-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UwwI2od+eBpiPiCu3gv+96kAakgfNVEBBjc9wO1tWIoKL5sRBPrB5vmf0bQcf8eF qK0ZR0UHZzXpWTtlS1vzOA== 0000950152-00-004179.txt : 20000516 0000950152-00-004179.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950152-00-004179 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMIX SYSTEMS INC CENTRAL INDEX KEY: 0000872443 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 311083175 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19024 FILM NUMBER: 635597 BUSINESS ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR CITY: COLUMBUS STATE: OH ZIP: 43231 BUSINESS PHONE: 6145237000 MAIL ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR CITY: COLUMBUS STATE: OH ZIP: 43231 10-Q 1 SYMIX SYSTEMS, INC. 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ____________________ Commission File Number 0-19024 ------- Symix Systems, Inc. --------------------------------------- (Exact name of registrant as specified in its charter) Ohio 31-1083175 ---- ---------- (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 2800 Corporate Exchange Drive Columbus, Ohio 43231 -------------------- (Address of principal executive offices) (Zip Code) (614) 523-7000 -------------- (Registrant's telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- The number of common shares, without par value, of the registrant outstanding as of May 8, 2000 was 7,503,657. 2 INDEX PAGE NO. PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements 3 Consolidated Balance Sheets March 31, 2000 (unaudited) June 30, 1999 3 Consolidated Statements of Operations (unaudited) Three Months and Nine Months Ended March 31, 2000 and 1999 5 Consolidated Statements of Cash Flows (unaudited) Nine Months Ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements (unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. OTHER INFORMATION 18 Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 19 SIGNATURES 20 EXHIBIT INDEX 21 2 3 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SYMIX SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
March 31, June 30, 2000 1999 ----------------- ---------------- (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $4,187 $5,236 Trade accounts receivable, less allowance for doubtful accounts of $1,595 at March 31, 2000 and $1,500 at June 30, 1999 45,205 46,251 Inventories 857 767 Prepaid expenses 2,686 2,518 Other receivables 1,480 1,346 Income tax benefit 2,150 - Deferred income taxes 833 811 ----------------- ---------------- TOTAL CURRENT ASSETS 57,398 56,929 OTHER ASSETS Purchased and developed software, net of accumulated amortization of $13,300 at March 31, 2000 and $10,833 at June 30, 1999 18,780 16,250 Deferred income taxes 1 - Intangibles, net 11,890 7,191 Deposits and other assets 2,310 2,033 ----------------- ---------------- 32,981 25,474 EQUIPMENT AND IMPROVEMENTS Furniture and fixtures 3,693 3,101 Computer and other equipment 17,444 15,767 Leasehold improvements 1,533 1,472 ----------------- ---------------- 22,670 20,340 Less allowance for depreciation and amortization 14,812 12,143 ----------------- ---------------- 7,858 8,197 ----------------- ---------------- TOTAL ASSETS $98,237 $90,600 ================= ================ See notes to consolidated financial statements
3 4 SYMIX SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (In thousands)
March 31, June 30, 2000 1999 ----------------- ---------------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $11,079 $16,052 Customer deposits 34 148 Deferred revenue 17,050 17,209 Deferred tax liability 57 - Income taxes payable - 470 Current portion of long term obligations 5,352 1,124 ----------------- ---------------- TOTAL CURRENT LIABILITIES 33,572 35,003 LONG-TERM OBLIGATIONS 151 392 BANK CREDIT AGREEMENT 12,256 5,367 DEFERRED INCOME TAXES 6,317 5,417 MINORITY INTEREST 2,125 2,020 SHAREHOLDERS' EQUITY Common stock, authorized 20,000 shares; issued 7,806 shares at March 31, 2000, and 7,654 at June 30, 1999; at stated capital amounts of $.01 per share 78 76 Capital in excess of stated value 34,845 32,363 Retained earnings 12,826 13,496 Cumulative translation adjustment (2,613) (2,214) ----------------- ---------------- 45,136 43,721 Less: Cost of common shares in treasury, 304 shares at March 31, 2000 and June 30, 1999, at cost (1,320) (1,320) ----------------- ---------------- TOTAL SHAREHOLDERS' EQUITY 43,816 42,401 ----------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $98,237 $90,600 ================= ================
See notes to consolidated financial statements 4 5 SYMIX SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited)
Three Months Nine Months Ended March 31, Ended March 31, --------------------------------- ------------------------------ 2000 1999 2000 1999 --------------- ---------------- ------------ ------------- License fees $14,043 $14,137 $42,973 $47,635 Service, maintenance and support 17,425 17,188 54,946 43,682 --------------- ---------------- ------------ ------------- Net revenue 31,468 31,325 97,919 91,317 License fees 4,644 4,274 13,673 12,828 Service, maintenance and support 9,484 8,975 30,477 23,337 --------------- ---------------- ------------ ------------- Cost of revenue 14,128 13,249 44,150 36,165 --------------- ---------------- ------------ ------------- Gross Margin 17,340 18,076 53,769 55,152 --------------- ---------------- ------------ ------------- Selling, general and administrative 14,203 13,647 39,061 40,027 Research and product development 3,944 2,617 11,581 7,063 Amortization of intangibles from acquisitions 934 533 2,462 1,576 Acquisition research and development write-off 638 - 638 - --------------- ---------------- ------------ ------------- Total operating expenses 19,719 16,797 53,742 48,666 --------------- ---------------- ------------ ------------- Operating income (loss) (2,379) 1,279 27 6,486 Interest and other income (expense), net (252) 26 (719) 117 --------------- ---------------- ------------ ------------- Income (loss) before income taxes (2,631) 1,305 (692) 6,603 Provision (benefit) for income taxes (777) 522 (21) 2,634 --------------- ---------------- ------------ ------------- Net income (loss) ($1,854) $783 ($671) $3,969 =============== ================ ============ ============= Basic EPS: Net income (loss) per share ($0.25) $0.12 ($0.09) $0.60 =============== ================ ============ ============= Diluted EPS: Net income (loss) per share ($0.25) $0.11 ($0.09) $0.54 =============== ================ ============ ============= Weighted average number of common shares outstanding 7,428 6,700 7,380 6,657 =============== ================ ============ ============= Weighted average number of common shares outstanding assuming dilution 7,428 7,309 7,380 7,283 =============== ================ ============ =============
See notes to consolidated financial statements 5 6 SYMIX SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Nine Months Ended March 31, --------------------------------- 2000 1999 -------------- -------------- Increase (decrease) in cash OPERATING ACTIVITIES Net income (loss) ($671) $3,969 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Acquisition research and development write-off 638 -- Depreciation and amortization 8,550 5,722 Provision for losses on accounts receivable 95 164 Provision for deferred income taxes (1,120) 193 Changes in operating assets and liabilities: Trade accounts receivable 683 (6,880) Prepaid expenses and other receivables (130) (1,282) Inventory (91) (228) Deposits (299) (220) Accounts payable and accrued expenses (5,766) (2,192) Customer deposits (101) (171) Deferred revenue (236) 2,652 Income taxes payable/refundable (725) (196) -------------- -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 827 1,531
See notes to consolidated financial statements 6 7 SYMIX SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) (unaudited)
Nine Months Ended March 31, --------------------------------- 2000 1999 -------------- -------------- Increase (decrease) in cash INVESTING ACTIVITIES Purchase of equipment and improvements (2,463) (2,516) Additions to purchased and developed software (4,639) (3,490) Purchase of subsidiaries, net of cash acquired (2,116) (638) -------------- -------------- NET CASH USED BY INVESTING ACTIVITIES (9,218) (6,644) FINANCING ACTIVITIES Proceeds from issuance of common stock and exercise of stock options 1,357 1,118 Additions to long-term obligations, net of 5,982 926 payments -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 7,339 2,044 Effect of exchange rate changes on cash 3 215 -------------- -------------- Net change in cash (1,049) (2,854) Cash at beginning of period 5,236 6,115 -------------- -------------- CASH AT END OF PERIOD $4,187 $3,261 ============== ==============
See notes to consolidated financial statements 7 8 SYMIX SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note A - Accounting Policies and Presentation The accompanying consolidated financial statements are unaudited; however, the information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods. All adjustments made were of a normal recurring nature. These interim results of operations are not necessarily indicative of the results to be expected for a full year. The notes to the consolidated financial statements contained in the Symix Systems, Inc. and Subsidiaries' (the "Company") June 30, 1999 Annual Report to Shareholders should be read in conjunction with these financial statements. Certain reclassifications have been made to conform prior quarter amounts to the current quarter presentation. In the first quarter of fiscal 1999, the Company adopted Statement of Position ("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4, which provides guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. The adoption of the SOPs, in certain circumstances, has resulted and may in the future result in the deferral of software license revenues that would have been recognized upon delivery of the related software under the preceding accounting standard, SOP 91-1. In December 1998, SOP 98-9 was issued which modified SOP 97-2 with respect to certain transactions. The Company adopted SOP 98-9 in the first quarter of fiscal 2000. Note B - Acquisitions On February 9, 2000, the Company acquired Profit Solutions, Inc. ("PSI"), a Minnesota corporation and provider of Web-centric customer relationship management applications with sales, marketing, service and business intelligence functionality, for approximately $2.1 million in cash paid at closing and $5.0 million in unsecured, subordinated promissory notes to be paid off by January 2, 2001. The transaction was accounted for as a purchase and resulted in a one-time, non-recurring charge of $638,000 relating to the write-off of acquired in-process technology of PSI. On June 10 1999, the Company acquired Distribution Architects International, Inc. ("DAI") for 619,000 common shares of the Company and $813,000 in cash. Pursuant to the acquisition agreement, DAI was merged with and into a wholly-owned subsidiary of the Company incorporated in Ohio, and each share of DAI common stock was converted into the right to receive .1313 common shares of the Company. Each DAI option outstanding immediately prior to the merger was canceled and terminated. The holder of each option was entitled to receive that number of Symix shares equal to $2.17 (the per share value of DAI stock 8 9 as agreed to by DAI and Symix) less $1.242 (the stock option exercise price), multiplied by the number of shares of DAI covered by the option, and divided by $18.50. DAI is a provider of supply chain management applications for distribution organizations. The transaction was accounted for as a purchase and resulted in a one-time, non-recurring charge of $835,000 relating to the write-off of acquired in-process technology of DAI. The following proforma information shows revenue and net income assuming the Company, DAI, and PSI had been combined at the beginning of the period indicated. The one time, non-recurring charge of approximately $835,000 related to the DAI acquisition, and the one time, non-recurring charge of $638,000 related to the PSI acquisition, are excluded from proforma net income.
Three Months Nine Months Ended March 31, Ended March 31, 2000 1999 2000 1999 ------------------- --------------- -------------- -------------- (In thousands, except per share data) Revenue $31,500 $33,722 $98,344 $100,453 Net income (loss) ($1,562) $561 ($1,354) $4,000 Earnings (loss) per share ($0.21) $0.07 ($0.18) $0.51
Note C - Business Segment and Geographic Information The Company has adopted the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes standards for the way that companies report information about operating segments, geographic areas, and major customers. The Company designs, develops, markets and supports integrated manufacturing, supply chain management, financial and e-commerce software solutions that address the enterprise requirements of mid-size manufacturing and distribution companies and business units of larger companies. The Company manages its operations targeting manufacturing and distribution as a single business unit and, therefore, only reports one primary segment. 9 10 The amount of net revenue, operating income (loss), and identifiable assets attributable to each of the Company's geographic areas for the quarter and nine months ended March 31, 2000 and 1999, respectively, was as follows:
North Asia America Pacific Europe ------------- ------------ ------------- (In thousands) QUARTER ENDED MARCH 31, 2000 Net Revenue $24,778 79% $2,993 10% $3,697 11% Operating income (loss) ($1,412) 59% ($453) 19% ($514) 22% Identifiable assets $78,818 80% $9,096 9% $10,323 11% QUARTER ENDED MARCH 31, 1999 Net Revenue $25,310 81% $2,542 8% $3,473 11% Operating income (loss) $2,829 221% ($99) (8%) ($1,451) (113%) Identifiable assets $53,863 73% $7,689 10% $11,794 17%
North Asia America Pacific Europe ------------- ------------ ------------- (In thousands) NINE MONTHS ENDED MARCH 31, 2000 Net Revenue $77,551 79% $9,377 10% $10,991 11% Operating income (loss) $2,435 9019% ($383) (1419%) ($2,025) (7500%) Identifiable assets $78,818 80% $9,096 9% $10,323 11% NINE MONTHS ENDED MARCH 31, 1999 Net Revenue $70,677 76% $8,335 9% $12,305 13% Operating income (loss) $6,843 106% $597 9% ($954) (15%) Identifiable assets $53,863 73% $7,689 10% $11,794 17%
10 11 Note D - Earnings per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):
Three Months Nine Months Ended March 31, Ended March 31, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------- ------------ ------------ ------------ NUMERATOR: Net income (loss) for both basic and diluted earnings (loss) per share ($1,854) $783 ($671) $3,969 ============= ============ ============ ============ DENOMINATOR: Weighted-average shares outstanding 7,428 6,696 7,380 6,581 Contingently issuable shares - 4 - 76 ------------- ------------ ------------ ------------ Denominator for basic earnings (loss) per share 7,428 6,700 7,380 6,657 Effect of dilutive securities: Employee stock options - 609 - 626 ------------- ------------ ------------ ------------ Denominator for diluted earnings (loss) per share 7,428 7,309 7,380 7,283 ============= ============ ============ ============ Basic earnings (loss) per share ($0.25) $0.12 ($0.09) $0.60 ============= ============ ============ ============ Diluted earnings (loss) per share ($0.25) $0.11 ($0.09) $0.54 ============= ============ ============ ============
11 12 Note E - Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), as of July 1, 1998. SFAS No. 130 requires disclosure of total non-stockholder changes in equity in interim periods and additional disclosures of the components of non-stockholder changes in equity on an annual basis. Total non-stockholder changes in equity include all changes in equity during the period except those resulting from investments by and distributions to stockholders.
