or The Nasdaq Stock Market, Inc., will not issue any such
press release or make any such public statement prior to such consultation.
21
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.01. Conditions to The Obligations of Each Party. The several
obligations of the Investors and the Company to consummate the Initial Closing
and the Convertible Closing are subject to the satisfaction of the following
conditions:
(a) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Initial
Closing or the Convertible Closing, as the case may be; and
(b) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Initial Closing or the Convertible Closing, as the case may be, shall have
been instituted by any governmental body, agency, official or authority or any
Person before any court, arbitrator or governmental body, agency or official
and be pending.
Section 8.02. Conditions to Obligation of Investors. The obligations of
the Investors to consummate the Convertible Closing are subject to the
satisfaction of the following further conditions:
(a) (i) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it on or prior to the
Convertible Closing Date, (ii) the representations and warranties of the
Company contained in this Agreement and in any certificate or other writing
delivered by the Company pursuant hereto shall be true in all material respects
at and as of the Convertible Closing Date, as if made at and as of such date
(except for such that refer to an earlier date) and (iii) Investors shall have
received a certificate signed by an executive officer of the Company to the
foregoing effect;
(b) The Amended and Restated Investors Rights Agreement shall have been
executed and delivered by the Company and the Investors;
(c) Investors shall have completed their business, financial, legal and
technical due diligence to their reasonable satisfaction;
(d) The Company's shareholders shall have approved the issuance of the
Convertible Notes and the issuance of the Warrants to Xxxxxxxx X. Xxx and Xxxxx
X. Xxxxxxxxxx and the transactions as contemplated hereby;
(e) Any regulatory consents or approvals required in connection with the
transactions contemplated by this Agreement shall have been received and not
withdrawn;
22
(f) Any consent of Foothill Capital Corporation required in connection
with the transactions contemplated by this Agreement shall have been received
and not withdrawn;
(g) The investment committees of each of MSDW Venture Partners IV, Inc.
and its Affiliates and Fallen Angel Equity Fund, L.P. shall have approved the
transactions contemplated by this Agreement;
(h) The number of directors constituting the entire Board of Directors
shall be eight (8) and the following persons shall have been elected as
directors and shall hold such position as of the Convertible Closing Date: Xxx
xx Xxxxxx, Xxxxx Xxxxxxxxx and Xxxxxxxx Xxx;
(i) Investors shall have received an opinion of Vorys, Xxxxx, Xxxxxxx and
Xxxxx LLP, counsel to the Company, dated the Convertible Closing Date in
reasonable and customary form. In rendering such opinions, counsel may rely
upon certificates of public officials, and as to matters of fact, upon
certificates of officers of the Company and the Subsidiaries; and
(j) Investors shall have received all documents they may reasonably
request relating to the existence of the Company and the Subsidiaries and the
authority of the Company to execute and perform this Agreement, all in form and
substance reasonably satisfactory to the Investors.
Section 8.03. Conditions to Obligation of The Company. The obligation of
the Company to consummate the Convertible Closing is subject to the
satisfaction of the following further conditions:
(a) (i) Investors shall have performed in all material respects all of
their obligations hereunder required to be performed by them at or prior to the
Convertible Closing Date, and (ii) the representations and warranties of the
Investors contained in this Agreement and in any certificate or other writing
delivered by Investors pursuant hereto shall be true in all material respects
at and as of the Convertible Closing Date, as if made at and as of such date
(except for such that refer to an earlier date);
(b) Each Investor shall have signed the Amended and Restated Investor
Rights Agreement.
(c) The Transaction Agreements, the Initial Note, the Convertible Note and
the Warrants (and the transactions contemplated thereby) shall have been
approved by the Board of Directors of the Company.
(d) The Company's shareholders shall have approved the issuance of the
Convertible Notes and the issuance of the Warrants to Xxxxxxxx X. Xxx and Xxxxx
X. Xxxxxxxxxx and the transactions as contemplated hereby;
23
(e) Any regulatory consents or approvals required in connection with the
transactions contemplated by this Agreement shall have been received and not
withdrawn; and
(f) Any consent of Foothill Capital Corporation required in connection
with the transactions contemplated by this Agreement shall have been received
and not withdrawn.
ARTICLE 9
SURVIVAL
Section 9.01. Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement or in any
certificate or other writing delivered pursuant hereto or in connection
herewith shall survive the Initial Closing and the Convertible Closing. The
representations and warranties of the parties hereto contained in this
Agreement shall be deemed made only as of the date hereof and as of the
Convertible Closing Date, in each case unless a different date is specified in
the representation and warranty.
ARTICLE 10
TERMINATION
Section 10.01. Grounds for Termination. This Agreement shall terminate
upon any party giving notice of the termination of this Agreement as a result
of the occurrence of any of the following:
(a) by mutual written agreement of the Company and Investors having 75% or
more of the total commitment to purchase the Securities;
(b) if the Convertible Closing shall not have been consummated on or
before August 31, 2002; or
(c) prior to the Convertible Closing if after the date hereof there shall
be any law or regulation enacted or promulgated that makes consummation of the
transactions contemplated hereby illegal or otherwise prohibited or if
consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or governmental body
having competent jurisdiction;
The party desiring to terminate this Agreement pursuant to this Section
10.01 shall give notice of such termination to the other parties.
Section 10.02. Effect of Termination. If this Agreement is terminated as
permitted by Section 10.01, such termination shall be without liability of any
such party (or any shareholder, director, officer, employee, agent, consultant
or
24
representative of such party) to the other parties to this Agreement; provided
that if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of any other party or
to perform a covenant of this Agreement or from a willful breach by any party
to this Agreement, such party shall be fully liable for any and all damages
incurred or suffered by the other parties as a result of such failure or
breach. The provisions of Section 6.02, 7.03, 10.02, 11.03 and 11.05 shall
survive any termination hereof pursuant to Section 10.01.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Notices. All notices, requests and other communications to
either party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to the Company, to:
Frontstep, Inc.
0000 Xxxxxxxxx Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxx 00000
Attention: Corporate Counsel
Telecopy: (000) 000-0000
with a copy to:
Xxxxx X. Xxxxxxx, Esq.
Vorys, Xxxxx, Xxxxxxx and Xxxxx LLP
00 Xxxx Xxx Xxxxxx
Xxxxxxxx, Xxxx 00000-0000
Telecopy: (000) 000-0000
if to an Investor, to its address set forth on the signature pages hereto:
with copies to:
Xxxx X. Xxxx, Esq.
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxx.
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Section 11.02. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by each Investor and the
25
Company, or in the case of a waiver, by the party against whom the waiver is to
be effective.
(b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 11.03. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such cost or expense; provided that the Company shall
reimburse the Investors for their reasonable fees and expenses for due
diligence and other out-of-pocket expenses, including the fees and expenses of
Xxxxx Xxxx & Xxxxxxxx. In furtherance, and not in limitation of the foregoing,
the Company shall as promptly as practicable enter into discussions with AIG
and its Affiliates regarding expanding the Company's insurance coverage to
include insurance for losses from third party claims which the Investors may
incur in connection with this Agreement and the transactions contemplated
hereby. The Company shall use its reasonable best efforts to obtain such
coverage as promptly as is practicable and if it obtains such additional
insurance it will reimburse the Investors to the extent of such insurance for
their reasonable fees and expenses and any losses arising in connection with
any third party claims brought against the Investors in connection with this
Agreement and the transactions contemplated hereby.
Section 11.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
Section 11.05. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Ohio.
Section 11.06. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
Section 11.07. Entire Agreement. The Transaction Agreements, the Initial
Notes, the Convertible Notes and the Warrants constitute the entire agreement
between the parties with respect to the subject matter hereof (other than a
writing which specifically states that it shall not be subject
26
to this Section 11.07) and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of the Transaction Agreements, the Initial Notes, the
Convertible Notes and the Warrants (other than a writing which specifically
states that it shall not be subject to this Section 11.07). No representation,
inducement, promise, understanding, condition or warranty not set forth herein
has been made or relied upon by any party hereto. Neither this Agreement nor
any provision hereof is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
Section 11.08. Specific Performance. Each of the parties hereto agrees
that any breach by it of any provision of this Agreement would irreparably
injure the other party and that money damages would be an inadequate remedy
therefor. Accordingly, each of the parties hereto agrees that the other party
shall be entitled to one or more injunctions enjoining any such breach or
requiring specific performance of this Agreement and consents to the entry
thereof, this being in addition to any other remedy to which the non-breaching
party is entitled at law or in equity.
Section 11.09. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
27
IN WITNESS WHEREOF, the parties hereto here caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
FRONTSTEP, INC.
By: /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Vice President and
Chief Financial Officer
Investors:
XXXXXX XXXXXXX XXXX XXXXXX VENTURE
PARTNERS IV, X.X.
XXXXXX XXXXXXX XXXX XXXXXX VENTURE
INVESTORS IV, X.X.
XXXXXX XXXXXXX XXXX XXXXXX VENTURE
OFFSHORE INVESTORS IV, L.P.
By: MSDW Venture Partners IV, L.L.C.
as General Partner of the above
limited partnerships
By: MSDW Venture Capital IV, Inc.,
as Member
By: /s/ Xxx xx Xxxxxx
-----------------------------------
Name: Xxx xx Xxxxxx
Title: Managing Director
Address: 0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
FALLEN ANGEL EQUITY FUND, L.P.,
By: Fallen Angel Capital, L.L.C.,
as its General Partner
By: Xxxxx Xxxxxxxxx, as Member
By: /s/ Xxxxx Xxxxxxxxx
-----------------------------------
Name: Xxxxx Xxxxxxxxx
Title: Member
Address: 000 Xxxx Xxxx Xxxx
Xxx xxxx, Xxx Xxxxxx 00000
Fax: 000-000-0000
/s/ Xxxxxxxx X. Xxx
--------------------------------------
Xxxxxxxx X. Xxx
Address: 00000 Xxxxxxxxx Xxxxx Xxxx
Xxxxxx, Xxxx 00000
Fax: 000-000-0000
/s/ Xxxxx X. Xxxxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxxxx
Address: 00 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxx, Xxxx 00000
Fax: 000-000-0000
SCHEDULE I
Investors
Purchase
Principal Price Principal Purchase
Amount of Paid for Amount of Price Paid
Initial Number of Initial Convertible for
Notes Warrants Notes and Notes to be Convertible
Name of Investor Purchased Purchased Warrants Purchased Notes
------------------------------------------ --------- --------- --------- ----------- -----------
(a) Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture
Partners IV, L.P.......................... $550,131 220,052 $550,131 $1,283,639 $1,283,639
(b) Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture
Investors IV, L.P......................... $63,824 25,530 $63,824 $148,923 $148,923
(c) Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture
Offshore Investors IV, L.P................ $21,463 8,585 $21,463 $50,080 $50,080
(d) Fallen Angel Equity Fund, L.P............. $264,582 105,833 $264,582 $617,358 $617,358
(e) Xxxxxxxx X. Xxx........................... $450,000 180,000 $450,000 $1,050,000 $1,050,000
(f) Xxxxx X. Xxxxxxxxxx....................... $150,000 60,000 $150,000 $350,000 $350,000
EXHIBIT A
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
among
FRONTSTEP, INC.,
THE SEVERAL INVESTORS NAMED IN SCHEDULE I
and
THE SHAREHOLDERS NAMED HEREIN
Dated as of March 7, 2002
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions....................................................2
ARTICLE 2
SECURITIES TRANSFER RESTRICTIONS
Section 2.01. Restrictive Legends............................................4
Section 2.02. Notice Of Proposed Transfer....................................5
Section 2.03. Termination Of Restrictions....................................5
Section 2.04. Non-applicability Of Restrictions On Transfer..................6
Section 2.05. Shareholder Sales..............................................6
ARTICLE 3
INFORMATION RIGHTS
Section 3.01. Financial Statements, Reports, Etc.............................6
Section 3.02. Inspection, Consultation And Advice............................8
Section 3.03. Confidentiality Agreement......................................8
ARTICLE 4
PRE-EMPTIVE RIGHTS AND WAIVERS
Section 4.01. Pre-Emptive Rights.............................................9
Section 4.02. Waivers.......................................................10
ARTICLE 5
REGISTRATION RIGHTS
Section 5.01. Registration On Form S-3......................................11
Section 5.02. Incidental Registration.......................................12
Section 5.03. Registration Procedures.......................................12
Section 5.04. Expenses......................................................15
Section 5.05. Rule 144 Requirements.........................................16
Section 5.06. Investors' Information........................................16
Section 5.07. Transfer Of Registration Rights...............................16
Section 5.08. Hold-back Agreement...........................................16
Section 5.09. Other Shareholders............................................17
i
ARTICLE 6
INDEMNIFICATION
Section 6.01. Indemnification...............................................17
ARTICLE 7
TAG-ALONG RIGHTS
Section 7.01. Tag-along Right...............................................19
Section 7.02. Notice Of Intent To Participate...............................19
Section 7.03. Sale Of Tag-along Shares......................................19
ARTICLE 8
REPRESENTATION RIGHTS
Section 8.01. Board Of Directors............................................20
Section 8.02. Voting........................................................21
ARTICLE 9
MISCELLANEOUS
Section 9.01. Term Of Agreement.............................................23
Section 9.02. Severability; Governing Law...................................23
Section 9.03. Injunctive Relief.............................................24
Section 9.04. Binding Effect................................................24
Section 9.05. Modification Or Amendment.....................................24
Section 9.06. Aggregation...................................................24
Section 9.07. Counterparts..................................................24
Section 9.08. Notices.......................................................24
Section 9.09. Entire Agreement..............................................25
SCHEDULE I - Original Investors
SCHEDULE II - 2002 Investors
ii
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT, dated as of March 7, 2002
among FRONTSTEP, INC. (formerly known as Symix Systems, Inc.), an Ohio
corporation (the "Company"), the several investors named in the attached
Schedule I (such investors the "Original Investors"), Xxxxxxxx X. Xxx (the
"Shareholder") and Xxxxx X. Xxxxxxxxxx ("Xx. Xxxxxxxxxx," together with the
Shareholder, the "Shareholders")
WHEREAS, on May 10, 2000 the Original Investors purchased an aggregate of
566,933 shares of the authorized but unissued Series A Convertible
Participating Preferred Shares, without par value, of the Company (the
"Preferred Shares"), which are convertible into common shares, without par
value, of the Company (the "Common Shares ") and warrants (the "Original
Warrants") to purchase an aggregate of 453,546 shares of the authorized but
unissued Common Shares and entered into with the Company and the Shareholder
that certain Investor Rights Agreement (the "Original Investor Rights
Agreement") providing for, inter alia, the ability of the Original Investors to
purchase and/or participate in subsequent sales of equity securities of the
Company by the Company or the Shareholder;
WHEREAS, the Company wishes to issue and sell to the several investors
named in the attached Schedule II (the "2002 Investors") $1,500,000 of 10%
subordinated notes due 2004 (the "Initial Notes") and warrants (the "2002
Warrants") to purchase an aggregate of 600,000 shares of the authorized but
unissued Common Shares pursuant to a Securities Purchase Agreement dated March
7, 2002 (the "Securities Purchase Agreement");
WHEREAS, the Company wishes to issue and sell to the 2002 Investors
$3,500,000 of 10% subordinated convertible notes due 2004 (the "Convertible
Notes"), which are convertible into Common Shares, pursuant to the Securities
Purchase Agreement;
WHEREAS, one of the conditions to the investment in the Company by the
2002 Investors is the execution of this Amended and Restated Investor Rights
Agreement providing for, inter alia, the ability of the 2002 Investors to
purchase and/or participate in subsequent sales of equity securities of the
Company by the Company on a pro rata basis based upon the amount of Registrable
Stock (as defined below) held by such 2002 Investor; and
WHEREAS, the Company and Original Investors holding more than seventy-five
percent (75%) of the Common Shares (as defined below) issued or issuable upon
conversion of any Restricted Securities (as defined in the Original
Investor Rights Agreement) have approved this Amended and Restated Investor
Rights Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and the investment by the 2002 Investors pursuant to the
Securities Purchase Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"Affiliate" shall mean any entity controlling, controlled by or under
common control with a designated Person. For the purposes of this definition,
"control" shall have the meaning specified for that word in Rule 405
promulgated by the Securities and Exchange Commission under the Securities Act.
"Commission" shall mean the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended prior
or after the date hereof, or any federal statute or statutes which shall have
been enacted to take the place of such Act, together with all rules and
regulations promulgated thereunder.
"FAEF" means Fallen Angel Equity Fund, L.P.
"Holder" means the Persons who shall, from time to time, own of record any
Restricted Security.
"Investor" means any Original Investor or 2002 Investor.
"MSDW Investor" means any of Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture Partners
IV, L.P., Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture Investors IV, L.P., Xxxxxx Xxxxxxx
Xxxx Xxxxxx Venture Offshore Investors IV, L.P. or Xxxxxx Xxxxxxx Xxxx Xxxxxx
Equity Funding, Inc.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a trust, an unincorporated organization or a government
organization or an agency or political subdivision thereof.
"Registrable Stock" shall mean (A) all Common Shares held by the Original
Investors from time to time, including all of the Common Shares into
2
which the Preferred Shares, the Initial Notes or the Convertible Notes may be
converted and for which the Original Warrants or the 2002 Warrants may be
exercised and (B) any Common Shares held by the Shareholders which Common
Shares were received upon conversion of the Initial Notes, the Convertible
Notes or exercise of the 2002 Warrants; provided, however, that such Common
Shares shall only be treated as Registrable Stock if and so long as they have
not been (i) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (ii) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions and
restrictive legends with respect to such Common Shares are removed upon the
consummation of such sale.
"Registration Statement" shall mean a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form X-0, Xxxx X-0, or
successor forms, or any registration statement covering only securities
proposed to be issued in exchange for securities or assets of another
corporation).
"Restricted Security" means any of the Preferred Shares, Initial Notes,
Convertible Notes, Original Warrants, 2002 Warrants or the Common Shares
issuable upon conversion of the Preferred Shares, Initial Notes or Convertible
Notes or exercise of the Original Warrants or 2002 Warrants to the extent such
securities are not registered under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended prior to or
after the date hereof, or any federal statute or statutes which shall be
enacted to take the place of such Act, together with all rules and regulations
promulgated thereunder.
"Transfer" means any direct or indirect sale, transfer, assignment, pledge
or other disposition (whether with or without consideration and whether
voluntary or involuntary or by operation of law). Derivatives thereof will be
similarly defined.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
---- -------
2002 Investors Preamble
2002 Warrants Preamble
Common Shares Preamble
Company Preamble
Original Investors Preamble
3
Term Section
---- -------
Original Investors Rights Agreement Preamble
Original Warrants Preamble
Preferred Shares Preamble
Securities Purchase Agreement Preamble
Shareholder Preamble
Shareholders Preamble
LLC 2.04
Board of Directors 4.01(a)(ii)
Notice Period 4.01(a)(iii)
right of overallotment 4.01(a)(iii)
FSP 5.09(c)
Mitsui Transaction 5.09(c)
Indemnified Person 6.01(a)
Company Indemnified Person 6.01(b)
indemnified party 6.01(c)
Proposed Transferee 7.01
Tag-Along Shares 7.01
Change in Control Liquidation Event 9.01(a)(ii)
ARTICLE 2
SECURITIES TRANSFER RESTRICTIONS
Each Holder agrees that Restricted Securities shall not be Transferable
except upon the conditions specified in this Article 2, which conditions are
intended to insure compliance with the provisions of the Securities Act and
state securities laws in respect of the Transfer of any Restricted Security.
Shareholder agrees that Common Shares, Convertible Notes and 2002 Warrants held
by him shall not be Transferable except upon compliance with the conditions
specified in Section 2.05 and Article 7 hereof.
Section 2.01. Restrictive Legends.
(a) Unless and until otherwise permitted by this Article 2, each
certificate for a Restricted Security issued to a Holder, or to any subsequent
transferee of such certificate shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR
SOLD EXCEPT IN COMPLIANCE
4
THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH IN THE AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT DATED AS OF MARCH 7, 2002, COPIES OF
WHICH MAY BE OBTAINED UPON REQUEST FROM THE COMPANY."
The Company may order the transfer agent for any Restricted Security to
stop the Transfer of any Restricted Security bearing the legend set forth in
subsection (a) of this Section 2.01 until the conditions of this Article 2 with
respect to the Transfer of such security have been satisfied.
