EXHIBIT 10
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SECURITIES PURCHASE AGREEMENT
dated as of March 7, 2002
between
FRONTSTEP, INC.
and
THE INVESTORS NAMED HEREIN
TABLE OF CONTENTS
ARTICLE 1
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DEFINITIONS
-----------
SECTION 1.01. DEFINITIONS......................................................................1
ARTICLE 2
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PURCHASE AND SALE
-----------------
SECTION 2.01. PURCHASE AND SALE................................................................5
SECTION 2.02. CLOSINGS.........................................................................5
ARTICLE 3
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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.............................................8
SECTION 3.04. NON-CONTRAVENTION................................................................8
SECTION 3.05. CAPITALIZATION...................................................................8
SECTION 3.06. SEC FILINGS......................................................................9
SECTION 3.07. DISCLOSURE DOCUMENTS............................................................10
SECTION 3.08. FINANCIAL STATEMENTS............................................................10
SECTION 3.09. ABSENCE OF CERTAIN CHANGES......................................................11
SECTION 3.10. LITIGATION......................................................................12
SECTION 3.11. COMPLIANCE WITH CONTRACTS.......................................................12
SECTION 3.12. ERISA REPRESENTATIONS...........................................................12
SECTION 3.13. TAX REPRESENTATIONS.............................................................14
SECTION 3.14. INSURANCE COVERAGE..............................................................15
SECTION 3.15. COMPLIANCE WITH LAWS............................................................15
SECTION 3.16. TRANSACTIONS WITH AFFILIATES....................................................16
SECTION 3.17. FINDERS' FEES...................................................................16
SECTION 3.18. ANTITAKEOVER STATUTES...........................................................16
ARTICLE 4
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REPRESENTATIONS AND WARRANTIES OF INVESTORS
-------------------------------------------
SECTION 4.01. ORGANIZATION AND EXISTENCE......................................................17
SECTION 4.02. AUTHORIZATION...................................................................17
SECTION 4.03. GOVERNMENTAL AUTHORIZATION......................................................17
SECTION 4.04. NON-CONTRAVENTION...............................................................17
SECTION 4.05. FINDERS' FEES...................................................................17
SECTION 4.06. FINANCING.......................................................................18
SECTION 4.07. PURCHASED FOR INVESTMENT........................................................18
ARTICLE 5
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COVENANTS OF THE COMPANY
------------------------
SECTION 5.01. ACCESS TO INFORMATION...........................................................19
SECTION 5.02. NOTICES OF CERTAIN EVENTS.......................................................19
SECTION 5.03. USE OF PROCEEDS.................................................................19
SECTION 5.04. CORPORATE GOVERNING DOCUMENTS...................................................20
SECTION 5.05. RESTRICTIVE AGREEMENTS PROHIBITED...............................................20
SECTION 5.06. SHAREHOLDER APPROVAL............................................................20
SECTION 5.07. ADDITIONAL WARRANTS.............................................................20
SECTION 5.08. SHAREHOLDER MEETING; PROXY MATERIAL.............................................20
SECTION 5.09. SEC OBLIGATIONS.................................................................21
ARTICLE 6
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COVENANTS OF INVESTORS
----------------------
SECTION 6.01. NOTICES OF CERTAIN EVENTS.......................................................21
SECTION 6.02. CONFIDENTIALITY.................................................................21
SECTION 6.03. VOTING OF SHARES................................................................22
ARTICLE 7
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COVENANTS OF ALL PARTIES
------------------------
SECTION 7.01. REASONABLE BEST EFFORTS.........................................................22
SECTION 7.02. CERTAIN FILINGS; NASDAQ LISTING.................................................22
SECTION 7.03. PUBLIC ANNOUNCEMENTS............................................................22
ARTICLE 8
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CONDITIONS TO CLOSING
---------------------
SECTION 8.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.....................................23
SECTION 8.02. CONDITIONS TO OBLIGATION OF INVESTORS...........................................23
SECTION 8.03. CONDITIONS TO OBLIGATION OF THE COMPANY.........................................24
ARTICLE 9
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SURVIVAL
--------
SECTION 9.01. SURVIVAL........................................................................25
ARTICLE 10
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TERMINATION
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SECTION 10.01. GROUNDS FOR TERMINATION........................................................25
SECTION 10.02. EFFECT OF TERMINATION..........................................................26
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ARTICLE 11
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MISCELLANEOUS
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SECTION 11.01. NOTICES........................................................................26
SECTION 11.02. AMENDMENTS; NO WAIVERS.........................................................27
SECTION 11.03. EXPENSES.......................................................................27
SECTION 11.04. SUCCESSORS AND ASSIGNS.........................................................27
SECTION 11.05. GOVERNING LAW..................................................................28
SECTION 11.06. COUNTERPARTS...................................................................28
SECTION 11.07. ENTIRE AGREEMENT...............................................................28
SECTION 11.08. SPECIFIC PERFORMANCE...........................................................28
SECTION 11.09. CAPTIONS.......................................................................28
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
iii
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.
