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. C-1
$916,885
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 XXXXXX
XXXXXXX XXXX XXXXXX VENTURE PARTNERS IV, L.P. (together with its successors,
transferees and assigns, the "HOLDER") the principal sum of NINE HUNDRED AND
SIXTEEN THOUSAND EIGHT HUNDRED AND EIGHTY-FIVE DOLLARS ($916,885) (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 August 12, 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 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, (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 4.1 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 September 30, 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.
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), 4.1(g) or 4.1(h)
6
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 $2.4876 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 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
12
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 consideration and the fair market value
thereof, as determined by the Board of Directors of the Issuer.
13
(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 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
14
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 7(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
15
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
receipt of the Note or Notes by the Issuer shall be the conversion date (the
"CONVERSION DATE").
16
(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.
(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
17
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.
(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
18
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 7.1 shall affect the continued
accrual of interest on the outstanding Notes in accordance with the terms of
this Note.
Section 8. MISCELLANEOUS
Section 8.1. 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 8.2. 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 8.3. 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 8.4. 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
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.
19
Section 8.5. SECTION HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
Dated: August 12, 2002
FRONTSTEP, INC.
By:
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Vice President and
Chief Financial Officer
20
SCHEDULE A
10.0% CONVERTIBLE SUBORDINATED NOTES
DUE MAY 10, 2004
AND SUBSTANTIALLY IDENTICAL TO THE
10.0% CONVERTIBLE SUBORDINATED NOTE ISSUED TO
XXXXXX XXXXXXX XXXX XXXXXX VENTURE PARTNERS IV, L.P.
On August 12, 2002, in addition to Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture
Partners IV, L. P., Frontstep, Inc. (the "Company") issued its 10.0% convertible
subordinated notes (the "Convertible Notes") to the persons, and in the
respective principal amounts, specified below, which Convertible Notes are
substantially identical to the Convertible Note issued to Xxxxxx Xxxxxxx Xxxx
Xxxxxx Venture Partners IV, L. P., a copy of which is being included as Exhibit
4 to the Company's Current Report on Form 8-K dated August 12, 2002 (the "Form
8-K).
In accordance with Rule 12b-31 promulgated under the Securities
Exchange Act of 1934 and Item 601(b)(4) of Regulation S-K, the following table
identifies those persons to whom the Company issued Convertible Notes similar to
that included as Exhibit 4 to the Form 8-K:
Principal Amount of
Convertible Notes
Name of Investor Purchased
---------------- ---------
Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture Investors IV, L.P. $ 106,374
Xxxxxx Xxxxxxx Xxxx Xxxxxx Venture Offshore
Investors, IV, L.P $ 35,771
Fallen Angel Equity Fund, L.P. $ 440,970
Xxxxxxxx X. Xxx $ 750,000
Xxxxx X. Xxxxxxxxxx $ 250,000