Three Months Nine Months Ended March 31, Ended March 31, --------------------------------- ------------------------------ 2000 1999 2000 1999 ------------------ ------------- -------------- -------------- (In thousands) Net income (loss) ($1,854) $783 ($671) $3,969 Foreign currency translation adjustments (483) (193) (401) 30 ------------------ ------------ -------------- -------------- Total comprehensive income (loss) ($2,337) $590 ($1,072) $3,999 ================== ============ ============== ==============
Note F - Loan Covenants The Company has an unsecured revolving line of credit with Bank One, NA (the "Bank") in the amount of $15 million, of which $12.3 million had been borrowed by the Company at the end of the last fiscal quarter. At March 31, 2000, the Company was in default of certain financial covenants in the existing loan agreement with the Bank relating to the credit facility. The default did not relate to any payment due under the credit facility. On May 10, 2000, the Bank delivered to the Company a written waiver of the default, which is subject to revocation by the Bank if the parties do not execute a revised loan agreement with respect to the line of credit by May 18, 2000. The Company and the Bank have negotiated the provisions of a revised loan agreement. The Company expects to have the revised agreement executed by May 18, 2000. It is expected that the Bank will be granted a first lien on the Company's accounts receivable with advances under the revised loan agreement limited to 75% of eligible accounts receivable (as defined). Note G - Subsequent Events On May 10, 2000, the Company sold 566,933 Series A Convertible Participating Preferred Shares, each without par value (the "Series A Preferred Shares"), to a group of unaffliliated accredited investors for $24.00 per share, or an aggregate of approximately $13.6 million in cash. The Series A Preferred Shares were not registered under the Securities Act of 1933, as amended (the "Act") in reliance upon an exemption from registration under Section 4(2) of the Act and Rule 506 promulgated by the Securities and Exchange Commission under the Act. Each Series A Preferred Share is convertible by the holder, in whole or in part, at any time into two (2) common shares, no par value, of the Company (the "Common Shares"), subject to certain adjustments, at the conversion price of $12.00 per share, subject to adjustments. Each holder of the Series A Preferred Shares is entitled to one (1) vote per share held on all matters submitted to shareholders for their vote, provided that the Company has agreed to use its reasonable best efforts to cause its articles of incorporation to be amended to allow each holder of the Series A Preferred Shares to exercise two (2) votes for each share held. The Series A Preferred Shares rank prior to the Common Shares with respect to dividend and liquidation rights. In connection with the sale of the Series A Preferred Shares, the Company issued to the accredited investors on May 10, 2000 warrants to purchase 453,546 Common Shares at an exercise price of $15.00 per share (the "Warrants"). The Warrants were issued in reliance upon an exemption from registration under Section 4(2) of the Act and Rule 506 promulgated by the Securities and Exchange Commission under the Act. The Warrants expire on May 10, 2005 and are exercisable at any time prior to their expiration. 12 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Symix Systems, Inc. ("Symix" or the "Company") designs, develops, markets and supports integrated manufacturing, supply chain management, financial and e-commerce software solutions that address the enterprise requirements of mid-size manufacturing and distribution companies and business units of larger companies. REVENUE Symix's net revenue is derived primarily from (1) licensing Symix software and providing custom programming services; (2) providing installation, implementation, training, consulting and systems integration services; and (3) providing maintenance and support on a subscription basis. Revenue for all periods presented is accounted for in accordance with AICPA Statement of Position 97-2 on Software Revenue Recognition. Net revenue was $31.5 million for the three months ended March 31, 2000, compared to $31.3 million for the third quarter of fiscal 1999. A slight increase in service, maintenance and support revenue was offset by a minimal decrease in license fee revenue. For the nine months ended March 31, 2000, net revenue was $97.9 million, an increase of 7% from the same period of the previous year. The increase is attributable to the growth of service, maintenance and support revenue to $54.9 million for the nine months ended March 31, 2000, an increase of 26% from the same period last year, which growth was offset by a 10% decline in license fee revenue. Symix continues to be impacted by the industry-wide trend of delays in new business system purchases due to the Year 2000 market dynamics. As a result of this trend, license fee revenue declined 1% from $14.1 million at March 31, 1999 to $14.0 million at March 31, 2000. The trend is more pronounced for the nine month comparison. License fee revenue declined 10% from $47.6 million at March 31, 1999 to $43.0 million at March 31, 2000. The Company believes that the interest in traditional business system purchases is increasing, however, the Company is also seeing a market shift in the level of interest in Internet applications and services. Service, maintenance and support revenue increased to $17.4 million for the quarter ended March 31, 2000, a 1% increase from the same quarter last year, and to $54.9 million for the nine months ended March 31, 2000, a 26% increase from the same period last year. As a result of the slowdown in license fee revenue due to Year 2000 issues over the past couple of quarters, service, maintenance and support revenue increased only nominally for the three month period ended March 31, 2000. The increase, although slowed for the nine month period, in the service, maintenance and support revenue, is the result of expansion of the services infrastructure to meet the increase in new software license customers which occurred during quarters prior to this fiscal year, as well as the expanding product line of Symix. Additionally, the acquisition of 13 14 Distribution Architects International, Inc. ("DAI"), which occurred late in the fourth quarter of last year, contributed to the increase in service, maintenance and support revenue for the current year. COST OF REVENUE Total cost of revenue as a percentage of net revenue was 45% for the quarter ended March 31, 2000, compared to 42% for the quarter ended March 31, 1999. The nine month comparison was similar to the three month comparison, with cost of revenue as a percentage of net revenue of 45% at March 31, 2000, compared to 40% at March 31, 1999. For the quarterly comparison, the increase is primarily due to the rate of amortization on capitalized software development. For the nine month comparison, the increase is primarily due to the mix of license fee, versus service, maintenance and support revenue, wherein higher costs are associated with producing service, maintenance and support revenue than license fee revenue. Cost of license fees includes royalties, amortization of capitalized software development costs and software delivery expenses. Cost of license fees increased to 33% of license fee revenue for the quarter ended March 31, 2000 from 30% for the same period last year. The percentage increase is attributable to the increase in the rate of amortization on capitalized software expenses relative to license fee revenue. Symix began amortizing capitalized software costs related to the new product initiative, SyteCentre, during the end of the 1999 fiscal year. The nine month comparisons are consistent with the quarter ended March 31 results. Cost of service, maintenance and support includes the personnel and related overhead costs for implementation, training, and customer support services, together with fees paid to third parties for subcontracted services. Cost of service, maintenance and support increased to 54% of service, maintenance and support revenue for the quarter from 52% for the same period last year. The increase in costs during the quarter ended March 31, 2000, compared to the same quarter last year, is due to the increase in the use of subcontractors to supplement the work performed by Symix employees. In general, the use of subcontractors results in lower margins than the use of employees but provides to Symix increased flexibility in meeting customer demands. The nine month comparisons are consistent with the quarter ended March 31 results. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense consists of personnel and related overhead costs, including commissions, for the sales, marketing, general and administrative activities of Symix, together with advertising and promotional costs. Selling, general and administrative expense increased 4% for the quarter ended March 31, 2000 from the same quarter of 1999 and, as a percentage of revenue, increased from 44% at March 31, 1999 to 45% at March 31, 2000. The increase this quarter is attributable to the Company's investment in its eBusiness operations, an Internet suite of applications and deployment services. For the nine month period ended March 31, 2000, selling, general and administrative expense actually declined from the comparable period last year, from $40.0 million to $39.1 million, a 2% decrease. The decline in selling, general and administrative expense is related to the reduction of expenses in the sales distribution channels in response to difficult market conditions. 14 15 RESEARCH AND DEVELOPMENT Research and product development expense includes personnel and related overhead costs for product development, enhancement, upgrades, quality assurance and testing. Research and product development expense, including amounts capitalized for the three months ended March 31, 2000, was $5.1 million compared to $3.7 million for the same period last year. For the nine months ended March 31, 2000, research and product development expense, including amounts capitalized, was $14.8 million compared to $10.3 million for the same period last year. Capitalization of software development costs was $1.1 million for the quarter ended March 31, 2000, compared to $1.0 million for the comparable period last year. For the nine month period ended March 31, 2000, $3.3 million was capitalized compared to $3.2 million for the same period last year. As a percentage of revenue, net of software capitalized, research and product development expense increased to 13% for the quarter ended March 31, 2000, from 8% for the quarter ended March 31, 1999. In terms of actual dollars, research and product development expense for the quarter ended March 31, 2000, net of software capitalized, increased 51% from the same quarter last year. For the nine month comparison, as a percentage of net revenue, net of software capitalized, research and product development expense increased to 12% for the period ending March 31, 2000 from 8% for the period ended March 31, 1999. In terms of actual dollars, research and product development expense for the nine months ended March 31, 2000, net of software capitalized, increased 64% from the same period of last year. The increase in research and product development expense is the result of investments in the expanding product offerings of Symix, including Symix's accelerating eBusiness and supply chain management solutions. PROVISION FOR INCOME TAXES The effective tax rate for the quarter as well as the nine months ended March 31, 2000, excluding this quarter's non-recurring charge, was 39%, whereas, for the quarter as well as the nine months ended March 31, 1999, the rate was 40%. Historically, the increase in the effective tax rate has been due to the amount of foreign taxable earnings in countries with higher effective rates and the non-deductibility of the amortization of intangibles, thereby increasing Symix's overall tax rate. Symix recently has implemented a tax restructuring plan to lower state income tax rates which is expected to slightly lower the overall effective tax rate. LIQUIDITY AND CAPITAL RESOURCES Symix's operating activities provided cash of $827,000 during the nine month period ended March 31, 2000, compared to $1.5 million in cash during the same period in 1999. In both periods, cash provided by operating activities was due principally to earnings after adjustments for non-cash charges, offset by the decrease in trade and tax payables related to year end. The accounts receivable days sales outstanding was 106 days at March 31, 1999, compared to 118 15 16 days at March 31, 2000. An increase in installment payments on software license fees from new customers (particularly on large deals) has contributed to the increase in days sales outstanding. For the nine months ended March 31, 2000, cash was used for the acquisition of Profit Solutions, Inc. For both periods presented, cash provided by financing activities was used to fund software development costs and to purchase computer equipment. As of March 31, 2000, the Company had $23.8 million in working capital, including $4.2 million in cash and cash equivalents. The Company had accessed its $15.0 million unsecured revolving line of credit for $12.3 million as of March 31, 2000. On May 10, 2000, the Company completed the sale of 566,933 Series A Convertible Participating Preferred Shares in a private placement to unaffiliated accredited investors for an aggregate of approximately $13.6 million in cash. The proceeds from the sale will be used for working capital and general business purposes, including the Company's e-business initiatives. It is expected that the continued expansion of the Company's operations and product line will result in additional requirements for cash in the future, which will be met during the next 12 months through cash from operations, the existing line of credit and the proceeds from the recent private placement. The Company and Bank One, N.A. (the "Bank") have negotiated the provisions of a revised loan agreement. The Company expects to have the revised agreement executed by May 18, 2000. It is expected that the Bank will be granted a first lien on the Company's accounts receivable with advances under the revised loan agreement limited to 75% of eligible accounts receivable (as defined). SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 IN ADDITION TO HISTORICAL INFORMATION, THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS "FORWARD-LOOKING STATEMENTS", INCLUDING INFORMATION REGARDING FUTURE ECONOMIC PERFORMANCE AND PLANS AND OBJECTIVES OF MANAGEMENT, WHICH ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. IN SOME CASES, INFORMATION REGARDING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM A FORWARD-LOOKING STATEMENT APPEAR TOGETHER WITH SUCH STATEMENT. OTHER UNCERTAINTIES AND RISKS INCLUDE, BUT ARE NOT LIMITED TO, DEMAND FOR AND MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS; THE IMPACT OF COMPETITIVE PRODUCTS; THE COMPANY'S ABILITY TO MAINTAIN EFFICIENT MARKETING AND DISTRIBUTION OPERATIONS DOMESTICALLY AND INTERNATIONALLY; FUTURE WORLDWIDE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS; THE COMPANY'S ABILITY TO ATTRACT AND RETAIN HIGHLY SKILLED TECHNICAL, MANAGERIAL, SALES, MARKETING, SERVICE AND SUPPORT STAFF AND TO RETAIN KEY TECHNICAL AND MANAGEMENT PERSONNEL; TIMING OF PRODUCT DEVELOPMENT AND GENERAL RELEASE; PRODUCT PRICING AND OTHER FACTORS DETAILED IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES. 16 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK A discussion and analysis of foreign exchange risks relating to the Company is set forth in Item 7A--Quantitative and Qualitative Disclosures About Market Risk in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1999 under the caption "Foreign Exchange". No material changes in the information provided under that item have occurred. 17 18 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is subject to legal proceedings and claims which arise in the normal course of business. While the outcome of these matters cannot be predicted with certainty, management does not believe the outcome of any of these legal matters will have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. (a) Not applicable. (b) and (c) Please see the discussion below under "Item 5--Other Information" regarding the recent sale of equity securities by the Company. (d) Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. The Company has an unsecured revolving line of credit with Bank One, NA (the "Bank") in the amount of $15 million, of which $12.3 million had been borrowed by the Company at the end of the last fiscal quarter. At March 31, 2000, the Company was in default of certain financial covenants in the existing loan agreement with the Bank relating to the credit facility. The default did not relate to any payment due under the credit facility. On May 10, 2000, the Bank delivered to the Company a written waiver of the default, which is subject to revocation by the Bank if the parties do not execute a revised loan agreement with respect to the line of credit by May 18, 2000. The Company and the Bank have negotiated the provisions of a revised loan agreement. The Company expects to have the revised agreement executed by May 18, 2000. It is expected that the Bank will be granted a first lien on the Company's accounts receivable with advances under the revised loan agreement limited to 75% of eligible accounts receivable (as defined). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. On May 10, 2000, the Company sold 566,933 Series A Convertible Participating Preferred Shares, each without par value (the "Series A Preferred Shares"), to a group of unaffiliated accredited investors for $24.00 per share, or an aggregate of approximately $13.6 million in cash. The Series A Preferred Shares were not registered under the Securities Act of 1933, as amended (the "Act") in reliance upon an exemption from registration under Section 4(2) of the Act and Rule 506 promulgated by the Securities and Exchange Commission under the Act. Each Series A Preferred Share is convertible by the holder, in whole or in part, at any time into two (2) common shares, no par value, of the Company (the "Common Shares"), subject 18 19 to certain adjustments, at the conversion price of $12.00 per share, subject to adjustments. Each holder of the Series A Preferred Shares is entitled to one (1) vote per share held on all matters submitted to shareholders for their vote, provided that the Company has agreed to use its reasonable best efforts to cause its articles of incorporation to be amended to allow each holder of the Series A Preferred Shares to exercise two (2) votes for each share held. The Series A Preferred Shares rank prior to the Common Shares with respect to dividend and liquidation rights. In connection with the sale of the Series A Preferred Shares, the Company issued to the accredited investors on May 10, 2000 warrants to purchase 453,546 Common Shares at an exercise price of $15.00 per share (the "Warrants"). The Warrants were issued in reliance upon an exemption from registration under Section 4(2) of the Act and Rule 506 promulgated by the Securities and Exchange Commission under the Act. The Warrants expire on May 10, 2005 and are exercisable at any time prior to their expiration. Also, in connection with the private placement, the number of directors of the Company was increased from 6 to 9 and 3 new directors were appointed to the Symix Board of Directors effective May 10, 2000. The new directors are Guy de Chazal, Managing Director of MSDW Venture Partners IV, L.L.C.; Barry Goldsmith, Partner, Updata Venture Partners; and Roger D. Blackwell, Professor of Marketing, Fisher College of Business, The Ohio State University. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) See Index to Exhibits filed with this Quarterly Report on Form 10-Q following the Signature Page. b) Reports on Form 8-K: None. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYMIX SYSTEMS, INC. Date: May 15, 2000 /S/ Lawrence W. DeLeon ---------------------- Lawrence W. DeLeon (Duly Authorized Officer and Principal Financial Officer) 20 21 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE 3(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to Symix Systems, Inc. (as filed with the Exhibit 3(a)(1) to the Annual Report on Ohio Secretary of State on February 8, Form 10-K for the fiscal year ended June 1991) 30, 1997 3(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation of Symix Exhibit 3(a)(2) to the Annual Report on Systems, Inc. (as filed with the Ohio Form 10-K for the fiscal year ended June Secretary of State on July 16, 1996) 30, 1997 3(a)(3) Certificate of Amendment to the Amended Filed Herein Articles of Incorporation of Symix Systems, Inc., as amended (as filed with the Ohio Secretary of State on May 10, 2000) 3(a)(4) Amended Articles of Incorporation of Filed Herein Symix Systems, Inc., as amended (reflecting amendments through May 10, 2000 for purposes of SEC reporting compliance only) 3(b) Amended Regulations of Symix Systems, Inc. Incorporated herein by reference to Exhibit 3(b) to the Registration Statement on Form S-1 of Registrant filed on February 12, 1991 (Registration No. 33-38878) 4(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to Symix Systems, Inc. (as filed with the Exhibit 3(a)(1) to the Annual Report on Ohio Secretary of State on February 8, Form 10-K for the fiscal year ended June 1991) 30, 1997
21 22
EXHIBIT NO. DESCRIPTION PAGE 4(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation of Symix Exhibit 3(a)(2) to the Annual Report on Systems, Inc. (as filed with the Ohio Form 10-K for the fiscal year ended June Secretary of State on July 16, 1996) 30, 1997 4(a)(3) Certificate of Amendment to the Amended Filed Herein at Exhibit 3(a)(3) Articles of Incorporation of Symix Systems, Inc., as amended (as filed with the Ohio Secretary of State on May 10, 2000) 4(a)(4) Amended Articles of Incorporation of Filed Herein at Exhibit 3(a)(4) Symix Systems, Inc., as amended (reflecting amendments through May 10, 2000 for purposes of SEC reporting compliance only) 4(b) Amended Regulations of Symix Systems, Inc. Incorporated herein by reference to Exhibit 3(b) to the Registration Statement on Form S-1 of Registrant filed on February 12, 1991 (Registration No. 33-38878) 4(c) Investor Rights Agreement, dated as of Filed Herein May 10, 2000, among Symix Systems, Inc., the Investors identified therein and Lawrence J. Fox 4(d) Warrant for the Purchase of Shares of Filed Herein Common Stock of Symix Systems, Inc. issued to Morgan Stanley Dean Witter Venture Partners IV, L.P., and Exhibit A, identifying other identical warrants issued to the Investors identified on Exhibit A, for the number of common shares identified on Exhibit A
22 23
EXHIBIT NO. DESCRIPTION PAGE 10(a) Securities Purchase Agreement, dated as Filed Herein of May 10, 2000, between Symix Systems, Inc. and the Investors identified therein 10(b) Investor Rights Agreement, dated as of Filed Herein at Exhibit 4(c) May 10, 2000, among Symix Systems, Inc., the Investors identified therein and Lawrence J. Fox 10(c) Warrant for the Purchase of Shares of Filed Herein at Exhibit 4(d) Common Stock of Symix Systems, Inc. issued to Morgan Stanley Dean Witter Venture Partners IV, L.P. and Exhibit A identifying other identical warrants issued to the Investors identified on Exhibit A, for the number of common shares identified on Exhibit A 27 Financial Data Schedule Filed herein
23 EX-3.A.3 2 EXHIBIT 3(A)(3) 1 EXHIBIT 3(a)(3) 2 Expedite this form [X] Yes [SEAL] PRESCRIBED BY J. KENNETH BLACKWELL Please obtain fee amount and mailing instructions from the Forms Inventory List (using the 3 digit form # located at the bottom of this form). To obtain the Forms Inventory List or for assistance, please call Customer Service: Central Ohio: (614)-466-3910 Toll Free: 1-877-SOS-FILE (1-877-767-3453) CERTIFICATE OF AMENDMENT BY DIRECTORS OF SYMIX SYSTEMS, INC. - ------------------------------------------------------------------------------- (Name of Corporation) 626239 ------------------ (charter number) Lawrence W. DeLeon , who is the Secretary - ------------------------- ------------------- of the above named Ohio corporation organized for profit, does hereby certify that:(P1: [ ] a meeting of the shareholders was duly called and held on --------- (date) [X] in a writing signed by all the Directors pursuant to Section 1701.54 of the Ohio Revised Code, the following resolution was adopted pursuant to Section 1701.70(B)(1) of the Ohio Revised Code: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation under ------------------------------------------------------------------------------------------------------------ Article FOURTH of the Amended Articles of Incorporation of the Corporation, as amended, Article ------------------------------------------------------------------------------------------------------------ FOURTH of said Amended Articles of Incorporation be, and the same hereby is, amended to designate ------------------------------------------------------------------------------------------------------------ authorized and unissued preferred shares, each without par value, of the Corporation as "Series A ------------------------------------------------------------------------------------------------------------ Convertible Participating Preferred Shares" and to fix the terms of such preferred shares, said ------------------------------------------------------------------------------------------------------------ Article FOURTH, as so amended, to read in its entirety as set forth in Exhibit A attached hereto and ------------------------------------------------------------------------------------------------------------ made a part hereof (the "Amendment"). ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
