-----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, OhlEiNgD9NRwSQ8S9Kd6WGk9ZCh0VFBBQIy8I9l9hYis3Vsd7O6pF2D4eQQFlmsF ke7XrJ0DEGqMw80pAgjfnw== /in/edgar/work/0000950152-00-008018/0000950152-00-008018.txt : 20001116 0000950152-00-008018.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950152-00-008018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTSTEP INC CENTRAL INDEX KEY: 0000872443 STANDARD INDUSTRIAL CLASSIFICATION: [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: 768836 BUSINESS ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR STREET 2: N/A CITY: COLUMBUS STATE: OH ZIP: 43231 BUSINESS PHONE: 6145237000 MAIL ADDRESS: STREET 1: 2800 CORPORATE EXCHANGE DR CITY: COLUMBUS STATE: OH ZIP: 43231 FORMER COMPANY: FORMER CONFORMED NAME: SYMIX SYSTEMS INC DATE OF NAME CHANGE: 19930328 10-Q 1 l84692ae10-q.txt FRONTSTEP, INC. FORM 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 ------------------- FRONTSTEP, INC. (Exact name of registrant as specified in its charter) OHIO 31-1083175 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 2800 CORPORATE EXCHANGE DRIVE 43231 COLUMBUS, OHIO (Zip Code) (Address of principal executive offices) (614) 523-7000 (Registrant's telephone number, including area code) SYMIX SYSTEMS, INC. (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 --- --- As of November 8, 2000, 7,505,157 shares of the issuer's common stock, without par value, were outstanding. ================================================================================ 2 FRONTSTEP, INC. AND SUBSIDIARIES INDEX
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2000 (unaudited) and June 30, 2000...............3 Consolidated Statements of Operations for the Three Months Ended September 30, 2000 and 1999 (unaudited)..........................................................5 Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2000 and 1999 (unaudited)..........................................................6 Notes to Consolidated Financial Statements (unaudited)...........................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........10 Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................13 PART II. OTHER INFORMATION Item 1. Legal Proceedings...............................................................................14 Item 2. Changes in Securities and Use of Proceeds.......................................................14 Item 3. Defaults Upon Senior Securities.................................................................14 Item 4. Submission of Matters to a Vote of Security Holders.............................................15 Item 5. Other Information...............................................................................15 Item 6. Exhibits and Reports on Form 8-K................................................................15 SIGNATURES................................................................................................16 EXHIBIT INDEX.............................................................................................17
2 3 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. FRONTSTEP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
SEPTEMBER 30, JUNE 30, 2000 2000 ------------- -------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 4,163 $11,868 Trade accounts receivable, less allowance for doubtful accounts of $1,727 and $2,075 at September 30, 2000 and June 30, 2000, respectively 38,089 36,956 Inventories 838 861 Prepaid expenses 3,068 2,610 Other receivables 1,780 988 Income tax receivable 1,955 1,867 Deferred income taxes 1,510 1,510 ------- ------- 51,403 56,660 Other assets: Capitalized software, net of accumulated amortization of $14,775 and $13,687 at September 30, 2000 and June 30, 2000, respectively 17,526 18,329 Intangibles, net 9,322 9,113 Deposits and other assets 2,535 2,280 ------- ------- 29,383 29,722 Equipment and improvements: Furniture and fixtures 3,615 3,568 Computer and other equipment 19,147 18,410 Leasehold improvements 1,792 1,535 ------- ------- 24,554 23,513 Less accumulated depreciation and amortization 16,552 15,527 ------- ------- 8,002 7,986 ------- ------- Total assets $88,788 $94,368 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 3 4 FRONTSTEP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, CONTINUED (in thousands, except share data)
SEPTEMBER 30, JUNE 30, 2000 2000 ------------- -------- (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $12,718 $13,613 Deferred revenue 17,007 18,223 Current portion of long-term obligations 2,852 5,476 ------- ------- 32,577 37,312 Noncurrent liabilities: Long-term obligations 169 169 Bank credit agreement 6,813 3,000 Deferred income taxes 3,452 4,167 ------- ------- 10,434 7,336 Minority interest 2,110 2,146 Series A Convertible Participating Preferred Stock, no par value; 1,000,000 shares authorized; 566,933 shares issued and outstanding at September 30, 2000 and June 30, 2000; liquidation preference $24 per share 10,865 10,865 Shareholders' equity: Common stock; 20,000,000 shares authorized; 7,809,357 and 7,807,857 shares issued and outstanding at September 30, 2000 and June 30, 2000, respectively; at stated capital amounts of $0.01 per share 78 78 Capital in excess of stated value 37,226 37,216 Retained earnings (deficit) (257) 3,292 Accumulated other comprehensive loss (2,925) (2,557) ------- ------- 34,122 38,029 Less: Common stock in treasury 304,200 shares, at cost (1,320) (1,320) ------- ------- 32,802 36,709 ------- ------- Total liabilities and shareholders' equity $88,788 $94,368 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 4 5 FRONTSTEP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