Section 2.02. Notice Of Proposed Transfer. If, prior to any Transfer of
any Restricted Security, the Holder desiring to effect such Transfer delivers
to the Company a written notice describing briefly the manner of such Transfer
and a written opinion of counsel for such Holder (who may be inside counsel in
the case of an institutional holder), provided that such counsel and the form
and substance of such opinion are reasonably satisfactory to the Company, or
counsel for the Company, to the effect that such Transfer may be effected
without the registration of such securities under the Securities Act or
registration or qualification under applicable state securities laws or
regulations, the Company shall thereupon permit or cause its transfer agent (if
any) to permit such Transfer to be effected; provided, that if in such written
notice the transferring Holder represents and warrants to the Company that the
Transfer is to (i) an Affiliate of the Holder or (ii) a purchaser or transferee
whom the transferring holder knows or reasonably believes to be a "qualified
institutional buyer", as that term is defined in Rule 144A promulgated under
the Securities Act, then in each such case, no opinion shall be required.
Section 2.03. Termination Of Restrictions.
(a) Notwithstanding the foregoing provisions of this Article 2, the
restrictions imposed by this Article 2 upon the Transferability of Restricted
Securities shall terminate as to any particular Restricted Security when (i)
such Restricted Security shall have been effectively registered under the
Securities Act and sold by the Holder thereof in accordance with such
registration; (ii) a written opinion of counsel for the Holder thereof
(provided that such counsel, and the form and substance of such opinion, are
reasonably satisfactory to the Company) or counsel for the Company to the
effect that such restrictions are no longer required or necessary under any
federal or state securities law or regulation has been received by the Company;
(iii) such Restricted Security shall have been sold without registration under
the Securities Act in compliance with Rule 144 promulgated by the Commission
under the Securities Act and the Company is reasonably satisfied that the
Holder of the Restricted Security, in accordance with the terms of subsection
(k) of Rule 144 promulgated by the Commission under the
5
Securities Act, shall be entitled to sell such securities pursuant to such
subsection; or (iv) a letter or an order shall have been issued to the Holder
thereof by the staff of the Commission or the Commission in form and substance
reasonably satisfactory to the Company, stating that no enforcement action
shall be recommended by such staff or taken by the Commission, as the case may
be, if such Restricted Security is transferred without registration under the
Securities Act in accordance with the conditions set forth in such letter or
order and such letter or order specifies that no restrictions on Transfer are
required.
(b) Whenever the restrictions imposed by this Article 2 shall terminate,
as herein above provided, the Holder of any Restricted Securities then
outstanding as to which such restrictions shall have terminated shall be
entitled to receive from the Company, without expense to such Holder, one or
more new certificates for the Restricted Securities so held not bearing the
restrictive legend set forth in Subsection (a) of Section 2.01 hereof, as
applicable.
Section 2.04. Non-applicability Of Restrictions On Transfer.
Notwithstanding the provisions of Section 2.02 hereof, any Holder may from time
to time Transfer all or part of such Holder's Restricted Securities to (i) a
nominee identified in writing to the Company as being the nominee of or for
such Holder, and any nominee of or for a beneficial owner of Restricted
Securities identified in writing to the Company as being the nominee of or for
such beneficial owner may from time to time Transfer all or part of the
Restricted Securities registered in the name of such nominee but held as
nominee on behalf of such beneficial owner, to such beneficial owner, (ii) to
an Affiliate of such Holder, or (iii) if such Holder is a partnership, limited
liability company ("LLC"), or the nominee of a partnership or an LLC, to a
partner, retired partner, or estate of a partner or retired partner, of such
partnership or a member, retired member, or estate of a member or retired
member of such LLC, so long as such Transfer is in accordance with the
transferee's interest in such partnership or LLC and is without consideration;
provided, that each such transferee referred to in clauses (i), (ii) and (iii)
above shall remain subject to all restrictions on the Transfer of the
Restricted Securities herein contained and shall agree in writing to be bound
by the other terms and conditions of this Agreement.
Section 2.05. Shareholder Sales. Prior to March 31, 2002, Shareholder
agrees not to Transfer any Common Shares (or any derivative thereof) that he
beneficially owns.
ARTICLE 3
INFORMATION RIGHTS
Section 3.01. Financial Statements, Reports, Etc. The Company shall
furnish to each Investor:
6
(a) within ninety (90) days after the end of the last quarter in each
fiscal year audited consolidated financial statements of the Company including
a balance sheet of the Company, if any, and the related statements of income,
shareholders' equity and cash flows, prepared in accordance with generally
accepted accounting principles, provided that, the Company may comply with this
provision by delivering to each Investor a copy of its annual report on Form
10-K for such fiscal year;
(b) within forty-five (45) days after the end of each quarter in each
fiscal year (other than the last quarter in each fiscal year) a balance sheet
of the Company, if any, and the related statements of income, shareholders'
equity and cash flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial Officer of
the Company, such balance sheet to be as of the end of such quarter and such
statements of income, shareholders' equity and cash flows to be for such
quarter and for the period from the beginning of the fiscal year to the end of
such quarter, in each case with comparative statements for the prior fiscal
year, provided that, the Company may comply with this provision by delivering
to each Investor a copy of its quarterly report on Form 10-Q for such quarter;
(c) within thirty (30) days after the end of each month in each fiscal
year (other than the last month in each quarter) a summary balance sheet of the
Company and the related summary statements of income, shareholder's equity and
cash flows, unaudited but prepared in accordance with generally accepted
accounting principles;
(d) at the time of delivery of each quarterly statement pursuant to
Section 3.01(b), a management narrative report explaining all significant
variances from forecasts and all significant current developments in staffing,
marketing, sales and operations;
(e) no later than thirty (30) days prior to the start of each fiscal year,
capital and operating expense budgets, cash flow projections, income and loss
projections and annual business plan for the Company in respect of such fiscal
year, all itemized in reasonable detail and prepared on a monthly basis, and,
promptly after preparation, any revisions to any of the foregoing;
(f) promptly following receipt by the Company, each audit response letter,
accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company;
(g) promptly after the commencement thereof, notice of all actions, suits,
claims, proceedings, and to the knowledge of the Company, investigations and
inquiries that could materially adversely affect the Company, if any;
7
(h) promptly upon sending, making available or filing the same, all press
releases, reports and financial statements that the Company sends or makes
available to its shareholders or files with the Commission; and
(i) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of
the Company as such Investor reasonably may request.
Section 3.02. Inspection, Consultation And Advice. The Company shall
permit each Investor and such persons as it may designate, at such Investor's
expense, to visit and inspect any of the properties of the Company, examine its
books and take copies and extracts therefrom, discuss the affairs, finances and
accounts of the Company with its officers, employees and public accountants
(and the Company hereby authorizes said accountants to discuss with such
Investor and such designees such affairs, finances and accounts), and consult
with and advise the management of the Company as to its affairs, finances and
accounts, all at reasonable times and upon reasonable notice to the Company.
Section 3.03. Confidentiality Agreement. Each Investor receiving
information pursuant to Section 3.01 or 3.02 shall use its best efforts to
ensure that any information which is delivered by the Company to such Investor
pursuant to Section 3.01 or 3.02 will be kept confidential, not be copied
except for internal use and for provision to attorneys, accountants and other
fiduciaries with duties to maintain confidentiality, and be used solely to
evaluate and protect such Investor's investment in the Restricted Securities,
including through the provision of routine reports to any limited partners of
the Investors; provided, that the foregoing obligation shall not prohibit any
such Investor from divulging any information, whether or not confidential, to
any regulatory authority having jurisdiction over such Investor, if such
Investor is compelled to do so by any judicial or administrative process or by
other requirements of law provided such Investor seeks a protective order with
respect to such information, or to any prospective purchaser of Restricted
Securities from such Investor so long as such prospective purchaser agrees to
be bound by the confidentiality provisions contained herein; and provided,
further, that the foregoing obligation shall remain in effect as to any
confidential information except to the extent that such information can be
shown to have been (i) previously known on a non-confidential basis by such
Investor, (ii) in the public domain through no fault of such Investor or (iii)
later lawfully acquired by such Investor from sources other than the Company
other than information known by such Investor to be acquired in violation of an
existing confidentiality agreement. The obligation of each Investor to hold any
confidential information in confidence shall be satisfied if such Investor
exercises the same care with respect to such information as it would take to
preserve the confidentiality of its own confidential and proprietary
information.
8
ARTICLE 4
PRE-EMPTIVE RIGHTS AND WAIVERS
Section 4.01. Pre-Emptive Rights. (a) Each Investor shall have a
preemptive right to purchase all or any portion of an offering by the Company,
or any subsidiary of the Company, of any equity security (or any security which
is or may become convertible into or exchangeable or exercisable for an equity
security) equal to the number or amount of securities being offered, multiplied
by a fraction, the numerator of which shall be the number of Common Shares held
by such Investor which are Registrable Stock and the denominator of which shall
be the number of Common Shares held by all shareholders (including the
Investors); provided that, in the case of any such offering by a subsidiary of
the Company, if the number of equity securities that the Investors collectively
have preemptive rights to purchase from the Company is less than 20% of the
equity securities being offered by such subsidiary then the number of equity
securities that each Investor has a preemptive right to purchase shall be
increased pro rata so that, collectively, the Investors have a preemptive right
to purchase at least 20% of such equity securities; provided further that there
will be no such preemptive right in the case of (i) shares issued or issuable
pursuant to the exercise of options or warrants or the conversion of
convertible securities (including the Preferred Shares) that were issued or
outstanding on the date hereof; (ii) any shares issued or issuable to officers,
directors, employees, agents or consultants of the Company or any subsidiary of
the Company, upon exercise of any option granted or to be granted pursuant to
any stock option plan or arrangements approved by the Board of Directors of the
Company (the "Board of Directors"), or the board of directors of such
subsidiary, as the case may be, or any options granted or to be granted
thereunder; or (iii) shares issued or issuable in the acquisition by the
Company or by a subsidiary of the Company of any other corporation,
association, partnership or another entity or the assets or securities thereof.
Each Investor shall have such right to purchase when the securities are issued
or sold by the Company, or any subsidiary of the Company, on the best terms and
conditions as such securities are offered to other purchasers thereof. For
purposes of this Section 4.01 it shall be assumed that all securities held by
the Investors which may be converted into or exercised for Common Shares have
been so converted or exercised. The Company shall give the Investors at least
thirty (30) days prior written notice (the "Notice Period") of any proposed
securities issuance that would give rise to preemptive rights as contemplated
in this Section 4.01 describing the amount and type of securities to be issued,
and the price and other terms upon which the Company, or any subsidiary of the
Company, proposes to issue the same. Each Investor exercising all of its
preemptive rights in such offering shall have a further pro rata right (a
"right of over allotment") to purchase the securities refused by any Investor
who declines to fully exercise its preemptive right. Each Investor desiring to
exercise its preemptive right must notify the Company in writing prior to the
close of business on the last day of the Notice Period, stating (i) its intent
to
9
purchase, (ii) whether or not it intends to exercise its right of over
allotment; and (iii) the maximum amount of securities it is willing to
purchase.
(b) In the event that the Investors have not elected pursuant to this
Section 4.01(b) to purchase all of the contemplated offering, the Company shall
have ninety (90) days thereafter to sell the securities not elected to be
purchased by the Investors at the price and upon the terms no more favorable to
the purchasers of such securities than specified in the Company notice
hereunder. In the event the Company has not sold some or all of the securities
within such ninety (90) day period, the Company shall not thereafter issue or
sell any unsold securities without first offering such securities to the
Investors in the manner provided above.
(c) The rights of each Investor under this Article 4 shall be subject to
the ability of such Investor to make representations to the Company reasonably
required to comply with Rule 506 of Regulation D under the Securities Act in
connection with the purchase of any restricted securities.
Section 4.02. Waivers. (a) Each Original Investor hereby irrevocably
waives any and all pre-emptive rights and other similar rights to which such
Original Investor may have been entitled pursuant to the Original Investor
Rights Agreement, and each 2002 Investor herby irrevocably waives any and all
pre-emptive and other similar rights to which such 2002 Investor is entitled
pursuant to this Amended and Restated Investor Rights Agreements; provided
however, each such waiver is being made solely with respect to the Company's
issuance and/or sale of the Convertible Notes, the Initial Notes, the 2002
Warrants and the Mitsui Transaction, as such transaction is described on
Schedule 4.02(a), and/or the sale or issuance of any securities in connection
with the conversion, exercise or consummation thereof, as the case may be.
(b) In consideration for the Company having reduced the conversion price
of the Preferred Shares from $12.00 to $6.00, the Original Investors and the
2002 Investors hereby irrevocably waive any and all further adjustments to (i)
the Conversion Price (as defined in the Company's Amended Articles of
Incorporation) applicable to the Preferred Shares and/or the number of Common
Shares into which the Preferred Shares are convertible, (ii) the Conversion
Price (as defined in the Convertible Notes or the Initial Notes, as the case
may be) applicable to the Convertible Notes and/or the Initial Notes and/or the
number of Common Shares into which the Convertible Notes and/or the Initial
Notes are convertible, (iii) the Exercise Price (as defined in the Original
Warrants) applicable to the Original Warrants, including, but not limited to
the anti-dilution provisions contained in paragraphs 8(b), (d) and (j) of the
Original Warrants, and (iv) any and all other anti-dilution rights and
provisions applicable to the Preferred Shares, the Convertible Notes, the
Initial Notes and the Original Warrants which such Original Investors or 2002
Investors, as the case may be,
10
were or may be entitled in connection with the Company's issuance of the
Convertible Notes, the Initial Notes and/or the 2002 Warrants, or in connection
with the Mitsui Transaction and/or sale or issuance of any securities in
connection with the conversion, exercise or consummation thereof, as the case
may be; provided, however, such waiver is made solely with respect to the
aforementioned transactions, and the Original Investors and the 2002 Investors
do not waive their rights with respect to any other transactions.
ARTICLE 5
REGISTRATION RIGHTS
Section 5.01. Registration On Form S-3. The Company shall file with the
Commission a shelf Registration Statement on Form S-3 covering all of the
shares of Registrable Stock beneficially owned by the Investors and the Company
shall use its reasonable best efforts to effect the registration of the
Registrable Stock within ninety (90) days of the Convertible Closing (as
defined in the Securities Purchase Agreement) in order to permit the sale and
distribution of all of the Registrable Stock on a continuous basis under Rule
415; provided, however, that if the Convertible Closing has not occurred by
June 30, 2002 the Company shall have an additional obligation to use its
reasonable best efforts to effect the registration of the Registrable Stock
into which the 2002 Warrants beneficially owned by the Investors (other than
the Shareholders) may be exercised within ninety (90) days of such date in
order to permit the sale and distribution of all such Registrable Stock on a
continuous basis under Rule 415. Except as expressly provided in paragraph
5.01(b), the Company shall use its reasonable best efforts to cause any such
Registration Statement and the Registration Statement filed by the Company
pursuant to its obligations under the Original Investor Rights Agreement to
become and remain effective until such time as each Investor can sell all of
its Registrable Stock pursuant to Rule 144 promulgated by the Commission under
the Securities Act within a ninety (90) day period.
(b) Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to make any filing in any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in order to effect such registration, qualification or compliance
unless the Company is already subject to service in such jurisdiction in the
opinion of the Company's counsel. If the Company shall furnish to the Investors
a certificate signed by the Chief Executive Officer or Chief Financial Officer
of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its shareholders
for the Investors to continue to sell or distribute Registrable Stock under the
shelf Registration Statement filed by the Company pursuant to paragraph
5.01(a), then the Investors
11
shall cease any such sale or distribution of Registrable Stock for a period not
to exceed sixty (60) days as specified by the Company. The Company may not
deliver the certificate specified in the preceding sentence more than once in
any 360-day period.
(c) The Investors, in consultation with the Company and subject to the
Company's reasonable approval, may designate the managing underwriter(s), if
any, of any underwritten distribution made under the shelf Registration
Statement filed pursuant to Section 5.01(a) hereof; provided that Xxxxxx
Xxxxxxx & Co. Incorporated or any successor entity shall be reasonably
acceptable to the Company. The Company shall cause its senior management to
participate in any "road show" as and to the extent reasonably requested by the
managing underwriters.
Section 5.02. Incidental Registration. At such time when the Company is no
longer required to maintain the effectiveness of the shelf registration
statement pursuant to Section 5.01(a), each time the Company shall determine to
file a Registration Statement in connection with the proposed offer and sale
for money of any of its securities by it or any of its securityholders, the
Company will give written notice of its determination to the Investors. Upon
the written request of the Investors given within thirty (30) days after the
giving of any such notice by the Company, the Company will use its reasonable
efforts to cause all shares of Registrable Stock which the Investors have
requested to register to be included in such Registration Statement, all to the
extent requisite to permit the sale or other disposition by the prospective
seller of the Registrable Stock to be so registered. If the Registration
Statement is to cover an underwritten distribution, the Company shall use its
reasonable efforts to cause the Registrable Stock requested for inclusion
pursuant to this Section 5.02 to be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If, in the good faith judgment of the managing underwriter(s) of
such public offering, the inclusion of all of the Registrable Stock requested
for inclusion pursuant to this Section 5.02 would interfere with the successful
marketing of the shares to be offered, then the number of shares of Registrable
Stock to be included in the offering shall be reduced to the required level
with the participation in such offering to be pro rata among the Holders
thereof requesting such registration, based upon the number of shares of
Registrable Stock owned by such Holders; provided that commencing nine months
after the date hereof, each Investor shall have a priority right (prior to the
Company and any other securityholder) to have included pursuant to this Section
5.02 not less than 30% of the Registrable Stock requested for inclusion by such
Investor.
Section 5.03. Registration Procedures. If and whenever the Company is
required by the provisions of Section 5.01 or 5.02 hereof to effect the
registration of shares of Registrable Stock under the Securities Act, the
Company will, at its expense, as expeditiously as reasonably possible:
12
(a) In accordance with the Securities Act and the rules and regulations of
the Commission, prepare and file with the Commission a Registration Statement
with respect to such securities and use its reasonable efforts to cause such
Registration Statement to become and remain effective;
(b) (i) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective (x)
until the time specified in Section 5.01(a) or (y) in the case of any
Registration Statements filed under Section 5.02 for at least one hundred
twenty (120) days after the effective date of such Registration Statement; and
comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such Registration Statement
during such periods in accordance with the intended method or methods of
disposition by the sellers thereof set forth in such Registration Statement;
(c) If the offering is to be underwritten in whole or in part, enter into
a written underwriting agreement in form and substance reasonably satisfactory
to the managing underwriter of the public offering and the Investors;
(d) Furnish to the Investors and to the underwriters such reasonable
number of copies of the Registration Statement, preliminary prospectus, final
prospectus and such other documents as such underwriters and Investors may
reasonably request in order to facilitate the public offering of such
securities;
(e) Use its reasonable efforts to register or qualify the securities
covered by such Registration Statement under such state securities or blue sky
laws of such jurisdictions (i) as shall be reasonably appropriate for the
distribution of the securities covered by such Registration Statement or (ii)
as the Investors and the underwriters may reasonably request within twenty (20)
days following the original filing of such Registration Statement, except that
the Company shall not for any purpose be required to execute a general consent
to service of process, to qualify to do business as a foreign corporation in
any jurisdiction where it is not so qualified or to subject itself to taxation
in such jurisdiction;
(f) Notify the Investors promptly after it shall receive notice thereof of
the date and time when such Registration Statement and each post-effective
amendment thereto has become effective or a supplement to any prospectus
forming a part of such Registration Statement has been filed;
(g) Notify the Investors promptly of any request by the Commission or any
state securities commission or agency for the amending or supplementing of such
Registration Statement or prospectus or for additional information;
13
(h) Prepare and file with the Commission, promptly upon the request of the
Investors, any amendments or supplements to such Registration Statement or
prospectus which, in the opinion of counsel representing the Company in such
Registration (and which counsel is Vorys, Xxxxx, Xxxxxxx and Xxxxx LLP or
another nationally recognized law firm reasonably acceptable to the Investors),
is required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Registrable Stock by the Investors;
(i) Prepare and promptly file with the Commission, and promptly notify the
Investors of the filing of, such amendments or supplements to such Registration
Statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event has occurred as
the result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading;
(j) During the time period during which the Company is required, pursuant
to Section 5.03(a), to cause a Registration Statement to be effective, in case
the Investors or any underwriter for the Investors is required to deliver a
prospectus at a time when the prospectus then in circulation is not in
compliance with the Securities Act or the rules and regulations of the
Commission, prepare promptly upon request such amendments or supplements to
such Registration Statement and such prospectus as may be necessary in order
for such prospectus to comply with the requirements of the Securities Act and
such rules and regulations;
(k) Advise the Investors, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission or any
state securities commission or agency suspending the effectiveness of such
Registration Statement or the initiation or threatening of any proceeding for
that purpose and promptly use its reasonable best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order
should be issued;
(l) Not file any amendment or supplement to such Registration Statement or
prospectus to which counsel for the Investors has reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at
least three (3) business days prior to the filing thereof (which advance
furnishing of copies the Company hereby agrees to);
(m) At the request of the Investors (i) furnish to the Investors on the
effective date of the Registration Statement or, if such registration includes
an
14
underwritten public offering, at the closing provided for in the underwriting
agreement, an opinion, dated such date, of the counsel representing the Company
for the purposes of such registration, addressed to the underwriters, if any,
and to the Investors, covering such matters with respect to the Registration
Statement, the prospectus and each amendment or supplement thereto, proceedings
under state and Federal securities laws, other matters relating to the Company,
the securities being registered and the offer and sale of such securities as
are customarily the subject of opinions of issuer's counsel provided to
underwriters in underwritten public offerings, and (ii) use its best efforts to
furnish to the Investors letters dated each such effective date and such
closing date, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the Investors, stating that they
are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request,
or, if the offering is not underwritten, that in the opinion of such
accountants the financial statements and other financial data of the Company
included in the Registration Statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the applicable
accounting requirements of the Securities Act, and additionally covering such
other financial matters, including information as to the period ending not more
than three (3) business days prior to the date of such letter with respect to
the Registration Statement and prospectus, as the Investors may reasonably
request;
(n) With respect to any public offering made by any Investor under a
Registration Statement filed pursuant to Section 5.02, refrain from making any
sale or distribution of its securities except pursuant to any stock option plan
or other employee benefit plan, any pre-existing agreement for the sale of such
securities or the issuance of securities in connection with future acquisitions
or a private placement for at least one hundred twenty (120) days after the
closing of the public offering pursuant to such Registration Statement; and
(o) Use its reasonable best efforts to ensure the obtaining of all
necessary approvals from the applicable stock exchange or electronic quotation
system.
