0000950152-01-504739.txt : 20011009
0000950152-01-504739.hdr.sgml : 20011009
ACCESSION NUMBER: 0000950152-01-504739
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 13
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010928
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: FRONTSTEP INC
CENTRAL INDEX KEY: 0000872443
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372]
IRS NUMBER: 311083175
STATE OF INCORPORATION: OH
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-19024
FILM NUMBER: 1746907
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-K
1
l90205ae10-k.txt
FRONTSTEP, INC. 10-K
1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
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
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FRONTSTEP, INC.
(Exact name of registrant as specified in its charter)
OHIO 31-1083175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2800 CORPORATE EXCHANGE DRIVE
COLUMBUS, OHIO 43231
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (614) 523-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR
VALUE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant, based on the closing price for the
registrant's common stock in the Nasdaq National Market on September 25, 2001,
was approximately $17,408,013. This calculation does not reflect a determination
that certain persons are affiliates of the registrant for any other purpose. As
of September 24, 2001, 7,568,218 shares of the issuer's common stock, without
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10,11,12 and 13 of Part III incorporate information by reference from
the definitive proxy for the registrant's Annual Meeting of Stockholders to be
held on November 7, 2001.
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2
FRONTSTEP, INC. AND SUBSIDIARIES
FISCAL YEAR 2001 FORM 10-K AND ANNUAL REPORT
INDEX
PAGE
----
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Securities Holders....... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 22
Item 8. Financial Statements and Supplementary Data................. 23
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure........................................ 43
PART III
Item 10. Directors and Officers of the Registrant.................... 43
Item 11. Executive Compensation...................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 43
Item 13. Certain Relationships and Related Transactions.............. 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 44
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based on current beliefs, plans, objectives and
expectations of the Company's management. The words "expect," "anticipate,"
"intend," "plan," "believe," "estimate," "would" and similar expressions
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks and uncertainties that could
cause actual results to differ materially from those reflected in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Factors That May Affect Future Results and Market Price of Stock". Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's opinions only as of the date hereof. We undertake no
obligation to revise or update or publicly release the results of any revision
or update to these forward-looking statements. Readers should carefully review
the risk factors described in other documents we file from time to time with the
Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q
to be filed in the coming year.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Frontstep, Inc. is a leading global provider of integrated enterprise
software solutions for mid-sized manufacturing and distribution companies and
business units of larger companies. Until November 2000, the Company was known
as Symix Systems, Inc. The name was changed to reflect an increasingly more
diverse product offering than historically offered that redefines the business
system needs of mid-market companies as they seek to be more efficient and to
collaborate more effectively with their customers and suppliers in an
increasingly more competitive and global environment. Throughout this document,
we may refer to our company as "Frontstep" or as the "Company".
Since the second quarter of fiscal 2000, Frontstep, and the enterprise
applications software industry in general, have experienced changing market
conditions resulting from a recession in many manufacturing industries and a
lessening of demand for traditional enterprise software. Well before these
market changes began to affect our results of operations, we began to enhance
our products and services to meet the new business systems challenges that our
customers are facing.
The software solutions we provide to our customers include a comprehensive
suite of integrated software and services that (1) support the traditional back
office management and resources of an enterprise ("ERP"), (2) support customer
relationship management ("CRM") and other front office business activities and
(3) support an enterprise's supply chain management activities. The software
products associated with each of these solutions typically provide a customer
with a comprehensive business system that is typically their primary system.
Over the last two years, we have advanced the architecture of these products to
include the use of the Internet as a backbone that provides an enterprise the
ability to collaborate effectively with their customers and suppliers in a
global economy. More specifically, we develop, market and support the following
products:
Extended Enterprise Resource Planning. Traditional ERP applications
for discrete manufacturing and industrial distribution with an add-on suite
of products that allows for collaborative operations and financial business
processes across an entire enterprise with analytical capabilities that
turn data into information that support the business management of an
enterprise.
Front office. A suite of products that foster customer loyalty and
retention by combining customer relationship management with order
management capabilities such as configuration, advanced pricing and rapid
order entry.
Supply chain. A suite of products that provide a solution for order
management with inventory and capacity visibility and production scheduling
based on actual material and capacity constraints. These products allow for
dynamic adjustments for unplanned events, exceptions and disruptions.
Enterprise Application Integration. Open applications architecture
that allows for the continued use of legacy systems in a shared, integrated
environment with newer, network-centric processes and systems.
Our reputation for successful installations and implementations of our
software products is a function of our discipline and product capabilities and
sets the Company apart from its competition. Our solutions are intended to be
rapidly deployable, scalable, flexible and reliable, resulting in a comparative
low total cost of ownership and a rapid return on investment. We believe that
our approach to solving customer business systems issues in this manner results
in enhanced customer relationships, increased productivity, improved operating
efficiency, including maximizing supply chain performance and comparative lower
total cost of ownership. More specifically:
Improved customer relationships. The Company's enterprise, front
office and supply chain solutions integrate customer requirements with
sales, marketing, engineering, manufacturing and customer service
information, in order to achieve more accurate planning and scheduling
decisions, rapid
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response times, better on-time deliveries, improved order fulfillment,
improved field service delivery and overall customer satisfaction.
Improved supply chain performance. The Company's digital supply chain
approach utilizes Internet technology in a distributed environment to
provide real-time collaborative multi-site order planning and visibility
for an enterprise with its important suppliers and customers. An improved
supply chain results in enhanced customer service, improved asset
management such as lower inventories and receivables and lower transaction
costs.
Reduced total cost of ownership. The Company's solutions are designed
to minimize the total cost of implementing, operating and maintaining
enterprise systems and to maximize operating efficiency, thereby providing
tangible return on investments made by the customer. Our software runs on
standard hardware platforms, providing users with the flexibility to
leverage existing technology systems and to optimize system configurations.
The modular design of the Company's software allows manufacturers and
distributors to implement systems quickly and easily and provides the
flexibility to add additional functionality or change business process
models as customer needs and business requirements change.
Reduced time to benefit. We believe our ability to implement software
solutions rapidly and to reduce our customer's time to benefit is a key
competitive advantage. The Company attempts to reduce implementation time
in three ways. First, we employ a structured implementation methodology
that separates the solution implementation process into distinct and
manageable phases, in order to ensure coordination throughout the
implementation process. Second, our proprietary business process modeling
tool enables customers to map the appropriate systems and procedures
necessary to increase the speed of the deployment process. Third, we
maintain strategic relationships with numerous business partners, which
enable the Company to provide a solution that addresses enterprise system
needs in an integrated fashion with minimal customer disruption.
As a result of these factors, which we believe sets us apart from our
competition, Frontstep has been one of the mid-market leaders in the enterprise
software industry for more than 20 years, particularly with manufacturing
companies and more recently with distribution companies. We provide our
customers with the software products we have developed, professional consulting
services associated with the installation of our products and related training
for customer personnel. We have more than 4,400 customer sites and a worldwide
network of 28 offices in 16 countries. Our offices are equipped to provide our
services, support our products and, in several countries around the world,
translate our products into other languages. The Company's principal executive
offices are located at 2800 Corporate Exchange Drive, Columbus, Ohio 43231, and
its telephone number is (614) 523-7000.
THE ENTERPRISE APPLICATIONS SOFTWARE INDUSTRY
We are in the enterprise applications software industry. This industry is
large and has many companies that provide various types of software to meet
general or specific business needs. We develop and market products that solve
business system needs for the manufacturing and distribution industries,
specifically for mid-sized companies or divisions of larger companies. This
portion of the enterprise applications market has been characterized
historically as enterprise resource planning. Enterprise resource planning has
generally been available since the early 1990's when corporate reengineering
began and primarily supports the control and management of operations of a
manufacturing enterprise. It has its roots with material requirements planning
software and inventory control software that were utilized in the 1980's as a
means of managing inventories production schedules. More recently, our industry
has been described as Collaborative Commerce by industry analysts, to more
accurately reflect a changing business systems model for manufacturing and
distribution companies.
Our customers do business in an extremely competitive manufacturing
environment. Changing technologies and the prospects for growth of
business-to-business commerce on the Internet are dramatically altering the
manner in which these customers will do business in the coming years. These
changes are also impacting business systems requirements to support these new
ways of doing business. We believe that maximizing manufacturing efficiency and
productivity, managing customer relationships, managing
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distribution channels, improving procurement and supplier relationships and
improving performance of supply chains are essential requirements for the
economy of the 21st century as companies seek to increase global reach,
innovation, productivity and profitability.
We believe that mid-market companies will rethink their business models and
change the way they do business to remain competitive. As they change, business
systems requirements will include an enterprise management software solution
that integrates front office capabilities such as e-business, customer
relationship management and supply change management, with more traditional ERP
applications. We also believe that, in the mid-market, the solution must be
rapidly deployable, scalable and flexible, resulting in a comparative low total
cost of ownership and rapid return on investment. Since 1998, the Company has
been investing in the development of such software products and capabilities and
the open architecture required to meet these new challenges for our customers.
According to AMR Research, a software market analysis firm, the worldwide
marketplace for each of the major product markets and projected annual growth
rates are estimated to be approximately as follows:
WORLDWIDE WORLDWIDE
SOFTWARE MARKET REVENUES 2000 REVENUES 2004 GROWTH RATE
--------------- ------------- ------------- -----------
(IN BILLIONS)
e-commerce..................................... $ 2.0 $17.0 53%
Supply chain management........................ 4.0 23.0 41%
Customer relationship management............... 5.0 23.0 36%
Enterprise resource planning................... 16.0 24.0 8%
STRATEGY
Our objective is to become the leading provider of collaborative software
solutions for mid-sized manufacturing and distribution companies and
subsidiaries and divisions of larger companies. Our customer focus includes both
single location and multi-location manufacturers and distributors, including
those with facilities around the world. Our product focus includes our
traditional ERP solution now extended to incorporate front office and
supply-chain solutions that will meet all of an enterprise's primary business
system requirements. The key components of our strategy include:
Deliver a comprehensive integrated enterprise solution. We believe
that we have one of the broadest product footprints available to mid-market
manufacturing and distribution companies. While we are well known for our
ERP software solution, we have invested heavily over the last several years
in product acquisition and new product development of this comprehensive
product suite. Our efforts have also included the integration of these
products to facilitate ease of use. Our belief is that mid-market companies
typically have limited resources and prefer a single vendor to provide them
with their primary business system. As a result, we believe that we can
compete with larger, better capitalized competitors on both price and
functionality of our offerings.
Embrace a simple technology platform for ease of use. We are
committed to delivering a simple, but powerful technology solution to
better manage and leverage our costs of development and maintenance and to
simplify our customers' information technology environment. We have chosen
Microsoft as our primary technology platform for all of our newer
network-based products. This standard technology, used by many of the
Company's customers in other aspects of their business, allows customers to
leverage their technology investments and capabilities by using our
software. Our ERP software uses the Progress Software Corporation database
and tools and we have standardized and simplified the integration of these
two technologies for our customers. We intend to continue leveraging our
product technology and costs from the advancements of each of our
technology platform providers.
Provide superior installation and support services. We are committed
to serving our customers beyond the sale of our products with excellence in
professional services and support. The Company's worldwide professional
services organization, which employs approximately 200 consultants and
managers, uses a structured implementation methodology. Services include
project management,
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implementation, product education, technical consulting, programming and
system integration services and ongoing maintenance and support. Our
methodology and capabilities allow customers to rapidly and efficiently
install and maximize the benefits of the Company's software products. The
Company considers its ability to implement its software solution rapidly a
key competitive factor.
Leverage our leadership position in the mid-market. We believe that
we are a leading provider of enterprise system solutions to mid-market
manufacturers. We have been serving the mid-market for 22 years and have
more than 300,000 users at 4,400 customer sites around the world. We
service and support these customers from our worldwide network of 28
offices in 16 countries. We intend to leverage our experience and customer
base to enhance our leadership position in the mid-sized manufacturing and
distribution market.
Build a global alliance of partners. Over the last few years, we have
developed alliances with strategic partners for technology to expand the
breadth of our product capabilities, to expand our ability to market and
sell our products and to support our customers after the product sale.
Microsoft, Progress, Cognos Incorporated and PricewaterhouseCoopers are two
notable alliances we have undertaken to date. We also have an exceptional
network of preferred business partners around the world that provide
consulting and installation services to expand our ability to serve our
customers. We believe these alliances bring the best of many disciplines to
our customers while allowing us to maintain control over our costs of doing
business. We intend to continue to pursue additional important alliances
with industry leading companies that will further enhance the Company's
offerings and capabilities.
Advance our products rapidly. We have rapidly advanced our products
and capabilities as technologies and business systems requirements have
dramatically changed over the last few years. Since fiscal 1998, we have
heavily invested in both the acquisition and development of our products
and product capabilities. We believe that over $50 million has been
invested in acquired and developed software along with research and
development expenditures. We are committed to ensuring that the Company's
products are technologically advanced and best-of-class in the mid-market.
PRODUCTS
The software solutions we provide to our customers include a comprehensive
suite of integrated software and services that (1) support the traditional back
office management and resources of an enterprise through ERP, (2) support
customer relationship management and other front office business activities and
(3) support an enterprise's supply chain management activities. The software
products associated with each of these solutions are comprised of the following:
Syteline ERP. SyteLine is the Company's hallmark Enterprise Resource
Planning product for mid-sized discrete manufacturing companies that
provides a comprehensive operations and financial business process solution
to an enterprise. SyteLine's functionality includes support for customer
service, order processing, inventory control and purchasing, manufacturing
production management, production planning & scheduling, cost management,
project control, accounting functions and financial administration.
SyteLine ERP has been configured to operate with add-on capabilities
that include:
- Configuration -- product configuration for sales order and
manufacturing
- Advanced Planning and Scheduling (APS) -- real-time inventory and
capacity planning
- Business Intelligence -- data analysis and charting
- Workflow Automation -- business process definition and execution
- Advanced Forms -- design and deployment of custom laser printed
forms
- Business Process Management -- process documentation tool for
implementation and ISO compliance
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SyteLine is designed to operate with all of our other products to
create a collaborative and integrated business management solution to meet
all of the front office and back office needs of an enterprise.
SyteDistribution is the Company's ERP product designed for mid-sized
distributors to meet their unique operational process demands to better
control inventories, shipments and orders among enterprises.
Frontstep Front Office Solutions. Frontstep's Front Office solution
is a single interface point for customers, employees, sales representatives
and channel partners to view and execute marketing and sales activity
pertaining to prospects and customer orders. Front Office Solutions improve
customer service, lower costs and increases revenues. Front Office
Solutions are integrated with SyteLine and are architected for integration
with other ERP systems.
Front Office products include:
- Customer Relationship Management ("CRM") -- sales force automation
(SFA), contact & customer management, marketing, customer service
and order management tools
- Active Link -- application integration, business process automation
and collaboration platform
- Customer Center -- B2B storefront
- Intelligence -- business intelligence tools and data marts for data
mining
- Web Configuration -- product and sales order configuration
- Advanced Pricing -- web based pricing application
Frontstep Supply Chain Solutions. Frontstep's Supply Chain Solutions
provide the fastest way for companies to align supply with demand and
deliver on time. Our solution provides the capability to improve customer
service by synchronizing customer orders with inventory and capacity. This
solution lowers operational costs and improves on-time deliveries by
automating inventory sourcing and manufacturing planning activities through
real-time synchronization of demand and supply across multi-site operations
and suppliers.
Supply Chain products include:
- Supply Chain Center -- starting point when accessing sourcing and
promising engines to balance supply and demand between multiple
sites and suppliers
- Intelligent Sourcer -- sourcing engine between multiple sites or
suppliers based on rules to balance demand and supply
- Point Promiser -- promising engine for Available-to-Promise (ATP)
collaboration that balances inventory availability
- Capacity Promiser -- promising engine for Capacity Promise (CP)
collaboration that balances selected materials and rate based
capacity
- Advanced Planning and Scheduling (APS) -- promising engine for
Capable-to-Promise (CTP) collaboration that balances materials and
capacity in real-time, connects to other promising engines for
cascading supply chain synchronization
Frontstep Knowledge Zone. Frontstep Knowledge Zone is our
subscription-based, on-line education service. Users can access education
for Frontstep solutions anytime and anywhere they have Internet access. It
is a convenient, low cost alternative to hardcopy training manuals and
classroom education.
SERVICES AND SUPPORT
We maintain a worldwide professional services organization of over 200
employees and a network of more than 50 business partners and strategic
alliances which offer to our customers a full range of services to support
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installation, ongoing operations and to maximize the benefits of our software
products. These services include, but are not limited to, project management,
implementation support, product education, technical consulting, programming and
system integration services and ongoing maintenance and product support. We
employ our own structured services methodology to manage and support customer
implementation.
Our services are priced separately and fees for our services are not
included in the price for our software products. These services are billed as
incurred. Although we attempt to minimize customization of our software
products, we do provide professional programming services to modify our software
products to address specific customer requirements. These modifications may
include designing and programming complete applications or integrating our
software products with legacy systems.
Maintenance and support services include product enhancements and updates,
upgrades to new versions, telephone support during extended business hours,
full-time emergency support and access to our customer support service center on
our Internet home page. Fees for maintenance and support services generally are
billed annually in advance and revenue is deferred and recognized ratably over
the term of the maintenance and support agreement.
SALES AND DISTRIBUTION
We currently license our software to customers primarily based on a license
fee for each concurrent session or concurrent execution of its software
products. We receive additional license fees whenever a customer increases the
number of concurrent sessions, usually as a result of the growth of the
customer's business or expansion to other sites. Sales opportunities are
generated through a combination of in-house telemarketing, leads from consulting
partners, advertising, trade shows and direct contacts by sales representatives.
Our product offerings are sold to customers through two primary channels:
Direct sales. This sales channel is comprised of direct sales
representatives selling to manufacturers and distributors and focuses on
selling the total business system under the Frontstep brand name. This
channel targets the Company's traditional mid-sized manufacturing and
distribution markets. We presently have over 50 direct sales
representatives located around the world.
Business partners. This sales channel is comprised of more than 50
third-party business partner firms that resell the Company's entire suite
of products. These partners include consulting firms and application
service providers that specialize in the Company's products.
We derive our revenues and service our customers in 16 countries around the
world. We derived approximately 22%, 20% and 22% of our fiscal 2001, 2000 and
1999 revenues, respectively, from sales outside of North America. The
distribution of total revenue, operating income and identifiable assets
attributable to each of our geographic market areas for fiscal years 2001, 2000
and 1999 were as follows (in thousands):
ASIA/
NORTH AMERICA EUROPE PACIFIC
------------- ------- -------
FISCAL 2001
Total revenue....................................... $ 92,718 $14,736 $10,832
Operating income (loss)............................. (23,980) (189) (2,238)
Long-lived assets................................... 6,822 312 512
FISCAL 2000
Total revenue....................................... $103,065 $13,941 $11,902
Operating income (loss)............................. (5,737) (3,904) (1,155)
Long-lived assets................................... 7,135 383 468
FISCAL 1999
Total revenue....................................... $100,950 $16,400 $11,722
Operating income (loss)............................. 7,728 (1,383) 709
Long-lived assets................................... 7,330 392 475
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PRODUCT DEVELOPMENT
We devote a significant percentage of our resources to identifying the
needs of our customers in developing new features and enhancements to existing
products and designing and developing new products. We perform all of our
development activities with our own professional development and product support
organization of more than 250 professionals located at the Company's facility in
Columbus, Ohio and in other development centers around the world.
Our practice is to release updates and major enhancements on a regular
basis since the market for our products is characterized by rapid technological
change, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new product
introductions and enhancements.
We are committed to product and technological excellence and to meeting the
changing needs of mid-sized customers. As a result, we commit a substantial
portion of our revenues to research and development and to building new
products, which are typically capitalized as developed. Total research and
product development costs, including amounts capitalized, were $18.4 million,
$22.7 million and $15.1 million for the fiscal years ended June 30, 2001, 2000
and 1999, respectively. Additions to capitalized software were $5.1 million,
$7.0 million and $4.9 million for the same respective periods and were
capitalized in accordance with applicable accounting standards.
COMPETITION
The market for enterprise solutions is intensely competitive, rapidly
changing and highly fragmented, which has become even more fragmented with
technology changes and the perceived opportunities for e-business applications.
This market is also significantly affected by new product offerings and other
market activities. We have a large number of competitors that vary in size,
computing environments and overall product scope. Within our market, the primary
competition comes from independent software vendors in three distinct groups: 1)
traditional enterprise software developers, including J.D. Edwards & Co., QAD,
Inc., Oracle Corporation, IFS and Epicor Software Corporation; (2) large
software developers focusing on more specialized point solutions such as CRM
software or supply chain management; and (3) newer companies specializing in
internet commerce and e-business solutions.
A number of companies offer products that are similar to our products and
are directed at the market for enterprise software and compete against us on a
regular basis. Many of the these competitors have more established and larger
marketing and sales organizations, significantly greater financial, technical
and other resources and a larger installed base of customers than the Company.
We believe that we compete favorably against our competition in the following
areas, which we consider to be the most important considerations for potential
customers:
- knowledge of and experience with mid-sized businesses
- focus on discrete manufacturing and industrial distribution vertical
markets
- breadth of our comprehensive enterprise application solutions
- collaboration and workflow automation across the enterprise and outside
the enterprise with customers and suppliers
- rapid implementation
- competitive pricing
- corporate reputation based on more than 20 years of experience
- size of installed user base
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PROPRIETARY TECHNOLOGY
Our ability to compete is dependent in part upon our internally developed,
proprietary intellectual property. We regard our products as proprietary trade
secrets and confidential information. We rely upon our license agreements with
customers, distribution agreements with distributors and our own security
systems, confidentiality procedures and employee agreements to maintain the
trade secrecy of our products. For all of our significant products, we have
registered with appropriate Federal agencies for protection of our programs,
documentation and other written materials under copyright and trademark laws.
EMPLOYEES
As of June 30, 2001, we employed 680 persons of which 213 were employed in
international operations outside of North America. None of our employees are
represented by a labor union. We have never experienced a work stoppage and
believe that our employee relations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are as follows:
NAME AGE TITLE
---- --- -----
Lawrence J. Fox....................... 45 Chairman of the Board
Stephen A. Sasser..................... 52 President, Chief Executive Officer and
Director
Lawrence W. DeLeon.................... 46 Executive Vice President, Worldwide
Field Operations
Stephen A. Yount...................... 46 Executive Vice President, Business
Development and Channel Operations
Daryll L. Wartluft.................... 60 Executive Vice President, Products
Group
Robert D. Williams.................... 46 Vice President, Human Resources
Jorge L. Lopez........................ 46 Vice President, Strategic Planning and
Corporate Development
Carolyn J. Morris..................... 57 Vice President, Marketing
Daniel P. Buettin..................... 48 Vice President, Finance, Chief
Financial Officer and Secretary
Lawrence J. Fox founded a predecessor to Frontstep in 1979 as a sole
proprietorship. He has held his present office as Chairman of the Board since a
predecessor to the Company was incorporated in 1984. From 1984 to 1998, Mr. Fox
also served as Chief Executive Officer of the Company.
Stephen A. Sasser has held the positions of President and Chief Executive
Officer of the Company since January 1999. Mr. Sasser previously served the
Company, from the time that he joined the Company in July 1995 until January
1999, as President and Chief Operating Officer. Mr. Sasser has served as a
director of the Company since July 1995. Prior to joining Frontstep, from 1994
to 1995, Mr. Sasser served as Vice President of International Operations for
Trilogy Software, a provider of sales and marketing software. From 1992 to 1994,
Mr. Sasser was Group Vice President of the Systems Management Division and
Pacific Rim Operations of Legent Corporation ("Legent"), a provider of systems
management software products and services. From 1987 through its acquisition by
Legent in 1992, Mr. Sasser served as President of the Data Center Management
Division of Goal Systems International, Inc. ("Goal Systems") which designed,
developed, and marketed systems management software products.
Lawrence W. DeLeon has held the position of Executive Vice President
Worldwide Field Operations since August 2000. Mr. DeLeon previously served the
Company as Vice President, Chief Financial Officer and Secretary from the time
that he joined the Company in 1995 to July 2000. From 1991 to 1995, Mr. DeLeon
served in various capacities at Legent, including Treasurer for Goal Systems,
Europe, Vice President-Finance and Administration and Vice President-Central
Europe.
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Stephen A. Yount has held the position of Executive Vice President Business
Development and Channel Operations since August 2000. Mr. Yount served the
Company from August 1998 to July 2000, as Vice President of America's Field
Operations, and from the time that he joined the Company in May 1996 until
August 1998, as Vice President of America's Sales and Services. From 1995 to May
1996, he was Vice President of Sales at Tyecin Systems, a provider of
client-server manufacturing software for the semi-contractor market. From 1993
to 1995, Mr. Yount served as Vice President of Sales and Services at Neuron
Data, a client-server application development software company. From 1987 to
1993, he served in various senior sales positions at Legent.
Daryll L. Wartluft has held the position of Executive Vice President
Frontstep Product Group since August 2000. Mr. Wartluft previously served as
Vice President and General Manager, SyteLine Division from the time that he
joined the Company in May 1998 until July 2000. From 1995 to 1998, he was
President and Chief Executive Officer and a director of Pivotpoint Inc., an ERP
software and services provider. From 1994 to 1995, he served as Group Vice
President of Applications Management Division of Legent. Prior to that time, he
held various management positions with Group Bull Worldwide Information Systems,
a provider of systems management software products and services, and
International Business Machines Corporation, a provider of advanced information
technology and services.
Robert D. Williams joined the Company in September 1995 as Vice President,
Human Resources. Prior to that time, he served as Director, Human
Resources/Associate Relations of Legent from August 1992 to August 1995. From
March 1990 to August 1992 he was Executive Director of Human Resources and
Administrative Services of Goal Systems.
Jorge L. Lopez joined the Company in November 1996 as Vice President of
Corporate Development/ Strategic Planning. From 1995 to November 1996, Mr. Lopez
served as Vice President of Marketing for Salesoft Inc., a provider of automated
sales and marketing software. From 1989 to 1995, Mr. Lopez served as Vice
President of Strategic Alliances for Avalon Software, Inc. an enterprise
resource planning software and services company. Prior to that time, Mr. Lopez
held various marketing and technical positions with International Business
Machines Corporation, a provider of advanced information technology and
services.
Carolyn J. Morris joined the Company November 2000 as Vice President,
Marketing. From March 2000 to November 2000, Mrs. Morris served as Chief
Executive Officer of Wireless Dynamics, a manufacturer of internet access
equipment. From May 1996 to March 2000, Mrs. Morris was Chief Operating Officer
of Nobix, Inc., a manufacturer of client-server software. Prior to 1996, Mrs.
Morris founded and managed Maxwest Inc., a management consulting firm
specializing in executive support for startup companies.
Daniel P. Buettin joined the Company in August 2000 as Vice President,
Finance, Chief Financial Officer and Secretary. Mr. Buettin served from 1995 to
August 2000 as Vice President and Chief Financial Officer of MPW Industrial
Services Group, Inc., a publicly-traded services company. Prior to joining MPW,
Mr. Buettin served in various executive positions, including Chief Financial
Officer, with OHM Corporation, a publicly-traded services company, in Findlay,
Ohio, from 1987 to 1995. Mr. Buettin was previously with Arthur Anderson LLP.
The executive officers of the Company are appointed by and serve at the
pleasure of the Company's Board of Directors. There are no arrangements or
understandings between any officer and any other person pursuant to which the
officer was so appointed.
ITEM 2. PROPERTIES
Our corporate headquarters and principal administrative, product
development, and sales and marketing operations are located in approximately
87,000 square feet of leased office and storage space in Columbus, Ohio. The
lease agreement commenced in July 1991 and will expire on June 30, 2002. The
lease agreement provides for an annual base rent and operating expenses of
approximately $1.5 million. Additionally, we have 27 leased sales and support
offices throughout the United States and elsewhere.
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ITEM 3. LEGAL PROCEEDINGS
We are 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 our business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common shares are traded in the over-the-counter market and are quoted
on the Nasdaq National Market ("NASDAQ") under the symbol "FSTP". As of
September 10, 2001, we had approximately 213 shareholders of record. The
following table sets forth, for the periods indicated, the range of high and low
sale prices for Frontstep's common shares as reported by NASDAQ:
PRICE RANGE
--------------
HIGH LOW
------ -----
FISCAL 2001
First Quarter............................................. $10.00 $5.31
Second Quarter............................................ 6.88 2.63
Third Quarter............................................. 7.13 3.13
Fourth Quarter............................................ 3.90 1.89
FISCAL 2000
First Quarter............................................. $12.38 $7.88
Second Quarter............................................ 18.50 9.50
Third Quarter............................................. 32.75 15.25
Fourth Quarter............................................ 20.25 8.13
We have never paid cash dividends on our shares. We expect that all future
earnings will be retained to finance our operations and for the growth and
development of our business. Accordingly, we do not currently anticipate paying
cash dividends on our shares in the foreseeable future. The payment of any
future dividends will be subject to the discretion of the Board of Directors of
Frontstep and will depend on our results of operations, financial position and
capital requirements, general business conditions, restrictions imposed by
financing arrangements, if any, legal restrictions on the payment of dividends
and other factors the Board of Directors deems relevant. In addition, holders of
Frontstep's outstanding preferred shares may be entitled to receive dividends on
the preferred shares prior to the payment of dividends on the common shares, in
certain cases, under the our Amended Articles of Incorporation. See also "Sale
of Unregistered Securities" immediately below.
SALE OF UNREGISTERED SECURITIES
In July 2001, we entered into a new credit facility arrangement with
Foothill Capital Corporation. The credit facility includes a $15 million,
three-year term note and a $10 million revolving credit facility. In connection
with the new credit facility arrangement with Foothill, we issued to Foothill a
warrant to purchase 550,000 common shares at an initial exercise price of $3.36
per share, which was the average of the closing bid price for our common shares
for the 10 trading days immediately preceding the closing date for the new
credit facility. The exercise price of the warrants and the number of common
shares issuable upon exercise of the warrants are subject to adjustments from
time to time under the anti-dilution provision contained in the
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warrants. The warrants expire in July 2006 and are exercisable at any time prior
to its expiration. The warrants were issued in reliance upon an exemption from
registration under Section 4(2) of the Act and Rule 506 promulgated by the
Commission under the Act. As required by our agreement with Foothill, we intend
to register 687,500 shares for possible issuance upon exercise of the warrants.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data as of and for the years
ended June 30, 1997 through 2001 have been derived from the Consolidated
Financial Statements of Frontstep. The selected consolidated financial data
below should be read in conjunction with the Consolidated Financial Statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K (in
thousands, except per share data).
YEAR ENDED JUNE 30,
--------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- ------- -------
STATEMENT OF OPERATION DATA:
Total revenue..................... $118,286 $128,908 $129,072 $97,597 $65,772
Cost of revenue................... 56,913 59,988 52,025 35,701 23,690
-------- -------- -------- ------- -------
Gross margin...................... 61,373 68,920 77,047 61,896 42,082
Operating expenses:
Selling, general and
administrative............... 56,007 56,790 56,801 43,995 30,741
Research and development........ 13,332 15,684 10,217 7,901 5,659
Amortization of acquired
intangibles.................. 3,285 3,593 2,140 1,479 610
Restructuring and other
charges...................... 15,156 3,649 835 6,503 --
-------- -------- -------- ------- -------
Total operating expenses..... 87,780 79,716 69,993 59,878 37,010
-------- -------- -------- ------- -------
Operating income (loss)........... (26,407) (10,796) 7,054 2,018 5,072
Other income (expense), net....... (510) (966) 151 (178) 107
-------- -------- -------- ------- -------
Income (loss) before income
taxes........................... (26,917) (11,762) 7,205 1,840 5,179
Provision for (benefit from)
income taxes.................... (2,063) (1,557) 3,206 3,196 1,916
-------- -------- -------- ------- -------
Net income (loss)................. $(24,854) $(10,205) $ 3,999 $(1,356) $ 3,263
======== ======== ======== ======= =======
Net income (loss) per common share
-- diluted...................... $ (3.30) $ (1.38) $ 0.55 $ (0.21) $ 0.54
======== ======== ======== ======= =======
Weighted average shares
outstanding -- diluted.......... 7,535 7,411 7,264 6,317 6,079
BALANCE SHEET DATA:
Working capital................... $ 3,860 $ 19,348 $ 21,926 $13,575 $ 7,897
Total assets...................... 72,593 94,368 90,600 66,382 44,252
Total long-term debt and lease
obligations..................... 8,742 3,169 5,759 2,305 530
Total shareholders' equity........ 22,214 36,709 42,401 31,301 23,361
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Frontstep is a leading provider of integrated ERP software and services for
mid-market manufacturing and distribution companies and business units of larger
companies. Since the second quarter of fiscal 2000, we have experienced changing
market conditions resulting from a recession in many manufacturing industries
and
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a lessening of demand for ERP systems. Well before these market changes began to
affect results of operations, we began to enhance our product offerings beyond
traditional ERP systems to participate in higher growth market segments. These
enhancements include a comprehensive suite of integrated software and services
that (1) support the management and resources of an enterprise, (2) support
customer relationship management and other front office business activities and
(3) support an enterprise's supply chain management activities. In that regard,
in fiscal 2000, we created our Frontstep subsidiary to advance the development
of new products and related sales channels to support these new products and
services. In November 2000, the shareholders of the Company approved a change in
the Company's name to Frontstep, Inc. to signal the completion of this
transformation.
Events of September 11, 2001. On September 11, 2001, the United States was
violently attacked by terrorists in New York City, Washington D.C. and
elsewhere. Frontstep and its employees were not directly affected. Our hearts go
out to the victims and the victims' families of this great American tragedy.
In the days that have followed since this event, there have been
significant indications of a broad and possibly lasting impact of this event on
our economy and the economy of other countries around the world. It is not yet
clear whether a recession or further slowdown of the economy will occur.
Furthermore, Frontstep generally records a significant portion of our
revenues, particularly our license fees revenue, in the third month of each
fiscal quarter, often in the last several days of that month. Since the attack
has caused widespread uncertainty at the end of our first quarter of fiscal
2002, the general uncertainty is only exacerbated by the timing.
As a result of the events of September 11, 2001, and the uncertainty that
has followed, there can be no assurance that we will achieve the financial
results we discuss below for the September 2001 quarter and for the remainder of
fiscal 2002.
Current Financial Results and Events. While the enterprise applications
software industry has generally been experiencing weak demand and fluctuating
economic conditions for software spending since early in 1999, we did experience
significantly improved license fees revenues and heightened demand for our
products in the quarter ended December 31, 2000. This increase in revenues and
heightened overall demand led us to believe that strategy would lead us to more
successful financial results, with improvements each quarter over comparable
periods in the prior year. However, in the latter portion of the quarter ended
March 31, 2001, customers and potential customers appeared to react to the
slowing economy by electing to defer their buying decisions. As a result, the
Company, the information technology industry in general and many other
enterprise software providers experienced significant shortfalls in revenue
levels and incurred net losses for the March 2001 quarter and subsequent fiscal
quarter as compared to an expectation of continued improvements as were
demonstrated in the quarter ended December 31, 2000.
Consequently, in April 2001, we initiated a broad restructuring program. We
reduced our worldwide workforce by approximately 20%, discontinued certain
product development and other non-essential activities, closed certain offices
and acted to reduce operating costs. As this effort is fully realized in the
September 2001 quarter, we believe that overall operating costs will be reduced
by $28 million on an annual basis, or approximately 25%. In the quarters ended
March 31, 2001 and June 30, 2001 (the "current fiscal quarter"), we recorded an
aggregate of approximately $13.0 million, pre-tax, in related restructuring
charges and write-downs of related product assets and accounts receivable.
As a result of the shortfall in revenues and recorded restructuring and
other charges, we reported operating losses of $15.1 million and $4.8 million,
respectively, for the quarter ended March 31, 2001 and the current fiscal
quarter. However, as a result of the significant reduction in operating costs
from the restructuring, we experienced positive cash flows in the current fiscal
quarter and reported a "normalized" operating profit, when each are adjusted to
exclude the restructuring charges and amortization of acquired intangibles. The
quarter ending September 30, 2001 is expected to be profitable as reported and
cash flows are expected to be positive.
Previous Quarterly Financial Results and Events. For several quarters
prior to the quarter ended December 31, 2000, we experienced a decline in
revenues related to a sluggish demand for our software
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products and services. We believe that this decline was 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 result, we recorded operating losses before restructuring and other
charges of $7.1 million, $3.1 million and $1.3 million for the fiscal year ended
June 30, 2000 and for the September 2000 and December 2000 quarters,
respectively. In July 2000, we made 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, we recorded a $3.0 million, pre-tax, non-recurring charge in the
fourth quarter of fiscal year 2000 and an additional $2.2 million, pre-tax, in
the September 2000 quarter.
GENERAL
The Company's total revenue is derived primarily from licensing software,
providing related services, including installation, implementation, training,
consulting and systems integration and providing maintenance and support on an
annual basis. Revenue is accounted for in accordance with Statement of Position
97-2, Software Revenue Recognition, as amended and interpreted from time to
time. License fees revenue is generally recognized when the software product is
shipped. Services revenues are recognized as the services are performed and
revenues from maintenance agreements are billed periodically, deferred and
recognized straight-line over the term of the agreements.
Cost of license fees revenue includes royalties, amortization of
capitalized software development costs and software delivery expenses. 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.
Selling, general and administrative expenses consist of personnel,
facilities and related overhead costs, together with other operating costs of
the Company, including advertising and marketing costs.
Research and development expenses include personnel and related overhead
costs for product development, enhancement, upgrades, quality assurance and
testing. The amount of such expenses is dependent on the nature and status of
the development process for the Company's products. 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 to five years and recorded as license fees cost
of revenue.
RESULTS OF OPERATIONS
The fiscal year that ended June 30, 2001 is our "current fiscal year" or
"fiscal 2001". The prior year that ended June 30, 2000 is the "prior fiscal
year" or "fiscal 2000". The year ended June 30, 1999 is "fiscal 1999".
FISCAL 2001 COMPARED TO FISCAL 2000
Revenue. Total revenue decreased $10.6 million, or 8.2%, to $118.3 million
in fiscal 2001 from $128.9 million in fiscal 2000. The total revenue mix is
shown in the table below (in thousands, except percentage data):
FISCAL YEARS ENDED JUNE 30,
-----------------------------------
2001 2000
---------------- ----------------
License fees revenue............................. $ 51,309 43.4% $ 57,858 44.9%
Service, maintenance and support revenue......... 66,977 56.6% 71,050 55.1%
-------- ----- -------- -----
Total revenue.................................. $118,286 100.0% $128,908 100.0%
======== ===== ======== =====
License fees revenue decreased 11.3% in the current fiscal year from the
prior fiscal year. We believe that the decrease in license fees revenue in
fiscal 2001 is due to the current economic climate that is causing our
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customers and potential customers to defer their buying decisions related to
large capital investments, particularly information technology investments. We
expect that license fees revenues will remain stable in the short-term but will
not begin to grow again until the current economic climate improves and demand
for our products improves as a result.
Service, maintenance and support revenue decreased 5.7% in the current
fiscal year from the prior fiscal year. The decrease is primarily the result of
a decrease in service revenues resulting from the sluggish license fees revenue
experienced by the Company in the last few quarters. Services revenues in
particular are directly dependent on new license purchases by new and existing
customers. Maintenance and support contracts and the related revenue from these
contracts have been steadily improving over the last few years as the base of
customers under such programs has continued to grow.
Cost of Revenue. Total cost of revenue as a percentage of total revenue
increased to 48.1% for the current fiscal year from 46.5% for the prior fiscal
year.
Cost of license fees revenue increased $0.3 million, or 1.7%, to $20.0
million in the current fiscal year from $19.6 million in the prior fiscal year
and as a percentage of license fees revenue, increased to 38.9% in the current
fiscal year from 33.9% in the prior fiscal year. The percentage increase is
primarily attributable to an increase in the number of third party product
vendors included in our new product offerings, discounting as a result of
weakened demand and lower license fees revenue affecting certain fixed and
related costs.
Cost of service, maintenance and support revenue decreased $3.4 million, or
8.5%, to $36.9 million in the current fiscal year from $40.4 million in the
prior fiscal year and as a percentage of service, maintenance and support
revenue, decreased to 55.2% in the current fiscal year from 56.8% in the prior
fiscal year. The decrease in cost is attributable to a decline in service
revenue resulting from sluggish license fees revenue in the current fiscal year
and the percentage decrease is primarily due to the continued growth of
maintenance and support revenues which have higher margins than services
revenues. As noted above, service revenues in particular are directly dependent
on new license purchases by new and existing customers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.8 million, or 1.4%, to $56.0 million in the
current fiscal year from $56.8 million in the prior fiscal year. Such expenses
as a percentage of total revenue increased to 47.3% in the current fiscal year
from 44.1% in the prior fiscal year. The decrease in costs is attributable to
the restructuring that was undertaken during the current fiscal quarter, the
full effect of which will substantially reduce such costs further in fiscal
2002. The increase in the percentage of total revenue is due primarily to the
decrease in total revenue since many of these costs are fixed in nature and to
the fact that the restructuring did not occur until late in the current fiscal
year.
Research and Development. Total research and development costs, including
amounts capitalized, decreased $4.3 million or 18.9%, to $18.4 million for the
current fiscal year from $22.7 million for the prior fiscal year and decreased
as a percentage of total revenues to 15.5% in the current fiscal year from 17.6%
in the prior fiscal year. Although total research and development spending
decreased from the prior fiscal year, we are continuing to spend a substantial
portion of total revenues on the development of our expanded product offerings
and product capabilities, development of future releases of our ERP software and
development of interfaces with third-party software products. We believe that
these investments are critical to the success and market acceptance of our new
product offerings and total suite of integrated collaborative business systems.
We capitalized development costs of $5.1 million during the current fiscal
year and $7.0 million during the prior fiscal year.
Restructuring and Other Charges. In April 2001, we announced a broad
restructuring plan to reduce operating costs by reducing our worldwide workforce
by approximately 20%, discontinuing certain product development and other
non-essential activities and closing certain office facilities. In relation to
this restructuring plan, we also wrote-off certain accounts receivable and other
non-performing assets. The results, including costs of the restructuring plan,
are discussed above.
In July 2000, we announced several structural changes to discontinue
certain business operations, write off non-performing assets and to restructure
the Company to better focus on our core business strategy. These
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changes included divesting of an operating subsidiary, discontinuing operations
of another operating subsidiary, consolidating our product development
organizations and restructuring our sales channels. The results, including costs
of this previous restructuring, are discussed above.
Benefit from Income Taxes. The benefit from income taxes for the current
and prior fiscal years reflects an effective tax rate of 7.7% and 13.2%,
respectively. The effective tax rate in the current fiscal year differs from the
expected corporate tax rate primarily due to valuation allowances recorded
against the deferred tax assets related to net operating losses incurred
domestically, and in both periods due to foreign losses incurred in countries
where no tax benefits will be received for the losses and the non-deductibility
of the amortization of certain intangibles.
FISCAL 2000 COMPARED TO FISCAL 1999
Revenue. Total revenue decreased slightly in fiscal 2000 to $128.9 million
from $129.1 million in fiscal 1999. We believe that the decline in total revenue
in fiscal 2000 was due to the industry-wide trend of delays in new business
system purchases caused initially by the Year 2000 market dynamics and
subsequently by continued sluggish demand for ERP software as customers and
potential customers assessed the shifting technologies and the potential for
e-business solutions to support their business needs. The revenue mix is shown
in the table below:
FISCAL YEARS ENDED JUNE 30,
-----------------------------------
2000 1999
---------------- ----------------
License fees revenue............................. $ 57,858 44.9% $ 67,423 52.2%
Service, maintenance and support revenue......... 71,050 55.1% 61,649 47.8%
-------- ----- -------- -----
Total revenue.................................. $128,908 100.0% $129,072 100.0%
======== ===== ======== =====
License fees revenue decreased 14.2% in fiscal 2000 from fiscal 1999. The
decrease in fiscal 2000 was due to the industry-wide trend of delays in new
business system purchases. We believe that the purchase delays were caused
initially by the Year 2000 market dynamics and that the purchase delays have
continued as a result of the ERP market's transformation to a broader more
comprehensive business solution .
Service, maintenance and support revenue increased 15.2% in fiscal 2000
from fiscal 1999. This growth in fiscal 2000 was attributable to continued
increases the number of licensed software installations worldwide and the
expanding product line of the Company.
Cost of Revenue. Total cost of revenue as a percentage of total revenue
was 46.5% for fiscal 2000 compared to 40.3% fiscal 1999.
Cost of license fees revenue increased to 33.9% of license fee revenue in
fiscal 2000 from 27.2% in fiscal 1999. The percentage increase was primarily due
to an increase in the rate of amortization on capitalized software expenses in
fiscal 2000. We began amortizing capitalized software costs related to certain
new products late in fiscal 1999.
Cost of service, maintenance and support was 56.8% of service, maintenance
and support revenue in fiscal 2000 compared to 54.7% in fiscal 1999. The
increase in cost of service, maintenance and support was primarily due to the
use of subcontractors to supplement the work performed by our employees. In
general, the use of subcontractors results in lower margins than the use of our
employees, but provides increased flexibility in meeting customer demands.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $56.8 million in both fiscal years 2000 and 1999.
Selling, general and administrative expenses as a percent of net revenue has
remained consistent at 44.0% for both fiscal 2000 and fiscal 1999.
Research and Development. Total research and development costs, including
amounts capitalized, were $22.7 million or 17.6% of total revenue for fiscal
2000 compared to $15.1 million or 11.7% of total revenue in fiscal 1999. During
fiscal 2000, research and development expenses increased in dollar amount and as
a percentage of total revenues as we continued to invest heavily in the
development of an expanded product offering and the application of new Internet
technologies. In addition, the increase in research and
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development expense is due to staff expansion relating to our development of
future releases of our existing products and development focus on interfacing
with third-party software products. Capitalized development costs were $7.0
million and $4.9 million for the years ended June 30, 2000 and 1999,
respectively.
We incurred nonrecurring charges of approximately $638,000 in fiscal 2000
and $835,000 in fiscal 1999 relating to the write-off of acquired in-process
technology in conjunction with certain acquisitions completed in each of these
fiscal years.
Restructuring and Other Charges. In July 2000, we announced that we were
terminating the operations of our e-Mongoose, Inc. subsidiary. In connection
with this announcement, we determined that capitalized software costs associated
with e-Mongoose, Inc. were not recoverable and, accordingly, we recognized an
impairment charge of $1.8 million related to these unrecoverable costs. We also
determined that certain accounts receivable of e-Mongoose, Inc. were not
collectible and we reserved $714,000 of uncollectible accounts receivable.
Effective June 21, 2000, we also sold certain assets of our Visual Applications
Software, Inc. subsidiary. We recognized a $429,000 net loss in connection with
the sale.
Provision for (benefit from) Income Taxes. The effective tax rates for the
years ended June 30, 2000 and 1999 were (13.2)% and 44.5%, respectively. The
effective tax rate for fiscal 2000 differs from the expected corporate tax rate
primarily due to a gain on the sale of foreign operations and a valuation
allowance offset to net operating losses of certain foreign subsidiaries. In
addition, the effective tax rates for fiscal years 2000 and 1999 were impacted
by acquisition research and development write-offs, which are not deductible for
income tax purposes, the amount of foreign taxable earnings in countries with
higher effective tax rates and the non-deductibility of the amortization of
goodwill.
QUARTERLY RESULTS
Our results of operations have fluctuated on a quarterly basis. Our
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.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, we had cash and cash equivalents of $1.5 million and
working capital of $3.9 million. During the fiscal year ended June 30, 2001, we
used $3.5 million of cash for operating activities, including the restructuring
and other charges described above. We purchased $4.0 million of property and
equipment and used $5.1 million for capitalized software. Cash was also used for
the payment of $3.4 million on certain debt payments relating to previous
acquisitions. While the revolving credit facility borrowings of the Company
increased from $3.0 million to $8.3 million during the current fiscal year,
borrowings remained relatively constant during the second half of the fiscal
year: $8.6 million at December 31, 2000 and $8.3 million at June 30, 2001.
In December 2000, we entered into a revolving credit facility with PNC
Bank, National Association (the "Credit Facility") to replace our previous
credit arrangement with Bank One, N.A. The Credit Facility provided the Company
with up to $20.0 million of revolving credit availability for a three-year
period based on qualifying accounts receivable and was secured by our trade
accounts receivable originating within the United States and Canada. Borrowings
under the Credit Facility bore interest at either the Federal Funds rate plus
0.5% or, at our option, the Eurodollar market rate plus 2.75%. The interest rate
is subject to change based on interest rate formulas tied to our net income. The
Credit Facility is subject to customary terms and conditions, including a
financial covenant that we maintain a minimum level of net worth.
As of March 31, 2001, we were not in compliance with certain covenants
under the Credit Facility as a result of our reported losses and the
restructuring and other charges recorded for the quarter ended as of that date.
Although the bank waived this noncompliance as of March 31, 2001, we recognized
that the borrowing availability under the Credit Facility would not be
sufficient to support our cash needs and to repay the temporary additional
credit that the bank agreed to provide to assist in the restructuring discussed
above. A search for additional financing to meet all of our cash needs was
conducted during the current fiscal quarter.
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In July, 2001, we entered into a new credit facility arrangement with
Foothill Capital Corporation. The credit facility includes a $15 million,
three-year term note and a $10 million revolving credit facility. Availability
under the revolving credit facility is based on and secured by our qualifying
accounts receivable originating within the United States and Canada. Borrowings
under the revolving credit facility bear interest either at the Federal Funds
rate plus 1.5%, or at the Eurodollar market rate plus 3.0%. The term note bears
interest at the rate of 10.5% plus 1.5% per annum added to principal. The term
note is payable in monthly installments commencing October 1, 2001. The
agreement is subject to customary terms and conditions and includes financial
covenants for maintenance of a minimum tangible net worth, a minimum level of
earnings before interest, taxes, depreciation and amortization and a maximum
ratio of debt to earnings before interest, taxes, depreciation and amortization.