IN WITNESS WHEREOF, the above named officer, acting for and on behalf of the corporation, has hereunto subscribed his name on May 10, 2000 --- ------------ (gender) By: /s/Lawrence W. DeLeon ------------------------------- Title: Secretary ------------------------------- Page 1 of 1 3 EXHIBIT A FOURTH: The authorized number of shares of the corporation shall be 21,000,000, of which 20,000,000 shares shall be common shares, each without par value, and 1,000,000 shares shall be preferred shares, each without par value. Each outstanding common share and each outstanding preferred share shall entitle the holder thereof to one vote on each matter properly submitted to the shareholders for their vote, consent, waiver, release or other action. No shareholder of the corporation shall have, as a matter of right, the right to cumulate his voting power. 1. Number and Designation. 566,933 preferred shares of the corporation shall be designated as Series A Convertible Participating Preferred Shares (the "SERIES A PREFERRED SHARES"). 2. Rank. The Series A Preferred Shares shall, with respect to the dividend rights specified herein and rights on liquidation, dissolution and winding up, rank prior to all classes the Corporation's capital stock, including the Corporation's common shares, no par value (the "COMMON SHARES"). All equity securities of the Corporation to which the Series A Preferred Shares rank prior (whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise), including the Common Shares, are collectively referred to herein as the "JUNIOR SECURITIES." All equity securities of the Corporation with which the Series A Preferred Shares ranks on a parity (whether with respect to dividends or upon liquidation, dissolution or winding up) are collectively referred to herein as the "PARITY SECURITIES." The respective definitions of Junior Securities and Parity Securities shall also include any rights or options exercisable for or convertible into any of the Junior Securities and Parity Securities, as the case may be. The Series A Preferred Shares shall be subject to the creation of Junior Securities. 3. Voting Rights. Except as otherwise provided herein or as otherwise provided by applicable law, the Holders of the Series A Preferred Shares (i) shall be entitled to vote with the Holders of the Common Shares, voting together as a single class, on all matters submitted for a vote of Holders of Common Shares, (ii) shall be entitled to one vote per Series A Preferred Share held; provided that upon amendment of the corporation's articles of incorporation to permit the corporation's authorized preferred shares to have more than one vote per share as permitted under the Act, the Holders of the Series A Preferred Shares shall have a number of votes equal to the number of votes to which Common Shares issuable upon conversion of such Series A Preferred Shares would have been entitled if such Common Shares had been outstanding at the time of the 4 applicable vote and related record date and (iii) shall be entitled to notice of any shareholders' meeting in accordance with the articles of incorporation and regulations of the corporation. 4. Liquidation Rights. If the corporation shall be voluntarily or involuntarily liquidated, dissolved or wound up (each a "LIQUIDATION EVENT") at any time when any of the Series A Preferred Shares shall be outstanding, the Holders of the then outstanding Series A Preferred Shares shall have a preference against the assets of the corporation available for distribution to the Holders of the corporation's equity Securities equal to the greater of (a) $24 per Series A Preferred Shares (as adjusted for any share dividends, combinations or splits with respect to the Series A Preferred Shares), plus accumulated, but unpaid, dividends, if any (the "PREFERENCE AMOUNT") or (b) the amount that would be received by a Holder of the number of Common Shares underlying the Series A Preferred Shares (subject to anti-dilution adjustments described below) in such liquidation or winding up if all of the Series A Preferred Shares were converted into Common Shares immediately prior to the liquidation or winding up. Notwithstanding the foregoing, at the election of the Holders of 75% or more of the Series A Preferred Shares then outstanding, (i) the consolidation or merger of the corporation into or with any other entity or entities which results in the exchange of outstanding shares of the corporation 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 corporation in a different jurisdiction or (y) a consolidation or merger in which the corporation is the surviving entity and in which the corporation's Voting Shares outstanding immediately prior to such merger or consolidation are exchanged or converted into or constitute more than 50% of the corporation's Voting Stock after such consolidation or merger); (ii) the sale or transfer by the corporation of all or substantially all of its assets otherwise than to one or more Subsidiaries; or (iii) a transaction or series of transactions in which a person or group of persons (as defined in Rule 13d-5(b)(1) of the Exchange Act), acquires beneficial ownership (as determined in accordance with Rule 13d-3 of the Exchange Act) of more than 50% of the voting power of the corporation, shall be deemed to be a Liquidation Event within the meaning of the provisions of Section 3 (each of the events specified in clauses (i), (ii) and (iii) of Section 3 being referred to herein as a "CHANGE-IN-CONTROL LIQUIDATION EVENT"). Notwithstanding the foregoing, no reduction of the authorized or issued Shares of the corporation of any class, whether now or hereafter authorized shall be deemed to be a Liquidation Event within the meaning of any of the provisions of Section 3. Upon any such Liquidation Event, after the Holders of Series A Preferred Shares shall have been paid in full their preferential amounts to which they shall be entitled as provided in this Section 4, the remaining Property of the corporation 2 5 may be distributed to the Holders of any other equity Securities of the corporation, including, without limitation, Junior Securities whether now or hereafter authorized, in connection with such Liquidation Event. Written notice of such Liquidation Event, stating a payment date, the preferential amount and the place where said preferential amount shall be payable, shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier or telex, not less than 20 days prior to the payment date stated therein, to the Holders of record of Series A Preferred Shares, such notice to be addressed to each such Holder at its address as shown by the records of the corporation. If, upon any Liquidation Event, the corporation's assets available for distribution to its shareholders are insufficient to permit payment in full to the Holders of the Series A Preferred Shares of the aggregate amount which such Holders shall be entitled under this Section 4, then the entire assets available for distribution to shareholders of the corporation shall be distributed among the Holders of the Series A Preferred Shares pro rata based upon the number of Series A Preferred Shares held by each such Holder. After payment in full to a Holder of the Series A Preferred Shares of the preferential amount which such Holder shall be entitled as set forth in this Section 4, the Series A Preferred Shares held by such Holder shall be deemed to be no longer outstanding and such Holder no longer shall have any rights as a shareholder of the corporation. 5. Dividends. (a) Each Holder of Series A Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cash dividends contemporaneously with cash dividends when, as and if declared by the Board of Directors with respect to Common Shares in an amount equal to the product of the cash dividend payable per Common Share times the Conversion Rate (as hereinafter defined) for the Series A Preferred Shares then in effect. Such dividends shall be payable on the dates specified by the Board of Directors as the dates for payment of dividends in respect of Common Shares (each of such dates being a "DIVIDEND PAYMENT DATE") (unless such day is not a business day, in which event on the next succeeding business day). Such dividends shall be paid to the holders of record at the close of business on the date specified by the Board of Directors of the corporation at the time such dividend is declared, provided, however, that such date shall not be more than 60 days nor less than 10 days prior to the respective Dividend Payment Date. (b) In addition, if at any time the corporation is in material breach of its registration obligations under Article 5 of the Investor Rights Agreement, the Holders of Series A Preferred Shares shall be entitled to receive for and during the period the corporation continues in breach of the Investor Rights Agreement, when, as and if declared by the Board of Directors, out of 3 6 funds legally available for the payment of dividends, cash dividends at an annual rate of $3.36 per share. Such dividends shall be payable in arrears in equal amounts quarterly on June 30, September 30, December 31, and March 31 of each year unless such day is not a business day, in which event on the next succeeding business day). The amount of such dividends and any accumulations shall be pro rated and calculated on the basis of the actual days elapsed from the date of such material breach by the corporation. Such dividends shall be cumulative from the date of default to the date of cure, whether or not in any dividend period or periods there shall be funds of the corporation legally available for the payment of such dividends. Such dividends shall be payable to Holders of the Series A Preferred Shares at the close of business on the record date specified by the Board of Directors at the time such dividends are declared, which record date shall not be more than 60 days prior to the Dividend Payment Date. No such cumulative dividends shall be declared or become payable or be deemed to have accrued with respect to any Series A Preferred Shares (including, without limitation, upon any liquidation, dissolution or winding up of the corporation, or upon any redemption of any such shares) unless a Dividend Payment Date occurs while such share is outstanding. (c) So long as any Series A Preferred Shares are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on Junior Securities, for any period unless full cumulative dividends if required pursuant to the preceding paragraph (b) have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Shares for all dividend periods terminating on or prior to the date of payment of the dividend on such class or series of Junior Securities. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon the Series A Preferred Shares and all dividends declared upon any Parity Securities shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series A Preferred Shares and accumulated and unpaid on such Parity Securities. 6. Optional Redemption. The Series A Preferred Shares shall not be redeemable by the corporation prior to the fourth anniversary of the date of issuance of the Series A Preferred Shares. Within 30 days after the fourth anniversary of the date of issuance of the Series A Preferred Shares, the corporation may elect to redeem all, but not less than all, of the Series A Preferred Shares outstanding on the date of redemption as determined by the Board of Directors (the "REDEMPTION DATE") which date shall not be more than 60 days after such fourth anniversary date. (a) PREFERENCE AMOUNT AND PAYMENT. The Series A Preferred Shares shall be redeemed by paying for each share an amount in cash equal to 4 7 $30.72, plus accumulated, but unpaid, dividends, if any (the "REDEMPTION PRICE"). Such payment shall be made in full on the Redemption Date to the Holders entitled thereto. (b) REDEMPTION MECHANICS. At least 20 but not more than 30 days prior to any Redemption Date, written notice (the "REDEMPTION NOTICE") shall be given by the corporation by delivery in person, certified or registered mail, return receipt requested, telecopier or telex, to each Holder (at the close of business on the Business Day next preceding the day on which the Redemption Notice is given) of Series A Preferred Shares notifying such Holder of the redemption and specifying the Redemption Price, the Redemption Date and the place where the Redemption Price shall be payable. The Redemption Notice shall be addressed to each Holder at its address as shown by the records of the corporation. From and after the close of business on the Redemption Date, unless there shall have been a default in the payment of the Redemption Price, all rights of Holders of shares of Series A Preferred Shares (except the right to receive the Redemption Price) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the corporation legally available for redemption of Series A Preferred Shares on the Redemption Date are insufficient to redeem the total number of outstanding Series A Preferred Shares, the Holders of Series A Preferred Shares shall share ratably in any funds legally available for redemption of such shares according to the respective amounts which would be payable with respect to the full number of shares owned by them if all such outstanding shares were redeemed in full. The Series A Preferred Shares not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of such Series A Preferred Shares, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. (c) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Series A Preferred Shares redeemed pursuant to this Section 6 or otherwise acquired by the corporation in any manner whatsoever shall be cancelled and shall not under any circumstances be reissued; provided that each such share, after being retired and cancelled, shall be restored to the status of an authorized but unissued Preferred Share without designation as to series and may thereafter be issued as a Preferred Share not designated as a Series A Preferred Share unless such reissuance shall violate Section 10 hereof or any other provision of these articles of incorporation. 7. Conversion. (a) The Series A Preferred Shares shall be convertible at any time, in whole or in part, at the option of the Holder thereof and 5 8 upon notice to the corporation as set forth below, into fully paid and nonassessable Common Shares at the Conversion Rate. The Series A Preferred Shares shall be convertible initially at the rate of two Common Shares for each full Series A Preferred Share and shall be subject to adjustment as provided herein. The initial base conversion price per Common Share is $12.00 and shall be subject to adjustment as provided herein (the "CONVERSION PRICE"). For purposes of this Article FOURTH, the "CONVERSION RATE" applicable to a Series A Preferred Share shall be the number of Common Shares into which a Series A Preferred Share is then convertible and shall be equal to the product of (i) two multiplied by (ii) the quotient resulting from dividing the then existing Conversion Price into $12.00. (b) The Conversion Price (and the corresponding Conversion Rate) shall be subject to adjustment from time to time as follows: (i) In case the corporation shall (A) pay a dividend in Common Shares or make a distribution in Common Shares, (B) subdivide its outstanding Common Shares, (C) combine its outstanding Common Shares into a smaller number of Common Shares or (D) issue by reclassification of its Common Shares other securities of the corporation, then in each such case the Conversion Rate in effect immediately prior thereto shall be adjusted so that the Holder of any Series A Preferred Shares thereafter surrendered for conversion shall be entitled to receive the kind and number of Common Shares or other securities of the corporation which such Holder would have owned or would have been entitled to receive immediately after the happening of any of the events described above had such Series A Preferred Shares been converted immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made pursuant to this subsection (i) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (ii) In case the corporation shall issue or sell any Common Shares (other than Common Shares issued (1) pursuant to the corporation'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 corporation approved by the corporation's Board of Directors, (2) in connection with a merger or consolidation with or other acquisition of, another Person or the acquisition of the assets of another Person, other than any such transaction that constitutes a Change in Control Liquidation Event or (3) upon exercise or conversion of any security the issuance of which caused an adjustment under Section 7(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 6 9 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 corporation 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 corporation 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; provided that if Holders of 75% or more of the outstanding Series A Preferred Shares shall object to any such determination, the Board of Directors 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 corporation and furnished with a description of the consideration and the fair market value thereof, as determined by the Board of Directors. (iii) In case the corporation shall fix a record date for the issuance of rights, options or warrants to the Holders of Common Shares or other securities entitling such Holders to subscribe for or purchase for a period expiring within 60 days of such record date Common Shares (or securities convertible into Common Shares) at a price per Common Share (or having a conversion price per Common Share, if a security convertible into Common Shares) less than the Conversion Price on such record date, the maximum number of Common Shares issuable upon exercise of such rights, options or warrants (or conversion of such convertible securities) shall be deemed to have been issued and outstanding as of such record date and the Conversion Price shall be adjusted pursuant to paragraph (b)(ii) hereof, as though such maximum number of Common Shares had been so issued for an aggregate consideration payable by the Holders of such rights, options, warrants or convertible securities prior to their receipt of such Common Shares. In case any portion of such consideration shall be in a form other than cash, the fair market value of such noncash consideration shall be determined as set forth in Section 7(b)(ii) hereof. Such adjustment shall be made successively whenever such record date is fixed; and in the event that such rights, options or warrants are not so issued or expire unexercised, or in the event of a change in the number of Common Shares to which the Holders of such rights, options or warrants are entitled (other than pursuant to adjustment provisions therein comparable to those contained in this Section 7(b)), the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date had not been fixed, in the former event, or the Conversion Price which would then be in effect if such Holder had initially been entitled to such changed number of Common Shares, in the latter event. (iv) In case the corporation shall issue rights, options (other than options issued pursuant to a plan described in Section 7(b)(ii)) or 7 10 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. (v) In case the corporation 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 corporation 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 on such record date, less the fair 8 11 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) If the average (weighted by daily trading volume) of the Daily Prices (as defined below) per Common Share for the 40 consecutive trading days immediately preceding the fourth anniversary of the date of issuance of the Series A Preferred Shares (the "AVERAGE WEIGHTED PRICE") is less than $12.00, then the Conversion Price then in effect shall be reduced to the Average Weighted Price, such adjustment to be effective as of the close of business 30 days after the fourth anniversary of the date of issuance of the Series A Preferred Shares unless the corporation has previously delivered a Redemption Notice in accordance with Section 6(b) hereof. If the corporation shall at any time after the date of issuance of the Series A Preferred Shares pay any dividend on Common Shares payable in Common Shares or effect a subdivision or combination of the outstanding Common Shares (by reclassification, stock split or otherwise) into a greater or lesser number of Common Shares, then the share price referred to in the first sentence of this 7(b)(vi) shall be adjusted upon the earlier of the public announcement or the occurrence of any such event by multiplying the share price by a fraction of which the numerator is the number of Common Shares outstanding immediately after such event and of which the denominator is the number of Common Shares that were outstanding immediately prior to such event. (vii) For the purpose of any computation under Section 7(b) hereof, on any determination date, the "CURRENT MARKET PRICE PER COMMON SHARE" shall be deemed to be the average (weighted by daily trading volume) of the Daily Prices (as defined below) per Common Share for the 20 consecutive trading days immediately prior to such date. "DAILY PRICE" means (1) if the Common Shares then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"), the closing price per share on such day as reported on the NYSE Composite Transactions Tape; (2) if the Common Shares then are not listed and traded on the NYSE, the closing price per share on such day as reported by the principal national securities exchange on which the shares are listed and traded; (3) if the Common Shares then are not listed and traded on any such securities exchange, the last reported sale price per share on such day on the NASDAQ 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 9 12 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. If Holders of 75% or more of the outstanding Series A Preferred Shares shall object to any determination by the Board of Directors 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 corporation at its expense and reasonably acceptable to such Holders. For purposes of any computation under this Section 7(b), the number of Common Shares outstanding at any given time shall not include shares owned or held by or for the account of the corporation. (viii) 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. (ix) In the event that, at any time as a result of the provisions of this Section 7(b), the Preferred Holders upon subsequent conversion of the Series A Preferred Shares shall become entitled to receive any capital shares of the corporation other than Common Shares, the number of such other shares so receivable upon conversion of the Series A Preferred Shares 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. (x) If the Corporation 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 Series A Preferred Shares by reason of the taking of such record shall be reversed, and any subsequent adjustments, based thereon, shall be recomputed. 8. Mandatory Conversion. (a) If at any time after the second anniversary of the date of issuance of the Series A Preferred Shares the Daily Price for a Common Share for each and every day of any period of 40 consecutive trading days exceeds $24.00, then each outstanding Series A Preferred Share shall be automatically converted, at the Conversion Rate then in effect pursuant to Section 7 as of the close of business on the last trading day of the 40 trading day period (a "MANDATORY CONVERSION EVENT") into Common Shares (or other securities or property into which the Series A Preferred Shares are then 10 13 convertible). Any Series A Preferred Shares so converted shall be treated as having been surrendered by the Holder thereof for conversion pursuant to Section 7 as of the close of business on the last trading day of the 40 trading day period. (b) If the corporation shall at any time after the date of issuance of the Series A Preferred Shares pay any dividend on Common Shares payable in Common Shares or effect a subdivision or combination of the outstanding Common Shares (by reclassification, stock split or otherwise) into a greater or lesser number of Common Shares, then the Daily Price referred to in clause (a) above shall be adjusted upon the earlier of the public announcement or the occurrence of any such event by multiplying the Daily Price by a fraction of which the numerator is the number of Common Shares outstanding immediately after such event and of which the denominator is the number of Common Shares that were outstanding immediately prior to such event. 9. Consolidation, Merger, or Sale of Assets. Subject to the provisions of Section 4 hereof, in case of any consolidation of the corporation with, or merger of the corporation into, any other Person, any merger of another Person into the corporation (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 corporation or of the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, the Preferred Holders shall have the right thereafter to convert the Series A Preferred Shares into 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 into which the Series A Preferred Shares may have been converted immediately prior to such consolidation, merger, sale or transfer, assuming (i) such Holder of Common Shares is not a Person with which the corporation consolidated or into which the corporation merged or which merged into the corporation 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 its rights of election, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each Common Share held immediately prior to such consolidation, merger, sale or transfer by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("NON-ELECTING SHARE"), then for the purpose of this Section 9 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or 11 14 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 and sale of assets shall be as nearly equivalent as may be practicable to the adjustments provided for herein. 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 Preferred Holders shall thereafter continue to be applicable; and any such resulting or surviving corporation shall expressly assume the obligation to deliver, upon exercise, such Shares, other securities, cash and property. The provisions of this Section 9 shall similarly apply to successive consolidations, mergers, sales, or transfers. 10. Protective Provisions. So long as any Series A Preferred Shares shall be outstanding, except where the vote or written consent of the Holders of a greater number of shares of the corporation is required by law or by these articles of incorporation, and in addition to any other vote required by law or these articles of incorporation, without the approval of the Holders of seventy five percent (75%) of then outstanding Series A Preferred Shares, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a series, the corporation will not: (a) Create or authorize the creation of any additional class or series of Shares other than Junior Securities, or increase the authorized amount of the Series A Preferred Shares or increase the authorized amount of any additional class or series of shares other than Junior Securities, or create or authorize any obligation or Security convertible into shares of Series A Preferred Shares or into shares of any other class or series of shares other than Junior Securities, whether any such creation, authorization or increase shall be by means of amendment or restatement of these articles of incorporation or by merger, consolidation or otherwise; (b) To the extent it materially adversely affects the rights of the Series A Preferred Shares, amend, alter, restate or repeal the corporation's articles of incorporation, or the corporation's code of regulations, other than any amendment solely to authorize or create any additional class or series of Junior Securities or increase the authorized amount of any Junior Securities; (c) Redeem or otherwise acquire any shares of Junior Securities other than Common Shares pursuant to Stock Restriction Agreements. 