Section 5.04. Expenses. (a) With respect to each registration effected
pursuant to Section 5.01 or 5.02 hereof, all fees, costs and expenses of and
incidental to such registration and the public offering in connection therewith
shall be borne by the Company; provided that the Investors shall bear their pro
rata share of the underwriting discounts and selling commissions.
(b) The fees, costs and expenses of registration to be borne as provided
in paragraph (a) above, shall include, without limitation, all registration,
filing and stock exchange fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, all legal fees and disbursements and
other expenses
15
of complying with state securities laws in states where the securities are to
be registered or qualified and the costs and expenses of the Company relating
to investor presentations on any "road-show" undertaken in connection with the
marketing of the offering of the securities.
Section 5.05. Rule 144 Requirements. The Company agrees to:
(a) comply with the requirements of Rule 144(c) under the Securities Act
with respect to current public information about the Company;
(b) use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to any Holder of Registrable Stock upon written request (x) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c) and the reporting requirements of the Securities Act or the
Exchange Act (at any time after it has become subject to such reporting
requirements), (y) a copy of the most recent annual or quarterly report of the
Company and (z) such other reports and documents of the Company as such Holder
may reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
Section 5.06. Investors' Information. Each Investor agrees to furnish in
writing to the Company in a timely manner such information with respect to
itself and the distribution of such Registrable Stock as the Company may from
time to time reasonably request in writing and as shall be required by law or
by the Commission in connection therewith.
Section 5.07. Transfer Of Registration Rights. Each Investor may at any
time Transfer to any Person that acquires at least fifty one percent (51%) of
the then outstanding Common Share equivalents then held by such Investor the
registration rights set forth in Section 5.01 or 5.02 hereof. Such Transfer
shall be subject to the transferee agreeing in writing to be bound by the terms
of this Agreement.
Section 5.08. Hold-back Agreement. If requested by the underwriter, each
Investor will agree not to offer, sell, contract to sell or Transfer any
Registrable Stock, during the fourteen (14) days prior to, and during the
ninety (90) day period beginning on, the effective date of any Registration
Statement filed pursuant to Section 5.02 other than the Registrable Stock to be
sold pursuant to such Registration Statement.
16
Section 5.09. Other Shareholders. (a) The Company may grant to any Person
other than the Investors the right to request a registration of securities of
the Company under the Securities Act and the right to be included as a selling
shareholder in connection with any registration of Registrable Stock; provided,
however, that without the consent of Investors holding a majority of the
Registrable Stock, the granting of any such rights shall not conflict with or
otherwise alter any rights granted under Section 5.01 above and, in all cases,
the rights of the Investors to include shares in any Registration Statement
shall be given priority over any registration rights granted to other Persons
as permitted by this Section 5.09.
(b) Each Investor hereby irrevocably consents to the Company's grant of
registration rights to the minority shareholders of Frontstep (Singapore) Pte
Ltd ("FSP") in connection with the repurchase by the Company of the FSP shares
held by such minority shareholders (the "Mitsui Transaction") as described in
Schedule 5.09(b).
ARTICLE 6
INDEMNIFICATION
Section 6.01. Indemnification. To the fullest extent permitted by law, the
Company will indemnify and hold harmless the Investors and their respective
directors, officers, employees, partners, members and Affiliates (each such
person, an "Indemnified Person"), whether or not their shares have been sold in
the offering, and any underwriter (as defined in the Securities Act) for the
Investors, and any person who controls any such underwriter within the meaning
of the Securities Act, from and against, and will reimburse the Indemnified
Persons and each such underwriter and controlling person with respect to, any
and all claims, actions, demands, losses, damages, liabilities, costs and
expenses to which any Indemnified Persons or any such underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such claims, actions, demands, losses, damages, liabilities, costs
or expenses arise out of or are based upon any untrue statement or alleged
untrue statement or omission of any material fact contained in a Registration
Statement, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such claim, action, demand,
loss, damage, liability, cost or expense is caused by an untrue statement or
alleged untrue statement or omission or alleged omission so made in reliance
upon information furnished in writing by one or more of the Investors, any such
underwriter or any such controlling person for use in the
17
preparation of such Registration Statement, prospectus or any amendment or
supplement thereto.
(b) Each Indemnified Person severally (not jointly), will indemnify and
hold harmless the Company, its directors, officers, employees and Affiliates
(each such person, a "Company Indemnified Person") from and against, and will
reimburse the Company Indemnified Persons with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs or expenses to which any
Company Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue or alleged untrue statement or omission of any material
fact contained in a Registration Statement, any prospectus contained therein or
any amendment or supplement thereto, or are caused by the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, in each case to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon information furnished in writing by the Indemnified
Person for use in the preparation of such Registration Statement, prospectus or
any amendment or supplement thereto.
(c) Promptly after receipt by a party to be indemnified pursuant to the
provisions of paragraph (a) or (b) of this Section 6.01 (an "indemnified
party") of notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified party will, if a
claim thereof is to be made against the indemnifying party pursuant to the
provisions of paragraph (a) or (b), notify the indemnifying party of the
commencement thereof. In case such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of such paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof. No indemnifying party shall be liable to an indemnified party for any
settlement of any action or claim without the consent of the indemnifying
party. No indemnifying party will consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
18
ARTICLE 7
TAG-ALONG RIGHTS
Section 7.01. Tag-along Right. If Shareholder desires to sell in any
twelve month period ten percent (10%) or more of his shares of capital stock of
the Company (the "Tag-Along Shares") to a third-party purchaser (a "Proposed
Transferee"), Shareholder shall provide to the Original Investors notice of
such intention to sell and of the terms and conditions, including price, of
such proposed sale; provided, however, for the avoidance of doubt the
Shareholder shall not be required to provide any notice with respect to sales
in the open market. Each Original Investor shall have the right to sell to the
Proposed Transferee, at the same price per share and on the same terms and
conditions as involved in such sale by Shareholder, up to that number of Common
Shares then held by such Original Investor (calculated on a fully diluted
basis) that equals a portion of the Tag-Along Shares equal to the product of
(i) the Tag-Along Shares multiplied by (ii) a fraction, the numerator of which
is the aggregate number of Common Shares then owned by such Original Investor
(calculated on a fully diluted basis) and the denominator of which is the
aggregate number of Common Shares then owned by all of the Original Investors
and the Shareholder (calculated on a fully diluted basis). For the avoidance of
doubt, for purposes of this Section 7.01 it shall be assumed that all
securities held by the Original Investors which may be converted into or
exercised for Common Shares have been so converted or exercised.
Section 7.02. Notice Of Intent To Participate. If an Original Investor
wishes to participate in any sale under this Article 7, such Original Investor
shall notify Shareholder and the Company in writing of such intention as soon
as practicable after the Original Investor's receipt of the notice made
pursuant to Section 7.01, and in any event within twenty (20) days after the
date of receipt of the notice.
Section 7.03. Sale Of Tag-along Shares. Any purchase of less than all of
the Tag-Along Shares and the Common Shares (calculated on a fully diluted
basis) that the Original Investors are entitled to and elect to sell to the
Proposed Transferee pursuant to Section 7.01 and 7.02 hereof, considered
collectively, by the Proposed Transferee shall be made from Shareholder and the
Original Investors who elect to participate pro rata based upon the relative
amount of the shares that Shareholder and the Original Investors who elect to
participate are otherwise entitled to sell pursuant to Section 7.01. If the
Original Investors do not wish to participate in any sale under this Article 7,
Shareholder shall sell to the Proposed Transferee all, or at the option of the
Proposed Transferee, any part of the shares proposed to be sold at not less
than the price and upon other terms and conditions, if any, not more favorable
to the Proposed Transferee than those in the notice provided by Shareholder
pursuant to 7.01. If the Tag-Along Shares and the shares of the Original
Investors are sold under this Article 7 to any purchaser who is not a party to
this Agreement, the Tag-Along Shares and the share of the
19
Original Investors so sold shall no longer be subject to any of the
restrictions imposed by this Agreement, except for any restrictions imposed by
Article 2, which shall continue in force until such time as they lapse pursuant
to the terms of such Article 2 or Article 7 hereof.
ARTICLE 8
REPRESENTATION RIGHTS
Section 8.01. Board Of Directors. (a) Each Investor shall vote such
Investor's voting securities and shall take all other reasonably necessary or
desirable legal actions within its control (whether in such Investor's capacity
as a shareholder, director, member of a Board of Directors committee or officer
of the Company or otherwise and including, without limitation, attendance at
meetings in person or by proxy for purposes of obtaining a quorum and execution
of written consents in lieu of meetings), and the Company shall take all
reasonably necessary or desirable legal actions within its control, including
in preparation of proxy materials, the recommendation of a management slate of
directors in elections for directors, and in proposing and effecting amendments
to the articles of incorporation and code of regulations of the Company, so
that from the date hereof until May 10, 2004:
(i) the authorized number of directors on the Board of Directors of
the Company shall be eight (8) directors;
(ii) one Director shall be the designee of FAEF, currently expected
to be Xx. Xxxxx Xxxxxxxxx, for so long as any of the Preferred Shares,
Convertible Notes or Initial Notes (or any Common Shares underlying such
securities) held by FAEF are outstanding and held by FAEF;
(iii) one Director shall be the designee of the MSDW Investors,
currently expected to be Xx. Xxx xx Xxxxxx, for so long as any of the
Preferred Shares, Convertible Notes or Initial Notes (or any Common Shares
underlying such securities) held by the MSDW Investors are outstanding and
held by any MSDW Investor;
(iv) one Director shall be Xxxxxxxx X. Xxx, provided that (A) the
Convertible Note or Initial Note (or any Common Shares underlying such
securities) held by Xx. Xxx is outstanding, or (B) Xx. Xxx continues to
own at least 1,000,000 Common Shares owned by him as of the date hereof;
20
(v) the management slate of directors, including the designees of
FAEF, MSDW Investors and Xx. Xxx, shall be elected to the Board of
Directors;
(vi) at least one of the designees of FAEF or MSDW Investors shall be
designated a member of every committee of the Board of Directors existing
now or in the future (other than the Corporate Development Committee);
(vii) the required quorum for Board of Directors action shall be the
presence at a Board of Directors meeting of at least a majority of
directors, except that a majority of the Directors in office shall
constitute a quorum for filling a vacancy in the Board of Directors;
(viii) all action of the Board of Directors shall require (a) the
affirmative vote of at least a majority of the directors at a duly
convened meeting of the Board of Directors at which a quorum is present or
(b) the unanimous written consent of the Board of Directors; provided that
in the event there is a vacancy on the Board of Directors and an
individual has been nominated to fill such vacancy, the first order of
business shall be to fill such vacancy; and provided further that any
transaction required to be approved under Section 1701.60 of the Ohio
Revised Code (or any provision substituted therefor under Ohio Law) shall
be approved in accordance with such provision; and
(ix) in the event any Director nominated by FAEF or MSDW Investors
ceases to serve as a member of the Board of Directors during his or her
term of office, FAEF or MSDW Investors, as the case may be, shall be
entitled to nominate a designee to fill such vacancy, and the Board of
Directors as constituted immediately prior to such time shall designate a
replacement director, nominated by FAEF or MSDW Investors, as the case may
be, and reasonably satisfactory to the Board of Directors, to fill the
remainder of the term of the director who has ceased to be a member of the
Board of Directors.
Section 8.02. Voting. Each Investor hereby agrees to vote all Subject
Shares (as defined below) that such Investor is entitled to vote at any meeting
of the shareholders of the Company, and any adjournment thereof, at which any
such transaction is submitted for the consideration and vote of the
shareholders (the "Shareholder Meeting") to approve (i) any merger,
consolidation, share exchange or other business combination recommended or
approved by a majority of the Directors of the Board of Directors, as currently
constituted, provided that such transaction has been approved by a majority of
the members of the Corporate Development Committee of the Board of Directors,
as currently constituted, except as otherwise provided pursuant to Section
8.02(b) below; and
21
(ii) any issuance of debt or equity securities issued in connection with any of
the transactions contemplated by the 2002 Securities Purchase Agreement or this
Amended and Restated Investor Rights Agreement and which are approved by a
majority of the Directors of the Board of Directors, as currently constituted.
(b) Notwithstanding the foregoing, if any transaction contemplated by
clause 8.02(a)(i) above has not been approved by a majority of the members of
the Corporate Development Committee, as currently constituted, each Investor
hereby agrees to vote all Subject Shares (as defined below) that such Investor
is entitled to vote at the Shareholder Meeting to approve such transaction
recommended or approved by at least two-thirds of the Directors of the Board of
Directors, as currently constituted.
(c) For purposes of determining whether a majority or at least two-thirds
of the Directors of the Board of Directors recommended or approved any
transaction contemplated by Section 8.02(a) or Section 8.02(b), respectively,
the calculation of the vote shall be based upon the following principles:
(i) The Board of Directors shall use its reasonable best efforts and
act in good faith to schedule any meeting at which approval of a
transaction contemplated by Section 8.02(a) or Section 8.02(b) is being
considered at a time when all Directors can attend either in person or
telephonically;
(ii) If a Director abstains from voting, or in good faith is unable
to vote, the percentage vote shall be calculated by dividing the total
number of Directors voting to recommend or approve such transaction
(excluding abstentions and absences) by the total number of Directors
voting (excluding abstentions and absences); and
(iii) If a vacancy on the Board of Directors occurs for any reason
between the date hereof and the date of any such vote, such vacancy shall
be filled as soon as is reasonably practicable by a majority vote of the
remaining Directors on the Board of Directors; provided, that other than
in cases where a Director has been appointed by the MSDW Investors or
FAEF, such Director must be approved by the Shareholder, whose approval
shall not be unreasonably withheld. Until the relevant vacancy can be
filled pursuant to the procedure set forth in the immediately preceding
sentence, the percentage vote shall be calculated by dividing the number
of Directors voting to recommend or approve such transaction (excluding
abstentions and absences and resignations) by the total number of
Directors voting (excluding abstentions and absences and resignations).
22
For purposes of applying the foregoing principles to Section 8.02(a) and
Section 8.02(b), the word "Directors" shall include only those Directors (x)
who are on the Board of Directors as of the date hereof and (y) who are
replacements to those Directors who are replaced in accordance with Section
8.02(c)(iii).
(d) In furtherance and not in limitation of the foregoing, each Investor
hereby agrees to validly tender and sell and not withdraw, all of such
Investor's Subject Shares pursuant to and in accordance with the terms of any
tender offer made in connection with any transaction that satisfies Section
8.02(a)(i) or Section 8.02(b).
(e) Notwithstanding Section 8.02(a) or Section 8.02(b), neither the MSDW
Investors nor FAEF shall be obligated to vote in favor of any transaction that
adversely affects the rights and preferences of the Preferred Shares, the
Initial Notes or the Convertible Notes, and the Shareholders shall not be
obligated to vote in favor of any transaction that adversely affects the rights
and preferences of the Initial Notes or the Convertible Notes.
(f) "Subject Shares" means any Common Shares or Preferred Shares
beneficially owned, directly or indirectly, by the relevant Investor.
ARTICLE 9
MISCELLANEOUS
Section 9.01. Term Of Agreement. Except as otherwise provided herein, the
provisions of this Agreement shall terminate upon the earliest to occur of any
one of the following events:
(i) the voluntary or involuntary liquidation or dissolution of the
Company;
(ii) the occurrence of a Change-in-Control Liquidation Event (as such
term is defined in the Company's Amended Articles of Incorporation);
(iii) the Investors beneficially own in aggregate less than twenty
percent (20%) of the Common Share equivalents purchased by the Investors
pursuant to the 2000 Securities Purchase Agreement and the 2002 Securities
Purchase Agreement.
Section 9.02. Severability; Governing Law. If any provisions of this
Agreement shall be determined to be illegal or unenforceable by any court of
law, the remaining provisions shall be severable and enforceable in accordance
with
23
their terms. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Ohio.
Section 9.03. Injunctive Relief. It is acknowledged that it will be
impossible to measure the damages that would be suffered by the parties if any
party fails to comply with the provisions of this Agreement. Accordingly, the
parties shall be entitled to obtain specific performance of this Agreement and
to obtain immediate injunctive relief.
Section 9.04. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns, legal representatives and heirs.
Section 9.05. Modification Or Amendment. This Agreement or any term hereof
may be amended or waived, only with the written consent of the Company and
Original Investors holding more than seventy-five percent (75%) of the Common
Shares issued or issuable upon conversion of any Restricted Securities;
additionally, Section 2.05, Section 8.01(a)(iv) and Article 7 hereof may not be
amended or waived without the written consent of Shareholder and Articles 4, 5
and 6 and Section 8.02 may not be amended or waived without the additional
written consent of the Shareholders.
Section 9.06. Aggregation. All Restricted Securities held or acquired by
affiliated Persons shall be aggregated for the purpose of determining the
availability of any rights under this Agreement.
Section 9.07. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
Section 9.08. Notices. All notices to be given or otherwise made to any
party to this Agreement shall be deemed to be sufficient if contained in a
written instrument, delivered by hand in person, or by express overnight
courier service, or by electronic facsimile transmission, or by registered or
certified mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or at such other address as may hereafter
be designated in writing by the addressee to the Company:
If to the Company to:
Frontstep, Inc.
0000 Xxxxxxxxx Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxx 00000
Attn: President and Chief Executive Officer
Fax No.: (000) 000-0000
24
with a copy to:
Vorys, Xxxxx, Xxxxxxx and Xxxxx LLP
00 Xxxx Xxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attn: Xxxxx X. Xxxxxxx, Esq.
Fax No.: 000-000-0000
If to Shareholder:
to his address set forth on the signature pages hereto
If to any Investor:
to its address set forth on the signature pages hereto
with a copy to:
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxx, Esq.
Fax No.: 000-000-0000
and, if not an addressee of any notice to an Investor, with a copy to:
Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture Partners IV, L.P., at its address
set forth on the signature pages hereto
All such notices shall, when mailed or telegraphed, be effective when
received or when attempted delivery is refused.
Section 9.09. Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior oral or written agreements and
understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not expressly set
forth in this Agreement shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Agreement.
25
IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights
Agreement to be executed as of the date first above written.
FRONTSTEP, INC.
By:
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Vice President and
Chief Financial Officer
SHAREHOLDER
XXXXXXXX X. XXX, in his individual
capacity
----------------------------------
Address: 00000 Xxxxxxxxx Xxxxx Xxxx
Xxxxxx, Xxxx 00000
Fax: 000-000-0000
XXXXXX XXXXXXX XXXX XXXXXX VENTURE
PARTNERS IV, X.X.
XXXXXX XXXXXXX XXXX XXXXXX VENTURE
INVESTORS IV, X.X.
XXXXXX XXXXXXX XXXX XXXXXX VENTURE
OFFSHORE INVESTORS IV, L.P.
By: MSDW Venture Partners IV, L.L.C.
as General Partner of the above
limited partnerships
By: MSDW Venture Partners IV, Inc.,
as Member
By:
-----------------------------
Name: Xxx xx Xxxxxx
Title: Managing Director
Address: 0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
XXXXXX XXXXXXX XXXX XXXXXX EQUITY
FUNDING, INC.