As a result of the restructuring discussed above, which was completed in
the current fiscal quarter, we expect to return to profitability and positive
cash flow from operations commencing in the quarter ending September 30, 2001.
As a result of the new credit facility with Foothill and the expected return to
profitability, we anticipate 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.
While we classified our debt as a short-term liability in our balance sheet
as of March 31, 2001 in accordance with certain accounting literature, we have
now re-classified this debt as a long-term liability in our balance sheet as of
June 30, 2001 since we completed our new credit facility in July 2001.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
Changes in demand for our products and services could cause potential
significant fluctuations in our quarterly and annual operating results. Our
operating results may vary significantly from quarter to quarter. Our quarterly
operating results are affected by a number of factors that could materially and
adversely affect our revenues and profitability. These factors also make
estimation of operating results prior to the end of a quarter extremely
uncertain. These factors include:
- demand for our products and services
- competitive conditions in the software industry
- the timing of the introduction or market acceptance of new or enhanced
products which we offer or which are offered by our competitors
- the potential for delay or deferral of customer purchases of our products
in anticipation of product enhancements or new product offerings by us or
our competitors
- the timing of any acquisitions by us and related write-offs
- the mix of our product and services net revenues
- the mix of our North American and international net revenues
- dependence on a few very large new license sales in each quarter to meet
our quarterly goals
- general economic conditions and other factors affecting capital
expenditures by our customers
- the size, timing and structure of significant licenses with our customers
- the entry of new competitors and technological advances by competitors
- delays in localizing our products for new markets
- product life cycles
The purchase of our products and services may involve a significant
commitment of capital and other resources by our customers. As a result, the
sales cycles for our products and services, from initial evaluation to delivery
or performance, vary from customer to customer. The timing of individual sales
is difficult to predict, and sales can occur in quarters subsequent to those
anticipated by us. In addition, sales through indirect channels, such as through
business partners, are difficult to predict and may have lower profit margins
than direct sales.
Our revenues in any quarter are substantially dependent on orders signed
and shipped in that quarter. Typically, we realize higher revenues in our second
and fourth fiscal quarters. Generally, we record a majority
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20
of our quarterly revenues in the third month of each quarter, mostly in the
latter half of the third month. We believe that the fluctuations in our
operating results is caused primarily by the budgeting cycles of our customers
and established buying patterns by our customers or potential customers in the
industry. As a result, our quarterly operating results are difficult to predict.
In addition, delays in product delivery or in closings of sales near the end of
a quarter could cause our quarterly operating results to fall substantially
short of anticipated levels.
Adverse economic conditions in the general business economy or specifically
in the manufacturing industries we serve could result in reduced purchases of
our products and services. Our customers are primarily discrete manufacturers
and industrial products distributors in discrete manufacturing environments. Our
business depends substantially upon the capital expenditures of our customers.
Capital expenditures by our customers are somewhat dependent upon the demand for
their manufactured products and the strength of their financial condition. A
recession or other adverse economic event in general or one that specifically
affects manufacturers could cause them to curtail or delay capital expenditures
for computer software products. Any significant changes in the timing or amount
of capital expenditures by manufacturers could have a material adverse effect on
our business, operating results and financial condition.
Industries in which our customers operate have been affected by weakened
demand for their products for approximately one to two years and we believe that
the demand for our products and services has already been significantly
impacted, which has negatively affected our financial results and financial
condition. However, there can be no assurance that economic conditions relating
to our customers or potential customers will not become more severe.
Any decrease in our licensing activity is likely to result in reduced
services revenue in future periods. Our service, maintenance and support revenue
is derived from our installation, implementation, training, consulting, systems
integration and software product maintenance and support services. Typically a
decrease in our service, maintenance and support revenue follows a decrease in
our licensed software installations. Our ability to maintain or increase our
service, maintenance and support revenue depends in large part on our ability to
increase our software licensing activity.
The market for our products is characterized by rapid technological change,
evolving industry standards in computer hardware and software technology,
changes in customer requirements and frequent new product introductions and
enhancements. The introduction of products embodying new technologies and the
emergence of new industry standards can cause customers to delay their
purchasing decisions and render existing products obsolete and unmarketable. The
life cycles of our software products are difficult to estimate. Consequently,
our future success will depend, in part, upon our ability to continue to enhance
our existing products and to develop and introduce in a timely manner new
products with technological developments that satisfy customer requirements and
achieve market acceptance. There can be no assurance that we will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner or that products, capabilities or
technologies developed by others will not render our products or technologies
obsolete or noncompetitive or shorten the life cycles of our products. If we are
unable to develop on a timely and cost-effective basis new software products or
enhancement to existing products, or if our products or enhancements do not
achieve market acceptance, our business, operating results and financial
condition may be materially adversely affected.
We derive a significant portion of our business from operations that are
subject to foreign economic conditions and currency fluctuations. We derive a
significant portion of our business from international sales. We expect to
continue to expand our international operations, which will require significant
management attention and financial resources. Our international operations are
subject to various risks, including the following:
- the impact of a recession in foreign countries, particularly in Europe
and the Asia/Pacific regions
- cultural and language difficulties associated with serving customers and
localizing products
- staffing and management problems related to foreign operations
- exchange controls and reduced protection for intellectual property in
some countries
- political instability
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- unexpected changes in foreign regulatory requirements
- difficulties in collecting accounts receivable and longer collection
periods
- restrictions on the repatriation of foreign earnings
- the impact of local economic conditions and practices
- fluctuations in foreign exchange rates
- potential adverse foreign tax consequences
Termination of agreement with Progress would cause a disruption of service
to our customers and may result in lower operating margins or a loss of
business. Our core product, SyteLine, is written in PROGRESS, a proprietary
programming language which we license from Progress Software Corporation. We
market and distribute PROGRESS in connection with the sale of our products under
a non-exclusive agreement with Progress. The agreement may be terminated by
either party upon 90 days' written notice to the other party. In addition, the
agreement may be terminated immediately by either party if a material breach of
the agreement by the other party continues after 30 days' written notice. Our
relationship with Progress involves other risks which could have a material
adverse effect on our business, operating results or financial condition,
including the following:
- the failure of Progress to continue its business relationship with us
- the failure of Progress to develop, support or enhance PROGRESS in a
manner that is competitive with enhancements of other programming
languages
- delays in the release of PROGRESS products or product enhancements that
require a delay in the release of our products or product enhancements
- the loss of market acceptance of PROGRESS and its relational database
management system
- our inability to migrate our software products to other programming
languages on a timely basis if PROGRESS is no longer available
Conversion of our outstanding Series A preferred shares and exercise of our
outstanding warrants could result in substantial dilution of your investment, a
detrimental effect on our liquidity and ability to raise additional capital, and
a significant decline in the market value of our common shares. As of September
24, 2001, we had approximately 7,568,218 common shares outstanding and we had
approximately 1,587,412 additional common shares reserved for issuance upon
conversion of our outstanding Series A preferred shares and upon exercise of our
outstanding warrants and employee and director stock options. Our Series A
preferred shares and outstanding warrants and stock options also contain or are
subject to various anti-dilution and similar provisions which may require us to
issue additional common shares in certain circumstances. If these securities are
converted or exercised, other holders of our common shares may experience
significant dilution in the market value of our common shares held by them. If
the holders were to sell all or a substantial amount of those common shares into
the open market, the sales could have a negative effect on the market price of
our common shares. The sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a price we deem
appropriate.
We have no intention of paying cash dividends. We have never paid any cash
dividends on our common shares. We currently intend to retain all future
earnings, if any, for use in our business and we do not expect to pay any cash
dividends in the foreseeable future. In addition, dividend payments to holders
of our common shares are subject to the rights of holders of our preferred
shares. As long as our Series A preferred shares are outstanding, no dividends
may be declared or paid on our securities that rank junior to our Series A
preferred shares, including our common shares, unless all required cumulative
dividends are paid or a sum sufficient for the payment of the dividends is set
apart for such payment.
Turnover in our senior management or other key employees could have a
material adverse effect on our business, operating results and financial
condition. Our success depends to a significant extent upon senior management
and other key employees. The loss of one or more key employees could have a
material adverse effect on our business. We do not have employment agreements
with our executive officers, except Stephen A. Sasser, our President and Chief
Executive Officer, and we do not maintain key man life insurance on our
executive officers. We believe that our future success will depend in part on
our ability to attract and retain
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highly skilled technical, managerial, sales, marketing, service and support
personnel. Competition for personnel in the computer software industry has
historically been intense. There can be no assurance that we will be successful
in attracting and retaining key personnel, and the failure to do so could have a
material adverse effect on our business, operating results and financial
condition.
Our success is dependent in part upon our proprietary technology and other
intellectual property. Our ability to compete is dependent in part upon our
internally developed proprietary intellectual property. We regard our products
as proprietary trade secrets and confidential information. We rely largely upon
a combination of copyright, trade secret and trademark laws, license agreements
with our customers, distribution agreements with our distributors, and our own
security systems, confidentiality procedures and employee agreements to maintain
the confidentiality and trade secrecy of our products. In certain cases, we also
seek to protect our programs, documentation and other written materials through
registration of our trademarks and service marks and copyrights of our products
under trademark and copyright laws in the United States and certain other
countries, but we have not secured registration of all our marks and copyrights.
None of our products are patented.
There can be no assurance that our means of protecting our proprietary
rights in the United States or abroad are adequate or that competitors will not
independently develop similar technology. In addition, the laws of some foreign
countries do not protect our proprietary rights as fully as do the laws of the
United States, and effective copyright, trademark and trade secret protection
may not be available in other jurisdictions. Preventing or detecting
unauthorized use of our products is difficult. Despite our efforts, it may be
possible for third parties to copy certain portions or reverse engineer our
products, or to obtain and use our proprietary or confidential information.
We also rely on certain other technology which we license from third
parties, including software that is integrated with internally developed
software and used in our products to perform key functions. No assurance can be
given that the steps taken by us will prevent misappropriation of our technology
or that our license agreements will be enforceable. In addition, litigation may
be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Any such litigation, even if not meritorious, could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, operating results and financial condition.
We may be exposed to property rights infringement claims. Although we do
not believe that our products infringe the proprietary rights of third parties,
there can be no assurance that infringement or invalidity claims, including
claims for indemnification resulting from infringement claims, will not be
asserted or prosecuted against us. Regardless of the validity or the successful
assertion of such claims, defending against such claims could result in
significant costs and diversion of resources which could have a material adverse
effect on our business, operating results and financial condition. In addition,
the assertion of such infringement claims could result in injunctions preventing
us from distributing certain products, which would have a material adverse
effect on our business, operating results and financial condition. If any claims
or actions are asserted against us, we may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available to us on reasonable terms or at all.
We may be exposed to product liability claims. Our products may contain
undetected operating errors due to the complex nature of our software. Such
operating errors are usually resolved through regular maintenance and updating
processes. However, our products also may contain more serious operating errors
or failures that may not be detected until the products have been delivered to
customers. As a result of serious operating errors or failures, our customers
could suffer major business interruptions or other problems that could lead to
claims for damages against us. Such operating errors or failures could also
delay the scheduled release of new or enhanced products or diminish the market
acceptance of our products. As a result, our financial results of operations and
financial condition may be materially adversely affected.
Our future revenue is substantially dependent upon our installed customer
base. In the past, we have depended on our installed customer base for
additional future revenue from services, support and maintenance and licensing
of additional products. Our maintenance and support agreements generally are
renewable annually at the option of the customer. Fees for maintenance and
support services are billed 12 months in
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advance, and maintenance and support revenue is deferred and recognized ratably
over the term of the maintenance and support agreement. There can be no
assurance that current installed customers will renew their maintenance and
support in future periods, continue to use the Company for professional services
or purchase additional products; each of which would have a material negative
impact on our financial results and financial condition.
We may not be able to maintain or expand our relationships with business
partners. We believe that we need to maintain and expand our relationships with
our existing business partners and enter into relationships with additional
business partners in order to expand the distribution of our products. Many of
our business partners also sell products that compete with our products. There
can be no assurance that we will be able to maintain effective, long-term
relationships with our business partners or that selected business partners will
continue to meet our sales needs. Further, there can be no assurance that our
business partners will not market software products in competition with our
products in the future or will not otherwise reduce or discontinue their
relationships with us. If we fail to maintain successfully our existing business
partner relationships or to establish new business partner relationships in the
future, our business, operating results and financial condition could be
materially and adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange. Frontstep's revenues originating outside of North
America were 22%, 20% and 22% of our total revenues for fiscal years 2001, 2000
and 1999, respectively. By geographic region, revenues originating in Europe
were 12%, 11% and 13% of total revenues for fiscal years 2001, 2000 and 1999,
respectively. Revenues originating in Asia Pacific were 9% of total revenues for
fiscal years 2001, 2000 and 1999. International sales are made mostly from our
foreign sales subsidiaries in the local countries and are typically denominated
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.
Our 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 our 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. We are also exposed
to foreign exchange rate fluctuations as the financial results of foreign
subsidiaries are translated into U.S. dollars in consolidation. Foreign currency
gains and losses will continue to result from fluctuations in the value of the
currencies in which we conduct our operations as compared to the U.S. dollar and
future operating results will be affected by gains and losses from foreign
currency exposure. We do not currently hedge against losses arising from our
foreign currency exposure. We have considered the potential impact of a
hypothetical 10% adverse change in foreign exchange rates and we believe that
such a change would not have a material impact on financial results or financial
condition in the coming fiscal year.
Interest Rates. We invest our surplus cash in financial instruments such
as short-term marketable securities and interest-bearing time deposits. We also
incur interest at variable rates, dependent upon the prime rate or LIBOR rate
that may be in effect from time to time. We have considered the potential impact
of a hypothetical one hundred basis point adverse change in interest rates and
we believe that such a change would not have a material impact on financial
results or financial condition in the coming fiscal year.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Frontstep, Inc.
We have audited the accompanying consolidated balance sheet of Frontstep,
Inc. and subsidiaries as of June 30, 2001 and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended June 30, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Frontstep,
Inc. and subsidiaries at June 30, 2001, and the results of their operations and
their cash flows for the year ended June 30, 2001, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Columbus, Ohio
August 13, 2001
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
Frontstep, Inc.
We have audited the accompanying consolidated balance sheet of Frontstep,
Inc. (formerly Symix Systems, Inc.) and subsidiaries as of June 30, 2000 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Frontstep, Inc.
and Subsidiaries at June 30, 2000, and the consolidated results of their
operations and cash flows for each of the two years in the period ended June 30,
2000, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Columbus, Ohio
July 27, 2000
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FRONTSTEP, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30,
-------------------
2001 2000
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,512 $11,868
Trade accounts receivable, net............................ 31,446 36,956
Prepaid expenses.......................................... 3,756 2,610
Income taxes receivable................................... 47 1,867
Deferred income taxes..................................... 2,026 1,510
Inventories............................................... 738 861
Other current assets...................................... 979 988
------- -------
40,504 56,660
Capitalized software, net................................... 15,094 18,329
Intangibles, net............................................ 7,911 9,113
Property and equipment, net................................. 7,646 7,986
Other assets................................................ 1,438 2,280
------- -------
Total assets................................................ $72,593 $94,368
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $15,610 $13,613
Deferred revenue.......................................... 19,067 18,223
Current portion of long-term obligations.................. 1,967 5,476
------- -------
36,644 37,312
Noncurrent liabilities:
Long-term debt............................................ 8,337 3,000
Deferred income taxes..................................... 2,891 4,167
Other..................................................... 405 169
------- -------
11,633 7,336
Minority interest........................................... 2,102 2,146
Series A Convertible Participating Preferred Stock, no par
value..................................................... -- 10,865
Shareholders' equity:
Series A Convertible Participating Preferred Stock, no par
value; 1,000,000 shares authorized; 566,933 shares
issued and outstanding at June 30, 2001; liquidation
preference $13,606,392.................................. 10,865 --
Common stock; no par value; 20,000,000 shares authorized;
7,872,418 and 7,807,857 shares issued at June 30, 2001
and 2000, respectively, at stated capital amounts of
$0.01 per share 79 78
Additional paid-in capital................................ 37,470 37,216
Treasury stock, at cost; 304,200 shares................... (1,320) (1,320)
Retained earnings (deficit)............................... (21,562) 3,292
Accumulated other comprehensive loss...................... (3,318) (2,557)
------- -------
22,214 36,709
------- -------
Total liabilities and shareholders' equity.................. $72,593 $94,368
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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FRONTSTEP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
-------------------------------------
2001 2000 1999
----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
License fees.............................................. $ 51,309 $ 57,858 $67,423
Service, maintenance and support.......................... 66,977 71,050 61,649
--------- --------- -------
Total revenue..................................... 118,286 128,908 129,072
Cost of revenue:
License fees.............................................. 19,972 19,636 18,317
Service, maintenance and support.......................... 36,941 40,352 33,708
--------- --------- -------
Total cost of revenue............................. 56,913 59,988 52,025
--------- --------- -------
Gross margin................................................ 61,373 68,920 77,047
Operating expenses:
Selling, general and administrative....................... 56,007 56,790 56,801
Research and development.................................. 13,332 15,684 10,217
Amortization of acquired intangibles...................... 3,285 3,593 2,140
Restructuring and other charges........................... 15,156 3,649 835
--------- --------- -------
Total operating expenses.......................... 87,780 79,716 69,993
--------- --------- -------
Operating income (loss)..................................... (26,407) (10,796) 7,054
Interest expense............................................ (623) (782) (324)
Other income (expense), net................................. 113 (184) 475
--------- --------- -------
Income (loss) before income taxes........................... (26,917) (11,762) 7,205
Provision for (benefit from) income taxes................... (2,063) (1,557) 3,206
--------- --------- -------
Net income (loss)........................................... $ (24,854) $ (10,205) $ 3,999
========= ========= =======
Net income (loss) per common share:
Basic..................................................... $ (3.30) $ (1.38) $ 0.60
========= ========= =======
Diluted................................................... $ (3.30) $ (1.38) $ 0.55
========= ========= =======
Shares used in computing per share amounts:
Basic..................................................... 7,535 7,411 6,711
Diluted................................................... 7,535 7,411 7,264
The accompanying notes are an integral part of these consolidated financial
statements.
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FRONTSTEP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUM.
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED OTHER
---------------- --------------- PAID-IN TREASURY EARNINGS COMPR.
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK (DEFICIT) LOSS TOTAL
------ ------- ------ ------ ---------- -------- --------- -------- --------
(IN THOUSANDS)
Balance at July 1,
1998................... 125 $ 1,031 6,778 $68 $23,937 $(1,320) $ 9,498 $ (1,912) $ 31,302
Issuance of common stock:
Acquisitions........... -- -- 619 6 5,566 -- -- -- 5,572
Stock option
exercises............ -- -- 75 1 656 -- -- -- 657
Employee stock purchase
plan................. -- -- 38 -- 533 -- -- -- 533
Tax benefit on stock
options exercised...... -- -- -- -- 330 -- -- -- 330
Exercise of convertible
preferred shares....... (125) (1,031) 144 1 1,341 -- -- -- 311
Net income............... -- -- -- -- -- -- 3,999 -- 3,999
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- (302) (302)
--------
Comprehensive income..... -- -- -- -- -- -- -- -- 3,697
---- ------- ------ --- ------- ------- -------- -------- --------
Balance at June 30,
1999................... -- -- 7,654 76 32,363 (1,320) 13,497 (2,214) 42,402
Issuance of common stock:
Acquisitions........... -- -- -- -- 3 -- -- -- 3
Stock option
exercises............ -- -- 118 2 1,009 -- -- -- 1,011
Employee stock purchase
plan................. -- -- 35 -- 577 -- -- -- 577
Tax benefit on stock
options exercised...... -- -- -- -- 754 -- -- -- 754
Issuance of common stock
warrants............... -- -- -- -- 2,510 -- -- -- 2,510
Net loss................. -- -- -- -- -- -- (10,205) -- (10,205)
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- (343) (343)
--------
Comprehensive loss....... -- -- -- -- -- -- -- -- (10,548)
---- ------- ------ --- ------- ------- -------- -------- --------
Balance at June 30,
2000................... -- -- 7,807 78 37,216 (1,320) 3,292 (2,557) 36,709
Issuance of common stock:
Stock option
exercises............ -- -- 2 -- 60 -- -- -- 60
Employee stock purchase
plan................. -- -- 63 1 194 -- -- -- 195
Convertible preferred
stock transferred from
temporary equity....... 567 10,865 -- -- -- -- -- -- 10,865
Net loss................. -- -- -- -- -- -- (24,854) -- (24,854)
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- (761) (761)
--------
Comprehensive loss....... -- -- -- -- -- -- -- -- (25,615)
---- ------- ------ --- ------- ------- -------- -------- --------
Balance at June 30,
2001................... 567 $10,865 7,872 $79 $37,470 $(1,320) $(21,562) $ (3,318) $ 22,214
==== ======= ====== === ======= ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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FRONTSTEP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(24,854) $(10,205) $ 3,999
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation........................................... 4,149 3,618 3,221
Amortization........................................... 7,333 7,811 5,289
Restructuring and other charges........................ 15,156 3,649 835
Deferred income taxes.................................. (1,792) (2,333) 362
Tax benefit on stock options exercised................. -- 754 330
Changes in operating assets and liabilities, net of
restructuring and other charges:
Accounts receivable.................................. (1,626) 6,689 (11,392)
Prepaid expenses and other assets.................... (837) 140 (1,964)
Accounts payable and accrued expenses................ (3,928) (3,409) 1,535
Deferred revenue..................................... 1,064 1,267 3,996
Income taxes payable/receivable...................... 1,820 (1,331) (407)
-------- -------- --------
Net cash provided by (used in) operating activities......... (3,515) 6,650 5,804
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (3,996) (4,496) (3,624)
Additions to capitalized software......................... (5,074) (7,009) (4,871)
Proceeds from sale of subsidiary.......................... -- 2,585 --
Purchase of subsidiaries, net of acquired cash............ -- (2,116) (1,069)
-------- -------- --------
Net cash used in investing activities....................... (9,070) (11,036) (9,564)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock,
net.................................................... -- 10,865 --
Proceeds from issuance of common stock warrants, net...... -- 2,510 --
Proceeds from issuance of common stock, net............... 253 654 674
Proceeds from long-term obligations....................... 76,090 40,964 30,086
Payments on long-term obligations......................... (74,026) (44,076) (27,882)
-------- -------- --------
Net cash provided by financing activities................... 2,317 10,917 2,878
Effect of exchange rate changes on cash..................... (88) 101 3
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (10,356) 6,632 (879)
Cash and cash equivalents at beginning of year.............. 11,868 5,236 6,115
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 1,512 $ 11,868 $ 5,236
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999)
NOTE 1 -- 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
offers a comprehensive suite of integrated, collaborative network-centric
software and services that (1) support the traditional back office management
and resources of an enterprise ("ERP"), (2) support customer relationship
management ("CRM") and other front office business activities and (3) support an
enterprise's supply chain management activities. The accompanying financial
statements include the accounts of Frontstep after elimination of intercompany
accounts and transactions.
Founded in 1979, Frontstep is headquartered in Columbus, Ohio. The Company
has more than 4,000 customers that it serves from 28 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.
Revenue Recognition. The Company's total revenue is derived primarily from
licensing software, providing related services, including installation,
implementation, training, consulting and systems integration and providing
maintenance and support on an annual basis. Revenue is accounted for in
accordance with Statement of Position 97-2, Software Revenue Recognition, as
amended and interpreted from time to time.
Revenue is derived principally from the sale of internally produced
software products and maintenance and support agreements from software sales.
The Company licenses software generally under non-cancelable license agreements
and provides product support services and periodic updates including training,
installation, consulting and maintenance. License fees revenue is generally
recognized when a non-cancelable license agreement has been signed, the software
product has been shipped, there are no uncertainties surrounding product
acceptance, the fees are fixed and determinable and collection is considered
probable. For customer license agreements, which meet these recognition
criteria, the portion of the fees related to software licenses will generally be
recognized in the current period, while the portion of the fees related to
services is recognized as the services are performed. Revenue from maintenance
and support agreements is billed periodically, deferred and recognized ratable
over the life of the agreements. Revenue from consulting, education and other
services is recognized as the services are provided.
Inventories. Inventories consist primarily of software-related products
that are held for resale. The Company values inventory at the lower of cost or
market. Cost is determined using the specific identification method.
Capitalized Software. Capitalized software is stated at the lower of cost
or net realizable value. The Company capitalizes the cost of developing its
software products in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. Capitalized software costs are amortized by the
straight-line method using estimated useful lives of three to five years.
Amortization expense was $3,763,000, $4,033,000, and $2,980,000 for the years
ended June 30, 2001, 2000 and 1999, respectively. In addition, during fiscal
year 2001, the Company wrote off $1,913,000 of capitalized software as part of
restructuring (see Note 2).
Intangibles. Intangibles consist principally of goodwill and other
intangible assets resulting from acquisitions accounted for using the purchase
method of accounting. The intangible assets are amortized using the
straight-line method over a period of three to ten years. Accumulated
amortization of intangibles as of June 30, 2001 and 2000 was $2,262,000 and
$1,047,000, respectively.
Property and Equipment. Property and equipment, including assets under
capital leases, are recorded at cost and include expenditures which
substantially increase the useful lives of the assets. Maintenance and
29
31
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
repairs that do not improve or extend the life of the respective assets are
expensed as incurred. Depreciation is provided over the estimated useful lives
of the respective assets using the straight-line method. Amortization of capital
leases is provided over the lease terms using the straight-line method.
Depreciation and amortization on the Company's property and equipment has
been computed based on the following useful lives:
YEARS
-------
Furniture and fixtures...................................... 3 to 7
Computers and other equipment............................... 2 to 7
Leasehold improvements...................................... 5 to 10
Income Taxes. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Foreign Currency Translation. The Company has determined that the
functional currency of each foreign operation is the local currency. The effects
of translation rate changes related to assets and liabilities located outside
the United States are included as a component of other comprehensive income
(loss). Foreign currency transaction gains and losses are included in "other
income (expense), net" on the Consolidated Statements of Operations.
Comprehensive Income. The Company believes that 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 years ended
June 30, 2001, 2000 and 1999 is as follows (in thousands):
YEAR ENDED JUNE 30,
----------------------------
2001 2000 1999
-------- -------- ------
Net income (loss)...................................... $(24,854) $(10,205) $3,999
Foreign currency translation adjustment................ (761) (343) (302)
-------- -------- ------
Comprehensive net income (loss)........................ $(25,615) $(10,548) $3,697
======== ======== ======
Stock-based Compensation. The Company applies the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations, in
accounting for its fixed plan stock options. As such, compensation expense would
be recorded on the date of grant and amortized over the period of service, only
if the current market price of the underlying stock exceeded the exercise price.
SFAS No. 123, Accounting for Stock-Based Compensation, established accounting
and disclosure requirements using a fair value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the Company
has elected to continue to apply the intrinsic value-based method of accounting
described above, and has adopted the disclosure requirements of SFAS No. 123.
Statement of Cash Flows. The Company considers all demand deposits and
highly liquid investments with an original maturity of three months or less as
cash equivalents. Cash paid for (received from) income taxes, net of refunds,
for fiscal 2001, 2000 and 1999 was $(2,251,000), $1,756,000 and $2,381,000,
respectively. Cash paid for interest was $671,000, $782,000 and $320,000 for
fiscal 2001, 2000 and 1999, respectively.
30
32
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Financial Instruments. Financial instruments consist primarily of cash,
accounts receivable, accounts payable and long-term debt. The carrying value of
all financial instruments at June 30, 2001 and 2000 approximated their fair
value.
Long-lived Assets. The Company accounts for long-lived assets in
accordance with the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
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 financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications. Certain reclassifications have been made to prior year
amounts to conform to the 2001 presentation.
Effect of New Accounting Standards. In July 2001, the FASB issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, as well as all purchase
method business combinations completed after June 30, 2001. SFAS No. 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill. SFAS
No. 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually.
The Company has adopted the provisions of SFAS Nos. 141 and 142 effective
with the beginning of the Company's new fiscal year 2002, which began on July 1,
2001. SFAS No. 141 requires upon adoption of SFAS No. 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Effective with adoption of SFAS No. 142, the Company is required
to reassess the useful lives and residual values of all intangible assets
acquired and make any necessary amortization period adjustments by the end of
the three months ended September 30, 2001.
As of June 30, 2001, the Company has unamortized intangibles in the amount
of $7,911,000 which will be subject to the transition provisions of SFAS Nos.
141 and 142. Because of the extensive effort needed to comply with adopting SFAS
Nos. 141 and 142, it is not practicable to reasonably estimate the impact of
adopting these Statements on the Company's financial statements at the date of
this report, including whether it will be required to recognize any transitional
impairment losses as a cumulative effect of a change in accounting principle.
The Financial Accounting Standards Board recently issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The statement is required to be adopted for fiscal years beginning after
June 15, 2002. Because of the effort necessary to comply with the adoption of
SFAS No. 143, it is not practicable for management to estimate the impact of
adopting this Statement at the date of this report.
31
33
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- RESTRUCTURING AND OTHER CHARGES
Fiscal 2001 Restructuring. In April 2001, the Company announced a broad
restructuring plan to reduce operating costs by reducing its worldwide workforce
by approximately 20%, or 162 employees, all of which were direct employees;
discontinuing certain product development and other non-essential activities,
including terminating activities related to its SyteCentre product and exiting
certain license agreements; and closing certain office facilities in Arizona,
California, Canada and Asia. In relation to this restructuring plan, the Company
also wrote-off certain accounts receivable and other non-performing assets. The
accounts receivable writedowns were recorded to reflect accounts deemed to be
uncollectible due to economic and other situations that occurred subsequent to
the recording of the sales related to those receivables.
As a result of this restructuring plan, the Company recorded pre-tax
restructuring and other charges of $8,493,000 and $4,500,000 in the three months
ended March 31, 2001 and June 30, 2001, respectively. These restructuring and
other charges are recorded as a separate line in the consolidated statements of
operations. The aggregate restructuring and other charge of $12,993,000 is
comprised of $2,182,000 in employee separation costs, $1,978,000 in exit costs
for contract terminations, $6,840,000 in accounts receivable writedowns and
$1,993,000 of product asset writedowns.
The following table displays a rollforward of the accruals established for
the restructuring and other charges from the announcement of the plan to June
30, 2001 (in thousands):
AMOUNTS ACCRUAL AT
INITIAL USED IN JUNE 30,
CHARGE FISCAL 2001 2001
------- ----------- ----------
Employee separation costs............................. $ 2,182 $ 1,770 $ 412
Exit costs............................................ 1,978 320 1,658
Accounts receivable writedowns........................ 6,840 6,840 --
Product asset writedowns.............................. 1,993 1,993 --
------- ------- ------
Total................................................. $12,993 $10,923 $2,070
======= ======= ======
The amounts used of $10,923,000 reflects cash payments of $2,090,000 and
non-cash utilization of $8,833,000. The remaining accrual of $2,070,000, which
is included in accounts payable and accrued expenses in the Consolidated Balance
Sheets, represents cash payments expected to be completed in the year ended June
30, 2002.
Fiscal 2000 Restructuring. 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 the Company's FieldPro
subsidiary, terminating the operations of its e-Mongoose, Inc. 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 non-recurring charge of $2,163,000,
pre-tax, in the three months ended September 30, 2000. The aggregate pre-tax
charge of $5,174,000 included impairment and other charges of $2,297,000 related
primarily to the unrecoverable capitalized software costs, $714,000 of accounts
receivable writedowns and $2,163,000 for severance payments made to employees
associated with the operations discussed above. All severance payments were paid
during the year ended June 30, 2001 and no accruals remain for these costs as of
June 30, 2001.
32
34
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable is summarized as follows (in thousands):
JUNE 30,
-----------------
2001 2000
------- -------
Accounts receivable......................................... $32,877 $39,031
Less allowance for doubtful accounts........................ 1,431 2,075
------- -------
$31,446 $36,956
======= =======
The following is a summary of activity in the allowance for doubtful
accounts (in thousands):
YEAR ENDED JUNE 30,
----------------------------
2001 2000 1999
--------- ------- ------
Beginning balance...................................... $ 2,075 $ 1,500 $1,063
Provision for bad debts................................ 9,731 3,255 1,270
Account write-offs, net................................ (10,375) (2,680) (833)
--------- ------- ------
Ending balance......................................... $ 1,431 $ 2,075 $1,500
========= ======= ======
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows (in thousands):
JUNE 30,
-----------------
2001 2000
------- -------
Furniture and fixtures...................................... $ 3,655 $ 3,568
Computers and other equipment............................... 21,720 18,410
Leasehold improvements...................................... 1,827 1,535
------- -------
27,202 23,513
Less accumulated depreciation and amortization.............. 19,556 15,527
------- -------
$ 7,646 $ 7,986
======= =======
NOTE 5 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows (in
thousands):
JUNE 30,
-----------------
2001 2000
------- -------
Accounts payable............................................ $ 5,579 $ 5,134
Accrued payroll and related costs........................... 2,441 2,827
Third party royalties....................................... 2,408 2,565
Restructuring and other charges............................. 2,070 --
Other....................................................... 3,112 3,087
------- -------
$15,610 $13,613
======= =======
33
35
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- OPERATING LEASE COMMITMENTS
The Company has entered into certain operating lease agreements for the
rental of office facilities and computer equipment. The facility leases provide
for annual rentals which are subject to escalation for increased operating
costs.
Amounts expensed under all operating lease agreements were approximately
$5,401,000, $4,822,000 and $4,415,000 for the years ended June 30, 2001, 2000
and 1999, respectively.
The future minimum lease payments required under noncancelable operating
leases for the five years ending June 30 are: 2002, $3,651,000; 2003,
$1,512,000; 2004, $957,000; 2005, $492,000; 2006, $45,000; 2007 and thereafter,
$0.
NOTE 7 -- LONG-TERM OBLIGATIONS
Long-term debt is summarized as follows (in thousands):
JUNE 30,
-----------------
2001 2000
------- -------
Revolving credit facility................................... $ 8,337 $ 3,000
PSI acquisition note payable................................ 1,573 5,000
Present value of minimum capital lease payments............. 742 277
Infomentum acquisition note payable......................... -- 264
Other....................................................... 57 104
------- -------
10,709 8,645
Less current maturities..................................... 1,967 5,476
------- -------
$ 8,742 $ 3,169
======= =======
In December 2000, the Company entered into a revolving credit facility with
PNC Bank, National Association (the "Credit Facility") to replace the Company's
credit agreement with Bank One, N.A. The Credit Facility, as amended, provides
the Company with up to $20,000,000 of revolving credit availability for a
three-year period based on qualifying accounts receivable and is secured by the
Company's trade accounts receivable originating within the United States and
Canada. Borrowings under the Credit Facility currently bear interest at either
the Federal Funds rate plus 0.5% or, at our option, the Eurodollar market rate
plus 2.75%. At June 30, 2001, the rate was 7.75%. The interest rate is subject
to change based on interest rate formulas tied to the Company's net income. The
Credit Facility is subject to customary terms and conditions, including a
financial covenant that the Company maintain a minimum level of net worth. The
Company also pays a commitment fee for unused portions of the Credit Facility of
0.25%.
In July 2001, the Company executed a new credit facility with Foothill
Capital Corporation, which consists of a $15,000,000 three-year term note and a
$10,000,000 revolving line of credit, to replace the Credit Facility. See Note
19.
In July 2001, the Company paid $600,000, plus accrued interest, of the PSI
acquisition note payable. The remaining $973,000 is due in six equal monthly
installments, plus interest at 10.0% per annum, commencing October 1, 2001.
The aggregate maturities of long-term debt for the five years ending June
30 are: 2002, $1,967,000; 2003, $372,000; 2004, $8,370,000; 2005 and thereafter,
$0.
34
36
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 8 -- INCOME TAXES
The components of the provision for (benefit from) income taxes are
summarized as follows (in thousands):
YEAR ENDED JUNE 30,
--------------------------
2001 2000 1999
------- ------- ------
Current:
Federal................................................ $ -- $ (516) $1,927
State and local........................................ -- (17) 475
Foreign................................................ (23) 541 582
------- ------- ------
(23) 8 2,984
Deferred:
Federal................................................ (1,778) (1,399) 131
State and local........................................ (262) (206) 43
Foreign................................................ -- 40 48
------- ------- ------
(2,040) (1,565) 222
------- ------- ------
$(2,063) $(1,557) $3,206
======= ======= ======
The significant components of the Company's deferred tax asset and
liability are as follows (in thousands):
JUNE 30,
-----------------
2001 2000
------- -------
Current deferred tax asset:
Allowance for doubtful accounts........................... $ 195 $ 1,105
Accrued liabilities....................................... 1,831 405
------- -------
$ 2,026 $ 1,510
======= =======
Long-term deferred tax (asset) liability:
Capitalized software...................................... $ 5,072 $ 4,966
Intangibles............................................... 1,038 1,313
Capitalized leases........................................ 422 422
Accrued liabilities....................................... 239 540
Book over tax depreciation................................ (605) (702)
Domestic losses........................................... (9,776) (1,938)
Foreign losses............................................ (682) (682)
Tax credits............................................... (1,935) (434)
------- -------
(6,227) 3,485
Less valuation allowance.................................. 9,118 682
------- -------
$ 2,891 $ 4,167
======= =======
The long-term deferred tax assets pertaining to foreign losses are net
operating loss carryforwards for certain foreign subsidiaries. The Company has
set a valuation allowance for the foreign net operating loss carryforwards,
domestic tax credits and the majority of the domestic net operating loss
carryforwards. Management believes it is more likely than not that the remaining
deferred tax assets will be recovered through taxable income from future
operations.
35
37
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Deferred taxes are not provided on unremitted earnings of subsidiaries
outside the United States because it is expected that the earnings are
permanently reinvested and such determination is not practicable. Such earnings
may become taxable upon the sale or liquidation of these subsidiaries or upon
the remittance of dividends.
Differences arising between the provision for (benefit from) income taxes
and the amount computed by applying the statutory federal income tax rate to
income before income taxes are as follows:
YEAR ENDED JUNE 30,
---------------------
2001 2000 1999
----- ----- -----
Federal tax at statutory rate............................... (34)% (34)% 34%
State and local income taxes net of federal tax benefit..... (4) (3) 4
Foreign operations taxes at rates different from U.S.
federal statutory rate.................................... 3 7 6
Disposition of foreign operation............................ -- 5 --
Nondeductible acquisition research and development write
off....................................................... -- 2 4
General business credits.................................... (2) (7)
Nondeductible permanent differences......................... 1 4 3
Valuation allowance recorded against deferred tax assets.... 28 6 --
--- --- --
(8)% (13)% 44%
=== === ==
The Company has domestic net operating losses for tax purposes of $490,000,
$347,000, $37,000, $752,000, $1,344,000, $1,779,000 and $20,316,000 which expire
in fiscal years 2008, 2010, 2012, 2013, 2018, 2019 and 2021, respectively.
NOTE 9 -- STOCK OPTION PLANS
The Company has a non-qualified stock option plan (the "Plan") that
provides for the granting of up to 2,653,070 options to officers and other key
employees for common shares at purchase prices of not less than the fair market
value on the date of the grant as determined by the Stock Option Committee of
the Board of Directors. Options under the Plan generally vest over periods of up
to four years and must be exercised within ten years of the date of grant. As of
June 30, 2001, 1,077,322 options are outstanding at a weighted average exercise
price of $9.43.
Shareholder approval was obtained on November 17, 1999 for a separate
non-qualified stock option plan (the "1999 Plan"). The 1999 Plan provides for
the granting of up to 600,000 options to officers and key employees for common
shares at purchase prices of not less than the fair market value on the date of
the grant as determined by the Stock Option Committee of the Board of Directors.
Options under the 1999 Plan generally vest over periods of up to four years and
must be exercised within ten years of the date of the grant. As of June 30,
2001, 523,550 options are outstanding at a weighted average exercise price of
$7.41.
The Company also has a non-qualified stock option plan for Key Executives
(the "Key Executives Plan"). A total of 400,000 common shares are designated for
issuance under the Key Executives Plan. The Stock Option Committee of the Board
of Directors is authorized to set the price and terms and conditions of the
options granted under the Key Executives Plan. Options under the Key Executives
Plan must be exercised within ten years of the date of the grant. As of June 30,
2001, 400,000 options are outstanding at a weighted average exercise price of
$3.81.
The Company also has a stock option plan for Outside Directors (the
"Outside Directors Plan"). The Outside Directors Plan provides for the issuance
of options for 20,000 shares of stock to each Outside Director upon his/her
election to the Board of Directors. A total of 200,000 common shares may be
issued under the Outside Directors Plan. Options under the Outside Directors
Plan vest immediately and must be exercised
36
38
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
within ten years of the date of grant. As of June 30, 2001, 80,000 options are
outstanding at a weighted average exercise price of $6.58.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted under
that statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2001, 2000 and 1999: risk-free interest rates
of 5.0%, 6.5% and 6.0%, respectively; no dividend yield; volatility factor of
the Company's common shares of 1.0, 0.9 and 0.5, respectively; and expected life
of each option of 7 years, 7 years and 6 years, respectively.
If the Company had elected to recognize compensation cost based on the fair
value of options at the grant date (which includes shares issuable under the
Employee Stock Purchase Plan -- see Note 10) as prescribed by SFAS No. 123, the
following table displays what reported net income (loss) and per share amounts
would have been (in thousands, except per share data):
PRO FORMA YEAR ENDED JUNE 30,
-------------------------------
2001 2000 1999
--------- --------- -------
Net income (loss)...................................... $(26,685) $(11,402) $2,955
Net income (loss) per share, assuming dilution......... (3.54) (1.54) 0.41
The pro forma financial effects of applying SFAS No. 123 may not be
representative of the pro forma effects on reported results of operations for
future years.
The following table summarizes stock option activity:
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS(#) PER SHARE($)
---------- --------------
Outstanding at July 1, 1998................................. 1,619,535 7.17
Granted................................................... 263,050 15.92
Cancelled................................................. (52,425) 11.81
Exercised................................................. (74,888) 6.90
---------
Outstanding at June 30, 1999................................ 1,755,272 8.26
Granted................................................... 377,100 9.69
Cancelled................................................. (79,150) 13.00
Exercised................................................. (117,300) 6.73
---------
Outstanding at June 30, 2000................................ 1,935,922 8.44
Granted................................................... 351,000 5.95
Cancelled................................................. (204,550) 11.39
Exercised................................................. (1,500) 5.66
---------
Outstanding at June 30, 2001................................ 2,080,872 7.73
=========
The weighted average fair value of options granted during the years ended
June 30, 2001, 2000 and 1999 was $5.12, $5.92 and $5.39, respectively. At June
30, 2001, 351,884 shares remained available for grant.
37
39
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table summarizes information regarding stock options
outstanding as of June 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- ---------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF EXERCISE LIFE EXERCISE EXERCISE
PRICE($) OPTIONS(#) (YEARS) PRICE($) OPTIONS(#) PRICE($)
----------------- ---------- ----------- -------- ---------- --------
3.81 417,500 4.2 3.81 400,000 3.81
3.82- 5.66 489,500 4.8 5.14 379,000 5.00
5.67- 7.56 321,250 7.6 6.61 115,250 7.25
7.57- 9.31 373,850 5.7 7.90 287,450 7.81
9.32- 14.81 307,572 7.0 11.46 171,147 11.87
14.82- 18.63 72,750 6.0 18.42 55,750 18.44
18.64- 24.06 98,450 6.4 20.64 53,325 20.65
--------- ---------
3.81- 24.06 2,080,872 5.7 7.73 1,461,922 7.29
========= =========
NOTE 10 -- EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan that covers substantially all employees over
21 years of age. The Company contributes to the plan based upon employee
contributions and may make additional contributions at the discretion of the
Board of Directors. The Company made contributions to this plan of approximately
$837,000, $683,000 and $608,000, for the years ended June 30, 2001, 2000 and
1999, respectively.
The Company has an employee stock purchase plan that is in accordance with
Section 423 of the Internal Revenue Code whereby participants are eligible to
purchase common shares of the Company during the plan year. The purchase price
for a common share is determined by the Compensation Committee of the Board of
Directors prior to the effective date. The purchase price may not be less than
90% of the per share fair market value of the Company's common shares on either
the effective date or the option date for the offering, whichever is the lesser.
Substantially all employees are eligible to participate. During the plan period
ended December 31, 2000, the plan did not have any more shares available for
purchase. Until the Compensation Committee of the Board of Directors approves
additional shares, this plan will remain inactive.
NOTE 11 -- ACQUISITIONS
On June 10, 1999, the Company acquired Distribution Architects
International, Inc. ("DAI") for 619,000 common shares of the Company and
$813,000 in cash. DAI is a provider of supply chain management applications for
distribution organizations. Pursuant to the acquisition agreement, DAI was
merged with and into a wholly-owned subsidiary of the Company incorporated in
Ohio, and each share of DAI common stock was converted into the right to receive
0.1313 common shares of the Company. Each DAI option outstanding immediately
prior to the merger was canceled and terminated. The holder of each option was
entitled to receive that number of Frontstep shares equal to $2.17 (the per
share value of DAI stock as agreed to by DAI and Frontstep) less $1.242 (the
stock option exercise price), multiplied by the number of shares of DAI covered
by the option, and divided by $18.50. The transaction was accounted for as a
purchase and resulted in a one-time, non-recurring charge of $835,000 relating
to the write-off of acquired in-process technology of DAI.
On February 9, 2000, the Company acquired Profit Solutions, Inc. ("PSI"), a
Minnesota corporation and provider of Web-centric customer relationship
management applications with sales, marketing, service and business intelligence
functionality, for approximately $2,100,000 in cash paid at closing and
$5,000,000 in
38
40
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
unsecured, subordinated promissory notes, of which, $1,573,000 remained payable
as of June 30, 2001. The transaction was accounted for as a purchase and
resulted in a one-time, non-recurring charge of $638,000 relating to the
write-off of acquired in-process technology of PSI.
The Company believes that the in-process technologies acquired in
conjunction with the acquisitions of DAI and PSI are being developed as part of
the Company's extended ERP, front-office and supply-chain solutions consistent
with the expectations established at the time of acquisition.
The following table sets forth the unaudited consolidated pro forma results
of operations for the periods indicated giving effect to the acquisitions noted
above as if such acquisitions had occurred at the beginning of the periods
indicated. The non-recurring charges of $835,000 and $638,000 are excluded from
pro forma net income (loss). No pro forma information is required for the year
ended June 30, 2001 since these acquisitions occurred in prior years.
YEAR ENDED JUNE 30,
-------------------------
2000 1999
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Revenue..................................................... $129,333 $140,034
Net income (loss)........................................... (10,888) 2,828
Net income (loss) per share, assuming dilution.............. (1.47) 0.39
NOTE 12 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
YEAR ENDED JUNE 30,
----------------------------
2001 2000 1999
-------- -------- ------
Numerator for basic and diluted income (loss) per share
-- net income (loss)................................. $(24,854) $(10,205) $3,999
======== ======== ======
Denominator:
Weighted average common shares outstanding........... 7,535 7,411 6,654
Contingently issuable shares......................... -- -- 57
-------- -------- ------
Denominator for basic income (loss) per share..... 7,535 7,411 6,711
Effect of dilutive employee stock options............ -- -- 553
-------- -------- ------
Denominator for diluted income (loss) per share... 7,535 7,411 7,264
======== ======== ======
Basic net income (loss) per share...................... $ (3.30) $ (1.38) $ 0.60
======== ======== ======
Diluted net income (loss) per share.................... $ (3.30) $ (1.38) $ 0.55
======== ======== ======
NOTE 13 -- MINORITY INTEREST
In June 1998, Frontstep Computer Systems (Singapore) Pte. Ltd., a
wholly-owned subsidiary of the Company, sold previously unissued shares of
common stock (representing a 13.3% interest in that subsidiary) for $2,000,000.
No gain or loss was recognized on the sale of the subsidiary stock.
The Company and the minority interest investor also entered into a put
option agreement which provides that during a six month period commencing
September 1, 2001, the minority interest investor has the right to put its
shares in the subsidiary to the Company at a formula price as provided in the
put agreement, not to be
39
41
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
less than $2,000,000. The minority interest in the subsidiary will be adjusted
to its expected redemption value each year as a credit or charge to income until
the put is exercised or the redemption period expires.
In September 1999, the Company formed a new subsidiary, Frontstep Japan
Ltd., of which 15% of the initial capitalization was contributed by a minority
interest investor. The investment is recorded on the accompanying balance sheet
as minority interest.
NOTE 14 -- PREFERRED STOCK
The Company's Amended Articles of Incorporation authorize 1,000,000 shares
of preferred stock, no par value. The Board of Directors is authorized to
determine the rights and preferences of these shares. Effective May 10, 2000,
the Company consummated a private placement of 566,933 shares of Series A
Convertible Participating Preferred Stock and warrants to purchase 453,546
common shares (the "Transaction"). Net proceeds realized from the Transaction
were $13,375,000.
The preferred shares are convertible to common shares at any time, in whole
or in part, at the holder's option at an initial conversion rate of two shares
of common for one share of preferred. The conversion rate is subject to
adjustment on the fourth anniversary of the Transaction if the average daily
price of the Company's common shares, weighted by trading volume, for the forty
consecutive trading days immediately preceding the fourth anniversary ("Average
Weighted Price") is less than $12 per share. The adjusted conversion rate is
determined by dividing $24 by the Average Weighted Price. This potential
adjustment to the conversion rate represents a contingent beneficial conversion
feature. Assuming the Average Weighted Price on the fourth anniversary was equal
to the closing price of the Company's common shares on June 30, 2001 ($3.46),
the adjusted conversion rate would be 6.94 shares of common for one share of
preferred. This would result in a corresponding preferred dividend charge of
approximately $25,700,000. The conversion rate is also subject to adjustment
based on anti-dilution provisions. Mandatory conversion occurs if, at any time
after the second anniversary of the Transaction, the daily price of the
Company's common shares exceeds $24 for each and every day of any period of
forty consecutive trading days.