THREE MONTHS ENDED SEPTEMBER 30, --------------------- 2000 1999 ------- ------- (UNAUDITED) Revenue: License fees $11,881 $13,392 Service, maintenance and support 16,152 18,679 ------- ------- Net revenue 28,033 32,071 Cost of revenue: License fees 4,445 4,238 Service, maintenance and support 9,842 10,130 ------- ------- Total cost of revenue 14,287 14,368 ------- ------- Gross margin 13,746 17,703 Operating expenses: Selling, general and administrative 12,263 11,590 Research and development 3,718 3,611 Amortization of intangibles from acquisitions 837 765 Non-recurring charges related to divested operations 2,163 -- ------- ------- Total operating expenses 18,981 15,966 ------- ------- Operating income (loss) (5,235) 1,737 Other income (expense), net 73 (270) ------- ------- Income (loss) before income taxes (5,162) 1,467 Provision (benefit) for income taxes (1,613) 572 ------- ------- Net income (loss) $(3,549) $ 895 ======= ======= Net income (loss) per share $ (0.47) $ 0.12 ======= ======= Net income (loss) per share, assuming dilution $ (0.47) $ 0.12 ======= ======= Weighted average number of common shares outstanding 7,504 7,354 Weighted average number of common shares outstanding, assuming dilution 7,504 7,720
The accompanying notes are an integral part of these consolidated financial statements. 5 6 FRONTSTEP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
THREE MONTHS ENDED SEPTEMBER 30, ------------------ 2000 1999 ------- ------- (UNAUDITED) CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $(3,549) $ 895 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 3,006 2,551 Non-recurring charges related to divested operations 2,163 -- Net loss on disposal of assets 6 -- Provision for losses on accounts receivable (381) (10) Provision for deferred income taxes (716) (49) Changes in operating assets and liabilities: Trade accounts receivable (1,266) 2,374 Prepaid expenses and other receivables (1,325) 42 Inventories 23 (50) Deposits and other assets (448) 19 Accounts payable and accrued expenses (2,924) (4,778) Customer deposits 60 (42) Deferred revenue (1,111) 199 Income taxes payable/receivable (14) (336) ------- ------- Net cash provided by (used in) operating activities (6,476) 815 CASH FLOW FROM INVESTING ACTIVITIES: Purchase of equipment and improvements (1,095) (1,166) Additions to purchased and developed software (1,395) (1,135) ------- ------- Net cash used in investing activities (2,490) (2,301) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock and exercise of stock options 8 36 Proceeds from long-term obligations 3,814 1,114 Payments on long-term obligations (2,660) (847) ------- ------- Net cash provided by financing activities 1,162 303 Effect of exchange rate changes on cash 99 (76) ------- ------- Decrease in cash and cash equivalents (7,705) (1,259) Cash and cash equivalents at beginning of year 11,868 5,236 ------- ------- Cash and cash equivalents at end of period $ 4,163 $ 3,977 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 6 7 FRONTSTEP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (unaudited) NOTE A - SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Description of Business. Frontstep, Inc. and its subsidiaries ("Frontstep" or the "Company"), is a leading global provider of business software and services for mid-sized manufacturing, distribution and other companies, including business units of larger companies. The Company primarily offers integrated enterprise resource planning software and services through its Symix channel. More recently, the Company has developed and also offers a comprehensive suite of integrated business to business ("b2b") e-business software and services, including customer relationship management ("CRM"), on-line sales and service, web-driven channel management, supply chain and e-procurement solutions, and collaboration and integration products. Also, through brightwhite solutions, inc. ("brightwhite"), the Company delivers related e-business consulting services. Founded in 1979, Frontstep is headquartered in Columbus, Ohio. The Company has more than 4,000 customers that it serves from 27 sales and service offices in North America, Europe and the Pacific Rim, as well as through independent software and support business partners worldwide. The Company recently changed its name from Symix Systems, Inc. to Frontstep, Inc. The accompanying unaudited consolidated financial statements presented herein have been prepared by the Company and reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair presentation of financial results for the three months ended September 30, 2000 and 1999, in accordance with generally accepted accounting principles for interim financial reporting and pursuant to Article 10 of Regulation S-X. Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2000 ("Annual Report"). The results of operations for the three months ended September 30, 2000 are not necessarily indicative of the results to be expected for a full year. Comprehensive Income. The only item in addition to net income that would be included in comprehensive income is the foreign currency translation adjustment. Comprehensive income (loss) for the three months ended September 30, 2000 and 1999 is $(3,917,000) and $1,095,000, respectively. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and related notes. Actual results could differ from those estimates. NOTE B - LINE OF CREDIT In June 1998, the Company entered into a revolving credit facility with a bank which, as amended and restated in May 2000, provides for a $15,000,000 secured revolving line of credit that expires on the earlier of a) July 1, 2001, or b) the date the amounts borrowed become due and payable (the "Credit Facility"). The Credit Facility is secured primarily by the Company's trade accounts receivable and certain other assets. Borrowings under the Credit Facility bear interest at either the bank prime rate or, at the Company's option, the LIBOR rate as adjusted for performance based pricing. The Company is required to pay a fee of 0.25% per year on the unused portion of the Credit Facility. The Credit Facility contains certain covenants, which, among