By:
---------------------------
Name: Xxxxx X. Xxxxxxx
Title: Managing Director
Address: 0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
Attention: Controller
FALLEN ANGEL EQUITY FUND, L.P.,
By: Fallen Angel Capital, L.L.C.,
as its General Partner
By: Xxxxx Xxxxxxxxx, as Member
By:
----------------------------
Name: Xxxxx Xxxxxxxxx
Title: Member
Address: 000 Xxxx Xxxx Xxxx
Xxxxxxx, Xxx Xxxxxx 00000
Fax: 000-000-0000
Xxxxx X. Xxxxxxxxxx, in his individual
capacity
--------------------------------------
Address: 00 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxx, Xxxx 00000
Fax: 000-000-0000
SCHEDULE I
The following is a full and complete list of the Original Investors who
purchased Series A Convertible Participating Preferred Shares and Original
Warrants of the Company on May 10, 2000:
Number of Number of
Investor Preferred Shares Warrants %
------------------------------------- ---------------- --------- ------
(a) Xxxxxx Xxxxxxx Xxxx Xxxxxx
Venture Partners IV, L.P...... 271,650 217,320 47.92
(b) Xxxxxx Xxxxxxx Xxxx Xxxxxx
Venture Investors IV, L.P..... 31,516 25,212 5.56
(c) Xxxxxx Xxxxxxx Xxxx Xxxxxx
Venture Offshore Investors, L.P. 10,598 8,478 1.87
(d) Xxxxxx Xxxxxxx Xxxx Xxxxxx
Equity Funding, Inc. ......... 86,502 69,202 15.25
(e) Fallen Angel Equity Fund, L.P. 166,667 133,334 29.40
------- ------- ------
Totals.................. 566,933 453,546 100.00
======= ======= ======
SCHEDULE II
2002 Investors
Purchase
Principal Price Principal Purchase
Amount of Paid for Amount of Price Paid
Initial Number of Initial Convertible for
Notes Warrants Notes and Notes to be Convertible
Name of Investor Purchased Purchased Warrants Purchased Notes
------------------------------------------ ---------- --------- --------- ----------- -----------
(a) Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture
Partners IV, L.P.......................... $550,131 220,052 $550,131 $1,283,639 $1,283,639
(b) Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture
Investors IV, L.P......................... $63,824 25,530 $63,824 $148,923 $148,923
(c) Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture
Offshore Investors IV, L.P................ $21,463 8,585 $21,463 $50,080 $50,080
(d) Fallen Angel Equity Fund, L.P............. $264,582 105,833 $264,582 $617,358 $617,358
(e) Xxxxxxxx X. Xxx........................... $450,000 180,000 $450,000 $1,050,000 $1,050,000
(f) Xxxxx X. Xxxxxxxxxx....................... $150,000 60,000 $150,000 $350,000 $350,000
EXHIBIT B
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION AND
MAY NOT BE OFFERED OR SOLD WITHOUT COMPLIANCE WITH APPLICABLE FEDERAL, STATE OR
FOREIGN SECURITIES LAWS. THIS SECURITY IS ALSO SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT,
DATED AS OF MARCH 6, 2002, A COPY OF WHICH MAY BE OBTAINED FROM FRONTSTEP, INC.
No. [ ]
$[ ]
FRONTSTEP, INC.
10.0% Subordinated Convertible Note due May 10, 2004
Frontstep, Inc., an Ohio corporation (together with its successors and
assigns, the "Issuer"), for value received hereby promises to pay to [ ]
(together with its successors, transferees and assigns, the "Holder") the
principal sum of [ ] (the "Principal Amount") by wire transfer of immediately
available funds to the Holder's account (the "Bank Account") at a bank in the
United States specified by the Holder from time to time, in lawful money of the
United States together with interest thereon calculated from the date hereof in
accordance with the provisions of this Note.
This Note was issued pursuant to the Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated as of March 6, 2002 among the Issuer,
and certain other parties listed on the signature pages thereto. Unless the
context otherwise requires, as used herein, "Note" means any of the 10.0%
Subordinated Notes issued pursuant to the Securities Purchase Agreement and any
other similar Subordinated Notes issued by the Issuer in exchange for, or to
effect a transfer of, any Note and "Notes" means all such Notes in the
aggregate.
This Note shall bear interest, commencing [ ], at a rate per annum (the
"Interest Rate") equal to 10.0%. Further, the Issuer shall pay interest on any
overdue Principal Amount at a rate per annum equal to 14.0% (the "Overdue
Rate"), and interest on overdue installments of interest, to the extent lawful,
at the Overdue Rate. Interest on this Note will be calculated on the basis of a
360-day year of twelve 30-day months.
Notwithstanding anything herein to the contrary, the interest or any
amount deemed to be interest payable by the Issuer with respect to this Note
shall not exceed the maximum amount permitted by applicable law and, to the
extent that any payments in excess of such permitted amount are received by the
Holder, such excess shall be considered payments in respect of the principal
amount of this Note. All sums paid or agreed to be paid to the Holder for the
use, forbearance or retention of the indebtedness of the Issuer to the Holder
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full of the principal so that the interest on account of such
indebtedness shall not exceed the maximum amount permitted by applicable law.
Section 1.1. Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Note shall have the respective meanings specified
below. All accounting terms used herein and not expressly defined shall have
the meanings given to them in accordance with U.S. generally accepted
accounting principles, and the term "generally accepted accounting principles"
shall mean such accounting principles which are generally accepted as of the
date hereof. The terms defined in this Section 1.1 include the plural as well
as the singular.
"Acceleration Notice" shall have the meaning set forth in Section 4.1.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the date of this
Note, including without limitation, with respect to the Issuer, the Common
Shares and the Preferred Shares.
"Common Shares" means any and all shares of common stock, without par
value, of the Issuer.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments,
(iii) all obligations of such Person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect thereto), except
letters of credit or other similar instruments issued to secure payment of
Trade Payables, (iv) all obligations of such Person to pay the deferred
purchase price of property or services, except Trade Payables, (v) all
obligations of such Person as lessee under capital leases,
2
(vi) all Debt of others secured by a Lien on any asset of such Person, whether
or not such Debt is assumed by such Person and (vii) all Debt of others
Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Notice" shall have the meaning set forth in Section 5.2.
"Event of Default" means any event or condition specified as such in
Section 5.1 which shall have continued for the period of time, if any, therein
designated.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or other obligation of such other Person (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation for
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part), provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holders" shall have the meaning set forth in Section 8.2.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Note, the Issuer shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease or
other title retention agreement relating to such asset.
"NASD" means the National Association of Securities Dealers, Inc., and its
successors.
"Notice of Default" shall have the meaning set forth in Section 4.1(c).
3
"Person" means any individual or a corporation, partnership, limited
liability company, association, trust, or any other entity or organization
including a government or political subdivision or an agency or instrumentality
thereof.
"Preferred Shares" means any and all shares of preferred stock, without
par value, of the Issuer.
"Senior Debt" means the Debt of the Issuer to Foothill Capital Corporation
outstanding at any time.
"Trade Payables" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Issuer in the
ordinary course of business in connection with the obtaining of materials or
services.
Section 2. Payment of Principal and Interest.
Section 2.1. Scheduled Payment of Principal. The Issuer shall pay the
Principal Amount, together with all accrued and unpaid interest thereon, if
any, in cash to the Holder of this Note on May 10, 2004.
Section 2.2. Payment of Interest. The Issuer shall pay interest on this
Note quarterly in arrears, on March 31, June 30, September 30, and December 31
(unless such day is not a Business Day, in which event on the next succeeding
Business Day) (each an "Interest Payment Date") of each year in which this Note
remains outstanding, commencing with [ ], on the unpaid Principal Amount
outstanding in lawful money of the United States at the Interest Rate, or
Overdue Rate, as the case may be, as set forth above, by wire transfer of
immediately available funds, to the Bank Account, from the most recent Interest
Payment Date to which interest has been paid in full on this Note, or if no
interest has been paid on this Note, from the date hereof, until payment in
full of the Principal Amount has been made.
Section 2.3. Prepayment. With the consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, the
Issuer may prepay the Notes in whole or in part without penalty or fee;
provided, however, that such consent may not be unreasonably withheld.
Section 2.4. Payment Obligations Absolute and Unconditional. No provision
of this Note shall alter or impair the obligations of the Issuer, which are
absolute and unconditional, to pay the Principal Amount of and interest on this
Note at the place, times, and rate, and in the currency, herein prescribed.
Section 2.5. Pro Rata Payment. The Issuer agrees that any payments to the
Holders of the Notes (whether for principal, interest or otherwise) shall be
made pro rata among all such Holders based upon the aggregate unpaid Principal
Amount of the Notes held by each such Holder. If any Holder of a Note obtains
4
any payment (whether voluntary, involuntary, by application of offset or
otherwise) of principal or interest on such Note in excess of such Holder's pro
rata share of payments obtained by all Holders of the Notes, such Holder shall
make such payments to the other Holders of the Notes as is necessary to cause
such Holders to share the excess payment ratably among each of them as provided
in this Section.
Section 3. Covenants.
The Issuer agrees that, so long as any amount payable under this Note
remains unpaid:
Section 3.1. Information. The Issuer will deliver to the Holder, within
three Business Days after any executive officer of the Issuer obtains knowledge
of any Default, if such Default is then continuing, a certificate of the chief
financial officer or the chief accounting officer of the Issuer setting forth
the details thereof and the action which the Issuer is taking or proposes to
take with respect thereto.
Section 3.2. Conduct of Business and Maintenance of Existence. The Issuer
will preserve, renew and keep in full force and effect its corporate existence
and its rights, privileges and franchises necessary or desirable in the normal
conduct of its business.
Section 4. Events of Default and Remedies.
Section 4.1. Event of Default Defined; Acceleration of Maturity; Waiver of
Default. In case one or more of the following events ("Events of Default")
(whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
(a) default in the payment of any interest upon any of the Notes as and
when the same shall become due and payable, and continuance of such default for
a period of three days; or
(b) default in the payment of all or any part of the principal of any of
the Notes as and when the same shall become due and payable; or
(c) failure on the part of the Issuer duly to observe or perform any other
of the covenants or agreements on the part of the Issuer contained in the Notes
for a period of 15 days after the date on which written notice specifying such
failure, stating that such notice is a "Notice of Default" hereunder and
demanding that the Issuer remedy the same, shall have been given by registered
or certified mail, return receipt requested, to the Issuer; or
5
(d) any acceleration of the maturity of any Debt of the Issuer or any of
its subsidiaries having a principal amount greater than $1,000,000; or
(e) a final and non-appealable judgment or order (not covered by
insurance) for the payment of money shall be rendered against the Issuer or any
of its subsidiaries in excess of $1,000,000 in the aggregate for all such
judgments or orders (treating any deductibles, self insurance or retention as
not so covered), and such judgment or order shall continue unsatisfied for a
period of 60 days; or
(f) a court having jurisdiction shall enter a decree or order for relief
in respect of the Issuer in an involuntary case under applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Issuer or for any substantial part of the property of the
Issuer or ordering the winding up or liquidation of the affairs of the Issuer,
and such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(g) the Issuer shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Issuer or for any substantial part of the property of the Issuer, or the
Issuer shall make any general assignment for the benefit of creditors; or
(h) the consummation of the consolidation or merger of the Issuer into or
with any other entity or entities which results in the exchange of outstanding
shares of the Issuer for securities or other consideration issued or paid or
caused to be issued or paid by any such entity or Affiliate thereof (other than
(x) a merger solely for the purpose of reincorporating the Issuer in a
different jurisdiction or (y) a consolidation or merger in which the Issuer is
the surviving entity and in which the Issuer's Capital Stock outstanding
immediately prior to such merger or consolidation are exchanged or converted
into or constitute more than 50% of the Issuer's voting power after such
consolidation or merger); (ii) the sale or transfer by the Issuer of all or
substantially all of its assets otherwise than to one or more Subsidiaries; or
(iii) a transaction or series of transactions in which a person or group of
persons (as defined in Rule 13d-5(b)1) of the Exchange Act), acquires
beneficial ownership (as determined in accordance with Rule 13d-3 of the
Exchange Act) of more than 50% of the voting power of the Issuer;
then, and in each and every such case (other than an Event of Default
specified in Sections 4.1(f), 4.1(g) or 4.1(h) hereof), the Holders of at least
a majority in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Issuer (the "Acceleration Notice"), may declare the
entire principal amount of the Notes and the interest accrued thereon to be due
and payable immediately, and upon any such declaration the same shall become
immediately due and payable; provided that if an Event of Default specified in
Section 4.1(f),
6
4.1(g) or 4.1(h) occurs, the principal amount of and accrued interest on the
Notes shall become and be immediately due and payable without any declaration
or other act on the part of any Holder.
Section 4.2. Powers and Remedies Cumulative; Delay or Omission Not Waiver
of Default. No right or remedy herein conferred upon or reserved to any Holder
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of any Holder to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid shall impair
any such right or power or shall be construed to be a waiver of any such Event
of Default or an acquiescence therein; and every power and remedy given by the
Notes or by law may be exercised from time to time, and as often as shall be
deemed expedient, by any Holder.
Section 4.3. Waiver of Past Defaults. The Holders of the Notes may waive,
in accordance with Section 6.1, any past Default or Event of Default hereunder
and its consequences. In the case of any such waiver, the Issuer and the
Holders of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for
every purpose of the Notes; but no such waiver shall extend to any subsequent
or other Default or Event of Default or impair any right consequent thereon.
Section 5. Subordination.
Section 5.1. Notes Subordinated to Senior Debt. The Issuer covenants and
agrees and each Holder, by his acceptance hereof likewise covenants and agrees,
that all Notes shall be issued subject to the provisions of Section 5 of this
Note; and each person holding any Note, whether upon original issue or upon
transfer, assignment or exchange thereof accepts and agrees that the payment of
the principal amount of and interest on the Notes by the Issuer shall, to the
extent and in the manner herein set forth, be subordinated and junior in right
of payment, to the prior payment in full of Senior Debt.
Section 5.2. No Payment on Notes in Certain Circumstances. (a) If any
default in the payment of any principal of or interest on any Senior Debt when
due and payable, whether at maturity, upon any redemption, by declaration or
7
otherwise, occurs and is continuing, no payment shall be made by the Issuer
with respect to the principal of or interest on the Notes or to acquire any of
the Notes for cash or property other than conversion of the Notes into Common
Shares in accordance with Section 7.1 hereof.
(b) If any event of default (other than a default in payment of the
principal of or interest on any Senior Debt) occurs and is continuing (or if
such an event of default would occur upon any payment with respect to the
Notes) with respect to any Senior Debt, as such event of default is defined in
such Senior Debt, permitting the holders thereof to accelerate the maturity
thereof and if the holder or holders or a representative of such holder or
holders gives written notice of the event of default to the Issuer (a "Default
Notice"), then, unless and until such event of default has been cured or waived
or has ceased to exist, the Issuer shall not be obligated to, and shall not,
(x) make any payment of or with respect to the principal of or interest on the
Notes or (y) acquire any of the Notes for cash or property or otherwise other
than conversion of the Notes into Common Shares in accordance with Section 7.1
hereof. After the event of default described in such Default Notice has been
cured or waived or ceases to exist, the Issuer shall, subject to Section
5.2(a), promptly pay to the Holders of the Notes all sums which the Issuer
would have been obligated to pay from the date of the Default Notice but for
this Section 5.2(b).
(c) Notwithstanding the foregoing, in the event that any payment in cash
shall be received by any Holder when such payment is prohibited by Section
5.2(a) or 5.2(b), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Senior Debt or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Debt may have been issued, as their
respective interests may appear, but only to the extent of the amounts then due
and owing on the Senior Debt, if any.
Section 5.3 Payment Over of Proceeds Upon Dissolution, Etc. (a) Upon any
payment or distribution of assets of the Issuer of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Issuer,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Debt shall
first be paid in full, or such payment duly provided for, before any payment is
made on account of the principal of or interest on the Notes, or any
acquisition of the Notes for cash or property is made other than conversion of
the Notes into Common Shares in accordance with Section 7.1 hereof. Upon any
such dissolution, winding-up, liquidation or reorganization, any payment or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, to which the Holders of the Notes would be entitled,
except for the provisions hereof, other than conversion of the Notes into
Common Shares in accordance with Section 7.1 hereof, shall be paid by the
Issuer or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or
8
distribution, or by the Holders of the Notes if received by them, directly to
the holders of Senior Debt (pro rata to such holders on the basis of the
respective amounts of Senior Debt held by such holders) or their respective
representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt remaining
unpaid until all such Senior Debt has been paid in full after giving effect to
any concurrent payment, distribution or provision therefor to or for the
holders of Senior Debt.
(b) Notwithstanding the foregoing, in the event that any payment or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, other than conversion of the Notes into Common Shares
in accordance with Section 7.1 hereof, shall be received by any Holder when
such payment or distribution is prohibited by Section 5.3(a), such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered to, the holders of Senior Debt (pro rata to such holders on the
basis of the respective amount of Senior Debt held by such holders) or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of Senior Debt
remaining unpaid until all such Senior Debt has been paid in full, after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Senior Debt.
(c) For purposes of Section 5 of this Note, the words "cash, property or
securities" shall not be deemed to include (x) shares of stock of the Issuer as
reorganized or readjusted, (y) any payment or distribution of securities of the
Issuer or any other Issuer authorized by an order or decree giving effect, and
stating in such order or decree that effect is given, to the subordination of
the Notes to the Senior Debt, and made by a court of competent jurisdiction in
a reorganization proceeding under any applicable bankruptcy, insolvency or
other similar law, or (z) securities of the Issuer or any other Issuer provided
for by a plan of reorganization or readjustment which are subordinated, to at
least the same extent as the Notes, to the payment of all Senior Debt then
outstanding; provided that (i) if a new Issuer results from such reorganization
or readjustment, such Issuer assumes the Senior Debt and (ii) the rights of the
holders of the Senior Debt are not, without the consent of such holders,
altered by such reorganization or readjustment. Notwithstanding anything to the
contrary in this Section 5, (i) a court referred to in clause (x) above may
give effect, and state that it is giving effect to the subordination of the
Notes in an order or decree which authorizes the payment in full of Senior Debt
in assets other than cash or cash equivalents and (ii) any assets which the
holders of the Notes are permitted to receive in accordance with the provisions
of this Section 5 shall not be subject to any claim by or on behalf of the
holders of Senior Debt.
5.4. Subrogation. Subject to the payment in full of all Senior Debt, the
Holders of the Notes shall be subrogated to the rights of the holders of Senior
9
Debt to receive payments or distributions of cash, property or securities of
the Issuer applicable to the Senior Debt until the principal amount of and
interest on the Notes shall be paid in full; and, for the purposes of such
subrogation, (a) no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the Holders of the Notes would be
entitled except for the provisions of Section 5 of this Note, and no payment
over pursuant to the provisions of Section 5 of this Note to the holders of
Senior Debt by the Holders of the Notes shall, as between the Issuer, its
creditors other than holders of Senior Debt, and the Holders of the Notes, be
deemed to be a payment by the Issuer to or on account of the Senior Debt, and
(b) no payment or distributions of cash, property or securities to or for the
benefit of the Holders of the Notes pursuant to the subrogation provision of
Section 5, which would otherwise have been paid to the holders of Senior Debt
shall, as between the Issuer, its creditors other than holders of Senior Debt,
and the Holders of the Notes, be deemed to be a payment by the Issuer to or for
the account of the Holders of the Notes. It is understood that the provisions
of this Section are and are intended solely for the purpose of defining the
relative rights of the Holders of the Notes, on the one hand, and the holders
of the Senior Debt, on the other hand.
If any payment or distribution to which the Holders of the Notes would
otherwise have been entitled but for the provisions of this Section 5, shall
have been applied, pursuant to the provisions of this Section 5, to the payment
of all amounts payable under Senior Debt, then and in such case, the Holders of
the Notes shall be entitled to receive from the holders of such Senior Debt any
payments or distributions received by such holders of Senior Debt in excess of
the amount required to make payment in full of such Senior Debt.
Section 5.5. Obligations of Issuer Unconditional. Nothing contained in
Section 5.1 or elsewhere in the Notes is intended to or shall impair, as
between the Issuer and the Holders of the Notes, the obligation of the Issuer,
which is absolute and unconditional, to pay to the Holders of the Notes the
principal amount of and interest on the Notes as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders of the Notes and creditors of the
Issuer other than the holders of the Senior Debt, nor shall anything herein or
therein prevent any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under Section 5 of the holders of the Senior Debt in respect of cash, property
or securities of the Issuer received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
Section 5 will restrict the right of the Holders of the Notes to take any
action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Section 4.1 or to pursue any rights or remedies hereunder.