The Company may, at its option, redeem all, but not less than all, of the
outstanding preferred shares within thirty days after the fourth anniversary of
the Transaction for $30.72 per preferred share plus accumulated, but unpaid,
dividends, if any.
Holders of the preferred shares have a liquidation preference whereby upon
voluntary or involuntary liquidation/dissolution/winding-up of the Company the
preferred holders have a preference against the assets of the Company available
for distribution. The liquidation preference is equal to the greater of a) $24
per preferred share outstanding plus accumulated, but unpaid, dividends, if any,
or b) the amount that would be received by a holder of the number of common
shares underlying the preferred shares if all the preferred shares were
converted to common shares immediately prior to
liquidation/dissolution/winding-up.
The warrants are exercisable at $15 per share and expire five years from
the date of the Transaction. The exercise price is subject to adjustment on the
fourth anniversary of the Transaction if the Average Weighted Price is less than
$15 per share. The adjusted exercise price is the greater of a) the Average
Weighted Price or b) 75% of the exercise price. The exercise price is also
subject to adjustment based on anti-dilution provisions. Mandatory exercise
occurs if, at any time after the second anniversary of the Transaction, the
daily price of the Company's common shares exceeds $24 per share for each and
every day in any period of forty consecutive trading days. The Company has
determined that the fair value of the warrants on the date of the Transaction,
net of issuance costs, was $2,510,000.
Under applicable securities exchange rules, the Company was required to
obtain shareholder approval prior to issuing common shares if the adjusted price
at the time of conversion of the preferred shares and/or exercise of the common
stock warrants is less than the market price of the Company's common shares on
the date of the Transaction ($9.1875 per share). The Company submitted to its
shareholders at the Company's
40
42
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
annual meeting on November 8, 2000, a proposal to approve the issuance of common
shares upon conversion of the preferred shares and/or exercise of the warrants,
at an adjusted conversion price per share if required, which is less than the
market price per common share on the date of the Transaction. This approval was
obtained. Because the Company had not obtained shareholder approval as of June
30, 2000, the proceeds from the issuance of the preferred shares were classified
as temporary equity. Due to the shareholder approval, the preferred shares have
been reclassified to permanent equity in the June 30, 2001 balance sheet.
NOTE 15 -- 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):
NORTH
AMERICA,
EXCLUDING
UNITED UNITED ASIA/
STATES STATES EUROPE PACIFIC
------- --------- ------- -------
FISCAL 2001
Total revenue.................................. $88,615 $4,103 $14,736 $10,832
Operating income (loss) before amortization of
intangibles and special charges.............. (8,136) 2,115 259 (2,204)
Operating income (loss)........................ (26,095) 2,115 (189) (2,238)
Long-lived assets.............................. 6,793 29 312 512
FISCAL 2000
Total revenue.................................. $98,739 $4,326 $13,941 $11,902
Operating income (loss) before amortization of
intangibles and special charges.............. (982) 1,881 (3,376) (1,077)
Operating income (loss)........................ (7,618) 1,881 (3,904) (1,155)
Long-lived assets.............................. 7,099 36 383 468
FISCAL 1999
Total revenue.................................. $95,696 $5,254 $16,400 $11,722
Operating income (loss) before amortization of
intangibles and special charges.............. 8,569 1,469 (806) 797
Operating income (loss)........................ 6,259 1,469 (1,383) 709
Long-lived assets.............................. 7,085 245 392 475
NOTE 16 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and lawsuits in the ordinary course of its
business. It is the Company's policy to vigorously defend any action brought
against it, to the fullest extent, in the normal legal process. In the opinion
of management, the outcome of these actions, which is not clearly determinable
at the present time, are either adequately covered by insurance, or if not
insured, will not, in the aggregate, have a material adverse effect upon the
Company's financial position or its results of future operations.
41
43
FRONTSTEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 17 -- SALE OF VISUAL APPLICATIONS SOFTWARE
Effective June 21, 2000, the Company sold certain assets of its Visual
Applications Software, Inc. subsidiary for $2,915,000. The Company has
recognized a $429,000 net loss in connection with the sale of which
approximately $1,200,000 includes write-off of purchased goodwill. The costs
related to the disposition of Visual Applications Software, Inc. are included in
"restructuring and other charges" in the Consolidated Statements of Operations
for the year ended June 30, 2000.
NOTE 18 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED
-----------------------------------------------
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30
------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 2001
Total revenue.......................... $29,018 $27,172 $34,063 $28,033
Gross margin........................... 16,263 12,356 19,008 13,746
Operating loss......................... (4,797) (15,090) (1,285) (5,235)
Net loss............................... (5,000) (15,348) (957) (3,549)
Basic loss per common share............ (0.66) (2.03) (0.13) (0.47)
Diluted loss per common share.......... (0.66) (2.03) (0.13) (0.47)
FISCAL 2000
Total revenue.......................... $30,989 $31,468 $34,380 $32,071
Gross margin........................... 15,150 17,340 18,726 17,704
Operating income (loss)................ (10,823) (2,379) 668 1,738
Net income (loss)...................... (9,534) (1,854) 288 895
Basic income (loss) per common share... (1.27) (0.25) 0.04 0.12
Diluted income (loss) per common
share............................... (1.27) (0.25) 0.04 0.12
NOTE 19 -- SUBSEQUENT EVENTS
In July 2001, the Company executed a new credit facility with Foothill
Capital Corporation (the "Foothill Credit Facility"). The Foothill Credit
Facility includes a $15,000,000, three-year term note and a $10,000,000
revolving credit facility. Availability under the Foothill Credit Facility is
based on and secured by qualifying accounts receivable originating within the
United States and Canada. The revolving credit facility bears interest either at
the Federal Funds rate plus 1.5%, or at the Eurodollar market rate plus 3.0%.
The term note bears interest at the rate of 10.5% plus 1.5% per annum added to
principal. The term note is payable in monthly installments commencing October
1, 2001. The Foothill Credit Facility is subject to customary terms and
conditions and includes financial covenants for maintenance of a minimum
tangible net worth, a minimum level of earnings before interest, taxes,
depreciation and amortization and a maximum ratio of debt to earnings before
interest, taxes, depreciation and amortization. The proceeds from the Foothill
Credit Facility were used to repay, in full, the Company's Credit Facility.
In connection with the Foothill Credit Facility, Foothill Capital
Corporation was granted 550,000 warrants to purchase common stock priced at the
current market price as of the close of the deal ($3.36 per share), which expire
in July 2006. The warrants will be recorded as a debt discount and are subject
to certain anti-dilution provisions as defined in the agreement.
Additionally, in July 2001, the Company repriced 453,546 existing warrants
to purchase common stock issued in fiscal year 2000 pursuant to the preferred
stock private placement, with an original exercise price of $15 per share to
$3.36 per share, which will result in a charge to earnings per share in the
first quarter of fiscal year 2002.
42
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company filed a current report on Form 8-K, dated November 8, 2000, to
report under Item 4 (Changes in Registrant's Certifying Accountant) that
effective November 8, 2000, the registrant appointed KPMG LLP as its Certifying
Accountant. Ernst & Young LLP was previously the principal accountants for
Frontstep. The decision to change accountants was approved by the Audit
Committee and the Board of Directors.
In connection with the audits of the two fiscal years ended June 30, 2000
and during the subsequent interim period through September 30, 2000, there were
no disagreements with Ernst & Young LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
section entitled "Election of Directors" which appears in our Definitive Proxy
Statement for the Annual Meeting of Shareholders, to be held on November 7,
2001, to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934 within 120 days after the
end of our fiscal year. Certain other information required by this Item with
respect to executive officers of the Company is set forth in Part I hereof under
"Item 1. Business -- Executive Officers of the Registrant".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
section entitled "Compensation, Meetings and Committees of Directors" and
"Executive Compensation" which appear in our Definitive Proxy Statement for the
Annual Meeting of Shareholders, to be held on November 7, 2001, to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A of the
Securities Exchange Act of 1934 within 120 days after the end of our fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section entitled "Principal Holders of Securities" which appears in our
Definitive Proxy Statement for the Annual Meeting of Shareholders, to be held on
November 7, 2001, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934 within 120
days after the end of our fiscal year.
ITEM 13. CERTAIN BENEFICIAL RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Executive Compensation -- Certain Transaction and
Relationships" which appears in our Definitive Proxy Statement for the Annual
Meeting of Shareholders, to be held on November 7, 2001, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of our fiscal year.
43
45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company and
its subsidiaries are included in Item 8:
Reports of Independent Auditors
Consolidated Balance Sheets as of June 30, 2001 and 2000
Consolidated Statements of Operations for the Years Ended June 30, 2001,
2000 and 1999
Consolidated Statements of Shareholders' Equity for the Years Ended June
30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended June 30, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are either not
required under the related instructions, are inapplicable and therefore have
been omitted, or the required information is provided in the Consolidated
Financial Statements of the Company and its subsidiaries or Notes thereto.
(a)(3) Exhibits
The following exhibits are included in this Annual Report on Form 10-K:
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 Registrant's Annual
Inc.) (the "Registrant") (as filed on Report on Form 10-K for the fiscal year
February 8, 1991) ended June 30, 1997 (File No. 0-19024)
3(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation of the Exhibit 3(a)(2) to Registrant's Annual
Registrant (as filed on July 16, 1996) Report on Form 10-K for the fiscal year
ended June 30, 1997 (File No. 0-19024)
3(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation, as amended, Exhibit 3(a)(3) to Registrant's
of the Registrant (as filed with the Quarterly Report on Form 10-Q for the
Ohio Secretary of State on May 10, fiscal quarter ended March 31, 2000
2000) (File No. 0-19024)
3(a)(4) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation, as amended, Exhibit 3(a)(4) to Registrant's
of the Registrant (as filed with the Quarterly Report on Form 10-Q for the
Ohio Secretary of State on November 8, fiscal quarter ended September 30, 2000
2000) (File No. 0-19024)
3(a)(5) Amended Articles of Incorporation, as Incorporated herein by reference to
amended, of the Registrant (reflecting Exhibit 3(a)(5) to Registrant's
amendments through November 8, 2000 for Quarterly Report on Form 10-Q for the
purposes of Securities and Exchange fiscal quarter ended September 30, 2000
Commission reporting compliance only) (File No. 0-19024)
3(b) Amended Regulations of the Registrant Incorporated herein by reference to
Exhibit 3(b) to the Registration
Statement on Form S-1 of Registrant, as
filed with the Securities and Exchange
Commission on February 12, 1991
(Registration No. 33-38878)
4(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to
the Registrant (as filed on February 8, Exhibit 3(a)(1) to Registrant's Annual
1991) Report on Form 10-K for the fiscal year
ended June 30, 1997 (File No. 0-19024)
44
46
EXHIBIT NO. DESCRIPTION PAGE
----------- --------------------------------------- ---------------------------------------
4(a)(2) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation of the Exhibit 3(a)(2) to Registrant's Annual
Registrant (as filed on July 16, 1996) Report on Form 10-K for the fiscal year
ended June 30, 1997 (File No. 0-19024)
4(a)(3) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation, as amended, Exhibit 3(a)(3) to Registrant's
of the Registrant (as filed with the Quarterly Report on Form 10-Q for the
Ohio Secretary of State on May 10, fiscal quarter ended March 31, 2000
2000) (File No. 0-19024)
4(a)(4) Certificate of Amendment to the Amended Incorporated herein by reference to
Articles of Incorporation, as amended, Exhibit 3(a)(4) to Registrant's
of the Registrant (as filed with the Quarterly Report on Form 10-Q for the
Ohio Secretary of State on November 8, fiscal quarter ended September 30, 2000
2000) (File No. 0-19024)
4(a)(5) Amended Articles of Incorporation, as Incorporated herein by reference to
amended, of the Registrant (reflecting Exhibit 3(a)(5) to Registrant's
amendments through November 8, 2000 for Quarterly Report on Form 10-Q for the
purposes of Securities and Exchange fiscal quarter ended September 30, 2000
Commission reporting compliance only) (File No. 0-19024)
4(b) Amended Regulations of the Registrant Incorporated herein by reference to
Exhibit 3(b) to the Registration
Statement on Form S-1 of Registrant, as
filed with the Securities and Exchange
Commission on February 12, 1991
(Registration No. 33-38878)
4(c) Investor Rights Agreement, dated as of Incorporated herein by reference to
May 10, 2000, among the Registrant, the Exhibit 4(c) to Registrant's Quarterly
Investors identified therein and Report on Form 10-Q for the fiscal
Lawrence J. Fox quarter ended March 31, 2000 (File No.
0-19024)
4(d) Amendment to Investor Rights Agreement Incorporated herein by reference to
Exhibit 4(c) to Registrant's Current
Report on Form 8-K, as filed with the
Securities and Exchange Commission on
August 30, 2000 (File No. 0-19024)
4(e) Warrant for the Purchase of Shares of Filed herein
Common Stock of the Registrant issued
to Morgan Stanley Dean Witter Venture
Partners IV, L.P. and Exhibit A,
identifying other identical warrants
issued to the Investors identified on
Exhibit A, for the number of common
shares identified on Exhibit A, on the
dates indicated
4(f) Assignment and Assumption Agreement, by Incorporated herein by reference to
and between Morgan Stanley Dean Witter Exhibit 4(g) to Registrant's Quarterly
Equity Funding, Inc. and the Report on Form 10-Q for the fiscal
Originators Investment Plan, L.P., quarter ended December 31, 2000 (File
dated November 24, 2000 No. 0- 19024)
4(g) Common Share Purchase Warrant, dated Filed herein
July 17, 2001, issued to Foothill
Capital Corporation
4(h) Registration Rights Agreement, dated Filed herein
July 17, 2001, by and between the
Registrant and Foothill Capital
Corporation
45
47
EXHIBIT NO. DESCRIPTION PAGE
----------- --------------------------------------- ---------------------------------------
4(i) Share Exchange Agreement, dated January Incorporated herein by reference to
9, 1997 Exhibit 99 to Registrant's Current
Report on Form 8-K, as filed with the
Securities and Exchange Commission on
January 24, 1997 (File No. 0-19024)
10(a) Lease Agreement dated April 3, 1991 for Incorporated herein by reference to
corporate offices located at 2800 Exhibit 10(c) to Registrant's Annual
Corporate Exchange Drive, Columbus, Report on Form 10-K for the fiscal year
Ohio ended June 30, 1991 (File No. 0-19024)
10(b) Amendment to corporate offices lease Incorporated herein by reference to
Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(c) Second Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(c) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(d) Third Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(c) to Registrants' Annual
Report on Form 10-K for the fiscal year
ended June 30, 1994 (File No. 0-19024)
10(e) Fourth Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(f) Fifth Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(f) to Registrants' Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(g) Sixth Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(g) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 2000 (File No. 0-19024)
10(h) Eighth Amendment to corporate offices Incorporated herein by reference to
lease, with Seventh Amendment to Exhibit 10(h) to Registrant's Annual
corporate offices lease attached as Report on Form 10-K for the fiscal year
"Exhibit A" ended June 30, 2000 (File No. 0-19024)
10(i) Progress Software Application Partner Incorporated herein by reference to
Agreement dated February 8, 1995 Exhibit 10(e) to Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended March 31, 1995 (File No.
0-19024)
10(j) Amendment to Progress Software Incorporated herein by reference to
Application Partner Agreement dated Exhibit 10(h) to Registrants' Annual
July 1, 1997 Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(k) Second Amendment to Progress Software Incorporated herein by reference to
Application Partner Agreement dated Exhibit 10(i) to Registrants' Annual
July 1, 1998 Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(l)* Stock Option Plan for Outside Directors Incorporated herein by reference to
Exhibit 10(i) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1993 (File No. 0-19024)
46
48
EXHIBIT NO. DESCRIPTION PAGE
----------- --------------------------------------- ---------------------------------------
10(m)* Non-Qualified Stock Option Plan for Key Incorporated herein by reference to
Executives Exhibit 10(a) to Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No.
0-19024)
10(n)* Non-Qualified Stock Option Plan for Key Incorporated herein by reference to
Employees, as amended Exhibit 10(a) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1993 (File No. 0-19024)
10(o)* 1999 Non-Qualified Stock Option Plan Incorporated herein by reference to
for Key Employees Exhibit 10(n) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1999 (File No. 0-19024)
10(p)* Sasser Employment Agreement Incorporated herein by reference to
Exhibit 10(b) to Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No.
0-19024)
10(q)* Amendment to Sasser Employment Incorporated herein by reference to
Agreement Exhibit 10(p) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1999 (File No. 0-19024)
10(r)* Second Amendment to Sasser Employment Incorporated herein by reference to
Agreement Exhibit 10(q) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1999 (File No. 0-19024)
10(s)* Stock Option Agreement between the Incorporated herein by reference to
Registrant and Stephen A. Sasser dated Exhibit 10(c) to Registrant's Quarterly
January 17, 1996 Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No.
0-19024)
10(t) Employee Stock Purchase Plan, as Incorporated herein by reference to
approved on July 8, 1996 and as amended Exhibit 10(a)(a) to Registrant's Annual
on November 11, 1998 Report on Form 10-K for the fiscal year
ended June 30, 2000 (File No. 0-19024)
10(u) Loan and Security Agreement, by and Filed herein
among the Registrant, Frontstep
Solutions Group, Inc., brightwhite
solutions, inc. and Frontstep Canada,
Inc., as Borrowers, and the Lenders
signatory thereto, as Lenders, and
Foothill Capital Corporation, as
Arranger and Administrative Agent
10(v) Common Share Purchase Warrant, dated Filed herein at Exhibit 4(g)
July 17, 2001, issued to Foothill
Capital Corporation
10(w) Registration Rights Agreement, dated Filed herein at Exhibit 4(h)
July 17, 2001, by and between the
Registrant and Foothill Capital
Corporation
10(x) Pledge and Security Agreement Filed herein
(Foreign), dated July 17, 2001, made by
the Registrant and Frontstep Solutions
Group, Inc., in favor of Foothill
Capital Corporation, as agent for
certain Lenders
47
49
EXHIBIT NO. DESCRIPTION PAGE
----------- --------------------------------------- ---------------------------------------
10(y) Pledge and Security Agreement Filed herein
(Domestic), dated July 17, 2001, made
by the Registrant and Frontstep
Solutions Group, Inc., in favor of
Foothill Capital Corporation, as agent
for certain Lenders
10(z) Copyright Security Agreement, dated Filed herein
July 17, 2000, made by the Registrant,
Frontstep Solutions Group, Inc. and
brightwhite solutions, inc., in favor
of Foothill Capital Corporation, as
agent for certain Lenders
10(a)(a) Trademark Security Agreement, dated Filed herein
July 17, 2001, made by the Registrant,
Frontstep Solutions Group, Inc., and
brightwhite solutions, inc., in favor
of Foothill Capital Corporation, as
agent for certain Lenders
10(a)(b) Intercompany Subordination Agreement, Filed herein
dated July 17, 2001, made among the
Registrant, Frontstep Solutions Group,
Inc., brightwhite solutions, inc.,
Frontstep Canada, Inc., and other
future obligors, and Foothill Capital
Corporation, as agent for certain
Lenders
10(a)(c) Securities Purchase Agreement, dated as Incorporated herein by reference to
of May 10, 2000, between the Registrant Exhibit 10(a) to Registrant's Quarterly
and the Investors identified therein Report on Form 10-Q for the fiscal
quarter ended March 31, 2000 (File No.
0-19024)
10(a)(d) Investor Rights Agreement, dated as of Incorporated herein by reference to
May 10, 2000, among the Registrant, the Exhibit 4(c) to Registrant's Quarterly
Investors identified therein and Report on Form 10-Q for the fiscal
Lawrence J. Fox quarter ended March 31, 2000 (File No.
0-19024)
10(a)(e) Amendment to Investor Rights Agreement Incorporated herein by reference to
Exhibit 4(c) to Registrant's Current
Report on Form 8-K, as filed with the
Securities and Exchange Commission on
August 30, 2000 (File No. 0-19024)
10(a)(f) Warrant for the Purchase of Shares of Filed herein at Exhibit 4(e)
Common Stock of the Registrant issued
to Morgan Stanley Dean Witter Venture
Partners IV, L.P. and Exhibit A,
identifying other identical warrants
issued to the Investors identified on
Exhibit A, for the number of common
shares identified on Exhibit A, on the
dates indicated
10(a)(g) Assignment and Assumption Agreement, by Incorporated herein by reference to
and between Morgan Stanley Dean Exhibit 4(g) to Registrant's Quarterly
Witter Equity Funding, Inc. and the Report on Form 10-Q for the fiscal
Originators Investment Plan, L.P., quarter ended December 31, 2000 (File
dated November 24, 2000 No. 0- 19024)
21 Subsidiaries of the Registrant Filed herein
23 Consents of Independent Auditors Filed herein
24 Powers of Attorney Filed herein
48
50
---------------
* Indicates management contracts or compensatory plans or arrangements that
are required to be filed as an exhibit to this Annual Report on Form 10-K
for the fiscal year ended June 30, 2001
(b) There were no reports on Form 8-K filed during the three months ended
June 30, 2001.
49
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 27th day of
September, 2001.
FRONTSTEP, INC.
By: /s/ STEPHEN A. SASSER
------------------------------------
Stephen A. Sasser
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 27th day of September, 2001.
SIGNATURE TITLE
--------- -----
* Chairman of the Board and Director
---------------------------------------------------
Lawrence J. Fox
* President, Chief Executive Officer and Director
---------------------------------------------------
Stephen A. Sasser
* Vice President, Finance, Chief
--------------------------------------------------- Financial Officer and Secretary
Daniel P. Buettin Principal Financial and Accounting Officer
* Director
---------------------------------------------------
John T. Tait
* Director
---------------------------------------------------
Duke W. Thomas
* Director
---------------------------------------------------
Larry L. Liebert
* Director
---------------------------------------------------
James A. Rutherford
* Director
---------------------------------------------------
Roger D. Blackwell
* Director
---------------------------------------------------
Guy de Chazal
* Director
---------------------------------------------------
Barry Goldsmith
By Power of Attorney
/s/ DANIEL P. BUETTIN
---------------------------------------------------
Daniel P. Buettin (Attorney-in-Fact)
50
52
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 Registrant's Annual
Inc.) (the "Registrant") (as filed on Report on Form 10-K for the fiscal year
February 8, 1991) ended June 30, 1997 (File No. 0-19024)
3(a)(2) Certificate of Amendment to the Incorporated herein by reference to
Amended Articles of Incorporation of Exhibit 3(a)(2) to Registrant's Annual
the Registrant (as filed on July 16, Report on Form 10-K for the fiscal year
1996) ended June 30, 1997 (File No. 0-19024)
3(a)(3) Certificate of Amendment to the Incorporated herein by reference to
Amended Articles of Incorporation, as Exhibit 3(a)(3) to Registrant's Quarterly
amended, of the Registrant (as filed Report on Form 10-Q for the fiscal
with the Ohio Secretary of State on quarter ended March 31, 2000 (File No.
May 10, 2000) 0-19024)
3(a)(4) Certificate of Amendment to the Incorporated herein by reference to
Amended Articles of Exhibit 3(a)(4) to Registrant's Quarterly
Incorporation, as amended, of the Report on Form 10-Q for the fiscal
Registrant (as filed with the quarter ended September 30, 2000 (File
Ohio Secretary of State on No. 0-19024)
November 8, 2000)
3(a)(5) Amended Articles of Incorporated herein by reference to
Incorporation, as amended, of the Exhibit 3(a)(5) to Registrant's Quarterly
Registrant (reflecting amendments Report on Form 10-Q for the fiscal
through November 8, 2000 for quarter ended September 30, 2000 (File
purposes of Securities and No. 0-19024)
Exchange Commission reporting
compliance only)
3(b) Amended Regulations of the Registrant Incorporated herein by reference to
Exhibit 3(b) to the Registration
Statement on Form S-1 of Registrant, as
filed with the Securities and Exchange
Commission on February 12, 1991
(Registration No. 33-38878)
4(a)(1) Amended Articles of Incorporation of Incorporated herein by reference to
the Registrant (as filed on February Exhibit 3(a)(1) to Registrant's Annual
8, 1991) Report on Form 10-K for the fiscal year
ended June 30, 1997 (File No. 0-19024)
4(a)(2) Certificate of Amendment to the Incorporated herein by reference to
Amended Articles of Incorporation Exhibit 3(a)(2) to Registrant's Annual
of the Registrant (as filed on July Report on Form 10-K for the fiscal year
16, 1996) ended June 30, 1997 (File No. 0-19024)
53
4(a)(3) Certificate of Amendment to the Incorporated herein by reference to
Amended Articles of Incorporation, as Exhibit 3(a)(3) to Registrant's Quarterly
amended, of the Registrant (as filed Report on Form 10-Q for the fiscal
with the Ohio Secretary of State on quarter ended March 31, 2000 (File No.
May 10, 2000) 0-19024)
4(a)(4) Certificate of Amendment to the Incorporated herein by reference to
Amended Articles of Exhibit 3(a)(4) to Registrant's Quarterly
Incorporation, as amended, of the Report on Form 10-Q for the fiscal
Registrant (as filed with the quarter ended September 30, 2000 (File
Ohio Secretary of State on No. 0-19024)
November 8, 2000)
4(a)(5) Amended Articles of Incorporated herein by reference to
Incorporation, as amended, of the Exhibit 3(a)(5) to Registrant's Quarterly
Registrant (reflecting amendments Report on Form 10-Q for the fiscal
through November 8, 2000 for quarter ended September 30, 2000 (File
purposes of Securities and No. 0-19024)
Exchange Commission reporting
compliance only)
4(b) Amended Regulations of the Registrant Incorporated herein by reference to
Exhibit 3(b) to the Registration
Statement on Form S-1 of Registrant, as
filed with the Securities and Exchange
Commission on February 12, 1991
(Registration No. 33-38878)
4(c) Investor Rights Agreement, dated as Incorporated herein by reference to
of May 10, 2000, among the Exhibit 4(c) to Registrant's Quarterly
Registrant, the Investors identified Report on Form 10-Q for the fiscal
therein and Lawrence J. Fox quarter ended March 31, 2000 (File No.
0-19024)
4(d) Amendment to Investor Rights Agreement Incorporated herein by reference to
Exhibit 4(c) to Registrant's Current
Report on Form 8-K, as filed with the
Securities and Exchange Commission on
August 30, 2000 (File No. 0-19024)
4(e) Warrant for the Purchase of Shares of Filed herein
Common Stock of the Registrant issued
to Morgan Stanley Dean Witter Venture
Partners IV, L.P. and Exhibit A,
identifying other identical warrants
issued to the Investors identified on
Exhibit A, for the number of common
shares identified on Exhibit A, on
the dates indicated
54
4(f) Assignment and Assumption Agreement, Incorporated herein by reference to
by and between Morgan Stanley Dean Exhibit 4(g) to Registrant's Quarterly
Witter Equity Funding, Inc. and the Report on Form 10-Q for the fiscal
Originators Investment Plan, L.P., quarter ended December 31, 2000 (File No.
dated November 24, 2000 0-19024)
4(g) Common Share Purchase Warrant, dated Filed herein
July 17, 2001, issued to Foothill
Capital Corporation
4(h) Registration Rights Agreement, dated Filed herein
July 17, 2001, by and between the
Registrant and Foothill Capital
Corporation
4(i) Share Exchange Agreement, dated Incorporated herein by reference to
January 9, 1997 Exhibit 99 to Registrant's Current Report
on Form 8-K, as filed with the Securities
and Exchange Commission on January 24,
1997 (File No. 0-19024)
10(a) Lease Agreement dated April 3, 1991 Incorporated herein by reference to
for corporate offices located at 2800 Exhibit 10(c) to Registrant's Annual
Corporate Exchange Drive, Columbus, Report on Form 10-K for the fiscal year
Ohio ended June 30, 1991 (File No. 0-19024)
10(b) Amendment to corporate offices lease Incorporated herein by reference to
Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(c) Second Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(c) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(d) Third Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(c) to Registrants' Annual
Report on Form 10-K for the fiscal year
ended June 30, 1994 (File No. 0-19024)
10(e) Fourth Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
55
10(f) Fifth Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(f) to Registrants' Annual
Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(g) Sixth Amendment to corporate offices Incorporated herein by reference to
lease Exhibit 10(g) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 2000 (File No. 0-19024)
10(h) Eighth Amendment to corporate offices Incorporated herein by reference to
lease, with Seventh Amendment to Exhibit 10(h) to Registrant's Annual
corporate offices lease attached as Report on Form 10-K for the fiscal year
"Exhibit A" ended June 30, 2000 (File No. 0-19024)
10(i) Progress Software Application Partner Incorporated herein by reference to
Agreement dated February 8, 1995 Exhibit 10(e) to Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended March 31, 1995 (File No.
0-19024)
10(j) Amendment to Progress Software Incorporated herein by reference to
Application Partner Agreement dated Exhibit 10(h) to Registrants' Annual
July 1, 1997 Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(k) Second Amendment to Progress Software Incorporated herein by reference to
Application Partner Agreement dated Exhibit 10(i) to Registrants' Annual
July 1, 1998 Report on Form 10-K for the fiscal year
ended June 30, 1998 (File No. 0-19024)
10(l)* Stock Option Plan for Outside Incorporated herein by reference to
Directors Exhibit 10(i) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1993 (File No. 0-19024)
10(m)* Non-Qualified Stock Option Plan for Incorporated herein by reference to
Key Executives Exhibit 10(a) to Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No.
0-19024)
10(n)* Non-Qualified Stock Option Plan for Incorporated herein by reference to
Key Employees, as amended Exhibit 10(a) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1993 (File No. 0-19024)
56
10(o)* 1999 Non-Qualified Stock Option Plan Incorporated herein by reference to
for Key Employees Exhibit 10(n) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1999 (File No. 0-19024)
10(p)* Sasser Employment Agreement Incorporated herein by reference to
Exhibit 10(b) to Registrant's Quarterly
Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No.
0-19024)
10(q)* Amendment to Sasser Employment Incorporated herein by reference to
Agreement Exhibit 10(p) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1999 (File No. 0-19024)
10(r)* Second Amendment to Sasser Employment Incorporated herein by reference to
Agreement Exhibit 10(q) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended June 30, 1999 (File No. 0-19024)
10(s)* Stock Option Agreement between the Incorporated herein by reference to
Registrant and Stephen A. Sasser Exhibit 10(c) to Registrant's Quarterly
dated January 17, 1996 Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No.
0-19024)
10(t) Employee Stock Purchase Plan, as Incorporated herein by reference to
approved on July 8, 1996 and as Exhibit 10(a)(a) to Registrant's Annual
amended on November 11, 1998 Report on Form 10-K for the fiscal year
ended June 30, 2000 (File No. 0-19024)
10(u) Loan and Security Agreement, by and Filed herein
among the Registrant, Frontstep
Solutions Group, Inc., brightwhite
solutions, inc. and Frontstep Canada,
Inc., as Borrowers, and the Lenders
signatory thereto, as Lenders, and
Foothill Capital Corporation, as
Arranger and Administrative Agent
10(v) Common Share Purchase Warrant, dated Filed herein at Exhibit 4(g)
July 17, 2001, issued to Foothill
Capital Corporation
10(w) Registration Rights Agreement, dated Filed herein at Exhibit 4(h)
July 17, 2001, by and between the
Registrant and Foothill Capital
Corporation
57
10(x) Pledge and Security Agreement Filed herein
(Foreign), dated July 17, 2001, made
by the Registrant and Frontstep
Solutions Group, Inc., in favor of
Foothill Capital Corporation, as
agent for certain Lenders
10(y) Pledge and Security Agreement Filed herein
(Domestic), dated July 17, 2001, made
by the Registrant and Frontstep
Solutions Group, Inc., in favor of
Foothill Capital Corporation, as
agent for certain Lenders
10(z) Copyright Security Agreement, dated Filed herein
July 17, 2000, made by the
Registrant, Frontstep Solutions
Group, Inc. and brightwhite
solutions, inc., in favor of Foothill
Capital Corporation, as agent for
certain Lenders
10(a)(a) Trademark Security Agreement, dated Filed herein
July 17, 2001, made by the
Registrant, Frontstep Solutions
Group, Inc., and brightwighte
solutions, inc., in favor of Foothill
Capital Corporation, as agent for
certain Lenders
10(a)(b) Intercompany Subordination Agreement, Filed herein
dated July 17, 2001, made among the
Registrant, Frontstep Solutions
Group, Inc., brightwhite solutions,
inc., Frontstep Canada, Inc., and
other future obligors, and Foothill
Capital Corporation, as agent for
certain Lenders
10(a)(c) Securities Purchase Agreement, Incorporated herein by reference to
dated as of May 10, 2000, between Exhibit 10(a) to Registrant's Quarterly
the Registrant and the Investors Report on Form 10-Q for the fiscal
identified therein quarter ended March 31, 2000 (File No.
0-19024)
10(a)(d) Investor Rights Agreement, dated Incorporated herein by reference to
as of May 10, 2000, among the Exhibit 4(c) to Registrant's Quarterly
Registrant, the Investors Report on Form 10-Q for the fiscal
identified therein and Lawrence quarter ended March 31, 2000 (File No.
J. Fox 0-19024)
58
10(a)(e) Amendment to Investor Rights Incorporated herein by reference to
Agreement Exhibit 4(c) to Registrant's Current
Report on Form 8-K, as filed with the
Securities and Exchange Commission on
August 30, 2000 (File No. 0-19024)
10(a)(f) Warrant for the Purchase of Filed herein at Exhibit 4(e)
Shares of Common Stock of the
Registrant issued to Morgan
Stanley Dean Witter Venture
Partners IV, L.P. and Exhibit A,
identifying other identical
warrants issued to the Investors
identified on Exhibit A, for the
number of common shares
identified on Exhibit A, on the
dates indicated
10(a)(g) Assignment and Assumption Agreement, Incorporated herein by reference to
by and between Morgan Stanley Dean Exhibit 4(g) to Registrant's Quarterly
Witter Equity Funding, Inc. and the Report on Form 10-Q for the fiscal
Originators Investment Plan, L.P., quarter ended December 31, 2000 (File No.
dated November 24, 2000 0-19024)
21 Subsidiaries of the Registrant Filed herein
23 Consent of Independent Auditors Filed herein
24 Powers of Attorney Filed herein
----------
*Indicates management contracts or compensatory plans or arrangements that are
required to be filed as an exhibit to this Annual Report on Form 10-K for the
fiscal year ended June 30, 2001
EX-4.E
3
l90205aex4-e.txt
EXHIBIT 4(E)
1
EXHIBIT 4(e) TO FRONSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
SYMIX SYSTEMS, INC.
WARRANT FOR THE PURCHASE OF SHARES OF
COMMON STOCK OF SYMIX SYSTEMS, INC.
NO. 1-A WARRANT TO PURCHASE
217,320 SHARES
THIS WARRANT AND THE SECURITIES TO BE ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE THEREWITH. THIS WARRANT AND THE SECURITIES TO BE
ACQUIRED UPON EXERCISE OF THIS WARRANT ALSO ARE SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, VOTING AND OTHER MATTERS AS SET FORTH IN THE
INVESTOR RIGHTS AGREEMENT (AS HEREIN DEFINED), COPIES OF WHICH MAY BE
OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY.
FOR VALUE RECEIVED, SYMIX SYSTEMS, INC., an Ohio corporation (the
"COMPANY"), hereby certifies that MORGAN STANLEY DEAN WITTER VENTURE PARTNERS
IV, L.P., its successor or permitted assigns (the "HOLDER"), is entitled,
subject to the provisions of this Warrant (the "WARRANT"), to purchase from the
Company, at the times specified herein, up to an aggregate of 217,320 fully paid
and non-assessable Common Shares (as hereinafter defined), at a purchase price
per share equal to the Exercise Price (as hereinafter defined). The number of
Common Shares to be received upon the exercise of this Warrant and the price to
be paid for a Common Share are subject to adjustment from time to time as
hereinafter set forth. This Warrant and the Warrant Shares (as hereinafter
defined) may be assigned, transferred, sold, offered for sale or exercised by
the Holder only upon compliance with the terms and conditions hereof.
3
1. Definitions. (a) The following terms, as used herein, have the
following meanings:
"AFFILIATE" shall have the meaning given to such term in Rule 12b-2
promulgated under the Securities and Exchange Act of 1934, as amended.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"COMMON SHARES" means the common shares, no par value, of the Company.
"DULY ENDORSED" means duly endorsed in blank by the Person or Persons
in whose name a stock certificate is registered or accompanied by a duly
executed stock assignment separate from the certificate with the signature(s)
thereon guaranteed by a commercial bank or trust company or a member of a
national securities exchange or of the National Association of Securities
Dealers, Inc.
"EXERCISE PRICE" means $15.00 per Warrant Share, such Exercise Price to
be adjusted from time to time as provided herein.
"EXPIRATION DATE" means 5:00 p.m. New York City time on the fifth
anniversary of the date hereof.
"INVESTOR RIGHTS AGREEMENT" means the Investor Rights Agreement dated
as of the date hereof among the Company and the shareholders listed on the
signature pages thereto.
"PERSON" means an individual, partnership, limited liability company,
corporation, trust, joint stock company, association, joint venture, or any
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"HOLDERS" means the original Holders of the Warrants issued pursuant to
the Securities Purchase Agreement, or if any such original Holder so elects, any
transferee of all or any portion of this Warrant whom such original Holder shall
have designated by written notice to the Company. Any successor Holder
designated pursuant to the immediately preceding sentence shall also have the
right upon any subsequent transfer to designate a successor Holder in the manner
described above.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement
dated as of May 10, 2000 among the Company and the Investors listed on the
signature pages thereto, providing for the purchase and issuance of the Series A
Convertible Participating Preferred Stock and the Warrants.
2
4
"WARRANT SHARES" means the shares of Common Stock deliverable upon
exercise of this Warrant, as adjusted from time to time.
(b) Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Investor Rights Agreement.
2. Exercise of Warrant.
(a) Any sale, transfer, assignment or hypothecation of this Warrant,
whether in whole or in part, must be in compliance with Paragraph 12 of this
Warrant. Subject to the other terms and conditions of this Warrant, the Holder
is entitled to exercise this Warrant in whole or in part at any time, or from
time to time, until the Expiration Date or, if such day is not a Business Day,
then on the next succeeding day that shall be a Business Day. To exercise this
Warrant, the Holder shall execute and deliver to the Company a Warrant Exercise
Notice substantially in the form annexed hereto. Subject to paragraph 2(e)
below, no earlier than ten days after delivery of the Warrant Exercise Notice,
the Holder shall deliver to the Company this Warrant, including the Warrant
Exercise Subscription Form forming a part hereof duly executed by the Holder,
together with payment of the applicable Exercise Price. Upon such delivery and
payment, the Holder shall be deemed to be the holder of record of the Warrant
Shares subject to such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder.
(b) The Exercise Price may be paid by wire transfer or by certified or
official bank check or bank cashier's check payable to the order of the Company
or by any combination of such cash or check.
(c) If the Holder exercises this Warrant in part, this Warrant shall be
surrendered by the Holder to the Company and a new Warrant of the same tenor and
for the unexercised number of Warrant Shares shall be executed by the Company.
The Company shall register the new Warrant in the name of the Holder or in such
name or names of its transferee pursuant to paragraph 6 hereof as may be
directed in writing by the Holder and deliver the new Warrant to the Person or
Persons entitled to receive the same.
(d) Upon exercise or partial exercise and surrender of this Warrant in
conformity with the foregoing provisions, the Company shall transfer to the
Holder of this Warrant appropriate evidence of ownership of the Common Shares or
other securities or property (including any money) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of, the
name or names of the Holder or such transferee as may be directed in writing by
the Holder, and shall deliver such evidence of ownership and any other
securities or
3
5
property (including any money) to the Person or Persons entitled to receive the
same, together with an amount in cash in lieu of any fraction of a share as
provided in paragraph 5 below.
(e) In lieu of exercising the Warrant pursuant to paragraph 2(a), the
Holder may elect in accordance with the procedures set forth in this paragraph 2
to exchange this Warrant for shares of Common Stock, in which event the Company
will issue to the Holder the number of shares of Common Stock equal to the
result obtained by (a) subtracting B from A, (b) multiplying the difference by
C, and (c) dividing the product by A as set forth in the following equation:
X = (A - B) x C where:
-----------
A
X = the number of shares of Common Stock
issuable upon exchange pursuant to this
paragraph 2(e).
A = the Daily Price (as defined below) on the
day immediately preceding the date on which
the Holder delivers written notice to the
Company pursuant to paragraph 2(a).
B = the Exercise Price.
C = the number of shares of Common Stock as to
which this Warrant being exchanged would
other be exercisable for pursuant to
paragraph 2(a).
If the foregoing calculation results in a negative number, then no
shares of Common Stock shall be issued pursuant to this paragraph 2(e).
(f) Mandatory Exercise. (i) If at any time after the second
anniversary of the date of issuance of this Warrant the Daily Price for a Common
Share for each and every day of any period of 40 consecutive trading days
exceeds $24, then this Warrant shall be automatically exercised on a net
issuance basis in accordance with paragraph (e) above at the Exercise Price, as
adjusted, then in effect as of the close of business on the last trading day of
the 40 trading day period (a "MANDATORY EXERCISE EVENT") into Common Shares (or
other securities or property into which this Warrant is then convertible). This
Warrant as so exercised shall be treated as having been surrendered by the
Holder thereof for exercise pursuant to Section 2 as of the close of business on
the last trading day of the 40 trading day period.
4
6
(ii) If the Company shall at any time after the date of issuance of
this Warrant pay any dividend on Common Shares payable in Common Shares or
effect a subdivision or combination of the outstanding Common Shares (by
reclassification, stock split or otherwise) into a greater or lesser number of
Common Shares, then the share price referred to in clause (i) above shall be
adjusted upon the earlier of the public announcement or the occurrence of any
such event by multiplying the share price by a fraction of which the numerator
is the number of Common Shares that were outstanding immediately prior to such
event and of which the denominator is the number of Common Shares outstanding
immediately after such event; provided, however, that if thereafter, and before
such dividend is paid or such subdivision or combination is effected, the
Company legally abandons its plan to pay such dividend or to effect such
subdivision or combination, then any adjustment made to such share price by
reason of such public announcement shall be reversed, and any subsequent
adjustments, based thereon, shall be recomputed.
3. Restrictive Legend. Certificates representing Common Shares issued
pursuant to this Warrant shall bear a legend substantially in the form of the
legend set forth on the first page of this Warrant to the extent that and for so
long as such legend is required pursuant to the Investor Rights Agreement or
applicable law.
4. Reservation of Shares. The Company hereby agrees that at all times
prior to the expiration hereof there shall be reserved for issuance and delivery
upon exercise or exchange of this Warrant such number of its authorized but
unissued Common Shares or other securities of the Company from time to time
issuable upon the full exercise of the then unexercised portion of this Warrant.
All such shares shall be duly authorized and, when issued upon such exercise or
exchange, shall be validly issued, fully paid and non-assessable, free and clear
of all liens, security interests, charges and other encumbrances or restrictions
on sale and free and clear of all preemptive rights, except to the extent set
forth in the Investor Rights Agreement and as may be required under applicable
law.
5. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise or exchange of this Warrant
and in lieu of delivery of any such fractional share upon any exercise hereof,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Price Per Common Share (as defined in paragraph
8(g)) at the date of such exercise or exchange.
6. Transfer or Assignment of Warrant.
(a) This Warrant and all rights hereunder are not transferable by the
registered Holder hereof except to any Person who, prior to such transfer,
agrees in writing, in form and substance reasonably satisfactory to the Company,
to be
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bound by the terms of this Warrant and the Investor Rights Agreement in
accordance with the provisions hereof and thereof. Each Holder of this Warrant
by taking or holding the same, consents and agrees that the registered Holder
hereof may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the person entitled
to exercise the rights represented hereby.
(b) Subject to compliance with the terms of this Warrant and the
Investor Rights Agreement, the Holder of this Warrant shall be entitled, without
obtaining the consent of the Company to assign and transfer this Warrant, at any
time in whole or from time to time in part, to any Person or Persons. Subject to
the preceding sentence, upon surrender of this Warrant to the Company, together
with the attached Warrant Assignment Form duly executed, the Company shall,
without charge, execute and deliver a new Warrant for the Common Shares assigned
in the Warrant Form Assignment in the name of the assignee or assignees named in
such instrument of assignment and, if the Holder's entire interest is not being
assigned, a new Warrant for the balance of the Common Shares for which this
Warrant is then exercisable which are not so assigned in the name of the Holder
and this Warrant shall promptly be canceled.
7. Loss or Destruction of Warrant. Upon receipt by the Company of
evidence satisfactory to it (in the exercise of its reasonable discretion) of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver to the Holder a new Warrant of like tenor and date.
8. Anti-dilution Provisions.
(a) In case the Company shall at any time after the date hereof (i)
declare a dividend or make a distribution on Common Shares payable in Common
Shares, (ii) subdivide or split the outstanding Common Shares, (iii) combine or
reclassify the outstanding Common Shares into a smaller number of shares, or
(iv) issue any shares of its capital stock in a reclassification of Common
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing corporation), the Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, split, combination or
reclassification shall be proportionately adjusted so that, giving effect to
paragraph 8(i), the exercise of this Warrant after such time shall entitle the
Holder to receive the aggregate number of Common Shares or other securities of
the Company (or shares of any security into which such Common Shares have been
reclassified pursuant to clause 8(a)(iii) or 8(a)(iv) above) which, if this
Warrant had been exercised immediately prior to such time, the Holder would have
owned upon such exercise and been entitled to receive by
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virtue of such dividend, distribution, subdivision, split, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall issue or sell any Common Shares (other
than Common Shares issued (i) upon exercise of the Warrants or conversion of the
Series A Convertible Participating Preferred Shares of the Company (the
"PREFERRED SHARES"), (ii) pursuant to the Company's stock option plans or
pursuant to any similar Common Share related employee compensation plan of the
Company approved by the Company's Board of Directors or (iii) upon exercise or
conversion of any security the issuance of which caused an adjustment under
paragraphs 8(c) or 8(d) hereof) without consideration or for a consideration per
share less than the Exercise Price (the "ISSUE PRICE"), the Exercise Price to be
in effect after such issuance or sale shall be determined by multiplying the
Exercise Price in effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the sum of (x) the number of Common
Shares outstanding immediately prior to the time of such issuance or sale
multiplied by the Issue Price and (y) the aggregate consideration, if any, to be
received by the Company upon such issuance or sale, and the denominator of which
shall be the product of the aggregate number of Common Shares outstanding
immediately after such issuance or sale and the Exercise Price. In case any
portion of the consideration to be received by the Company shall be in a form
other than cash, the fair market value of such noncash consideration shall be
utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Company; provided that if the
Holders of 75% of the outstanding Warrants shall object to any such
determination, the Board of Directors shall retain an independent appraiser
reasonably satisfactory to a majority of such Holders to determine such fair
market value. The Holder shall be notified promptly of any consideration other
than cash to be received by the Company and furnished with a description of the
consideration and the fair market value thereof, as determined by the Board of
Directors.
(c) In case the Company shall fix a record date for the issuance of
rights, options or warrants to the holders of its Common Shares or other
securities entitling such holders to subscribe for or purchase for a period
expiring within 60 days of such record date Common Shares (or securities
convertible into Common Shares) at a price per Common Share (or having a
conversion price per Common Share, if a security convertible into Common Shares)
less than the Exercise Price on such record date, the maximum number of Common
Shares issuable upon exercise of such rights, options or warrants (or conversion
of such convertible securities) shall be deemed to have been issued and
outstanding as of such record date and the Exercise Price shall be adjusted
pursuant to paragraph 8(b) hereof, as though such maximum number of Common
Shares had been so issued for an
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aggregate consideration payable by the holders of such rights, options, warrants
or convertible securities prior to their receipt of such Common Shares. In case
any portion of such consideration shall be in a form other than cash, the fair
market value of such noncash consideration shall be determined as set forth in
paragraph 8(b) hereof. Such adjustment shall be made successively whenever such
record date is fixed; and in the event that such rights, options or warrants are
not so issued or expire unexercised, or in the event of a change in the number
of Common Shares to which the holders of such rights, options or warrants are
entitled (other than pursuant to adjustment provisions therein comparable to
those contained in this paragraph 8), the Exercise Price shall again be adjusted
to be the Exercise Price which would then be in effect if such record date had
not been fixed, in the former event, or the Exercise Price which would then be
in effect if such holder had initially been entitled to such changed number of
Common Shares, in the latter event.
(d) In case the Company shall issue rights, options (other than
options issued pursuant to a plan described in clause 8(b)(i)) or warrants
entitling the holders thereof to subscribe for or purchase Common Shares (or
securities convertible into Common Shares) or shall issue convertible securities
(other than the Preferred Shares), and the price per Common Share of such
rights, options, warrants or convertible securities (including, in the case of
rights, options or warrants, the price at which they may be exercised) is less
than the Exercise Price, the maximum number of Common Shares issuable upon
exercise of such rights, options or warrants or upon conversion of such
convertible securities shall be deemed to have been issued and outstanding as of
the date of such sale or issuance, and the Exercise Price shall be adjusted
pursuant to paragraph 8(b) hereof as though such maximum number of Common Shares
had been so issued for an aggregate consideration equal to the aggregate
consideration payable by the holders of such rights, options, warrants or
convertible securities prior to their receipt of such Common Shares. In case any
portion of such consideration shall be in a form other than cash, the fair
market value of such noncash consideration shall be determined as set forth in
paragraph 8(b) hereof. Such adjustment shall be made successively whenever such
rights, options, warrants or convertible securities are issued; and in the event
that such rights, options or warrants expire unexercised, or in the event of a
change in the number of Common Shares to which the holders of such rights,
options, warrants or convertible securities are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this paragraph
8), the Exercise Price shall again be adjusted to be the Exercise Price which
would then be in effect if such rights, options, warrants or convertible
securities had not been issued, in the former event, or the Exercise Price which
would then be in effect if such holders had initially been entitled to such
changed number of Common Shares, in the latter event. No adjustment of the
Exercise Price shall be made pursuant to this paragraph 8(d) to the extent that
the Exercise Price shall have been adjusted pursuant to paragraph 8(c) upon the
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setting of any record date relating to such rights, options, warrants or
convertible securities and such adjustment fully reflects the number of Common
Shares to which the holders of such rights, options, warrants or convertible
securities are entitled and the price payable therefor.