other things, require the Company to maintain specified financial ratios and to satisfy certain tests, including minimum net worth, maximum leverage ratio, minimum EBITDA, minimum current ratio and limitations on future capital expenditures. At September 30, 2000, the Company was not in compliance with certain of these debt covenants. The Company's bank has proposed certain amendments to the Credit Facility and has provided a waiver relating to noncompliance upon execution of 7 8 the proposed amendments. The noncompliance does not relate to any payment due under the Credit Facility. The waiver has been granted for the period June 30, 2000, (the initial date of noncompliance) to the date of the execution of the amendment. Execution of the amendment is solely within the discretion of the Company. During the second quarter of fiscal 2001, the Company intends to execute the amendment if it is unable to obtain alternative financing that is more favorable. During the first quarter of fiscal 2001, the Company explored alternative credit arrangements with its current bank and with other banks and credit institutions and has received several proposals that are similar to the proposal made by the Company's current bank. The Company is focusing on one of these proposals and is currently pursuing completion of a new credit facility that would provide a line of credit of up to $20 million for a period of three years. Availability under this proposed credit facility would be based on qualifying accounts receivable and will be secured by the Company's trade accounts receivable. The Company would be subject to customary terms and conditions, including a financial covenant relating to maintenance of net worth. The Company expects to complete the execution of this new credit facility during the second quarter of fiscal 2001. NOTE C - NON-RECURRING CHARGES In July 2000, the Company announced several structural changes to discontinue certain business operations, write off non-performing assets and to restructure the Company to better focus on its core business strategy. These changes included divesting of the Company's FieldPro subsidiary, discontinuing operations of its e-Mongoose subsidiary, consolidating the Company's product development organizations and restructuring the Company's sales channels. In connection with this announcement, the Company recorded a non-recurring charge of $3,011,000, pre-tax, in the three months ended June 30, 2000 and an additional $2,163,000, pre-tax, in the three months ended September 30, 2000. The non-recurring charge incurred in the three months ended September 30, 2000 primarily related to employee actions taken by the Company and costs related to those employee actions associated with the changes discussed above. Of the total $2,163,000 non-recurring charge incurred in the three months ended September 30, 2000, $896,000 is accrued as of September 30, 2000 for such charges expected to be paid in future quarters. 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 ENDED SEPTEMBER 30, 2000 1999 ------- ------ Numerator for basic and diluted earnings (loss) per share - net income (loss) $(3,549) $ 895 ======= ====== Denominator for basic earnings (loss) per share - weighted average common shares outstanding 7,504 7,354 Effect of dilutive employee stock options -- 366 ------- ------ Denominator for diluted earnings (loss) per share - adjusted weighted average common shares and assumed conversions 7,504 7,720 ======= ====== Net income (loss) per share $ (0.47) $ 0.12 ======= ====== Net income (loss) per share, assuming dilution $ (0.47) $ 0.12 ======= ======
During the three months ended September 30, 2000, options to purchase 1,990,925 common shares at a weighted average price of $8.15 per share, warrants to purchase 453,546 common shares at an exercise price of 8 9 $15.00 per share and 566,933 shares of Series A Convertible Participating Preferred Stock convertible to common shares at a conversion rate of two shares of common for one share of preferred, subject to adjustment, were outstanding, but were not included in the computation of diluted income per share because the Company reported a net loss for the period and, therefore, the effect would be antidilutive. During the three months ended September 30, 1999, options to purchase 418,850 common shares at a weighted average price of $16.43 per share were outstanding, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares for that period and, therefore, the effect would be antidilutive. NOTE E - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company designs, develops, markets and supports business software and services for mid-sized manufacturing, distribution and other companies, including business units of larger companies. The Company operates exclusively in this market and, therefore, only reports on one primary segment. Summarized financial information attributable to each of the Company's geographic areas is shown in the following table (in thousands, except percentage data):
NORTH AMERICA ASIA/PACIFIC EUROPE ------------- ------------ ------ THREE MONTHS ENDED SEPTEMBER 30, 2000 Net revenue $21,606 77% $3,119 11% $ 3,308 12% Operating income (loss) before amortization of intangibles and special charges* (2,327) 104% (33) 2% 125 (6)% Operating income (loss) (5,190) 99% (50) 1% 5 --% Identifiable assets 71,548 81% 8,326 9% 8,914 10% THREE MONTHS ENDED SEPTEMBER 30, 1999 Net revenue $25,538 80% $3,328 10% $ 3,205 10% Operating income (loss) before amortization of intangibles 2,546 102% 326 13% (370) (15)% Operating income (loss) 1,939 111% 306 18% (508) (29)% Identifiable assets 65,880 76% 8,783 10% 12,462 14%