11. Definitions. As used in this Article FOURTH, the following terms have the following meanings: 12 15 "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. "BOARD OF DIRECTORS" shall mean the Board of Directors of the corporation. "BUSINESS DAY" means a day, except Saturday, Sunday or a public or bank holiday or the equivalent for banks generally under the laws of the State of New York, on which banks are not required or authorized to close in New York, New York. "EXCHANGE ACT" shall mean 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. "HOLDERS" shall mean the Persons who shall, from time to time, own of record any Security. The term "HOLDER" shall mean one of the Holders. "INVESTOR RIGHTS AGREEMENT" shall mean the Investor Rights Agreement dated as of May 10, 2000 among the corporation and the shareholders listed therein. "PERSON" shall mean 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. "PREFERRED HOLDERS" shall mean the Persons, who shall from time to time, own of record any Series A Preferred Shares. The term "PREFERRED HOLDER" shall mean one of the Preferred Holders. "PROPERTY" shall mean any interest in any kind of property or assets, whether real, personal or mixed, or tangible or intangible. "SECURITIES" shall mean any debt or equity securities of the corporation, whether now or hereafter authorized, and any instrument convertible into or exchangeable for Securities or a Security. The term "SECURITY" shall mean one of the Securities. 13 16 "SECURITIES ACT" shall mean 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. "SHARES" shall include any and all shares, interests or other equivalents (however designated) of, or participation in, capital stock. "STOCK RESTRICTION AGREEMENTS" shall mean any agreement entered into between the corporation and an employee, consultant, director, officer or agent or any former employee, consultant, director, officer or agent of the corporation or a Subsidiary under the terms of each of which the corporation is permitted or obligated to purchase Securities from such Person in connection with his or her offering the Securities to another Person or the termination of his or her relationship with the corporation or a Subsidiary. "SUBSIDIARY" shall mean any corporation, more than 50% of whose outstanding Voting Shares shall at the time be owned directly or indirectly by the corporation or by one or more Subsidiaries or by the corporation and one or more Subsidiaries. "VOTING SHARES" as applied to the Shares of any corporation shall mean Shares of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the board of directors (or other governing body) of such corporation, other than Shares having such power only by reason of the happening of a contingency. The directors of the corporation may adopt an amendment to the articles in respect of any unissued or treasury shares of any class and thereby fix or change: the division of such shares into series and the designation and authorized number of shares of each series; the dividend or distribution rate; the dates of payment of dividends of distributions and the dates from which they are cumulative; liquidation price; redemption rights and price; sinking fund requirements; conversion rights; and restrictions on the issuance of shares of any class or series. * * * * * 14 EX-3.A.4 3 EXHIBIT 3(A)(4) 1 EXHIBIT 3(a)(4) 2 AMENDED ARTICLES OF INCORPORATION OF SYMIX SYSTEMS, INC. FIRST: The name of the corporation shall be Symix Systems, Inc. SECOND: The place in Ohio where the principal office of the corporation is to be located is in the City of Columbus, County of Franklin. THIRD: The purpose for which the corporation is formed is to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98 of the Ohio Revised Code. FOURTH: The authorized number of shares of the corporation shall be 21,000,000, of which 20,000,000 shares shall be common shares, each without par value, and 1,000,000 shares shall be preferred shares, each without par value. Each outstanding common share and each outstanding preferred share shall entitle the holder thereof to one vote on each matter properly submitted to the shareholders for their vote, consent, waiver, release or other action. No shareholder of the corporation shall have, as a matter of right, the right to cumulate his voting power. 1. Number and Designation. 566,933 preferred shares of the corporation shall be designated as Series A Convertible Participating Preferred Shares (the "SERIES A PREFERRED SHARES"). 2. Rank. The Series A Preferred Shares shall, with respect to the dividend rights specified herein and rights on liquidation, dissolution and winding up, rank prior to all classes the Corporation's capital stock, including the Corporation's common shares, no par value (the "COMMON SHARES"). All equity securities of the Corporation to which the Series A Preferred Shares rank prior (whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise), including the Common Shares, are collectively referred to herein as the "JUNIOR SECURITIES." All equity securities of the Corporation with which the Series A Preferred Shares ranks on a parity (whether with respect to dividends or upon liquidation, dissolution or winding up) are collectively referred to herein as the "PARITY SECURITIES." The respective definitions of Junior Securities and Parity Securities shall also include any rights or options exercisable for or convertible into any of the Junior Securities and Parity Securities, as the case may be. The Series A Preferred Shares shall be subject to the creation of Junior Securities. 3. Voting Rights. Except as otherwise provided herein or as otherwise provided by applicable law, the Holders of the Series A Preferred Shares (i) shall be entitled to vote with the Holders of the Common Shares, voting together as a single class, on all matters submitted for a vote of Holders of Common Shares, (ii) shall be entitled to one vote per Series A Preferred Share 3 held; provided that upon amendment of the corporation's articles of incorporation to permit the corporation's authorized preferred shares to have more than one vote per share as permitted under the Act, the Holders of the Series A Preferred Shares shall have a number of votes equal to the number of votes to which Common Shares issuable upon conversion of such Series A Preferred Shares would have been entitled if such Common Shares had been outstanding at the time of the applicable vote and related record date and (iii) shall be entitled to notice of any shareholders' meeting in accordance with the articles of incorporation and regulations of the corporation. 4. Liquidation Rights. If the corporation shall be voluntarily or involuntarily liquidated, dissolved or wound up (each a "LIQUIDATION EVENT") at any time when any of the Series A Preferred Shares shall be outstanding, the Holders of the then outstanding Series A Preferred Shares shall have a preference against the assets of the corporation available for distribution to the Holders of the corporation's equity Securities equal to the greater of (a) $24 per Series A Preferred Shares (as adjusted for any share dividends, combinations or splits with respect to the Series A Preferred Shares), plus accumulated, but unpaid, dividends, if any (the "PREFERENCE AMOUNT") or (b) the amount that would be received by a Holder of the number of Common Shares underlying the Series A Preferred Shares (subject to anti-dilution adjustments described below) in such liquidation or winding up if all of the Series A Preferred Shares were converted into Common Shares immediately prior to the liquidation or winding up. Notwithstanding the foregoing, at the election of the Holders of 75% or more of the Series A Preferred Shares then outstanding, (i) the consolidation or merger of the corporation into or with any other entity or entities which results in the exchange of outstanding shares of the corporation 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 corporation in a different jurisdiction or (y) a consolidation or merger in which the corporation is the surviving entity and in which the corporation's Voting Shares outstanding immediately prior to such merger or consolidation are exchanged or converted into or constitute more than 50% of the corporation's Voting Stock after such consolidation or merger); (ii) the sale or transfer by the corporation of all or substantially all of its assets otherwise than to one or more Subsidiaries; or (iii) a transaction or series of transactions in which a person or group of persons (as defined in Rule 13d-5(b)(1) of the Exchange Act), acquires beneficial ownership (as determined in accordance with Rule 13d-3 of the Exchange Act) of more than 50% of the voting power of the corporation, shall be deemed to be a Liquidation Event within the meaning of the provisions of Section 3 (each of the events specified in clauses (i), (ii) and (iii) of Section 3 being referred to herein as a "CHANGE-IN-CONTROL LIQUIDATION EVENT"). Notwithstanding the foregoing, no reduction of the authorized or issued Shares of the corporation of any class, whether now or hereafter authorized shall be deemed to be a Liquidation Event within the meaning of any of the provisions of Section 3. Upon any such Liquidation Event, after the Holders of Series A Preferred Shares shall have been paid in full their preferential amounts to which they shall be entitled as provided in this Section 4, the remaining Property of the corporation may be distributed to the Holders of any other equity Securities of the corporation, including, without limitation, Junior Securities 4 whether now or hereafter authorized, in connection with such Liquidation Event. Written notice of such Liquidation Event, stating a payment date, the preferential amount and the place where said preferential amount shall be payable, shall be delivered in person, mailed by certified or registered mail, return receipt requested, or sent by telecopier or telex, not less than 20 days prior to the payment date stated therein, to the Holders of record of Series A Preferred Shares, such notice to be addressed to each such Holder at its address as shown by the records of the corporation. If, upon any Liquidation Event, the corporation's assets available for distribution to its shareholders are insufficient to permit payment in full to the Holders of the Series A Preferred Shares of the aggregate amount which such Holders shall be entitled under this Section 4, then the entire assets available for distribution to shareholders of the corporation shall be distributed among the Holders of the Series A Preferred Shares pro rata based upon the number of Series A Preferred Shares held by each such Holder. After payment in full to a Holder of the Series A Preferred Shares of the preferential amount which such Holder shall be entitled as set forth in this Section 4, the Series A Preferred Shares held by such Holder shall be deemed to be no longer outstanding and such Holder no longer shall have any rights as a shareholder of the corporation. 5. Dividends. (a) Each Holder of Series A Preferred Shares shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cash dividends contemporaneously with cash dividends when, as and if declared by the Board of Directors with respect to Common Shares in an amount equal to the product of the cash dividend payable per Common Share times the Conversion Rate (as hereinafter defined) for the Series A Preferred Shares then in effect. Such dividends shall be payable on the dates specified by the Board of Directors as the dates for payment of dividends in respect of Common Shares (each of such dates being a "DIVIDEND PAYMENT DATE") (unless such day is not a business day, in which event on the next succeeding business day). Such dividends shall be paid to the holders of record at the close of business on the date specified by the Board of Directors of the corporation at the time such dividend is declared, provided, however, that such date shall not be more than 60 days nor less than 10 days prior to the respective Dividend Payment Date. (b) In addition, if at any time the corporation is in material breach of its registration obligations under Article 5 of the Investor Rights Agreement, the Holders of Series A Preferred Shares shall be entitled to receive for and during the period the corporation continues in breach of the Investor Rights Agreement, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cash dividends at an annual rate of $3.36 per share. Such dividends shall be payable in arrears in equal amounts quarterly on June 30, September 30, December 31, and March 31 of each year unless such day is not a business day, in which event on the next succeeding business day). The amount of such dividends and any accumulations shall be pro rated and calculated on the basis of the actual days elapsed from the date of such material breach by the corporation. Such dividends shall be cumulative from the date of default to the date of cure, whether or not in any dividend period or periods there shall be funds of the corporation legally available for the payment of such dividends. Such dividends 5 shall be payable to Holders of the Series A Preferred Shares at the close of business on the record date specified by the Board of Directors at the time such dividends are declared, which record date shall not be more than 60 days prior to the Dividend Payment Date. No such cumulative dividends shall be declared or become payable or be deemed to have accrued with respect to any Series A Preferred Shares (including, without limitation, upon any liquidation, dissolution or winding up of the corporation, or upon any redemption of any such shares) unless a Dividend Payment Date occurs while such share is outstanding. (c) So long as any Series A Preferred Shares are outstanding, no dividends, except as described in the next succeeding sentence, shall be declared or paid or set apart for payment on Junior Securities, for any period unless full cumulative dividends if required pursuant to the preceding paragraph (b) have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Series A Preferred Shares for all dividend periods terminating on or prior to the date of payment of the dividend on such class or series of Junior Securities. When dividends are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all dividends declared upon the Series A Preferred Shares and all dividends declared upon any Parity Securities shall be declared ratably in proportion to the respective amounts of dividends accumulated and unpaid on the Series A Preferred Shares and accumulated and unpaid on such Parity Securities. 6. Optional Redemption. The Series A Preferred Shares shall not be redeemable by the corporation prior to the fourth anniversary of the date of issuance of the Series A Preferred Shares. Within 30 days after the fourth anniversary of the date of issuance of the Series A Preferred Shares, the corporation may elect to redeem all, but not less than all, of the Series A Preferred Shares outstanding on the date of redemption as determined by the Board of Directors (the "REDEMPTION DATE") which date shall not be more than 60 days after such fourth anniversary date. (a) PREFERENCE AMOUNT AND PAYMENT. The Series A Preferred Shares shall be redeemed by paying for each share an amount in cash equal to $30.72, plus accumulated, but unpaid, dividends, if any (the "REDEMPTION PRICE"). Such payment shall be made in full on the Redemption Date to the Holders entitled thereto. (b) REDEMPTION MECHANICS. At least 20 but not more than 30 days prior to any Redemption Date, written notice (the "REDEMPTION NOTICE") shall be given by the corporation by delivery in person, certified or registered mail, return receipt requested, telecopier or telex, to each Holder (at the close of business on the Business Day next preceding the day on which the Redemption Notice is given) of Series A Preferred Shares notifying such Holder of the redemption and specifying the Redemption Price, the Redemption Date and the place where the Redemption Price shall be payable. The Redemption Notice shall be addressed to each Holder at its address as shown by the records of the corporation. From and after the close of business on the Redemption Date, unless there shall have been a default in the payment of the Redemption Price, all rights of Holders of shares of Series A Preferred Shares (except the right to receive the Redemption Price) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose 6 whatsoever. If the funds of the corporation legally available for redemption of Series A Preferred Shares on the Redemption Date are insufficient to redeem the total number of outstanding Series A Preferred Shares, the Holders of Series A Preferred Shares shall share ratably in any funds legally available for redemption of such shares according to the respective amounts which would be payable with respect to the full number of shares owned by them if all such outstanding shares were redeemed in full. The Series A Preferred Shares not redeemed shall remain outstanding and entitled to all rights and preferences provided herein. At any time thereafter when additional funds of the corporation are legally available for the redemption of such Series A Preferred Shares, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of such shares, or such portion thereof for which funds are then legally available, on the basis set forth above. (c) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any Series A Preferred Shares redeemed pursuant to this Section 6 or otherwise acquired by the corporation in any manner whatsoever shall be cancelled and shall not under any circumstances be reissued; provided that each such share, after being retired and cancelled, shall be restored to the status of an authorized but unissued Preferred Share without designation as to series and may thereafter be issued as a Preferred Share not designated as a Series A Preferred Share unless such reissuance shall violate Section 10 hereof or any other provision of these articles of incorporation . 7. Conversion. (a) The Series A Preferred Shares shall be convertible at any time, in whole or in part, at the option of the Holder thereof and upon notice to the corporation as set forth below, into fully paid and nonassessable Common Shares at the Conversion Rate. The Series A Preferred Shares shall be convertible initially at the rate of two Common Shares for each full Series A Preferred Share and shall be subject to adjustment as provided herein. The initial base conversion price per Common Share is $12.00 and shall be subject to adjustment as provided herein (the "CONVERSION PRICE"). For purposes of this Article FOURTH, the "CONVERSION RATE" applicable to a Series A Preferred Share shall be the number of Common Shares into which a Series A Preferred Share is then convertible and shall be equal to the product of (i) two multiplied by (ii) the quotient resulting from dividing the then existing Conversion Price into $12.00. (b) The Conversion Price (and the corresponding Conversion Rate) shall be subject to adjustment from time to time as follows: (i) In case the corporation shall (A) pay a dividend in Common Shares or make a distribution in Common Shares, (B) subdivide its outstanding Common Shares, (C) combine its outstanding Common Shares into a smaller number of Common Shares or (D) issue by reclassification of its Common Shares other securities of the corporation, then in each such case the Conversion Rate in effect immediately prior thereto shall be adjusted so that the Holder of any Series A Preferred Shares thereafter surrendered for conversion shall be entitled to receive the kind and number of Common Shares or other securities of the corporation which such Holder would have owned or would have been entitled to receive immediately after the happening of any of the events described above had such Series A Preferred Shares been converted immediately prior to the happening of such event or any record date with respect thereto. Any adjustment 7 made pursuant to this subsection (i) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (ii) In case the corporation shall issue or sell any Common Shares (other than Common Shares issued (1) pursuant to the corporation'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 corporation approved by the corporation's Board of Directors, (2) in connection with a merger or consolidation with or other acquisition of, another Person or the acquisition of the assets of another Person, other than any such transaction that constitutes a Change in Control Liquidation Event or (3) upon exercise or conversion of any security the issuance of which caused an adjustment under Section 7(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 corporation 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 corporation 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; provided that if Holders of 75% or more of the outstanding Series A Preferred Shares shall object to any such determination, the Board of Directors 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 corporation and furnished with a description of the consideration and the fair market value thereof, as determined by the Board of Directors. (iii) In case the corporation 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 8 the event of a change in the number of Common Shares to which the Holders of such rights, options or warrants are entitled (other than pursuant to adjustment provisions therein comparable to those contained in this Section 7(b)), the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date had not been fixed, in the former event, or the Conversion Price which would then be in effect if such Holder had initially been entitled to such changed number of Common Shares, in the latter event. (iv) In case the corporation 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. (v) In case the corporation 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 corporation 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 9 immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price Per Common Share 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) If the average (weighted by daily trading volume) of the Daily Prices (as defined below) per Common Share for the 40 consecutive trading days immediately preceding the fourth anniversary of the date of issuance of the Series A Preferred Shares (the "AVERAGE WEIGHTED PRICE") is less than $12.00, then the Conversion Price then in effect shall be reduced to the Average Weighted Price, such adjustment to be effective as of the close of business 30 days after the fourth anniversary of the date of issuance of the Series A Preferred Shares unless the corporation has previously delivered a Redemption Notice in accordance with Section 6(b) hereof. If the corporation shall at any time after the date of issuance of the Series A Preferred Shares pay any dividend on Common Shares payable in Common Shares or effect a subdivision or combination of the outstanding Common Shares (by reclassification, stock split or otherwise) into a greater or lesser number of Common Shares, then the share price referred to in the first sentence of this 7(b)(vi) shall be adjusted upon the earlier of the public announcement or the occurrence of any such event by multiplying the share price by a fraction of which the numerator is the number of Common Shares outstanding immediately after such event and of which the denominator is the number of Common Shares that were outstanding immediately prior to such event. (vii) For the purpose of any computation under Section 7(b) hereof, on any determination date, the "CURRENT MARKET PRICE PER COMMON SHARE" shall be deemed to be the average (weighted by daily trading volume) of the Daily Prices (as defined below) per Common Share for the 20 consecutive trading days immediately prior to such date. "DAILY PRICE" means (1) if the Common Shares then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"), the closing price per share on such day as reported on the NYSE Composite Transactions Tape; (2) if the Common Shares then are not listed and traded on the NYSE, the closing price per share on such day as reported by the principal national securities exchange on which the shares are listed and traded; (3) if the Common Shares then are not listed and traded on any such securities exchange, the last reported sale price per share on such day on the NASDAQ 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. If Holders of 75% or more of the outstanding Series A Preferred Shares shall object to any determination by the Board of Directors of the Current Market Price Per Common Share, the Current Market Price Per Common Share shall be the fair 10 market value per Common Share as determined by an independent appraiser retained by the corporation at its expense and reasonably acceptable to such Holders. For purposes of any computation under this Section 7(b), the number of Common Shares outstanding at any given time shall not include shares owned or held by or for the account of the corporation. (viii) 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. (ix) In the event that, at any time as a result of the provisions of this Section 7(b), the Preferred Holders upon subsequent conversion of the Series A Preferred Shares shall become entitled to receive any capital shares of the corporation other than Common Shares, the number of such other shares so receivable upon conversion of the Series A Preferred Shares 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. (x) If the Corporation 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 Series A Preferred Shares by reason of the taking of such record shall be reversed, and any subsequent adjustments, based thereon, shall be recomputed. 8. Mandatory Conversion. (a) If at any time after the second anniversary of the date of issuance of the Series A Preferred Shares the Daily Price for a Common Share for each and every day of any period of 40 consecutive trading days exceeds $24.00, then each outstanding Series A Preferred Share shall be automatically converted, at the Conversion Rate then in effect pursuant to Section 7 as of the close of business on the last trading day of the 40 trading day period (a "MANDATORY CONVERSION EVENT") into Common Shares (or other securities or property into which the Series A Preferred Shares are then convertible). Any Series A Preferred Shares so converted shall be treated as having been surrendered by the Holder thereof for conversion pursuant to Section 7 as of the close of business on the last trading day of the 40 trading day period. (b) If the corporation shall at any time after the date of issuance of the Series A Preferred Shares pay any dividend on Common Shares payable in Common Shares or effect a subdivision or combination of the outstanding Common Shares (by reclassification, stock split or otherwise) into a greater or lesser number of Common Shares, then the Daily Price referred to in clause (a) above shall be adjusted upon the earlier of the public announcement or the occurrence of any such event by multiplying the Daily Price by a fraction of which the numerator is the number of Common Shares outstanding immediately after such event and of which the denominator is the number of Common Shares that were outstanding immediately prior to such event. 11 9. Consolidation, Merger, or Sale of Assets. Subject to the provisions of Section 4 hereof, in case of any consolidation of the corporation with, or merger of the corporation into, any other Person, any merger of another Person into the corporation (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 corporation or of the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, the Preferred Holders shall have the right thereafter to convert the Series A Preferred Shares into 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 into which the Series A Preferred Shares may have been converted immediately prior to such consolidation, merger, sale or transfer, assuming (i) such Holder of Common Shares is not a Person with which the corporation consolidated or into which the corporation merged or which merged into the corporation 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 its rights of election, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each Common Share held immediately prior to such consolidation, merger, sale or transfer by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("NON-ELECTING SHARE"), then for the purpose of this Section 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 and sale of assets shall be as nearly equivalent as may be practicable to the adjustments provided for herein. 