EXHIBIT 7
AMENDMENT NUMBER ONE
dated as of July 9, 2002
to the
SECURITIES PURCHASE AGREEMENT
dated as of March 7, 2002
between
Frontstep, Inc.
and
The Investors named herein
AMENDMENT NUMBER ONE
TO
SECURITIES PURCHASE AGREEMENT
This AMENDMENT NUMBER ONE (the "Amendment") dated as of July 9, 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 parties hereto have entered into a Securities Purchase
Agreement dated as of March 7, 2002 (the "Agreement");
WHEREAS the Initial Closing (as defined in the Agreement) occurred on
March 7, 2002; and
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects, as more fully set forth below;
NOW, THEREFORE, the parties hereto agree as follows:
Article 1
DEFINITIONS
Section 1.01. Definitions. (a) Unless otherwise specifically defined
herein, each term used herein which is defined in the Agreement shall have the
meaning assigned to such term in the Agreement. The following terms, as used
herein, have the following meanings:
"Convertible Notes" means the 10% subordinated convertible notes due May
10, 2004 in an aggregate principal amount of up to $3,500,000 issued by the
Company, substantially in the form of Exhibit B to the Agreement.
"Transaction Agreements" means the Agreement, this Amendment and the
Amended and Restated Investor Rights Agreement.
(b) Each of the following terms is defined in the Section of the Agreement
set forth opposite such term:
Term Section
---- -------
Convertible Closing 2.02(b)
Draw-down Amount 8.04(a)
Draw-down Notice 8.04(a)
Term Section
---- -------
First SEC Letter 3.06(b)
Initial Convertible Closing Date 2.02(b)
Second SEC Letter 3.06(b)
Subsequent Convertible Closing 2.02(c)
Subsequent Convertible Closing Date 2.02(c)
Article 2
AMENDMENT OF ARTICLE 2 OF THE AGREEMENT
Section 2.01 of the Agreement is amended to read as follows:
Section 2.01. Purchase And Sale. Upon the terms and subject to the
conditions of the Agreement and this Amendment, the Company agrees to (i) sell
to each Investor, and each Investor severally agrees to purchase from the
Company, the Initial Notes and Warrants in the amounts and at the aggregate
prices set forth opposite the names of such Investor on Schedule I hereto; and
(ii) to sell to each Investor, and each Investor severally agrees to purchase
from the Company, the Convertible Notes, in the amount equal to such Investor's
pro rata share of the Draw-down Amount as set forth opposite the name of such
Investor on Schedule I hereto. The aggregate purchase price payable by the
Investors for the Convertible Notes shall not exceed $3,500,000 in cash.
Section 2.02(b) of the Agreement is amended, and a new Section 2.02(c) has
been added as follows:
Section 2.02. Closings.
(b) The execution and delivery of this Amendment shall take place at a
closing at the offices of Xxxxx Xxxx & Xxxxxxxx in New York City at 2:00 p.m.
on Tuesday July 9, 2002, or at such other time or place as the Investors and
the Company may agree (the "Convertible Closing"). The date and time of the
Convertible Closing are referred to herein as the "Initial Convertible Closing
Date."
(c) Purchases and sales of Convertible Notes shall take place at one or
more closings (each a "Subsequent Convertible Closing") at the offices of Xxxxx
Xxxx & Xxxxxxxx in New York City, as soon as possible, but in no event later
than five days after satisfaction of the applicable conditions set forth in
Article 8 of the Agreement as amended hereby, or at such other time or place as
the Investors and the Company may agree. The date and time of any such
Subsequent Convertible Closing are referred to herein as the "Subsequent
Convertible Closing Date." At each such Subsequent Convertible Closing:
2
(i) each Investor shall deliver to the Company such Investor's pro
rata share of the Draw-down Amount, 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 ten
days prior to such Subsequent Convertible Closing Date; and
(ii) the Company shall deliver to each Investor a Convertible Note,
in an amount equal to such Investor's pro rata share of the Draw-down
Amount as set forth on Schedule I hereto, being purchased by such Investor
registered in the name of such Investor.