------------- * Exclusive of non-recurring charges of $2,163,000. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CERTAIN STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q AND OTHER WRITTEN AND ORAL STATEMENTS MADE FROM TIME TO TIME BY THE COMPANY ARE "FORWARD-LOOKING" STATEMENTS, INCLUDING STATEMENTS REGARDING FUTURE ECONOMIC PERFORMANCE OF THE COMPANY AND THE PLANS, OBJECTIVES AND EXPECTATIONS OF THE COMPANY'S MANAGEMENT. THE WORDS "EXPECT," "ANTICIPATE," "INTEND," "PLAN," "BELIEVE," "ESTIMATE" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS PROVIDE CURRENT EXPECTATIONS AND FORECASTS OF FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, KNOWN AND UNKNOWN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE PLANS, OBJECTIVES AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY THE FORWARD-LOOKING STATEMENTS ARE BASED UPON REASONABLE ASSUMPTIONS, NO ASSURANCE CAN BE GIVEN THAT SUCH PLANS, OBJECTIVES OR EXPECTATIONS WILL BE ACHIEVED. 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, THE COMPANY'S TRANSITION TO E-BUSINESS; THE DEMAND FOR AND MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS AND SERVICES; THE IMPACT OF COMPETITIVE PRODUCTS; THE COMPANY'S ABILITY TO MAINTAIN EFFICIENT MARKETING AND DISTRIBUTION OPERATIONS DOMESTICALLY AND INTERNATIONALLY; FUTURE WORLDWIDE POLITICAL, 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; EXCHANGE RATE FLUCTUATIONS; THE COMPANY'S ABILITY TO PROTECT ITS PROPRIETARY TECHNOLOGY; RISKS GENERALLY ASSOCIATED WITH NEW PRODUCT INTRODUCTION; PRODUCT PRICING; AND OTHER FACTORS DETAILED IN THE ANNUAL REPORT AND IN OTHER FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. IT IS NOT POSSIBLE TO IDENTIFY OR FORESEE ALL SUCH RISKS OR UNCERTAINTIES. CONSEQUENTLY, THE FOREGOING SHOULD NOT BE CONSIDERED AN EXHAUSTIVE STATEMENT OF ALL RISKS, UNCERTAINTIES OR POTENTIALLY INACCURATE ASSUMPTIONS RELATING TO SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY IS NOT OBLIGATED TO UPDATE OR REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES. The following information should be read in conjunction with the unaudited Consolidated Financial Statements and related notes included elsewhere in this Form 10-Q. The following information should also be read in conjunction with the Company's audited Consolidated Financial Statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended June 30, 2000, as contained in the Annual Report. OVERVIEW Since the second quarter of fiscal 2000, the Company has experienced a decline in revenues related to a sluggish demand for its software products and services. The Company believes that this decline is related to the continued industry-wide trend of delays in new business system purchases caused initially by the Year 2000 market dynamics and subsequently by a desire by potential customers to better understand the internet and the role of e-business solutions on their overall systems strategy. As a direct result of these market conditions and related sluggish demand, the Company recorded operating losses before non-recurring items of $7.1 million and $3.1 million in fiscal year 2000 and the three months ended September 30, 2000 (the "fiscal 2001 quarter"), respectively. The Company also chose to make several structural changes to discontinue certain business operations, write off non-performing assets and to restructure the Company to better focus on its core business strategy. In connection with these changes, the Company recorded a non-recurring charge of $3.0 million, pre-tax, in fiscal year 2000 and an additional $2.2 million, pre-tax, in the fiscal 2001 quarter. The combination of the sluggish demand causing declining revenues and the Company's decision to make structural changes resulted in net after tax losses of $10.2 million and $3.5 million in fiscal 2000 and the fiscal 2001 quarter, respectively. 10 11 As a result of the changing market conditions, the Company has been in the process of a transformation to enhance its product offerings beyond its traditional integrated enterprise resource planning software and services to include a comprehensive suite of integrated b2b e-business software and services, including CRM, on-line sales and service, web-driven channel management, supply chain and e-procurement solutions, and collaboration and integration products. In that regard, in fiscal 2000, the Company created its Frontstep subsidiary to develop the infrastructure and sales channels to support these new products and services and created its brightwhite subsidiary to provide related e-business consulting services. During fiscal year 2000 and the fiscal 2001 quarter, the Company invested heavily in the product development activities for the Company's e-business software products and capabilities, development of future releases of the Company's enterprise resource planning software and development of interfaces with third-party software products. The Company has also been investing in the infrastructure and sales and marketing activities to support the e-business initiatives and product offerings. In conjunction with these transformation efforts, the Company changed its name from Symix Systems, Inc. to Frontstep, Inc. after obtaining approval from the Company's shareholders at its most recent annual shareholders meeting held in November 2000. The Company will continue to offer integrated enterprise resource planning software and services through its Symix channel. RESULTS OF OPERATIONS Net Revenue. The Company's net revenue is derived primarily from licensing software, providing related services, including installation, implementation, training, consulting and systems integration and providing maintenance and support on a subscription basis. Revenue is accounted for in accordance with Statement of Position 97-2 on Software Revenue Recognition. Net revenue decreased $4.0 million, or 12.6%, to $28.0 million in the fiscal 2001 quarter from $32.1 million in the three months ended September 30, 1999 (the "fiscal 2000 quarter"). The net revenue mix for each fiscal quarter is shown in the table below (in thousands, except percentage data):