Section 5.6. Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Issuer referred to in
10
Section 5, the Holders of the Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
Holders of the Notes, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Issuer, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to Section 5 of this Note.
Section 5.7. Subordination Rights Not Impaired by Acts or Omissions of the
Issuer or Holders of Senior Debt. No right of any present or future holders of
any Senior Debt to enforce subordination as provided herein will at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Issuer or by any act or failure to act, in good faith, by any such holder,
or by any noncompliances by the Issuer with the terms of this Note, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with. The holders of Senior Debt may extend, renew, modify or amend the terms
of the Senior Debt or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Issuer, all without affecting the
liabilities and obligations of the Holders of the Notes.
Section 5.8. Section 5 Not to Prevent Events of Default. The failure to
make a payment on account of principal of or interest on the Notes by reason of
any provision of Section 5 will not be construed as preventing the occurrence
of an Event of Default.
Section 6.1. Modification of Notes. Any provision of this Note may be
amended or, subject to Section 4, waived with the written consent of the Issuer
and the Holders of at least a majority in aggregate principal amount of the
Notes then outstanding; provided that no such amendment or waiver shall (a)
extend the final maturity of any Note, or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any amount payable on the conversion thereof, amend or waive Section 4.1, or
impair or affect the rights of any Holder to institute suit for the payment
thereof or adversely affect the ranking of the Notes with respect to the
outstanding Debt of the Issuer, in each such case, without the consent of each
Holder of each Note so affected, (b) reduce the aforesaid percentage of Holders
of the Notes, the consent of the Holders of the Notes of which is required for
any such amendment or waiver, without the consent of the Holders of all Notes
then outstanding, or (c) modify the terms of the Notes so as to affect
adversely the rights of any holder of Senior Debt at the time outstanding to
the benefits of subordination hereunder without the consent of such holder; and
for such purposes the following modifications to the terms of this Note or, as
applicable, the Securities Purchase Agreement, shall be deemed to adversely
affect the rights of the holders of the Senior Debt: (i) shortening the
maturity date of the principal amount of this Note; (ii) increasing the
interest rate under this Note; (iii) increasing the principal amount of the
Notes
11
issued under the Securities Purchase Agreement; (iv) modifying the required
prepayments under this Note; and (v) amending the events constituting Defaults
under this Note in a manner adverse to the Company or the holders of the Senior
Debt. The Issuer shall promptly notify all of the Holders of the Notes after
the making of any amendment or waiver pursuant to this Section 6.1.
Section 7.1. Conversion. (a) The Principal Amount of this Note shall be
convertible at any time and from time to time, in whole or in part (such
amount, the "Convertible Amount") at the option of the Holder hereof and upon
notice to the Issuer as set forth below, into fully paid and nonassessable
Common Shares at the Conversion Rate (as defined below). The initial conversion
price per Common Share will be [80% of the Daily Price per Common Share for the
ten (10) consecutive trading days immediately preceding the two consecutive
trading days immediately prior to the day of the Company Shareholder Meeting
(as defined in the Securities Purchase Agreement)] and shall be subject to
adjustment as provided for herein (the "Conversion Price"). The number of
Common Shares deliverable upon conversion of each $1,000 Convertible Amount of
the Notes, adjusted as hereinafter provided, is referred to herein as the
"Conversion Rate". The initial Conversion Rate shall be equal to the quotient
resulting from dividing $1000 by the Conversion Price.
(b) The Conversion Price (and the corresponding Conversion Rate) shall be
subject to adjustment from time to time as follows:
(i) In case the Issuer shall at any time (A) pay a dividend in Common
Shares or make a distribution in Common Shares, (B) subdivide or split its
outstanding Common Shares, (C) combine or reclassify its outstanding
Common Shares into a smaller number of Common Shares, (D) issue by
reclassification of its Common Shares other securities of the Issuer
(including any such reclassification in connection with a consolidation or
merger in which the Issuer is the continuing corporation), or (E)
consolidate with, or merge with or into, any other Person, then in each
such case the Conversion Rate in effect at the time of the record date for
any such dividend or distribution or of the effective date of any such
subdivision, split, combination, consolidation, merger or reclassification
shall be proportionately adjusted so that the conversion of the Note after
such time shall entitle the Holder to receive the kind and aggregate
number of Common Shares or other securities of the Issuer (or shares of
any security into which such Common Shares have been combined,
consolidated, merged, converted or reclassified pursuant to clause (C),
(D), or (E) above) which, if this Note had been converted immediately
prior to such time, such Holder would have owned upon such conversion and
been entitled to receive by virtue of such dividend, distribution,
subdivision, split, combination, consolidation, merger or
reclassification, assuming for purposes of this subsection 7.1(b)(i) that
such Holder (x) is not a Person with which the Issuer consolidated or into
which the Issuer merged or which merged into the Issuer or to which such
recapitalization, sale or transfer was made, as the case may be
("constituent
12
person") and (y) failed to exercise any rights of election as to the kind
or amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer (provided, that if the kind or amount of securities, cash and
other property receivable upon such reclassification, change,
consolidation, merger, recapitalization, sale or transfer is not the same
for each Common Share of the Issuer held immediately prior to such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer by other than a constituent person and in respect of which such
rights of election shall not have been exercised ("non-electing share"),
then for the purpose of this Section 7.1(b)(i) the kind and amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, recapitalization, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares). Such adjustment
shall be made successively whenever any event listed above shall occur.
(ii) In case the Issuer shall issue or sell any Common Shares (other
than Common Shares issued (1) pursuant to the Issuer's non-qualified stock
option plans for officers, directors or key employees, or pursuant to any
similar Common Share related employee compensation plan of the Issuer
approved by the Issuer's Board of Directors, (2) in connection with a
merger or consolidation with or other acquisition of, another Person or
the acquisition of the assets of another Person, other than any such
transaction that constitutes a Change in Control Liquidation Event (as
such term is defined in the Issuer's Amended and Restated Articles of
Incorporation) or (3) upon exercise or conversion of any security the
issuance of which caused an adjustment under Section 7.1(b)(iii) or (iv)
hereof) without consideration or for a consideration per share less than
the Conversion Price (the "Issue Price"), the Conversion Price to be in
effect after such issuance or sale shall be determined by multiplying the
Conversion Price in effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the sum of (x) the number of
Common Shares outstanding immediately prior to the time of such issuance
or sale multiplied by the Issue Price and (y) the aggregate consideration,
if any, to be received by the Issuer upon such issuance or sale, and the
denominator of which shall be the product of the aggregate number of
Common Shares outstanding immediately after such issuance or sale and the
Conversion Price. In case any portion of the consideration to be received
by the Issuer shall be in a form other than cash, the fair market value of
such noncash consideration shall be utilized in the foregoing computation.
Such fair market value shall be determined by the Board of Directors of
the Issuer; provided that if Holders of 50% or more of the outstanding
aggregate principal amount of the Notes shall object to any such
determination, the Board of Directors of the Issuer shall retain an
independent appraiser reasonably satisfactory to a majority of such
Holders to determine such fair market value. Such Holders shall be
notified promptly of any consideration other than cash to be received by
the Issuer and furnished with a description of the
13
consideration and the fair market value thereof, as determined by the
Board of Directors of the Issuer.
(iii) In case the Issuer shall fix a record date for the issuance of
rights, options or warrants to the holders of Common Shares or other
securities entitling such holders to subscribe for or purchase for a
period expiring within 60 days of such record date Common Shares (or
securities convertible into Common Shares) at a price per Common Share (or
having a conversion price per Common Share, if a security convertible into
Common Shares) less than the Conversion Price on such record date, the
maximum number of Common Shares issuable upon exercise of such rights,
options or warrants (or conversion of such convertible securities) shall
be deemed to have been issued and outstanding as of such record date and
the Conversion Price shall be adjusted pursuant to paragraph (b)(ii)
hereof, as though such maximum number of Common Shares had been so issued
for an aggregate consideration payable by the holders of such rights,
options, warrants or convertible securities prior to their receipt of such
Common Shares. In case any portion of such consideration shall be in a
form other than cash, the fair market value of such noncash consideration
shall be determined as set forth in Section 7(b)(ii) hereof. Such
adjustment shall be made successively whenever such record date is fixed;
and in the event that such rights, options or warrants are not so issued
or expire unexercised, or in the event of a change in the number of Common
Shares to which the holders of such rights, options or warrants are
entitled (other than pursuant to adjustment provisions therein comparable
to those contained in this Section 7(b)), the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if
such record date had not been fixed, in the former event, or the
Conversion Price which would then be in effect if such holder had
initially been entitled to such changed number of Common Shares, in the
latter event.
(iv) In case the Issuer shall issue rights, options (other than
options issued pursuant to a plan described in Section 7(b)(ii)) or
warrants entitling the holders thereof to subscribe for or purchase Common
Shares (or securities convertible into Common Shares) or shall issue
convertible securities, and the price per Common Share of such rights,
options, warrants or convertible securities (including, in the case of
rights, options or warrants, the price at which they may be exercised) is
less than the Conversion Price, the maximum number of Common Shares
issuable upon exercise of such rights, options or warrants or upon
conversion of such convertible securities shall be deemed to have been
issued and outstanding as of the date of such sale or issuance, and the
Conversion Price shall be adjusted pursuant to Section 7(b)(ii) hereof as
though such maximum number of Common Shares had been so issued for an
aggregate consideration equal to the aggregate consideration paid for such
rights, options, warrants or convertible securities and the aggregate
consideration payable by the holders of such rights, options, warrants or
convertible securities prior to their receipt of such Common Shares. In
case any portion of such consideration shall be in a form other than cash,
the fair market value of such noncash consideration
14
shall be determined as set forth in Section 7(b)(ii) hereof. Such
adjustment shall be made successively whenever such rights, options,
warrants or convertible securities are issued; and in the event that such
rights, options or warrants expire unexercised, or in the event of a
change in the number of Common Shares to which the holders of such rights,
options, warrants or convertible securities are entitled (other than
pursuant to adjustment provisions therein comparable to those contained in
this Section 7(b)), the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such rights, options,
warrants or convertible securities had not been issued, in the former
event, or the Conversion Price which would then be in effect if such
holders had initially been entitled to such changed number of Common
Shares, in the latter event. No adjustment of the Conversion Price shall
be made pursuant to this Section 7(b)(iv) to the extent that the
Conversion Price shall have been adjusted pursuant to Section 7(b)(iii)
upon the setting of any record date relating to such rights, options,
warrants or convertible securities and such adjustment fully reflects the
number of Common Shares to which the holders of such rights, options,
warrants or convertible securities are entitled and the price payable
therefor.
(v) In case the Issuer shall fix a record date for the making of a
dividend or distribution to holders of Common Shares (including any such
distribution made in connection with a consolidation or merger in which
the Issuer is the continuing corporation) of evidences of indebtedness,
cash, assets or other property (other than dividends payable in Common
Shares or rights, options or warrants referred to in, and for which an
adjustment is made pursuant to, Section 7(b)(iii) hereof), the Conversion
Price to be in effect after such record date shall be determined by
multiplying the Conversion Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current
Market Price Per Common Share (as defined below) on such record date, less
the fair market value (determined as set forth in Section 7(b)(ii) hereof)
of the portion of the cash, assets, other property or evidence of
indebtedness so to be distributed which is applicable to one Common Share,
and the denominator of which shall be such Current Market Price Per Common
Share. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so made, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such record date had not been fixed.
(vi) For the purpose of any computation under Section 8(b) hereof, on
any determination date, the "Current Market Price Per Common Share" shall
be deemed to be the average (weighted by daily trading volume) of the
Daily Prices (as defined below) per Common Share for the 20 consecutive
trading days immediately prior to such date. "Daily Price" means (1) if
the Common Shares then are listed and traded on the New York Stock
Exchange, Inc. ("NYSE"), the closing price per share on such day as
reported on the NYSE Composite Transactions Tape; (2) if the Common Shares
then are not listed and traded on the NYSE, the closing price per share on
such day as reported by the
15
principal national securities exchange on which the shares are listed and
traded; (3) if the Common Shares then are not listed and traded on any
such securities exchange, the last reported sale price per share on such
day on the NASDAQ National Market; or (4) if the shares of such class of
Common Shares then are not traded on the NASDAQ Stock Market, the average
of the highest reported bid and lowest reported asked price per share on
such day as reported by NASDAQ. If on any determination date the Common
Shares are not quoted by any such organization, the Current Market Price
Per Common Share shall be the fair market value per share of such shares
on such determination date as determined by the Board of Directors of the
Issuer. If Holders of 50% or more of the outstanding aggregate principal
amount of the Notes shall object to any determination by the Board of
Directors of the Issuer of the Current Market Price Per Common Share, the
Current Market Price Per Common Share shall be the fair market value per
Common Share as determined by an independent appraiser retained by the
Issuer at its expense and reasonably acceptable to such Holders. For
purposes of any computation under this Section 7(b), the number of Common
Shares outstanding at any given time shall not include shares owned or
held by or for the account of the Issuer.
(vii) All calculations under this Section 7(b) shall be made to the
nearest one tenth of a cent or to the nearest hundredth of a share, as the
case may be.
(viii) In the event that, at any time as a result of the provisions
of this Section 7(b), the Holder of this Note upon subsequent conversion
shall become entitled to receive any shares of Capital Stock of the Issuer
other than Common Shares, the number of such other shares so receivable
upon conversion of this Note shall thereafter be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained herein.
(ix) If the Issuer shall take a record of the Holders of Common
Shares for the purpose of entitling them to receive a dividend or other
distribution (which results in an adjustment to the Conversion Price under
the terms hereof) and shall, thereafter and before such dividend or
distribution is paid or delivered to shareholders entitled thereto,
legally abandon its plan to pay or deliver such dividend or distribution,
then any adjustment made to the Conversion Price and number of Common
Shares purchasable upon conversion of the Notes by reason of the taking of
such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
(c) (i) In order to exercise the conversion privilege, the Holder of the
Note to be converted shall surrender the Note, with a written notice to the
Issuer that such Holder elects to exercise its conversion privilege, and
stating the Convertible Amount of Notes which the Holder seeks to convert. The
date of
16
receipt of the Note or Notes by the Issuer shall be the conversion date (the
"Conversion Date").
(ii) As promptly as practicable (but no later than three Business
Days) after the Conversion Date, the Issuer shall issue and shall deliver
to such Holder, or on the Holder's written order to the Holder's permitted
transferee in accordance with the terms of the Amended and Restated
Investor Rights Agreement, a certificate or certificates for the whole
number of Common Shares issuable upon the conversion of such Note or Notes
in accordance with the provisions of this Section 7.1.
(iii) In the case where only part of a Note is converted, the Issuer
shall execute and deliver (at its own expense) a new Note of any
authorized denomination as requested by a Holder in an aggregate principal
amount equal to and in exchange for the unconverted portion of the
Principal Amount of the Note so surrendered.
(iv) The Issuer shall make a cash payment equal to all accrued and
unpaid interest on the Principal Amount so surrendered for conversion
(other than interest payments payable to a holder of record on a prior
Interest Payment Date) to the Conversion Date.
(v) Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the Notes to be
converted shall have been surrendered to the Issuer, and the person in
whose name or names any certificate or certificates for Common Shares
shall be issuable upon such conversion shall be deemed to have become the
holder of record of the Common Shares represented thereby on such date and
such conversion shall be into a number of Common Shares resulting from
applying the Conversion Rate in effect at such time on such date. All
Common Shares delivered upon conversion of the Notes will upon delivery be
duly and validly issued and fully paid and non-assessable, free of all
Liens and charges and not subject to any preemptive rights. Upon the
surrender of any Notes for conversion, such Notes or part thereof so
converted shall no longer be deemed to be outstanding and all rights of a
Holder with respect to such Notes or part thereof so converted including
the rights, if any, to receive interest, notices and consent rights shall
immediately terminate on the Conversion Date except the right to receive
the Common Shares and other amounts payable pursuant to this Section 7.1.
Any Notes or part thereof so converted shall be retired and cancelled.
(d) (i) The Issuer covenants that it will at all times during which the
Notes shall be outstanding reserve and keep available, free from preemptive
rights, such number of its authorized but unissued Common Shares as shall from
time to time be required for the purpose of effecting conversions of
outstanding Notes.
17
(ii) Prior to the delivery of any securities which the Issuer shall
be obligated to deliver upon conversion of the Notes, the Issuer shall
comply with all applicable federal and state laws and regulations which
require action to be taken by the Issuer.
(e) The Issuer will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of Common Shares on
conversion of the Notes pursuant hereto; provided that the Issuer shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of Common Shares in a name other than that of
the Holder of the Notes to be converted and no such issue or delivery shall be
made unless and until the person requesting such issue or delivery has paid to
the Issuer the amount of any such tax or has established, to the satisfaction
of the Issuer, that such tax has been paid.
(f) If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any Holder tendering Notes for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the Holders entitled to receive the
Common Shares issuable upon such conversion of the Notes shall not be deemed to
have converted such Notes until immediately prior to the closing of the sale of
securities in such offering.
(g) No fractional Common Shares shall be issued upon conversion of the
Notes. In lieu of fractional shares, the Issuer shall pay cash equal to such
fraction multiplied by the Daily Price for Common Shares on the trading day
immediately preceding the related Conversion Date.
(h) Upon the occurrence of each adjustment or readjustment of the
Conversion Rate pursuant to this Section 7.1, the Issuer at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of Notes outstanding a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based and shall file a copy of such
certificate with its corporate records. The Issuer shall, upon the reasonable
written request of any Holder of Notes, furnish or cause to be furnished to
such Holders a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Rate then in effect, and (iii) the number of
Common Shares and the amount, if any, of other property which then would be
received upon the conversion of the Notes. Despite such adjustment or
readjustment, the form of each or all Notes, if the same shall reflect the
initial or any subsequent Conversion Rate, need not be changed in order for the
adjustments or readjustments to be valid in accordance with the provisions of
this Note, which shall control.
18
(i) The Issuer will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Issuer, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 7.1 and
in the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the Holders of the Notes against impairment to
the extent required hereunder. Nothing in this Section 8.1 shall affect the
continued accrual of interest on the outstanding Notes in accordance with the
terms of this Note.
Section 9. Miscellaneous
Section 9.1. Transfer Restrictions. This Note is transferable and
assignable to one or more purchasers, provided that such transfer or assignment
is made in compliance with the Securities Act of 1933, as amended, and any
applicable state and foreign securities laws and in compliance with Article 2
of the Amended and Restated Investor Rights Agreement. The Issuer agrees to
issue from time to time a replacement Note or Notes in the form hereof and in
such denominations as the Holder may request to facilitate such transfers and
assignments upon surrender of the Note or Notes being transferred. In addition,
after delivery of an indemnity in form and substance reasonably satisfactory to
the Issuer, the Issuer also agrees to issue a replacement Note if this Note has
been lost, stolen, mutilated or destroyed.
Section 9.2. Registration. The Issuer shall keep at its principal office a
register (the "Register") in which shall be entered the name and address of the
registered holder of this Note and particulars of this Note and of all
transfers of this Note. References to the "Holders" shall mean the Persons
listed in the Register as the payees of the Notes unless any payee shall have
presented a Note to the Issuer for transfer and the transferee shall have been
entered in the Register as a subsequent holder, in which case the term shall
mean such subsequent holder. The ownership of this Note shall be proven by the
Register. For the purpose of paying interest and principal on this Note, the
Issuer shall be entitled to rely on the name and address in the Register and
notwithstanding anything to the contrary contained in this Note, no Event of
Default shall occur under Section 4.1(a) or (b) if payment of interest and
principal is made in accordance with the name and address and particulars
contained in the Register.
Section 9.3. Governing Law. This Note shall be deemed to be a contract
under the laws of the State of Ohio, and for all purposes shall be construed in
accordance with the laws of said State, except as may otherwise be required by
mandatory provisions of law.
Section 9.4. Waiver of Presentment, Acceptance. The parties hereto,
including all guarantors or endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery,
19
acceptance, performance and enforcement of this Note, except as specifically
provided herein. The Holder of this Note by acceptance hereof agrees to be
bound by the provisions of the Notes which are expressly binding on the Holder.
Section 9.5. Section Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
20
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
Dated: [ ], 2002
FRONTSTEP, INC.
By:
------------------------------
Name:
Title:
21
EXHIBIT C
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR FOREIGN JURISDICTION AND
MAY NOT BE OFFERED OR SOLD WITHOUT COMPLIANCE WITH APPLICABLE FEDERAL, STATE OR
FOREIGN SECURITIES LAWS. THIS SECURITY IS ALSO SUBJECT TO RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT,
DATED AS OF MARCH 7, 2002, A COPY OF WHICH MAY BE OBTAINED FROM FRONTSTEP, INC.