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 Preferred Holders shall thereafter continue to be applicable; and any such resulting or surviving corporation shall expressly assume the obligation to deliver, upon exercise, such Shares, other securities, cash and property. The provisions of this Section 9 shall similarly apply to successive consolidations, mergers, sales, or transfers. 10. Protective Provisions. So long as any Series A Preferred Shares shall be outstanding, except where the vote or written consent of the Holders of a greater number of shares of the corporation is required by law or by these articles of incorporation, and in addition to any other vote required by law or these articles of incorporation, without the approval of the Holders of seventy five percent (75%) of then outstanding Series A Preferred Shares, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a series, the corporation will not: 12 (a) Create or authorize the creation of any additional class or series of Shares other than Junior Securities, or increase the authorized amount of the Series A Preferred Shares or increase the authorized amount of any additional class or series of shares other than Junior Securities, or create or authorize any obligation or Security convertible into shares of Series A Preferred Shares or into shares of any other class or series of shares other than Junior Securities, whether any such creation, authorization or increase shall be by means of amendment or restatement of these articles of incorporation or by merger, consolidation or otherwise; (b) To the extent it materially adversely affects the rights of the Series A Preferred Shares, amend, alter, restate or repeal the corporation's articles of incorporation, or the corporation's code of regulations, other than any amendment solely to authorize or create any additional class or series of Junior Securities or increase the authorized amount of any Junior Securities; (c) Redeem or otherwise acquire any shares of Junior Securities other than Common Shares pursuant to Stock Restriction Agreements. 11. Definitions. As used in this Article FOURTH, the following terms 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. "BOARD OF DIRECTORS" shall mean the Board of Directors of the corporation. "BUSINESS DAY" means a day, except Saturday, Sunday or a public or bank holiday or the equivalent for banks generally under the laws of the State of New York, on which banks are not required or authorized to close in New York, New York. "EXCHANGE ACT" shall mean 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. "HOLDERS" shall mean the Persons who shall, from time to time, own of record any Security. The term "HOLDER" shall mean one of the Holders. "INVESTOR RIGHTS AGREEMENT" shall mean the Investor Rights Agreement dated as of May 10, 2000 among the corporation and the shareholders listed therein. "PERSON" shall mean 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. 13 "PREFERRED HOLDERS" shall mean the Persons, who shall from time to time, own of record any Series A Preferred Shares. The term "PREFERRED HOLDER" shall mean one of the Preferred Holders. "PROPERTY" shall mean any interest in any kind of property or assets, whether real, personal or mixed, or tangible or intangible. "SECURITIES" shall mean any debt or equity securities of the corporation, whether now or hereafter authorized, and any instrument convertible into or exchangeable for Securities or a Security. The term "SECURITY" shall mean one of the Securities. "SECURITIES ACT" shall mean 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. "SHARES" shall include any and all shares, interests or other equivalents (however designated) of, or participation in, capital stock. "STOCK RESTRICTION AGREEMENTS" shall mean any agreement entered into between the corporation and an employee, consultant, director, officer or agent or any former employee, consultant, director, officer or agent of the corporation or a Subsidiary under the terms of each of which the corporation is permitted or obligated to purchase Securities from such Person in connection with his or her offering the Securities to another Person or the termination of his or her relationship with the corporation or a Subsidiary. "SUBSIDIARY" shall mean any corporation, more than 50% of whose outstanding Voting Shares shall at the time be owned directly or indirectly by the corporation or by one or more Subsidiaries or by the corporation and one or more Subsidiaries. "VOTING SHARES" as applied to the Shares of any corporation shall mean Shares of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the board of directors (or other governing body) of such corporation, other than Shares having such power only by reason of the happening of a contingency. The directors of the corporation may adopt an amendment to the articles in respect of any unissued or treasury shares of any class and thereby fix or change: the division of such shares into series and the designation and authorized number of shares of each series; the dividend or distribution rate; the dates of payment of dividends of distributions and the dates from which they are cumulative; liquidation price; redemption rights and price; sinking fund requirements; conversion rights; and restrictions on the issuance of shares of any class or series. FIFTH: The directors of the corporation shall have the power to cause the corporation from time to time and at any time to purchase, hold, sell, transfer or otherwise deal with (A) shares of any class or series issued by it, (B) any security or other obligation of the corporation which may confer upon the holder thereof the right to convert the same into shares of any class 14 or series authorized by the articles of incorporation, and (C) any security or other obligation which may confer upon the holder thereof the right to purchase shares of any class or series authorized by the articles of incorporation. The corporation shall have the right to repurchase, if and when any shareholder desires to sell, or on the happening of any event is required to sell, shares of any class or series issued by the corporation. The authority granted in this Article Fifth of these articles shall not limit the plenary authority of the directors to purchase, hold, sell, transfer or otherwise deal with shares of any class or series, securities, or other obligations issued by the corporation or authorized by its articles. SIXTH: A director or officer of the corporation shall not be disqualified by his office from dealing or contracting with the corporation as vendor, purchaser, employee, agent or otherwise. No contract or transaction shall be void or voidable with respect to the corporation for the reason that it is between the corporation and one or more of its directors or officers, or between the corporation and any other person in which one or more of its directors or officers are directors, trustees or officers, or have a financial or personal interest, or for the reason that one or more interested directors or officers participated in or voted at the meeting of the directors or a committee thereof which authorized such contract or transaction, if in any such case (A) the material facts as to the relationship or interest of such director, officer or other person and as to the contract or transaction are disclosed or are known to the directors or the committee, or such members thereof as shall be present at any meeting at which action upon any such contract or transaction shall be taken, and the directors or committee, in good faith reasonably justified by such facts, authorized the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors constitute less than a quorum; or (B) the material facts as to the relationship or interest of such director, officer or other person and as to the contract or transaction are disclosed or known to the shareholders entitled to vote thereon and the contract or transaction is specifically approved at a meeting of the shareholders held for such purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the corporation held by persons not interested in the contract or transaction; or (C) the contract or transaction is fair as to the corporation as of the time it is authorized or approved by the directors, a committee thereof, or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at any meeting of the directors, or of a committee thereof, which authorizes the contract or transaction. SEVENTH: No shareholder of the corporation shall have, as a matter or right, the pre-emptive right to purchase or subscribe for shares of any class, now or hereafter authorized, or to purchase or subscribe for securities or other obligations convertible into or exchangeable for such shares or which by warrants or otherwise entitle the holders thereof to subscribe for or purchase any such share. EIGHTH: Section 1701.831 of the Ohio Revised Code does not apply to control share acquisitions of the corporation. 15 NINTH: Chapter 1704. of the Ohio Revised Code does not apply to the corporation. TENTH: These Amended Articles supersede the Second Amended Articles of Micro Manufacturing Systems, Inc. existing at the effective date of these Amended Articles. EX-4.C 4 EXHIBIT 4(C) 1 EXHIBIT 4(c) 2 2 INVESTOR RIGHTS AGREEMENT among SYMIX SYSTEMS, INC., THE SEVERAL INVESTORS NAMED IN SCHEDULE I and THE SHAREHOLDER NAMED HEREIN Dated as of May 10, 2000 3 TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions......................................................................1 ARTICLE 2 SECURITIES TRANSFER RESTRICTIONS SECTION 2.01. Restrictive Legends..............................................................4 SECTION 2.02. Notice of Proposed Transfer......................................................4 SECTION 2.03. Termination of Restrictions......................................................4 SECTION 2.04. Non-Applicability of Restrictions on Transfer....................................5 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..............................................7 SECTION 3.03. Confidentiality Agreement........................................................7 ARTICLE 4 PRE-EMPTIVE RIGHTS SECTION 4.01. Pre-emptive Rights...............................................................8 ARTICLE 5 REGISTRATION RIGHTS SECTION 5.01. Registration on Form S-3........................................................10 SECTION 5.02. Incidental Registration.........................................................10 SECTION 5.03. Registration Procedures.........................................................11 SECTION 5.04. Expenses........................................................................14 SECTION 5.05. Rule 144 Requirements...........................................................14 SECTION 5.06. Investors' Information..........................................................15 SECTION 5.07. Transfer of Registration Rights.................................................15 SECTION 5.08. Hold-back Agreement.............................................................15 SECTION 5.09. Other Shareholders..............................................................15
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PAGE ARTICLE 6 INDEMNIFICATION SECTION 6.01. Indemnification.................................................................16 ARTICLE 7 TAG-ALONG RIGHTS SECTION 7.01. Tag-Along Right.................................................................17 SECTION 7.02. Notice of Intent to Participate.................................................18 SECTION 7.03. Sale of Tag-Along Shares........................................................18 ARTICLE 8 REPRESENTATION RIGHTS SECTION 8.01. Board of Directors..............................................................18 SECTION 8.02. Voting Restriction..............................................................20 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Term of Agreement...............................................................20 SECTION 9.02. Severability; Governing Law.....................................................20 SECTION 9.03. Injunctive Relief...............................................................21 SECTION 9.04. Binding Effect..................................................................21 SECTION 9.05. Modification or Amendment.......................................................21 SECTION 9.06. Aggregation.....................................................................21 SECTION 9.07. Counterparts....................................................................21 SECTION 9.08. Notices.........................................................................21 SECTION 9.09. Entire Agreement................................................................22
SCHEDULE I Investors ii 5 INVESTOR RIGHTS AGREEMENT INVESTOR RIGHTS AGREEMENT, dated as of May 10, 2000 among SYMIX SYSTEMS, INC., an Ohio corporation (the "COMPANY"), the several investors named in the attached Schedule I who are purchasing Series A Convertible Participating Preferred Shares and Warrants to purchase common shares (individually, an "INVESTOR" and collectively, the "INVESTORS") pursuant to a Securities Purchase Agreement dated May 10, 2000 (the "SECURITIES PURCHASE AGREEMENT") and the shareholder of the Company listed on the signature page hereof (the "SHAREHOLDER"). WHEREAS, the Company wishes to issue and sell to the Investors an aggregate of 566,933 shares (the "PREFERRED SHARES") of the authorized but unissued Series A Convertible Participating Preferred Shares, without par value, of the Company (the "SERIES A PREFERRED SHARES"), which are convertible into common shares, without par value, of the Company (the "COMMON SHARES ") as contemplated by the Securities Purchase Agreement and warrants (the "WARRANTS") to purchase an aggregate of 453,546 shares of the authorized but unissued Common Shares; and WHEREAS, one of the conditions to the investment in the Company by the Investors is the execution of this Investor Rights Agreement providing for, inter alia, the ability of the Investors to purchase and/or participate in subsequent sales of equity securities of the Company by the Company or the Shareholder; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and the investment by the Investors pursuant to the Securities Purchase Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. (a) The following terms, as used herein, have the following meanings: "AFFILIATE" shall mean any entity controlling, controlled by or under common control with a designated Person. For the purposes of this definition, "control" shall have the meaning specified for that word in Rule 405 promulgated by the Securities and Exchange Commission under the Securities Act. 6 "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. "MSDW INVESTOR" means any of Morgan Stanley Dean Witter Venture Partners IV, L.P., Morgan Stanley Dean Witter Venture Investors IV, L.P., Morgan Stanley Dean Witter Venture Offshore Investors IV, L.P. or Morgan Stanley Dean Witter 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 all Common Shares held by the Investors from time to time, including all of the Common Shares into which the Preferred Shares may be converted and for which the Warrants may be exercised; 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 S-8, Form S-4, 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, Warrants or the Common Shares issuable upon conversion of the Preferred Shares or exercise of the Warrants to the extent such securities are not registered under the Securities Act. 2 7 "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 - ---- ------- COMPANY Preamble SHAREHOLDER Preamble LLC 2.04 BOARD OF DIRECTORS 4.01(a)(ii) NOTICE PERIOD 4.01(a)(iii) RIGHT OF OVERALLOTMENT 4.01(a)(iii) INDEMNIFIED PERSON 6.01(a) COMPANY INDEMNIFIED PERSON 6.01(b) INDEMNIFIED PARTY 6.01(c) PROPOSED TRANSFEREE 7.01 TAG-ALONG SHARES 7.01 CHANGE IN CONTROL LIQUIDATION EVENT 9.01(a)(ii) ARTICLE 2 SECURITIES TRANSFER RESTRICTIONS Each Holder agrees that Restricted Securities shall not be Transferable except upon the conditions specified in this Article 2, which conditions are intended to insure compliance with the provisions of the Securities Act and state securities laws in respect of the Transfer of any Restricted Security. Shareholder agrees that shares of Common Stock held by him shall not be Transferable except upon compliance with the conditions specified in Section 2.05 and Article 7 hereof. 3 8 SECTION 2.01. Restrictive Legends. (a) Unless and until otherwise permitted by this Article 2, each certificate for a Restricted Security issued to a Holder, or to any subsequent transferee of such certificate shall be stamped or otherwise imprinted with a legend in substantially the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH IN THE INVESTOR RIGHTS AGREEMENT DATED AS OF MAY __, 2000, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST FROM THE COMPANY." (b) 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 subsections (a) of this Section 2.01 until the conditions of this Article 2 with respect to the Transfer of such shares have been satisfied. SECTION 2.02. Notice of Proposed Transfer. If, prior to any Transfer of any Restricted Security, the Holder desiring to effect such Transfer delivers to the Company a written notice describing briefly the manner of such Transfer and a written opinion of counsel for such Holder (who may be inside counsel in the case of an institutional holder), provided that such counsel and the form and substance of such opinion are reasonably satisfactory to the Company, or counsel for the Company, to the effect that such Transfer may be effected without the registration of such securities under the Securities Act or registration or qualification under applicable state securities laws or regulations, the Company shall thereupon permit or cause its transfer agent (if any) to permit such Transfer to be effected; provided, that if in such written notice the transferring holder represents and warrants to the Company that the Transfer is to (i) an Affiliate of the Holder or (ii) a purchaser or transferee whom the transferring holder knows or reasonably believes to be a "qualified institutional buyer", as that term is defined in Rule 144A promulgated under the Securities Act, then in each such case, no opinion shall be required. SECTION 2.03. Termination of Restrictions. 4 9 (a) Notwithstanding the foregoing provisions of this Article 2, the restrictions imposed by this Article 2 upon the Transferability of Restricted Securities shall terminate as to any particular Restricted Security when (i) such Restricted Security shall have been effectively registered under the Securities Act and sold by the Holder thereof in accordance with such registration; (ii) a written opinion of counsel for the Holder thereof (provided that such counsel, and the form and substance of such opinion, are reasonably satisfactory to the Company) or counsel for the Company to the effect that such restrictions are no longer required or necessary under any federal or state securities law or regulation has been received by the Company; (iii) such Restricted Security shall have been sold without registration under the Securities Act in compliance with Rule 144 promulgated by the Commission under the Securities Act and the Company is reasonably satisfied that the Holder of the Restricted Security, in accordance with the terms of subsection (k) of Rule 144 promulgated by the Commission under the Securities Act, shall be entitled to sell such securities pursuant to such subsection; or (iv) a letter or an order shall have been issued to the Holder thereof by the staff of the Commission or the Commission in form and substance reasonably satisfactory to the Company, stating that no enforcement action shall be recommended by such staff or taken by the Commission, as the case may be, if such Restricted Security is transferred without registration under the Securities Act in accordance with the conditions set forth in such letter or order and such letter or order specifies that no restrictions on Transfer are required. (b) Whenever the restrictions imposed by this Article 2 shall terminate, as herein above provided, the Holder of any Restricted Securities then outstanding as to which such restrictions shall have terminated shall be entitled to receive from the Company, without expense to such Holder, one or more new certificates for the Restricted Securities so held not bearing the restrictive legend set forth in Subsection (a) of Section 2.01 hereof, as applicable. SECTION 2.04. Non-Applicability of Restrictions on Transfer. Notwithstanding the provisions of Section 2.02 hereof, any Holder may from time to time Transfer all or part of such Holder's Restricted Securities to (i) a nominee identified in writing to the Company as being the nominee of or for such Holder, and any nominee of or for a beneficial owner of Restricted Securities identified in writing to the Company as being the nominee of or for such beneficial owner may from time to time Transfer all or part of the Restricted Securities registered in the name of such nominee but held as nominee on behalf of such beneficial owner, to such beneficial owner, (ii) to an Affiliate of such Holder, or (iii) if such Holder is a partnership, limited liability company ("LLC"), or the nominee of a partnership or an LLC, to a partner, retired partner, or estate of a partner or retired partner, of such partnership or a member, retired member, or estate of a member or retired member of such LLC, so long as such Transfer is in accordance with the 5 10 transferee's interest in such partnership or LLC and is without consideration; provided, that each such transferee referred to in clauses (i), (ii) and (iii) above shall remain subject to all restrictions on the Transfer of the Restricted Securities herein contained and shall agree in writing to be bound by the other terms and conditions of this Agreement. SECTION 2.05. Shareholder Sales. Prior to the second anniversary of the date hereof, Shareholder agrees not to Transfer any Common Shares (or any derivative thereof) that he beneficially owns; provided that Shareholder shall have the right to Transfer in any twelve month period up to ten percent (10%) of the Common Shares that he beneficially owns. ARTICLE 3 INFORMATION RIGHTS SECTION 3.01. Financial Statements, Reports, Etc. The Company shall furnish to each Investor: (a) 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; (b) 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; (c) at the time of delivery of each quarterly statement pursuant to Section 3.01(a), a management narrative report explaining all significant variances from forecasts and all significant current developments in staffing, marketing, sales and operations; 6 11 (d) 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; (e) 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; (f) 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; (g) 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 (h) promptly, from time to time, such other information regarding the business, prospects, financial condition, operations, property or affairs of the Company as such Investor reasonably may request. SECTION 3.02. Inspection, Consultation and Advice. The Company shall permit each Investor and such persons as it may designate, at such Investor's expense, to visit and inspect any of the properties of the Company, examine its books and take copies and extracts therefrom, discuss the affairs, finances and accounts of the Company with its officers, employees and public accountants (and the Company hereby authorizes said accountants to discuss with such Investor and such designees such affairs, finances and accounts), and consult with and advise the management of the Company as to its affairs, finances and accounts, all at reasonable times and upon reasonable notice to the Company. SECTION 3.03. Confidentiality Agreement. Each Investor receiving information pursuant to Section 3.01 or 3.02 shall use its best efforts to ensure that any information which is delivered by the Company to such Investor pursuant to Section 3.01 or 3.02 will be kept confidential, not be copied except for internal use and for provision to attorneys, accountants and other fiduciaries with duties to maintain confidentiality, and be used solely to evaluate and protect such Investor's investment in the Restricted Securities, including through the provision of routine reports to 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, 7 12 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. ARTICLE 4 PRE-EMPTIVE RIGHTS SECTION 4.01. Pre-emptive Rights. (a) Each Investor shall have a preemptive right to purchase all or any portion of an offering by the Company, or any subsidiary of the Company, of any equity security (or any security which is or may become convertible into or exchangeable or exercisable for an equity security) equal to the number or amount of securities being offered, multiplied by a fraction, the numerator of which shall be the number of Common Shares held by such Investor 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 8 13 such subsidiary, as the case may be, or any options granted or to be granted thereunder; or (iii) shares issued or issuable in the acquisition by the Company or by a subsidiary of the Company of any other corporation, association, partnership or another entity or the assets or securities thereof. Each Investor shall have such right to purchase when the securities are issued or sold by the Company, or any subsidiary of the Company, on the best terms and conditions as such securities are offered to other purchasers thereof. For purposes of this Section 4.01 it shall be assumed that all securities held by the Investors which may be converted into or exercised for Common Shares have been so converted or exercised. The Company shall give the Investors at least thirty (30) days prior written notice (the "NOTICE PERIOD") of any proposed securities issuance that would give rise to preemptive rights as contemplated in this Section 4.01 describing the amount and type of securities to be issued, and the price and other terms upon which the Company, or any subsidiary of the Company, proposes to issue the same. Each Investor exercising all of its preemptive rights in such offering shall have a further pro rata right (a "RIGHT OF OVER ALLOTMENT") to purchase the securities refused by any Investor who declines to fully exercise its preemptive right. Each Investor desiring to exercise its preemptive right must notify the Company in writing prior to the close of business on the last day of the Notice Period, stating (i) its intent to purchase, (ii) whether or not it intends to exercise its right of over allotment; and (iii) the maximum amount of securities it is willing to purchase. (b) In the event that the Investors have not elected pursuant to this Section 4.01(b) to purchase all of the contemplated offering, the Company shall have ninety (90) days thereafter to sell the securities not elected to be purchased by the Investors at the price and upon the terms no more favorable to the purchasers of such securities than specified in the Company notice hereunder. In the event the Company has not sold some or all of the securities within such ninety (90) day period, the Company shall not thereafter issue or sell any unsold securities without first offering such securities to the Investors in the manner provided above. (c) The rights of each Investor under this Article 4 shall be subject to the ability of such Investor to make representations to the Company reasonably required to comply with Rule 506 of Regulation D under the Securities Act in connection with the purchase of any restricted securities. 