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------------- 2000 1999 ------------------ ----------------- License fees revenue $11,881 42.4% $13,392 41.8% Service, maintenance and support revenue 16,152 57.6% 18,679 58.2% ------- ----- ------- ----- Net revenue $28,033 100.0% $32,071 100.0% ======= ===== ======= =====
License fees revenue decreased 11.3% in the fiscal 2001 quarter from the fiscal 2000 quarter. The Company believes that the decline in net revenue in the fiscal 2001 quarter is due to the continued industry-wide trend of delays in new business system purchases caused initially by the Year 2000 market dynamics and subsequently by a desire by potential customers to better understand the internet and the role of e-business solutions on their overall systems strategy. Service, maintenance and support revenue decreased 13.5% in the fiscal 2001 quarter from the fiscal 2000 quarter. The decrease is primarily the result of the decrease in license activity during the fiscal 2001 quarter and similar decreases in the quarters of fiscal year 2000. Generally, maintenance and support contract renewals are billed annually and revenue is recognized ratably over the contract period, which is typically twelve months. Deferred revenue on the Company's balance sheet, which relates primarily to such maintenance and support contracts, decreased to $17.0 million at September 30, 2000 from $18.2 million at June 30, 2000, primarily as a result of decreases in maintenance renewal and the decreases in license fees revenue discussed above. Cost of Revenue. Total cost of revenue as a percentage of net revenue increased to 51.0% for the fiscal 2001 quarter from 44.8% for the fiscal 2000 quarter. 11 12 Cost of license fees revenue includes royalties, amortization of capitalized software development costs and software delivery expenses. Cost of license fees revenue increased $0.2 million, or 4.9%, to $4.4 million in the fiscal 2001 quarter from $4.2 million in the fiscal 2000 quarter and as a percentage of license fees revenue, increased to 37.4% in the fiscal 2001 quarter from 31.6% in the fiscal 2000 quarter. The percentage increase is primarily attributable to the decline in license fees revenue affecting certain fixed and related costs. Cost of service, maintenance and support revenue 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 revenue decreased $0.3 million, or 2.8%, to $9.8 million in the fiscal 2001 quarter from $10.1 million in the fiscal 2000 quarter and as a percentage of service, maintenance and support revenue, increased to 60.9% in the fiscal 2001 quarter from 54.2% in the fiscal 2000 quarter. The percentage increase is primarily attributable to a decline in service revenue resulting from sluggish license fees revenue in preceding quarters and a related decrease in utilization of services personnel and to the Company's infrastructure investments supporting its e-business initiatives. Selling, General and Administrative Expenses. Selling, general and administrative expenses consist of personnel, facilities and related overhead costs, together with other operating costs of the Company, including advertising and promotional costs. Selling, general and administrative expenses increased $0.7 million, or 5.8%, to $12.3 million in the fiscal 2001 quarter from $11.6 million in the fiscal 2000 quarter. Such expenses as a percentage of net revenue increased to 43.7% in the fiscal 2001 quarter from 36.1% in the fiscal 2000 quarter. The percentage increase is primarily due to the impact of the decline in the Company's net revenues and the costs associated with the Company's transformation discussed above. Selling, general and administrative expenses decreased $5.5 million sequentially from the three months ended June 30, 2000 primarily as a result of the restructuring and other changes described under Non-Recurring Charges below. Research and Development. Research and development expenses include personnel and related overhead costs for product development, enhancement, upgrades, quality assurance and testing. Total research and development expenses, including amounts capitalized, increased $0.4 million or 7.7%, to $5.1 million for the fiscal 2001 quarter from $4.7 million for the fiscal 2000 quarter and increased as a percentage of net revenues to 18.2% in the fiscal 2001 quarter from 14.8% in the fiscal 2000 quarter. Increases in the amount of such expenses and as a percentage of net revenues are due primarily to the continued investment in the Company's e-business software products and capabilities, development of future releases of the Company's enterprise resource planning software and development of interfaces with third-party software products. The Company capitalized research and development costs of $1.4 million during the fiscal 2001 quarter and $1.1 million during the fiscal 2000 quarter. Development costs capitalized in a given period are dependent upon the nature and status of the development process. Upon general release of a product, related capitalized costs are amortized over three years and recorded as license fee cost of revenue. Non-recurring Charges. In July 2000, the Company announced several structural changes to discontinue certain business operations, write off non-performing assets and to restructure the Company to better focus on its core business strategy. These changes included divesting of the Company's FieldPro subsidiary, discontinuing operations of its e-Mongoose subsidiary, consolidating the Company's product development organizations and restructuring the Company's sales channels. In connection with this announcement, the Company recorded a non-recurring charge of $3.0 million, pre-tax, in the three months ended June 30, 2000 and an additional $2.2 million, pre-tax, in the fiscal 2001 quarter. The non-recurring charge incurred in the fiscal 2001 quarter primarily related to employee actions taken by the Company and costs related to those employee actions associated with the changes discussed above. Of the total $2.2 million non-recurring charge incurred in the fiscal 2001 quarter, $0.9 million is accrued as of September 30, 2000 for such charges expected to be paid in future quarters. 