No. [ ]
$[ ]
FRONTSTEP, INC.
10.0% Subordinated Note due May 10, 2004
Frontstep, Inc., an Ohio corporation (together with its successors and
assigns, the "Issuer"), for value received hereby promises to pay to [ ]
(together with its successors, transferees and assigns, the "Holder") the
principal sum of [ ] (the "Principal Amount") by wire transfer of immediately
available funds to the Holder's account (the "Bank Account") at a bank in the
United States specified by the Holder from time to time, in lawful money of the
United States together with interest thereon calculated from the date hereof in
accordance with the provisions of this Note.
This Note was issued pursuant to the Securities Purchase Agreement (the
"Securities Purchase Agreement"), dated as of March 7, 2002 among the Issuer,
and certain other parties listed on the signature pages thereto. Unless the
context otherwise requires, as used herein, "Note" means any of the 10.0%
Subordinated Notes issued pursuant to the Securities Purchase Agreement and any
other similar Subordinated Notes issued by the Issuer in exchange for, or to
effect a transfer of, any Note and "Notes" means all such Notes in the
aggregate.
This Note shall bear interest, commencing March 7, 2002, at a rate per
annum (the "Interest Rate") equal to 10.0%. Further, the Issuer shall pay
interest on any overdue Principal Amount at a rate per annum equal to 14.0%
(the "Overdue Rate"), and interest on overdue installments of interest, to the
extent lawful, at the Overdue Rate. Interest on this Note will be calculated on
the basis of a 360-day year of twelve 30-day months.
Notwithstanding anything herein to the contrary, the interest or any
amount deemed to be interest payable by the Issuer with respect to this Note
shall
not exceed the maximum amount permitted by applicable law and, to the extent
that any payments in excess of such permitted amount are received by the
Holder, such excess shall be considered payments in respect of the principal
amount of this Note. All sums paid or agreed to be paid to the Holder for the
use, forbearance or retention of the indebtedness of the Issuer to the Holder
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full of the principal so that the interest on account of such
indebtedness shall not exceed the maximum amount permitted by applicable law.
Section 1.1. Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Note shall have the respective meanings specified
below. All accounting terms used herein and not expressly defined shall have
the meanings given to them in accordance with U.S. generally accepted
accounting principles, and the term "generally accepted accounting principles"
shall mean such accounting principles which are generally accepted as of the
date hereof. The terms defined in this Section 1.1 include the plural as well
as the singular.
"Acceleration Notice" shall have the meaning set forth in Section 5.1.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the date of this
Note, including without limitation, with respect to the Issuer, the Common
Shares and the Preferred Shares.
"Common Shares" means any and all shares of common stock, without par
value, of the Issuer.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments,
(iii) all obligations of such Person in respect of letters of credit or other
similar
2
instruments (or reimbursement obligations with respect thereto), except letters
of credit or other similar instruments issued to secure payment of Trade
Payables, (iv) all obligations of such Person to pay the deferred purchase
price of property or services, except Trade Payables, (v) all obligations of
such Person as lessee under capital leases, (vi) all Debt of others secured by
a Lien on any asset of such Person, whether or not such Debt is assumed by such
Person and (vii) all Debt of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Default Notice" shall have the meaning set forth in Section 6.2.
"Event of Default" means any event or condition specified as such in
Section 5.1 which shall have continued for the period of time, if any, therein
designated.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Debt or other obligation of such other Person (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other obligation for
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part), provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holders" shall have the meaning set forth in Section 9.2.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Note, the Issuer shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease or
other title retention agreement relating to such asset.
"NASD" means the National Association of Securities Dealers, Inc., and its
successors.
3
"Notice of Default" shall have the meaning set forth in Section 5.1(c).
"Person" means any individual or a corporation, partnership, limited
liability company, association, trust, or any other entity or organization
including a government or political subdivision or an agency or instrumentality
thereof.
"Preferred Shares" means any and all shares of preferred stock, without
par value, of the Issuer.
"Senior Debt" means the Debt of the Issuer to Foothill Capital Corporation
outstanding at any time.
"Trade Payables" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Issuer in the
ordinary course of business in connection with the obtaining of materials or
services.
Section 2. Payment of Principal and Interest.
Section 2.1. Scheduled Payment of Principal. The Issuer shall pay the
Principal Amount, together with all accrued and unpaid interest thereon, if
any, in cash to the Holder of this Note on May 10, 2004.
Section 2.2. Payment of Interest. The Issuer shall pay interest on this
Note quarterly in arrears, on March 31, June 30, September 30, and December 31
(unless such day is not a Business Day, in which event on the next succeeding
Business Day) (each an "Interest Payment Date") of each year in which this Note
remains outstanding, commencing with March 31, 2002, on the unpaid Principal
Amount outstanding in lawful money of the United States at the Interest Rate,
or Overdue Rate, as the case may be, as set forth above, by wire transfer of
immediately available funds, to the Bank Account, from the most recent Interest
Payment Date to which interest has been paid in full on this Note, or if no
interest has been paid on this Note, from the date hereof, until payment in
full of the Principal Amount has been made.
Section 2.3. Prepayment. With the consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, the
Issuer may prepay the Notes in whole or in part without penalty or fee;
provided, however, that such consent may not be unreasonably withheld.
Section 2.4. Payment Obligations Absolute and Unconditional. No provision
of this Note shall alter or impair the obligations of the Issuer, which are
absolute and unconditional, to pay the Principal Amount of and interest on this
Note at the place, times, and rate, and in the currency, herein prescribed.
4
Section 2.5. Pro Rata Payment. The Issuer agrees that any payments to the
Holders of the Notes (whether for principal, interest or otherwise) shall be
made pro rata among all such Holders based upon the aggregate unpaid Principal
Amount of the Notes held by each such Holder. If any Holder of a Note obtains
any payment (whether voluntary, involuntary, by application of offset or
otherwise) of principal or interest on such Note in excess of such Holder's pro
rata share of payments obtained by all Holders of the Notes, such Holder shall
make such payments to the other Holders of the Notes as is necessary to cause
such Holders to share the excess payment ratably among each of them as provided
in this Section.
Section 3.1 Holder Put Right. (a) If the Convertible Closing (as defined in
the Securities Purchase Agreement) has not occurred, and is not reasonably
expected to occur, on or before August 31, 2002, then at the election of a
majority in aggregate principal amount of the Notes then outstanding, all of
the Notes shall be redeemed in whole, but not in part, by the Issuer on August
31, 2002 (the "Redemption Date"), upon not less than 5 days' prior written
notice to the Issuer, at a redemption price equal to 100% of the Principal
Amount (the "Redemption Price"), plus any accrued and unpaid interest through
but not including the Redemption Date.
(b) With respect to any redemption of this Note pursuant to this Section
3.1, at least 5 days before the Redemption Date, the Holders of a majority in
aggregate principal amount of the Notes then outstanding shall deliver a notice
requesting redemption to the Issuer. The notice shall state:
(i) the names and addresses of the Holders along with wire transfer
instructions setting forth the Bank Account for each Holder into which payment
is to be made;
(ii) that the Holder of a Note will surrender such Note to the Issuer
as promptly as practicable after the Redemption Price plus any accrued and
unpaid interest through but not including the Redemption Date on such Note has
been deposited in the Bank Account of such Holder; and
(iii) that, unless the Issuer defaults in making the redemption
payment, interest on the Notes shall cease to accrue on and after the
Redemption Date and the only remaining right of the Holders is to receive
payment of the Redemption Price plus accrued interest through but not including
the Redemption Date.
(c) Once the notice requesting redemption has been sent, this Note becomes
due and payable on the Redemption Date and at the Redemption Price and the
Holder of this Note shall be deemed to have requested prepayment of this Note
without penalty or fee.
5
(d) At or prior to 12:00 noon on the Redemption Date, the Issuer shall
deposit in the Bank Account of the Holder of this Note the Redemption Price of
this Note plus accrued interest through but not including the Redemption Date.
(e) If notice requesting redemption has been given in the manner provided
above, this Note shall become due and payable on the Redemption Date at the
Redemption Price stated therein, together with accrued interest to such
Redemption Date, and on and after such date (unless the Issuer shall default in
the payment of this Note at the Redemption Price and accrued interest to the
Redemption Date, in which case the principal, until paid, shall bear interest
from the Redemption Date at the Overdue Rate) this Note shall cease to accrue
interest.
Section 4. Covenants.
The Issuer agrees that, so long as any amount payable under this Note
remains unpaid:
Section 4.1. Information. The Issuer will deliver to the Holder, within
three Business Days after any executive officer of the Issuer obtains knowledge
of any Default, if such Default is then continuing, a certificate of the chief
financial officer or the chief accounting officer of the Issuer setting forth
the details thereof and the action which the Issuer is taking or proposes to
take with respect thereto.
Section 4.2. Conduct of Business and Maintenance of Existence. The Issuer
will preserve, renew and keep in full force and effect its corporate existence
and its rights, privileges and franchises necessary or desirable in the normal
conduct of its business.
Section 5. Events of Default and Remedies.
Section 5.1. Event of Default Defined; Acceleration of Maturity; Waiver of
Default. In case one or more of the following events ("Events of Default")
(whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
(a) default in the payment of any interest upon any of the Notes as and
when the same shall become due and payable, and continuance of such default for
a period of three days; or
(b) default in the payment of all or any part of the principal of any of
the Notes as and when the same shall become due and payable; or
(c) failure on the part of the Issuer duly to observe or perform any other
of the covenants or agreements on the part of the Issuer contained in the Notes
for
6
a period of 15 days after the date on which written notice specifying such
failure, stating that such notice is a "Notice of Default" hereunder and
demanding that the Issuer remedy the same, shall have been given by registered
or certified mail, return receipt requested, to the Issuer; or
(d) any acceleration of the maturity of any Debt of the Issuer or any of
its subsidiaries having a principal amount greater than $1,000,000; or
(e) a final and non-appealable judgment or order (not covered by
insurance) for the payment of money shall be rendered against the Issuer or any
of its subsidiaries in excess of $1,000,000 in the aggregate for all such
judgments or orders (treating any deductibles, self insurance or retention as
not so covered), and such judgment or order shall continue unsatisfied for a
period of 60 days; or
(f) a court having jurisdiction shall enter a decree or order for relief
in respect of the Issuer in an involuntary case under applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Issuer or for any substantial part of the property of the
Issuer or ordering the winding up or liquidation of the affairs of the Issuer,
and such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(g) the Issuer shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Issuer or for any substantial part of the property of the Issuer, or the
Issuer shall make any general assignment for the benefit of creditors; or
(h) the consummation of the consolidation or merger of the Issuer into or
with any other entity or entities which results in the exchange of outstanding
shares of the Issuer for securities or other consideration issued or paid or
caused to be issued or paid by any such entity or Affiliate thereof (other than
(x) a merger solely for the purpose of reincorporating the Issuer in a
different jurisdiction or (y) a consolidation or merger in which the Issuer is
the surviving entity and in which the Issuer's Capital Stock outstanding
immediately prior to such merger or consolidation are exchanged or converted
into or constitute more than 50% of the Issuer's voting power after such
consolidation or merger); (ii) the sale or transfer by the Issuer of all or
substantially all of its assets otherwise than to one or more Subsidiaries; or
(iii) a transaction or series of transactions in which a person or group of
persons (as defined in Rule 13d-5(b)1) of the Exchange Act), acquires
beneficial ownership (as determined in accordance with Rule 13d-3 of the
Exchange Act) of more than 50% of the voting power of the Issuer;
7
then, and in each and every such case (other than an Event of Default
specified in Sections 5.1(f), 5.1(g) or 5.1(h) hereof), the Holders of at least
a majority in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Issuer (the "Acceleration Notice"), may declare the
entire principal amount of the Notes and the interest accrued thereon to be due
and payable immediately, and upon any such declaration the same shall become
immediately due and payable; provided that if an Event of Default specified in
Section 5.1(f), 5.1(g) or 5.1(h) occurs, the principal amount of and accrued
interest on the Notes shall become and be immediately due and payable without
any declaration or other act on the part of any Holder.
Section 5.2. Powers and Remedies Cumulative; Delay or Omission Not Waiver
of Default. No right or remedy herein conferred upon or reserved to any Holder
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of any Holder to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid shall impair
any such right or power or shall be construed to be a waiver of any such Event
of Default or an acquiescence therein; and every power and remedy given by the
Notes or by law may be exercised from time to time, and as often as shall be
deemed expedient, by any Holder.
Section 5.3. Waiver of Past Defaults. The Holders of the Notes may waive,
in accordance with Section 7.1, any past Default or Event of Default hereunder
and its consequences. In the case of any such waiver, the Issuer and the
Holders of the Notes shall be restored to their former positions and rights
hereunder, respectively; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for
every purpose of the Notes; but no such waiver shall extend to any subsequent
or other Default or Event of Default or impair any right consequent thereon.
Section 6. Subordination.
Section 6.1. Notes Subordinated to Senior Debt. The Issuer covenants and
agrees and each Holder, by his acceptance hereof likewise covenants and agrees,
that all Notes shall be issued subject to the provisions of Section 6 of this
8
Note; and each person holding any Note, whether upon original issue or upon
transfer, assignment or exchange thereof accepts and agrees that the payment of
the principal amount of and interest on the Notes by the Issuer shall, to the
extent and in the manner herein set forth, be subordinated and junior in right
of payment, to the prior payment in full of Senior Debt.
Section 6.2. No Payment on Notes in Certain Circumstances. (a) If any
default in the payment of any principal of or interest on any Senior Debt when
due and payable, whether at maturity, upon any redemption, by declaration or
otherwise, occurs and is continuing, no payment shall be made by the Issuer
with respect to the principal of or interest on the Notes or to acquire any of
the Notes for cash or property other than conversion of the Notes into Common
Shares in accordance with Section 8.1 hereof.
(b) If any event of default (other than a default in payment of the
principal of or interest on any Senior Debt) occurs and is continuing (or if
such an event of default would occur upon any payment with respect to the
Notes) with respect to any Senior Debt, as such event of default is defined in
such Senior Debt, permitting the holders thereof to accelerate the maturity
thereof and if the holder or holders or a representative of such holder or
holders gives written notice of the event of default to the Issuer (a "Default
Notice"), then, unless and until such event of default has been cured or waived
or has ceased to exist, the Issuer shall not be obligated to, and shall not,
(x) make any payment of or with respect to the principal of or interest on the
Notes or (y) acquire any of the Notes for cash or property or otherwise other
than conversion of the Notes into Common Shares in accordance with Section 8.1
hereof. After the event of default described in such Default Notice has been
cured or waived or ceases to exist, the Issuer shall, subject to Section
6.2(a), promptly pay to the Holders of the Notes all sums which the Issuer
would have been obligated to pay from the date of the Default Notice but for
this Section 6.2(b).
(c) Notwithstanding the foregoing, in the event that any payment in cash
shall be received by any Holder when such payment is prohibited by Section
6.2(a) or 6.2(b), such payment shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Senior Debt or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Debt may have been issued, as their
respective interests may appear, but only to the extent of the amounts then due
and owing on the Senior Debt, if any.
Section 6.3 Payment Over of Proceeds Upon Dissolution, Etc. (a) Upon any
payment or distribution of assets of the Issuer of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding-up or total or partial liquidation or reorganization of the Issuer,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other
9
proceedings, all amounts due or to become due upon all Senior Debt shall first
be paid in full, or such payment duly provided for, before any payment is made
on account of the principal of or interest on the Notes, or any acquisition of
the Notes for cash or property is made other than conversion of the Notes into
Common Shares in accordance with Section 8.1 hereof. Upon any such dissolution,
winding-up, liquidation or reorganization, any payment or distribution of
assets of the Issuer of any kind or character, whether in cash, property or
securities, to which the Holders of the Notes would be entitled, except for the
provisions hereof, other than conversion of the Notes into Common Shares in
accordance with Section 8.1 hereof, shall be paid by the Issuer or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the Holders of the Notes if received
by them, directly to the holders of Senior Debt (pro rata to such holders on
the basis of the respective amounts of Senior Debt held by such holders) or
their respective representatives, or to the trustee or trustees under any
indenture pursuant to which any of such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of Senior
Debt remaining unpaid until all such Senior Debt has been paid in full after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of Senior Debt.
(b) Notwithstanding the foregoing, in the event that any payment or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, other than conversion of the Notes into Common Shares
in accordance with Section 8.1 hereof, shall be received by any Holder when
such payment or distribution is prohibited by Section 6.3(a), such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered to, the holders of Senior Debt (pro rata to such holders on the
basis of the respective amount of Senior Debt held by such holders) or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of Senior Debt
remaining unpaid until all such Senior Debt has been paid in full, after giving
effect to any concurrent payment, distribution or provision therefor to or for
the holders of such Senior Debt.
(c) For purposes of Section 6 of this Note, the words "cash, property or
securities" shall not be deemed to include (x) shares of stock of the Issuer as
reorganized or readjusted, (y) any payment or distribution of securities of the
Issuer or any other Issuer authorized by an order or decree giving effect, and
stating in such order or decree that effect is given, to the subordination of
the Notes to the Senior Debt, and made by a court of competent jurisdiction in
a reorganization proceeding under any applicable bankruptcy, insolvency or
other similar law, or (z) securities of the Issuer or any other Issuer provided
for by a plan of reorganization or readjustment which are subordinated, to at
least the same extent as the Notes, to the payment of all Senior Debt then
outstanding;
10
provided that (i) if a new Issuer results from such reorganization or
readjustment, such Issuer assumes the Senior Debt and (ii) the rights of the
holders of the Senior Debt are not, without the consent of such holders,
altered by such reorganization or readjustment. Notwithstanding anything to the
contrary in this Section 6, (i) a court referred to in clause (x) above may
give effect, and state that it is giving effect to the subordination of the
Notes in an order or decree which authorizes the payment in full of Senior Debt
in assets other than cash or cash equivalents and (ii) any assets which the
holders of the Notes are permitted to receive in accordance with the provisions
of this Section 6 shall not be subject to any claim by or on behalf of the
holders of Senior Debt.
6.4. Subrogation. Subject to the payment in full of all Senior Debt, the
Holders of the Notes shall be subrogated to the rights of the holders of Senior
Debt to receive payments or distributions of cash, property or securities of
the Issuer applicable to the Senior Debt until the principal amount of and
interest on the Notes shall be paid in full; and, for the purposes of such
subrogation, (a) no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the Holders of the Notes would be
entitled except for the provisions of Section 6 of this Note, and no payment
over pursuant to the provisions of Section 6 of this Note to the holders of
Senior Debt by the Holders of the Notes shall, as between the Issuer, its
creditors other than holders of Senior Debt, and the Holders of the Notes, be
deemed to be a payment by the Issuer to or on account of the Senior Debt, and
(b) no payment or distributions of cash, property or securities to or for the
benefit of the Holders of the Notes pursuant to the subrogation provision of
Section 6, which would otherwise have been paid to the holders of Senior Debt
shall, as between the Issuer, its creditors other than holders of Senior Debt,
and the Holders of the Notes, be deemed to be a payment by the Issuer to or for
the account of the Holders of the Notes. It is understood that the provisions
of this Section are and are intended solely for the purpose of defining the
relative rights of the Holders of the Notes, on the one hand, and the holders
of the Senior Debt, on the other hand.
If any payment or distribution to which the Holders of the Notes would
otherwise have been entitled but for the provisions of this Section 6, shall
have been applied, pursuant to the provisions of this Section 6, to the payment
of all amounts payable under Senior Debt, then and in such case, the Holders of
the Notes shall be entitled to receive from the holders of such Senior Debt any
payments or distributions received by such holders of Senior Debt in excess of
the amount required to make payment in full of such Senior Debt.
Section 6.5. Obligations of Issuer Unconditional. Nothing contained in
Section 6.1 or elsewhere in the Notes is intended to or shall impair, as
between the Issuer and the Holders of the Notes, the obligation of the Issuer,
which is absolute and unconditional, to pay to the Holders of the Notes the
principal amount of and interest on the Notes as and when the same shall become
due and
11
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders of the Notes and creditors of the Issuer other
than the holders of the Senior Debt, nor shall anything herein or therein
prevent any Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under Section 6 of the holders of the Senior Debt in respect of cash, property
or securities of the Issuer received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
Section 6 will restrict the right of the Holders of the Notes to take any
action to declare the Notes to be due and payable prior to their stated
maturity pursuant to Section 5.1 or to pursue any rights or remedies hereunder.
Section 6.6. Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Issuer referred to in
Section 6, the Holders of the Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
agent or other person making such payment or distribution, delivered to the
Holders of the Notes, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Issuer, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to Section 6 of this Note.