(e) In case the Company shall fix a record date for the making of a
dividend or distribution to holders of Common Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness, cash,
assets or other property (other than regular periodic dividends payable in cash
or Common Shares or rights, options or warrants referred to in, and for which an
adjustment is made pursuant to, paragraph 8(c) hereof), the Exercise Price to be
in effect after such record date shall be determined by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Market Price Per Common Share on such
record date, less the fair market value (determined as set forth in paragraph
8(b) hereof) of the portion of the assets, other property or evidence of
indebtedness so to be distributed which is applicable to one Common Share, and
the denominator of which shall be such Current Market Price Per Common Share.
Such adjustments shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Exercise
Price shall again be adjusted to be the Exercise Price which would then be in
effect if such record date had not been fixed.
(f) If the average (weighted by daily trading volume) of the Daily
Prices (as defined below) per Common Share for the 40 consecutive trading days
immediately preceding the fourth anniversary of the date of issuance of the
Series A Preferred Shares (the "AVERAGE WEIGHTED PRICE") is less than $15.00
then the Exercise Price then in effect shall be reduced to the greater of (i)
the Average Weighted Price and (ii) 75% of the Exercise Price.
(g) For the purpose of any computation under paragraph 5 or paragraph
8(b), 8(c), 8(d), 8(e) or 8(f) hereof, on any determination date the "CURRENT
MARKET PRICE PER COMMON SHARE" shall be deemed to be the average (weighted by
daily trading volume) of the Daily Prices (as defined below) per share of the
applicable class of Common Shares for the 20 consecutive trading days
immediately prior to such date. "DAILY PRICE" means (A) if such Common Shares
then are listed and traded on the New York Stock Exchange, Inc. ("NYSE"), the
closing price per share on such day as reported on the NYSE Composite
Transactions Tape; (B) if the shares of such class of Common Shares then are not
listed and traded on the NYSE, the closing price per share on such day as
reported by the principal national securities exchange on which the shares are
listed and traded; (C) if such Common Shares then are not listed and traded on
any such
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securities exchange, the last reported sale price per share on such day
on the NASDAQ Stock Market; or (D) if such Common Shares then are not traded on
the NASDAQ Stock Market, the average of the highest reported bid and lowest
reported asked price per share on such day as reported by NASDAQ. If on any
determination date such Common Shares are not quoted by any such organization,
the Current Market Price Per Common Share shall be the fair market value of such
shares on such determination date as determined by the Board of Directors of the
Company. If the Holders of 75% of the outstanding Warrants shall object to any
determination by the Board of Directors of the Company of the Current Market
Price Per Common Share, the Current Market Price Per Common Share shall be the
fair market value per share of the Common Shares as determined by an independent
appraiser retained by the Company at its expense and reasonably acceptable to
such Holders. For purposes of any computation under this paragraph 8, the number
of shares of Common Shares outstanding at any given time shall not include
shares owned or held by or for the account of the Company.
(h) All calculations under this paragraph 8 shall be made to the
nearest one tenth of a cent or to the nearest hundredth of a share, as the case
may be.
(i) In the event that, at any time as a result of the provisions of
this paragraph 8, the holder of this Warrant upon subsequent exercise or
exchange shall become entitled to receive any shares of capital stock of the
Company other than Common Shares, the number of such other shares so receivable
upon exercise or exchange of this Warrant shall thereafter be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained herein.
(j) Upon each adjustment of the Exercise Price as a result of the
calculations made in paragraphs 8(a), 8(b), 8(c), 8(d) or 8(e) hereof, the
number of shares for which this Warrant is exercisable immediately prior to the
making of such adjustment shall thereafter evidence the right to purchase, at
the adjusted Exercise Price, that number of Common Shares obtained by (i)
multiplying the number of shares covered by this Warrant immediately prior to
this adjustment of the number of shares by the Exercise Price in effect
immediately prior to such adjustment of the Exercise Price and (ii) dividing the
product so obtained by the Exercise Price in effect immediately after such
adjustment of the Exercise Price.
(k) If the Company shall fix a record date relating to the payment of a
dividend or other distribution or the issuance of rights, options or warrants as
contemplated under this paragraph 8 (which results in an adjustment to the
Exercise Price under the terms of this Warrant) and shall thereafter, and before
such dividend or distribution is paid or delivered or before such issuance,
legally abandon its plan to pay or deliver such dividend or distribution or to
make such issuance, then any adjustment made to the Exercise Price and number of
Common
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Shares purchasable upon exercise of this Warrant by reason of the fixing of such
record date shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
9. Consolidation, Merger, or Sale of Assets. In case of any
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding Common Shares) or any sale or transfer of all or substantially all
of the assets of the Company or of the Person formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
the Holder shall have the right thereafter to exercise or exchange this Warrant
for the kind and amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of Common
Shares for which this Warrant may have been exercised or exchanged immediately
prior to such consolidation, merger, sale or transfer, assuming (i) such holder
of Common Shares is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or transfer was made, as the case may be ("CONSTITUENT PERSON"), or an Affiliate
of a Constituent Person and (ii) in the case of a consolidation merger, sale or
transfer which includes an election as to the consideration to be received by
the holders, such holder of Common Shares failed to exercise such rights of
election, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each Common Share
held immediately prior to such consolidation, merger, sale or transfer by other
than a Constituent Person or an Affiliate thereof and in respect of which such
rights of election shall not have been exercised ("NON-ELECTING SHARE"), then
for the purpose of this paragraph 9 the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer by
each non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares). Adjustments for events
subsequent to the effective date of such a consolidation, merger or sale of
assets shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. In any such event, effective provisions shall be
made in the certificate or articles of incorporation of the resulting or
surviving corporation, in any contract of sale, conveyance, lease or transfer,
or otherwise so that the provisions set forth herein for the protection of the
rights of the Holder shall thereafter continue to be applicable; and any such
resulting or surviving corporation shall expressly assume the obligation to
deliver, upon exercise or exchange, such shares of stock, other securities, cash
and property. The provisions of this paragraph 9 shall similarly apply to
successive
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consolidations, mergers, sales or transfers. For purposes of this paragraph 9,
"Person" shall not include any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Company.
10. Notices. Any notice, request, demand or delivery authorized by this
Warrant shall be in writing and shall be given to the Holder or the Company, as
the case may be, at its address (or telecopier number) set forth below, or such
other address (or telecopier number) as shall have been furnished to the party
giving or making such notice, demand or delivery in accordance herewith:
If to the Company:
Symix Systems, Inc.
2800 Corporate Exchange Drive
Columbus, Ohio 43231
Telecopy: (614) 895-2972
Attention: Corporate Counsel
If to the Holder:
MSDW Venture Partners
1221 Avenue of the Americas
New York, New York 10020
Telecopy: 212-762-8424
Attention: Controller
Each such notice, request, demand or delivery shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the intended recipient confirms the receipt of such telecopy or (ii)
if given by any other means, when received at the address specified herein.
11. Rights of the Holder. Prior to the exercise or exchange of any
Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder of the Company, including, without limitation, the right to vote, to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of shareholders or any notice of any proceedings
of the Company except as may be specifically provided for herein.
12. Transferee Representations. Prior to effecting any transfer of this
Warrant or any part hereof, each prospective transferee shall represent in
writing to the Company that:
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(a) Such transferee is an "accredited investor" within the
meaning of Rule 501 under the 1933 Act and such transferee was not
organized for the specific purpose of acquiring this Warrant or the
Common Shares issuable upon exercise of this Warrant;
(b) such transferee has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to
evaluate the risks and merits of such transferee's investment in the
Company and is able financially to bear the risks thereof;
(c) such transferee has had an opportunity to obtain whatever
information concerning the Company and the Common Shares as has been
requested from the Company by such transferee in order to make such
transferee's investment decision with respect to this Warrant and the
Common Shares;
(d) this Warrant is being acquired by such transferee for such
transferee's own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof; and
(e) such transferee understands that (i) this Warrant and the
Common Shares issuable upon exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended, in reliance
upon an exemption from the registration requirements of such act
pursuant to Section 4(2) thereof or Rule 506 promulgated under such act
and under applicable state securities laws, (ii) this Warrant and the
Common Shares issuable upon exercise of this Warrant must be held
indefinitely unless a subsequent disposition thereof is registered
under such act and under applicable state securities laws or is exempt
from such registration, (iii) this Warrant and the Common Shares
issuable upon exercise of this Warrant will bear a legend to such
effect, and (iv) the Company will make a notation on its transfer books
to such effect.
13. GOVERNING LAW. THIS WARRANT AND ALL RIGHTS ARISING HEREUNDER SHALL
BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
OHIO, AND THE PERFORMANCE THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE
WITH SUCH LAWS.
14. Amendments; Waivers. Any provision of this Warrant may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the Holder and the Company, or in the case of a
waiver, by the party against whom the waiver is to be effective. No
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failure or delay by either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
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IN WITNESS WHEREOF, the Company has duly caused this Warrant
Certificate to be signed by its duly authorized officer and to be dated as of
May 10, 2000.
SYMIX SYSTEMS, INC.
By: /s/ Lawrence W. DeLeon
------------------------------------
Name: Lawrence W. DeLeon
Title: CFO
Acknowledged and Agreed:
MORGAN STANLEY DEAN WITTER VENTURE PARTNERS IV, L.P.
By: MSDW Venture Partners IV, LLC,
as general partner
By: MSDW Venture Partners IV, Inc.,
as member
By: /s/ Guy de Chazal
------------------------------------
Name: Guy de Chazal
Title: Managing Director
15
17
WARRANT EXERCISE NOTICE
(To be delivered prior to exercise of the Warrant
by execution of the Warrant Exercise Subscription Form)
To: Symix Systems, Inc.
[ ] [The undersigned hereby notifies you of its intention to exercise
the warrant to purchase common shares, no par value, of Symix Systems, Inc. held
by the undersigned (the "WARRANT"). The undersigned intends to exercise the
Warrant to purchase ___________ common shares (the "SHARES") at $______ per
Share (the Exercise Price currently in effect pursuant to the Warrant). The
undersigned intends to pay the aggregate Exercise Price for the Shares, by wire
transfer, or certified or official bank or bank cashier's check (or a
combination of cash and check) as indicated below.]
[The undersigned hereby notifies you of its intention to exchange the
Warrant on a cashless basis pursuant to Section 2(e) of the Warrant to purchase
Common Shares, no par value, of Symix Systems, Inc. Based on an exercise price
of $_______ per Share (the Exercise Price currently in effect pursuant to the
Warrant) and a Daily Price of $______, the undersigned intends to exchange the
Warrant for _________ Common Shares.]
Date:
------------------
-----------------------------------------------
(Signature of Holder)
This signature must conform in all respects
to the name of the Holder as specified on the
Warrant
-----------------------------------------------
(Street Address)
-----------------------------------------------
(City) (State) (Zip Code)
Payment: $ wire transfer
----------
$ check
----------
18
WARRANT EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of the Warrant
after delivery of Warrant Exercise Notice)
To: [Issuer]
The undersigned irrevocably exercises this Warrant for the purchase of
___________ common shares, no par value (the "SHARES"), of Symix Systems, Inc.
(the "COMPANY") at $_____ per Share (the Exercise Price currently in effect
pursuant to the Warrant) and herewith makes payment of $___________ (such
payment being made by wire transfer or by certified or official bank or bank
cashier's check payable to the order of the Company or by any permitted
combination of such wire transfer or check), all on the terms and conditions
specified in the within Warrant, surrenders this Warrant and all right, title
and interest therein to the Company and directs that the Shares deliverable upon
the exercise of this Warrant be registered or placed in the name and at the
address specified below and delivered thereto.
Date:
-------------------------
-----------------------------------
(Signature of Holder)
This signature must conform in all
respects to the name of the Holder
as specified on the Warrant
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
19
Securities and/or check to be issued to:
---------------------------------------
Please insert social security or identifying number:
---------------------------
Name:
-------------------------------------------------------------------------
Street Address:
----------------------------------------------------------------
City, State and Zip Code:
-----------------------------------------------------
Any unexercised portion of the Warrant evidenced by the within Warrant
Certificate to be issued to:
Please insert social security or identifying number:
---------------------------
Name:
--------------------------------------------------------------------------
Street Address:
----------------------------------------------------------------
City, State and Zip Code:
------------------------------------------------------
2
20
WARRANT ASSIGNMENT FORM
Dated ___________ ___, 200_
FOR VALUE RECEIVED, _______________________ hereby
irrevocably sells, assigns and transfers
unto_____________________________(the "ASSIGNEE"),
(please type or print in block letters)
--------------------------------------------------------------------------------
(insert address)
its right to purchase up to ___________ common shares, without par value, of
Symix Systems, Inc. (the "COMPANY") represented by this Warrant and does hereby
irrevocably constitute and appoint _______________________ Attorney, to transfer
the same on the books of the Company, with full power of substitution in the
premises.
Signature:
------------------------------
(Signature of Holder)
This signature must conform in
all respects to the name of the
Holder as specified on the
Warrant
21
EXHIBIT A
The following investors hold warrants, dated as of the date indicated,
for the purchase of the number of common shares, no par value, of Frontstep,
Inc. (f/k/a Symix Systems, Inc.), set forth next to their respective names. The
warrants are identical in all material respects to the warrant of Morgan Stanley
Dean Witter Venture Partners IV, L.P. set forth in Exhibit 4(e) of this Annual
Report on Form 10-K, except with respect to the number of common shares, no par
value, of Frontstep, Inc. covered by the respective warrants and the dates
executed.
Investor Date of Warrant No. of Shares
-------- --------------- -------------
Morgan Stanley Dean Witter
Venture Investors IV, L.P. May 10, 2000 25,212
Morgan Stanley Dean Witter
Venture Offshore Investors IV, L.P. May 10, 2000 8,478
Fallen Angel Equity Fund, L.P. May 10, 2000 133,334
Morgan Stanley Dean Witter
Equity Funding, Inc. November 24, 2000 65,741
Originators Investment Plan, L.P. November 24, 2000 3,461
EX-4.G
4
l90205aex4-g.txt
EXHIBIT 4(G)
1
EXHIBIT 4(g) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
EXECUTION VERSION
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.
FRONTSTEP, INC.
COMMON SHARE PURCHASE WARRANT
No. W-1 July 17, 2001
Warrant to Purchase 550,000 Common Shares
FRONTSTEP, INC., an Ohio corporation (the "Company"), for
value received, hereby certifies that FOOTHILL CAPITAL CORPORATION, a California
corporation, or its registered assigns (the "Holder"), is entitled to purchase
from the Company 550,000 shares of duly authorized, validly issued, fully paid
and nonassessable common shares, no par value, of the Company (the "Common
Shares"), at a purchase price equal to the Purchase Price (this "Warrant"), at
any time or from time to time but prior to 5:00 P.M., New York City time, on
July 17, 2006 (the "Expiration Date"), all subject to the terms, conditions and
adjustments set forth below in this Warrant. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned such terms in the
Loan Agreement.
1. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms shall have the meanings indicated:
"ADDITIONAL COMMON SHARES" shall mean all Common Shares (including
treasury shares) issued or sold (or, pursuant to Section 3.3 or 3.4, deemed to
be issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) shares issued upon the exercise of this Warrant,
(b) such number of additional shares as may become issuable upon the
exercise of this Warrant by reason of adjustments required pursuant to the
anti-dilution provisions applicable to this Warrant as in effect on the date
hereof,
(c) shares, warrants, options and other securities issued by the
Company at any time to the Holder or any Affiliate thereof,
3
(d) (i) Common Shares or options exercisable therefor, issued or to be
issued under the Company's existing employee stock option and purchase plans and
stock option plan for outside directors, each as may be amended from time to
time or under any other employee stock option or purchase plan or plans, or
pursuant to compensatory or incentive agreements, for officers, directors,
employees or consultants of the Company or any of its Subsidiaries, in each case
adopted or assumed after such date by the Company's Board of Directors; PROVIDED
in each case that the exercise or purchase price for any such share shall not be
less than 90% of the fair market value (determined in good faith by the
Company's Board of Directors) of the Common Shares on the date of the grant, and
(ii) such additional number of shares as may become issuable pursuant to the
terms of any such plans by reason of adjustments required pursuant to
antidilution provisions applicable to such securities in order to reflect any
subdivision or combination of Common Shares, by reclassification or otherwise,
or any dividend on Common Shares payable in Common Shares,
(e) (i) Common Shares issued upon the exercise of any warrants or
options, or upon conversion of any preferred shares of the Company. outstanding
on the date hereof and (ii) such additional number of shares as may become
issuable upon the exercise or conversion of any such securities by reason of
adjustments required pursuant to anti-dilution provisions applicable to such
securities as in effect on the date hereof, and
(f) Common Shares (not to exceed 500,000 Common Shares in the aggregate
as constituted on the date hereof (and subject to adjustment for stock splits,
subdividions stock dividends and similar such transactions)) issued in
connection with acquisitions of assets and/or securities of another Person in a
transaction or series of transactions, each of which is approved by the Board of
Directors of the Company.
"BUSINESS DAY" shall mean any day other than a Saturday or a Sunday or
any day on which national banks are authorized or required by law to close. Any
reference to "days" (unless Business Days are specified) shall mean calendar
days.
"COMMISSION" shall mean the Securities and Exchange Commission or any
successor agency having jurisdiction to enforce the Securities Act.
"COMMON SHARES" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Shares shall have been changed or any stock resulting from any
reclassification of such Common Shares, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"COMPANY" shall have the meaning assigned to it in the introduction to
this Warrant, such term to include any corporation or other entity which shall
succeed to or assume the obligations of the Company hereunder in compliance with
Section 4.
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"CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness,
shares of stock (other than Common Shares) or other securities directly or
indirectly convertible into or exchangeable for Additional Common Shares.
"CURRENT MARKET PRICE" shall mean, on any date specified herein, the
average of the daily Market Price during the 10 consecutive trading days before
such date, except that, if on any such date the Common Shares are not listed or
admitted for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price shall be the Market Price on
such date.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"EXPIRATION DATE" shall have the meaning assigned to it in the
introduction to this Warrant.
"FAIR VALUE" shall mean, on any date specified herein (i) in the case
of cash, the dollar amount thereof, (ii) in the case of a security, the Current
Market Price, and (iii) in all other cases, the fair value thereof (as of a date
which is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Company's Board of Directors.
"HOLDER" shall have the meaning assigned to it in the introduction to
this Warrant.
"INITIAL HOLDER" shall mean Foothill Capital Corporation.
"LOAN AGREEMENT" shall mean that certain Loan and Security Agreement,
dated as of July 17, 2001, among the Company, certain subsidiaries of the
Company, the Lender parties thereto and Foothill Capital Corporation, as the
Arranger and Administrative Agent.
"MARKET PRICE" shall mean, on any date specified herein, the amount per
Common Share, equal to (i) the last reported sale price of such Common Shares,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof regular way on such date, in
either case as officially reported on the principal national securities exchange
on which such Common Shares are then listed or admitted for trading, (ii) if
such Common Shares are not then listed or admitted for trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last reported trading price of the Common Shares on such date,
(iii) if there shall have been no trading on such date or if the Common Shares
are not so designated, the average of the closing bid and asked prices of the
Common Shares on such date as shown by the NASD automated quotation system, or
(iv) if such Common Shares are not then listed or admitted for trading on any
national exchange or quoted in the over-the-counter market, the fair value
thereof (as of a date which is within 20 days of the date as of which the
determination is to be made) determined in good faith by the Company's Board of
Directors.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
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"OPTIONS" shall mean any rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Common Shares or Convertible
Securities.
"OTHER SECURITIES" shall mean any stock (other than Common Shares) and
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Shares, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Shares or Other
Securities pursuant to Section 4 or otherwise.
"PERSON" shall mean any individual, firm, partnership, corporation,
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"PURCHASE PRICE" shall mean initially $3.36 per share, subject to
adjustment and readjustment from time to time as provided in Section 3, and, as
so adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by Section 3.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, dated as of the date hereof between the Company and the Initial
Holder.
"RESTRICTED SECURITIES" shall mean (i) any Warrants bearing the
applicable legend set forth in Section 9.1, (ii) any Common Shares (or Other
Securities) issued or issuable upon the exercise of Warrants which are (or, upon
issuance, will be) evidenced by a certificate or certificates bearing the
applicable legend set forth in such Section, and (iii) any Common Shares (or
Other Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding Common Shares (or other Securities) into a greater number of
shares by reclassification, stock splits or otherwise, or in exchange for or in
replacement of the Common Shares (or Other Securities) issued upon such
exercise, which are evidenced by a certificate or certificates bearing the
applicable legend set forth in such Section.
"RIGHTS" shall have the meaning assigned to it in Section 3.10.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any successor
statute.
"WARRANT" shall have the meaning assigned to it in the introduction to
this Warrant.
"WARRANT SHARES" means (a) the Common Shares issued or issuable upon
exercise of this Warrant in accordance with Section 2, (b) all other securities
or other property issued or issuable upon any such exercise or exchange in
accordance with this Warrant and (c) any securities of the Company distributed
with respect to the securities referred to in the preceding clauses (a) and (b).
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2. EXERCISE OF WARRANT.
2.1. MANNER OF EXERCISE; PAYMENT OF THE PURCHASE PRICE. (a) This
Warrant may be exercised by the Holder hereof, in whole or in part, at any time
or from time to time prior to the Expiration Date, by surrendering to the
Company at its principal office this Warrant, with a completed Election to
Purchase Shares in the form attached hereto as Exhibit A (or a reasonable
facsimile thereof) duly executed by the Holder and accompanied by payment of the
Purchase Price for the number of Common Shares specified in such form (the
"Aggregate Purchase Price"). Any partial exercise of this Warrant shall be for a
whole number of Warrant Shares only.
(b) Payment of the Aggregate Purchase Price may be made as follows (or
by any combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the Company
or by wire transfer to the Company, (ii) by cancellation of all or any part of
the unpaid principal amount, plus accrued interest thereon, of the
then-outstanding Obligations (as defined in the Loan Agreement) in an amount
equal to the Aggregate Purchase Price; PROVIDED, that any such cancellations
shall be applied in accordance with Section 2.4(b) of the Loan Agreement, (iii)
by cancellation of such number of Common Shares otherwise issuable to the Holder
upon such exercise as shall be specified for cancellation in such Election to
Purchase Shares, such that the excess of the aggregate Current Market Price of
such specified number of shares on the date of exercise over the portion of the
Aggregate Purchase Price attributable to such shares shall equal the Aggregate
Purchase Price attributable to the Common Shares to be issued upon such
exercise, in which case such excess amount shall be deemed to have been paid to
the Company and the number of shares issuable upon such exercise shall be
reduced by such number specified for cancellation, or (iv) by surrender to the
Company for cancellation certificates representing Common Shares of the Company
owned by the Holder (properly endorsed for transfer in blank) having a Current
Market Price on the date of Warrant exercise equal to the Aggregate Purchase
Price.
2.2. WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to, and the
Purchase Price shall have been received by, the Company as provided in Section
2.1, and, to the extent permitted by law, at such time the Person or Persons in
whose name or names any certificate or certificates for Common Shares (or Other
Securities) shall be issuable upon such exercise as provided in Section 2.3
shall be deemed to have become the holder or holders of record thereof for all
purposes.
2.3. DELIVERY OF STOCK CERTIFICATES, ETC.; CHARGES, TAXES AND EXPENSES.
(a) As soon as practicable after each exercise of this Warrant, in whole or in
part, and in any event within five Business Days thereafter, the Company shall
cause to be issued in the name of and delivered to the Holder hereof or, subject
to Section 9, as the Holder may direct,
(i) a certificate or certificates for the whole number of Common Shares
(or Other Securities) to which the Holder shall be entitled upon such
exercise, and
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(ii) in case such exercise is for less than all of the Common Shares
purchasable under this Warrant, a new Warrant or Warrants of like tenor,
for the balance of the Common Shares purchasable hereunder.
(b) Issuance of certificates for Common Shares upon the exercise of
this Warrant shall be made without charge to the Initial Holder hereof for any
issue or transfer tax or other incidental expense, in respect of the issuance of
such certificates, all of which such taxes and expenses shall be paid by the
Company; PROVIDED, HOWEVER, that the Company shall not be required to pay any
tax that may be payable in respect of any issuance of any Warrant or any
certificate for, or any other evidence of ownership of, Warrant Shares in a name
other than that of the Initial Holder of this Warrant being exercised or
exchanged.
2.4. TAX BASIS. The Company and the Holder shall mutually agree as to
the tax basis of this Warrant as of the date of issuance of this Warrant, for
purposes of the Internal Revenue Code of 1986, as amended, and the treatment of
this Warrant under such Code by each of the Company and the Holder shall be
consistent with such agreement.
3. ADJUSTMENT OF PURCHASE PRICE AND COMMON SHARES ISSUABLE UPON
EXERCISE.
3.1. ADJUSTMENT OF NUMBER OF SHARES.
Upon each adjustment of the Purchase Price as a result of the
calculations made in this Section 3, this Warrant shall thereafter evidence the
right to receive, at the adjusted Purchase Price, that number of Common Shares
(calculated to the nearest one-hundredth) obtained by dividing (i) the product
of the aggregate number of shares covered by this Warrant immediately prior to
such adjustment and the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price by (ii) the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
3.2. ADJUSTMENT OF PURCHASE PRICE.
3.2.1. ISSUANCE OF ADDITIONAL COMMON SHARES. In case the Company at any
time or from time to time after the date hereof shall issue or sell Additional
Common Shares (including Additional Common Shares deemed to be issued pursuant
to Section 3.3 or 3.4 but excluding Additional Common Shares purchasable upon
exercise of Rights referred to in Section 3.10) without consideration or for a
consideration per share less than the greater of the Purchase Price and the
Current Market Price in effect immediately prior to such issue or sale, then,
and in each such case, subject to Section 3.8, the Purchase Price shall be
reduced concurrently with such issue or sale, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Purchase Price by a
fraction
(a) The numerator of which shall be the sum of (i) the number of Common
Shares outstanding immediately prior to such issue or sale and (ii) the number
of Common Shares which the aggregate consideration received by the Company for
the total number of such Additional Common Shares so issued or sold would
purchase at the greater of such Purchase Price and such Current Market Price,
and
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(b) The denominator of which shall be the number of Common Shares
outstanding immediately after such issue or sale, provided that, for the
purposes of this Section 3.2.1, (x) immediately after any Additional Common
Shares are deemed to have been issued pursuant to Section 3.3 or 3.4, such
Additional Shares shall be deemed to be outstanding, and (y) treasury shares
shall not be deemed to be outstanding.
3.2.2. EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In the case the
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Shares other
than (a) a dividend payable in Additional Common Shares or (b) a regularly
scheduled cash dividend (at a rate not in excess of 110% of the rate of the last
regularly scheduled cash dividend theretofore paid) payable out of consolidated
earnings or earned surplus, determined in accordance with generally accepted
accounting principles, or (c) a dividend of Rights referred to in Section 3.10
hereof then, in each such case, subject to Section 3.8, the Purchase Price in
effect immediately prior to the close of business on the record date fixed for
the determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of business
on such record date, to a price determined by multiplying such Purchase Price by
a fraction
(x) the numerator of which shall be the Current Market Price in effect
on such record date or, if the Common Shares trade on an ex-dividend basis,
on the date prior to the commencement of ex-dividend trading, less the Fair
Value of such dividend or distribution applicable to one Common Share, and
(y) the denominator of which shall be such Current Market Price.
PROVIDED that, in the event that the amount of such dividend as so determined is
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is less than 9/10ths, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder shall receive, upon Warrant
exercise, a pro rata share of such dividend based upon the maximum number of
Common Shares at the time issuable to the Holder (determined without regard to
whether the Warrant is exercisable at such time.)
3.3. TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Common Shares (as set forth in the instrument relating thereto,
without regard to any provisions contained therein for a subsequent adjustment
of such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Common Shares issued as
of the time of such issue, sale, grant or assumption or, in case such a record
date shall have been fixed, as of the close of business on such record date (or,
if the Common Shares trade on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading),
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PROVIDED that such Additional Common Shares shall not be deemed to have been
issued unless (i) the consideration per share (determined pursuant to Section
3.5) of such shares would be less than the Current Market Price in effect on the
date of and immediately prior to such issue, sale, grant or assumption or
immediately prior to the close of business on such record date (or, if the
Common Shares trade on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be, and (ii) such
Additional Common Shares are not purchasable pursuant to Rights referred to in
Section 3.10, and PROVIDED, FURTHER, that in any such case in which Additional
Common Shares are deemed to be issued:
(a) whether or not the Additional Common Shares underlying such Options
or Convertible Securities are deemed to be issued, no further adjustment of the
Purchase Price shall be made upon the subsequent issue or sale of Convertible
Securities or Common Shares upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, except in the case of any such
Options or Convertible Securities which contain provisions requiring an
adjustment, subsequent to the date of the issue or sale thereof, of the number
of Additional Common Shares issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities by reason of (x) a change
of control of the Company, (y) the acquisition by any Person or group of Persons
of any specified number or percentage of the voting securities of the Company or
(z) any similar event or occurrence, each such case to be deemed hereunder to
involve a separate issuance of Additional Common Shares, Options or Convertible
Securities, as the case may be;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the consideration
payable to the Company, or decrease in the number of Additional Common Shares
issuable, upon the exercise, conversion or exchange thereof (by change of rate
or otherwise), the Purchase Price computed upon the original issue, sale, grant
or assumption thereof (or upon the occurrence of the record date, or date prior
to the commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options, or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation or
retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancellation or retirement of
any such Convertible Securities the rights of conversion or exchange under
which) shall not have been exercised, the Purchase Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading, as the
case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as the
case may be), be recomputed as if:
(i) in the case of Options for Common Shares or Convertible Securities,
the only Additional Common Shares issued or sold were the Additional Common
Shares, if any, actually issued or sold upon the exercise of such Options
or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the
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consideration actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, or for
the issue or sale of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the exercise
of such Options were issued at the time of the issue or sale, grant or
assumption of such Options, and the consideration received by the Company
for the Additional Common Shares deemed to have then been issued was the
consideration actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant to
Section 3.5) upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall have
the effect of decreasing the Purchase Price by an amount in excess of the amount
of the adjustment thereof originally made in respect of the issue, sale, grant
or assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Purchase Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
3.4. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Shares payable in Common Shares, or shall effect
a subdivision of the outstanding Common Shares into a greater number of Common
Shares (by reclassification or otherwise than by payment of a dividend in Common
Shares), then, and in each such case, Additional Common Shares shall be deemed
to have been issued (a) in the case of any such dividend, immediately after the
close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend, or (b) in the case of any
such subdivision, at the close of business on the day immediately prior to the
day upon which such corporate action becomes effective.
3.5. COMPUTATION OF CONSIDERATION. For the purposes of this Section 3,
(a) the consideration for the issue or sale of any Additional Common
Shares shall, irrespective of the accounting treatment of such consideration,
(i) insofar as it consists of cash, be computed at the gross cash
proceeds to the Company, without deducting any expenses paid or incurred by
the Company or any commissions or compensations paid or concessions or
discounts allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
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(ii) insofar as it consists of property (including securities) other
than cash, be computed at the Fair Value thereof at the time of such issue
or sale, and
(iii) in case Additional Common Shares are issued or sold together with
other stock or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to
such Additional Common Shares, such allocation to be determined in the same
manner that the Fair Value of property not consisting of cash or securities
is to be determined as provided in the definition of 'Fair Value' herein;
(b) Additional Common Shares deemed to have been issued pursuant to
Section 3.3, relating to Options and Convertible Securities, shall be deemed to
have been issued for a consideration per share determined by dividing
(i) the total amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration to protect against dilution) payable to
the Company upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities,
in each case computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of Common Shares (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities; and
(c) Additional Common Shares deemed to have been issued pursuant to
Section 3.4, relating to stock dividends, stock splits, etc., shall be deemed to
have been issued for no consideration.
3.6. ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding Common
Shares shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of Common Shares, the Purchase Price in effect immediately prior
to such combination or consolidation shall, concurrently with the effectiveness
of such combination or consolidation, be proportionately decreased.
3.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other Securities
shall be issued or sold or shall become subject to issue or sale upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
issuer of Other Securities or any other Person referred to in Section 4) or to
subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such
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as to dilute, on a basis consistent with the standards established in the other
provisions of this Section 3, the purchase rights, if any, with respect to such
Other Securities, granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this Section 3 with
respect to the Purchase Price shall be made as nearly as possible in the manner
so provided and applied to determine the amount of Other Securities from time to
time receivable upon the exercise of the Warrants, so as to protect the holders
of the Warrants against the effect of such dilution.
3.8. DE MINIMIS ADJUSTMENTS. If the amount of any adjustment of the
Purchase Price required pursuant to this Section 3 would be less than one tenth
(1/10) of one percent (1%) of the Purchase Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate a change in the Purchase
Price of at least one tenth (1/10) of one percent (1%) of such Purchase Price.
All calculations under this Warrant shall be made to the nearest one-hundredth
of a share.
3.9. ABANDONED DIVIDEND OR DISTRIBUTION. If the Company shall take a
record of the holders of its Common Shares for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Purchase Price under the terms of this Warrant) 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 Purchase Price by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
3.10. SHAREHOLDER RIGHTS PLAN. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" shareholder rights plan (the "Rights"), the Company shall, in lieu
of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof, make
proper provision so that each Holder who exercises a Warrant after the record
date for such distribution and prior to the expiration or redemption of the
Rights shall be entitled to receive upon such exercise, in addition to the
Common Shares issuable upon such exercise, a number of Rights to be determined
as follows: (i) if such exercise occurs on or prior to the date for the
distribution to the holders of Rights of separate certificates evidencing such
Rights (the "Distribution Date"), the same number of Rights to which a holder of
a number of Common Shares equal to the number of Common Shares issuable upon
such exercise at the time of such exercise would be entitled in accordance with
the terms and provisions of and applicable to the Rights; and (ii) if such
exercise occurs after the Distribution Date, the same number of Rights to which
a holder of the number of shares into which the Warrant so exercised was
exercisable immediately prior to the Distribution Date would have been entitled
on the Distribution Date in accordance with the terms and provisions of and
applicable to the Rights.
4. CONSOLIDATION, MERGER, ETC.
4.1. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger,
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or (b) shall permit any other Person to consolidate with or merge into the
Company and the Company shall be the continuing or surviving Person but, in
connection with such consolidation or merger, the Common Shares or Other
Securities shall be changed into or exchanged for stock or other securities of
any other Person or cash or any other property, or (c) shall transfer all or
substantially all of its properties or assets to any other Person, then, and in
the case of each such transaction, proper provision shall be made so that, upon
the basis and the terms and in the manner provided in this Warrant, the Holder
of this Warrant, upon the exercise hereof at any time prior to and subject to
the consummation of such transaction, shall be entitled to receive (at the
aggregate Purchase Price in effect at the time of such consummation for all
Common Shares or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Shares or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation, PROVIDED that if a purchase, tender or
exchange offer shall have been made to and accepted by the holders of more than
50% of the outstanding Common Shares, and if the Holder so designates in a
notice given to the Company on or before the date immediately preceding the date
of the consummation of such transaction, the Holder of this Warrant shall be
entitled to receive the highest amount of securities, cash or other property to
which it would actually have been entitled as a shareholder if the Holder of
this Warrant exercises this Warrant prior to the expiration of such purchase,
tender or exchange offer and accepted such offer. Unless exercised prior
thereto, this Warrant shall terminate upon consummation of any transaction
described in clauses (a) through (c) of this Section 4.1. Nothing in this
Section 4 shall be deemed to authorize the Company to enter into any transaction
not otherwise permitted by the Loan Agreement.
5. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of
its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) shall not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed the
amount payable therefor upon such exercise, (b) shall take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all liens,
security interests, encumbrances (in each of the foregoing cases, other than
those imposed by the Holder), taxes, preemptive rights and charges on the
exercise of the Warrants from time to time outstanding, and (c) shall not take
any action which results in any adjustment of the Purchase Price if the total
number of Common Shares (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of Common Shares
(or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such exercise.
6. ACCOUNTANTS' REPORT. In each case of any adjustment or readjustment
in the number of Common Shares (or Other Securities) issuable upon the exercise
of this Warrant or in the Purchase Price, the Company at its sole expense shall
promptly compute
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such adjustment or readjustment in accordance with the terms of this Warrant and
cause independent certified public accountants of recognized national standing
(which may be the regular auditors of the Company) selected by the Company to
verify such computation (other than any computation of the Fair Value of
property) and prepare a report setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
Additional Common Shares issued or sold or deemed to have been issued, (b) the
number of Common Shares outstanding or deemed to be outstanding, and (c) the
Purchase Price in effect immediately prior to such issue or sale and as adjusted
and readjusted (if required by Section 3) on account thereof. The Company shall
forthwith mail a copy of each such report to each holder of a Warrant. The
Company shall also keep copies of all such reports at its principal office and
shall cause the same to be available for inspection at such office during normal
business hours by any holder of a Warrant or any prospective purchaser of a
Warrant designated by the holder thereof.
7. NOTICES OF CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any consolidation or
merger involving the Company and any other Person, any transaction or series of
transactions in which more than 50% of the voting securities of the Company are
transferred to another Person, or any transfer, sale or other disposition of all
or substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Shares (or Other Securities) shall be entitled to exchange
their Common Shares (or Other Securities) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the date therein specified.
8. REGISTRATION OF COMMON SHARES. If any Common Shares required to be
reserved for purposes of exercise of this Warrant require registration with or
approval of any governmental authority under any federal or state law (other
than the Securities Act) before such shares may be issued upon exercise, the
Company shall, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or
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approved, as the case may be, PROVIDED, that the Company shall not be obligated
to make any filing in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in order to effect
such registration or approval unless the Company is already subject to service
in such jurisdiction in the reasonable opinion of the Company's counsel. At any
such time as Common Shares is listed on any national securities exchange, the
Company shall, at its expense, obtain promptly and maintain the approval for
listing on each such exchange, upon official notice of issuance, the Common
Shares issuable upon exercise of the then outstanding Warrants and maintain the
listing of such shares after their issuance; and the Company shall also list on
such national securities exchange, shall register under the Exchange Act and
shall maintain such listing of, any Other Securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
9. RESTRICTIONS ON TRANSFER.
9.1. RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section
9, each Warrant (including each Warrant issued upon the transfer of any Warrant)
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT.
Except as otherwise permitted by this Section 9, each certificate for Common
Shares (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Shares (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH THE CONDITIONS SPECIFIED IN THE COMMON SHARE PURCHASE WARRANT ISSUED
BY FRONTSTEP, INC.,
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PURSUANT TO THE LOAN AND SECURITY AGREEMENT DATED AS OF JULY __, 2000 AMONG
THE COMPANY, CERTAIN SUBSIDIARIES OF THE COMPANY, THE LENDERS PARTY THERETO
AND FOOTHILL CAPITAL CORPORATION, AS ARRANGER AND ADMINISTRATIVE AGENT, A
COMPLETE AND CORRECT COPY OF EACH OF WHICH IS AVAILABLE FOR INSPECTION AT
THE COMPANY'S PRINCIPAL OFFICE AND WILL BE FURNISHED TO THE HOLDER OF SUCH
SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE."
9.2. TRANSFER TO COMPLY WITH THE SECURITIES ACT. Restricted Securities
may not be sold, assigned, pledged, hypothecated, encumbered or in any manner
transferred or disposed of (a "Transfer"), in whole or in part, except in
compliance with the provisions of the Securities Act and state securities or
Blue Sky laws and the terms and conditions hereof.
9.3. NOTICE OF TRANSFER. Each Holder shall, prior to any Transfer of
any Warrants, give written notice to the Company of such Holder's intention to
Transfer.
9.4. TERMINATION OF RESTRICTIONS. The restrictions imposed by this
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement and applicable state
securities and blue sky laws, (b) when such securities are sold pursuant to Rule
144 (or any similar provision then in force) under the Securities Act and
applicable state securities and blue sky laws, or (c) when, in the reasonable
opinion of both counsel for the Holder and counsel for the Company, such
restrictions are no longer required or necessary in order to protect the Company
against a violation of the Securities Act or applicable state securities and
blue sky laws upon any sale or other disposition of such securities without
registration thereunder. Whenever such restrictions shall cease and terminate as
to any Restricted Securities, the Holder shall be entitled to receive from the
Company, without expense, new securities of like tenor not bearing the
applicable legends required by Section 9.1.
9.5. EXEMPT TRANSFERS. The restrictions on the transfer of this Warrant
or the Warrant Shares set forth in this Section 9 shall not apply to any
transfer made in compliance with applicable state and federal securities laws.
10. RESERVED.
11. RESERVATION OF STOCK, ETC. The Company shall at all times reserve
and keep available, solely for issuance and delivery upon exercise of this
Warrant, the number of Common Shares (or Other Securities) from time to time
issuable upon exercise of this Warrant. All Common Shares (or Other Securities)
issuable upon exercise of any Warrant shall be duly authorized and, when issued
upon such exercise, shall be validly issued and, in the case of shares, fully
paid and nonassessable, with no liability on the part of the holders thereof,
and, in the case of all securities, shall be free from all liens, security
interests, encumbrances (in each of the foregoing cases, other than those
imposed by the Holder), taxes, preemptive rights and charges. The transfer agent
for the Common Shares, and every subsequent Transfer Agent for
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any shares of the Company's capital stock issuable upon the exercise of any of
the purchase rights represented by this Warrant, are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares as shall be requisite for such purpose.
The Company shall keep copies of this Warrant on file with the Transfer Agent
for the Common Shares and with every subsequent Transfer Agent for any shares of
the Company's capital stock issuable upon the exercise of the rights of purchase
represented by this Warrant. The Company shall supply such Transfer Agent with
duly executed stock certificates for such purpose. All Warrant Certificates
surrendered upon the exercise of the rights thereby evidenced shall be canceled,
and such canceled Warrants shall constitute sufficient evidence of the number of
shares of stock which have been issued upon the exercise of such Warrants.
Subsequent to the Expiration Date, no shares of stock need be reserved in
respect of any unexercised Warrant.
12. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
12.1. WARRANT REGISTER; OWNERSHIP OF WARRANTS. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Transfer Agent. The Company
shall be entitled to treat the registered Holder of any Warrant on the Warrant
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
12.2. TRANSFER OF WARRANTS. Subject to compliance with Section 9, if
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of Common Shares
with respect to which rights under this Warrant were not so transferred. Prior
to effecting any transfer of this Warrant or any part hereof, each prospective
transferee shall represent in writing to the Company that:
(i) such transferee is acquiring the Warrant hereunder for its
own account, without a view to the distribution thereof;
(ii) such transferee is an "accredited investor" within the
meaning of Regulation D under the Securities Act and was not organized for
the specific purpose of acquiring the Warrant or the Warrant Shares.
(iii) such transferee has sufficient knowledge and experience
in investing in companies similar to the Company so as to be able to
evaluate the risks and
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merits of its investment in the transferee and is able financially to bear
the risks thereof; and
(iv) if applicable, such transferee understands that (i) this
Warrant and the Warrant Shares have not been registered under the
Securities Act in reliance upon an exemption from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or Rule
506 promulgated under such act and under applicable state securities laws,
(ii) this Warrant and the Warrant Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act and
under applicable state securities laws or is exempt from such registration,
(iii) this Warrant and the Warrant Shares will bear a legend to such
effect, and (iv) the Company will make a notation on its transfer books to
such effect.
12.3. REPLACEMENT OF WARRANTS. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
12.4. ADJUSTMENTS TO PURCHASE PRICE AND NUMBER OF SHARES.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
Common Shares purchasable upon exercise of this Warrant, any Warrant theretofore
or thereafter issued may continue to express the same number and kind of Common
Shares as are stated in this Warrant, as initially issued.
12.5. FRACTIONAL SHARES. Notwithstanding any adjustment pursuant to
Section 3 in the number of Common Shares covered by this Warrant or any other
provision of this Warrant, the Company shall not be required to issue fractions
of shares upon exercise of this Warrant or to distribute certificates which
evidence fractional shares. In lieu of fractional shares, the Company shall make
payment to the Holder, at the time of exercise of this Warrant as herein
provided, in an amount in cash equal to such fraction multiplied by the Current
Market Price of a Common Share on the date of Warrant exercise.
13. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that there
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such
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breach. No remedy shall be exclusive of any other remedy. All available remedies
shall be cumulative.
14. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof any rights as a
shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. NOTICES. All notices and other communications (and deliveries)
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any nationally-recognized courier guaranteeing overnight delivery or
first class registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company: Frontstep, Inc.
2800 Corporate Exchange Drive
Columbus, Ohio 43231
Attn: Daniel P. Buettin
Fax No. 614-895-2504
with copies to: Vorys, Sater Seymour & Pease LLP
52 East Gay Street
Columbus, Ohio 43231
Attn: Ivery D. Foreman, Esq.
Fax No. 614-464-6350
If to Holder: Foothill Capital Corporation
2450 Colorado Avenue
Suite 3000 West
Santa Monica, CA 90404
Attn: Business Finance Division Manager
Fax No. 310-453-7443
with copies to: Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attn: Frederic L. Ragucci, Esq.
Fax No. (212) 593-5955
All such notices and communications (and deliveries) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged, if telecopied; on the next Business
Day, if timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; PROVIDED, that the exercise of any
Warrant shall be effective in the manner provided in Section 2.
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16. AMENDMENTS. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
17. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of New York.
19. REGISTRATION RIGHTS AGREEMENT. The Common Shares (and Other
Securities) issuable upon exercise of this Warrant (or upon conversion of any
Common Shares issued upon such exercise) shall constitute Registrable Securities
(as such term is defined in the Registration Rights Agreement). Each holder of
this Warrant shall be entitled to all of the benefits afforded to a Holder of
any such Registrable Securities under the Registration Rights Agreement and such
Holder, by its acceptance of this Warrant, agrees to be bound by and to comply
with the terms and conditions of the Registration Rights Agreement applicable to
such holder as a Holder of such Registrable Securities.
20. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
p.m., New York City time, on July 17, 2006.
21. COSTS AND ATTORNEYS' FEES. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Warrant, the
Company agrees and the Holder, by taking and holding this Warrant agrees, that
the prevailing party shall recover from the non-prevailing party all of such
prevailing party's costs and reasonable attorneys' fees incurred in each and
every such action, suit or other proceeding, including any and all appeals or
petitions therefrom.
22. MOST FAVORED HOLDER. So long as the Loan Agreement or any extension
thereof remains in effect or any Obligations thereunder remain unpaid, the
Company agrees that if at any time or from time to time after the date hereof
and prior to the Expiration Date it enters into any agreement with, or issues
Options or Convertible Securities to, any Person other than a Holder of this
Warrant, which provides such Person with more favorable terms of the type set
forth in Sections 3, 4, 5 and 6 of this Warrant, then the Company shall issue to
the Holder a new Warrant in exchange for this Warrant, which shall contain such
terms, effective
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from the date such agreement is consummated or Option or Convertible Security is
issued until the Expiration Date. Notwithstanding the foregoing, no additional
rights of any or all of the Holders by reason of this provision shall be created
or triggered by the existence and/or exercise of any rights of the holders of
the Company's presently outstanding preferred shares and/or warrants which arise
under the Investors' Rights Agreement dated May 10, 2000 among the Company,
Morgan Stanley Dean Witter Venture Partners IV, L.P. and the other investors
identified on the signature pages thereto (the "Rights Agreement"), or which
inure solely to the benefit of such investors in the Amended Articles of
Incorporation, as amended, of the Company, the Regulations, as amended, of the
Company and the terms and provisions of such outstanding warrants solely to the
extent provided under such Rights Agreement, Articles, Regulations and warrants
as of the date hereof.
23. LIMITATION ON NUMBER OF WARRANT SHARES. The Company shall not be
obligated to issue Warrant Shares upon exercise of this Warrant only to the
extent that the issuance of such Common Shares would cause the Company to exceed
that number of Common Shares which the Company may issue upon exercise of this
Warrant (the "Exchange Cap") without breaching the Company's obligations under
the rules or regulations of the Commission, the NASDAQ Stock Market, Inc. or any
other national securities exchange or automated quotation system that regulates
the Company, except that such limitation shall not apply in the event that the
Company (a) obtains the approval of its stockholders as required by the
Principal Market (or any successor rule or regulation) for issuances of Common
Shares in excess of such amount or (b) obtains a written opinion from outside
counsel to the Company that such approval is not required, which opinion shall
be reasonably satisfactory to the holder of this Warrant. Until such approval or
written opinion is obtained, the holder of this Warrant shall not be issued,
upon exercise of this Warrant, Warrant Shares in an amount greater than the
number that may be issued without such approval or written opinion. The Company
shall use its reasonable best efforts to obtain the required stockholder
approval of such issuance at its next stockholders meeting after determining
that it is subject to the Exchange Cap. The Company shall continue to comply
with the shareholder approval requirements under the NASDAQ Stock Market, Inc.
rules in connection with the issuance of Common Shares under this Warrant during
the term of this Warrant even if the Common Shares are no longer listed on the
NASDAQ automated quotation system.
24. REDEMPTION. In the event the Company is prohibited from issuing
additional Warrant Shares as required under the adjustment provisions contained
in Section 3 hereof, then, at any time prior to submitting the matter to
shareholders of the Company for their approval, upon the written request of the
Holder, the Company shall redeem for cash those Warrant Shares which can not be
issued, at a price equal to the excess, if any, of the Market Price of the
Common Shares above the Exercise Price of such Warrant Shares as of the date of
the attempted exercise.