12 13 Provision (Benefit) for Income Taxes. The provision (benefit) for income taxes for the fiscal 2001 and 2000 quarters reflects an effective tax rate of 31% and 39%, respectively. The effective tax rate in the fiscal 2001 quarter differs from the expected corporate tax rate primarily due to a valuation allowance offset to net operating losses of certain foreign subsidiaries, foreign taxable earnings in countries with higher effective tax rates and the non-deductibility of the amortization of intangibles. QUARTERLY RESULTS The Company's results of operations have fluctuated on a quarterly basis. The Company's expenses, with the principal exception of sales commissions and certain components of cost of revenue, are generally fixed and do not vary with revenue. As a result, any shortfall of actual revenue in a given quarter would adversely affect net earnings for that quarter by a significant portion of the shortfall. LIQUIDITY AND CAPITAL RESOURCES During the fiscal 2001 quarter, the Company used $7.7 million of cash. Cash was used primarily to fund the Company's pre-tax loss of $5.2 million, which included the non-recurring charges described above. Cash was also used for the payment of $2.5 million on the PSI acquisition note, the increase in accounts receivable of $1.3 million and other working capital increases of $1.8 million. During the fiscal 2001 quarter, borrowings under the Credit Facility increased from $3.0 million to $6.8 million. As of September 30, 2000, the Company had cash and cash equivalents of $4.2 million and working capital of $18.8 million. In addition to its present working capital, the Company has a $15.0 million secured revolving bank line of credit that expires in fiscal 2002. The line of credit is secured primarily by the Company's trade accounts receivable and certain other assets. As of September 30, 2000, $6.8 million was drawn under the line of credit to fund the Company's working capital needs. As of September 30, 2000, the Company was not in compliance with certain covenants under this agreement as a result of its reported losses for the quarter ended as of that date. The Company's bank has proposed certain amendments to the Credit Facility and has provided a waiver relating to noncompliance upon execution of the proposed amendments. The noncompliance does not relate to any payment due under the Credit Facility. The waiver has been granted for the period June 30, 2000, (the initial date of noncompliance) to the date of the execution of the amendment. Execution of the amendment is solely within the discretion of the Company. During the second quarter of fiscal 2001, the Company intends to execute the amendment if it is unable to obtain alternative financing that is more favorable. During the first quarter of fiscal 2001, the Company explored alternative credit arrangements with its current bank and with other banks and credit institutions and has received several proposals that are similar to the proposal made by the Company's current bank. The Company is focusing on one of these proposals and is currently pursuing completion of a new credit facility that would provide a line of credit of up to $20 million for a period of three years. Availability under this proposed credit facility would be based on qualifying accounts receivable and will be secured by the Company's trade accounts receivable. The Company would be subject to customary terms and conditions, including a financial covenant relating to maintenance of net worth. The Company expects to complete the execution of this new credit facility during the second quarter of fiscal 2001. The Company anticipates that cash on hand, cash flow from operations and available borrowings as described above will be sufficient to satisfy expected cash needs for the next 12 months. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Foreign Exchange. During the fiscal 2001 quarter, Frontstep's revenues originating outside the United States were 22.9% of net revenues and during the fiscal 2000 quarter were 20.4% of net revenues. International revenues for the fiscal 2001 and 2000 quarters were broken out by geographic region as follows: Europe, 11.8% and 10.0% of net revenues, respectively; and Asia Pacific, 11.1% and 10.4% of net revenues, respectively. International sales are made mostly from the Company's foreign sales subsidiaries in the local countries and are typically denominated 13 14 in the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. The Company's exposure to foreign exchange rate fluctuations arises in part from intercompany accounts in which costs of software, including certain development costs, incurred in the United States are charged to the Company's foreign sales subsidiaries. These intercompany accounts are typically denominated in the functional currency of the foreign subsidiary in order to centralize foreign exchange risk with the parent company in the United States. The Company is also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and adversely impact overall profitability. To date, the Company has not realized material fluctuations due to foreign exchange rates. Due to the growth of the international business, however, management is reviewing the possibility of a foreign exchange hedge program in order to minimize this particular exposure. 