Article 3
AMENDMENT OF ARTICLE 3 OF THE AGREEMENT
The "lead in" to Article 3 of the Agreement is amended to read as follows:
The Company hereby represents and warrants to each Investor as of the date
hereof and as of the Initial Convertible Closing Date that:
Section 3.06(b) and Section 3.06(e) of the Agreement are each amended and
restated as follows:
Section 3.06 SEC Filings
(b) Except for (i) 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 "First SEC Letter")
and (ii) the deficiencies in the Company 10-K for the period ended June 30,
2001, the Company 10-Q for the period ended September 30, 2001 and the Company
10-Q for the period ended December 31, 2001 set forth in that certain letter
dated April 30, 2002 from the Securities and Exchange Commission to Xxxxxx X.
Xxxxxxx, Vice President and Chief Financial Officer of the Company (the "Second
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.
(e) Except for an amendment to the Company 10-K, which amendment is
necessitated by the First SEC Letter and the Second SEC Letter and amendments
to the Company 10-Q for the period ended September 30, 2001 and the Company
10-Q for the period ended December 31, 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.
3
Article 4
AMENDMENT OF ARTICLE 4 OF THE AGREEMENT
The "lead in" to Article 4 of the Agreement is amended to read as follows:
Each Investor, severally and not jointly, represents and warrants to the
Company as of the date hereof and as of the Initial Convertible Closing Date
that:
Article 5
AMENDMENT OF ARTICLE 5 OF THE AGREEMENT
Section 5.09 of the Agreement is amended to read as follows:
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, Company 10-Q for the period ended September 30, 2001 and the Company 10-Q
for the period ended December 31, 2001 raised by the First SEC Letter and the
Second SEC Letter.
Article 6
AMENDMENT OF ARTICLE 8 OF THE AGREEMENT
Article 8 of the Agreement is amended and restated in its entirety to read
as follows:
Section 8.01 Conditions to Obligations of Each Party. The several
obligations of the Investors and the Company to consummate the Initial Closing,
the Convertible Closing and any Subsequent 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, the Convertible Closing or any Subsequent Convertible Closing, as the
case may be;
(b) No proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially delay
the Initial Closing, the Convertible Closing or any Subsequent 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; and
4
(c) The Amended and Restated Investors Rights Agreement shall have been
executed and delivered by the Company and the Investors, and such agreement
shall be in full force and effect and neither the Company nor any Investor
shall have breached its obligations thereunder.
Section 8.02 Conditions to Obligations of Investors. The obligations of
the Investors to consummate the Convertible Closing are subject to the
satisfaction of conditions (a) - (f) set forth below, and the obligations of
the Investors to consummate any Subsequent Convertible Closing are subject to
the satisfaction of condition (g):
(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
Initial 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 Initial Convertible Closing Date as if made at and as of such
date (except for such that refer to an earlier date) and (iii) the Investors
shall have received a certificate signed by an executive officer of the Company
to the foregoing effect;
(b) 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;
(c) Any regulatory consents or approvals required in connection with the
transactions contemplated by this Agreement shall have been received and not
withdrawn;
(d) Any consent of Foothill Capital Corporation required in connection
with the transactions contemplated by this Agreement, including without
limitation, the Convertible Closing and any Subsequent Convertible Closing,
shall have been received and not withdrawn;
(e) Investors shall have received an opinion of Vorys, Xxxxx, Xxxxxxx and
Xxxxx LLP, counsel to the Company, dated the Initial 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;
(f) 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; and
5
(g) The Company shall have complied with the procedures set forth in
Section 8.04.
Section 8.03. Conditions to Obligations of the Company The obligation of
the Company to consummate the Convertible Closing is subject to the
satisfaction of conditions (a) - (e) set forth below, and the obligation of the
Company to consummate any Subsequent Convertible Closing is not subject to
satisfaction of any additional 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
Initial 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 Initial Convertible Closing Date as if made at and as
of such date (except for such that refer to an earlier date);
(b) 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.
(c) 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;
(d) Any regulatory consents or approvals required in connection with the
transactions contemplated by this Agreement shall have been received and not
withdrawn; and
(e) Any consent of Foothill Capital Corporation required in connection
with the transactions contemplated by this Agreement, including without
limitation, the Convertible Closing and any Subsequent Convertible Closing
shall have been received and not withdrawn.