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25. LIMITATION ON EXERCISE. Notwithstanding any provision to the
contrary contained herein, in no event shall the Holder be entitled to exercise
this Warrant, nor will the Company recognize such exercise, such that upon
giving effect to such exercise, the aggregate number of Common Shares then
beneficially owned by the Holder and its "affiliates" as defined in Rule 144 of
the Securities Act would exceed 4.99% of the total issued and outstanding shares
of the Common Shares following such exercise; PROVIDED, HOWEVER, that Holder may
elect to waive this restriction upon not less than sixty-one (61) days prior
written notice to the Company. For purposes of this Section, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act.
FRONTSTEP, INC.
By: /S/ DANIEL P. BUETTIN
------------------------------------
Title: VICE PRESIDENT & CFO
----------------------------------
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EXHIBIT A to
COMMON SHARES PURCHASE WARRANT
FORM OF
ELECTION TO PURCHASE SHARES
The undersigned hereby irrevocably elects to exercise the
Warrant to purchase ____ common shares, no par value ("Common Shares"), of
FRONTSTEP, INC. and hereby makes payment of $________ therefor [or] makes
payment therefor by application pursuant to Section 2.1(b)(ii) of the Warrant of
$_______ aggregate principal amount and accrued interest thereon of the
then-outstanding Obligations (as provided in Section 2.4(b) in the Loan
Agreement) [or] makes payment by reduction pursuant to Section 2.1(b)(iii) of
the Warrant of the number of Common Shares otherwise issuable to the Holder upon
Warrant exercise by ___ shares [or] makes payment therefor by delivery of the
following Common Shares Certificates of the Company (properly endorsed for
transfer in blank) for cancellation by the Company pursuant to Section
2.1(b)(iv) of the Warrant, certificates of which are attached hereto for
cancellation ______________________________ [list certificates by number and
amount]. The undersigned hereby requests that certificates for such shares be
issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------------------
(NAME)
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
--------------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:
---------------------------------------------------------------------
(NAME)
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of Common Shares purchased (and/or reduced)
hereby is less than the number of Common Shares covered by the Warrant, the
undersigned requests that a new Warrant representing the number of Common Shares
not so purchased (or reduced) be issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------------------
(NAME OF HOLDER
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:
---------------------------------------------------------------------
(NAME OF HOLDER)
--------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated: _____________, 20__ [NAME OF HOLDER]
By
--------------------------------
Name:
Title:
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EXHIBIT B to
COMMON SHARES PURCHASE WARRANT
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Shares, no par value ("Common Shares") of FRONTSTEP, INC.
represented by the Warrant, with respect to the number of Common Shares set
forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
---------------- ------- -------------
and does hereby irrevocably constitute and appoint ________ Attorney to make
such transfer on the books of maintained for that purpose, with full power of
substitution in the premises.
Dated: _______________, 20__ NAME OF HOLDER
By
---------------------
Name:
Title:
EX-4.H
5
l90205aex4-h.txt
EXHIBIT 4(H)
1
EXHIBIT 4(h) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
EXECUTION VERSION
REGISTRATION RIGHTS AGREEMENT
by and between
FRONTSTEP, INC.
and
THE INITIAL HOLDER SPECIFIED ON
THE SIGNATURE PAGES HEREOF
Dated as of July 17, 2001
3
REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") dated as of
July 17, 2001, by and between Frontstep, Inc. an Ohio corporation (the
"COMPANY"), and the Initial Holder specified on the signature pages to this
Agreement.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, in connection with the Loan and Security Agreement
dated as of the date hereof, by and among the Company, certain subsidiaries of
the Company, the Lender parties thereto and Foothill Capital Corporation, as the
Arranger and Administrative Agent (as such agreement is amended or otherwise
modified from time to time, the "LOAN AGREEMENT"), the Company has agreed, upon
the terms and subject to the conditions of the Loan Agreement, to issue a
warrant (the "WARRANT") to the Initial Holder dated as of the date hereof
exercisable for up to 550,000 shares (subject to adjustment pursuant to the
terms of the Warrant), of the Company's common shares, no par value (the "COMMON
SHARES"), pursuant to the terms of the Loan Agreement (the Common Shares issued
or issuable upon exercise of the Warrant are hereinafter referred to as the
"WARRANT SHARES"); and
WHEREAS, to induce the Initial Holder to enter into the Loan
Agreement and to make the loans thereunder, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the "SECURITIES ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and in order to induce the Initial Holder to
enter into the Loan Agreement and to make the loans thereunder, the Company and
the Initial Holder hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"AFFILIATE" shall mean (i) with respect to any Person, any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such Person, and (ii) with respect to any
individual, shall also mean the spouse, sibling, child, step-child, grandchild,
niece, nephew or parent of such Person, or the spouse thereof.
"COMMON SHARES" shall have the meaning set forth in the
preamble.
"COMPANY" shall have the meaning set forth in the preamble.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"HOLDERS" shall mean the Initial Holder for so long as it is
the registered owner of any Registrable Securities and such of its respective
heirs, successors and permitted assigns (including any permitted transferees of
Registrable Securities) who acquire or are otherwise the transferee of
Registrable Securities, directly or indirectly, from such Initial Holder (or any
subsequent Holder), for so long as such heirs, successors and permitted assigns
are the registered owner of any Registrable Securities. For purposes of this
Agreement, a Person will be deemed to
4
be a Holder whenever such Person holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities,
whether or not such purchase, conversion, exercise or exchange has actually been
effected and disregarding any legal restrictions upon the exercise of such
rights. Registrable Securities issuable upon exercise of an option or upon
conversion, exchange or exercise of another security shall be deemed outstanding
for the purposes of this Agreement.
"HOLDERS' COUNSEL" shall mean one firm of counsel (per
registration) to the Holders of Registrable Securities participating in such
registration, which counsel shall be selected by the Majority Holders of the
Registration.
"INCIDENTAL REGISTRATION" shall mean a registration required
to be effected by the Company pursuant to Section 2.2.
"INCIDENTAL REGISTRATION STATEMENT" shall mean a registration
statement of the Company, which covers the Registrable Securities requested to
be included therein pursuant to the provisions of Section 2.2 and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"INITIAL HOLDER" shall mean the Person specified as such on
the signature pages to this Agreement on the date hereof.
"LOAN AGREEMENT" shall have the meaning set forth in the
preamble.
"MAJORITY HOLDERS" shall mean one or more Holders of
Registrable Securities who would hold a majority of the Registrable Securities
then outstanding.
"MAJORITY HOLDERS OF THE REGISTRATION" shall mean, with
respect to a particular registration, one or more Holders of Registrable
Securities who would hold a majority of the Registrable Securities to be
included in such registration.
"MANDATORY REGISTRATION" shall mean a registration required to
be effected by the Company pursuant to Section 2.1.
"MANDATORY REGISTRATION STATEMENT" shall mean a registration
statement of the Company which covers the Registrable Securities requested to be
included therein pursuant to the provisions of Section 2.1 and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
"PERSON" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization
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or any other entity or organization, including a government or agency or
political subdivision thereof, and shall include any successor (by merger or
otherwise) of such entity.
"PROSPECTUS" shall mean the prospectus included in a
Registration Statement (including, without limitation, any preliminary
prospectus and any prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act) and any such
Prospectus as amended or supplemented by any prospectus supplement, and all
other amendments and supplements to such Prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
(or deemed to be incorporated by reference) therein.
"REGISTRABLE SECURITIES" shall mean (i) any Warrant Shares
issued upon exercise of the Warrant, (ii) any shares of Common Stock issued to
or acquired by any Holder or its Affiliates after the date hereof; and (iii) any
other securities of the Company (or any successor or assign of the Company,
whether by merger, consolidation, sale of assets or otherwise) which may be
issued with respect to, in exchange for, or in substitution of, Registrable
Securities referenced in clauses (i) and (ii) above by reason of any dividend or
stock split, combination of shares, merger, consolidation, recapitalization,
reclassification, reorganization, sale of assets or similar transaction. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (A) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and either (i) the registration statement with respect thereto has remained
continuously effective for one year from the time the Warrant Shares are issued
pursuant to the Warrant (PROVIDED, that this clause (A)(i) shall not apply to a
registration statement that is a shelf registration) or (ii) such securities
shall have been disposed of in accordance with such registration statement, (B)
such securities are sold pursuant to Rule 144 (or any similar provisions then in
force) under the Securities Act, (C) such securities have been otherwise
transferred, a new certificate or other evidence of ownership for them not
bearing the legend restricting further transfer shall have been delivered by the
Company and subsequent public distribution of them shall not require
registration under the Securities Act, or (D) such securities shall have ceased
to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all reasonable out
of pocket expenses incident to performance of or compliance with this Agreement
by the Company and its subsidiaries, including, without limitation (i) all SEC,
stock exchange, NASD and other registration, listing and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state securities
or blue sky laws and compliance with the rules of any stock exchange (including
fees and disbursements of counsel in connection with such compliance and the
preparation of a blue sky memorandum and legal investment survey), (iii) all
printers' fees and costs incurred in printing, distributing, mailing and
delivering any Registration Statement, any Prospectus and any other document
relating to the performance of or compliance with this Agreement, (iv) the fees
and disbursements of counsel for the Company, (v) the reasonable fees and
disbursements of Holders' Counsel, (vi) the fees and disbursements of all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letters) and the fees and expenses of other Persons, including experts,
retained by the Company, (vii) the expenses incurred in connection with making
road show presentations and holding meetings with potential
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investors to facilitate the distribution and sale of Registrable Securities,
(viii) any fees and disbursements of underwriters customarily paid by issuers or
sellers of securities, (ix) premiums and other costs of policies of insurance
against liabilities arising out of the public offering of the Registrable
Securities being registered, and (x) all internal expenses of the Company
(including all salaries and expenses of officers and employees performing legal
or accounting duties); PROVIDED, HOWEVER, Registration Expenses shall not
include discounts and commissions payable to underwriters, selling brokers,
dealer managers or other similar Persons engaged in the distribution of any of
the Registrable Securities; and PROVIDED FURTHER, that in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of Company personnel or general overhead expenses of the
Company, auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business or which the Company would have
incurred in any event; PROVIDED, FURTHER, that in the event the Company shall
not register any securities with respect to which it had given written notice of
its intention to register to Holders, notwithstanding anything to the contrary
in the foregoing, all of the costs incurred by the Holders in connection with
such registration shall be deemed to be Registration Expenses.
"REGISTRATION STATEMENT" shall mean any registration statement
of the Company which covers any Registrable Securities and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"RIGHTS AGREEMENT" means the Investors' Rights Agreement dated
May 10, 2000 among the Company, Morgan Stanley Dean Witter Venture Partners IV,
L.P. and the several other investors identified on the signature pages thereto.
"RULE 144" means Rule 144 issued by the SEC under the
Securities Act, or any subsequent rule pertaining to the disposition of
securities without registration.
"RULE 144A" means Rule 144A issued by the SEC under the
Securities Act, or any subsequent rule pertaining to private resales of
securities to institutions.
"SEC" shall mean the Securities and Exchange Commission, or
any successor agency having jurisdiction to enforce the Securities Act.
"SECURITIES ACT" shall have the meaning set forth in the
preamble.
"UNDERWRITERS" shall mean the underwriters, if any, of the
offering being registered under the Securities Act.
"UNDERWRITTEN OFFERING" shall mean a sale of securities of the
Company to an Underwriter or Underwriters for reoffering to the public.
"WARRANT" shall have the meaning set forth in the preamble.
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"WARRANT SHARES" shall have the meaning set forth in the
preamble.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Loan Agreement.
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall
prepare, and, as soon as practicable but in no event later than 90 days after
the Closing Date (as defined in the Loan Agreement) (the "Filing Deadline"),
file with the SEC a Registration Statement on Form S-3 covering the resale of
all of the Registrable Securities. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2.1(c). The
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the product of (x) 1.25 and
(y) the number of Registrable Securities as of the trading day immediately
preceding the date the Registration Statement is initially filed with the SEC,
subject to adjustment as provided in Section 2(d). The Company shall use its
best efforts to have the Registration Statement declared effective by the SEC as
soon as practicable, but in no event later than the date which is 180 days after
the Closing Date (the "Effectiveness Deadline).
(b) ALLOCATION OF REGISTRABLE SECURITIES. The initial
number of Registrable Securities included in any Registration Statement and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Holders based on the number of Registrable
Securities held by each Holder at the time the Registration Statement covering
such initial number of Registrable Securities or increase thereof is declared
effective by the SEC. In the event that a Holder sells or otherwise transfers
any of such Holder's Registrable Securities, each transferee shall be allocated
a pro rata portion of the then remaining number of Registrable Securities
included in such Registration Statement for such transferor. Any shares of
Common Stock included in a Registration Statement and which remain allocated to
any Person which ceases to hold any Registrable Securities covered by such
Registration Statement shall be allocated to the remaining Holders, pro rata
based on the number of Registrable Securities then held by such Holders which
are covered by such Registration Statement.
(c) ELIGIBILITY FOR FORM S-3. The Company represents,
warrants and covenants that as of the date hereof it meets the requirements for
the use of Form S-3 for registration of the resale by the Holders of the
Registrable Securities and thereafter shall use its best efforts to remain
eligible to use Form S-3, and the Company has filed and shall use its best
efforts to timely file all reports required to be filed by the Company with the
SEC in a timely manner so as to obtain and maintain such eligibility for the use
of Form S-3. In the event that Form S-3 is not available for the registration of
the resale of Registrable Securities hereunder, the Company shall (i) register
the resale of the Registrable Securities on another appropriate form reasonably
acceptable to the Majority Holders and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a
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Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
(d) SUFFICIENT NUMBER OF SHARES REGISTERED. In the
event the number of shares available under a Registration Statement filed
pursuant to Section 2.1(a) is insufficient to cover all of the Registrable
Securities required to be covered by such Registration Statement or a Holder's
allocated portion of the Registrable Securities pursuant to Section 2.1(b), the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover at least 125% of the number of such Registrable Securities as of the
trading day immediately preceding the date of the filing of such amendment or
new Registration Statement, in each case, as soon as practicable, but in any
event not later than thirty (30) days after the necessity therefor arises. The
Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities covered by such Registration Statement is greater than the quotient
determined by dividing (i) number of shares of Common Stock available for resale
under such Registration Statement by (ii) 1.25. The calculation set forth in the
foregoing sentence shall be made without regard to any limitations on the
exercise of the Warrants and such calculation shall assume that the Warrants are
then exercisable into shares of Common Stock at the then prevailing Purchase
Price (as defined in the Warrants).
(e) UNDERWRITING; SELECTION OF UNDERWRITERS.
Notwithstanding anything to the contrary contained in Section 2.1(a), if the
Majority Holders of the Registration effected under Section 2.1(a) so elect, the
offering of such Registrable Securities pursuant to such Mandatory Registration
shall be in the form of a firm commitment Underwritten Offering and such
Majority Holders of the Registration may require that all Persons (including
other Holders) participating in such registration sell their Registrable
Securities to the Underwriters at the same price and on the same terms of
underwriting applicable to the Majority Holders of the Registration. If any
Registration effected under Section 2.1(a) involves an Underwritten Offering,
the sole or managing Underwriters and any additional investment bankers and
managers to be used in connection with such registration shall be selected by
the Majority Holders of the Registration, subject to the approval of the Company
(such approval not to be unreasonably withheld).
(f) EFFECTIVE REGISTRATION STATEMENT; SUSPENSION. A
Registration Statement effected pursuant to Section 2.1(a) shall not be deemed
to have become effective (and the related registration will not be deemed to
have been effected) (i) unless it has been declared effective by the SEC and
remains effective in compliance with the provisions of the Securities Act until
the earlier of (A) the disposition of all Registrable Securities covered by such
Mandatory Registration Statement or (B) the five and one-half year anniversary
of the effective date of the Mandatory Registration Statement, (ii) if the
offering of any Registrable Securities pursuant to such Mandatory Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, or (iii) if,
in the case of an Underwritten Offering, the conditions to closing specified in
an
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underwriting agreement to which the Company is a party are not satisfied
(other than by the sole reason of any breach or failure by the Holders of
Registrable Securities) and are not otherwise waived.
(g) REGISTRATION OF OTHER SECURITIES. Whenever the
Company shall effect a Registration pursuant to Section 2.1(a), no securities
other than the Registrable Securities shall be covered by such registration
unless the Majority Holders of the Registration shall have consented in writing
to the inclusion of such other securities.
(h) OTHER REGISTRATIONS. During the period (i)
beginning on the Closing Date and (ii) ending on the date that is 90 days after
the date that a Registration Statement filed pursuant to Section 2.1(a) has been
declared effective by the SEC, the Company shall not, without the consent of the
Majority Holders of the Registration, file a registration statement pertaining
to any other securities of the Company except for a Registration Statement
covering only the sale of Common Shares issued under employee benefit plans or
outside director stock option plans.
(i) The Company shall use its best efforts to keep
the Registration Statement filed pursuant to Section 2.1(a) continuously
effective through the date on which all of the Registrable Securities covered by
such Shelf Registration are sold in accordance with the plan of distribution
contained therein.
2.2 INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. So long as
the Company is no longer obligated to keep effective the Registration Statement
filed with the SEC pursuant to Section 2.1, if the Company at any time or from
time to time proposes to register any of its securities under the Securities Act
(other than in a registration on Form S-4 or S-8 or any successor form to such
forms and other than pursuant to Section 2.1 or 2.3) whether or not pursuant to
registration rights granted to other holders of its securities and whether or
not for sale for its own account, the Company shall deliver prompt written
notice (which notice shall be given at least 30 days prior to such proposed
registration) to all Holders of Registrable Securities of its intention to
undertake such registration, describing in reasonable detail the proposed
registration and distribution (including the anticipated range of the proposed
offering price, the class and number of securities proposed to be registered and
the distribution arrangements) and of such Holders' right to participate in such
registration under this Section 2.2 as hereinafter provided. Subject to the
other provisions of this paragraph (a) and Section 2.2(b), upon the written
request of any Holder made within 30 days after the receipt of such written
notice (which request shall specify the amount of Registrable Securities to be
registered and the intended method of disposition thereof), the Company shall
use its best efforts to cause all Registrable Securities as requested by Holders
to be covered by such Registration Statement (an "Incidental Registration"), to
the extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered,
by inclusion of such Registrable Securities in the Registration Statement which
covers the securities which the Company proposes to register and shall cause
such Registration Statement to become and remain effective with respect to such
Registrable Securities in accordance with the registration procedures set forth
in Section 4. If an Incidental Registration involves an Underwritten
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Offering, immediately upon notification to the Company from the Underwriter of
the price at which such securities are to be sold, the Company shall so advise
each participating Holder. The Holders requesting inclusion in an Incidental
Registration may, at any time prior to the effective date of the Incidental
Registration Statement (and for any reason), revoke such request by delivering
written notice to the Company revoking such requested inclusion.
If at any time after giving written notice of its intention to
register any securities and prior to the effective date of the Incidental
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Registrable Securities and, thereupon, (A) in
the case of a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses
incurred in connection therewith), without prejudice, however, to the rights of
Holders to cause such registration to be effected as a registration under
Section 2.1 and (B) in the case of a determination to delay such registration,
the Company shall be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such other
securities; PROVIDED, HOWEVER, that if such delay shall extend beyond 120 days
from the date the Company received a request to include Registrable Securities
in such Incidental Registration, then the Company shall again give all Holders
the opportunity to participate therein and shall follow the notification
procedures set forth in the preceding paragraph. There is no limitation on the
number of such Incidental Registrations pursuant to this Section 2.2 which the
Company is obligated to effect.
The registration rights granted pursuant to the provisions of
this Section 2.2 shall be in addition to the registration rights granted
pursuant to the other provisions of Section 2 hereof.
(b) PRIORITY IN INCIDENTAL REGISTRATION. If an Incidental
Registration involves an Underwritten Offering (on a firm commitment basis), and
the sole or the lead managing Underwriter, as the case may be, of such
Underwritten Offering shall advise the Company in writing (with a copy to each
Holder requesting registration) on or before the date five days prior to the
date then scheduled for such offering that, in its opinion, the amount of
securities (including Registrable Securities) requested to be included in such
registration exceeds the amount which can be sold in such offering without
materially interfering with the successful marketing of the securities being
offered (such writing to state the basis of such opinion and the approximate
number of such securities which may be included in such offering without such
effect), the Company shall include in such registration, to the extent of the
number which the Company is so advised may be included in such offering without
such effect, (i) in the case of a registration initiated by the Company, (A)
first, the securities that the Company proposes to register for its own account
(but solely to the extent that the proceeds thereof shall not be used to
purchase shares of common stock of the Company or other securities of the
Company), (B) second, subject to the obligations of the Company to include
securities under the Rights Agreement, on a PRO RATA basis, in proportion to the
number of securities requested to be included in such registration, the
Registrable Securities requested to be included in such registration by the
Holders and (C) third, other securities of the Company to be registered on
behalf of any other
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Person, and (ii) in the case of a registration initiated by a Person other than
the Company, (A) first, the Registrable Securities requested to be included in
such registration by any Persons initiating such registration requested to be
included in such registration by any Persons initiating such registration, (B)
second, the Registrable Securities requested to be included in such registration
by the Holders; (C) third, the securities requested to be included in such
registration by any other Persons (not including Affiliates of the Company),
allocated PRO RATA in proportion to the number of securities requested to be
included in such registration by each of them, and (D) fourth, the securities
that the Company proposes to register for its own account and the accounts of
its Affiliates, PROVIDED, HOWEVER, that in the event the Company will not, by
virtue of this Section 2.2(b), include in any such registration all of the
Registrable Securities of any Holder requested to be included in such
registration, such Holder may, upon written notice to the Company given within
three days of the time such Holder first is notified of such matter, reduce the
amount of Registrable Securities it desires to have included in such
registration, whereupon only the Registrable Securities, if any, it desires to
have included will be so included and the Holders not so reducing shall be
entitled to a corresponding pro rata increase in the amount of Registrable
Securities to be included in such registration.
2.3 INTENTIONALLY OMITTED .
2.4 UNDERWRITTEN OFFERINGS.
(a) MANDATORY UNDERWRITTEN OFFERINGS. If requested by
the sole or lead managing Underwriter for any Underwritten Offering effected
pursuant to a Registration effected pursuant to Section 2.1(a), the Company
shall enter into a customary underwriting agreement with the Underwriters for
such offering, such agreement to be reasonably satisfactory in substance and
form to the Company and each Holder of Registrable Securities participating in
such offering and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of that type,
including, without limitation, indemnification and contribution to the effect
and to the extent provided in Section 5.
(b) HOLDERS OF REGISTRABLE SECURITIES TO BE PARTIES TO
UNDERWRITING AGREEMENT. The Holders of Registrable Securities to be distributed
by Underwriters in an Underwritten Offering contemplated by Section 2 shall be
parties to the underwriting agreement between the Company and such Underwriters
and may, at such Holders' option, require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such Underwriters shall also be made to and for the benefit
of such Holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such Underwriters under such underwriting
agreement be conditions precedent to the obligations of such Holders of
Registrable Securities; PROVIDED, HOWEVER, that the Company shall not be
required to make any representations or warranties with respect to written
information specifically provided by a selling Holder for inclusion in the
Registration Statement. No Holder shall be required to make any representations
or warranties to, or agreements with, the Company or (in the case of an
Incidental Registration) the Underwriters other than representations, warranties
or agreements regarding such Holder, such Holder's Registrable Securities and
such Holder's intended method of disposition.
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(c) PARTICIPATION IN UNDERWRITTEN REGISTRATION.
Notwithstanding anything herein to the contrary, no Person may participate in
any underwritten registration hereunder unless such Person (i) agrees to sell
its securities on the same terms and conditions provided in any underwritten
arrangements approved by the Persons entitled hereunder to approve such
arrangement and (ii) accurately completes and executes in a timely manner all
questionnaires, powers of attorney, indemnities, custody agreements,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
2.5 EXPENSES. The Company shall pay all Registration
Expenses in connection with any Registration pursuant to Section 2.1(a),
Incidental Registration whether or not such registration shall become effective
and whether or not all Registrable Securities originally requested to be
included in such registration are withdrawn or otherwise ultimately not included
in such registration.
3. HOLDBACK ARRANGEMENTS
3.1 RESTRICTIONS ON SALE BY HOLDERS OF REGISTRABLE
SECURITIES. Each Holder of Registrable Securities agrees, by acquisition of such
Registrable Securities, if timely requested in writing by the sole or lead
managing Underwriter, not to make any short sale of, loan, grant any option for
the purchase of or effect any public sale or distribution, including a sale
pursuant to Rule 144 (or any successor provision having similar effect) under
the Securities Act of any Registrable Securities (except as part of such
registration), during the fourteen (14) days prior to, and during the time
period reasonably requested by the sole or lead managing Underwriter, not to
exceed 90 days, beginning on the effective date of the applicable registration
statement, unless the sole or lead Managing Underwriter in such Underwritten
Offering otherwise agrees.
3.2 RESTRICTIONS ON SALE BY THE COMPANY AND OTHERS. The
Company agrees that if timely requested in writing by the sole or lead managing
Underwriter in an Underwritten Offering of any Registrable Securities, not to
make any short sale of, loan, grant any option for the purchase of or effect any
public sale or distribution of any of the Company's equity securities (or any
security convertible into or exchangeable or exercisable for any of the
Company's equity securities) during the fourteen (14) days prior to, and during
the time period reasonably requested by the sole or lead managing Underwriter
not to exceed 90 days, beginning on the effective date of the applicable
registration statement (except as part of such underwritten registration or
pursuant to registrations on Forms S-4 or S-8 or any successor form to such
forms), unless the sole or lead Managing Underwriter in such Underwritten
Offering otherwise Agrees. The Company will use its best efforts to cause each
director and officer of the Company and each holder of 3% or more of the equity
securities (or any security convertible into or exchangeable or exercisable for
any of its equity securities) of the Company purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering or in a public sale) to so agree.
4. REGISTRATION PROCEDURES.
4.1 OBLIGATIONS OF THE COMPANY. Whenever the Company is
required to effect the registration of Registrable Securities under the
Securities Act pursuant to Section 2 of this Agreement, the Company shall, as
expeditiously as reasonably possible:
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(a) prepare and file with the SEC (promptly, and in any event
within 60 days after receipt of a request to register Registrable Securities)
the requisite Registration Statement to effect such registration, which
Registration Statement shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and the Company shall use its best
efforts to cause such Registration Statement to become effective (promptly, and
in any event within 60 days after receipt of a request to register Registrable
Securities) (PROVIDED, that the Company may discontinue any registration of its
securities that are not Registrable Securities, and, under the circumstances
specified in Section 2.2, its securities that are Registrable Securities);
PROVIDED, HOWEVER, that before filing a Registration Statement or Prospectus or
any amendments or supplements thereto, or comparable statements under securities
or blue sky laws of any jurisdiction, the Company shall (i) provide Holders'
Counsel and any other Inspector with an adequate and appropriate opportunity to
participate in the preparation of such Registration Statement and each
Prospectus included therein (and each amendment or supplement thereto or
comparable statement) to be filed with the SEC, which documents shall be subject
to the review and comment of Holders' Counsel, and (ii) not file any such
Registration Statement or Prospectus (or amendment or supplement thereto or
comparable statement) with the SEC to which Holder's Counsel, any selling Holder
or any other Inspector shall have reasonably objected on the grounds that such
filing does not comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in connection
therewith as may be necessary (i) to keep such Registration Statement effective,
and (ii) to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such Registration
Statement, in each case for at least 120 days after the Registration Statement
becomes effective or as otherwise provided in Section 2.1(f) hereof.
(c) furnish, without charge, to each selling Holder of such
Registrable Securities and each Underwriter, if any, of the securities covered
by such Registration Statement, such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits), and the Prospectus included in such Registration Statement (including
each preliminary Prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such selling Holder and Underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such selling Holder (the Company hereby
consenting to the use in accordance with applicable law of each such
Registration Statement (or amendment or post-effective amendment thereto) and
each such Prospectus (or preliminary prospectus or supplement thereto) by each
such selling Holder of Registrable Securities and the Underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Registration Statement or Prospectus);
(d) prior to any public offering of Registrable Securities,
use its reasonable best efforts to register or qualify all Registrable
Securities and other securities covered by such Registration Statement under
such other securities or blue sky laws of such jurisdictions as any selling
Holder of Registrable Securities covered by such Registration Statement or the
sole or lead managing Underwriter, if any, may reasonably request to enable such
selling Holder to
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consummate the disposition in such jurisdictions of the Registrable Securities
owned by such selling Holder and to continue such registration or qualification
in effect in each such jurisdiction for as long as such Registration Statement
remains in effect (including through new filings or amendments or renewals), and
do any and all other acts and things which may be necessary or advisable to
enable any such selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such selling Holder.
Notwithstanding anything to the contrary contained herein, the Company shall not
be obligated to make any filing in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
order to effect such registration, qualification or compliance unless the
Company already is subject to service in such jurisdiction in the reasonable
opinion of counsel to the Company.
(e) use its reasonable best efforts to obtain all other
approvals, consents, exemptions or authorizations from such governmental
agencies or authorities as may be necessary to enable the selling Holders of
such Registrable Securities to consummate the disposition of such Registrable
Securities;
(f) notify Holders' Counsel, each Holder of Registrable
Securities covered by such Registration Statement and the sole or lead managing
Underwriter, if any: (i) when the Registration Statement, any pre-effective
amendment, the Prospectus or any prospectus supplement related thereto or
post-effective amendment to the Registration Statement has been filed and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any state
securities or blue sky authority for amendments or supplements to the
Registration Statement or the Prospectus related thereto or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or any initiation or threat known to
the Company, after reasonable investigation, of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale under
the securities or blue sky laws of any jurisdiction or the initiation of any
proceeding for such purpose, (v) of the existence of any fact of which the
Company becomes aware or the happening of any event which results in (A) the
Registration Statement containing an untrue statement of a material fact or
omitting to state a material fact required to be stated therein or necessary to
make any statements therein, in light of the circumstances in which they were
made, not misleading, or (B) the Prospectus included in such Registration
Statement containing an untrue statement of a material fact or omitting to state
a material fact required to be stated therein or necessary to make any
statements therein, in the light of the circumstances under which they were
made, not misleading, (vi) if at any time the representations and warranties
contained in any underwriting agreement in respect of such offering cease to be
true and correct in all material respects, and (vii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate or that there exists circumstances not yet disclosed to the
public which make further sales under such Registration Statement inadvisable
pending such disclosure and post-effective amendment; and, if the notification
relates to an event described in any of the clauses (ii) through (vii) of this
Section 4.1(f), the Company shall promptly prepare a supplement or
post-effective amendment to such Registration Statement or related Prospectus or
any document incorporated therein by reference or file any other required
document so that (1) such Registration Statement
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shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
and (2) as thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder, such Prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein in the light of the circumstances
under which they were made not misleading (and shall furnish to each such Holder
and each Underwriter, if any, a reasonable number of copies of such Prospectus
so supplemented or amended); and if the notification relates to an event
described in clause (iii) of this Section 4.1(f), the Company shall take all
reasonable action required to prevent the entry of such stop order or to remove
it if entered;
(g) make available for inspection by any selling Holder of
Registrable Securities, any sole or lead managing Underwriter participating in
any disposition pursuant to such Registration Statement, Holders' Counsel and
any attorney, accountant or other agent retained by any such seller or any
Underwriter (each, an "Inspector" and, collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "Records") as shall be necessary, in the opinion of such
Holders' and such Underwriters' respective counsel, to enable them to exercise
their due diligence responsibility and to conduct a reasonable investigation
within the meaning of the Securities Act, and cause the Company's and any
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspectors in connection with such Registration Statement;
(h) obtain an opinion from the Company's counsel and a "cold
comfort" letter from the Company's independent public accountants who have
certified the Company's financial statements included or incorporated by
reference in such Registration Statement, in each case dated the effective date
of such Registration Statement (and if such registration involves an
Underwritten Offering, dated the date of the closing under the underwriting
agreement), in customary form and covering such matters as are customarily
covered by such opinions and "cold comfort" letters delivered to underwriters in
underwritten public offerings, which opinion and letter shall be reasonably
satisfactory to the sole or lead managing Underwriter, if any, and to the
Majority Holders of the Registration, and furnish to each Holder participating
in the offering and to each Underwriter, if any, a copy of such opinion and
letter addressed to such Holder (in the case of the opinion) and Underwriter (in
the case of the opinion and the "cold comfort" letter);
(i) provide a CUSIP number for all Registrable Securities and
provide and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effectiveness of such Registration Statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and any other governmental agency or
authority having jurisdiction over the offering, and make available to its
security holders, as soon as reasonably practicable but no later than 90 days
after the end of any 12-month period, an earnings statement (i) commencing at
the end of any month in which Registrable Securities are sold to Underwriters in
an Underwritten
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Offering and (ii) commencing with the first day of the Company's calendar month
next succeeding each sale of Registrable Securities after the effective date of
a Registration Statement, which statement shall cover such 12-month periods, in
a manner which satisfies the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder;
(k) if so requested by the Majority Holders of the
Registration, use its best efforts to cause all such Registrable Securities to
be duly included for quotation on the Nasdaq Stock Market's National Market (the
"Nasdaq National Market"), the Nasdaq Stock Market's SmallCap Market (the
"Nasdaq SmallCap Market") or listed on the principal national securities
exchange on which the Company's similar securities are then listed, if
applicable;
(l) enter into and perform customary agreements (including, if
applicable, an underwriting agreement in customary form) and provide officers'
certificates and other customary closing documents;
(m) cooperate with each selling Holder of Registrable
Securities and each Underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD and make reasonably available its
employees and personnel and otherwise provide reasonable assistance to the
Underwriters (taking into account the needs of the Company's businesses and the
requirements of the marketing process) in the marketing of Registrable
Securities in any Underwritten Offering;
(n) cooperate with the selling Holders of Registrable
Securities and the sole or lead managing Underwriter, if any, to facilitate the
timely preparation and delivery of certificates not bearing any restrictive
legends representing the Registrable Securities to be sold, and cause such
Registrable Securities to be issued in such denominations and registered in such
names in accordance with the underwriting agreement prior to any sale of
Registrable Securities to the Underwriters or, if not an Underwritten Offering,
in accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities;
(o) keep each selling Holder of Registrable Securities advised
in writing as to the initiation and progress of any registration under Section 2
hereunder;
(p) furnish to each Holder participating in the offering and
the sole or lead managing Underwriter, if any, without charge, at least one copy
of the Registration Statement and any post-effective amendments thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those deemed to be incorporated by
reference); and
(q) if requested by the sole or lead managing Underwriter or
any selling Holder of Registrable Securities, promptly incorporate in a
prospectus supplement or post-effective amendment such information concerning
such Holder of Registrable Securities, the Underwriters or the intended method
of distribution as the sole or lead managing Underwriter or the selling Holder
of Registrable Securities reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company, including, without
limitation, information with respect to the number of shares of the Registrable
Securities being sold to the
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Underwriters, the purchase price being paid therefor by such Underwriters and
with respect to any other terms of the Underwritten Offering of the Registrable
Securities to be sold in such offering; make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment; and supplement or make amendments to any Registration Statement if
reasonably requested by the sole or lead managing Underwriter of such
Registrable Securities.
4.2 SELLER INFORMATION. The Company may require each
selling Holder of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding such seller and
the disposition of such securities as the Company may from time to time
reasonably request in writing; PROVIDED, HOWEVER, that such information shall be
used only in connection with such Registration. If any Registration Statement or
comparable statement under "blue sky" laws refers to any Holder by name or
otherwise as the Holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance satisfactory to such Holder and the Company, to the effect that the
holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, and
(ii) in the event that such reference to such Holder by name or otherwise is not
in the judgment of the Company, as advised by counsel, required by the
Securities Act or any similar federal statute or any state "blue sky" or
securities law then in force, the deletion of the reference to such Holder.
4.3 NOTICE TO DISCONTINUE. Each Holder of Registrable
Securities agrees by acquisition of such Registrable Securities that, (i) upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 4.1(f)(ii) through 4.1(f)(v), such Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
4.1(f) and, if so directed by the Company, such Holder shall deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the Prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such Registration Statement shall be maintained effective pursuant to this
Agreement (including, without limitation, the period referred to in Section
4.1(b)) by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 4.1(f) to and including the date
when the Holder shall have received the copies of the supplemented or amended
prospectus contemplated by and meeting the requirements of Section 4.1(f).
5. INDEMNIFICATION; CONTRIBUTION.
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each Holder
of Registrable Securities, its officers, directors, partners, members,
shareholders, employees, Affiliates, advisers, attorneys and agents
(collectively, "Agents") and each Person who controls such Holder (within the
meaning of the Securities Act) and its Agents with respect to each registration
which has been effected pursuant to this Agreement, against any and all losses,
claims, damages or liabilities,
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joint or several, actions or proceedings (whether commenced or threatened) in
respect thereof, and expenses (as incurred or suffered and including, but not
limited to, any and all expenses incurred in investigating, preparing or
defending any litigation or proceeding, whether commenced or threatened, and the
reasonable fees, disbursements and other charges of legal counsel) in respect
thereof (collectively, "Claims"), insofar as such Claims arise out of or are
based upon any untrue or alleged untrue statement of a material fact contained
in any Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to any such
registration or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, or any qualification or
compliance incident thereto; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such Claims arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission of a material fact so made in reliance upon and
in conformity with written information furnished to the Company by a Holder,
Underwriter or other indemnified person hereunder expressly for use therein. The
Company shall also indemnify any Underwriters of the Registrable Securities,
their Agents and each Person who controls any such Underwriter (within the
meaning of the Securities Act) to the same extent as provided above with respect
to the indemnification of the Holders of Registrable Securities. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of any Person who may be entitled to indemnification pursuant to this
Section 5 and shall survive the transfer of securities by such Holder or
Underwriter.
5.2 INDEMNIFICATION BY HOLDERS. Each Holder, if
Registrable Securities held by it are included in the securities as to which a
registration is being effected, agrees to, severally and not jointly, indemnify
and hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers and employees, each other Person who participates as an
Underwriter in the offering or sale of such securities and its Agents and each
Person who controls the Company against any and all Claims, insofar as such
Claims arise out of or are based upon any untrue or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus (including
any preliminary, final or summary prospectus and any amendment or supplement
thereto) related to such registration, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished by such
Holder to the Company, Underwriter or other indemnified person hereunder
expressly for use therein; PROVIDED, HOWEVER, that the aggregate amount which
any such Holder shall be required to pay pursuant to this Section 5.2 shall in
no event be greater than the amount of the net proceeds received by such Holder
upon the sale of the Registrable Securities pursuant to the Registration
Statement giving rise to such Claims less all amounts previously paid by such
Holder with respect to any such Claims.
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5.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly
after receipt by an indemnified party of notice of any Claim or the commencement
of any action or proceeding involving a Claim under this Section 5, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 5, (i) notify the indemnifying party in
writing of the Claim or the commencement of such action or proceeding; PROVIDED,
that the failure of any indemnified party to provide such notice shall not
relieve the indemnifying party of its obligations under this Section 5, except
to the extent the indemnifying party is materially and actually prejudiced
thereby and shall not relieve the indemnifying party from any liability which it
may have to any indemnified party otherwise than under this Section 5, and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER, that any
indemnified party shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (A) the
indemnifying party has agreed in writing to pay such fees and expenses, (B) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such indemnified party within 20 days
after receiving notice from such indemnified party that the indemnified party
believes it has failed to do so, or (C) in the reasonable judgment of any such
indemnified party, based upon advice of counsel, a conflict of interest shall
exist between such indemnified party and the indemnifying party with respect to
such claims; it being understood, however, that the indemnifying party shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to no more
than one firm of local counsel) at any time for all such indemnified parties. No
indemnifying party shall be liable for any settlement of any such claim or
action effected without its written consent, which consent shall not be
unreasonably withheld. No indemnifying party shall, without the consent of the
indemnified party, which consent shall not be unreasonable withheld, consent to
entry of any judgment or enter into any settlement of any claim or action in
respect of which indemnification or contribution may be sought hereunder, unless
such settlement, (i) includes an unconditional release of the indemnified party
from all liability arising out of such action or claim, (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party, and (3) does not provide for any action on
the part of any party other than the payment of money damages which is to be
paid in full by the indemnifying party.
5.4 CONTRIBUTION. If the indemnification provided for in
Section 5.1 or 5.2 from the indemnifying party for any reason is unavailable to
(other than by reason of exceptions provided therein), or is insufficient to
hold harmless an indemnified party hereunder in respect of any Claim, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Claim in such proportion as is appropriate to reflect the relative fault
of the indemnifying party, on the one hand, and the indemnified party, on the
other hand, in connection with the actions which resulted in such Claim, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates
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to information supplied by, such indemnifying party or indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. If, however, the foregoing allocation is not
permitted by applicable law, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative faults but also the relative
benefits of the indemnifying party and the indemnified party as well as any
other relevant equitable considerations.
5.5 INDEMNIFICATION PAYMENTS. The indemnification and
contribution required by this Section 5 shall be made by periodic payments of
the amount thereof during the course of any investigation or defense, as and
when bills are received or any expense, loss, damage or liability is incurred.
6. GENERAL.
6.1 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The
Company agrees that it shall not effect or permit to occur any combination or
subdivision of shares which would adversely affect the ability of the Holder of
any Registrable Securities to include such Registrable Securities in any
registration contemplated by this Agreement or the marketability of such
Registrable Securities in any such registration.
6.2 REGISTRATION RIGHTS TO OTHERS. Except as specifically
described on Schedule 6.2, the Company represents and warrants that it is not
currently a party to any agreement with respect to its securities granting
registration rights to Persons. If the Company shall at any time hereafter
provide to any holder of any securities of the Company rights with respect to
the registration of such securities under the Securities Act (not including any
such rights which have been previously granted), such rights shall not be in
conflict with or adversely affect any of the rights provided in this Agreement
to the Holders.
6.3 AVAILABILITY OF INFORMATION; RULE 144; OTHER
EXEMPTIONS. At any time during which the Company is not subject to the reporting
requirements of the Exchange Act, the Company shall, at any time and from time
to time, upon the request of any Holder of Registrable Securities or upon the
request of any Person designated by such Holder as a prospective purchaser of
any Registrable Securities, furnish in writing to such Holder or such
prospective purchaser, as the case may be, a statement as of a date not earlier
than 12 months prior to the date of such request of the nature of the business
of the Company and the products and services it offers and copies of the
Company's most recent balance sheet and profit and loss and retained earnings
statements, together with similar financial statements for such part of the two
preceding fiscal years as the Company shall have been in operation, all such
financial statements to be audited to the extent audited statements are
reasonable available, PROVIDED that, in any event the most recent financial
statements so furnished shall include a balance sheet as of a date less than 16
months prior to the date of such request, statements of profit and loss and
retained earnings for the 12 months preceding the date of such balance sheet,
and, if such balance sheet is not as of a date less than 6 months prior to the
date of such request, additional statements of profit and loss and retained
earnings for the period from the date of such balance sheet to a date less than
6 months prior to the date of such request. During any time during which the
Company is not subject to the reporting requirements of the Exchange Act and as
long as any Registrable
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Securities are outstanding or the Warrants have not yet expired, the Company
shall deliver to the Holders all reports, financial statements and other
documents required to be provided under subsections (i), (ii) and (iii) of
Section 7.01(a) of the Loan Agreement, without regard to (A) whether, at any
time, such reporting requirements are required pursuant to Section 7.01 of the
Loan Agreement and (B) whether all Liens, Reimbursement Obligations, Letter of
Credit Obligations and all other Obligations under the Loan Agreement have been
paid or whether any Lender shall have any commitment thereunder. The Company
will use its best efforts to take such steps as are necessary to allow the
Company to become, and remain, eligible to register securities on Form S-3 (of
any comparable form adopted by the SEC) for resale purposes, and to make
publicly available and available to the Holder of Registrable Securities to make
sales of Registrable Securities pursuant to such rules.
The Company covenants that it shall timely file any reports
required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c) of Rule 144 under the Securities
Act), and that it shall take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such rule may be amended from time to time, or
(ii) any other rule or regulation now existing or hereafter adopted by the SEC.
The Company will furnish to any Holder of Registrable Securities, upon request
made by such Holder at any time, a written statement signed by the Company,
addressed to such Holder, as to whether the Company has complied with the
current public information requirements of Rule 144 or Rule 144A. The Company
will, at the request of any Holder of Registrable Securities (upon receipt from
such Holder of a certificate certifying (i) that such Holder has held such
Registrable Securities for a period of not less than one (1) year, and (ii) that
such Holder has not been an affiliate (as defined in Rule 144) of the Company
for more than the ninety (90) preceding days), remove from the stock
certificates representing such Registrable Securities that portion of any
restrictive legend which relates to the registration provisions of the
Securities Act.
6.4 AMENDMENTS AND WAIVERS. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, without the written consent of the
Company and the Majority Holders; PROVIDED, HOWEVER, that no such amendment,
modification, supplement, waiver or consent to departure shall reduce the
aforesaid percentage of Registrable Securities without the written consent of
all of the Holders of Registrable Securities; and PROVIDED FURTHER, that nothing
herein shall prohibit any amendment, modification, supplement, termination,
waiver or consent to departure the effect of which is limited only to those
Holders who have agreed to such amendment, modification, supplement,
termination, waiver or consent to departure.
6.5 NOTICES. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to the applicable party at the address set forth below or such other
address as
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may hereafter be designated in writing by such party to the other parties in
accordance with the provisions of this Section:
If to the Company: Frontstep, Inc.
2800 Corporate Exchange Drive
Columbus, Ohio 43231
Attn: Daniel P. Buettin
Fax No. 614-895-2504
with copies to: Vorys, Sater Seymour & Pease LLP
52 East Gay Street
Columbus, Ohio 43231
Attn: Ivery D. Foreman, Esq.
Fax No. 614-464-6350
If to the Initial Holder: Foothill Capital Corporation
2450 Colorado Avenue
Suite 3000 West
Santa Monica, CA 90404
Attn: Business Finance Division Manager
Fax No. 310-453-7443
with copies to: Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attn: Frederic L. Ragucci, Esq.
Fax No. (212) 593-5955
If to any subsequent
Holder, to the address of
such Person set forth in
the records of the Company.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; when
receipt is acknowledged, if telecopied; on the next business day, if timely
delivered to a courier guaranteeing overnight delivery; and five days after
being deposited in the mail, if sent first class or certified mail, return
receipt requested, postage prepaid.
6.6 SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, successors and permitted assigns (including any permitted transferee of
the Warrant or Registrable Securities). Any Holder may assign to any permitted
(as determined under the Warrant) transferee of its Warrant or Registrable
Securities (other than a transferee that acquires such Registrable Securities in
a registered public offering or pursuant to a sale under Rule 144 of the
Securities Act (or any
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successor rule)), its rights and obligations under this Agreement; PROVIDED,
HOWEVER, if any permitted transferee shall take and hold the Warrant or
Registrable Securities, such transferee shall promptly notify the Company and by
taking and holding such Registrable Securities such permitted transferee shall
automatically be entitled to receive the benefits of and be conclusively deemed
to have agreed to be bound by and to perform all of the terms and provisions of
this Agreement as if it were a party hereto (and shall, for all purposes, be
deemed a Holder under this Agreement). If the Company shall so request any heir,
successor or permitted assign (including any permitted transferee) wishing to
avail itself of the benefits of this Agreement shall agree in writing to acquire
and hold the Registrable Securities subject to all of the terms hereof. For
purposes of this Agreement, "successor" for any entity other than a natural
person shall mean a successor to such entity as a result of such entity's
merger, consolidation, sale of substantially all of its assets, or similar
transaction. Except as provided above or otherwise permitted by this Agreement,
neither this Agreement nor any right, remedy, obligation or liability arising
hereunder or by reason hereof shall be assignable by any Holder or by the
Company without the consent of the other parties hereto.
6.7 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which, when so executed and delivered, shall be
deemed to be an original, but all of which counterparts, taken together, shall
constitute one and the same instrument.
6.8 DESCRIPTIVE HEADINGS, ETC. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein. Unless the context of this
Agreement otherwise requires: (1) words of any gender shall be deemed to include
each other gender; (2) words using the singular or plural number shall also
include the plural or singular number, respectively; (3) the words "hereof",
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section and paragraph references are to the Sections and
paragraphs of this Agreement unless otherwise specified; (4) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified; (5) "or" is not
exclusive; and (6) provisions apply to successive events and transactions.
6.9 SEVERABILITY. In the event that any one or more of
the provisions, paragraphs, words, clauses, phrases or sentences contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any way
impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
6.10 CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE
VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
-21-
24
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. THE
COMPANY AND THE INITIAL HOLDERS WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 6.10.
THE COMPANY AND THE INITIAL HOLDERS HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND THE INITIAL HOLDERS REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
6.11 REMEDIES; SPECIFIC PERFORMANCE. The parties hereto
acknowledge that money damages would not be an adequate remedy at law if any
party fails to perform in any material respect any of its obligations hereunder,
and accordingly agree that each party, in addition to any other remedy to which
it may be entitled at law or in equity, shall be entitled to seek to compel
specific performance of the obligations of any other party under this Agreement,
without the posting of any bond, in accordance with the terms and conditions of
this Agreement in any court specified in Section 6.10 hereof, and if any action
should be brought in equity to enforce any of the provisions of this Agreement,
none of the parties hereto shall raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by a
party hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
6.12 ENTIRE AGREEMENT. This Agreement, the Loan Agreement,
the Warrant and the other transaction documents (collectively, (the "Other
Agreements")) are intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings relating to such subject matter, other
than those set forth or referred to herein or in the Other Agreements. This
Agreement and the Other Agreements supersede all prior agreements and
understandings between the Company and the other parties to this Agreement with
respect to such subject matter.