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. As previously reported in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (the "Form 10-Q"), the Company sold its Series A Convertible Participating Preferred Shares in a private placement to a group of unaffiliated accredited investors (the "Investors") on May 10, 2000. An Investor Rights Agreement, dated as of May 10, 2000, among the Company and the Investors was filed as Exhibit 4(c) and Exhibit 10(b) to the Form 10-Q. Subsequent to the filing of the Form 10-Q, the parties executed an amendment to the Investor Rights Agreement, dated August 15, 2000 (the "Amendment"), which was filed as Exhibit 4(c) to the Company's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on August 30, 2000. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. (a) As of September 30, 2000, the Company was not in compliance with certain covenants under the Credit Facility as a result of its reported losses for the quarter ended as of that date. The Company's bank has proposed certain amendments to the Credit Facility and has provided a waiver relating to noncompliance upon execution of the proposed amendments. The noncompliance does not relate to any payment due under the Credit Facility. The waiver has been granted for the period June 30, 2000, (the initial date of noncompliance) to the date of the execution of the amendment. Execution of the amendment is solely within the discretion of the Company. During the second quarter of fiscal 2001, the Company intends to execute the amendment if it is unable to obtain alternative financing that is more favorable. During the first quarter of fiscal 2001, the Company explored alternative credit arrangements with its current bank and with other banks and credit institutions and has received several proposals that are similar to the proposal made by the Company's current bank. The Company is focusing on one of these proposals and is currently pursuing completion of a new credit facility that would provide a line of credit of up to $20 million for a period of three years. Availability under this proposed credit facility would be based on qualifying accounts receivable and will be secured by the Company's trade accounts receivable. The Company would be subject to customary terms and conditions, including a financial covenant 14 15 relating to maintenance of net worth. The Company expects to complete the execution of this new credit facility during the second of quarter fiscal 2001. (b) Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. 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. The Company filed a current report on Form 8-K, dated August 15, 2000, to report under Item 5 (Other Events) that the registrant and unaffiliated accredited investors (the "Investors") executed an amendment dated August 15, 2000 to the Investor Rights Agreement dated as of May 10, 2000 among the registrant and the Investors. 15 16 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. FRONTSTEP, INC. Dated: November 14, 2000 By: /s/ Daniel P. Buettin ----------------- -------------------------- Daniel P. Buettin Vice President and Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer) 16 17 INDEX TO EXHIBITS
Exhibit No. Description Page - ----------- ----------- ---- 3(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to Frontstep, Inc. (f/k/a "Symix Systems, Exhibit 3(a)(1) to the Company's Annual Inc.") (the "Company") (as filed with the Report on Form 10-K for the fiscal year Ohio Secretary of State on February 8, ended June 30, 1997 1991) 3(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation of the Company Exhibit 3(a)(2) to the Company's Annual (as filed with the Ohio Secretary of Report on Form 10-K for the fiscal year State on July 16, 1996) ended June 30, 1997 3(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation, as amended of Exhibit 3(a)(3) to the Company's Quarterly the Company (as filed with the Ohio Report on Form 10-Q for the fiscal quarter Secretary of State on May 10, 2000) ended March 31, 2000 3(a)(4) Certificate of Amendment to the Amended Filed Herein Articles of Incorporation, as amended of the Company (as filed with the Ohio Secretary of State on November 8, 2000) 3(a)(5) Amended Articles of Incorporation, as Filed Herein amended of the Company (reflecting amendments through November 8, 2000 for purposes of Securities and Exchange Commission reporting compliance only) 3(b) Amended Regulations of the Company Incorporated herein by reference to Exhibit 3(b) to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on February 12, 1991 (Registration No. 33-38878) 4(a)(1) Amended Articles of Incorporation of the Incorporated herein by reference to Company (as filed with the Ohio Secretary Exhibit 3(a)(1) to the Company's Annual of State on February 8, 1991) Report on Form 10-K for the fiscal year ended June 30, 1997 4(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation of the Company Exhibit 3(a)(2) to the Company's Annual (as filed with the Ohio Secretary of Report on Form 10-K for the fiscal year State on July 16, 1996) ended June 30, 1997
18
Exhibit No. Description Page - ----------- ----------- ---- 4(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to Articles of Incorporation, as amended of Exhibit 3(a)(3) to the Company's Quarterly the Company (as filed with the Ohio Report on Form 10-Q for the fiscal quarter Secretary of State on May 10, 2000) ended March 31, 2000 4(a)(4) Certificate of Amendment to the Amended Filed Herein at Exhibit 3(a)(4) Articles of Incorporation, as amended of the Company (as filed with the Ohio Secretary of State on November 8, 2000) 4(a)(5) Amended Articles of Incorporation, as Filed Herein at Exhibit 3(a)(5) amended of the Company (reflecting amendments through November 8, 2000 for purposes of Securities and Exchange Commission reporting compliance only) 4(b) Amended Regulations of the Company Incorporated herein by reference to Exhibit 3(b) to the Company's Registration Statement on Form S-1, as filed with the Securities and Exchange Commission on February 12, 1991 (Registration No. 33-38878) 4(c) Share Exchange Agreement, dated January Incorporated herein by reference to 9, 1997 Exhibit 99 to the Company's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on