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"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.
"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
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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
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
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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
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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.
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
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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:
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
6
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 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.
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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
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
8
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.
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.
9
(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 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.
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(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
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;
11
(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 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
12
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 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
13
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, 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
14
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.
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
15
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 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.
16
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 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.
17
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 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.
18
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
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.
19
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 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
20
`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 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.
21
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.
22
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;
23
(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.
24
(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; 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;
25
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 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
26
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
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.
27
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 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.
28
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/ Xxxxxxx 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 PURCHASE
PRINCIPAL PRICE PRINCIPAL PRICE PAID
AMOUNT OF PAID FOR AMOUNT OF FOR
INITIAL NUMBER OF INITIAL CONVERTIBLE CONVERTIBLE
NOTES WARRANTS NOTES AND NOTES TO BE NOTES
NAME OF INVESTOR PURCHASED PURCHASED WARRANTS PURCHASED
-----------------------------------------------------------------------------------------------------------
(a) XXXXXX XXXXXXX XXXX XXXXXX VENTURE $550,131 220,052 $550,131 $1,283,639 $1,283,639
PARTNERS IV, L.P..........................
(b) XXXXXX XXXXXXX XXXX XXXXXX VENTURE $63,824 25,530 $63,824 $148,923 $148,923
INVESTORS IV, L.P.........................
(c) XXXXXX XXXXXXX XXXX XXXXXX VENTURE $21,463 8,585 $21,463 $50,080 $50,080
OFFSHORE INVESTORS IV, L.P................
(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
1
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 12
DEFINITIONS
Section 12.01. 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 13
SECURITIES TRANSFER RESTRICTIONS
Each Holder agrees that Restricted Securities shall not be Transferable
except upon the conditions specified in this Article 13, 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 13.05 and Article 18 hereof.
Section 13.01. Restrictive Legends.
(a) Unless and until otherwise permitted by this Article 13, 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 13.01 until the conditions of this Article 13
with respect to the Transfer of such security have been satisfied.
Section 13.02. 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 13.03. Termination Of Restrictions.
(a) Notwithstanding the foregoing provisions of this Article 13, the
restrictions imposed by this Article 13 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 13 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 13.01 hereof, as
applicable.
Section 13.04. Non-applicability Of Restrictions On Transfer.
Notwithstanding the provisions of Section 13.02 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 13.05. Shareholder Sales. Prior to March 31, 2002, Shareholder
agrees not to Transfer any Common Shares (or any derivative thereof) that he
beneficially owns.
ARTICLE 14
INFORMATION RIGHTS
Section 14.01. 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 14.01(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 14.02. 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 14.03. Confidentiality Agreement. Each Investor receiving
information pursuant to Section 14.01 or 14.02 shall use its best efforts to
ensure that any information which is delivered by the Company to such Investor
pursuant to Section 14.01 or 14.02 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.
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ARTICLE 15
PRE-EMPTIVE RIGHTS AND WAIVERS
Section 15.01. 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 15.01 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 15.01 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 15.01(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 15 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 15.02. 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 16
REGISTRATION RIGHTS
Section 16.01. 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 16.02. Incidental Registration. At such time when the Company
is no longer required to maintain the effectiveness of the shelf registration
statement pursuant to Section 16.01(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
16.02 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
16.02 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 16.02 not less than 30% of the Registrable
Stock requested for inclusion by such Investor.