6.13 FURTHER ASSURANCES. Each party hereto shall do and
perform or cause to be done and performed all such further acts and things and
shall execute and deliver all such other agreements, certificates, instruments
and documents as any other party hereto reasonably may
-22-
25
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
6.14 CONSTRUCTION. The Company and the Initial Holders
acknowledge that each of them has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement with its
legal counsel and that this Agreement shall be construed as if jointly drafted
by the Company and the Holders.
6.15 NO INCONSISTENT AGREEMENT. The Company will not
hereafter enter into any agreement which conflicts with the rights granted to
the Holders in this Agreement.
6.16 COSTS AND ATTORNEYS' FEES. In the event that any
action, suit or other proceeding is instituted concerning or arising out of this
Agreement, the Company and the Initial Holders agree that the prevailing party
shall recover from the non-prevailing party all of such prevailing party's costs
and reasonable attorneys' fees incurred in each and every such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
6.17 MOST FAVORED HOLDER. The Company agrees that if at
any time after the date of this Agreement and from time to time prior to the
sale or disposition of all Registrable Securities covered by this Agreement, it
enters into any agreement with or grants rights to any other holder of the
Company's securities that are more favorable to such holder than those rights
granted to Holders hereunder or imposes obligations on the Company with respect
to the registration of the Company's securities that are not imposed on the
Company hereunder, then this Agreement shall be deemed amended to provide such
additional rights to the Holders and/or impose such additional obligations on
the Company. Upon the request of any Holder, the Company shall execute and
deliver to such Holder an amendment to this Agreement to such effect or execute
a written instrument in form and substance reasonably satisfactory to such
Holder confirming such amendment to this Agreement. Notwithstanding the
foregoing, no additional rights of any or all of the Holders by reason of this
provision shall be created or triggered by the existence and/or exercise of any
rights of the holders of the Company's presently outstanding preferred shares
and/or warrants which arise under the Rights Agreement, or which inure solely to
the benefit of such investors in the Amended Articles of Incorporation, as
amended, of the Company, the Regulations, as amended, of the Company and the
terms and provisions of such outstanding warrants solely to the extent provided
under such Rights Agreement, Articles, Regulations and warrants as of the date
hereof.
-23-
26
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first written above.
INITIAL HOLDER:
FRONTSTEP, INC. FOOTHILL CAPITAL CORPORATION
By: /s/ Daniel P. Buettin By: /s/ Katy J. Brooks
-------------------------------------- -------------------------
Name: Daniel P. Buettin Name: Katy J. Brooks
Title: Vice President & CFO Title: V.P.
27
Page
----
SCHEDULE 6.2
To
Registration Rights Agreement
By and Between
Frontstep, Inc. (the "Company")
And
The Initial Holder Specified
On the
Signature Pages Thereof
Dated as of July 17, 2001
----------------------
The Company is a party to a certain Investor Rights Agreement dated May 10, 2000
among the Company, the several investors named therein who presently hold
outstanding convertible preferred shares and warrants issued by the Company and
Lawrence J. Fox, a principal shareholder of the Company (the "Rights
Agreement"). The investors named in the Rights Agreement (and certain
transferees of the common share equivalents held by such investors) have been
granted certain registration rights under the Rights Agreement with respect to
the common shares of the Company issuable upon conversion of the outstanding
convertible preferred shares and upon exercise of the outstanding warrants.
-ii-
28
Page
----
TABLE OF CONTENTS
PAGE
1. DEFINITIONS............................................................1
2. REGISTRATION UNDER THE SECURITIES ACT..................................5
2.1 Mandatory Registration..........................................5
2.2 Incidental Registration.........................................7
2.3 Shelf Registration..............................................9
2.4 Underwritten Offerings..........................................9
2.5 Expenses.......................................................10
3. HOLDBACK ARRANGEMENTS.................................................10
3.1 Restrictions on Sale by Holders of Registrable Securities......10
3.2 Restrictions on Sale by the Company and Others.................10
4. REGISTRATION PROCEDURES...............................................10
4.1 Obligations of the Company.....................................11
4.2 Seller Information.............................................15
4.3 Notice to Discontinue..........................................15
5. INDEMNIFICATION; CONTRIBUTION.........................................16
5.1 Indemnification by the Company.................................16
5.2 Indemnification by Holders.....................................16
5.3 Conduct of Indemnification Proceedings.........................17
5.4 Contribution...................................................18
5.5 Indemnification Payments.......................................18
6. GENERAL...............................................................18
6.1 Adjustments Affecting Registrable Securities...................18
6.2 Registration Rights to Others..................................18
6.3 Availability of Information; Rule 144; Other Exemptions........18
6.4 Amendments and Waivers.........................................19
6.5 Notices........................................................20
6.6 Successors and Assigns.........................................21
6.7 Counterparts...................................................21
6.8 Descriptive Headings, Etc......................................21
6.9 Severability...................................................22
6.10 Choice of Law and Venue; Jury Trial Waiver....................22
6.11 Remedies; Specific Performance................................22
6.12 Entire Agreement..............................................23
6.13 Further Assurances............................................23
6.14 Construction..................................................23
6.15 No Inconsistent Agreement.....................................23
6.16 Costs and Attorneys' Fees.....................................23
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29
Page
----
6.17 Most Favored Holder...........................................23
-iv-
EX-10.U
6
l90205aex10-u.txt
EXHIBIT 10(U)
1
EXHIBIT 10(v) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
================================================================================
LOAN AND SECURITY AGREEMENT
BY AND AMONG
FRONTSTEP, INC.
FRONTSTEP SOLUTIONS GROUP, INC.
BRIGHTWHITE SOLUTIONS, INC.
FRONTSTEP CANADA, INC.,
AS BORROWERS,
THE LENDERS THAT ARE SIGNATORIES HERETO
AS THE LENDERS,
AND
FOOTHILL CAPITAL CORPORATION
AS THE ARRANGER AND ADMINISTRATIVE AGENT
DATED AS OF JULY 17, 2001
================================================================================
3
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT"), is
entered into as of July 17, 2001, between and among, on the one hand, the
lenders identified on the signature pages hereof (such lenders, together with
their respective successors and assigns, are referred to hereinafter each
individually as a "LENDER" and collectively as the "LENDERS"), FOOTHILL CAPITAL
CORPORATION, a California corporation, as the arranger and administrative agent
for the Lenders ("AGENT"), and, on the other hand, FRONTSTEP, INC., an Ohio
corporation ("Parent"), and each of Parent's Subsidiaries identified on the
signature pages hereof (such Subsidiaries, together with Parent, are referred to
hereinafter each individually as a "BORROWER", and individually and
collectively, jointly and severally, as "BORROWERS").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account, chattel paper,
or a General Intangible.
"ACCOUNTS" means all of Borrowers' now owned or hereafter
acquired right, title, and interest with respect to "accounts" (as that term is
defined in the Code), and any and all supporting obligations in respect thereof,
including, without limitation, each Borrower's right to payment of a monetary
obligation (i) for property that has been or is to be sold, leased, licensed,
assigned or otherwise disposed of or (ii) for services rendered or to be
rendered.
"ACCOUNTS RESERVE" means $2,500,000, PROVIDED that one year
after the Closing Date, Agent may, in its Permitted Discretion, eliminate this
$2,500,000 reserve based upon Borrowers' satisfaction of the following: (i) on
the applicable date of determination, the financial performance of Borrowers for
the period covered by Borrowers' most recent financial statements delivered to
Agent in accordance with SECTION 6.3 shall at a minimum meet Borrowers'
projected financial performance for such period set forth in the Closing Date
Business Plan; and (ii) Agent shall have received an appraisal of Borrowers'
Eligible Recurring Maintenance Revenues performed by an appraiser, acceptable to
Agent, which shows that, as of the date of such appraisal, the aggregate value
of such Eligible Recurring Maintenance Revenues is not less than the aggregate
value of Borrowers' Eligible Recurring Maintenance Revenues as reflected in the
appraisal of such Eligible Recurring Maintenance Revenues received by Agent
prior to the Closing Date.
"ADDITIONAL DOCUMENTS" has the meaning set forth in SECTION
4.4.
"ADMINISTRATIVE BORROWER" has the meaning set forth in SECTION
17.9.
"ADVANCES" has the meaning set forth in SECTION 2.1.
4
"AFFILIATE" means, as applied to any Person, any other Person
who, directly or indirectly, controls, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of Stock, by contract, or
otherwise; PROVIDED, HOWEVER, that, in any event: (a) any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the election of directors or other members of the governing body of a
Person or 10% or more of the partnership or other ownership interests of a
Person (other than as a limited partner of such Person) shall be deemed to
control such Person; (b) each director (or comparable manager) of a Person shall
be deemed to be an Affiliate of such Person; and (c) each partnership or joint
venture in which a Person is a partner or joint venturer shall be deemed to be
an Affiliate of such Person.
"AGENT" means Foothill, solely in its capacity as agent for
the Lenders hereunder, and any successor thereto.
"AGENT'S ACCOUNT" means an account at a bank designated by
Agent from time to time as the account into which Borrowers shall make all
payments to Agent for the benefit of the Lender Group and into which the Lender
Group shall make all payments to Agent under this Agreement and the other Loan
Documents; unless and until Agent notifies Administrative Borrower and the
Lender Group to the contrary, Agent's Account shall be that certain deposit
account bearing account number 323-266193 and maintained by Agent with The Chase
Manhattan Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA
#021000021.
"AGENT ADVANCES" has the meaning set forth in SECTION
2.3(e)(i).
"AGENT'S LIENS" means the Liens granted by Borrowers to Agent
for the benefit of the Lender Group under this Agreement or the other Loan
Documents.
"AGENT-RELATED PERSONS" means Agent together with its
Affiliates, officers, directors, employees, and agents.
"AGREEMENT" has the meaning set forth in the preamble hereto.
"APPLICABLE PREPAYMENT PREMIUM" means, as of any date of
determination, an amount equal to (a) during the period of time from and after
the date of the execution and delivery of this Agreement up to the date that is
the first anniversary of the Closing Date, 3% times the sum of (i) the Maximum
Revolver Amount, plus (ii) the outstanding principal balance of the Term Loan on
the date immediately prior to the date of determination, (b) during the period
of time from and including the date that is the first anniversary of the Closing
Date up to the date that is the second anniversary of the Closing Date, 2% times
the sum of (i) the Maximum Revolver Amount, plus (ii) the outstanding principal
balance of the Term Loan on the date immediately prior to the date of
determination, and (c) during the period of time from and including the date
that is the second anniversary of the Closing Date up to the Maturity Date, 1%
times the sum of (i) the Maximum Revolver Amount, plus (ii) the outstanding
principal balance of the Term Loan on the date immediately prior to the date of
determination.
"ASSIGNEE" has the meaning set forth in SECTION 14.1.
-2-
5
"ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance
in the form of EXHIBIT A-1.
"AUTHORIZED PERSON" means any officer or other employee of
Administrative Borrower.
"AVAILABILITY" means, as of any date of determination, if such
date is a Business Day, and determined at the close of business on the
immediately preceding Business Day, if such date of determination is not a
Business Day, the amount that Borrowers are entitled to borrow as Advances under
SECTION 2.1 (after giving effect to all then outstanding Obligations and all
sublimits and reserves applicable hereunder).
"BANKRUPTCY CODE" means the United States Bankruptcy Code, as
in effect from time to time.
"BASE LIBOR RATE" means the rate per annum, determined by
Agent 2 Business Days prior to the commencement of the applicable Interest
Period of each LIBOR Rate Loan, based on the USD British Banker's Association's
determination (as quoted in various publications, including Bloomberg), or if
such quotation becomes unavailable or impractical for Agent to obtain, then the
Base LIBOR Rate shall be determined by Agent in accordance with its customary
procedures, and utilizing such electronic or other quotation sources as it
considers appropriate (rounded upwards, if necessary, to the next 1/16%), on the
basis of the rates at which Dollar deposits are offered to major banks in the
London interbank market 2 Business Days prior to the commencement of the
applicable Interest Period, for a term and in amounts comparable to the Interest
Period and amount of the LIBOR Rate Loan requested by Administrative Borrower in
accordance with this Agreement, which determination shall be conclusive in the
absence of manifest error.
"BASE RATE" means, the rate of interest announced within Wells
Fargo at its principal office in San Francisco as its "prime rate", with the
understanding that the "prime rate" is one of Wells Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publication or publications as Wells Fargo may designate.
"BASE RATE LOAN" means each portion of an Advance or the Term
Loan that bears interest at a rate determined by reference to the Base Rate.
"BASE RATE MARGIN" means 1 percentage points.
"BASE RATE TERM LOAN MARGIN" means 5.0 percentage points.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in
SECTION 3(35) of ERISA) for which any Borrower or any Subsidiary or ERISA
Affiliate of any Borrower has been an "employer" (as defined in SECTION 3(5) of
ERISA) within the past six years.
"BOARD OF DIRECTORS" means the board of directors (or
comparable managers) of Parent or any committee thereof duly authorized to act
on behalf thereof.
-3-
6
"BOOKS" means all of each Borrower's now owned or hereafter
acquired books and records (including all of its Records indicating,
summarizing, or evidencing its assets (including the Collateral) or liabilities,
all of its Records relating to its business operations or financial condition,
and all of its goods or General Intangibles related to such information).
"BORROWER" and "BORROWERS" have the respective meanings set
forth in the preamble to this Agreement.
"BORROWING" means a borrowing hereunder consisting of Advances
(or term loans, in the case of the Term Loan) made on the same day by the
Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing
Loan, or by Agent in the case of an Agent Advance.
"BORROWING BASE" has the meaning set forth in SECTION 2.1.
"BORROWING BASE CERTIFICATE" means a certificate in the form
of EXHIBIT B-1.
"BRIGHTWHITE" means brightwhite solutions, inc., an Ohio
corporation.
"BUSINESS DAY" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close, except
that, if a determination of a Business Day shall relate to a LIBOR Rate Loan,
the term "Business Day" also shall exclude any day on which banks are closed for
dealings in Dollar deposits in the London interbank market.
"BUSINESS INTELLECTUAL PROPERTY" has the meaning set forth in
SECTION 5.16.
"CAPITAL LEASE" means a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATION" means any Indebtedness
represented by obligations under Capital Lease.
"CASH EQUIVALENTS" means (a) marketable direct obligations
issued or unconditionally guaranteed by the United States or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within 1 year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or Moody's,
(c) commercial paper maturing no more than 1 year from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or Moody's, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or
Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"CASH MANAGEMENT BANK" has the meaning set forth in SECTION
2.7(a).
-4-
7
"CASH MANAGEMENT ACCOUNT" has the meaning set forth in SECTION
2.7(a).
"CASH MANAGEMENT AGREEMENTS" means those certain cash
management service agreements, in form and substance satisfactory to Agent, each
of which is among Administrative Borrower, Agent, and one of the Cash Management
Banks.
"CHANGE OF CONTROL" means (a) any "person" or "group" (within
the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than
Permitted Holders, becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 15%, or more, of the Stock of
Parent having the right to vote for the election of members of the Board of
Directors, or (b) a majority of the members of the Board of Directors do not
constitute Continuing Directors, or (c) any Borrower ceases to directly own and
control the same percentage of the outstanding capital Stock of each of its
Subsidiaries as set forth in Schedule 5.8(c) as of the Closing Date, except as a
result of the merger of brightwhite with and into the Parent in accordance with
SECTION 6.13.
"CLOSING DATE" means the date of the making of the initial
Advance (or other extension of credit) hereunder.
"CLOSING DATE BUSINESS PLAN" means the set of Projections of
Borrowers for the 3 year period following the Closing Date (on a year by year
basis, and for the 1 year period following the Closing Date, on a quarter by
quarter basis), in form and substance (including as to scope and underlying
assumptions) satisfactory to Agent.
"CODE" means the New York Uniform Commercial Code, as in
effect from time to time.
"COLLATERAL" means all of each Borrower's now owned or
hereafter acquired right, title, and interest in and to each of the following:
(a) Accounts,
(b) Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Investment Property,
(g) Negotiable Collateral,
(h) money or other assets of each such Borrower
that now or hereafter come into the possession, custody, or control of any
member of the Lender Group, and
-5-
8
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the foregoing, and any and all Accounts, Books, Equipment,
General Intangibles, Inventory, Investment Property, Negotiable Collateral,
Real Property, money, deposit accounts, or other tangible or intangible
property resulting from the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver, bailee
letter, or acknowledgement agreement of any lessor, warehouseman, processor,
consignee, or other Person in possession of, having a Lien upon, or having
rights or interests in the Equipment or Inventory, in each case, in form and
substance satisfactory to Agent.
"COLLECTIONS" means all cash, checks, notes, instruments, and
other items of payment (including insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds) of Borrowers.
"COMMITMENT" means, with respect to each Lender, its Revolver
Commitment, its Term Loan Commitment, or its Total Commitment, as the context
requires, and, with respect to all Lenders, their Revolver Commitments, their
Term Loan Commitments, or their Total Commitments, as the context requires, in
each case as such Dollar amounts are set forth beside such Lender's name under
the applicable heading on SCHEDULE C-1 or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of SECTION 14.1.
"COMMON STOCK" means the common stock, no par value, of the
Parent.
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of Exhibit C-1 delivered by the chief financial officer of Parent to
Agent.
"CONTINUING DIRECTOR" means (a) any member of the Board of
Directors who was a director (or comparable manager) of Parent on the Closing
Date, and (b) any individual who becomes a member of the Board of Directors
after the Closing Date if such individual was appointed or nominated for
election to the Board of Directors by a majority of the Continuing Directors,
but excluding any such individual originally proposed for election in opposition
to the Board of Directors in office at the Closing Date in an actual or
threatened election contest relating to the election of the directors (or
comparable managers) of Parent (as such terms are used in Rule 14a-11 under the
Exchange Act) and whose initial assumption of office resulted from such contest
or the settlement thereof.
"CONTRIBUTION AGREEMENT" means that certain Contribution
Agreement, dated of even date herewith, among Borrowers, in form and substance
satisfactory to Agent.
"CONTROL AGREEMENT" means a control agreement, in form and
substance satisfactory to Agent, executed and delivered by the applicable
Borrower, Agent, and the applicable securities intermediary with respect to a
Securities Account or a bank with respect to a deposit account.
-6-
9
"COPYRIGHT OFFICE" means the United States Register of
Copyrights, Library of Congress.
"COPYRIGHT SECURITY AGREEMENT" means a copyright security
agreement executed and delivered by each Borrower and Agent, the form and
substance of which is satisfactory to Agent.
"COPYRIGHTS" has the meaning set forth in the definition of
the term "Intellectual Property".
"DAILY BALANCE" means, with respect to each day during the
term of this Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand deposit account
maintained by any Borrower.
"DEFAULT" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"DEFAULTING LENDER" means any Lender that fails to make any
Advance (or other extension of credit) that it is required to make hereunder on
the date that it is required to do so hereunder.
"DEFAULTING LENDER RATE" means (a) the Base Rate for the first
3 days from and after the date the relevant payment is due, and (b) thereafter,
at the interest rate then applicable to Advances that are Base Rate Loans
(inclusive of the Base Rate Margin applicable thereto).
"DESIGNATED ACCOUNT" means account number 611 808 676 of
Administrative Borrower maintained with the Designated Account Bank, or such
other deposit account of Administrative Borrower (located within the United
States) that has been designated as such, in writing, by Administrative Borrower
to Agent.
"DESIGNATED ACCOUNT BANK" means Bank One, N.A., whose office
is located at 100 East Broad Street, Columbus, Ohio 43215, and whose ABA number
is 044 000 037.
"DILUTION" means, as of any date of determination, a
percentage, based upon the experience of the immediately prior 90 days, that is
the result of dividing the Dollar amount of (a) bad debt write-downs, discounts,
advertising allowances, credits, or other dilutive items with respect to the
Accounts during such period, by (b) Borrowers' Collections with respect to
Accounts during such period (excluding extraordinary items) plus the Dollar
amount of clause (a).
"DILUTION RESERVE" means, as of any date of determination, an
amount sufficient to reduce the advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of 5%.
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"DISBURSEMENT LETTER" means an instructional letter executed
and delivered by Administrative Borrower to Agent regarding the extensions of
credit to be made on the Closing Date, the form and substance of which is
satisfactory to Agent.
"DOLLARS" or "$" means United States dollars.
"DOMESTIC COLLECTIONS" means Collections on Accounts with
respect to which the Account Debtor either (i) maintains its chief executive
office in the United States, or (ii) is organized under the laws of the United
States or any state thereof.
"DSI" means DSI Technology Escrow Service, and its successors
and assigns.
"DUE DILIGENCE LETTER" means the due diligence letter sent by
Agent's counsel to Administrative Borrower, together with Administrative
Borrower's completed responses to the inquiries set forth therein, the form and
substance of such responses to be satisfactory to Agent.
"EBITDA" means, with respect to any fiscal period, Parent's
and its Subsidiaries consolidated net earnings (or loss), minus extraordinary
gains, plus extraordinary losses, plus interest expense, income taxes, and
depreciation and amortization for such period, as determined in accordance with
GAAP.
"ELIGIBLE ACCOUNTS" means those Accounts created by each
Borrower in the ordinary course of its business, that arise out of its sale or
licensing of Software or rendition of training, installation and/or other
related consulting services, that comply with each of the representations and
warranties respecting Eligible Accounts made by Borrowers under the Loan
Documents, and that are not excluded as ineligible by virtue of one or more of
the criteria set forth below; PROVIDED, HOWEVER, that such criteria may be fixed
and revised from time to time by Agent in Agent's Permitted Discretion to
address the results of any audit performed by Agent from time to time after the
Closing Date. In determining the amount to be included, Eligible Accounts shall
be calculated net of customer deposits and unapplied cash remitted to Borrowers.
Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay
within 90 days of original invoice date or Accounts which are more than 60 days
past due,
(b) Accounts owed by an Account Debtor (or its Affiliates)
where 50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (a) above,
(c) Accounts with respect to which the Account Debtor is
an employee, Affiliate, or agent (other than an authorized distributor of any
Borrower's Marketed Software that is not an Affiliate of any Borrower) of any
Borrower,
(d) Accounts arising in a transaction wherein goods are
placed on consignment or are sold pursuant to a guaranteed sale, a sale or
return, a sale on approval, a bill and hold, or any other terms by reason of
which the payment by the Account Debtor may be conditional,
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(e) Accounts that are not payable in Dollars,
(f) Accounts with respect to which the Account Debtor
either (i) does not maintain its chief executive office in the United States or
Canada, or (ii) is not organized under the laws of the United States, Canada or
any state or province thereof, or (iii) is the government of any foreign country
or sovereign state (other than Canada), or of any state, province, municipality,
or other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (y) the Account is
supported by an irrevocable letter of credit satisfactory to Agent (as to form,
substance, and issuer or domestic confirming bank) that has been delivered to
Agent and is directly drawable by Agent, or (z) the Account is covered by credit
insurance in form, substance, and amount, and by an insurer, satisfactory to
Agent,
(g) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which the
applicable Borrower has complied, to the reasonable satisfaction of Agent, with
the Assignment of Claims Act, 31 USC Section 3727), or (ii) any state of the
United States (exclusive, however, of (y) Accounts owed by any state that does
not have a statutory counterpart to the Assignment of Claims Act or (z) Accounts
owed by any state that does have a statutory counterpart to the Assignment of
Claims Act as to which the applicable Borrower has complied to Agent's
satisfaction),
(h) Accounts with respect to which the Account Debtor is a
creditor of any Borrower, has or has asserted a right of setoff, has disputed
its liability, or has made any claim with respect to its obligation to pay the
Account, to the extent of such claim, right of setoff, or dispute,
(i) Accounts with respect to an Account Debtor whose total
obligations owing to Borrowers exceed 10% of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage,
(j) Accounts with respect to which the Account Debtor is
subject to an Insolvency Proceeding, is not Solvent, has gone out of business,
or as to which a Borrower has received notice of an imminent Insolvency
Proceeding or a material impairment of the financial condition of such Account
Debtor,
(k) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, or West Virginia (or any other
state that requires a creditor to file a business activity report or similar
document in order to bring suit or otherwise enforce its remedies against such
Account Debtor in the courts or through any judicial process of such state),
unless the applicable Borrower has qualified to do business in New Jersey,
Minnesota, West Virginia, or such other states, or has filed a business
activities report with the applicable division of taxation, the department of
revenue, or with such other state offices, as appropriate, for the then-current
year, or is exempt from such filing requirement,
(l) Accounts, the collection of which, Agent, in its
Permitted Discretion, believes to be doubtful by reason of the Account Debtor's
financial condition,
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(m) (i) Accounts (other than Accounts created by Frontstep
Canada) that are not subject to a valid and perfected first priority Agent's
Lien or (ii) in the case of Accounts created by Frontstep Canada, any such
Accounts that are not subject to a valid and perfected first priority Agent's
Lien after expiration of the time period set forth in SECTION 3.2(e),
(n) Accounts with respect to which (i) the goods giving
rise to such Account have not been shipped and billed to the Account Debtor, or
(ii) the services giving rise to such Account have not been performed and billed
to the Account Debtor, or
(o) Accounts that represent the right to receive progress
payments or other advance billings that are due prior to the completion of
performance by the applicable Borrower of the subject contract for goods or
services.
"ELIGIBLE NON-MAINTENANCE ACCOUNTS" means Eligible Accounts
that are Non-Maintenance Accounts.
"ELIGIBLE RECURRING MAINTENANCE REVENUES" means, as of any
date of determination, the aggregate maintenance contract revenues (excluding
deferred maintenance revenue in excess of one year) derived from Maintenance
Contracts with customers located in the United States and Canada (excluding
time, materials, warranties and other non-Maintenance Contract items) which have
been recognized by a Borrower during the preceding twelve (12) calendar month
period as reflected on the monthly income statements of such Borrower delivered
to Agent pursuant to Section 6.3 for such months; PROVIDED that maintenance
contract revenues derived from Maintenance Contracts that (a) contain
proscriptions or limitations on a Borrower's right to assign such contracts, or
(b) relate to computer software or other copyrightable subject matter (1) not
owned by a Borrower, or (2) with respect to which a copyright has not been
registered with the Copyright Office or, with respect to any copyright that is
not specifically encumbered in favor of Agent by a Copyright Security Agreement
that has been filed in the Copyright Office, shall not be included in Eligible
Recurring Maintenance Revenues.
"ELIGIBLE TRANSFEREE" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having total
assets in excess of $250,000,000, (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development or a political subdivision of any such country and
which has total assets in excess of $250,000,000, provided that such bank is
acting through a branch or agency located in the United States, (c) a finance
company, insurance company, or other financial institution or fund that is
engaged in making, purchasing, or otherwise investing in commercial loans in the
ordinary course of its business and having (together with its Affiliates) total
assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of
a Lender that was party hereto as of the Closing Date, (e) so long as no Event
of Default has occurred and is continuing, any other Person approved by Agent
and Administrative Borrower, and (f) during the continuation of an Event of
Default, any other Person approved by Agent.
"ENVIRONMENTAL ACTIONS" means any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment,
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letter, or other communication from any Governmental Authority, or any third
party involving violations of Environmental Laws or releases of Hazardous
Materials from (a) any assets, properties, or businesses of any Borrower or any
predecessor in interest, (b) from adjoining properties or businesses, or (c)
from or onto any facilities which received Hazardous Materials generated by any
Borrower or any predecessor in interest.
"ENVIRONMENTAL LAW" means any applicable federal, state,
provincial, foreign or local statute, law, rule, regulation, ordinance, code,
binding and enforceable guideline, binding and enforceable written policy or
rule of common law now or hereafter in effect and in each case as amended, or
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, to the extent binding on
Borrowers, relating to the environment, employee health and safety, or Hazardous
Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33
USC Section 1251 et seq; the Toxic Substances Control Act, 15 USC, Section 2601
et seq; the Clean Air Act, 42 USC Section 7401 et seq.; the Safe Drinking Water
Act, 42 USC. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 USC.
Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act
of 1986, 42 USC. Section 11001 et seq.; the Hazardous Material Transportation
Act, 49 USC Section 1801 et SEQ.; and the Occupational Safety and Health Act, 29
USC. Section 651 et seq. (to the extent it regulates occupational exposure to
Hazardous Materials); any state and local or foreign counterparts or
equivalents, in each case as amended from time to time.
"ENVIRONMENTAL LIABILITIES AND COSTS" means all liabilities,
monetary obligations, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts, or consultants,
and costs of investigation and feasibility studies), fines, penalties,
sanctions, and interest incurred as a result of any claim or demand by any
Governmental Authority or any third party, and which relate to any Environmental
Action.
"ENVIRONMENTAL LIEN" means any Lien in favor of any
Governmental Authority for Environmental Liabilities and Costs.
"EQUIPMENT" means all of Borrowers' now owned or hereafter
acquired right, title, and interest with respect to equipment, machinery,
machine tools, motors, furniture, furnishings, fixtures, vehicles (including
motor vehicles), tools, parts, goods (other than consumer goods, farm products,
or Inventory), wherever located, including all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any of
the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto.
"ERISA AFFILIATE" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of a
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
a Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which a Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and
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Section 412 of the IRC, any Person subject to ERISA that is a party to an
arrangement with a Borrower and whose employees are aggregated with the
employees of a Borrower under IRC Section 414(o).
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCESS AVAILABILITY" means the amount, as of the date any
determination thereof is to be made, equal to Availability minus the aggregate
amount, if any, of all trade payables of Borrowers aged in excess of their
historical levels with respect thereto and all book overdrafts in excess of
their historical practices with respect thereto, in each case as determined by
Agent in its Permitted Discretion.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
in effect from time to time.
"EXISTING LENDER" means PNC Bank, National Association, in its
capacity as agent for certain lenders party to the PNC Credit Agreement.
"FAMILY MEMBER" means, with respect to any individual, any
other individual having a relationship by blood (to the second degree of
consanguinity), marriage, or adoption to such individual.
"FAMILY TRUSTS" means, with respect to any individual, trusts
or other estate planning vehicles established for the benefit of Family Members
of such individual and in respect of which such individual serves as trustee or
in a similar capacity.
"FEE LETTER" means that certain fee letter, dated as of even
date herewith, between Borrowers and Agent, in form and substance satisfactory
to Agent.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" means Foothill Capital Corporation, a California
corporation.
"FRONTSTEP CANADA" means Frontstep Canada, Inc., an Ontario
corporation.
"FUNDING DATE" means the date on which a Borrowing occurs.
"FUNDING LOSSES" has the meaning set forth in SECTION
2.13(b)(ii).
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrowers' now owned or
hereafter acquired right, title, and interest with respect to general
intangibles (including payment intangibles, contract rights, rights to payment,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, Intellectual Property, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs
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including, without limitation, Software (in source code and object code),
information contained on computer disks or tapes, software, literature, reports,
catalogs, money, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims), and any and all supporting obligations in respect thereof,
and any other personal property other than goods, Accounts, Investment Property,
and Negotiable Collateral.
"GOVERNING DOCUMENTS" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, or
other governmental or administrative body, instrumentality, department, or
agency or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.
"HAZARDOUS MATERIALS" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"INDEBTEDNESS" means (a) all obligations of a Borrower for
borrowed money, (b) all obligations of a Borrower evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations of a Borrower in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all obligations of a
Borrower under Capital Leases, (d) all obligations or liabilities of others
secured by a Lien on any asset of a Borrower, irrespective of whether such
obligation or liability is assumed, (e) all obligations of a Borrower for the
deferred purchase price of assets (other than trade debt incurred in the
ordinary course of a Borrower's business and repayable in accordance with
customary trade practices), and (f) any obligation of a Borrower guaranteeing or
intended to guarantee (whether directly or indirectly guaranteed, endorsed,
co-made, discounted, or sold with recourse to a Borrower) any obligation of any
other Person.
"INDEMNIFIED LIABILITIES" has the meaning set forth in SECTION
11.3.
"INDEMNIFIED PERSON" has the meaning set forth in SECTION
11.3.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
state or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
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"INTANGIBLE ASSETS" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"INTELLECTUAL PROPERTY" shall mean all foreign and domestic
(i) trademarks, service marks, brand names, certification marks, collective
marks, d/b/a's, Internet domain names, logos, symbols, trade dress, assumed
names, fictitious names, trade names, and other indicia of origin, all
applications and registrations for all of the foregoing, and all goodwill
associated therewith and symbolized thereby, including without limitation all
extensions, modifications and renewals of same (collectively, "Trademarks");
(ii) inventions, discoveries and ideas, whether patentable or not, and all
patents, registrations, and applications therefor, including without limitation
divisions, continuations, continuations-in-part and renewal applications, and
including without limitation renewals, extensions and reissues (collectively,
"Patents"); (iii) confidential and proprietary information, trade secrets and
know-how, including without limitation processes, schematics, databases,
formulae, drawings, prototypes, models, designs and customer lists
(collectively, "Trade Secrets"); (iv) published and unpublished works of
authorship, whether copyrightable or not, copyrights therein and thereto, and
registrations and applications therefor, and all renewals, extensions,
restorations and reversions thereof (collectively, "Copyrights"); and (v) all
other intellectual property or proprietary rights and claims or causes of action
arising out of or related to any infringement, misappropriation or other
violation of any of the foregoing, including without limitation rights to
recover for past, present and future violations thereof.
"INTERCOMPANY SUBORDINATION AGREEMENT" means a subordination
agreement executed and delivered by Borrowers and Agent, the form and substance
of which is satisfactory to Agent.
"INTERCREDITOR AGREEMENT" means the Intercreditor and
Subordination Agreement, executed and delivered by Softech and Agent, the form
and substance of which is satisfactory to Agent.
"INTEREST PERIOD" means, with respect to each LIBOR Rate Loan,
a period commencing on the date of the making of such LIBOR Rate Loan and ending
1, 2, or 3 months thereafter; PROVIDED, HOWEVER, that (a) if any Interest Period
would end on a day that is not a Business Day, such Interest Period shall be
extended (subject to clauses (c)-(e) below) to the next succeeding Business Day,
(b) interest shall accrue at the applicable rate based upon the LIBOR Rate from
and including the first day of each Interest Period to, but excluding, the day
on which any Interest Period expires, (c) any Interest Period that would end on
a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (d) with
respect to an Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period), the Interest Period shall
end on the last Business Day of the calendar month that is 1, 2, or 3 months
after the date on which the Interest Period began, as applicable, and (e)
Borrowers (or Administrative Borrower on behalf thereof) may not elect an
Interest Period which will end after the Maturity Date.
"INVENTORY" means all Borrowers' now owned or hereafter
acquired right, title, and interest with respect to inventory, including goods
held for sale or lease or to be furnished
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under a contract of service, goods that are leased by a Borrower as lessor,
goods that are furnished by a Borrower under a contract of service, and raw
materials, work in process, or materials used or consumed in a Borrower's
business.
"INVESTMENT" means, with respect to any Person, any investment
by such Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts arising in the
ordinary course of business consistent with past practice), purchases or other
acquisitions for consideration of Indebtedness or Stock, and any other items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"INVESTMENT PROPERTY" means all of Borrowers' now owned or
hereafter acquired right, title, and interest with respect to "investment
property" as that term is defined in the Code, and any and all supporting
obligations in respect thereof.
"IRC" means the Internal Revenue Code of 1986, as in effect
from time to time.
"ISSUING LENDER" means Foothill or any other Lender that, at
the request of Administrative Borrower and with the consent of Agent agrees, in
such Lender's sole discretion, to become an Issuing Lender for the purpose of
issuing L/Cs or L/C Undertakings pursuant to SECTION 2.12.
"L/C" has the meaning set forth in SECTION 2.12(a).
"L/C DISBURSEMENT" means a payment made by the Issuing Lender
pursuant to a Letter of Credit.
"L/C UNDERTAKING" has the meaning set forth in SECTION
2.12(a).
"LENDER" and "LENDERS" have the respective meanings set forth
in the preamble to this Agreement, and shall include any other Person made a
party to this Agreement in accordance with the provisions of SECTION 14.1.
"LENDER GROUP" means, individually and collectively, each of
the Lenders (including the Issuing Lender) and Agent.
"LENDER GROUP EXPENSES" means all (a) costs or expenses
(including taxes, and insurance premiums) required to be paid by a Borrower
under any of the Loan Documents that are paid or incurred by the Lender Group,
(b) fees or charges paid or incurred by Agent in connection with the Lender
Group's transactions with Borrowers, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
record searches (including tax lien, judgment, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filings, recordings, publications, appraisals
(including periodic Collateral appraisals or business valuations to the extent
of the fees and charges (and up to the amount of any limitation) contained in
this Agreement), real estate surveys, real estate title policies and
endorsements, and environmental audits, (c) costs and expenses incurred by Agent
in the disbursement of funds to or for the
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account of Borrowers (by wire transfer or otherwise), (d) charges paid or
incurred by Agent resulting from the dishonor of checks, (e) reasonable costs
and expenses paid or incurred by the Lender Group to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated, (f) audit fees and expenses of
Agent related to audit examinations of the Books to the extent of the fees and
charges (and up to the amount of any limitation) contained in this Agreement,
(g) reasonable costs and expenses of third party claims or any other suit paid
or incurred by the Lender Group in enforcing or defending the Loan Documents or
in connection with the transactions contemplated by the Loan Documents or the
Lender Group's relationship with any Borrower or any guarantor of the
Obligations, (h) Agent's and each Lender's reasonable fees and expenses
(including attorneys fees) incurred in advising, structuring, drafting,
reviewing, administering, or amending the Loan Documents, and (i) Agent's and
each Lender's reasonable fees and expenses (including attorneys fees) incurred
in terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning any Borrower or in exercising rights or remedies under the Loan
Documents), or defending the Loan Documents, irrespective of whether suit is
brought, or in taking any Remedial Action concerning the Collateral.
"LENDER-RELATED PERSON" means, with respect to any Lender,
such Lender, together with such Lender's Affiliates, and the officers,
directors, employees, and agents of such Lender.
"LETTER OF CREDIT" means an L/C or an L/C Undertaking, as the
context requires.
"LETTER OF CREDIT USAGE" means, as of any date of
determination, the aggregate undrawn amount of all outstanding Letters of Credit
plus 100% of the amount of outstanding time drafts accepted by an Underlying
Issuer as a result of drawings under Underlying Letters of Credit.
"LIBOR DEADLINE" has the meaning set forth in SECTION
2.13(b)(i).
"LIBOR NOTICE" means a written notice in the form of EXHIBIT
L-1.
"LIBOR RATE" means, for each Interest Period for each LIBOR
Rate Loan, the rate per annum determined by Agent (rounded upwards, if
necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such
Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall
be adjusted on and as of the effective day of any change in the Reserve
Percentage.
"LIBOR RATE LOAN" means each portion of an Advance that bears
interest at a rate determined by reference to the LIBOR Rate.
"LIBOR RATE MARGIN" means 3 percentage points.
"LIEN" means any interest in an asset securing an obligation
owed to, or a claim by, any Person other than the owner of the asset, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and
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whether such interest shall be contingent upon the occurrence of some future
event or events or the existence of some future circumstance or circumstances,
including the lien or security interest arising from a mortgage, deed of trust,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, security
agreement, conditional sale or trust receipt, or from a lease, consignment, or
bailment for security purposes and also including reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases, and other title exceptions and encumbrances affecting Real Property.
"LOAN ACCOUNT" has the meaning set forth in SECTION 2.10.
"LOAN DOCUMENTS" means this Agreement, the Cash Management
Agreements, the Contribution Agreement, the Control Agreements, the Copyright
Security Agreement, the Disbursement Letter, the Due Diligence Letter, the Fee
Letter, the Letters of Credit, the Officers' Certificate, the Source Code Escrow
Agreement, the Stock Pledge Agreement, the Trademark Security Agreement, the
Intercompany Subordination Agreement, the Intercreditor Agreement, the Warrants,
the Registration Rights Agreement, any note or notes executed by a Borrower in
connection with this Agreement and payable to a member of the Lender Group, and
any other agreement entered into, now or in the future, by any Borrower and the
Lender Group in connection with this Agreement.
"MAINTENANCE ACCOUNT" means an account arising out of computer
software maintenance and support performed by a Borrower pursuant to a
Maintenance Contract; PROVIDED that such Accounts are invoiced and accounted for
separately from Accounts not arising from services and support performed
pursuant to a Maintenance Contract.
"MAINTENANCE CONTRACTS" means those certain license agreements
or other agreements between a Borrower and an Account Debtor under which such
Borrower provides maintenance or support services to such Account Debtor.
"MARKETED SOFTWARE" has the meaning set forth in SECTION
5.16(b).
"MATERIAL ADVERSE CHANGE" means (a) a material adverse change
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of any Borrower or the Parent
and its Subsidiaries taken as a whole, (b) a material impairment of a Borrower's
ability to perform its obligations under the Loan Documents to which it is a
party or of the Lender Group's ability to enforce the Obligations or realize
upon the Collateral, or (c) a material impairment of the enforceability or
priority of the Agent's Liens with respect to the Collateral as a result of an
action or failure to act on the part of a Borrower.
"MATURITY DATE" has the meaning set forth in SECTION 3.4.
"MAXIMUM REVOLVER AMOUNT" means $25,000,000 minus the Term
Loan Amount.
"NEGOTIABLE COLLATERAL" means all of Borrowers' now owned and
hereafter acquired right, title, and interest with respect to letters of credit,
letter of credit rights, instruments, promissory notes, drafts, documents, and
chattel paper (including electronic chattel paper and tangible chattel paper),
and any and all supporting obligations in respect thereof.
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"NON-MAINTENANCE ACCOUNTS" means Accounts that are not
Maintenance Accounts.
"OBLIGATIONS" means all loans (including the Term Loan),
Advances, debts, principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued), contingent reimbursement
obligations with respect to outstanding Letters of Credit, premiums, liabilities
(including all amounts charged to Borrowers' Loan Account pursuant hereto),
obligations, fees (including the fees provided for in the Fee Letter), charges,
costs, Lender Group Expenses (including any fees or expenses that, but for the
provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties of any kind and description owing by Borrowers
to the Lender Group pursuant to or evidenced by the Loan Documents and
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including all interest not paid when due and all Lender Group Expenses that
Borrowers are required to pay or reimburse by the Loan Documents, by law, or
otherwise. Any reference in this Agreement or in the Loan Documents to the
Obligations shall include all amendments, changes, extensions, modifications,
renewals replacements, substitutions, and supplements, thereto and thereof, as
applicable, both prior and subsequent to any Insolvency Proceeding.
"OFFICERS' CERTIFICATE" means the representations and
warranties of officers form submitted by Agent to Administrative Borrower,
together with Borrowers' completed responses to the inquiries set forth therein,
the form and substance of such responses to be satisfactory to Agent.
"ORIGINATING LENDER" has the meaning set forth in SECTION
14.1(e).
"OTHER CURRENCY" has the meaning set forth in SECTION 17.10.
"OVERADVANCE" has the meaning set forth in SECTION 2.5.
"PATENTS" has the meaning set forth in the definition of the
term "Intellectual Property".
"PARENT" has the meaning set forth in the preamble to this
Agreement.
"PARTICIPANT" has the meaning set forth in SECTION 14.1(e).
"PAY-OFF LETTER" means a letter, in form and substance
satisfactory to Agent, from Existing Lender to Agent respecting the amount
necessary to repay in full all of the obligations of Borrowers owing to Existing
Lender and obtain a release of all of the Liens existing in favor of Existing
Lender in and to the assets of Borrowers and their Subsidiaries.
"PERMITTED DISCRETION" means a determination made in good
faith and in the exercise of reasonable (from the perspective of a secured
asset-based lender) business judgment.
"PERMITTED DISPOSITIONS" means (a) sales or other dispositions
by Borrowers of Equipment that is substantially worn, damaged, or obsolete in
the ordinary course of the applicable Borrower's business, (b) sales by
Borrowers of Inventory to buyers in the ordinary course of business, (c) the use
or transfer of money or Cash Equivalents by Borrowers in a
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manner that is not prohibited by the terms of this Agreement or the other Loan
Documents, and (d) the licensing by Borrowers, on an exclusive or non-exclusive
basis, of patents, trademarks, copyrights, and other intellectual property
rights in the ordinary course of the applicable Borrower's business.
"PERMITTED HOLDER" means (i) Morgan Stanley Dean Witter & Co.
and (ii) Lawrence Fox, Chairman of the Parent, and his Family Members, and his
Family Trusts.
"PERMITTED INVESTMENTS" means (a) Investments in Cash
Equivalents, (b) Investments in negotiable instruments for collection, (c)
advances made in connection with purchases of goods or services in the ordinary
course of business, (d) Investments by any Borrower in any other Borrower
provided that if any such Investment is in the form of Indebtedness, such
Indebtedness investment shall be subject to the terms and conditions of the
Intercompany Subordination Agreement, (e) Investments by any Borrower in any of
its Subsidiaries, provided that (i) the aggregate amount of such Investments
made after the Closing Date in Borrowers' Subsidiaries shall not exceed
$1,000,000 in any fiscal year of Borrowers and (ii) immediately before and after
giving effect to each such Investment, Borrowers' Excess Availability is at
least $3,000,000, and (f) Investments set forth on SCHEDULE 7.13.
"PERMITTED LIENS" means (a) Liens held by Agent for the
benefit of Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are
not yet delinquent, or (ii) do not constitute an Event of Default hereunder and
are the subject of Permitted Protests, (c) Liens set forth on SCHEDULE P-1, (d)
the interests of lessors under operating leases, (e) purchase money Liens or the
interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, (f)
Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of Borrowers' business and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet delinquent, or (ii) are the subject
of Permitted Protests, (g) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (h) Liens or
deposits to secure performance of bids, tenders, or leases incurred in the
ordinary course of Borrowers' business and not in connection with the borrowing
of money, (i) Liens granted as security for surety or appeal bonds in connection
with obtaining such bonds in the ordinary course of Borrowers' business, (j)
Liens resulting from any judgment or award that is not an Event of Default
hereunder, and (k) with respect to any Real Property, easements, rights of way,
and zoning restrictions that do not materially interfere with or impair the use
or operation thereof by Borrowers.
"PERMITTED PROTEST" means the right of the applicable Borrower
to protest any Lien (other than any such Lien that secures the Obligations),
taxes (other than payroll taxes or taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) a reserve with respect
to such obligation is established on the Books in such amount as is required
under GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by the applicable Borrower in good faith, and (c) Agent is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Agent's Liens.
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"PERMITTED PURCHASE MONEY INDEBTEDNESS" means, as of any date
of determination, Purchase Money Indebtedness incurred after the Closing Date in
an aggregate amount not in excess of $2,000,000 outstanding at any one time,
PROVIDED that not more than $1,000,000 of such Purchase Money Indebtedness may
be incurred in any fiscal year of the Parent.
"PERSON" means natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PNC CREDIT AGREEMENT" means that certain Revolving Credit and
Security Agreement, dated as of December 19, 2000, among the Borrowers, the
lenders parties thereto and the Existing Lender, as agent.
"PROJECTIONS" means Parent's forecasted (a) balance sheets,
(b) profit and loss statements, and (c) cash flow statements, all prepared on a
consistent basis with Parent's historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.
"PRO RATA SHARE" means:
(a) with respect to a Lender's obligation to make Advances
and receive payments of principal, interest, fees, costs, and expenses with
respect thereto, the percentage obtained by dividing (i) such Lender's Revolver
Commitment, by (ii) the aggregate Revolver Commitments of all Lenders,
(b) with respect to a Lender's obligation to participate
in Letters of Credit, to reimburse the Issuing Lender, and to receive payments
of fees with respect thereto, the percentage obtained by dividing (i) such
Lender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of all
Lenders,
(c) with respect to a Lender's obligation to make the Term
Loan and receive payments of interest, fees, and principal with respect thereto,
the percentage obtained by dividing (i) such Lender's Term Loan Commitment, by
(ii) the aggregate amount of all Lenders' Term Loan Commitments, and
(d) with respect to all other matters (including the
indemnification obligations arising under Section 16.7), the percentage obtained
by dividing (i) such Lender's Total Commitment, by (ii) the aggregate amount of
Total Commitments of all Lenders; PROVIDED, HOWEVER, that, in each case, in the
event all Commitments have been terminated, Pro Rata Share shall be determined
according to the Commitments in effect immediately prior to such termination.
"PSI NOTES" means those certain Second Amended and Restated
Subordinated Promissory Notes issued by Parent on or about the Closing Date in
the aggregate original principal amount of approximately $1,573,413 as
consideration for Parent's acquisition of Profit Solutions, Inc., a Minnesota
corporation, on or about February 9, 2000.
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"PURCHASE MONEY INDEBTEDNESS" means Indebtedness (other than
the Obligations, but including Capitalized Lease Obligations), incurred at the
time of, or within 20 days after, the acquisition of any fixed assets for the
purpose of financing all or any part of the acquisition cost thereof, PROVIDED
that Purchase Money Indebtedness shall not include any Indebtedness incurred by
any Borrower after the Closing Date that is owing to Softech.
"REAL PROPERTY" means any estates or interests in real
property now owned or hereafter acquired by any Borrower and the improvements
thereto.
"RECORD" means information that is inscribed on a tangible
medium or which is stored in an electronic or other medium and is retrievable in
perceivable form.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, in form and substance satisfactory to Foothill, by and between the
Parent and Foothill, with respect to the shares of Warrant Stock that Foothill
may acquire pursuant to the Warrants.
"REMEDIAL ACTION" means all actions taken to (a) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate, or in any way
address Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC Section 9601.
"REPORT" has the meaning set forth in SECTION 16.17.
"REQUIRED AVAILABILITY" means Excess Availability and
unrestricted cash and Cash Equivalents in an amount of not less than $3,000,000.
"REQUIRED LENDERS" means, at any time, (a) Agent, and (b)
Lenders whose Pro Rata Shares aggregate 51% of the Total Commitments, or if the
Commitments have been terminated irrevocably, 51% of the Obligations then
outstanding.