Section 8.04. Draw-down Procedures
(a) Five days prior to any Subsequent Convertible Closing Date, the
Company shall deliver to each Investor notice (a "Draw-down Notice") that a
resolution in the form attached hereto as Exhibit 8.04(a) has been passed by a
majority of the entire board of directors of the Company, which resolution
states that the funds the Company intends to borrow from the Investors (the
"Draw-down Amount") by issuing Convertible Notes are needed for operating
expenses which the board of directors reasonably expects to be due and payable
by the Company within 30 days of any Subsequent Convertible Closing Date, as
the case may be, and that the Company does not reasonably expect to have
positive cash
6
flow from other sources, including but not limited to collections and other
financing sources, to cover such operating expenses. Notwithstanding the
foregoing, if such a resolution receives four (but not more than four) votes in
favor of its passage, then the board of directors shall delegate the vote on
such resolution to the independent directors to determine whether such
resolution should be approved. In such case, affirmative approval of a majority
of the independent directors shall constitute approval of such resolution for
purposes of this Agreement.
(b) The board of directors of the Company shall be entitled to rely on a
certified report from the chief financial officer of the Company in the form
attached hereto as Exhibit 8.04(b) (which the chief financial officer of the
Company must deliver to the board of directors) stating: (i) the amount
available to the Company under any agreement it may currently or in the future
have with Foothill Capital Corporation or any of its Affiliates; (ii) such
chief financial officer's reasonable judgment with respect to whether any such
amount should be drawn down; and (iii) that the operating expenses for which
funds are being borrowed from the Investors will be due and payable by the
Company within 30 days of any Subsequent Convertible Closing Date and that the
Company does not reasonably expect to have positive cash flow from other
sources, including but not limited to collections and other financing sources,
to cover such operating expenses.
Article 7
AMENDMENT OF ARTICLE 9 OF THE AGREEMENT
Article 9 of the Agreement is amended to read as follows:
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 March 7, 2002 and as of the Initial
Convertible Closing Date, in each case unless a different date is specified in
the representation and warranty.
Article 8
AMENDMENT OF ARTICLE 10 OF THE AGREEMENT
Section 10.01(c) of the Agreement is amended to read as follows:
(c) prior to the Convertible Closing or any Subsequent Convertible Closing
if after the date hereof there shall be any law or regulation enacted or
7
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;
Article 9
MISCELLANEOUS
Section 9.01. Effect of Amendment on Agreement: Notification and
Confirmation of Agreement as Amended. On and after the effective date of this
Amendment each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," or words of like import referring to the Agreement, and each
reference in the Initial Notes, the Warrants, the Convertible Notes and the
Amended and Restated Investors Rights Agreement shall mean the Agreement as
amended by this Amendment. The Agreement, as amended by this Amendment is and
shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed. For the avoidance of doubt, the Investors and the
Company agree that upon consummation of the Convertible Closing on the Initial
Convertible Closing Date, the Initial Notes shall be convertible into Common
Shares in accordance with the terms of Section 8.1 of the Initial Notes.
Section 9.02. Expenses. All costs and expenses incurred in connection with
this Amendment 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, and shall pay the fees
and expenses of Xxxxx Xxxx & Xxxxxxxx at the Convertible Closing.
Section 9.03. Governing Law. This Amendment shall be construed in
accordance with and governed by the internal laws of the State of Ohio without
regards to principles of conflicts of law.
Section 9.04. Counterparts. This Amendment 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 9.05. 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 to this Section
9.05) 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 9.05). No representation, inducement, promise,
understanding, condition or warranty not
8
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 9.06. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
9
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 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
Principal Purchase
Amount of Price Paid
Initial Number of for Initial Total
Notes Warrants Notes and Pro Rata Amount
Name of Investor Purchased Purchased Warrants Share Committed
--------------------------- --------- --------- ----------- -------- ----------
(a) Xxxxxx Xxxxxxx Xxxx Xxxxxx
Venture Partners IV, L.P....... $550,131 220,052 $550,131 36.68% $1,283,639
(b) Xxxxxx Xxxxxxx Xxxx Xxxxxx
Venture Investors IV, L.P...... $63,824 25,530 $63,824 4.25% $148,923
(c) Xxxxxx Xxxxxxx Xxxx Xxxxxx
Venture Offshore Investors
IV, L.P........................ $21,463 8,585 $21,463 1.43% $50,080
(d) Fallen Angel Equity Fund, L.P.. $264,582 105,833 $264,582 17.64% $617,358
(e) Xxxxxxxx X. Xxx................ $450,000 180,000 $450,000 30% $1,050,000
(f) Xxxxx X. Xxxxxxxxxx............ $150,000 60,000 $150,000 10% $350,000