9 14 ARTICLE 5 REGISTRATION RIGHTS SECTION 5.01. Registration on Form S-3. (a) Within ninety (90) days of the date of this Agreement, 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 in order to permit the sale and distribution of all of the 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 such Registration Statement 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 without volume restrictions under subsection (k) thereof. (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 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 Morgan Stanley & Co. Incorporated or any successor entity shall be reasonably acceptable to the Company. The Company shall cause its senior management to participate in any "road show" as and to the extent reasonably requested by the managing underwriters. SECTION 5.02. Incidental Registration. At such time when the Company is no longer required to maintain the effectiveness of the shelf registration statement pursuant to Section 5.01(a), each time the Company shall determine to 10 15 file a Registration Statement in connection with the proposed offer and sale for money of any of its securities by it or any of its securityholders, the Company will give written notice of its determination to the Investors. Upon the written request of the Investors given within thirty (30) days after the giving of any such notice by the Company, the Company will use its reasonable efforts to cause all shares of Registrable Stock which the Investors have requested to register to be included in such Registration Statement, all to the extent requisite to permit the sale or other disposition by the prospective seller of the Registrable Stock to be so registered. If the Registration Statement is to cover an underwritten distribution, the Company shall use its reasonable efforts to cause the Registrable Stock requested for inclusion pursuant to this Section 5.02 to be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. If, in the good faith judgment of the managing underwriter(s) of such public offering, the inclusion of all of the Registrable Stock requested for inclusion pursuant to this Section 5.02 would interfere with the successful marketing of the shares to be offered, then the number of shares of Registrable Stock to be included in the offering shall be reduced to the required level with the participation in such offering to be pro rata among the Holders thereof requesting such registration, based upon the number of shares of Registrable Stock owned by such Holders; provided that commencing nine months after the date hereof, each Investor shall have a priority right (prior to the Company and any other securityholder) to have included pursuant to this Section 5.02 not less 30% of the Registrable Stock requested for inclusion by such Investor. SECTION 5.03. Registration Procedures. If and whenever the Company is required by the provisions of Section 5.01 or 5.02 hereof to effect the registration of shares of Registrable Stock under the Securities Act, the Company will, at its expense, as expeditiously as reasonably possible: (a) In accordance with the Securities Act and the rules and regulations of the Commission, prepare and file with the Commission a Registration Statement with respect to such securities and use its reasonable efforts to cause such Registration Statement to become and remain effective; (b) (i) Prepare and file with the Commission such amendments and supplements to such Registration Statement and prospectus used in connection therewith as may be necessary to keep such Registration Statement effective (x) until the time specified in Section 5.01(a) or (y) in the case of any Registration Statements filed under Section 5.02 for at least one hundred twenty (120) days after the effective date of such Registration Statement; and comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement during such periods in 11 16 accordance with the intended method or methods of disposition by the sellers thereof set forth in such Registration Statement; (c) If the offering is to be underwritten in whole or in part, enter into a written underwriting agreement in form and substance reasonably satisfactory to the managing underwriter of the public offering and the Investors; (d) Furnish to the Investors and to the underwriters such reasonable number of copies of the Registration Statement, preliminary prospectus, final prospectus and such other documents as such underwriters and Investors may reasonably request in order to facilitate the public offering of such securities; (e) Use its reasonable efforts to register or qualify the securities covered by such Registration Statement under such state securities or blue sky laws of such jurisdictions (i) as shall be reasonably appropriate for the distribution of the securities covered by such Registration Statement or (ii) as the Investors and the underwriters may reasonably request within twenty (20) days following the original filing of such Registration Statement, except that the Company shall not for any purpose be required to execute a general consent to service of process, to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified or to subject itself to taxation in such jurisdiction; (f) Notify the Investors promptly after it shall receive notice thereof of the date and time when such Registration Statement and each post-effective amendment thereto has become effective or a supplement to any prospectus forming a part of such Registration Statement has been filed; (g) Notify the Investors promptly of any request by the Commission or any state securities commission or agency for the amending or supplementing of such Registration Statement or prospectus or for additional information; (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, Sater, Seymour and Pease 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 12 17 securities is required to be delivered under the Securities Act, any event has occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (j) During the time period during which the Company is required, pursuant to Section 5.03(a), to cause a Registration Statement to be effective, in case the Investors or any underwriter for the Investors is required to deliver a prospectus at a time when the prospectus then in circulation is not in compliance with the Securities Act or the rules and regulations of the Commission, prepare promptly upon request such amendments or supplements to such Registration Statement and such prospectus as may be necessary in order for such prospectus to comply with the requirements of the Securities Act and such rules and regulations; (k) Advise the Investors, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission or any state securities commission or agency suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for that purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (l) Not file any amendment or supplement to such Registration Statement or prospectus to which counsel for the Investors has reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, after having been furnished with a copy thereof at least three (3) business days prior to the filing thereof (which advance furnishing of copies the Company hereby agrees to); (m) At the request of the Investors (i) furnish to the Investors on the effective date of the Registration Statement or, if such registration includes an 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 13 18 independent certified public accountants of the Company, addressed to the underwriters, if any, and to the Investors, stating that they are independent certified public accountants within the meaning of the Securities Act and dealing with such matters as the underwriters may request, or, if the offering is not underwritten, that in the opinion of such accountants the financial statements and other financial data of the Company included in the Registration Statement or the prospectus or any amendment or supplement thereto comply in all material respects with the applicable accounting requirements of the Securities Act, and additionally covering such other financial matters, including information as to the period ending not more than three (3) business days prior to the date of such letter with respect to the Registration Statement and prospectus, as the Investors may reasonably request; (n) With respect to any public offering made by any Investor under a Registration Statement filed pursuant to Section 5.02, refrain from making any sale or distribution of its securities except pursuant to any stock option plan or other employee benefit plan, any pre-existing agreement for the sale of such securities or the issuance of securities in connection with future acquisitions or a private placement for at least one hundred twenty (120) days after the closing of the public offering pursuant to such Registration Statement; and (o) Use its best efforts to ensure the obtaining of all necessary approvals from the applicable stock exchange or electronic quotation system. SECTION 5.04. Expenses. (a) With respect to each registration effected pursuant to Sections 5.01 or 5.02 hereof, all fees, costs and expenses of and incidental to such registration and the public offering in connection therewith shall be borne by the Company; provided that the Investors shall bear their pro rata share of the underwriting discounts and selling commissions. (b) The fees, costs and expenses of registration to be borne as provided in paragraph (a) above, shall include, without limitation, all registration, filing and stock exchange fees, printing expenses, fees and disbursements of counsel and accountants for the Company, all legal fees and disbursements and other expenses of complying with state securities laws in states where the securities are to be registered or qualified and the costs and expenses of the Company relating to investor presentations on any "road-show" undertaken in connection with the marketing of the offering of the securities. SECTION 5.05. Rule 144 Requirements. The Company agrees to: (a) comply with the requirements of Rule 144(c) under the Securities Act with respect to current public information about the Company; 14 19 (b) use its reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) furnish to any Holder of Registrable Stock upon written request (x) a written statement by the Company as to its compliance with the requirements of said Rule 144(c) and the reporting requirements of the Securities Act or the Exchange Act (at any time after it has become subject to such reporting requirements), (y) a copy of the most recent annual or quarterly report of the Company and (z) such other reports and documents of the Company as such Holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration. SECTION 5.06. Investors' Information. Each Investor agrees to furnish in writing to the Company in a timely manner such information with respect to itself and the distribution of such Registrable Stock as the Company may from time to time reasonably request in writing and as shall be required by law or by the Commission in connection therewith. SECTION 5.07. Transfer of Registration Rights. Each Investor may at any time Transfer to any Person that acquires at least fifty one percent (51%) of the then outstanding Common Share equivalents then held by such Investor the registration rights set forth in Sections 5.01 and 5.02 hereof. Such Transfer shall be subject to the transferee agreeing in writing to be bound by the terms of this Agreement. SECTION 5.08. Hold-back Agreement. If requested by the underwriter, each Investor will agree not to offer, sell, contract to sell or Transfer any Registrable Stock, during the fourteen (14) days prior to, and during the ninety (90) day period beginning on, the effective date of any Registration Statement filed pursuant to Section 5.02 other than the Registrable Stock to be sold pursuant to such Registration Statement. SECTION 5.09. Other Shareholders. The Company may grant to any Person other than the Investors the right to request a registration of securities of the Company under the Securities Act and the right to be included as a selling shareholder in connection with any registration of Registrable Stock; provided, however, that without the consent of Investors holding a majority of the Registrable Stock, the granting of any such rights shall not conflict with or otherwise alter any rights granted under Section 5.01 above and, in all cases, the rights of the Investors to include shares in any Registration Statement shall be 15 20 given priority over any registration rights granted to other Persons as permitted by this Section 5.09. ARTICLE 6 INDEMNIFICATION SECTION 6.01. Indemnification. (a) To the fullest extent permitted by law, the Company will indemnify and hold harmless the Investors and their respective directors, officers, employees, partners, members and Affiliates (each such person, an "INDEMNIFIED PERSON"), whether or not their shares have been sold in the offering, and any underwriter (as defined in the Securities Act) for the Investors, and any person who controls any such underwriter within the meaning of the Securities Act, from and against, and will reimburse the Indemnified Persons and each such underwriter and controlling person with respect to, any and all claims, actions, demands, losses, damages, liabilities, costs and expenses to which any Indemnified Persons or any such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such claims, actions, demands, losses, damages, liabilities, costs or expenses arise out of or are based upon any untrue statement or alleged untrue statement or omission of any material fact contained in a Registration Statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such claim, action, demand, loss, damage, liability, cost or expense is caused by an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon information furnished in writing by one or more of the Investors, any such underwriter or any such controlling person for use in the 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 16 21 omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, in each case to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon information furnished in writing by the Indemnified Person for use in the preparation of such Registration Statement, prospectus or any amendment or supplement thereto. (c) Promptly after receipt by a party to be indemnified pursuant to the provisions of paragraph (a) or (b) of this Section 6.01 (an "INDEMNIFIED PARTY") of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of paragraph (a) or (b), notify the indemnifying party of the commencement thereof. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of such paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall be liable to an indemnified party for any settlement of any action or claim without the consent of the indemnifying party. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. ARTICLE 7 TAG-ALONG RIGHTS SECTION 7.01. Tag-Along Right. Except as permitted under Section 2.05 hereof, if Shareholder desires to sell all or any part 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 Investors notice of such intention to sell and of the terms and conditions, including price, of such proposed sale. Each 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 Investor (calculated on a fully diluted basis) that equals a portion of the Tag-Along Shares 17 22 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 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 Investors and the Shareholder (calculated on a fully diluted basis). SECTION 7.02. Notice of Intent to Participate. If an Investor wishes to participate in any sale under this Article 7, such Investor shall notify Shareholder and the Company in writing of such intention as soon as practicable after the Investor's receipt of the notice made pursuant to Section 7.01, and in any event within twenty (20) days after the date of receipt of the notice. SECTION 7.03. Sale of Tag-Along Shares. Any purchase of less than all of the Tag-Along Shares and the Common Shares (calculated on a fully diluted basis) that the Investors are entitled to and elect to sell to the Proposed Transferee pursuant to Sections 7.01 and 7.02 hereof, considered collectively, by the Proposed Transferee shall be made from Shareholder and the Investors who elect to participate pro rata based upon the relative amount of the shares that Shareholder and the Investors who elect to participate are otherwise entitled to sell pursuant to Section 7.01. If the Investors do not wish to participate in any sale under this Article 7, Shareholder shall sell to the Proposed Transferee all, or at the option of the Proposed Transferee, any part of the shares proposed to be sold at not less than the price and upon other terms and conditions, if any, not more favorable to the Proposed Transferee than those in the notice provided by Shareholder pursuant to 7.01. If the Tag-Along Shares and the shares of the Investors are sold under this Article 7 to any purchaser who is not a party to this Agreement, the Tag-Along Shares and the share of the Investors so sold shall no longer be subject to any of the restrictions imposed by this Agreement, except for any restrictions imposed by Article 2, which shall continue in force until such time as they lapse pursuant to the terms of such Article 2 or Article 7 hereof. ARTICLE 8 REPRESENTATION RIGHTS SECTION 8.01. Board of Directors. (a) Each Holder (other than the MSDW Investors) shall vote such Holder's voting securities and shall take all other reasonably necessary or desirable actions within its control (whether in such Holder'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 18 23 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: (i) At Closing, the authorized number of directors on the board of directors of the Company shall be increased from six (6) to nine (9) directors; (ii) FAEF shall have the right to have one representative, currently expected to be Barry Goldsmith, to be nominated as a Director of the Company; (iii) the management slate of directors, including the representative of FAEF, shall be elected to the Board of Directors; (iv) at least one of the representatives of the Investors, if at least one such representative is elected to the Board of Directors, shall be designated a member of every committee of the Board of Directors existing now or in the future; (v) if a representative of Morgan Stanley Dean Witter Venture Partners IV, L.P. is not a Director of the Company, a representative of such Investor, which representative shall not be a member of the Board of Directors, shall have the right to attend all meetings of the Board of Directors as a non-voting observer and to receive all notices and other written information sent to Directors by the Company; (vi) 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; (vii) 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 19 24 (viii) in the event any director nominated by FAEF ceases to serve as a member of the Board of Directors during his or her term of office, FAEF 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 and reasonably satisfactory to the Board of Directors, to fill the remainder of the term of the director who has ceased to be a member of the Board of Directors. SECTION 8.02. Voting Restriction. Each MSDW Investor hereby irrevocably agrees with the Company to vote all Common Shares and Series A Preferred Shares beneficially owned by the MSDW Investors in excess of 9.9% of the total voting power of the outstanding Common Shares and Series A Preferred Shares in proportion to all votes cast by the other holders of Common Shares and Series A Preferred Shares (as determined by the Company and excluding for these purposes all Common Shares and Series A Preferred Shares beneficially owned by the MSDW Investors). ARTICLE 9 MISCELLANEOUS SECTION 9.01. Term of Agreement. Except as otherwise provided herein, the provisions of this Agreement shall terminate upon the earliest to occur of any one of the following events: (i) the voluntary or involuntary liquidation or dissolution of the Company; (ii) the occurrence of a Change-in-Control Liquidation Event (as such term is defined in the amendment to the Company's Amended Articles of Incorporation, as amended, as set forth in Exhibit A to the Securities Purchase Agreement); (iii) the Investors beneficially own in aggregate less than twenty percent (20%) of the Common Shares equivalents initially purchased by the Investors pursuant to the Securities Purchase Agreement. SECTION 9.02. Severability; Governing Law. If any provisions of this Agreement shall be determined to be illegal or unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio. 20 25 SECTION 9.03. Injunctive Relief. It is acknowledged that it will be impossible to measure the damages that would be suffered by the parties if any party fails to comply with the provisions of this Agreement. Accordingly, the parties shall be entitled to obtain specific performance of this Agreement and to obtain immediate injunctive relief. SECTION 9.04. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors and assigns, legal representatives and heirs. SECTION 9.05. Modification or Amendment. This Agreement or any term hereof may be amended or waived, only with the written consent of the Company and Investors holding more than seventy-five percent (75%) of the Common Shares issued or issuable upon conversion of any Restricted Securities; additionally, Section 2.05 and Article 7 hereof may not be amended or waived without the written consent of Shareholder. SECTION 9.06. Aggregation. All Restricted Securities held or acquired by affiliated Persons shall be aggregated for the purpose of determining the availability of any rights under this Agreement. SECTION 9.07. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same instrument. SECTION 9.08. Notices. All notices to be given or otherwise made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument, delivered by hand in person, or by express overnight courier service, or by electronic facsimile transmission, or by registered or certified mail, return receipt requested, postage prepaid, addressed to such party at the address set forth below or at such other address as may hereafter be designated in writing by the addressee to the Company: If to the Company to: Symix Systems, Inc.. 2400 Corporate Exchange Drive Columbus, Ohio 43231 Attn: President and Chief Executive Officer Fax No.: (614) 895-2972 21 26 with a copy to: Vorys, Sater, Seymour and Pease LLP 52 East Gay Street Columbus, Ohio 43215 Attn: Ivery D. Foreman, Esq. Fax No.: 614-464-6350 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: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attn: John A. Bick, Esq. Fax No.: 212-450-4800 and, if not an addressee of any notice to an Investor, with a copy to: Morgan Stanley Venture Partners IV, L.P., at its address set forth on the signature pages hereto All such notices shall, when mailed or telegraphed, be effective when received or when attempted delivery is refused. SECTION 9.09. Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation, warranty, covenant or agreement of any kind not expressly set forth in this Agreement shall affect, or be used to interpret, change or restrict, the express terms and provisions of this Agreement. 22 27 IN WITNESS WHEREOF, the parties hereto have caused this Investor Rights Agreement to be executed as of the date first above written. SYMIX SYSTEMS, INC., By: /s/ Stephen A. Sasser -------------------------------------- Stephen A. Sasser President and Chief Executive Officer SHAREHOLDER: LAWRENCE J. FOX, IN HIS INDIVIDUAL CAPACITY /s/Lawrence J. Fox ------------------------------------------ Address: 2800 Corporate Exchange Drive -------------------------------- Columbus, Ohio 43231 -------------------------------- 23 28 MORGAN STANLEY DEAN WITTER VENTURE PARTNERS IV, L.P. MORGAN STANLEY DEAN WITTER VENTURE INVESTORS IV, L.P. MORGAN STANLEY DEAN WITTER VENTURE OFFSHORE INVESTORS IV, L.P. By: MSDW Venture Partners IV, LLC, as General Partner of each of the limited partnerships By: MSDW Venture Partners IV, Inc., as Member By: /s/Guy de Chazal ------------------------------------- Name: Guy de Chazal Title: Managing Director Address: 1221 Avenue of the Americas New York, New York 10020 Fax: 212-762-8424 Attention: Controller MORGAN STANLEY DEAN WITTER EQUITY FUNDING, INC. By: /s/Thomas Clayton -------------------------------------------- Name: /s/Thomas Clayton Title: Vice President Address: 1221 Avenue of the Americas New York, New York 10020 Fax: 212-762-8424 Attention: Controller 24 29 FALLEN ANGEL EQUITY FUND, L.P. By: Fallen Angel Capital, L.L.C. as its General Partner By: Barry Goldsmith, as Member By: /s/Barry Goldsmith ------------------------------------ Name: Barry Goldsmith Title: Member Address: 960 Holmdel Road Holmdel, New Jersey 07733 Fax: 732-946-0519 25 30 SCHEDULE 1 The following is a full and complete list of the Investors who are purchasing Series A Convertible Participating Preferred Shares and Warrants of the Company:
NUMBER OF INVESTOR PREFERRED SHARES NUMBER OF WARRANTS % - -------------------------------- ---------------- ------------------ ------------ Morgan Stanley Dean Witter 271,650 217,320 48.40 Venture Partners IV, L.P. Morgan Stanley Dean Witter 31,516 25,212 5.62 Venture Investors IV, L.P. Morgan Stanley Dean Witter 10,598 8,478 1.89 Venture Offshore Investors IV, L.P. Morgan Stanley Dean Witter 86,502 69,202 14.70 Equity Funding, Inc. Fallen Angel Equity 166,667 133,334 29.40 Fund, L.P. Total: 566,933 453,546 100.00