"RESERVE PERCENTAGE" means, on any day, for any Lender, the
maximum percentage prescribed by the Board of Governors of the Federal Reserve
System (or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as "eurocurrency liabilities") of that Lender, but so
long as such Lender is not required or directed under applicable regulations to
maintain such reserves, the Reserve Percentage shall be zero.
"REVOLVER COMMITMENT" means, with respect to each Lender, its
Revolver Commitment, and, with respect to all Lenders, their Revolver
Commitments, in each case as such Dollar amounts are set forth beside such
Lender's name under the applicable heading on Schedule C-1 or on the signature
page of the Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder in accordance with the provisions of SECTION 14.1.
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"REVOLVER USAGE" means, as of any date of determination, the
sum of (a) the then extant amount of outstanding Advances, plus (b) the then
extant amount of the Letter of Credit Usage.
"RISK PARTICIPATION LIABILITY" means, as to each Letter of
Credit, all reimbursement obligations of Borrowers to the Issuing Lender with
respect to an L/C Undertaking, consisting of (a) the amount available to be
drawn or which may become available to be drawn, (b) all amounts that have been
paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed
by Borrowers, whether by the making of an Advance or otherwise, and (c) all
accrued and unpaid interest, fees, and expenses payable with respect thereto.
"SEC" means the United States Securities and Exchange
Commission and any successor thereto.
"SECURITIES ACCOUNT" means a "securities account" as that term
is defined in the Code.
"SETTLEMENT" has the meaning set forth in SECTION 2.3(f)(i).
"SETTLEMENT DATE" has the meaning set forth in SECTION
2.3(f)(i).
"SOFTECH" means EAB Leasing Corp., through its Softech
Financial division.
"SOFTECH RESERVE" means $700,000, PROVIDED that such reserve
shall be either (i) eliminated upon Borrowers' satisfaction of the conditions
set forth in SECTION 3.2(h) or (ii) reduced to an amount less than $700,000 if
Softech claims in writing such lesser amount is the only amount owing to
Softech.
"SOFTWARE" means any computer programs sold, marketed,
distributed, licensed or maintained by any Borrower, and any computer programs
necessary for the conduct of any Borrower's business as currently conducted.
"SOLVENT" means, with respect to any Person on a particular
date, that such Person is not insolvent (as such term is defined in the Uniform
Fraudulent Transfer Act).
"SOURCE CODE ESCROW AGREEMENT" means a source code escrow
agreement, in the form of EXHIBIT S-1 hereto among Borrowers, Agent and DSI, as
escrow agent.
"STOCK" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
"STOCK PLEDGE AGREEMENT" means a stock pledge agreement, in
form and substance satisfactory to Agent, executed and delivered by each
Borrower that owns Stock of a Subsidiary of Parent.
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"SUBSIDIARY" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock having ordinary voting power to
elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
"SWING LENDER" means Foothill or any other Lender that, at the
request of Administrative Borrower and with the consent of Agent agrees, in such
Lender's sole discretion, to become the Swing Lender hereunder.
"SWING LOAN" has the meaning set forth in SECTION 2.3(d)(i).
"SYTELINE SOFTWARE" has the meaning set forth in SECTION
5.16(d).
"TANGIBLE NET WORTH" means, as of any date of determination,
the result of (a) the total stockholder's equity of Parent and its Subsidiaries,
minus (b) the sum of (i) all Intangible Assets of Parent and its Subsidiaries,
(ii) all of Parent's prepaid expenses, and (iii) all amounts due to Parent and
its Subsidiaries from Affiliates.
"TAXES" has the meaning set forth in SECTION 16.11.
"TERM LOAN" has the meaning set forth in SECTION 2.2.
"TERM LOAN AMOUNT" means, as of any date of determination, the
outstanding principal amount of the Term Loan, plus the then extant Term Loan
PIK Amount.
"TERM LOAN COMMITMENT" means, with respect to each Lender, its
Term Loan Commitment, and, with respect to all Lenders, their Term Loan
Commitments, in each case as such Dollar amounts are set forth beside such
Lender's name under the applicable heading on SCHEDULE C-1 or on the signature
page of the Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder in accordance with the provisions of SECTION 14.1.
"TERM LOAN PIK AMOUNT" means, as of any date of determination,
the amount of all interest accrued with respect to the Term Loan Amount that has
been paid in kind by being added to the balance thereof in accordance with
SECTION 2.6(a)(ii).
"TOTAL COMMITMENT" means, with respect to each Lender, its
Total Commitment, and, with respect to all Lenders, their Total Commitments, in
each case as such Dollar amounts are set forth beside such Lender's name under
the applicable heading on SCHEDULE C-1 attached hereto or on the signature page
of the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of SECTION 14.1.
"TRADE SECRETS" has the meaning set forth in the definition of
the term "Intellectual Property".
"TRADEMARK SECURITY AGREEMENT" means a trademark security
agreement executed and delivered by each Borrower and Agent, the form and
substance of which is satisfactory to Agent.
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"TRADEMARKS" has the meaning set forth in the definition of
the term "Intellectual Property".
"UNDERLYING ISSUER" means a third Person which is the
beneficiary of an L/C Undertaking and which has issued a letter of credit at the
request of the Issuing Lender for the benefit of Borrowers.
"UNDERLYING LETTER OF CREDIT" means a letter of credit that
has been issued by an Underlying Issuer.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 17.7.
"WARRANTS" has the meaning set forth in SECTION 18.
"WARRANT STOCK" means each share of Common Stock issuable by
the Parent upon the exercise of the Warrants.
"WELLS FARGO" means Wells Fargo Bank, National Association, a
national banking association.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrowers" or the term "Parent" is used in respect of a
financial covenant or a related definition, it shall be understood to mean
Parent and its Subsidiaries on a consolidated basis unless the context clearly
requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement or any
other Loan Document clearly requires otherwise, references to the plural include
the singular, references to the singular include the plural, the term
"including" is not limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in the other Loan
Documents to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). Any reference herein to any Person
shall be construed to include such Person's successors and assigns. Any
requirement of a writing contained herein or in the other Loan Documents shall
be satisfied by the transmission of a Record and any Record transmitted shall
constitute a representation and warranty as to the accuracy and completeness of
the information contained therein.
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1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVER ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
and during the term of this Agreement, each Lender with a Revolver Commitment
agrees (severally, not jointly or jointly and severally) to make advances
("Advances") to Borrowers in an amount at any one time outstanding not to exceed
such Lender's Pro Rata Share of an amount equal to the lesser of (i) the Maximum
Revolver Amount LESS the Letter of Credit Usage, or (ii) the Borrowing Base less
the Letter of Credit Usage. For purposes of this Agreement, "Borrowing Base," as
of any date of determination, shall mean the result of:
(x) the lesser of
(i) 85% of the amount of Eligible
Non-Maintenance Accounts, less the amount, if any, of the
Dilution Reserve, and
(ii) an amount equal to 33% of Borrowers'
Domestic Collections with respect to Accounts for the
immediately preceding 90 day period, minus
(y) the sum of (i) the Accounts Reserve and (ii)
the Softech Reserve, minus
(z) the aggregate amount of reserves, if any,
established by Agent under SECTION 2.1(b).
(b) Anything to the contrary in this SECTION 2.1
notwithstanding, Agent shall have the right to establish reserves in such
amounts, and with respect to such matters, as Agent in its Permitted Discretion
shall deem necessary or appropriate, against the Borrowing Base, including
reserves with respect to (i) sums that Borrowers are required to pay (such as
taxes, assessments, insurance premiums, or, in the case of leased assets, rents
or other amounts payable under such leases) and has failed to pay under any
Section of this Agreement or any other Loan Document, and (ii) amounts owing by
Borrowers to any Person to the extent secured by a Lien on, or trust over, any
of the Collateral (other than any existing Permitted Lien set forth on SCHEDULE
P-1 which is specifically identified thereon as entitled to have priority over
the Agent's Liens), which Lien or trust, in the Permitted Discretion of Agent
likely would have a priority superior to the Agent's Liens (such as Liens or
trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen,
laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or
other taxes where given priority under applicable law) in and to such item of
the Collateral.
(c) The Lenders with Revolver Commitments shall have no
obligation to make additional Advances hereunder to the extent such Advances
would cause the sum of the
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Revolver Usage and the Term Loan Amount to exceed 80% of the Borrower's Domestic
Collections with respect to Accounts for the immediately preceding 90 day
period.
(d) The Lenders with Revolver Commitments shall have no
obligation to make additional Advances hereunder to the extent such additional
Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount.
(e) Amounts borrowed pursuant to this Section may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2 TERM LOAN.
(a) Subject to the terms and conditions of this Agreement,
on the Closing Date each Lender with a Term Loan Commitment agrees (severally,
not jointly or jointly and severally) to make term loans (collectively, the
"Term Loan") to Borrowers in an amount equal to such Lender's Pro Rata Share of
$15,000,000.
(b) The Term Loan shall be repaid in consecutive monthly
installments each in a principal amount equal to 1/36th of the Term Loan Amount,
plus accrued interest on the amount of principal so repaid, on the first day of
each month, commencing on October 1, 2001. Borrowers may, at any time, prepay
all or a portion of the Term Loan without penalty or premium. The outstanding
unpaid principal balance and all accrued and unpaid interest under the Term Loan
shall be due and payable on the date of termination of this Agreement, whether
by its terms, by prepayment, or by acceleration. All amounts outstanding under
the Term Loan shall constitute Obligations.
2.3 BORROWING PROCEDURES AND SETTLEMENTS.
(a) PROCEDURE FOR BORROWING. Each Borrowing shall be made
by an irrevocable written request by an Authorized Person delivered to Agent
(which notice must be received by Agent no later than 10:00 a.m. (California
time) on the Business Day prior to the date that is the requested Funding Date
in the case of a request for an Advance or the Term Loan specifying (i) the
amount of such Borrowing, and (ii) the requested Funding Date, which shall be a
Business Day; PROVIDED, HOWEVER, that in the case of a request for Swing Loan in
an amount of $2,500,000, or less, such notice will be timely received if it is
received by Agent no later than 10:00 a.m. (California time) on the Business Day
that is the requested Funding Date) specifying (i) the amount of such Borrowing,
and (ii) the requested Funding Date, which shall be a Business Day. At Agent's
election, in lieu of delivering the above-described written request, any
Authorized Person may give Agent telephonic notice of such request by the
required time, with such telephonic notice to be confirmed in writing within 24
hours of the giving of such notice.
(b) AGENT'S ELECTION. Promptly after receipt of a request
for a Borrowing pursuant to SECTION 2.3(a), Agent shall elect, in its
discretion, (i) to have the terms of SECTION 2.3(c) apply to such requested
Borrowing, or (ii) if the Borrowing is for an Advance (other than an Advance
that is to be a LIBOR Rate Loan), to request Swing Lender to make a Swing Loan
pursuant to the terms of SECTION 2.3(d) in the amount of the requested
Borrowing;
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PROVIDED, HOWEVER, that if Swing Lender declines in its sole discretion to make
a Swing Loan pursuant to SECTION 2.3(d), Agent shall elect to have the terms of
SECTION 2.3(c) apply to such requested Borrowing.
(c) MAKING OF ADVANCES.
(i) In the event that Agent shall elect to have the
terms of this SECTION 2.3(c) apply to a requested Borrowing as
described in SECTION 2.3(b), then promptly after receipt of a request
for a Borrowing pursuant to SECTION 2.3(a), Agent shall notify the
Lenders, not later than 1:00 p.m. (California time) on the Business Day
immediately preceding the Funding Date applicable thereto, by telecopy,
telephone, or other similar form of transmission, of the requested
Borrowing. Each Lender shall make the amount of such Lender's Pro Rata
Share of the requested Borrowing available to Agent in immediately
available funds, to Agent's Account, not later than 10:00 a.m.
(California time) on the Funding Date applicable thereto. After Agent's
receipt of the proceeds of such Advances (or the Term Loan, as
applicable), upon satisfaction of the applicable conditions precedent
set forth in SECTION 3 hereof, Agent shall make the proceeds thereof
available to Administrative Borrower on the applicable Funding Date by
transferring immediately available funds equal to such proceeds
received by Agent to Administrative Borrower's Designated Account;
PROVIDED, HOWEVER, that, subject to the provisions of SECTION 2.3(i),
Agent shall not request any Lender to make, and no Lender shall have
the obligation to make, any Advance (or its portion of the Term Loan)
if Agent shall have actual knowledge that (1) one or more of the
applicable conditions precedent set forth in SECTION 3 will not be
satisfied on the requested Funding Date for the applicable Borrowing
unless such condition has been waived, or (2) the requested Borrowing
would exceed the Availability on such Funding Date.
(ii) Unless Agent receives notice from a Lender on or
prior to the Closing Date or, with respect to any Borrowing after the
Closing Date, at least 1 Business Day prior to the date of such
Borrowing, that such Lender will not make available as and when
required hereunder to Agent for the account of Borrowers the amount of
that Lender's Pro Rata Share of the Borrowing, Agent may assume that
each Lender has made or will make such amount available to Agent in
immediately available funds on the Funding Date and Agent may (but
shall not be so required), in reliance upon such assumption, make
available to Borrowers on such date a corresponding amount. If and to
the extent any Lender shall not have made its full amount available to
Agent in immediately available funds and Agent in such circumstances
has made available to Borrowers such amount, that Lender shall on the
Business Day following such Funding Date make such amount available to
Agent, together with interest at the Defaulting Lender Rate for each
day during such period. A notice submitted by Agent to any Lender with
respect to amounts owing under this subsection shall be conclusive,
absent manifest error. If such amount is so made available, such
payment to Agent shall constitute such Lender's Advance on the date of
Borrowing for all purposes of this Agreement. If such amount is not
made available to Agent on the Business Day following the Funding Date,
Agent will notify Administrative Borrower of such failure to fund and,
upon demand by Agent, Borrowers shall pay such amount to Agent for
Agent's account, together with interest thereon for each day elapsed
since the date of such Borrowing, at a rate per
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annum equal to the interest rate applicable at the time to the Advances
composing such Borrowing. The failure of any Lender to make any Advance
on any Funding Date shall not relieve any other Lender of any
obligation hereunder to make an Advance on such Funding Date, but no
Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on any Funding Date.
(iii) Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by Borrowers to Agent for the
Defaulting Lender's benefit, and, in the absence of such transfer to
the Defaulting Lender, Agent shall transfer any such payments to each
other non-Defaulting Lender member of the Lender Group ratably in
accordance with their Commitments (but only to the extent that such
Defaulting Lender's Advance was funded by the other members of the
Lender Group) or, if so directed by Administrative Borrower and if no
Default or Event of Default had occurred and is continuing (and to the
extent such Defaulting Lender's Advance was not funded by the Lender
Group), retain same to be re-advanced to Borrowers as if such
Defaulting Lender had made Advances to Borrowers. Subject to the
foregoing, Agent may hold and, in its Permitted Discretion, re-lend to
Borrowers for the account of such Defaulting Lender the amount of all
such payments received and retained by it for the account of such
Defaulting Lender. Solely for the purposes of voting or consenting to
matters with respect to the Loan Documents, such Defaulting Lender
shall be deemed not to be a "Lender" and such Lender's Commitment shall
be deemed to be zero. This Section shall remain effective with respect
to such Lender until (x) the Obligations under this Agreement shall
have been declared or shall have become immediately due and payable,
(y) the non-Defaulting Lenders, Agent, and Administrative Borrower
shall have waived such Defaulting Lender's default in writing, or (z)
the Defaulting Lender makes its Pro Rata Share of the applicable
Advance and pays to Agent all amounts owing by Defaulting Lender in
respect thereof. The operation of this Section shall not be construed
to increase or otherwise affect the Commitment of any Lender, to
relieve or excuse the performance by such Defaulting Lender or any
other Lender of its duties and obligations hereunder, or to relieve or
excuse the performance by Borrowers of their duties and obligations
hereunder to Agent or to the Lenders other than such Defaulting Lender.
Any such failure to fund by any Defaulting Lender shall constitute a
material breach by such Defaulting Lender of this Agreement and shall
entitle Administrative Borrower at its option, upon written notice to
Agent, to arrange for a substitute Lender to assume the Commitment of
such Defaulting Lender, such substitute Lender to be acceptable to
Agent. In connection with the arrangement of such a substitute Lender,
the Defaulting Lender shall have no right to refuse to be replaced
hereunder, and agrees to execute and deliver a completed form of
Assignment and Acceptance Agreement in favor of the substitute Lender
(and agrees that it shall be deemed to have executed and delivered such
document if it fails to do so) subject only to being repaid its share
of the outstanding Obligations (including an assumption of its Pro Rata
Share of the Risk Participation Liability) without any premium or
penalty of any kind whatsoever; provided further, however, that any
such assumption of the Commitment of such Defaulting Lender shall not
be deemed to constitute a waiver of any of the Lender Groups' or
Borrowers' rights or remedies against any such Defaulting Lender
arising out of or in relation to such failure to fund.
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(d) MAKING OF SWING LOANS.
(i) In the event Agent shall elect, with the consent
of Swing Lender, as a Lender, to have the terms of this SECTION 2.3(d)
apply to a requested Borrowing as described in SECTION 2.3(b), Swing
Lender as a Lender shall make such Advance in the amount of such
Borrowing (any such Advance made solely by Swing Lender as a Lender
pursuant to this SECTION 2.3(d) being referred to as a "Swing Loan" and
such Advances being referred to collectively as "Swing Loans")
available to Borrowers on the Funding Date applicable thereto by
transferring immediately available funds to Administrative Borrower's
Designated Account. Each Swing Loan is an Advance hereunder and shall
be subject to all the terms and conditions applicable to other
Advances, except that no such Swing Loan shall be eligible for the
LIBOR Option and all payments on any Swing Loan shall be payable to
Swing Lender as a Lender solely for its own account (and for the
account of the holder of any participation interest with respect to
such Swing Loan). Subject to the provisions of SECTION 2.3(i), Agent
shall not request Swing Lender as a Lender to make, and Swing Lender as
a Lender shall not make, any Swing Loan if Agent has actual knowledge
that (i) one or more of the applicable conditions precedent set forth
in SECTION 3 will not be satisfied on the requested Funding Date for
the applicable Borrowing unless such condition has been waived, or (ii)
the requested Borrowing would exceed the Availability on such Funding
Date. Swing Lender as a Lender shall not otherwise be required to
determine whether the applicable conditions precedent set forth in
SECTION 3 have been satisfied on the Funding Date applicable thereto
prior to making, in its sole discretion, any Swing Loan.
(ii) The Swing Loans shall be secured by the Agent's
Liens, shall constitute Advances and Obligations hereunder, and shall
bear interest at the rate applicable from time to time to Advances that
are Base Rate Loans.
(e) AGENT ADVANCES.
(i) Agent hereby is authorized by Borrowers and the
Lenders, from time to time in Agent's sole discretion, (1) after the
occurrence and during the continuance of a Default or an Event of
Default, or (2) at any time that any of the other applicable conditions
precedent set forth in SECTION 3 have not been satisfied, to make
Advances to Borrowers on behalf of the Lenders that Agent, in its
Permitted Discretion deems necessary or desirable (A) to preserve or
protect the Collateral, or any portion thereof, (B) to enhance the
likelihood of repayment of the Obligations, or (C) to pay any other
amount chargeable to Borrowers pursuant to the terms of this Agreement,
including Lender Group Expenses and the costs, fees, and expenses
described in SECTION 10 (any of the Advances described in this SECTION
2.3(e) shall be referred to as "AGENT ADVANCES"). Each Agent Advance is
an Advance hereunder and shall be subject to all the terms and
conditions applicable to other Advances, except that no such Agent
Advance shall be eligible for the LIBOR Option and all payments thereon
shall be payable to Agent solely for its own account (and for the
account of the holder of any participation interest with respect to
such Agent Advance).
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(ii) The Agent Advances shall be repayable on demand
and secured by the Agent's Liens granted to Agent under the Loan
Documents, shall constitute Advances and Obligations hereunder, and
shall bear interest at the rate applicable from time to time to
Advances that are Base Rate Loans.
(f) SETTLEMENT. It is agreed that each Lender's funded
portion of the Advances is intended by the Lenders to equal, at all times, such
Lender's Pro Rata Share of the outstanding Advances. Such agreement
notwithstanding, Agent, Swing Lender, and the other Lenders agree (which
agreement shall not be for the benefit of or enforceable by Borrowers) that in
order to facilitate the administration of this Agreement and the other Loan
Documents, settlement among them as to the Advances, the Swing Loans, and the
Agent Advances shall take place on a periodic basis in accordance with the
following provisions:
(i) Agent shall request settlement ("SETTLEMENT") with
the Lenders on a weekly basis, or on a more frequent basis if so
determined by Agent, (1) on behalf of Swing Lender, with respect to
each outstanding Swing Loan, (2) for itself, with respect to each Agent
Advance, and (3) with respect to Collections received, as to each by
notifying the Lenders by telecopy, telephone, or other similar form of
transmission, of such requested Settlement, no later than 2:00 p.m.
(California time) on the Business Day immediately prior to the date of
such requested Settlement (the date of such requested Settlement being
the "SETTLEMENT DATE"). Such notice of a Settlement Date shall include
a summary statement of the amount of outstanding Advances, Swing Loans,
and Agent Advances for the period since the prior Settlement Date.
Subject to the terms and conditions contained herein (including SECTION
2.3(c)(iii)): (y) if a Lender's balance of the Advances, Swing Loans,
and Agent Advances exceeds such Lender's Pro Rata Share of the
Advances, Swing Loans, and Agent Advances as of a Settlement Date, then
Agent shall, by no later than 12:00 p.m. (California time) on the
Settlement Date, transfer in immediately available funds to the account
of such Lender as such Lender may designate, an amount such that each
such Lender shall, upon receipt of such amount, have as of the
Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and
Agent Advances, and (z) if a Lender's balance of the Advances, Swing
Loans, and Agent Advances is less than such Lender's Pro Rata Share of
the Advances, Swing Loans, and Agent Advances as of a Settlement Date,
such Lender shall no later than 12:00 p.m. (California time) on the
Settlement Date transfer in immediately available funds to the Agent's
Account, an amount such that each such Lender shall, upon transfer of
such amount, have as of the Settlement Date, its Pro Rata Share of the
Advances, Swing Loans, and Agent Advances. Such amounts made available
to Agent under clause (z) of the immediately preceding sentence shall
be applied against the amounts of the applicable Swing Loan or Agent
Advance and, together with the portion of such Swing Loan or Agent
Advance representing Swing Lender's Pro Rata Share thereof, shall
constitute Advances of such Lenders. If any such amount is not made
available to Agent by any Lender on the Settlement Date applicable
thereto to the extent required by the terms hereof, Agent shall be
entitled to recover for its account such amount on demand from such
Lender together with interest thereon at the Defaulting Lender Rate.
(ii) In determining whether a Lender's balance of the
Advances, Swing Loans, and Agent Advances is less than, equal to, or
greater than such
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Lender's Pro Rata Share of the Advances, Swing Loans, and Agent
Advances as of a Settlement Date, Agent shall, as part of the relevant
Settlement, apply to such balance the portion of payments actually
received in good funds by Agent with respect to principal, interest,
fees payable by Borrowers and allocable to the Lenders hereunder, and
proceeds of Collateral. To the extent that a net amount is owed to any
such Lender after such application, such net amount shall be
distributed by Agent to that Lender as part of such next Settlement.
(iii) Between Settlement Dates, Agent, to the extent
no Agent Advances or Swing Loans are outstanding, may pay over to Swing
Lender any payments received by Agent, that in accordance with the
terms of this Agreement would be applied to the reduction of the
Advances, for application to Swing Lender's Pro Rata Share of the
Advances. If, as of any Settlement Date, Collections received since the
then immediately preceding Settlement Date have been applied to Swing
Lender's Pro Rata Share of the Advances other than to Swing Loans, as
provided for in the previous sentence, Swing Lender shall pay to Agent
for the accounts of the Lenders, and Agent shall pay to the Lenders, to
be applied to the outstanding Advances of such Lenders, an amount such
that each Lender shall, upon receipt of such amount, have, as of such
Settlement Date, its Pro Rata Share of the Advances. During the period
between Settlement Dates, Swing Lender with respect to Swing Loans,
Agent with respect to Agent Advances, and each Lender (subject to the
effect of letter agreements between Agent and individual Lenders) with
respect to the Advances other than Swing Loans and Agent Advances,
shall be entitled to interest at the applicable rate or rates payable
under this Agreement on the daily amount of funds employed by Swing
Lender, Agent, or the Lenders, as applicable.
(g) NOTATION. Agent shall record on its books the
principal amount of the Advances owing to each Lender, including the Swing Loans
owing to Swing Lender, and Agent Advances owing to Agent, and the interests
therein of each Lender, from time to time. In addition, each Lender is
authorized, at such Lender's option, to note the date and amount of each payment
or prepayment of principal of such Lender's Advances in its books and records,
including computer records, such books and records constituting conclusive
evidence, absent manifest error, of the accuracy of the information contained
therein.
(h) LENDERS' FAILURE TO PERFORM. All Advances (other than
Swing Loans and Agent Advances) shall be made by the Lenders contemporaneously
and in accordance with their Pro Rata Shares. It is understood that (i) no
Lender shall be responsible for any failure by any other Lender to perform its
obligation to make any Advance (or other extension of credit) hereunder, nor
shall any Commitment of any Lender be increased or decreased as a result of any
failure by any other Lender to perform its obligations hereunder, and (ii) no
failure by any Lender to perform its obligations hereunder shall excuse any
other Lender from its obligations hereunder.
(i) OPTIONAL OVERADVANCES. Any contrary provision of this
Agreement notwithstanding, the Lenders hereby authorize Agent or Swing Lender,
as applicable, and Agent or Swing Lender, as applicable, may, but is not
obligated to, knowingly and intentionally, continue to make Advances (including
Swing Loans) to Borrowers notwithstanding that an Overadvance exists or thereby
would be created, so long as (i) after
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giving effect to such Advances (including a Swing Loan), the Revolver Usage does
not exceed the Borrowing Base by more than $2,500,000, (ii) after giving effect
to such Advances (including a Swing Loan) the outstanding Revolver Usage (except
for and excluding amounts charged to the Loan Account for interest, fees, or
Lender Group Expenses) does not exceed the Maximum Revolver Amount, and (iii) at
the time of the making of any such Advance (including a Swing Loan), Agent does
not believe, in good faith, that the Overadvance created by such Advance will be
outstanding for more than 90 days. The foregoing provisions are for the
exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended
to benefit Borrowers in any way. The Advances and Swing Loans, as applicable,
that are made pursuant to this SECTION 2.3(i) shall be subject to the same terms
and conditions as any other Advance or Swing Loan, as applicable, except that
they shall not be eligible for the LIBOR Option and the rate of interest
applicable thereto shall be the rate applicable to Advances that are Base Rate
Loans under SECTION 2.6(c) hereof without regard to the presence or absence of a
Default or Event of Default.
(i) In the event Agent obtains actual knowledge that
the Revolver Usage exceeds the amounts permitted by the preceding
paragraph, regardless of the amount of, or reason for, such excess,
Agent shall notify Lenders as soon as practicable (and prior to making
any (or any additional) intentional Overadvances (except for and
excluding amounts charged to the Loan Account for interest, fees, or
Lender Group Expenses) unless Agent determines that prior notice would
result in imminent harm to the Collateral or its value), and the
Lenders with Revolver Commitments thereupon shall, together with Agent,
jointly determine the terms of arrangements that shall be implemented
with Borrowers and intended to reduce, within a reasonable time, the
outstanding principal amount of the Advances to Borrowers to an amount
permitted by the preceding paragraph. In the event Agent or any Lender
disagrees over the terms of reduction or repayment of any Overadvance,
the terms of reduction or repayment thereof shall be implemented
according to the determination of the Required Lenders.
(ii) Each Lender with a Revolver Commitment shall be
obligated to settle with Agent as provided in SECTION 2.3(f) for the
amount of such Lender's Pro Rata Share of any unintentional
Overadvances by Agent reported to such Lender, any intentional
Overadvances made as permitted under this SECTION 2.3(i), and any
Overadvances resulting from the charging to the Loan Account of
interest, fees, or Lender Group Expenses.
2.4 PAYMENTS.
(a) PAYMENTS BY BORROWERS.
(i) Except as otherwise expressly provided herein, all
payments by Borrowers shall be made to Agent's Account for the account
of the Lender Group and shall be made in immediately available funds,
no later than 11:00 a.m. (California time) on the date specified
herein. Any payment received by Agent later than 11:00 a.m.
(California time), shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall
continue to accrue until such following Business Day.
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(ii) Unless Agent receives notice from Administrative
Borrower prior to the date on which any payment is due to the
Lenders that Borrowers will not make such payment in full as and when
required, Agent may assume that Borrowers have made (or will make)
such payment in full to Agent on such date in immediately available
funds and Agent may (but shall not be so required), in reliance upon
such assumption, distribute to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent
Borrowers do not make such payment in full to Agent on the date when
due, each Lender severally shall repay to Agent on demand such amount
distributed to such Lender, together with interest thereon at the
Defaulting Lender Rate for each day from the date such amount is
distributed to such Lender until the date repaid.
(b) APPORTIONMENT AND APPLICATION OF PAYMENTS.
(i) Except as otherwise provided with respect to
Defaulting Lenders and except as otherwise provided in the Loan
Documents (including letter agreements between Agent and individual
Lenders), aggregate principal and interest payments shall be
apportioned ratably among the Lenders (according to the unpaid
principal balance of the Obligations to which such payments relate
held by each Lender) and payments of fees and expenses (other than
fees or expenses that are for Agent's separate account, after giving
effect to any letter agreements between Agent and individual Lenders)
shall be apportioned ratably among the Lenders having a Pro Rata Share
of the type of Commitment or Obligation to which a particular fee
relates. All payments shall be remitted to Agent and all such payments
(other than payments received while no Default or Event of Default has
occurred and is continuing and which relate to the payment of
principal or interest of specific Obligations or which relate to the
payment of specific fees), and all proceeds of Accounts or other
Collateral received by Agent, shall be applied as follows:
A. FIRST, to pay any Lender Group Expenses then due
to Agent under the Loan Documents, until paid in full,
B. SECOND, to pay any Lender Group Expenses then due
to the Lenders under the Loan Documents, on a ratable basis,
until paid in full,
C. THIRD, to pay any fees then due to Agent (for its
separate accounts, after giving effect to any letter
agreements between Agent and the individual Lenders) under the
Loan Documents until paid in full,
D. FOURTH, to pay any fees then due to any or all of
the Lenders (after giving effect to any letter agreements
between Agent and individual Lenders) under the Loan
Documents, on a ratable basis, until paid in full,
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E. FIFTH, to pay interest due in respect of all
Agent Advances, until paid in full,
F. SIXTH, ratably to pay interest due in respect of
the Advances (other than Agent Advances), the Swing Loans, and
the Term Loan until paid in full,
G. SEVENTH, to pay the principal of all Agent
Advances until paid in full,
H. EIGHTH, ratably to pay all principal amounts then
due and payable (other than as a result of an acceleration
thereof) with respect to the Term Loan until paid in full,
I. NINTH, to pay the principal of all Swing Loans
until paid in full,
J. TENTH, to pay the principal of all Advances until
paid in full,
K. ELEVENTH, if an Event of Default has occurred and
is continuing, to pay the outstanding principal balance of the
Term Loan (in the inverse order of the maturity of the
installments due thereunder), including the Term Loan PIK
Amount, until the Term Loan is paid in full,
L. TWELFTH, if an Event of Default has occurred and
is continuing, to Agent, to be held by Agent, for the ratable
benefit of Issuing Lender and those Lenders having a Revolver
Commitment, as cash collateral in an amount up to 105% of the
then extant Letter of Credit Usage until paid in full,
M. THIRTEENTH, to pay any other Obligations until
paid in full, and
N. FOURTEENTH, to Borrowers (to be wired to the
Designated Account) or such other Person entitled thereto
under applicable law.
(ii) Agent promptly shall distribute to each Lender,
pursuant to the applicable wire instructions received from each
Lender in writing, such funds as it may be entitled to receive,
subject to a Settlement delay as provided in SECTION 2.3(h).
(iii) In each instance, so long as no Default or Event of
Default has occurred and is continuing, SECTION 2.4(b) shall
not be deemed to apply to any payment by Borrowers specified by
Borrowers to be for the payment of specific Obligations then due and
payable (or prepayable) under any provision of this Agreement.
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(iv) For purposes of the foregoing, "paid in full" means
payment of all amounts owing under the Loan Documents according
to the terms thereof, including loan fees, service fees, professional
fees, interest (and specifically including interest accrued after the
commencement of any Insolvency Proceeding), default interest, interest
on interest, and expense reimbursements, whether or not the same would
be or is allowed or disallowed in whole or in part in any Insolvency
Proceeding.
(v) In the event of a direct conflict between the priority
provisions of this SECTION 2.4 and other provisions contained in any
other Loan Document, it is the intention of the parties hereto
that such priority provisions in such documents shall be read together
and construed, to the fullest extent possible, to be in concert with
each other. In the event of any actual, irreconcilable conflict that
cannot be resolved as aforesaid, the terms and provisions of this
SECTION 2.4 shall control and govern.
2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrowers to the Lender Group pursuant to SECTIONS
2.1 AND 2.12 is greater than either the Dollar or percentage limitations set
forth in SECTIONS 2.1 OR 2.12, (an "OVERADVANCE"), Borrowers immediately shall
pay to Agent, in cash, the amount of such excess, which amount shall be used by
Agent to reduce the Obligations in accordance with the priorities set forth in
SECTION 2.4(b). In addition, Borrowers hereby promise to pay the Obligations
(including principal, interest, fees, costs, and expenses) in Dollars in full to
the Lender Group as and when due and payable under the terms of this Agreement
and the other Loan Documents.
2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS,
AND CALCULATIONS.
(a) INTEREST RATES. Except as provided in clause (c)
below,
(i) all Obligations (except for undrawn Letters of
Credit and the Term Loan Amount) that have been
charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance
thereof at a per annum rate equal to (A) if the
relevant Obligation is an Advance that is a LIBOR Rate
Loan, at a per annum rate equal to the LIBOR Rate plus
the LIBOR Rate Margin, or (B) otherwise, at a per
annum rate equal to the Base Rate plus the Base Rate
Margin; and
(ii) the Term Loan Amount (inclusive of any Term Loan
PIK Amount) shall bear interest on the amount thereof
outstanding from time to time at a per annum rate
equal to the greater of (A) the Base Rate plus the
Base Rate Term Loan Margin and (B) 12.00% (to the
extent that interest accrued hereunder at the rate set
forth herein would be less than the foregoing minimum
daily rate, the interest rate chargeable hereunder for
such day automatically shall be deemed increased to
the minimum rate); provided, however, that, so long as
no Event of Default has
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occurred and is continuing, that portion of such
interest equal to 1.50 percentage points per annum (
the "Term Loan PIK Amount") shall, in the absence of
an election by Borrowers to pay such interest in cash,
be paid-in-kind by being added to the principal
balance of the Term Loan Amount (inclusive of any Term
Loan PIK Amount theretofore so added); provided,
further, however, that Borrower may, on or prior to
the date that is 5 Business Days prior to the due date
thereof, elect to pay all accrued and unpaid interest
under this Section 2.6(a)(ii) in cash.
(b) LETTER OF CREDIT FEE. Borrowers shall pay Agent (for
the ratable benefit of the Lenders with a Revolver Commitment, subject to any
letter agreement between Agent and individual Lenders), a Letter of Credit fee
(in addition to the charges, commissions, fees, and costs set forth in SECTION
2.12(e)) which shall accrue at a rate equal to 2% per annum times the Daily
Balance of the undrawn amount of all outstanding Letters of Credit.
(c) DEFAULT RATE. Upon the occurrence and during the
continuation of an Event of Default (and at the election of Agent or the
Required Lenders),
(i) all Obligations (except for undrawn Letters of
Credit) that have been charged to the Loan Account pursuant to the
terms hereof shall bear interest on the Daily Balance thereof at a per
annum rate equal to 4 percentage points above the per annum rate
otherwise applicable hereunder, and
(ii) the Letter of Credit fee provided for above shall
be increased to 4 percentage points above the per annum rate otherwise
applicable hereunder.
(d) PAYMENT. Interest, Letter of Credit fees, and all
other fees payable hereunder shall be due and payable, in arrears, on the first
day of each month at any time that Obligations or Commitments are outstanding.
Borrowers hereby authorize Agent, from time to time, without prior notice to
Borrowers, to charge such interest and fees, all Lender Group Expenses (as and
when incurred), the charges, commissions, fees, and costs provided for in
SECTION 2.12(e) (as and when accrued or incurred), the fees and costs provided
for in SECTION 2.11 (as and when accrued or incurred), and all other payments as
and when due and payable under any Loan Document (including the installments due
and payable with respect to the Term Loan) to Borrowers' Loan Account, which
amounts thereafter constitute Advances hereunder and shall accrue interest at
the rate then applicable to Advances hereunder. Any interest not paid when due
shall be compounded by being charged to Borrowers' Loan Account and shall
thereafter constitute Advances hereunder and shall accrue interest at the rate
then applicable to Advances that are Base Rate Loans hereunder.
(e) COMPUTATION. All interest and fees chargeable under
the Loan Documents shall be computed on the basis of a 360 day year for the
actual number of days elapsed. In the event the Base Rate is changed from time
to time hereafter, the rates of interest hereunder based upon the Base Rate
automatically and immediately shall be increased or decreased by an amount equal
to such change in the Base Rate.
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(f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrowers and the Lender Group, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; PROVIDED, HOWEVER, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, IPSO FACTO, as of the date of this Agreement, Borrowers are and shall
be liable only for the payment of such maximum as allowed by law, and payment
received from Borrowers in excess of such legal maximum, whenever received,
shall be applied to reduce the principal balance of the Obligations to the
extent of such excess.
2.7 CASH MANAGEMENT.
(a) Borrowers shall (i) establish and maintain cash
management services of a type and on terms satisfactory to Agent at one or more
of the banks set forth on SCHEDULE 2.7(a) (each a "CASH MANAGEMENT BANK"), and
shall request in writing and otherwise take such reasonable steps to ensure that
all of its Account Debtors forward payment of the amounts owed by them directly
to such Cash Management Bank, and (ii) deposit or cause to be deposited
promptly, and in any event no later than the first Business Day after the date
of receipt thereof, all Collections (including those sent directly by Account
Debtors to a Cash Management Bank) into a bank account in Agent's name (a "Cash
Management Account") at one of the Cash Management Banks.
(b) Each Cash Management Bank shall establish and maintain
Cash Management Agreements with Agent and Borrowers, in form and substance
acceptable to Agent. Each such Cash Management Agreement shall provide, among
other things, that (i) all items of payment deposited in such Cash Management
Account and proceeds thereof are held by such Cash Management Bank agent or
bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights of
setoff or recoupment or any other claim against the applicable Cash Management
Account, other than for payment of its service fees and other charges directly
related to the administration of such Cash Management Account and for returned
checks or other items of payment, and (iii) it immediately will forward by daily
sweep all amounts in the applicable Cash Management Account to the Agent's
Account.
(c) So long as no Default or Event of Default has occurred
and is continuing, Administrative Borrower may amend Schedule 2.7(a) or (b) to
add or replace a Cash Management Account Bank or Cash Management Account;
provided, HOWEVER, that (i) such prospective Cash Management Bank shall be
satisfactory to Agent and Agent shall have consented in writing in advance to
the opening of such Cash Management Account with the prospective Cash Management
Bank, and (ii) prior to the time of the opening of such Cash Management Account,
Borrowers and such prospective Cash Management Bank shall have executed and
delivered to Agent a Cash Management Agreement. Borrowers shall close any of
their Cash Management Accounts (and establish replacement cash management
accounts in accordance with the foregoing sentence) promptly and in any event
within 30 days of notice from Agent that the creditworthiness of any Cash
Management Bank is no longer acceptable in Agent's reasonable judgment, or as
promptly as practicable and in any event within 60 days of
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notice from Agent that the operating performance, funds transfer, or
availability procedures or performance of the Cash Management Bank with respect
to Cash Management Accounts or Agent's liability under any Cash Management
Agreement with such Cash Management Bank is no longer acceptable in Agent's
reasonable judgment.
(d) The Cash Management Accounts shall be cash collateral
accounts, with all cash, checks and similar items of payment in such accounts
securing payment of the Obligations, and in which Borrowers are hereby deemed to
have granted a Lien to Agent.
2.8 CREDITING PAYMENTS; FLOAT CHARGE.
(a) The receipt of any payment item by Agent (whether from
transfers to Agent by the Cash Management Banks pursuant to the Cash Management
Agreements or otherwise) shall not be considered a payment on account unless
such payment item is a wire transfer of immediately available federal funds made
to the Agent's Account or unless and until such payment item is honored when
presented for payment. Should any payment item not be honored when presented for
payment, then Borrowers shall be deemed not to have made such payment and
interest shall be calculated accordingly. Anything to the contrary contained
herein notwithstanding, any payment item shall be deemed received by Agent only
if it is received into the Agent's Account on a Business Day on or before 11:00
a.m. (California time). If any payment item is received into the Agent's Account
on a non-Business Day or after 11:00 a.m. (California time) on a Business Day,
it shall be deemed to have been received by Agent as of the opening of business
on the immediately following Business Day. From and after the Closing Date,
Agent shall be entitled to charge Borrowers for 1 Business Day of 'clearance or
float' at the rate applicable to Base Rate Loans under SECTION 2.6 on all
Collections that are received by Borrowers (regardless of whether forwarded by
the Cash Management Banks to Agent). This across-the-board 1 Business Day
clearance or float charge on all Collections is acknowledged by the parties to
constitute an integral aspect of the pricing of the financing of Borrowers and
shall apply irrespective of whether or not there are any outstanding monetary
Obligations; the effect of such clearance or float charge being the equivalent
of charging 1 Business Day of interest on such Collections. The parties
acknowledge and agree that the economic benefit of the foregoing provisions of
this SECTION 2.8 shall be for the exclusive benefit of Agent.
(b) So long as on any date (i) no Advances (other than
Advances that are LIBOR Rate Loans) are outstanding and no Obligations are due
and payable on such date and (ii) no Event of Default has occurred and is
continuing on such date, all payment items received by Agent and constituting
payments on account on such day in accordance with SECTION 2.8(a) shall be
remitted by Agent to Borrowers' Designated Account subject to the terms of
SECTION 7.13.
2.9 DESIGNATED ACCOUNT. Agent is authorized to make the
Advances and the Term Loan, and Issuing Lender is authorized to issue the
Letters of Credit, under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Person, or
without instructions if pursuant to SECTION 2.6(d). Administrative Borrower
agrees to establish and maintain the Designated Account with the Designated
Account Bank for the purpose of receiving the proceeds of the Advances requested
by Borrowers and made by Agent or the Lenders hereunder. Unless otherwise agreed
by Agent and Administrative Borrower, any
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Advance, Agent Advance, or Swing Loan requested by Borrowers and made by Agent
or the Lenders hereunder shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Agent shall maintain an account on its books in the name of Borrowers (the "Loan
Account") on which Borrowers will be charged with the Term Loan, all Advances
(including Agent Advances and Swing Loans) made by Agent, Swing Lender, or the
Lenders to Borrowers or for Borrowers' account, the Letters of Credit issued by
Issuing Lender for Borrowers' account, and with all other payment Obligations
hereunder or under the other Loan Documents, including, accrued interest, fees
and expenses, and Lender Group Expenses. In accordance with SECTION 2.8, the
Loan Account will be credited with all payments received by Agent from Borrowers
or for Borrowers' account, including all amounts received in the Agent's Account
from any Cash Management Bank. Agent shall render statements regarding the Loan
Account to Administrative Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Lender Group
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrowers and the Lender
Group unless, within 30 days after receipt thereof by Administrative Borrower,
Administrative Borrower shall deliver to Agent written objection thereto
describing the error or errors contained in any such statements.
2.11 FEES. Borrowers shall pay to Agent the following fees and
charges, which fees and charges shall be non-refundable when paid (irrespective
of whether this Agreement is terminated thereafter) and shall be apportioned
among the Lenders in accordance with the terms of letter agreements between
Agent and individual Lenders:
(a) Unused Line Fee. On the first day of each month
during the term of this Agreement, an unused line fee in the amount equal to
0.375% per annum times the result of (a) the Maximum Revolver Amount, less (b)
the sum of (i) the average Daily Balance of Advances that were outstanding
during the immediately preceding month, plus (ii) the average Daily Balance of
the Letter of Credit Usage during the immediately preceding month,
(b) Fee Letter Fees. As and when due and payable under
the terms of the Fee Letter, Borrowers shall pay to Agent the fees set forth in
the Fee Letter, and
(c) Audit, Appraisal, and Valuation Charges. For the
separate account of Agent, audit, appraisal, and valuation fees and charges as
follows, (i) a fee of $850 pay day, per auditor, plus out-of-pocket expenses for
each financial audit of a Borrower performed by personnel employed by Agent,
(ii) if implemented, a one time charge of $3,000 plus out-of-pocket expenses for
expenses for the establishment of electronic collateral reporting systems, (iii)
a fee of $1,500 per day per appraiser, plus out-of-pocket expenses, for each
appraisal of the Collateral performed by personnel employed by Agent, and (iv)
the actual charges paid or incurred by Agent if it elects to employ the services
of one or more third Persons to perform financial audits of Borrowers, to
appraise the Collateral, or any portion thereof, or to assess a Borrower's
business valuation.
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2.12 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this
Agreement, the Issuing Lender agrees to issue letters of credit for the account
of Borrowers (each, an "L/C") or to purchase participations or execute
indemnities or reimbursement obligations (each such undertaking, an "L/C
UNDERTAKING") with respect to letters of credit issued by an Underlying Issuer
(as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo)
for the account of Borrowers. To request the issuance of an L/C or an L/C
Undertaking (or the amendment, renewal, or extension of an outstanding L/C or
L/C Undertaking), Administrative Borrower shall hand deliver or telecopy (or
transmit by electronic communication, if arrangements for doing so have been
approved by the Issuing Lender) to the Issuing Lender and Agent (reasonably in
advance of the requested date of issuance, amendment, renewal, or extension) a
notice requesting the issuance of an L/C or L/C Undertaking, or identifying the
L/C or L/C Undertaking to be amended, renewed, or extended, the date of
issuance, amendment, renewal, or extension, the date on which such L/C or L/C
Undertaking is to expire, the amount of such L/C or L/C Undertaking, the name
and address of the beneficiary thereof (or of the Underlying Letter of Credit,
as applicable), and such other information as shall be necessary to prepare,
amend, renew, or extend such L/C or L/C Undertaking. If requested by the Issuing
Lender, Borrowers also shall be an applicant under the application with respect
to any Underlying Letter of Credit that is to be the subject of an L/C
Undertaking. The Issuing Lender shall have no obligation to issue a Letter of
Credit if any of the following would result after giving effect to the requested
Letter of Credit:
(i) the Letter of Credit Usage would exceed the
Borrowing Base LESS the amount of outstanding Advances, or
(ii) the Letter of Credit Usage would exceed
$2,000,000, or
(iii) the Letter of Credit Usage would exceed the
Maximum Revolver Amount LESS the then extant amount of outstanding
Advances.
Borrowers and the Lender Group acknowledge and agree that
certain Underlying Letters of Credit may be issued to support letters of credit
that already are outstanding as of the Closing Date. Each Letter of Credit (and
corresponding Underlying Letter of Credit) shall have an expiry date no later
than 30 days prior to the Maturity Date and all such Letters of Credit (and
corresponding Underlying Letter of Credit) shall be in form and substance
acceptable to the Issuing Lender (in the exercise of its Permitted Discretion),
including the requirement that the amounts payable thereunder must be payable in
Dollars. If Issuing Lender is obligated to advance funds under a Letter of
Credit, Borrowers immediately shall reimburse such L/C Disbursement to Issuing
Lender by paying to Agent an amount equal to such L/C Disbursement not later
than 11:00 a.m., California time, on the date that such L/C Disbursement is
made, if Administrative Borrower shall have received written or telephonic
notice of such L/C Disbursement prior to 10:00 a.m., California time, on such
date, or, if such notice has not been received by Administrative Borrower prior
to such time on such date, then not later than 11:00 a.m., California time, on
(i) the Business Day that Administrative Borrower receives such notice, if such
notice is received prior to 10:00 a.m., California time, on the date of receipt,
and, in the absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be
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deemed to be an Advance hereunder and, thereafter, shall bear interest at the
rate then applicable to Advances that are Base Rate Loans under SECTION 2.6. To
the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrowers'
obligation to reimburse such L/C Disbursement shall be discharged and replaced
by the resulting Advance. Promptly following receipt by Agent of any payment
from Borrowers pursuant to this paragraph, Agent shall distribute such payment
to the Issuing Lender or, to the extent that Lenders have made payments pursuant
to SECTION 2.12(c) to reimburse the Issuing Lender, then to such Lenders and the
Issuing Lender as their interest may appear.