January 24, 1997 4(d) Investor Rights Agreement, dated as of Incorporated herein by reference to May 10, 2000, among the Company, the Exhibit 4(c) to the Company's Quarterly Investors identified therein and Lawrence Report on Form 10-Q for the fiscal quarter J. Fox ended March 31, 2000 4(e) Amendment to Investor Rights Agreement, Incorporated herein by reference to dated as of August 15, 2000, among the Exhibit 4(c) to the Company's Current Company, the Investors identified therein Report on Form 8-K, as filed with the and Lawrence J. Fox Securities and Exchange Commission on August 30, 2000 4(f) Warrant for the Purchase of Shares of Incorporated herein by reference to Common Stock of the Company issued to Exhibit 4(d) to the Company's Quarterly Morgan Stanley Dean Witter Venture Report on Form 10-Q for the fiscal quarter Partners IV, L.P., and Exhibit A, ended March 31, 2000 identifying other identical warrants issued to the Investors identified on Exhibit A, for the number of common shares identified on Exhibit A
19
Exhibit No. Description Page - ----------- ----------- ---- 10(a) Amendment to Investor Rights Incorporated herein by reference to Agreement, dated as of August 15, 2000, Exhibit 4(c) to the Company's Current among the Company, the Investors Report on Form 8-K, as filed with identified therein and Lawrence J. Fox the Securities and Exchange Commission on August 30, 2000 27 Financial Data Schedule Filed Herein
EX-3.A.4 2 l84692aex3-a_4.txt EXHIBIT 3(A)(4) 1 EXHIBIT 3(a)(4) 2 STATE OF OHIO OHIO SECRETARY OF STATE, J. KENNETH BLACKWELL 626239 It is hereby certified that the Secretary of State of Ohio has custody of the business records for FRONTSTEP, INC. and, that said business records show the filing and recording of: Documents(s) Document No(s): DOMESTIC/AMENDMENT TO ARTICLES 200031402000 [SECRETARY OF STATE LOGO] United States of America State of Ohio Office of the Secretary of State Witness my hand and the seal of the Secretary of State at Columbus, Ohio this 8th day of November, A.D. 2000. /s/ J. Kenneth Blackwell Ohio Secretary of State 3 -Expedite this form-- [THE SEAL OF PRESCRIBED BY J. KENNETH BLACKWELL THE SECRETARY OF STATE OF OHIO] Please obtain fee amount and mailing [X] Yes 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 SHAREHOLDERS TO ARTICLES OF SYMIX SYSTEMS, INC. - -------------------------------------------------------------------------------- (Names of Corporation) 626239 ----------------------------- (charter number) Daniel P. Buettin, who is the Secretary - --------------------- -------------------------- (name) (title) of the above named Ohio corporation organized for profit, does hereby certify that: (Please check the appropriate box and complete the appropriate statements.) [X] a meeting of the shareholders was duly called and held on November 8, 2000, at which meeting a quorum the shareholders was present in person or by proxy, and that by the affirmative vote of the holders of shares entitling them to exercise 89.91% of the voting power of the corporation, [ ] in a writing signed by all the shareholders who would be entitled to notice of a meeting held for that purpose, the following resolution to amend the articles was adopted: RESOLVED, that Article FIRST of the Company's Amended Articles of ------------------------------------------------------------------------ Incorporation, as amended, be, and it hereby is, deleted in its entirety ------------------------------------------------------------------------ and amended to read as follows: ------------------------------------------------------------------------ FIRST: The name of the corporation shall be Frontstep, Inc. --------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ IN WITNESS WHEREOF, the above named officer, acting for and on behalf of the corporation, has hereunto subscribed his name on November 8, 2000 --------- ---------------- (his/her) (date) Signature: /s/ Daniel P. Buettin ------------------------------- Title: Secretary ------------------------------- 125-AMDS PAGE 1 OF 1 Version: 7/15/99 EX-3.A.5 3 l84692aex3-a_5.txt EXHIBIT 3(A)(5) 1 EXHIBIT 3(a)(5) 2 AMENDED ARTICLES OF INCORPORATION OF FRONTSTEP, INC. FIRST: The name of the corporation shall be Frontstep, 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 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 3 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 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. 4 (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 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 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 5 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 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 6 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 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. 7 (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 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 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 8 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. 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 9 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: "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. 10 "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. "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 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. 11 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. 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-27 4 l84692aex27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FRONTSTEP, INC. FORM 10-Q FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUN-30-2001 JUL-01-2000 SEP-30-2000 4,163 0 39,816 1,727 838 51,403 24,554 16,552 88,788 32,577 6,982 0 0 78 34,044 88,788 11,881 28,033 4,445 14,287 18,981 (381) 14 (5,162) (1,613) (3,549) 0 0 0 (3,549) (0.47) (0.47)
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