Section 6.7. Subordination Rights Not Impaired by Acts or Omissions of the
Issuer or Holders of Senior Debt. No right of any present or future holders of
any Senior Debt to enforce subordination as provided herein will at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Issuer or by any act or failure to act, in good faith, by any such holder,
or by any noncompliances by the Issuer with the terms of this Note, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with. The holders of Senior Debt may extend, renew, modify or amend the terms
of the Senior Debt or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Issuer, all without affecting the
liabilities and obligations of the Holders of the Notes.
Section 6.8. Section 6 Not to Prevent Events of Default. The failure to
make a payment on account of principal of or interest on the Notes by reason of
any provision of Section 6 will not be construed as preventing the occurrence
of an Event of Default.
Section 7.1. Modification of Notes. Any provision of this Note may be
amended or, subject to Section 5, waived with the written consent of the Issuer
and the Holders of at least a majority in aggregate principal amount of the
Notes
12
then outstanding; provided that no such amendment or waiver shall (a) extend
the final maturity of any Note, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce
any amount payable on the conversion thereof, amend or waive Section 5.1, or
impair or affect the rights of any Holder to institute suit for the payment
thereof or adversely affect the ranking of the Notes with respect to the
outstanding Debt of the Issuer, in each such case, without the consent of each
Holder of each Note so affected, (b) reduce the aforesaid percentage of Holders
of the Notes, the consent of the Holders of the Notes of which is required for
any such amendment or waiver, without the consent of the Holders of all Notes
then outstanding, or (c) modify the terms of the Notes so as to affect
adversely the rights of any holder of Senior Debt at the time outstanding to
the benefits of subordination hereunder without the consent of such holder; and
for such purposes the following modifications to the terms of this Note or, as
applicable, the Securities Purchase Agreement, shall be deemed to adversely
affect the rights of the holders of the Senior Debt: (i) shortening the
maturity date of the principal amount of this Note; (ii) increasing the
interest rate under this Note; (iii) increasing the principal amount of the
Notes issued under the Securities Purchase Agreement; (iv) modifying the
required prepayments under this Note; and (v) amending the events constituting
Defaults under this Note in a manner adverse to the Company or the holders of
the Senior Debt. The Issuer shall promptly notify all of the Holders of the
Notes after the making of any amendment or waiver pursuant to this Section 7.1.
Section 8.1. Conversion. (a) After the Convertible Closing (as defined in
the Securities Purchase Agreement), the Principal Amount of this Note shall be
convertible at any time and from time to time, in whole or in part (such
amount, the "Convertible Amount") at the option of the Holder hereof and upon
notice to the Issuer as set forth below, into fully paid and nonassessable
Common Shares at the Conversion Rate (as defined below). The initial conversion
price per Common Share will be 80% of the Daily Price per Common Share for the
ten (10) consecutive trading days immediately preceding the two consecutive
trading days immediately prior to the day of the Company Shareholder Meeting
(as defined in the Securities Purchase Agreement) and shall be subject to
adjustment as provided for herein (the "Conversion Price"). The number of
Common Shares deliverable upon conversion of each $1,000 Convertible Amount of
the Notes, adjusted as hereinafter provided, is referred to herein as the
"Conversion Rate". The initial Conversion Rate shall be equal to the quotient
resulting from dividing $1000 by the Conversion Price.
(b) The Conversion Price (and the corresponding Conversion Rate) shall be
subject to adjustment from time to time as follows:
(i) In case the Issuer shall at any time after the date of the
Convertible Closing (A) pay a dividend in Common Shares or make a distribution
13
in Common Shares, (B) subdivide or split its outstanding Common Shares, (C)
combine or reclassify its outstanding Common Shares into a smaller number of
Common Shares, (D) issue by reclassification of its Common Shares other
securities of the Issuer (including any such reclassification in connection
with a consolidation or merger in which the Issuer is the continuing
corporation), or (E) consolidate with, or merge with or into, any other Person,
then in each such case the Conversion Rate in effect at the time of the record
date for any such dividend or distribution or of the effective date of any such
subdivision, split, combination, consolidation, merger or reclassification
shall be proportionately adjusted so that the conversion of the Note after such
time shall entitle the Holder to receive the kind and aggregate number of
Common Shares or other securities of the Issuer (or shares of any security into
which such Common Shares have been combined, consolidated, merged, converted or
reclassified pursuant to clause (C), (D), or (E) above) which, if this Note had
been converted immediately prior to such time, such Holder would have owned
upon such conversion and been entitled to receive by virtue of such dividend,
distribution, subdivision, split, combination, consolidation, merger or
reclassification, assuming for purposes of this subsection 8.1(b)(i) that such
Holder (x) is not a Person with which the Issuer consolidated or into which the
Issuer merged or which merged into the Issuer or to which such
recapitalization, sale or transfer was made, as the case may be ("constituent
person") and (y) failed to exercise any rights of election as to the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer (provided, that if the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation, merger,
recapitalization, sale or transfer is not the same for each Common Share of the
Issuer held immediately prior to such reclassification, change, consolidation,
merger, recapitalization, sale or transfer by other than a constituent person
and in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this Section 8.1(b)(i) the kind
and amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer by each non-electing share shall be deemed to be the kind and amount
so receivable per share by a plurality of the non-electing shares). Such
adjustment shall be made successively whenever any event listed above shall
occur.
(ii) In case the Issuer shall issue or sell any Common Shares (other
than Common Shares issued (1) pursuant to the Issuer's non-qualified stock
option plans for officers, directors or key employees, or pursuant to any
similar Common Share related employee compensation plan of the Issuer approved
by the Issuer's Board of Directors, (2) in connection with a merger or
consolidation with or other acquisition of, another Person or the acquisition
of the assets of another Person, other than any such transaction that
constitutes a Change in Control Liquidation Event (as such term is defined in
the Issuer's Amended and
14
Restated Articles of Incorporation) or (3) upon exercise or conversion of any
security the issuance of which caused an adjustment under Section 8.1(b)(iii)
or (iv) hereof) without consideration or for a consideration per share less
than the Conversion Price (the "Issue Price"), the Conversion Price to be in
effect after such issuance or sale shall be determined by multiplying the
Conversion Price in effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the sum of (x) the number of Common
Shares outstanding immediately prior to the time of such issuance or sale
multiplied by the Issue Price and (y) the aggregate consideration, if any, to
be received by the Issuer upon such issuance or sale, and the denominator of
which shall be the product of the aggregate number of Common Shares outstanding
immediately after such issuance or sale and the Conversion Price. In case any
portion of the consideration to be received by the Issuer shall be in a form
other than cash, the fair market value of such noncash consideration shall be
utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Issuer; provided that if Holders of
50% or more of the outstanding aggregate principal amount of the Notes shall
object to any such determination, the Board of Directors of the Issuer shall
retain an independent appraiser reasonably satisfactory to a majority of such
Holders to determine such fair market value. Such Holders shall be notified
promptly of any consideration other than cash to be received by the Issuer and
furnished with a description of the consideration and the fair market value
thereof, as determined by the Board of Directors of the Issuer.
(iii) In case the Issuer shall fix a record date for the issuance of
rights, options or warrants to the holders of Common Shares or other securities
entitling such holders to subscribe for or purchase for a period expiring
within 60 days of such record date Common Shares (or securities convertible
into Common Shares) at a price per Common Share (or having a conversion price
per Common Share, if a security convertible into Common Shares) less than the
Conversion Price on such record date, the maximum number of Common Shares
issuable upon exercise of such rights, options or warrants (or conversion of
such convertible securities) shall be deemed to have been issued and
outstanding as of such record date and the Conversion Price shall be adjusted
pursuant to paragraph (b)(ii) hereof, as though such maximum number of Common
Shares had been so issued for an aggregate consideration payable by the holders
of such rights, options, warrants or convertible securities prior to their
receipt of such Common Shares. In case any portion of such consideration shall
be in a form other than cash, the fair market value of such noncash
consideration shall be determined as set forth in Section 8(b)(ii) hereof. Such
adjustment shall be made successively whenever such record date is fixed; and
in the event that such rights, options or warrants are not so issued or expire
unexercised, or in the event of a change in the number of Common Shares to
which the holders of such rights, options or warrants are entitled (other than
pursuant to adjustment provisions therein
15
comparable to those contained in this Section 8(b)), the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such record date had not been fixed, in the former event, or the Conversion
Price which would then be in effect if such holder had initially been entitled
to such changed number of Common Shares, in the latter event.
(iv) In case the Issuer shall issue rights, options (other than
options issued pursuant to a plan described in Section 8(b)(ii)) or warrants
entitling the holders thereof to subscribe for or purchase Common Shares (or
securities convertible into Common Shares) or shall issue convertible
securities, and the price per Common Share of such rights, options, warrants or
convertible securities (including, in the case of rights, options or warrants,
the price at which they may be exercised) is less than the Conversion Price,
the maximum number of Common Shares issuable upon exercise of such rights,
options or warrants or upon conversion of such convertible securities shall be
deemed to have been issued and outstanding as of the date of such sale or
issuance, and the Conversion Price shall be adjusted pursuant to Section
8(b)(ii) hereof as though such maximum number of Common Shares had been so
issued for an aggregate consideration equal to the aggregate consideration paid
for such rights, options, warrants or convertible securities and the aggregate
consideration payable by the holders of such rights, options, warrants or
convertible securities prior to their receipt of such Common Shares. In case
any portion of such consideration shall be in a form other than cash, the fair
market value of such noncash consideration shall be determined as set forth in
Section 8(b)(ii) hereof. Such adjustment shall be made successively whenever
such rights, options, warrants or convertible securities are issued; and in the
event that such rights, options or warrants expire unexercised, or in the event
of a change in the number of Common Shares to which the holders of such rights,
options, warrants or convertible securities are entitled (other than pursuant
to adjustment provisions therein comparable to those contained in this Section
8(b)), the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such rights, options, warrants or convertible
securities had not been issued, in the former event, or the Conversion Price
which would then be in effect if such holders had initially been entitled to
such changed number of Common Shares, in the latter event. No adjustment of the
Conversion Price shall be made pursuant to this Section 8(b)(iv) to the extent
that the Conversion Price shall have been adjusted pursuant to Section
8(b)(iii) upon the setting of any record date relating to such rights, options,
warrants or convertible securities and such adjustment fully reflects the
number of Common Shares to which the holders of such rights, options, warrants
or convertible securities are entitled and the price payable therefor.
(v) In case the Issuer shall fix a record date for the making of a
dividend or distribution to holders of Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
16
Issuer is the continuing corporation) of evidences of indebtedness, cash,
assets or other property (other than dividends payable in Common Shares or
rights, options or warrants referred to in, and for which an adjustment is made
pursuant to, Section 8(b)(iii) hereof), the Conversion Price to be in effect
after such record date shall be determined by multiplying the Conversion Price
in effect immediately prior to such record date by a fraction, the numerator of
which shall be the Current Market Price Per Common Share (as defined below) on
such record date, less the fair market value (determined as set forth in
Section 8(b)(ii) hereof) of the portion of the cash, assets, other property or
evidence of indebtedness so to be distributed which is applicable to one Common
Share, and the denominator of which shall be such Current Market Price Per
Common Share. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so made,
the Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such record date had not been fixed.
(vi) For the purpose of any computation under Section 8(b) hereof, on
any determination date, the "Current Market Price Per Common Share" shall be
deemed to be the average (weighted by daily trading volume) of the Daily Prices
(as defined below) per Common Share for the 20 consecutive trading days
immediately prior to such date. "Daily Price" means (1) if the Common Shares
then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"), the
closing price per share on such day as reported on the NYSE Composite
Transactions Tape; (2) if the Common Shares then are not listed and traded on
the NYSE, the closing price per share on such day as reported by the principal
national securities exchange on which the shares are listed and traded; (3) if
the Common Shares then are not listed and traded on any such securities
exchange, the last reported sale price per share on such day on the NASDAQ
National Market; or (4) if the shares of such class of Common Shares then are
not traded on the NASDAQ Stock Market, the average of the highest reported bid
and lowest reported asked price per share on such day as reported by NASDAQ. If
on any determination date the Common Shares are not quoted by any such
organization, the Current Market Price Per Common Share shall be the fair
market value per share of such shares on such determination date as determined
by the Board of Directors of the Issuer. If Holders of 50% or more of the
outstanding aggregate principal amount of the Notes shall object to any
determination by the Board of Directors of the Issuer of the Current Market
Price Per Common Share, the Current Market Price Per Common Share shall be the
fair market value per Common Share as determined by an independent appraiser
retained by the Issuer at its expense and reasonably acceptable to such
Holders. For purposes of any computation under this Section 8(b), the number of
Common Shares outstanding at any given time shall not include shares owned or
held by or for the account of the Issuer.
17
(vii) All calculations under this Section 8(b) shall be made to the
nearest one tenth of a cent or to the nearest hundredth of a share, as the case
may be.
(viii) In the event that, at any time as a result of the provisions of
this Section 8(b), the Holder of this Note upon subsequent conversion shall
become entitled to receive any shares of Capital Stock of the Issuer other than
Common Shares, the number of such other shares so receivable upon conversion of
this Note shall thereafter be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
contained herein.
(ix) If the Issuer shall take a record of the Holders of Common Shares
for the purpose of entitling them to receive a dividend or other distribution
(which results in an adjustment to the Conversion Price under the terms hereof)
and shall, thereafter and before such dividend or distribution is paid or
delivered to shareholders entitled thereto, legally abandon its plan to pay or
deliver such dividend or distribution, then any adjustment made to the
Conversion Price and number of Common Shares purchasable upon conversion of the
Notes by reason of the taking of such record shall be reversed, and any
subsequent adjustments, based thereon, shall be recomputed.
(c) (i) In order to exercise the conversion privilege, the Holder of the
Note to be converted shall surrender the Note, with a written notice to the
Issuer that such Holder elects to exercise its conversion privilege, and
stating the Convertible Amount of Notes which the Holder seeks to convert. The
date of receipt of the Note or Notes by the Issuer shall be the conversion date
(the "Conversion Date").
(ii) As promptly as practicable (but no later than three Business
Days) after the Conversion Date, the Issuer shall issue and shall deliver to
such Holder, or on the Holder's written order to the Holder's permitted
transferee in accordance with the terms of the Amended and Restated Investor
Rights Agreement, a certificate or certificates for the whole number of Common
Shares issuable upon the conversion of such Note or Notes in accordance with
the provisions of this Section 8.1.
(iii) In the case where only part of a Note is converted, the Issuer
shall execute and deliver (at its own expense) a new Note of any authorized
denomination as requested by a Holder in an aggregate principal amount equal to
and in exchange for the unconverted portion of the Principal Amount of the Note
so surrendered.
18
(iv) The Issuer shall make a cash payment equal to all accrued and
unpaid interest on the Principal Amount so surrendered for conversion (other
than interest payments payable to a holder of record on a prior Interest
Payment Date) to the Conversion Date.
(v) Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the Notes to be converted
shall have been surrendered to the Issuer, and the person in whose name or
names any certificate or certificates for Common Shares shall be issuable upon
such conversion shall be deemed to have become the holder of record of the
Common Shares represented thereby on such date and such conversion shall be
into a number of Common Shares resulting from applying the Conversion Rate in
effect at such time on such date. All Common Shares delivered upon conversion
of the Notes will upon delivery be duly and validly issued and fully paid and
non-assessable, free of all Liens and charges and not subject to any preemptive
rights. Upon the surrender of any Notes for conversion, such Notes or part
thereof so converted shall no longer be deemed to be outstanding and all rights
of a Holder with respect to such Notes or part thereof so converted including
the rights, if any, to receive interest, notices and consent rights shall
immediately terminate on the Conversion Date except the right to receive the
Common Shares and other amounts payable pursuant to this Section 8.1. Any Notes
or part thereof so converted shall be retired and cancelled.
(d) (i) The Issuer covenants that it will at all times during which the
Notes shall be outstanding reserve and keep available, free from preemptive
rights, such number of its authorized but unissued Common Shares as shall from
time to time be required for the purpose of effecting conversions of
outstanding Notes.
(ii) Prior to the delivery of any securities which the Issuer shall be
obligated to deliver upon conversion of the Notes, the Issuer shall comply with
all applicable federal and state laws and regulations which require action to
be taken by the Issuer.
(e) The Issuer will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of Common Shares on
conversion of the Notes pursuant hereto; provided that the Issuer shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of Common Shares in a name other than that of
the Holder of the Notes to be converted and no such issue or delivery shall be
made unless and until the person requesting such issue or delivery has paid to
the Issuer the amount of any such tax or has established, to the satisfaction
of the Issuer, that such tax has been paid.
19
(f) If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any Holder tendering Notes for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the Holders entitled to receive the
Common Shares issuable upon such conversion of the Notes shall not be deemed to
have converted such Notes until immediately prior to the closing of the sale of
securities in such offering.
(g) No fractional Common Shares shall be issued upon conversion of the
Notes. In lieu of fractional shares, the Issuer shall pay cash equal to such
fraction multiplied by the Daily Price for Common Shares on the trading day
immediately preceding the related Conversion Date.
(h) Upon the occurrence of each adjustment or readjustment of the
Conversion Rate pursuant to this Section 8.1, the Issuer at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of Notes outstanding a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based and shall file a copy of such
certificate with its corporate records. The Issuer shall, upon the reasonable
written request of any Holder of Notes, furnish or cause to be furnished to
such Holders a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Rate then in effect, and (iii) the number of
Common Shares and the amount, if any, of other property which then would be
received upon the conversion of the Notes. Despite such adjustment or
readjustment, the form of each or all Notes, if the same shall reflect the
initial or any subsequent Conversion Rate, need not be changed in order for the
adjustments or readjustments to be valid in accordance with the provisions of
this Note, which shall control.
(i) The Issuer will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Issuer, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 8.1 and
in the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the Holders of the Notes against impairment to
the extent required hereunder. Nothing in this Section 8.1 shall affect the
continued accrual of interest on the outstanding Notes in accordance with the
terms of this Note.
(j) Notwithstanding anything to the contrary contained in this Section
8.1, prior to shareholder approval of the issuance of the Convertible Notes (as
defined in the Securities Purchase Agreement) as contemplated under Section
20
5.06 of the Securities Purchase Agreement and as required under applicable
NASDAQ rules, this Note shall not be convertible and no adjustment shall be
made to the Conversion Price which would increase the number of Common Shares
issuable upon conversion of this Note to the extent that such issuance would
cause the Company to violate its obligation to obtain such prior shareholder
approval.
Section 9. Miscellaneous
Section 9.1. Transfer Restrictions. This Note is transferable and
assignable to one or more purchasers, provided that such transfer or assignment
is made in compliance with the Securities Act of 1933, as amended, and any
applicable state and foreign securities laws and in compliance with Article 2
of the Amended and Restated Investor Rights Agreement. The Issuer agrees to
issue from time to time a replacement Note or Notes in the form hereof and in
such denominations as the Holder may request to facilitate such transfers and
assignments upon surrender of the Note or Notes being transferred. In addition,
after delivery of an indemnity in form and substance reasonably satisfactory to
the Issuer, the Issuer also agrees to issue a replacement Note if this Note has
been lost, stolen, mutilated or destroyed.
Section 9.2. Registration. The Issuer shall keep at its principal office a
register (the "Register") in which shall be entered the name and address of the
registered holder of this Note and particulars of this Note and of all
transfers of this Note. References to the "Holders" shall mean the Persons
listed in the Register as the payees of the Notes unless any payee shall have
presented a Note to the Issuer for transfer and the transferee shall have been
entered in the Register as a subsequent holder, in which case the term shall
mean such subsequent holder. The ownership of this Note shall be proven by the
Register. For the purpose of paying interest and principal on this Note, the
Issuer shall be entitled to rely on the name and address in the Register and
notwithstanding anything to the contrary contained in this Note, no Event of
Default shall occur under Section 5.1(a) or (b) if payment of interest and
principal is made in accordance with the name and address and particulars
contained in the Register.
Section 9.3. Governing Law. This Note shall be deemed to be a contract
under the laws of the State of Ohio, and for all purposes shall be construed in
accordance with the laws of said State, except as may otherwise be required by
mandatory provisions of law.
Section 9.4. Waiver of Presentment, Acceptance. The parties hereto,
including all guarantors or endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, except as
specifically
21
provided herein. The Holder of this Note by acceptance hereof agrees to be
bound by the provisions of the Notes which are expressly binding on the Holder.
Section 9.5. Section Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
22
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
Dated: [ ], 2002
FRONTSTEP, INC.
By:
-------------------------------
Name:
Title:
23
EXHIBIT D
Frontstep, Inc.
WARRANT FOR THE PURCHASE OF SHARES OF
COMMON STOCK OF FRONTSTEP, INC.