Section 16.03. Registration Procedures. If and whenever the Company is
required by the provisions of Section 16.01 or 16.02 hereof to effect the
12
registration of shares of Registrable Stock under the Securities Act, the
Company will, at its expense, as expeditiously as reasonably possible:
(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 16.01(a) or (y) in the case of any
Registration Statements filed under Section 16.02 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;
13
(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;
(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 16.03(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
14
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 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 16.02, 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 16.04. Expenses. (a) With respect to each registration
effected pursuant to Section 16.01 or 16.02 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.
15
(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 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 16.05. 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 16.06. 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 16.07. 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 16.01 or 16.02 hereof. Such Transfer
shall be subject to the transferee agreeing in writing to be bound by the terms
of this Agreement.
Section 16.08. 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
16
filed pursuant to Section 16.02 other than the Registrable Stock to be sold
pursuant to such Registration Statement.
Section 16.09. 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 16.01 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 16.09.
(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 17
INDEMNIFICATION
Section 17.01. 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
17
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
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 17.01 (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.
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ARTICLE 18
TAG-ALONG RIGHTS
Section 18.01. 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 18.02. Notice Of Intent To Participate. If an Original
Investor wishes to participate in any sale under this Article 18, 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 18.01, and in any event within twenty (20) days after the
date of receipt of the notice.
Section 18.03. 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 18.01 and 18.02 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 18.01. If the
Original Investors do not wish to participate in any sale under this Article 18,
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 18 to any purchaser who is not a party to this Agreement, the
Tag-Along Shares and the
19
share of the 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 13, which shall continue in force until such time as they lapse pursuant
to the terms of such Article 13 or Article 18 hereof.
ARTICLE 19
REPRESENTATION RIGHTS
Section 19.01. 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 19.02. 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 19.02(b)
21
below; and (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 19.02(a) or Section 19.02(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 19.02(a) or Section 19.02(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 19.02(a) and
Section 19.02(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
19.02(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
19.02(a)(i) or Section 19.02(b).
(e) Notwithstanding Section 19.02(a) or Section 19.02(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 20
MISCELLANEOUS
Section 20.01. 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 20.02. 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 20.03. 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 20.04. 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 20.05. 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 13.05, Section 19.01(a)(iv) and Article 18 hereof may not
be amended or waived without the written consent of Shareholder and Articles 4,
5 and 6 and Section 19.02 may not be amended or waived without the additional
written consent of the Shareholders.
Section 20.06. 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 20.07. 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 20.08. 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 20.09. 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
INVESTOR PREFERRED SHARES NUMBER OF 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 $550,131 220,052 $550,131 $1,283,639 $1,283,639
PARTNERS IV, L.P...................
(b) XXXXXX XXXXXXX XXXX XXXXXX VENTURE $ 63,824 25,530 $ 63,824 $ 148,923 $ 148,923
INVESTORS IV, L.P..................
(c) XXXXXX XXXXXXX XXXX XXXXXX VENTURE $ 21,463 8,585 $ 21,463 $ 50,080 $ 50,080
OFFSHORE INVESTORS IV, L.P.........
(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
1
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 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
1
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.
2
"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 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.
3
"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).
"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
4
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
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
5
(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
(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
6
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) 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.
7
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
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,
8
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 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
9
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
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
10
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
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.
11
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 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:
12
(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 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
13
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.
(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
14
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 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.
15
(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 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
16
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").
(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.
17
(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
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.
18
(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 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
19
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,
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.
1
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
2
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 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.
3
"NASD" means the National Association of Securities Dealers, Inc., and its
successors.
"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
4
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
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
5
and the Holder of this Note shall be deemed to have requested prepayment of this
Note without penalty or fee.
(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:
(h) 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
(i) 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
6
(j) 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
(k) 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
(l) 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
(m) 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
(n) 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
7
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 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.
8
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
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,
9
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 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
10
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 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
11
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 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.
12
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 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:
13
(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 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
14
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 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
15
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 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.
16
(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 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
17
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 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 5.06
of the
20
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
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.
21
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
1
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
2
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.
3
(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 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
4
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 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:
X = (A - B) X C 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
5
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 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
6
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 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
7
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 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
8
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, "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.
9
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 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.
10
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.
11
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:
12
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
1
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: ____________________
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(Signature of Holder)
This signature must conform in all
respects to the name of the Holder as
specified on the Warrant
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(Street Address)
-----------------------------------------
(City) (State) (Zip Code)
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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)
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(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
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