26 s EX-4.D 5 EXHIBIT 4(D) 1 EXHIBIT 4(d) 2 SYMIX SYSTEMS, INC. WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK OF SYMIX SYSTEMS, INC. NO. 1-A WARRANT TO PURCHASE 217,320 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 INVESTOR RIGHTS AGREEMENT (AS HEREIN DEFINED), COPIES OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY. FOR VALUE RECEIVED, SYMIX SYSTEMS, INC., an Ohio corporation (the "COMPANY"), hereby certifies that MORGAN STANLEY DEAN WITTER VENTURE PARTNERS IV, L.P., 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 217,320 fully paid and non-assessable Common Shares (as hereinafter defined), at a purchase price per share equal to the Exercise Price (as hereinafter defined). The number of Common Shares to be received upon the exercise of this Warrant and the price to be paid for a Common Share are subject to adjustment from time to time as hereinafter set forth. This Warrant and the Warrant Shares (as hereinafter defined) may be assigned, transferred, sold, offered for sale or exercised by the Holder only upon compliance with the terms and conditions hereof. 3 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. "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. "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 $15.00 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 fifth anniversary of the date hereof. "INVESTOR RIGHTS AGREEMENT" means the Investor Rights Agreement dated as of the date hereof among the Company and the shareholders listed on the signature pages thereto. "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. "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. "SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement dated as of May 10, 2000 among the Company and the Investors listed 2 4 on the signature pages thereto, providing for the purchase and issuance of the Series A Convertible Participating Preferred Stock and the Warrants. "WARRANT SHARES" means the shares of Common Stock 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 Investor Rights Agreement. 2. Exercise of Warrant. (a) Any sale, transfer, assignment or hypothecation of this Warrant, whether in whole or in part, must be in compliance with Paragraph 12 of this Warrant. Subject to the other terms and conditions of this Warrant, the Holder is entitled to exercise this Warrant in whole or in part at any time, or from time to time, until the Expiration Date or, if such day is not a Business Day, then on the next succeeding day that shall be a Business Day. 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 3 5 entitled, registered or otherwise placed in, or payable to the order of, the name or names of the Holder or such transferee as may be directed in writing by the Holder, and shall deliver such evidence of ownership and any other securities or property (including any money) to the Person or Persons entitled to receive the same, together with an amount in cash in lieu of any fraction of a share as provided in paragraph 5 below. (e) In lieu of exercising the Warrant pursuant to paragraph 2(a), the Holder may elect in accordance with the procedures set forth in this paragraph 2 to exchange this Warrant for shares of Common Stock, in which event the Company will issue to the Holder the number of shares of Common Stock equal 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 (as defined below) 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 other 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). (f) Mandatory Exercise. (i) If at any time after the second anniversary of the date of issuance of this Warrant the Daily Price for a Common Share for each and every day of any period of 40 consecutive trading days exceeds $24, then this Warrant shall be automatically exercised on a net issuance basis in accordance with paragraph (e) above at the Exercise Price, as adjusted, then in effect as of the close of business on the last trading day of the 40 trading day period (a "MANDATORY EXERCISE EVENT") into Common Shares (or other securities or property into which this Warrant is then convertible). This Warrant as so exercised shall be treated as having been surrendered by the Holder thereof for 4 6 exercise pursuant to Section 2 as of the close of business on the last trading day of the 40 trading day period. (ii) If the Company shall at any time after the date of issuance of this Warrant pay any dividend on Common Shares payable in Common Shares or effect a subdivision or combination of the outstanding Common Shares (by reclassification, stock split or otherwise) into a greater or lesser number of Common Shares, then the share price referred to in clause (i) above shall be adjusted upon the earlier of the public announcement or the occurrence of any such event by multiplying the share price by a fraction of which the numerator is the number of Common Shares that were outstanding immediately prior to such event and of which the denominator is the number of Common Shares outstanding immediately after such event; provided, however, that if thereafter, and before such dividend is paid or such subdivision or combination is effected, the Company legally abandons its plan to pay such dividend or to effect such subdivision or combination, then any adjustment made to such share price by reason of such public announcement shall be reversed, and any subsequent adjustments, based thereon, shall be recomputed. 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 Investor Rights Agreement or applicable law. 4. Reservation of Shares. The Company hereby agrees that at all times prior to the expiration hereof there shall be reserved for issuance and delivery upon exercise or exchange of this Warrant such number of its authorized but unissued Common Shares or other securities of the Company from time to time issuable upon the full exercise of the then unexercised portion of this Warrant. All such shares shall be duly authorized and, when issued upon such exercise or exchange, shall be validly issued, fully paid and non-assessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights, except to the extent set forth in the 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 (as defined in paragraph 8(g)) at the date of such exercise or exchange. 6. Transfer or Assignment of Warrant. 5 7 (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 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 Investor Rights Agreement, the Holder of this Warrant shall be entitled, without obtaining the consent of the Company to assign and transfer this Warrant, at any time in whole or from time to time in part, to any Person or Persons. Subject to the preceding sentence, upon surrender of this Warrant to the Company, together with the attached Warrant Assignment Form duly executed, the Company shall, without charge, execute and deliver a new Warrant for the Common Shares assigned in the Warrant Form Assignment in the name of the assignee or assignees named in such instrument of assignment and, if the Holder's entire interest is not being assigned, a new Warrant for the balance of the Common Shares for which this Warrant is then exercisable which are not so assigned in the name of the Holder and this Warrant shall promptly be canceled. 7. Loss or Destruction of Warrant. Upon receipt by the Company of evidence satisfactory to it (in the exercise of its reasonable discretion) of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like tenor and date. 8. Anti-dilution Provisions. (a) In case the Company shall at any time after the date hereof (i) declare a dividend or make a distribution on Common Shares payable in Common Shares, (ii) subdivide or split the outstanding Common Shares, (iii) combine or reclassify the outstanding Common Shares into a smaller number of shares, or (iv) issue any shares of its capital stock in a reclassification of Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, split, combination or reclassification shall be proportionately adjusted so that, giving effect to paragraph 8(i), 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 6 8 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) In case the Company shall issue or sell any Common Shares (other than Common Shares issued (i) upon exercise of the Warrants or conversion of the Series A Convertible Participating Preferred Shares of the Company (the "PREFERRED SHARES"), (ii) pursuant to the Company's stock option plans or pursuant to any similar Common Share related employee compensation plan of the Company approved by the Company's Board of Directors or (iii) upon exercise or conversion of any security the issuance of which caused an adjustment under paragraphs 8(c) or 8(d) hereof) without consideration or for a consideration per share less than the Exercise Price (the "ISSUE PRICE"), the Exercise Price to be in effect after such issuance or sale shall be determined by multiplying the Exercise 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 Company 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 Exercise Price. In case any portion of the consideration to be received by the Company 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 Company; provided that if the Holders of 75% of the outstanding Warrants shall object to any such determination, the Board of Directors shall retain an independent appraiser reasonably satisfactory to a majority of such Holders to determine such fair market value. The Holder shall be notified promptly of any consideration other than cash to be received by the Company and furnished with a description of the consideration and the fair market value thereof, as determined by the Board of Directors. (c) In case the Company shall fix a record date for the issuance of rights, options or warrants to the holders of its 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 Exercise 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 7 9 date and the Exercise Price shall be adjusted pursuant to paragraph 8(b) 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 paragraph 8(b) hereof. Such adjustment shall be made successively whenever such record date is fixed; and in the event that such rights, options or warrants are not so issued or expire unexercised, or in the event of a change in the number of Common Shares to which the holders of such rights, options or warrants are entitled (other than pursuant to adjustment provisions therein comparable to those contained in this paragraph 8), the Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed, in the former event, or the Exercise 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. (d) In case the Company shall issue rights, options (other than options issued pursuant to a plan described in clause 8(b)(i)) or warrants entitling the holders thereof to subscribe for or purchase Common Shares (or securities convertible into Common Shares) or shall issue convertible securities (other than the Preferred Shares), 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 Exercise 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 Exercise Price shall be adjusted pursuant to paragraph 8(b) hereof as though such maximum number of Common Shares had been so issued for an aggregate consideration equal to 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 paragraph 8(b) 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 paragraph 8), the Exercise Price shall again be adjusted to be the Exercise 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 Exercise 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 8 10 the Exercise Price shall be made pursuant to this paragraph 8(d) to the extent that the Exercise Price shall have been adjusted pursuant to paragraph 8(c) 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. (e) In case the Company 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 Company is the continuing corporation) of evidences of indebtedness, cash, assets or other property (other than regular periodic dividends payable in cash or Common Shares or rights, options or warrants referred to in, and for which an adjustment is made pursuant to, paragraph 8(c) hereof), the Exercise Price to be in effect after such record date shall be determined by multiplying the Exercise 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 on such record date, less the fair market value (determined as set forth in paragraph 8(b) hereof) of the portion of the 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 Exercise Price shall again be adjusted to be the Exercise Price which would then be in effect if such record date had not been fixed. (f) If the average (weighted by daily trading volume) of the Daily Prices (as defined below) per Common Share for the 40 consecutive trading days immediately preceding the fourth anniversary of the date of issuance of the Series A Preferred Shares (the "AVERAGE WEIGHTED PRICE") is less than $15.00 then the Exercise Price then in effect shall be reduced to the greater of (i) the Average Weighted Price and (ii) 75% of the Exercise Price. (g) For the purpose of any computation under paragraph 5 or paragraph 8(b), 8(c), 8(d), 8(e) or 8(f) 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 share of the applicable class of Common Shares for the 20 consecutive trading days immediately prior to such date. "DAILY PRICE" means (A) if such 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; (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 9 11 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 Stock Market; or (D) if such 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 such Common Shares are not quoted by any such organization, 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. For purposes of any computation under this paragraph 8, the number of shares of Common Shares outstanding at any given time shall not include shares owned or held by or for the account of the Company. (h) 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. (i) 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. (j) Upon each adjustment of the Exercise Price as a result of the calculations made in paragraphs 8(a), 8(b), 8(c), 8(d) or 8(e) hereof, the number of shares for which this Warrant is exercisable immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of Common Shares obtained by (i) multiplying the number of shares covered by this Warrant immediately prior to this adjustment of the number of shares by the Exercise Price in effect immediately prior to such adjustment of the Exercise Price and (ii) dividing the product so obtained by the Exercise Price in effect immediately after such adjustment of the Exercise Price. (k) If the Company shall fix a record date relating to the payment of a dividend or other distribution or the issuance of rights, options or warrants as contemplated under this paragraph 8 (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 10 12 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. 9. Consolidation, Merger, or Sale of Assets. In case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding Common Shares) or any sale or transfer of all or substantially all of the assets of the Company or of the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, the Holder shall have the right thereafter to exercise or exchange this Warrant for the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of Common Shares for which this Warrant may have been exercised or exchanged immediately prior to such consolidation, merger, sale or transfer, assuming (i) such holder of Common Shares is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("CONSTITUENT PERSON"), or an Affiliate of a Constituent Person and (ii) in the case of a consolidation merger, sale or transfer which includes an election as to the consideration to be received by the holders, such holder of Common Shares failed to exercise such rights of election, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each Common Share held immediately prior to such consolidation, merger, sale or transfer by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("NON-ELECTING SHARE"), then for the purpose of this paragraph 9 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Adjustments for events subsequent to the effective date of such a consolidation, merger or sale of assets shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. In any such event, effective provisions shall be made in the certificate or articles of incorporation of the resulting or surviving corporation, in any contract of sale, conveyance, lease or transfer, or otherwise so that the provisions set forth herein for the protection of the rights of the Holder shall thereafter continue to be applicable; and any such resulting or surviving corporation shall expressly assume the obligation to deliver, upon exercise or exchange, such shares of stock, other securities, cash and property. 11 13 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: Symix Systems, Inc. 2800 Corporate Exchange Drive Columbus, Ohio 43231 Telecopy: (614) 895-2972 Attention: Corporate Counsel If to the Holder: MSDW Venture Partners 1221 Avenue of the Americas New York, New York 10020 Telecopy: 212-762-8424 Attention: Controller Each such notice, request, demand or delivery shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified herein and the intended recipient confirms the receipt of such telecopy or (ii) if given by any other means, when received at the address specified herein. 11. Rights of the Holder. Prior to the exercise or exchange of any Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a shareholder of the Company, including, without limitation, the right to vote, to receive dividends or other distributions, to exercise any preemptive right or to receive any notice of meetings of shareholders or any notice of any proceedings of the Company except as may be specifically provided for herein. 12. Transferee Representations. Prior to effecting any transfer of this Warrant or any part hereof, each prospective transferee shall represent in writing to the Company that: 12 14 (a) Such transferee is an "accredited investor" within the meaning of Rule 501 under the 1933 Act 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 Common Shares; (d) this Warrant is 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 Common 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 or Rule 506 promulgated under such act and under applicable state securities laws, (ii) this Warrant and the Common 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 Common Shares issuable upon exercise of this Warrant will bear a legend to such effect, and (iv) the Company will make a notation on its transfer books to such effect. 13. GOVERNING LAW. THIS WARRANT AND ALL RIGHTS ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF OHIO, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS. 14. Amendments; Waivers. Any provision of this Warrant may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Holder and the Company, or in the 13 15 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. 14 16 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 May 10, 2000. SYMIX SYSTEMS, INC. By:/s/ Lawrence DeLeon --------------------------------- Name: Lawrence DeLeon Title: CFO Acknowledged and Agreed: MORGAN STANLEY DEAN WITTER VENTURE PARTNERS IV, L.P. By: MSDW Venture Partners IV, LLC, as general partner By: MSDW Venture Partners IV, Inc., as member By: /s/Guy de Chazal ---------------------------- Name: Guy de Chazal Title: Managing Director 15 17 WARRANT EXERCISE NOTICE (To be delivered prior to exercise of the Warrant by execution of the Warrant Exercise Subscription Form) To: Symix Systems, Inc. [ ] [The undersigned hereby notifies you of its intention to exercise the warrant to purchase common shares, no par value, of Symix Systems, Inc. held by the undersigned (the "WARRANT"). The undersigned intends to exercise the Warrant to purchase ___________ common shares (the "SHARES") at $______ per Share (the Exercise Price currently in effect pursuant to the Warrant). 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 Symix Systems, Inc. Based on an exercise price of $_______ per Share (the Exercise Price currently in effect pursuant to the Warrant) 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) Payment: $ wire transfer ------------------ $ check ------------------ 16 18 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 Symix Systems, Inc. (the "COMPANY") at $_____ per Share (the Exercise Price currently in effect pursuant to the Warrant) and herewith makes payment of $___________ (such payment being made by wire transfer or by certified or official bank or bank cashier's check payable to the order of the Company or by any permitted combination of such wire transfer or check), all on the terms and conditions specified in the within Warrant, surrenders this Warrant and all right, title and interest therein to the Company and directs that the Shares deliverable upon the exercise of this Warrant be registered or placed in the name and at the address specified below and delivered thereto. Date: ------------------ ----------------------------------------------- (Signature of Holder) This signature must conform in all respects to the name of the Holder as specified on the Warrant ----------------------------------------------- (Street Address) ----------------------------------------------- (City) (State) (Zip Code) 19 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 20 WARRANT ASSIGNMENT FORM Dated _____________, 200__ FOR VALUE RECEIVED, _______________________ hereby irrevocably sells, assigns and transfers unto_____________________________(the "ASSIGNEE"), (please type or print in block letters) ________________________________________________________________________________ (insert address) its right to purchase up to ___________ common shares, without par value, of Symix Systems, 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 21 SCHEDULE A TO WARRANT The following investors entered into warrants for the purchase of the number of common shares, no par value, of Symix Systems, Inc., set forth next to their respective names. The warrants are identical to the warrant of Morgan Stanley Dean Witter Venture Partners IV, L.P., set forth in Exhibit 4(d) of this Quarterly Report on Form 10-Q, except with respect to the number of common shares, no par value, of Symix Systems, Inc. covered by the respective warrants. Investor Number of Shares - -------- ---------------- Morgan Stanley Dean Witter Venture Investors IV, L.P. 25,212 Morgan Stanley Dean Witter Venture Offshore Investors IV, L.P. 8,478 Morgan Stanley Dean Witter Equity Funding, Inc. 69,202 Fallen Angel Equity Fund, L.P. 133,334 EX-10.A 6 EXHIBIT 10(A) 1 EXHIBIT 10(a) 2 SECURITIES PURCHASE AGREEMENT dated as of May 10, 2000 between SYMIX SYSTEMS, INC. and THE INVESTORS NAMED HEREIN 3 TABLE OF CONTENTS ----------------------
PAGE ---- ARTICLE I DEFINITIONS SECTION 1.01. Definitions......................................................................1 ARTICLE II PURCHASE AND SALE SECTION 2.01. Purchase and Sale................................................................4 SECTION 2.02. Closing..........................................................................5 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 3.01. Corporate Existence and Power....................................................5 SECTION 3.02. Corporate Authorization..........................................................6 SECTION 3.03. Governmental Authorization; Consents.............................................6 SECTION 3.04. Non-contravention................................................................7 SECTION 3.05. Capitalization...................................................................7 SECTION 3.06. SEC Filings......................................................................7 SECTION 3.07. Financial Statements.............................................................8 SECTION 3.08. Absence of Certain Changes.......................................................9 SECTION 3.09. Litigation......................................................................10 SECTION 3.10. Compliance with Contracts.......................................................10 SECTION 3.11. Erisa Representations...........................................................11 SECTION 3.12. Tax Representations.............................................................12 SECTION 3.13. Insurance Coverage..............................................................13 SECTION 3.14. Compliance with Laws............................................................13 SECTION 3.15. Transactions with Affiliates....................................................14 SECTION 3.16. Finders' Fees...................................................................14 SECTION 3.17. Antitakeover Statutes...........................................................14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTORS SECTION 4.01. Organization and Existence......................................................15 SECTION 4.02. Authorization...................................................................15 SECTION 4.03. Governmental Authorization......................................................15 SECTION 4.04. Non-contravention...............................................................15 SECTION 4.05. Finders' Fees...................................................................15
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PAGE SECTION 4.06. Financing.......................................................................16 SECTION 4.07. Purchase for Investment.........................................................16 ARTICLE V COVENANTS OF THE COMPANY SECTION 5.01. Access to Information...........................................................16 SECTION 5.02. Notices of Certain Events.......................................................17 SECTION 5.03. Use of Proceeds.................................................................17 SECTION 5.04. Corporate Governing Documents...................................................17 SECTION 5.05. Restrictive Agreements Prohibited...............................................18 SECTION 5.06. Voting Power....................................................................18 SECTION 5.07. Additional Warrants.............................................................18 ARTICLE VI COVENANTS OF INVESTORS SECTION 6.01. Notices of Certain Events.......................................................18 SECTION 6.02. Confidentiality.................................................................19 ARTICLE VII COVENANTS OF ALL PARTIES SECTION 7.01. Best Efforts....................................................................19 SECTION 7.02. Certain Filings; NASDAQ listing.................................................20 SECTION 7.03. Public Announcements............................................................20 SECTION 7.04. Tax Consistency.................................................................20 ARTICLE VIII CONDITIONS TO CLOSING SECTION 8.01. Conditions to the Obligations of Each Party.....................................20 SECTION 8.02. Conditions to Obligation of Investors...........................................20 SECTION 8.03. Conditions to Obligation of the Company.........................................21 ARTICLE IX SURVIVAL SECTION 9.01. Survival........................................................................22
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ARTICLE X TERMINATION SECTION 10.01. Grounds for Termination........................................................22 SECTION 10.02. Effect of Termination..........................................................22 ARTICLE XI MISCELLANEOUS SECTION 11.01. Notices........................................................................23 SECTION 11.02. Amendments; No Waivers.........................................................23 SECTION 11.03. Expenses.......................................................................24 SECTION 11.04. Successors and Assigns.........................................................24 SECTION 11.05. Governing Law..................................................................24 SECTION 11.06. Counterparts...................................................................24 SECTION 11.07. Entire Agreement...............................................................24 SECTION 11.08. Specific Performance...........................................................24 SECTION 11.09. Captions.......................................................................25