No. [ ] Warrant to Purchase
[ ] Shares
THIS WARRANT AND THE SECURITIES TO BE ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE THEREWITH. THIS WARRANT AND THE SECURITIES TO BE
ACQUIRED UPON EXERCISE OF THIS WARRANT ALSO ARE SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH IN THE
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (AS HEREIN DEFINED), COPIES
OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY.
FOR VALUE RECEIVED, FRONTSTEP, INC., an Ohio corporation (the "Company"),
hereby certifies that [NAME], its successor or permitted assigns (the
"Holder"), is entitled, subject to the provisions of this Warrant (the
"Warrant"), to purchase from the Company, at the times specified herein, up to
an aggregate of [ ] fully paid and non-assessable Common Shares (as hereinafter
defined), at a purchase price per share equal to the Exercise Price (as
hereinafter defined). The number of Common Shares to be received upon the
exercise of this Warrant and the price to be paid for a Common Share are
subject to adjustment from time to time as hereinafter set forth. This Warrant
and the Warrant Shares (as hereinafter defined) may be assigned, transferred,
sold, offered for sale or exercised by the Holder only upon compliance with the
terms and conditions hereof.
1. Definitions. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" shall have the meaning given to such term in Rule 12b-2
promulgated under the Securities and Exchange Act of 1934, as amended.
"Amended and Restated Investor Rights Agreement" means the Amended and
Restated Investor Rights Agreement dated March 7, 2002 among the Company and
the investors listed on the signature pages thereto, as may be amended from
time to time.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Common Shares" means the common shares, no par value, of the Company.
"Current Market Price Per Common Share" means, on any determination date,
the average (weighted by daily trading volume) of the Daily Prices per share of
the applicable class of Common Shares for the 20 consecutive trading days
immediately prior to such date. If on any determination date such Common Shares
are not quoted by the NYSE or NASDAQ, the Current Market Price Per Common Share
shall be the fair market value of such shares on such determination date as
determined by the Board of Directors of the Company. If the Holders of 75% of
the outstanding Warrants shall object to any determination by the Board of
Directors of the Company of the Current Market Price Per Common Share, the
Current Market Price Per Common Share shall be the fair market value per share
of the Common Shares as determined by an independent appraiser retained by the
Company at its expense and reasonably acceptable to such Holders.
"Daily Price" means, on any determination date, (A) if such Common Shares
then are listed and traded on the NYSE, the closing price per share on such day
as reported on the NYSE Composite Transactions Tape; (B) if the shares of such
class of Common Shares then are not listed and traded on the NYSE, the closing
price per share on such day as reported by the principal national securities
exchange on which the shares are listed and traded; (C) if such Common Shares
then are not listed and traded on any such securities exchange, the last
reported sale price per share on such day on the NASDAQ; or (D) if such Common
Shares then are not traded on the NASDAQ, the average of the highest reported
bid and lowest reported asked price per share on such day as reported by
NASDAQ.
"Duly Endorsed" means duly endorsed in blank by the Person or Persons in
whose name a stock certificate is registered or accompanied by a duly executed
stock assignment separate from the certificate with the signature(s) thereon
guaranteed by a commercial bank or trust company or a member of a national
securities exchange or of the National Association of Securities Dealers, Inc.
"Exercise Price" means $0.01 per Warrant Share, such Exercise Price to be
adjusted from time to time as provided herein.
"Expiration Date" means 5:00 p.m. New York City time on the tenth
anniversary of the date hereof.
"Holders" means the original Holders of the Warrants issued pursuant to
the Securities Purchase Agreement, or if any such original Holder so elects,
any transferee of all or any portion of this Warrant whom such original Holder
shall have designated by written notice to the Company. Any successor Holder
designated pursuant to the immediately preceding sentence shall also have the
right upon any subsequent transfer to designate a successor Holder in the
manner described above.
"NASDAQ" means The NASDAQ Stock Market, Inc.
"NYSE" means New York Stock Exchange, Inc.
"Person" means an individual, partnership, limited liability company,
corporation, trust, joint stock company, association, joint venture, or any
other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of March 7, 2002 among the Company and the Investors listed on the
signature pages thereto, providing for the purchase and issuance of the 10%
subordinated notes due 2004, the Warrants, and the 10% subordinated convertible
notes due 2004.
"Warrant Shares" means the Common Shares deliverable upon exercise of this
Warrant, as adjusted from time to time.
(b) Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Amended and Restated Investor Rights Agreement.
2. Exercise of Warrant.
(a) Any sale, transfer, assignment or hypothecation of this Warrant,
whether in whole or in part, must be in compliance with Paragraph 12 of this
Warrant. Subject to the other terms and conditions of this Warrant, the Holder
is entitled to exercise this Warrant in whole or in part at any time, or from
time to time, until the Expiration Date or, if such day is not a Business Day,
then on the
3
next succeeding day that shall be a Business Day; provided, however, if the
Holder of this Warrant is either Xxxxxxxx X. Xxx or Xxxxx X. Xxxxxxxxxx, such
Holder may not exercise this Warrant, in whole or in part, until shareholders
of the Company holding a majority of the total votes cast on the proposal to
approve the issuance of the Warrants to Xxxxxxxx X. Xxx and Xxxxx X.
Xxxxxxxxxx, represented in person or by proxy, have approved such issuance as
contemplated under Section 5.06 of the Securities Purchase Agreement. To
exercise this Warrant, the Holder shall execute and deliver to the Company a
Warrant Exercise Notice substantially in the form annexed hereto. Subject to
paragraph 2(e) below, no earlier than ten days after delivery of the Warrant
Exercise Notice, the Holder shall deliver to the Company this Warrant,
including the Warrant Exercise Subscription Form forming a part hereof duly
executed by the Holder, together with payment of the applicable Exercise Price.
Upon such delivery and payment, the Holder shall be deemed to be the holder of
record of the Warrant Shares subject to such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the
Holder.
(b) The Exercise Price may be paid by wire transfer or by certified or
official bank check or bank cashier's check payable to the order of the Company
or by any combination of such cash or check.
(c) If the Holder exercises this Warrant in part, this Warrant shall be
surrendered by the Holder to the Company and a new Warrant of the same tenor
and for the unexercised number of Warrant Shares shall be executed by the
Company. The Company shall register the new Warrant in the name of the Holder
or in such name or names of its transferee pursuant to paragraph 6 hereof as
may be directed in writing by the Holder and deliver the new Warrant to the
Person or Persons entitled to receive the same.
(d) Upon exercise or partial exercise and surrender of this Warrant in
conformity with the foregoing provisions, the Company shall transfer to the
Holder of this Warrant appropriate evidence of ownership of the Common Shares
or other securities or property (including any money) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of, the
name or names of the Holder or such transferee as may be directed in writing by
the Holder, and shall deliver such evidence of ownership and any other
securities or property (including any money) to the Person or Persons entitled
to receive the same, together with an amount in cash in lieu of any fraction of
a share as provided in paragraph 5 below.
(e) In lieu of exercising the Warrant pursuant to paragraph 2(a), the
Holder may elect in accordance with the procedures set forth in this paragraph
2 to exchange this Warrant for shares of Common Stock, in which event the
Company will issue to the Holder the number of shares of Common Stock equal
4
to the result obtained by (a) subtracting B from A, (b) multiplying the
difference by C, and (c) dividing the product by A as set forth in the
following equation:
(A - B) x C
X = ----------- where:
A
X = the number of shares of Common Stock
issuable upon exchange pursuant to this
paragraph 2(e).
A = the Daily Price on the day immediately
preceding the date on which the Holder
delivers written notice to the Company
pursuant to paragraph 2(a).
B = the Exercise Price.
C = the number of shares of Common Stock as
to which this Warrant being exchanged would
otherwise be exercisable for pursuant to
paragraph 2(a).
If the foregoing calculation results in a negative number, then no shares
of Common Stock shall be issued pursuant to this paragraph 2(e).
3. Restrictive Legend. Certificates representing Common Shares issued
pursuant to this Warrant shall bear a legend substantially in the form of the
legend set forth on the first page of this Warrant to the extent that and for
so long as such legend is required pursuant to the Amended and Restated
Investor Rights Agreement or applicable law.
4. Reservation of Shares. The Company hereby agrees that at all times
prior to the expiration hereof there shall be reserved for issuance and
delivery upon exercise or exchange of this Warrant such number of its
authorized but unissued Common Shares or other securities of the Company from
time to time issuable upon the full exercise of the then unexercised portion of
this Warrant. All such shares shall be duly authorized and, when issued upon
such exercise or exchange, shall be validly issued, fully paid and
non-assessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale and free and clear of all preemptive
rights, except to the extent set forth in the Amended and Restated Investor
Rights Agreement and as may be required under applicable law.
5. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise or exchange of this Warrant
and in lieu of delivery of any such fractional share upon any exercise hereof,
the Company shall pay to the Holder an amount in cash equal to such fraction
5
multiplied by the Current Market Price Per Common Share at the date of such
exercise or exchange.
6. Transfer or Assignment of Warrant.
(a) This Warrant and all rights hereunder are not transferable by the
registered Holder hereof except to any Person who, prior to such transfer,
agrees in writing, in form and substance reasonably satisfactory to the
Company, to be bound by the terms of this Warrant and the Amended and Restated
Investor Rights Agreement in accordance with the provisions hereof and thereof.
Each Holder of this Warrant by taking or holding the same, consents and agrees
that the registered Holder hereof may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented hereby.
(b) Subject to compliance with the terms of this Warrant and the Amended
and Restated Investor Rights Agreement, the Holder of this Warrant shall be
entitled, without obtaining the consent of the Company to assign and transfer
this Warrant, at any time in whole or from time to time in part, to any Person
or Persons. Subject to the preceding sentence, upon surrender of this Warrant
to the Company, together with the attached Warrant Assignment Form duly
executed, the Company shall, without charge, execute and deliver a new Warrant
for the Common Shares assigned in the Warrant Form Assignment in the name of
the assignee or assignees named in such instrument of assignment and, if the
Holder's entire interest is not being assigned, a new Warrant for the balance
of the Common Shares for which this Warrant is then exercisable which are not
so assigned in the name of the Holder and this Warrant shall promptly be
canceled.
7. Loss or Destruction of Warrant. Upon receipt by the Company of evidence
satisfactory to it (in the exercise of its reasonable discretion) of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver to the Holder a new Warrant of like tenor and date.
8. Anti-dilution Provisions.
(a) In case the Company shall at any time after the date hereof (i)
declare a dividend or make a distribution on Common Shares payable in Common
Shares, (ii) subdivide or split the outstanding Common Shares, (iii) combine or
reclassify the outstanding Common Shares into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of Common
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing corporation), the Exercise
Price in effect at the time of the record date for such dividend or
distribution or of the effective
6
date of such subdivision, split, combination or reclassification shall be
proportionately adjusted so that the exercise of this Warrant after such time
shall entitle the Holder to receive the aggregate number of Common Shares or
other securities of the Company (or shares of any security into which such
Common Shares have been reclassified pursuant to clause 8(a)(iii) or 8(a)(iv)
above) which, if this Warrant had been exercised immediately prior to such
time, the Holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, distribution, subdivision, split,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) All calculations under this paragraph 8 shall be made to the nearest
one tenth of a cent or to the nearest hundredth of a share, as the case may be.
(c) In the event that, at any time as a result of the provisions of this
paragraph 8, the holder of this Warrant upon subsequent exercise or exchange
shall become entitled to receive any shares of capital stock of the Company
other than Common Shares, the number of such other shares so receivable upon
exercise or exchange of this Warrant shall thereafter be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions contained herein.
(d) Upon each adjustment of the Exercise Price as a result of the
calculations made in paragraphs 8(a) hereof, the number of shares for which
this Warrant is exercisable immediately prior to the making of such adjustment
shall thereafter evidence the right to purchase, at the adjusted Exercise
Price, that number of Common Shares obtained by (i) multiplying the number of
shares covered by this Warrant immediately prior to this adjustment of the
number of shares by the Exercise Price in effect immediately prior to such
adjustment of the Exercise Price and (ii) dividing the product so obtained by
the Exercise Price in effect immediately after such adjustment of the Exercise
Price.
(e) If the Company shall fix a record date relating to any event specified
in paragraph 8(a) (which results in an adjustment to the Exercise Price under
the terms of this Warrant) and shall thereafter, and before such dividend or
distribution is paid or delivered or before such issuance, legally abandon its
plan to pay or deliver such dividend or distribution or to make such issuance,
then any adjustment made to the Exercise Price and number of Common Shares
purchasable upon exercise of this Warrant by reason of the fixing of such
record date shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
(f) Notwithstanding anything to the contrary contained in this paragraph
8, prior to shareholder approval as required under applicable NASDAQ rules, no
adjustment shall be made to the Exercise Price which would increase the
7
number of Common Shares issuable upon exercise of such Warrant to the extent
that such issuance would cause the Company to violate its obligation to obtain
such prior shareholder approval.
9. Consolidation, Merger, or Sale of Assets. In case of any consolidation
of the Company with, or merger of the Company into, any other Person, any
merger of another Person into the Company (other than a merger which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding Common Shares) or any sale or transfer of all or substantially all
of the assets of the Company or of the Person formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
the Holder shall have the right thereafter to exercise or exchange this Warrant
for the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of
Common Shares for which this Warrant may have been exercised or exchanged
immediately prior to such consolidation, merger, sale or transfer, assuming (i)
such holder of Common Shares is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be ("Constituent
Person"), or an Affiliate of a Constituent Person and (ii) in the case of a
consolidation merger, sale or transfer which includes an election as to the
consideration to be received by the holders, such holder of Common Shares
failed to exercise such rights of election, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer (provided that if the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer is
not the same for each Common Share held immediately prior to such
consolidation, merger, sale or transfer by other than a Constituent Person or
an Affiliate thereof and in respect of which such rights of election shall not
have been exercised ("non-electing share"), then for the purpose of this
paragraph 9 the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Adjustments for events
subsequent to the effective date of such a consolidation, merger or sale of
assets shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. In any such event, effective provisions shall be
made in the certificate or articles of incorporation of the resulting or
surviving corporation, in any contract of sale, conveyance, lease or transfer,
or otherwise so that the provisions set forth herein for the protection of the
rights of the Holder shall thereafter continue to be applicable; and any such
resulting or surviving corporation shall expressly assume the obligation to
deliver, upon exercise or exchange, such shares of stock, other securities,
cash and property. The provisions of this paragraph 9 shall similarly apply to
successive consolidations, mergers, sales or transfers. For purposes of this
paragraph 9,
8
"Person" shall not include any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
10. Notices. Any notice, request, demand or delivery authorized by this
Warrant shall be in writing and shall be given to the Holder or the Company, as
the case may be, at its address (or telecopier number) set forth below, or such
other address (or telecopier number) as shall have been furnished to the party
giving or making such notice, demand or delivery in accordance herewith:
If to the Company:
Frontstep, Inc.
0000 Xxxxxxxxx Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxx 00000
Telecopy: (000) 000-0000
Attention: Corporate Counsel
If to the Holder:
[ ]
Each such notice, request, demand or delivery shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the intended recipient confirms the receipt of such telecopy or (ii)
if given by any other means, when received at the address specified herein.
11. Rights of the Holder. Prior to the exercise or exchange of any
Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder of the Company, including, without limitation, the right to vote,
to receive dividends or other distributions, to exercise any preemptive right
or to receive any notice of meetings of shareholders or any notice of any
proceedings of the Company except as may be specifically provided for herein.
12. Transferee Representations. Prior to effecting any transfer of this
Warrant or any part hereof, each prospective transferee shall represent in
writing to the Company that:
(a) Such transferee is an "accredited investor" within the meaning of Rule
501 under the Securities Act of 1933, as amended and such transferee was not
organized for the specific purpose of acquiring this Warrant or the Common
Shares issuable upon exercise of this Warrant;
(b) such transferee has sufficient knowledge and experience in investing
in companies similar to the Company so as to be able to evaluate the risks and
9
merits of such transferee's investment in the Company and is able financially
to bear the risks thereof;
(c) such transferee has had an opportunity to obtain whatever information
concerning the Company and the Common Shares as has been requested from the
Company by such transferee in order to make such transferee's investment
decision with respect to this Warrant and the Warrant Shares;
(d) this Warrant and the Warrant Shares are being acquired by such
transferee for such transferee's own account for the purpose of investment and
not with a view to or for sale in connection with any distribution thereof; and
(e) such transferee understands that (i) this Warrant and the Warrant
Shares issuable upon exercise of this Warrant have not been registered under
the Securities Act of 1933, as amended, in reliance upon an exemption from the
registration requirements of such act pursuant to Section 4(2) thereof and Rule
506 promulgated under such act and under applicable state securities laws, (ii)
this Warrant and the Warrant Shares issuable upon exercise of this Warrant must
be held indefinitely unless a subsequent disposition thereof is registered
under such act and under applicable state securities laws or is exempt from
such registration, (iii) this Warrant and the Warrant Shares issuable upon
exercise of this Warrant will bear a legend to such effect, and (iv) the
Company will make a notation on its transfer books to such effect.
13. GOVERNING LAW. THIS WARRANT AND ALL RIGHTS ARISING HEREUNDER SHALL BE
CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
OHIO, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE
WITH SUCH LAWS.
14. Amendments; Waivers. Any provision of this Warrant may be amended or
waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the Holder and the Company, or in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
10
IN WITNESS WHEREOF, the Company has duly caused this Warrant Certificate
to be signed by its duly authorized officer and to be dated as of ___________,
2002.
FRONTSTEP, INC.
By:
---------------------------------
Name:
Title:
Acknowledged and Agreed:
[ ]
By:
---------------------------------
Name:
Title:
11
WARRANT EXERCISE NOTICE
(To be delivered prior to exercise of the Warrant
by execution of the Warrant Exercise Subscription Form)
To: Frontstep, Inc.
[ ] [The undersigned hereby notifies you of its intention to exercise the
warrant to purchase common shares, no par value, of Frontstep, Inc. held by the
undersigned (the "Warrant"). The undersigned intends to exercise the Warrant to
purchase ___________ common shares (the "Shares") at $0.01 per Share. The
undersigned intends to pay the aggregate Exercise Price for the Shares, by wire
transfer, or certified or official bank or bank cashier's check (or a
combination of cash and check) as indicated below.]
[The undersigned hereby notifies you of its intention to exchange the
Warrant on a cashless basis pursuant to Section 2(e) of the Warrant to purchase
Common Shares, no par value, of Frontstep, Inc. Based on an exercise price of
$0.01 per Share and a Daily Price of $______, the undersigned intends to
exchange the Warrant for _________ Common Shares.]
Date: _________________
------------------------------------
(Signature of Holder)
This signature must conform in all
respects to the name of the Holder
as specified on the Warrant
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
Payment: $____________ wire transfer
$____________ check
WARRANT EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of the Warrant
after delivery of Warrant Exercise Notice)
To: [Issuer]
The undersigned irrevocably exercises this Warrant for the purchase of
___________ common shares, no par value (the "Shares"), of Frontstep, Inc. (the
"Company") at $0.01 per Share and herewith makes payment of $___________ (such
payment being made by wire transfer or by certified or official bank or bank
cashier's check payable to the order of the Company or by any permitted
combination of such wire transfer or check), all on the terms and conditions
specified in the within Warrant, surrenders this Warrant and all right, title
and interest therein to the Company and directs that the Shares deliverable
upon the exercise of this Warrant be registered or placed in the name and at
the address specified below and delivered thereto.
Date: ____________________
------------------------------------
(Signature of Holder)
This signature must conform in all
respects to the name of the Holder
as specified on the Warrant
------------------------------------
(Street Address)
------------------------------------
(City) (State) (Zip Code)
Securities and/or check to be issued to: ____________________________________
Please insert social security or identifying number: ________________________
Name: _______________________________________________________________________
Street Address: _____________________________________________________________
City, State and Zip Code: ___________________________________________________
Any unexercised portion of the Warrant evidenced by the within Warrant
Certificate to be issued to:
Please insert social security or identifying number: ________________________
Name: _______________________________________________________________________
Street Address: _____________________________________________________________
City, State and Zip Code: ___________________________________________________
2
WARRANT ASSIGNMENT FORM
Dated ___________ ___, 200_
FOR VALUE RECEIVED, _______________________ hereby
irrevocably sells, assigns and transfers
unto_______________________________(the "Assignee"),
(please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to ___________ common shares, without par value, of
Frontstep, Inc. (the "Company") represented by this Warrant and does hereby
irrevocably constitute and appoint _______________________ Attorney, to
transfer the same on the books of the Company, with full power of substitution
in the premises.
Signature:
---------------------------------
(Signature of Holder)
This signature must conform in all
respects to the name of the Holder
as specified on the Warrant