Exhibit A Amendment to Amended Articles of Incorporation Exhibit B Investor Rights Agreement Exhibit C Warrant iii 6 SECURITIES PURCHASE AGREEMENT AGREEMENT dated as of May 10, 2000 between Symix Systems, 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 I 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. "AMENDMENT" means the amendment to the Amended Articles of Incorporation of the Company, as amended, which designate and set forth the preferences and rights of the holders of the Series A Preferred Shares, substantially in the form attached hereto as Exhibit A. "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, 7 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 $200,000. "CLOSING DATE" means the date of the Closing. "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. "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. "INVESTOR RIGHTS AGREEMENT" means the Investors Rights Agreement dated as of the Closing Date among the Company, the Investors and Lawrence J. Fox, substantially in the form of Exhibit B 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. 2 8 "MATERIAL ADVERSE CHANGE" means a material adverse change in the business, assets, financial condition 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 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 Shares and Warrants. "SERIES A PREFERRED SHARES" means the Series A Convertible Participating Preferred Shares, no par value, of the Company. "SHARES" means 566,933 Series A Preferred Shares. "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, 3 9 local or foreign governmental authority (a "TAXING AUTHORITY") responsible for the imposition of any such tax (domestic or foreign), (ii) any liability of the Company or any Subsidiary for the payment of any amounts of the type described in (i) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period and (iii) any liability of the Company or any Subsidiary for the payment of any amount as a result of being a party to any tax sharing agreement or with respect to the payment of any amount of the type described in (i) as a result of any existing express or implied agreement or 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 Investor Rights Agreement. "WARRANTS" means the warrants to purchase 453,546 Common Shares, substantially in the form of Exhibit C hereto. (b) Each of the following terms is defined in the Section set forth opposite such term: Term Section - ---- ------- Balance Sheet 3.07 Balance Sheet Date 3.07 Closing 2.02 Company SEC Documents 3.06 Company 10-K 3.06 Company Securities 3.05 Employee Plans 3.11 GAAP 3.07 Returns 3.12 ARTICLE II 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, the number of Shares and Warrants at the aggregate prices set forth opposite the names of such 4 10 Investor on Schedule I hereto. The aggregate purchase price payable by the Investors for all the Securities is $13,606,392 in cash. SECTION 2.02. Closing. The closing (the "CLOSING") of the purchase and sale of the Securities hereunder shall take place at the offices of Davis Polk & Wardwell 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 VIII, or at such other time or place as the Investors and the Company may agree. At the Closing, (a) each Investor shall transfer to the Company the applicable purchase price payable by it in immediately available funds by wire transfer to an account of the Company designated by the Company, by notice to the Investors, no later than two business days prior to the Closing Date; and (b) the Company shall deliver to each Investor certificates for the Securities being purchased by such Investor registered in the name of such Investor. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to each Investor 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 5 11 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 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 Closing, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement constitutes, and, when executed by the parties thereto, the Investor Rights Agreement will constitute, 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 Investor Rights Agreement may be limited by applicable law and except for the Enforceability Exceptions. (b) The Warrants, when executed and delivered in accordance with the terms of this Agreement, will constitute valid and binding obligations of the Company. (c) The Shares, when issued and delivered to and paid for by each Investor pursuant to this Agreement, will be validly issued, fully paid and non-assessable, and such Shares are free of preemptive or similar rights except as set forth in this Agreement. The Common Shares to be reserved for issuance upon exercise of the Warrants or conversion of the Shares, as the case may be, have been, or prior to the Closing will be, 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 Shares, 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 Investor Rights Agreement. SECTION 3.03. Governmental Authorization; Consents. (a) The execution, delivery and performance by the Company of the Transaction Agreements 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) 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 6 12 Transaction Agreements 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 do not and will not (i) contravene or conflict with the Amended Articles of Incorporation, as amended, or the Amended Regulations, as amended, 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) 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 April 28, 2000, there were outstanding 7,503,657 Common Shares, no preferred shares and employee stock options to purchase an aggregate of 1,925,547 Common Shares (of which, options to purchase an aggregate of 1,209,279 Common Shares were exercisable). All outstanding Common Shares have been duly authorized and validly issued and are fully paid. Except (1) as set forth in this Section 3.05, (2) for changes since April 28, 2000 resulting from the exercise of employee stock options outstanding on such date and (3) 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 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 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. (a) The Company has delivered to each Investor or its counsel (i) the Company's annual report on Form 10-K for its fiscal 7 13 year ended June 30, 1999 (the "COMPANY 10-K"), (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended September 30, 1999 and December 31, 1999, 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, 1999, and (iv) all of its other reports, statements, schedules and registration statements filed with the SEC since June 30, 1999 (the documents referred to in this Section 3.06(a), collectively, the "COMPANY SEC DOCUMENTS"). (b) As of its filing date, each Company SEC Document complied as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as the case may be. (c) As of its filing date (or, if amended or superceded by a filing prior to the date hereof, on the date of such filing), each Company SEC Document filed pursuant to the 1934 Act did not, and each such Company SEC Document filed subsequent to the date hereof will not, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (d) Each Company SEC Document that is a registration statement, as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such registration statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (e) Since July 1, 1999, 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. SECTION 3.07. 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 statements of condition of the Company (and consolidated Subsidiaries) as of June 30, 1999 set forth in the Company 10-K and "BALANCE SHEET DATE" means June 30, 1999. 8 14 (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 3.08. 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 except in connection with (x) the internal corporate reorganization of the Company and the Subsidiaries initiated in October 1999, (y) the acquisition of all outstanding capital stock of Frontstep, Inc. (f/k/a Profit Solutions, Incorporated) by the Company in January, 2000 and (z) the acquisition of brightwhite solutions, inc. capital stock by Frontstep, Inc. in February, 2000; (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, except employment agreements entered into in connection with the acquisition of Profit Solutions, Incorporated (n/k/a Frontstep, Inc.) in January, 2000 and the acquisition of the assets of Infomentum, Ltd. in February, 2000, 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, 9 15 bonus, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, stock option, restricted stock or other benefit plan or arrangement covering any director, officer or employee of the Company or any of its Subsidiaries, other than in the ordinary course of business consistent with past practice, or (v) increase in compensation, bonus or other benefits payable to any director, officer or employee of the Company or any of its Subsidiaries, other than in the ordinary course of business consistent with past practice; (e) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company or any Subsidiary which, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect after giving effect to insurance; or (f) any loss of a customer, client or business partner that, individually or in aggregate, would be material to the business or financial condition of the Company and its Subsidiaries, taken as a whole; or (g) any change in any method of accounting or accounting practice by the Company or any Subsidiary, except for any such change after the date hereof required by reason of a concurrent change in or application of generally accepted accounting principles. SECTION 3.09. 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 3.10. 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. 10 16 SECTION 3.11. Erisa Representations. (a) Schedule 3.11 sets forth each "employee benefit plan", as defined in Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is maintained, administered or contributed to by the Company or any of its ERISA Affiliates and (iii) covers any employee or former employee of the Company or any Subsidiary. Such plans are hereinafter referred to as the "EMPLOYEE PLANS". The Company has furnished or made available to the Investors or their counsel copies of such plans (and, if applicable, related trust agreements) and all amendments thereto and written interpretations thereof together with the most recent annual report prepared in connection with any such plan (Form 5500 including, if applicable, Schedule B thereto). 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 provided 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 3.11 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, 11 17 except as required to avoid excise tax under Section 4980B of the Code or as previously disclosed by the Company in writing to the Investors. (f) Except as disclosed in writing to the Investors prior to the date hereof, there has been no amendment to, written interpretation of or announcement (whether or not written) by the Company or any of its ERISA Affiliates relating to, or change in employee participation or coverage under, any Employee Plan or Benefit Arrangement that would increase materially the expense of maintaining such Employee Plan or Benefit Arrangement above the level of the expense incurred in respect thereof for the fiscal year ended prior to the date hereof. (g) Except as set forth in Schedule 3.11, 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 3.12. 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 Closing Date make provision for all Taxes payable by the Company and the Subsidiaries for any Tax period (or 12 18 portion thereof) ending on or before the Closing Date 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 Closing Date (excluding any provision for deferred income taxes) reflected on the books of the Company and the Subsidiaries are adequate to cover such Taxes; (vi) all consolidated federal income tax Returns filed with respect to taxable years of the Company and the Subsidiaries through the taxable year ended June 30, 1996 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 3.13. 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 3.14. Compliance with Laws. Neither the Company nor any of the Subsidiaries is in violation of, or has since the Balance Sheet Date violated, 13 19 any applicable provisions of any laws, statutes, ordinances, regulations, administrative interpretations, orders, judgments, policies or decrees of any court or governmental or administrative authority that are applicable to the Company, any of the Subsidiaries or their respective properties, other than violations which do not have and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company and the Subsidiaries have all permits, licenses, certificates of authority, orders and approvals of, and have made all filings, applications and registrations with federal, state, local or foreign governmental or regulatory bodies that are required in order to permit them to carry on their business substantially as presently conducted, except for such permits, licenses, certificates of authority, orders, appraisals, filings, applications or registrations the failure so to have or to make would not reasonably be expected to have a Material Adverse Effect. All such permits, licenses, certificates of authority, orders and approvals are in full force and effect, and, to the knowledge of the Company, no suspension or cancellation of any of them is threatened, and all such filings, applications and registrations are current in all material respects, except for such filings, applications and registrations which the failure to have would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. SECTION 3.15. Transactions with Affiliates. Except as set forth on Schedule 3.15, 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 3.16. 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 3.17. 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 14 20 federal laws apply to the Transaction Agreements and the purchase of the Securities or any of the transactions contemplated thereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTORS Each Investor hereby represents and warrants to the Company that: SECTION 4.01. Organization and Existence. Investor 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. This Agreement constitutes, and as of Closing the Investor Rights Agreement will constitute, a valid and binding agreement of Investor, enforceable against 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 its agreement of limited partnership (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, 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 15 21 behalf of Investor who might be entitled to any fee or commission from Investor, the Company or any of their respective Affiliates upon consummation of the transactions contemplated by this Agreement. SECTION 4.06. Financing. Investor will have at Closing sufficient funds available to purchase the Securities allocated to it. SECTION 4.07. Purchase 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; (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 Shares as has been requested by Investor in order to make its investment decision with respect to the Shares; (d) 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 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 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 will bear a legend to such effect, and (iv) the Company will make a notation on its transfer books to such effect. ARTICLE V COVENANTS OF THE COMPANY The Company agrees that: SECTION 5.01. Access to Information. From the date hereof until the Closing Date, the Company (a) will give, and will cause each Subsidiary to give, 16 22 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: (i) 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; (ii) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement; and (iii) 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 Sections 3.09 or 3.12 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 (i) working capital (including, without limitation, acquisitions of other businesses and/or technologies), (ii) the Company's Frontstep initiative, and (iii) general business purposes. SECTION 5.04. Corporate Governing Documents. The Company shall at all times maintain provisions in its code of regulations and/or articles of incorporation indemnifying all directors and officers against liability and absolving all directors and officers from liability to the Company and its shareholders to the maximum extent permitted under the laws of the State of Ohio. 17 23 SECTION 5.05. Restrictive Agreements Prohibited. 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 Warrants or the Company's Amended Articles of Incorporation, as amended. SECTION 5.06. Voting Power. The Company shall use its reasonable best efforts to amend its Amended Articles of Incorporation, as amended, at the next annual meeting of the Company's shareholders and to take such other action in accordance with Ohio law as required to allow the shares of any series of preferred shares currently outstanding or designated in the future by action of the Board of Directors to have the right to more than one vote per share, including amending the Company's Amended Articles of Incorporation, as amended, relating to the Series A Preferred Shares. 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 dollar amount determined by dividing (1) the product of the Exercise Price of a Warrant immediately prior to the public announcement multiplied by the Daily Price per common share of the Subsidiary immediately after such dividend by (2) the Current Market Price per Common Share immediately prior to the public announcement of such dividend. For purposes hereof, the terms Exercise Price, Daily Price and Current Market Price per Common Share shall be as such terms are defined in the Warrant. ARTICLE VI COVENANTS OF INVESTORS Each Investor agrees that: SECTION 6.01. Notices of Certain Events. Investor shall promptly notify the Company of: 18 24 (i) 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; (ii) any notice or other communication from any governmental or regulatory agency or authority in connection with the transactions contemplated by this Agreement; and (iii) 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 or the Shares 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. ARTICLE VII COVENANTS OF ALL PARTIES The parties hereto agree that: SECTION 7.01. 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 VIII 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. 19 25 SECTION 7.02. Certain Filings; NASDAQ listing. The Company and the Investors shall cooperate with one another (a) 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, (b) in taking such actions or making any such filings, furnishing information required in connection therewith and seeking timely to obtain any such actions, consents, approvals or waivers, and (c) in causing the Common Shares underlying the Securities 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, will not issue any such press release or make any such public statement prior to such consultation. SECTION 7.04. Tax Consistency. The Company and the Investors confirm that the Series A Preferred Shares are intended to be "common stock" for purposes of the Code and agree not to take voluntarily any action inconsistent with such intention. ARTICLE VIII 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 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 Closing; and (b) No proceeding challenging this Agreement or the transactions contemplated hereby or seeking to prohibit, alter, prevent or materially delay the Closing shall have been instituted by any governmental body, agency, official or authority 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 Closing are subject to the satisfaction of the following further conditions: 20 26 (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 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 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 Investors Rights Agreement shall have been executed and delivered by the Company, the Investors and Lawrence J. Fox; (c) The Amendment shall have been filed with the Secretary of State of the State of Ohio and shall read in its entirety as set forth in Exhibit A; (d) The number of directors constituting the entire Board of Directors shall have been fixed at no greater than nine (9) and the following persons shall have been elected as directors and shall hold such position as of the Closing Date: Guy de Chazal and Barry Goldsmith. (e) Investor shall have received an opinion of Vorys, Sater, Seymour and Pease LLP, counsel to the Company, dated the Closing Date in reasonable and customary form. In rendering such opinions, counsel may rely upon certificates of public officials, and as to matters of fact, upon certificates of officers of the Company and the Subsidiaries; (f) Investors shall have received all documents it 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 Closing is subject to the satisfaction of the following further conditions: (a) (i) Investors shall have performed in all material respects all of its obligations hereunder required to be performed by them at or prior to the 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 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 Investor Rights Agreement. 21 27 (c) The Amendment and the Transaction Agreements (and the transactions contemplated thereby) shall have been approved by the Board of Directors of the Company. ARTICLE IX 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 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 Closing Date, in each case unless a different date is specified in the representation and warranty. ARTICLE X TERMINATION SECTION 10.01. Grounds for Termination. This Agreement shall terminate upon either 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 Closing shall not have been consummated on or before May 31, 2000; or (c) prior to Closing if after the date hereof there shall be any law or regulation enacted or promulgated that makes consummation of the transactions contemplated hereby illegal or otherwise prohibited or if consummation of the transactions contemplated hereby would violate any nonappealable final order, decree or judgment of any court or governmental body having competent jurisdiction; The party desiring to terminate this Agreement pursuant to this Section 10.01 shall give notice of such termination to the other party. SECTION 10.02. Effect of Termination. If this Agreement is terminated as permitted by Section 10.01, such termination shall be without liability of either party (or any shareholder, director, officer, employee, agent, consultant or representative of such party) to the other party to this Agreement; provided that if such termination shall result from the willful failure of either party to fulfill a 22 28 condition to the performance of the obligations of the other party or to perform a covenant of this Agreement or from a willful breach by either party to this Agreement, such party shall be fully liable for any and all damages incurred or suffered by the other party as a result of such failure or breach. The provisions of Sections 6.02, 7.03, 10.02, 11.03 and 11.05 shall survive any termination hereof pursuant to Section 10.01. ARTICLE XI 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: Symix Systems, Inc. 2800 Corporate Exchange Drive Columbus, Ohio 43231 Attention: Corporate Counsel Telecopy: (614) 895-2972 with a copy to: Ivery D. Foreman, Esq. Vorys, Sater, Seymour and Pease LLP 52 East Gay Street Columbus, Ohio 43216-1008 Telecopy: (614) 464-6350 if to an Investor, to its address set forth on the signature pages hereto: with copies to: John A. Bick, Esq. Davis Polk & Wardwell 450 Lexington Ave. New York, New York 10017 Telecopy: (212) 450-4800 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 23 29 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 shall be paid by the party incurring such cost or expense; provided that the Company shall reimburse the Investors for their out-of-pocket fees and expenses, including the fees and expenses of Davis Polk & Wardwell, up to an aggregate amount not to exceed $150,000. SECTION 11.04. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto. SECTION 11.05. Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws of the State of Ohio. SECTION 11.06. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 11.07. Entire Agreement. The Transaction Agreements 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 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 24 30 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. 25 31 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. SYMIX SYSTEMS, INC. By/s/Stephen A. Sasser ------------------------------------- Stephen A. Sasser President and Chief Executive Officer INVESTORS: MORGAN STANLEY DEAN WITTER VENTURE PARTNERS IV, L.P. MORGAN STANLEY DEAN WITTER VENTURE INVESTORS IV, L.P. MORGAN STANLEY DEAN WITTER 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/Guy de Chazal ---------------------------------- Name: Guy de Chazal Title: Managing Director Address: 1221 Avenue of the Americas New York, New York 10020 Fax: 212-762-8424 MORGAN STANLEY DEAN WITTER EQUITY FUNDING, INC. By:/s/Thomas Clayton ----------------------------------- Name:Thomas Clayton Title:Vice President Address: 1221 Avenue of the Americas New York, New York 10020 Fax: 212-762-8424 Attention: Controller 26 32 FALLEN ANGEL EQUITY FUND, L.P. By: Fallen Angel Capital, L.L.C. as its General Partner By: Barry Goldsmith, as Member By: /s/Barry Goldsmith ----------------------------- Name: Barry Goldsmith Title: Member Address: 960 Holmdel Road Holmdel, New Jersey 07733 Fax: 732-946-0519 27 33 SCHEDULE I ---------- INVESTORS ---------
Number of Aggregate Preferred Number of Purchase Price Shares Warrants for All Name and Address of Investor to be Purchased to be Purchased Securities (a) Morgan Stanley Dean Witter Venture 271,650 217,320 $6,585,456 Partners IV, L.P. (b) Morgan Stanley Dean Witter Venture 31,516 25,212 $764,016 Investors IV, L.P. (c) Morgan Stanley Dean Witter Venture 10,598 8,478 $256,920 Offshore Investors, L.P. (d) Morgan Stanley Dean Witter Equity 86,502 69,202 $1,999,992 Funding, Inc. (d) Fallen Angel Equity Fund, L.P. 166,667 133,334 $4,000,008 Totals 566,933 453,546 $13,606,392
EX-27 7 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 FOR SYMIX SYSTEMS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-2000 JUL-01-1999 MAR-31-2000 4,187 0 46,800 1,595 857 57,398 22,670 14,812 98,237 33,572 0 0 0 78 43,738 98,237 42,973 97,919 13,673 44,150 53,742 95 475 (692) (21) (671) 0 0 0 (671) (.09) (.09)
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