(b) Promptly following receipt of a notice of L/C
Disbursement pursuant to SECTION 2.12(a), each Lender with a Revolver Commitment
agrees to fund its Pro Rata Share of any Advance deemed made pursuant to the
foregoing subsection on the same terms and conditions as if Borrowers had
requested such Advance and Agent shall promptly pay to Issuing Lender the
amounts so received by it from the Lenders. By the issuance of a Letter of
Credit (or an amendment to a Letter of Credit increasing the amount thereof) and
without any further action on the part of the Issuing Lender or the Lenders with
Revolver Commitment, the Issuing Lender shall be deemed to have granted to each
Lender with a Revolver Commitment, and each Lender with a Revolver Commitment
shall be deemed to have purchased, a participation in each Letter of Credit, in
an amount equal to its Pro Rata Share of the Risk Participation Liability of
such Letter of Credit, and each such Lender agrees to pay to Agent, for the
account of the Issuing Lender, such Lender's Pro Rata Share of any payments made
by the Issuing Lender under such Letter of Credit. In consideration and in
furtherance of the foregoing, each Lender with a Revolver Commitment hereby
absolutely and unconditionally agrees to pay to Agent, for the account of the
Issuing Lender, such Lender's Pro Rata Share of each L/C Disbursement made by
the Issuing Lender and not reimbursed by Borrowers on the date due as provided
in clause (a) of this Section, or of any reimbursement payment required to be
refunded to Borrowers for any reason. Each Lender with a Revolver Commitment
acknowledges and agrees that its obligation to deliver to Agent, for the account
of the Issuing Lender, an amount equal to its respective Pro Rata Share pursuant
to this SECTION 2.12(b) shall be absolute and unconditional and such remittance
shall be made notwithstanding the occurrence or continuation of an Event of
Default or Default or the failure to satisfy any condition set forth in SECTION
3 hereof. If any such Lender fails to make available to Agent the amount of such
Lender's Pro Rata Share of any payments made by the Issuing Lender in respect of
such Letter of Credit as provided in this Section, Agent (for the account of the
Issuing Lender) shall be entitled to recover such amount on demand from such
Lender together with interest thereon at the Defaulting Lender Rate until paid
in full.
(c) Each Borrower hereby agrees to indemnify, save,
defend, and hold the Lender Group harmless from any loss, cost, expense, or
liability, and reasonable attorneys fees incurred by the Lender Group arising
out of or in connection with any Letter of Credit; PROVIDED, HOWEVER, that no
Borrower shall be obligated hereunder to indemnify for any loss, cost, expense,
or liability that is caused by the gross negligence or willful misconduct of the
Issuing Lender or any other member of the Lender Group. Each Borrower agrees to
be bound by the Underlying Issuer's regulations and interpretations of any
Underlying Letter of Credit or by Issuing Lender's interpretations of any L/C
issued by Issuing Lender to or for such Borrower's account, even though this
interpretation may be different from such Borrower's own, and each Borrower
understands and agrees that the Lender Group shall not be liable for any error,
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negligence, or mistake, whether of omission or commission, in following
Borrowers' instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Each Borrower understands
that the L/C Undertakings may require Issuing Lender to indemnify the Underlying
Issuer for certain costs or liabilities arising out of claims by Borrowers
against such Underlying Issuer. Each Borrower hereby agrees to indemnify, save,
defend, and hold the Lender Group harmless with respect to any loss, cost,
expense (including reasonable attorneys fees), or liability incurred by the
Lender Group under any L/C Undertaking as a result of the Lender Group's
indemnification of any Underlying Issuer; PROVIDED, however, that no Borrower
shall be obligated hereunder to indemnify for any loss, cost, expense, or
liability that is caused by the gross negligence or willful misconduct of the
Issuing Lender or any other member of the Lender Group.
(d) Each Borrower hereby authorizes and directs any
Underlying Issuer to deliver to the Issuing Lender all instruments, documents,
and other writings and property received by such Underlying Issuer pursuant to
such Underlying Letter of Credit and to accept and rely upon the Issuing
Lender's instructions with respect to all matters arising in connection with
such Underlying Letter of Credit and the related application.
(e) Any and all charges, commissions, fees, and costs
incurred by the Issuing Lender relating to Underlying Letters of Credit shall be
Lender Group Expenses for purposes of this Agreement and immediately shall be
reimbursable by Borrowers to Agent for the account of the Issuing Lender; it
being acknowledged and agreed by each Borrower that, as of the Closing Date, the
issuance charge imposed by the prospective Underlying Issuer is .825% per annum
times the face amount of each Underlying Letter of Credit, that such issuance
charge may be changed from time to time, and that the Underlying Issuer also
imposes a schedule of charges for amendments, extensions, drawings, and
renewals.
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
thereof by any Governmental Authority, or (ii) compliance by the Underlying
Issuer or the Lender Group with any direction, request, or requirement
(irrespective of whether having the force of law) of any Governmental Authority
or monetary authority including, Regulation D of the Federal Reserve Board as
from time to time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is
or shall be imposed or modified in respect of any Letter of Credit
issued hereunder, or
(ii) there shall be imposed on the Underlying Issuer
or the Lender Group any other condition regarding any Underlying Letter
of Credit or any Letter of Credit issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter
of Credit or to reduce the amount receivable in respect thereof by the Lender
Group, then, and in any such case, Agent may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,
notify Administrative Borrower, and Borrowers shall pay on demand such amounts
as Agent may specify to be necessary to compensate the Lender Group for such
additional cost or
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reduced receipt, together with interest on such amount from the date of such
demand until payment in full thereof at the rate then applicable to Base Rate
Loans hereunder. The determination by Agent of any amount due pursuant to this
Section, as set forth in a certificate setting forth the calculation thereof in
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
2.13 LIBOR OPTION.
(a) INTEREST AND INTEREST PAYMENT DATES. In lieu of
having interest charged at the rate based upon the Base Rate, Borrowers shall
have the option (the "LIBOR OPTION") to have interest on all or a portion of the
Advances be charged at the LIBOR Rate. Interest on LIBOR Rate Loans shall be
payable on the earliest of (i) the last day of the Interest Period applicable
thereto, (ii) the occurrence of an Event of Default in consequence of which the
Required Lenders or Agent on behalf thereof elect to accelerate the maturity of
the Obligations, or (iii) termination of this Agreement pursuant to the terms
hereof. On the last day of each applicable Interest Period, unless
Administrative Borrower properly has exercised the LIBOR Option with respect
thereto, the interest rate applicable to such LIBOR Rate Loan automatically
shall convert to the rate of interest then applicable to Base Rate Loans of the
same type hereunder. At any time that an Event of Default has occurred and is
continuing, Borrowers no longer shall have the option to request that Advances
bear interest at the LIBOR Rate and Agent shall have the right to convert the
interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to
Base Rate Loans hereunder.
(b) LIBOR ELECTION.
(i) Administrative Borrower may, at any time and from
time to time, so long as no Event of Default has occurred and is
continuing, elect to exercise the LIBOR Option by notifying Agent prior
to 11:00 a.m. (California time) at least 3 Business Days prior to the
commencement of the proposed Interest Period (the "LIBOR DEADLINE").
Notice of Administrative Borrower's election of the LIBOR Option for a
permitted portion of the Advances and an Interest Period pursuant to
this Section shall be made by delivery to Agent of a LIBOR Notice
received by Agent before the LIBOR Deadline, or by telephonic notice
received by Agent before the LIBOR Deadline (to be confirmed by
delivery to Agent of a LIBOR Notice received by Agent prior to 5:00
p.m. (California time) on the same day. Promptly upon its receipt of
each such LIBOR Notice, Agent shall provide a copy thereof to each of
the Lenders having a Revolver Commitment.
(ii) Each LIBOR Notice shall be irrevocable and
binding on Borrowers. In connection with each LIBOR Rate Loan, each
Borrower shall indemnify, defend, and hold Agent and the Lenders
harmless against any loss, cost, or expense incurred by Agent or any
Lender as a result of (a) the payment of any principal of any LIBOR
Rate Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (b) the
conversion of any LIBOR Rate Loan other than on the last day of the
Interest Period applicable thereto, or (c) the failure to borrow,
convert, continue or prepay any LIBOR Rate Loan on the date specified
in any LIBOR Notice delivered pursuant hereto (such losses, costs, and
expenses, collectively,
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"FUNDING LOSSES"). Funding Losses shall, with respect to Agent or any
Lender, be deemed to equal the amount determined by Agent or such
Lender to be the excess, if any, of (i) the amount of interest that
would have accrued on the principal amount of such LIBOR Rate Loan had
such event not occurred, at the LIBOR Rate that would have been
applicable thereto, for the period from the date of such event to the
last day of the then current Interest Period therefor (or, in the case
of a failure to borrow, convert or continue, for the period that would
have been the Interest Period therefor), minus (ii) the amount of
interest that would accrue on such principal amount for such period at
the interest rate which Agent or such Lender would be offered were it
to be offered, at the commencement of such period, Dollar deposits of a
comparable amount and period in the London interbank market. A
certificate of Agent or a Lender delivered to Administrative Borrower
setting forth any amount or amounts that Agent or such Lender is
entitled to receive pursuant to this Section shall be conclusive absent
manifest error.
(iii) Borrowers shall have not more than 5 LIBOR Rate
Loans in effect at any given time. Borrowers only may exercise the
LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and integral
multiples of $500,000 in excess thereof.
(c) PREPAYMENTS. Borrowers may prepay LIBOR Rate Loans at
any time; PROVIDED, HOWEVER, that in the event that LIBOR Rate Loans are prepaid
on any date that is not the last day of the Interest Period applicable thereto,
including as a result of any automatic prepayment through the required
application by Agent of proceeds of Collections in accordance with SECTION
2.4(b) or for any other reason, including early termination of the term of this
Agreement or acceleration of the Obligations pursuant to the terms hereof, each
Borrower shall indemnify, defend, and hold Agent and the Lenders and their
Participants harmless against any and all Funding Losses in accordance with
clause (b) above.
(d) SPECIAL PROVISIONS APPLICABLE TO LIBOR RATE.
(i) The LIBOR Rate may be adjusted by Agent with
respect to any Lender on a prospective basis to take into account any
additional or increased costs to such Lender of maintaining or
obtaining any eurodollar deposits or increased costs due to changes in
applicable law occurring subsequent to the commencement of the then
applicable Interest Period, including changes in tax laws (except
changes of general applicability in corporate income tax laws) and
changes in the reserve requirements imposed by the Board of Governors
of the Federal Reserve System (or any successor), excluding the Reserve
Percentage, which additional or increased costs would increase the cost
of funding loans bearing interest at the LIBOR Rate. In any such event,
the affected Lender shall give Administrative Borrower and Agent notice
of such a determination and adjustment and Agent promptly shall
transmit the notice to each other Lender and, upon its receipt of the
notice from the affected Lender, Administrative Borrower may, by notice
to such affected Lender (y) require such Lender to furnish to
Administrative Borrower a statement setting forth the basis for
adjusting such LIBOR Rate and the method for determining the amount of
such adjustment, or (z) repay the LIBOR Rate Loans with respect to
which such adjustment is made (together with any amounts due under
clause (b)(ii) above).
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(ii) In the event that any change in market conditions
or any law, regulation, treaty, or directive, or any change therein or
in the interpretation of application thereof, shall at any time after
the date hereof, in the reasonable opinion of any Lender, make it
unlawful or impractical for such Lender to fund or maintain LIBOR
Advances or to continue such funding or maintaining, or to determine or
charge interest rates at the LIBOR Rate, such Lender shall give notice
of such changed circumstances to Agent and Administrative Borrower and
Agent promptly shall transmit the notice to each other Lender and (y)
in the case of any LIBOR Rate Loans of such Lender that are
outstanding, the date specified in such Lender's notice shall be deemed
to be the last day of the Interest Period of such LIBOR Rate Loans, and
interest upon the LIBOR Rate Loans of such Lender thereafter shall
accrue interest at the rate then applicable to Base Rate Loans, and (z)
Borrowers shall not be entitled to elect the LIBOR Option until such
Lender determines that it would no longer be unlawful or impractical to
do so.
(e) NO REQUIREMENT OF MATCHED FUNDING. Anything to the
contrary contained herein notwithstanding, neither Agent, nor any Lender, nor
any of their Participants, is required actually to acquire eurodollar deposits
to fund or otherwise match fund any Obligation as to which interest accrues at
the LIBOR Rate. The provisions of this Section shall apply as if each Lender or
its Participants had match funded any Obligation as to which interest is
accruing at the LIBOR Rate by acquiring eurodollar deposits for each Interest
Period in the amount of the LIBOR Rate Loans.
2.14 CAPITAL REQUIREMENTS. If, after the date hereof, any
Lender determines that (i) the adoption of or change in any law, rule,
regulation or guideline regarding capital requirements for banks or bank holding
companies, or any change in the interpretation or application thereof by any
Governmental Authority charged with the administration thereof, or (ii)
compliance by such Lender or its parent bank holding company with any guideline,
request or directive of any such entity regarding capital adequacy (whether or
not having the force of law), the effect of reducing the return on such Lender's
or such holding company's capital as a consequence of such Lender's Commitments
hereunder to a level below that which such Lender or such holding company could
have achieved but for such adoption, change, or compliance (taking into
consideration such Lender's or such holding company's then existing policies
with respect to capital adequacy and assuming the full utilization of such
entity's capital) by any amount deemed by such Lender to be material, then such
Lender may notify Administrative Borrower and Agent thereof. Following receipt
of such notice, Borrowers agree to pay such Lender on demand the amount of such
reduction of return of capital as and when such reduction is determined, payable
within 90 days after presentation by such Lender of a statement in the amount
and setting forth in reasonable detail such Lender's calculation thereof and the
assumptions upon which such calculation was based (which statement shall be
deemed true and correct absent manifest error). In determining such amount, such
Lender may use any reasonable averaging and attribution methods.
2.15 JOINT AND SEVERAL LIABILITY OF BORROWERS.
(a) Each of Borrowers is accepting joint and several
liability hereunder and under the other Loan Documents in consideration of the
financial accommodations to be provided by the Agent and the Lenders under this
Agreement, for the
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mutual benefit, directly and indirectly, of each of Borrowers and in
consideration of the undertakings of the other Borrowers to accept joint and
several liability for the Obligations.
(b) Each of Borrowers, jointly and severally, hereby
irrevocably and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Borrowers, with respect to
the payment and performance of all of the Obligations (including, without
limitation, any Obligations arising under this SECTION 2.15), it being the
intention of the parties hereto that all the Obligations shall be the joint and
several obligations of each Person composing Borrowers without preferences or
distinction among them.
(c) If and to the extent that any of Borrowers shall fail
to make any payment with respect to any of the Obligations as and when due or to
perform any of the Obligations in accordance with the terms thereof, then in
each such event the other Persons composing Borrowers will make such payment
with respect to, or perform, such Obligation.
(d) The Obligations of each Person composing Borrowers
under the provisions of this SECTION 2.15 constitute the absolute and
unconditional, full recourse Obligations of each Person composing Borrowers
enforceable against each such Borrower to the full extent of its properties and
assets, irrespective of the validity, regularity or enforceability of this
Agreement or any other circumstances whatsoever.
(e) Except as otherwise expressly provided in this
Agreement, each Person composing Borrowers hereby waives notice of acceptance of
its joint and several liability, notice of any Advances or Letters of Credit
issued under or pursuant to this Agreement, notice of the occurrence of any
Default, Event of Default, or of any demand for any payment under this
Agreement, notice of any action at any time taken or omitted by Agent or Lenders
under or in respect of any of the Obligations, any requirement of diligence or
to mitigate damages and, generally, to the extent permitted by applicable law,
all demands, notices and other formalities of every kind in connection with this
Agreement (except as otherwise provided in this Agreement). Each Person
composing Borrowers hereby assents to, and waives notice of, any extension or
postponement of the time for the payment of any of the Obligations, the
acceptance of any payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent or other action or acquiescence by
Agent or Lenders at any time or times in respect of any default by any Person
composing Borrowers in the performance or satisfaction of any term, covenant,
condition or provision of this Agreement, any and all other indulgences
whatsoever by Agent or Lenders in respect of any of the Obligations, and the
taking, addition, substitution or release, in whole or in part, at any time or
times, of any security for any of the Obligations or the addition, substitution
or release, in whole or in part, of any Person composing Borrowers. Without
limiting the generality of the foregoing, each of Borrowers assents to any other
action or delay in acting or failure to act on the part of any Agent or Lender
with respect to the failure by any Person composing Borrowers to comply with any
of its respective Obligations, including, without limitation, any failure
strictly or diligently to assert any right or to pursue any remedy or to comply
fully with applicable laws or regulations thereunder, which might, but for the
provisions of this SECTION 2.15 afford grounds for terminating, discharging or
relieving any Person composing Borrowers, in whole or in part, from any of its
Obligations under this SECTION 2.15, it being the intention of each Person
composing Borrowers that, so long as any of the Obligations hereunder remain
unsatisfied, the Obligations of such Person composing
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Borrowers under this SECTION 2.15 shall not be discharged except by performance
and then only to the extent of such performance. The Obligations of each Person
composing Borrowers under this SECTION 2.15 shall not be diminished or rendered
unenforceable by any winding up, reorganization, arrangement, liquidation,
reconstruction or similar proceeding with respect to any Person composing
Borrowers or any Agent or Lender. The joint and several liability of the Persons
composing Borrowers hereunder shall continue in full force and effect
notwithstanding any absorption, merger, amalgamation or any other change
whatsoever in the name, constitution or place of formation of any of the Persons
composing Borrowers or any Agent or Lender.
(f) Each Person composing Borrowers represents and
warrants to Agent and Lenders that such Borrower is currently informed of the
financial condition of Borrowers and of all other circumstances which a diligent
inquiry would reveal and which bear upon the risk of nonpayment of the
Obligations. Each Person composing Borrowers further represents and warrants to
Agent and Lenders that such Borrower has read and understands the terms and
conditions of the Loan Documents. Each Person composing Borrowers hereby
covenants that such Borrower will continue to keep informed of Borrowers'
financial condition, the financial condition of other guarantors, if any, and of
all other circumstances which bear upon the risk of nonpayment or nonperformance
of the Obligations.
(g) Each of the Persons composing Borrowers waives all
rights and defenses arising out of an election of remedies by the Agent or any
Lender, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for a guaranteed obligation, has destroyed the Agent's
or such Lender's rights of subrogation and reimbursement against such Borrower
by the operation of applicable law.
(h) The provisions of this SECTION 2.15 are made for the
benefit of the Agent, the Lenders and their respective successors and assigns,
and may be enforced by it or them from time to time against any or all of the
Persons composing Borrowers as often as occasion therefor may arise and without
requirement on the part of any such Agent, Lender, successor or assign first to
marshal any of its or their claims or to exercise any of its or their rights
against any of the other Persons composing Borrowers or to exhaust any remedies
available to it or them against any of the other Persons composing Borrowers or
to resort to any other source or means of obtaining payment of any of the
Obligations hereunder or to elect any other remedy. The provisions of this
SECTION 2.15 shall remain in effect until all of the Obligations shall have been
paid in full or otherwise fully satisfied. If at any time, any payment, or any
part thereof, made in respect of any of the Obligations, is rescinded or must
otherwise be restored or returned by any Agent or Lender upon the insolvency,
bankruptcy or reorganization of any of the Persons composing Borrowers, or
otherwise, the provisions of this SECTION 2.15 will forthwith be reinstated in
effect, as though such payment had not been made.
(i) Each of the Persons composing Borrowers hereby agrees
that it will not enforce any of its rights of contribution or subrogation
against the other Persons composing Borrowers with respect to any liability
incurred by it hereunder or under any of the other Loan Documents, any payments
made by it to the Agent or the Lenders with respect to any of the Obligations or
any collateral security therefor until such time as all of the Obligations have
been paid in full in cash. Any claim which any Borrower may have against any
other Borrower with respect to any payments to any Agent or Lender hereunder or
under any other Loan
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Documents are hereby expressly made subordinate and junior in right of payment,
without limitation as to any increases in the Obligations arising hereunder or
thereunder, to the prior payment in full in cash of the Obligations and, in the
event of any insolvency, bankruptcy, receivership, liquidation, reorganization
or other similar proceeding under the laws of any jurisdiction relating to any
Borrower, its debts or its assets, whether voluntary or involuntary, all such
Obligations shall be paid in full in cash before any payment or distribution of
any character, whether in cash, securities or other property, shall be made to
any other Borrower therefor.
(j) Each of the Persons composing Borrowers hereby agrees
that, after the occurrence and during the continuance of any Default or Event of
Default, the payment of any amounts due with respect to the indebtedness owing
by any Borrower to any other Borrower is hereby subordinated to the prior
payment in full in cash of the Obligations. Each Borrower hereby agrees that
after the occurrence and during the continuance of any Default or Event of
Default, such Borrower will not demand, sue for or otherwise attempt to collect
any indebtedness of any other Borrower owing to such Borrower until the
Obligations shall have been paid in full in cash. If, notwithstanding the
foregoing sentence, such Borrower shall collect, enforce or receive any amounts
in respect of such indebtedness, such amounts shall be collected, enforced and
received by such Borrower as trustee for the Lender Group, and such Borrower
shall deliver any such amounts to Agent for application to the Obligations in
accordance with SECTION 2.4(b).
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT.
The obligation of the Lender Group (or any member thereof) to make the initial
Advance (or otherwise to extend any credit provided for hereunder), is subject
to the fulfillment, to the satisfaction of Agent, of each of the conditions
precedent set forth below:
(a) the Closing Date shall occur on or before July 13,
2001;
(b) Agent shall have received all financing statements
required by Agent, duly executed by the applicable Borrowers, and Agent shall
have received searches reflecting the filing of all such financing statements;
(c) Agent shall have received each of the following
documents, in form and substance satisfactory to Agent, duly executed, and each
such document shall be in full force and effect:
(i) the Control Agreements,
(ii) the Copyright Security Agreement,
(iii) the Disbursement Letter,
(iv) the Due Diligence Letter,
(v) the Fee Letter,
(vi) the Cash Management Agreements,
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(vii) the Officers' Certificate,
(viii) the Stock Pledge Agreement, together with all
certificates representing the shares of Stock pledged thereunder (to
the extent such shares are certificated), as well as Stock powers
endorsed in blank or other proper instruments of transfer with respect
thereto,
(ix) the Trademark Security Agreement,
(x) the Contribution Agreement,
(xi) the Intercompany Subordination Agreement,
(xii) the Pay-Off Letter, together with UCC
termination statements and other documentation evidencing the
termination by Existing Lender of its Liens in and to the properties
and assets of Borrowers;
(xiii) the Source Code Escrow Agreement;
(xiv) the Registration Rights Agreement; and
(xv) the Warrants.
(d) Agent shall have received a certificate from the
Secretary of each Borrower attesting to the resolutions of such Borrower's Board
of Directors authorizing its execution, delivery, and performance of this
Agreement and the other Loan Documents (including the Warrants) to which such
Borrower is a party and authorizing specific officers of such Borrower to
execute the same;
(e) Agent shall have received copies of each Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of such Borrower;
(f) Agent shall have received a certificate of status with
respect to each Borrower, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Borrower, which certificate shall indicate that such
Borrower is in good standing in such jurisdiction;
(g) Agent shall have received certificates of status with
respect to each Borrower, each dated within 30 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions (other
than the jurisdiction of organization of such Borrower) in which its failure to
be duly qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that such Borrower is in good standing in such
jurisdictions;
(h) Agent shall have received a certificate of insurance,
together with the endorsements thereto, as are required by SECTION 6.8, the form
and substance of which shall be satisfactory to Agent;
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(i) Agent shall have received Collateral Access Agreements
with respect to the following locations: 2800 Corporate Exchange Drive,
Columbus, Ohio 43231.
(j) Agent shall have received opinions of Borrowers'
counsel as to such matters as the Agent may reasonably request, including,
without limitation, the Warrants;
(k) Agent shall have received satisfactory evidence
(including a certificate of the chief financial officer of Parent) that all tax
returns required to be filed by Borrowers have been timely filed and all taxes
upon Borrowers or their properties, assets, income, and franchises (including
Real Property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest;
(l) Borrowers shall have the Required Availability after
giving effect to the initial extensions of credit hereunder;
(m) Agent shall have completed its business, legal, and
collateral due diligence, including (i) confirmation that each Borrower's source
code for its Software is proprietary and has not been provided to any Borrower's
customers distributors and/or business partners except those Persons
specifically approved by Agent, (ii) a collateral audit and review of Borrowers'
books and records and verification of Borrowers' representations and warranties
to the Lender Group, the results of which shall be satisfactory to Agent, (iii)
receipt of a final appraisal performed by Empire Valuation, the results of which
are acceptable to Agent, (iv) a review of Borrowers' significant Maintenance
Contracts, the results of which are acceptable to Agent, and (v) receipt of a
report prepared by a third party consulting firm selected by Agent, the results
of which are satisfactory to Agent in its sole discretion, which (A) validates
the recent cost reduction measures taken by Borrowers, (B) contains a detailed
cash flow projection that reconciles Borrowers' cash receipts and cash expenses
and (C) sets forth the results of such firm's review of Borrowers' credit memos
for the purpose of determining the composition of the Dilution;
(n) Agent shall have received completed reference checks
with respect to Borrowers' senior management, the results of which are
satisfactory to Agent in its sole discretion;
(o) Agent shall have received copies of searches
satisfactory to Agent respecting each Borrower's trademarks and trademark
applications, and each Borrower's copyrights and copyright applications, with
the United States Patent and Trademark Office and the Copyright Office,
respectively.
(p) Agent shall have received satisfactory evidence that
Borrowers shall have filed applications for registration with the Copyright
Office for each Copyright in each version of the Syteline Software and that
Borrowers have made proper application for, and have paid all necessary fees to,
obtain expedited treatment from the Copyright Office for such applications for
registration;
(q) Agent shall have received Borrowers' Closing Date
Business Plan;
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(r) Borrowers shall pay all Lender Group Expenses incurred
in connection with the transactions evidenced by this Agreement;
(s) Borrowers shall have received all licenses, approvals
or evidence of other actions required by any Governmental Authority in
connection with the execution and delivery by Borrowers of this Agreement or any
other Loan Document or with the consummation of the transactions contemplated
hereby and thereby; and
(t) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to Agent.
3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT.
The obligation of the Lender Group (or any member thereof) to continue to make
Advances (or otherwise extend credit hereunder) is subject to the fulfillment,
on or before the date applicable thereto, of each of the conditions subsequent
set forth below (the failure by Borrowers to so perform or cause to be performed
constituting an Event of Default):
(a) within 30 days of the Closing Date, deliver to Agent
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by SECTION 6.8, the form and substance of which shall
be satisfactory to Agent and its counsel;
(b) as soon as received by a Borrower, but in any event
within 30 days of the Closing Date, Agent shall have received satisfactory
evidence that Borrowers have filed applications for registration for all
Copyrights of Borrowers in each version of the Marketed Software (other than the
Syteline Software required to be registered under clause (p) of Section 3.1)
existing on the Closing Date and that Borrowers have made proper application
for, and have paid all necessary fees to, obtain expedited treatment from the
Copyright Office for such applications for registration;
(c) as soon as received by a Borrower, but in any event
within 30 days of the Closing Date, Agent shall have received satisfactory
evidence that all Copyrights of Borrowers required to be registered under clause
(p) of Section 3.1 have been registered with the Copyright Office and are
specifically encumbered in favor of Agent by the Copyright Security Agreement
which has been filed with the Copyright Office;
(d) as soon as received by a Borrower, but in any event
within 60 days of the Closing Date, Agent shall have received satisfactory
evidence that all Copyrights of Borrowers required to be registered under clause
(b) of Section 3.2 have been registered with the Copyright Office and are
specifically encumbered in favor of Agent by the Copyright Security Agreement
which has been filed with the Copyright Office;
(e) within 30 days of the Closing Date, Agent shall have
received copies of the Personal Property Security Act, tax and judgment Lien
searches in the Province of Ontario in respect of Frontstep Canada, the results
of which are satisfactory to Agent;
(f) within 30 days of the Closing Date, Frontstep Canada
shall have executed and delivered to Agent all Personal Property Security Act
financing statements and any other Additional Documents requested by Agent to
perfect the Agent's Liens on the assets and properties of Frontstep Canada in
the Province of Ontario;
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(g) within 30 days of the Closing Date, Agent shall have
received an opinion of counsel to Frontstep Canada with respect to the
perfection of Agent's Liens on the assets and properties of Frontstep Canada in
the Province of Ontario, which opinion shall be in form and substance
satisfactory to Agent; and
(h) within 30 days of the Closing Date, Agent shall have
received either (i) the Intercreditor Agreement duly executed by Softech and
Parent, (ii) a lien release, in form and substance satisfactory to Agent, duly
executed by Softech, pertaining to the release of Softech's Liens on the
Collateral other than certain specified Equipment financed by Softech or (iii) a
lien release, in form and substance satisfactory to Agent, duly executed by
Softech, pertaining to the release of Softech's Liens on the Collateral.
3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The
obligation of the Lender Group (or any member thereof) to make all Advances (or
to extend any other credit hereunder) shall be subject to the following
conditions precedent:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and
be continuing on the date of such extension of credit, nor shall either result
from the making thereof;
(c) no injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority against
any Borrower, Agent, any Lender, or any of their Affiliates;
(d) Agent shall have received satisfactory evidence that
Borrowers shall have filed applications for registration with the Copyright
Office for each Software copyright acquired or generated by a Borrower after the
Closing Date applicable to any Marketed Software other than Marketed Software
for which Borrowers generate less than $100,000 of Accounts in the aggregate
during any fiscal year of Parent; and
(e) no Material Adverse Change shall have occurred.
3.4 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrowers, Agent, and the Lenders and shall
continue in full force and effect for a term ending on July 17, 2004 (the
"Maturity Date"). The foregoing notwithstanding, the Lender Group, upon the
election of the Required Lenders, shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
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3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrowers with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrowers of their duties,
Obligations, or covenants hereunder and the Agent's Liens in the Collateral
shall remain in effect until all Obligations have been fully and finally
discharged and the Lender Group's obligations to provide additional credit
hereunder have been terminated. When this Agreement has been terminated and all
of the Obligations have been fully and finally discharged and the Lender Group's
obligations to provide additional credit under the Loan Documents have been
terminated irrevocably, Agent will, at Borrowers' sole expense, execute and
deliver any UCC termination statements, lien releases, mortgage releases,
re-assignments of trademarks and copyrights, discharges of security interests,
and other similar discharge or release documents (and, if applicable, in
recordable form) as are reasonably necessary to release, as of record, the
Agent's Liens and all notices of security interests and liens previously filed
by Agent with respect to the Obligations.
3.6 EARLY TERMINATION BY BORROWERS. Borrowers have the option,
at any time upon 90 days prior written notice by Administrative Borrower to
Agent, to terminate this Agreement by paying to Agent, for the benefit of the
Lender Group, in cash, the Obligations (including either (i) providing cash
collateral to be held by Agent for the benefit of those Lenders with a Revolver
Commitment in an amount equal to 105% of the then extant Letter of Credit Usage,
or (ii) causing the original Letters of Credit to be returned to the Issuing
Lender), in full, together with the Applicable Prepayment Premium (to be
allocated based upon letter agreements between Agent and individual Lenders). If
Administrative Borrower has sent a notice of termination pursuant to the
provisions of this Section, then the Commitments shall terminate and Borrowers
shall be obligated to repay the Obligations (including either (i) providing cash
collateral to be held by Agent for the benefit of those Lenders with a Revolver
Commitment in an amount equal to 105% of the then extant Letter of Credit Usage,
or (ii) causing the original Letters of Credit to be returned to the Issuing
Lender), in full, together with the Applicable Prepayment Premium, on the date
set forth as the date of termination of this Agreement in such notice. In the
event of the termination of this Agreement and repayment of the Obligations at
any time prior to the Maturity Date, for any other reason, including (a)
termination upon the election of the Required Lenders to terminate after the
occurrence of an Event of Default, (b) foreclosure and sale of Collateral, (c)
sale of the Collateral in any Insolvency Proceeding, or (iv) restructure,
reorganization or compromise of the Obligations by the confirmation of a plan of
reorganization, or any other plan of compromise, restructure, or arrangement in
any Insolvency Proceeding, then, in view of the impracticability and extreme
difficulty of ascertaining the actual amount of damages to the Lender Group or
profits lost by the Lender Group as a result of such early termination, and by
mutual agreement of the parties as to a reasonable estimation and calculation of
the lost profits or damages of the Lender Group, Borrowers shall pay the
Applicable Prepayment Premium to Agent (to be allocated based upon letter
agreements between Agent and individual Lenders), measured as of the date of
such termination.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants to
Agent, for the benefit of the Lender Group, a continuing security interest
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in all of its right, title, and interest in all currently existing and hereafter
acquired or arising Collateral (except that Agent shall only have a security
interest in sixty-six (66%) percent of the shares of capital stock of each
Borrower's Subsidiaries organized outside of the United States of America) in
order to secure prompt repayment of any and all of the Obligations in accordance
with the terms and conditions of the Loan Documents and in order to secure
prompt performance by Borrowers of each of their covenants and duties under the
Loan Documents. The Agent's Liens in and to the Collateral shall attach to all
Collateral without further act on the part of Agent or Borrowers. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrowers have no authority,
express or implied, to dispose of any item or portion of the Collateral.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, and if
and to the extent that perfection or priority of Agent's security interest is
dependent on or enhanced by possession, the applicable Borrower, immediately
upon the request of Agent, shall endorse and deliver physical possession of such
Negotiable Collateral to Agent.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time after the occurrence and during the
continuation of an Event of Default, Agent or Agent's designee may (a) notify
Account Debtors of Borrowers that the Accounts, chattel paper, or General
Intangibles have been assigned to Agent or that Agent has a security interest
therein, or (b) collect the Accounts, chattel paper, or General Intangibles
directly and charge the collection costs and expenses to the Loan Account. Each
Borrower agrees that it will hold in trust for the Lender Group, as the Lender
Group's trustee, any Collections that it receives and immediately will deliver
said Collections to Agent or a Cash Management Bank in their original form as
received by the applicable Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Agent, Borrowers shall execute and deliver to Agent, any and
all financing statements, original financing statements in lieu of continuation
statements, fixture filings, security agreements, pledges, assignments,
endorsements of certificates of title, and all other documents (the "Additional
Documents") that Agent may request in its Permitted Discretion, in form and
substance satisfactory to Agent, to perfect and continue perfected or better
perfect the Agent's Liens in the Collateral (whether now owned or hereafter
arising or acquired), to create and perfect Liens in favor of Agent in any Real
Property acquired after the Closing Date, and in order to fully consummate all
of the transactions contemplated hereby and under the other Loan Documents. To
the maximum extent permitted by applicable law, each Borrower authorizes Agent
to execute any such Additional Documents in the applicable Borrower's name and
authorize Agent to file such executed Additional Documents in any appropriate
filing office. In addition, on such periodic basis as Agent shall require,
Borrowers shall (a) provide Agent with a report of all new domestic patentable,
copyrightable, or trademarkable materials acquired or generated by Borrowers
during the prior period, (b) cause all domestic patents, copyrights, and
trademarks acquired or generated by Borrowers that are used in or are related to
any Marketed Software and that are not already the subject of a registration
with the appropriate filing office (or an application therefor diligently
prosecuted) to be registered with such appropriate filing office in a manner
sufficient to impart constructive notice of Borrowers' ownership thereof, and
(c) cause to be prepared, executed, and delivered to Agent supplemental
schedules to the
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applicable Loan Documents to identify such patents, copyrights, and trademarks
as being subject to the security interests created thereunder.
4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably makes,
constitutes, and appoints Agent (and any of Agent's officers, employees, or
agents designated by Agent) as such Borrower's true and lawful attorney, with
power to (a) if such Borrower refuses to, or fails to execute and deliver any of
the documents described in SECTION 4.4 within ten (10) days of the delivery of
written notice of such request to such Borrower by Agent, sign the name of such
Borrower on any of the documents described in SECTION 4.4, (b) at any time that
an Event of Default has occurred and is continuing, sign such Borrower's name on
any invoice or bill of lading relating to the Collateral, drafts against Account
Debtors, or notices to Account Debtors, (c) send requests for verification of
Accounts, (d) endorse such Borrower's name on any Collection item that may come
into the Lender Group's possession, (e) at any time that an Event of Default has
occurred and is continuing, make, settle, and adjust all claims under such
Borrower's policies of insurance and make all determinations and decisions with
respect to such policies of insurance, and (f) at any time that an Event of
Default has occurred and is continuing, settle and adjust disputes and claims
respecting the Accounts, chattel paper, or General Intangibles directly with
Account Debtors, for amounts and upon terms that Agent determines to be
reasonable, and Agent may cause to be executed and delivered any documents and
releases that Agent determines to be necessary. The appointment of Agent as each
Borrower's attorney, and each and every one of its rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully and finally repaid and performed and the Lender Group's obligations to
extend credit hereunder are terminated.
4.6 RIGHT TO INSPECT. Agent and each Lender (through any of
their respective officers, employees, or agents) shall have the right, from time
to time hereafter to inspect the Books and to check, test, and appraise the
Collateral in order to verify Borrowers' financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
4.7 CONTROL AGREEMENTS. Each Borrower agrees that it will not
transfer assets out of any Securities Accounts other than as permitted under
SECTION 7.19 and, if to another securities intermediary, unless each of the
applicable Borrower, Agent, and the substitute securities intermediary have
entered into a Control Agreement. No arrangement contemplated hereby or by any
Control Agreement in respect of any Securities Accounts or other Investment
Property shall be modified by Borrowers without the prior written consent of
Agent. Upon the occurrence and during the continuance of a Default or Event of
Default, Agent may notify any securities intermediary to liquidate the
applicable Securities Account or any related Investment Property maintained or
held thereby and remit the proceeds thereof to the Agent's Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this
Agreement, each Borrower makes the following representations and warranties to
the Lender Group which shall be true, correct, and complete, in all material
respects, as of the date hereof, and shall be true, correct, and complete, in
all material respects, as of the Closing Date, and at and as of the date of the
making of each Advance (or other extension of credit) made thereafter, as though
made on and
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as of the date of such Advance (or other extension of credit) (except to the
extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO ENCUMBRANCES. Each Borrower has good and indefeasible
title to its Collateral and the Real Property, free and clear of Liens except
for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing payment obligations of Account Debtors that arise out of Borrowers'
sale or licensing of Software or rendition of training, installation and/or
other related consulting services to such Account Debtors in the ordinary course
of Borrowers' business, owed to Borrowers without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. As to each Eligible Account,
such Account is not:
(a) owed by an employee, Affiliate, or agent (other than
an authorized distributor of a Borrower's Marketed Software that is not an
Affiliate of a Borrower) of a Borrower,
(b) on account of a transaction wherein goods were placed
on consignment or were sold pursuant to a guaranteed sale, a sale or return, a
sale on approval, a bill and hold, or on any other terms by reason of which the
payment by the Account Debtor may be conditional,
(c) payable in a currency other than Dollars,
(d) owed by an Account Debtor that has or has asserted a
right of setoff, has disputed its liability, or has made any claim with respect
to its obligation to pay the Account,
(e) owed by an Account Debtor that is subject to any
Insolvency Proceeding or is not Solvent or as to which a Borrower has received
notice of an imminent Insolvency Proceeding or a material impairment of the
financial condition of such Account Debtor,
(f) on account of a transaction as to which the goods
giving rise to such Account have not been shipped and billed to the Account
Debtor or the services giving rise to such Account have not been performed and
accepted by the Account Debtor,
(g) a right to receive progress payments or other advance
billings that are due prior to the completion of performance by the applicable
Borrower of the subject contract for goods or services, and
(h) an Account that has not been billed to the customer.
5.3 [Intentionally Omitted]
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrowers' business and is fit for such purposes.
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5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party and are
located only at the locations identified on Schedule 5.5.
5.6 INVENTORY RECORDS. Each Borrower keeps correct and
accurate records itemizing and describing the type, quality, and quantity of its
Inventory and the book value thereof.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of each Borrower is located at the address indicated in
Schedule 5.7 and each Borrower's FEIN is identified in Schedule 5.7.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Borrower is duly organized and existing and in
good standing under the laws of the jurisdiction of its organization and
qualified to do business in any state where the failure to be so qualified
reasonably could be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8(b), is a complete and
accurate description of the authorized capital Stock of each Borrower, by class,
and, as of the Closing Date, a description of the number of shares of each such
class that are issued and outstanding. Other than as described on Schedule
5.8(b), there are no subscriptions, options, warrants, or calls relating to any
shares of each Borrower's capital Stock, including any right of conversion or
exchange under any outstanding security or other instrument. No Borrower is
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital Stock or any security convertible
into or exchangeable for any of its capital Stock. The Parent has reserved, out
of its authorized but unissued Common Stock, a sufficient number of shares of
Common Stock to permit Foothill to purchase shares of the Warrants Stock in
accordance with the Warrants.
(c) Set forth on Schedule 5.8(c), is a complete and
accurate list of each Borrower's direct and indirect Subsidiaries, showing: (i)
the jurisdiction of their organization; (ii) the number of shares of each class
of common and preferred Stock authorized for each of such Subsidiaries; and
(iii) the number and the percentage of the outstanding shares of each such class
owned directly or indirectly by the applicable Borrower. All of the outstanding
capital Stock of each such Subsidiary has been validly issued and is fully paid
and non-assessable.
(d) Except as set forth on Schedule 5.8(c), there are no
subscriptions, options, warrants, or calls relating to any shares of any
Borrower's Subsidiaries' capital Stock, including any right of conversion or
exchange under any outstanding security or other instrument. No Borrower or any
of its respective Subsidiaries is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of any
Borrower's Subsidiaries' capital Stock or any security convertible into or
exchangeable for any such capital Stock.
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5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) As to each Borrower, the execution, delivery, and
performance by such Borrower of this Agreement and the Loan Documents to which
it is a party have been duly authorized by all necessary action on the part of
such Borrower.
(b) As to each Borrower, the execution, delivery, and
performance by such Borrower of this Agreement and the Loan Documents to which
it is a party do not and will not (i) violate any provision of federal, state,
or local law or regulation applicable to any Borrower, the Governing Documents
of any Borrower, or any order, judgment, or decree of any court or other
Governmental Authority binding on any Borrower, (ii) conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation of any Borrower, (iii) result in or
require the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of Borrower, other than Permitted Liens, or (iv) require
any approval of any Borrower's interest holders or any approval or consent of
any Person under any material contractual obligation of any Borrower.
(c) Other than the filing of financing statements, the
execution, delivery, and performance by each Borrower of this Agreement and the
Loan Documents to which such Borrower is a party do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any Governmental Authority or other Person.
(d) As to each Borrower, this Agreement and the other Loan
Documents to which such Borrower is a party, and all other documents
contemplated hereby and thereby, when executed and delivered by such Borrower
will be the legally valid and binding obligations of such Borrower, enforceable
against such Borrower in accordance with their respective terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.
(e) The Agent's Liens are validly created, perfected, and
first priority Liens, subject only to Permitted Liens
5.10 LITIGATION. Other than those matters disclosed on
Schedule 5.10, there are no actions, suits, or proceedings pending or, to the
best knowledge of Borrowers, threatened against Borrowers, or any of their
Subsidiaries, as applicable, except for (a) matters that are fully covered by
insurance (subject to customary deductibles), and (b) matters that, if decided
adversely to Borrowers, or any of their Subsidiaries, as applicable, reasonably
could not be expected to result in a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrowers that have been delivered by Borrowers to the Lender Group
have been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and present fairly in all material respects, Borrowers'
financial condition as of the date thereof and results of operations for the
period then ended. There has not been a Material Adverse Change with respect to
Borrowers
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since the date of the latest financial statements submitted to the Lender Group
on or before the Closing Date.
5.12 FRAUDULENT TRANSFER.
(a) each Borrower is Solvent.
(b) No transfer of property is being made by any Borrower
and no obligation is being incurred by any Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of
Borrowers.
5.13 EMPLOYEE BENEFITS. None of Borrowers, any of their
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan.
5.14 ENVIRONMENTAL CONDITION. Except as set forth on Schedule
5.14, (a) to Borrowers' knowledge, none of Borrowers' properties or assets has
ever been used by Borrowers or by previous owners or operators in the disposal
of, or to produce, store, handle, treat, release, or transport, any Hazardous
Materials, where such production, storage, handling, treatment, release or
transport was in violation, in any material respect, of applicable Environmental
Law, (b) to Borrowers' knowledge, none of Borrowers' properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, (c) none of Borrowers
have received notice that a Lien arising under any Environmental Law has
attached to any revenues or to any Real Property owned or operated by Borrowers,
and (d) none of Borrowers have received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by any Borrower resulting
in the releasing or disposing of Hazardous Materials into the environment.
5.15 BROKERAGE FEES. Borrowers have not utilized the services
of any broker or finder in connection with Borrowers' obtaining financing from
the Lender Group under this Agreement other than US Bank/Libra, and no brokerage
commission or finders fee is payable by Borrowers in connection herewith except
to US Bank/Libra.
5.16 INTELLECTUAL PROPERTY. (a) Each Borrower owns, or holds
appropriate licenses in, all Intellectual Property that is necessary to the
conduct of its business as currently conducted (collectively, the "BUSINESS
INTELLECTUAL PROPERTY"). Attached hereto as Schedule 5.16(a) is a true, correct,
and complete listing of all registered or material unregistered Business
Intellectual Property with respect to which any Borrower is the owner or is an
exclusive licensee (with all such Business Intellectual Property being
identified as a Patent, Trademark, Trade Secret, or Copyright, as the case may
be). Schedule 5.16(a) designates any of the Business Intellectual Property as to
which a Borrower is an exclusive licensee.
(b) Except as set forth in Schedule 5.16(a):
(i) a Borrower is the sole owner of the Business
Intellectual Property, free and clear of any Lien (other than in favor
of Agent) without the payment of any monies or royalty except with
respect to off-the-shelf software;
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(ii) each Borrower has taken, and will continue to
take, all actions which are necessary or advisable to acquire and
protect the Business Intellectual Property, consistent with prudent
commercial practices, including without limitation: (x) registering all
domestic Copyrights (as defined in the Copyright Security Agreement and
included within the Business Intellectual Property) applicable to any
Marketed Software in the Copyright Office, and (y) registering all
domestic Trademarks (as defined in the Trademark Security Agreement and
included within the Business Intellectual Property) applicable to any
Marketed Software in the United States Patent and Trademark Office;
(iii) each Borrower's rights in and to the Business
Intellectual Property are valid and enforceable;
(iv) none of the Borrowers has received a demand,
claim, notice or inquiry from any Person in respect of the Business
Intellectual Property which challenges, threatens to challenge or
inquiries as to whether there is any basis to challenge, the validity
of, the rights of a Borrower in or the right of a Borrower to use, any
such Business Intellectual Property, and Borrowers know of no basis for
any such challenge;
(v) no claim has been threatened or asserted that any
Borrower has violated or infringed upon the Intellectual Property
rights of any Person and, to the knowledge of each Borrower, no
Borrower is in violation or infringement of, and has not violated or
infringed any proprietary rights of any other Person;
(vi) to the knowledge of each Borrower, no Person is
infringing any Business Intellectual Property;
(vii) except between and among Borrowers and their
Subsidiaries and except on an arm's-length basis for value and other
commercially reasonable terms, none of the Borrowers has granted any
license with respect to any Intellectual Property to any Person;
(viii) all versions of Software sold, marketed,
distributed, licensed or maintained by any Borrower on and after the
Closing Date, including without limitation the Syteline Software, and
all Software pursuant to which a Borrower generates Accounts
(collectively, the "MARKETED SOFTWARE") (A) were authored by regular
employees of such Borrower within the scope of their employment and
such Borrower was thus the original author pursuant to the work made
for hire doctrine, or (B) are software products which such Borrower
licenses from providers thereof with all necessary rights to resell or
sublicense to third parties;
(ix) subject to paragraphs (c) and (d) of SECTION
3.2, Borrowers have registered copyrights in the Copyright Office in
all versions of the Marketed Software owned by any Borrower.
(x) the Borrowers have taken all reasonable measures
to protect the secrecy, confidentiality and value of all confidential
and proprietary
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information, trade secrets and know-how used in their respective
businesses, including without limitation in connection with the
Syteline Software (collectively, "TRADE SECRETS") (including, without
limitation, entering into appropriate confidentiality agreements with
all officers, directors, employees, and other Persons with access to
the Trade Secrets). Except as set forth on Schedule 5.16(a) hereto, the
Trade Secrets have not been disclosed to any Persons other than the
Borrower' employees or contractors who had a need to know and use such
Trade Secrets in the ordinary course of employment or contract
performance and who executed appropriate confidentiality agreements
prohibiting unauthorized disclosure of such Trade Secrets.
(c) With respect to all Software used by any Borrower,
including the Marketed Software, (i) such Borrower is in possession of copies of
all source and object codes, other than Software owned by third parties and
licensed to such Borrower, and (ii) all such source and object codes are
proprietary information of a Borrower, other than such source and object codes
relating to Software owned by third parties and licensed to such Borrower.
(d) Schedule 5.16(d) hereto sets forth a true and
complete list of all material versions of the Software known currently as
"Syteline" in existence as of the Closing Date, including all versions currently
being sold, licensed, distributed, marketed or maintained by any Borrower (the
"SYTELINE SOFTWARE").
(e) Schedule 5.16(e) hereto contains a breakdown by
Marketed Software of the maintenance revenues generated by Borrowers as of the
Closing Date.
(f) Schedule B to the Copyright Security Agreement
includes a true and complete list of the Syteline Software and, on and after the
30th day following the Closing Date, all other Marketed Software, as such
Schedule B is modified from time to time in accordance with the terms of the
Copyright Security Agreement, including all prior versions of Software for which
any version of the Marketed Software constitutes a derivative work under U.S.
copyright law, the names of all Persons having contributed in the creation of
each such version, and the dates of creation for each such version.
5.17 LEASES. Borrowers enjoy peaceful and undisturbed
possession under all leases material to the business of Borrowers and to which
Borrowers are a party or under which Borrowers are operating. All of such leases
are valid and subsisting and no material default by Borrowers exists under any
of them.
5.18 DDAS. Set forth on Schedule 5.18 are all of the DDAs
of each Borrower, including, with respect to each depository (i) the name and
address of that depository, and (ii) the account numbers of the accounts
maintained with such depository.
5.19 COMPLETE DISCLOSURE. All factual information (taken
as a whole) furnished by or on behalf of Borrowers in writing to Agent or any
Lender (including all information contained in the Schedules hereto or in the
other Loan Documents) for purposes of or in connection with this Agreement, the
other Loan Documents or any transaction contemplated herein or therein is, and
all other such factual information (taken as a whole) hereafter furnished by or
on behalf of Borrowers in writing to the Agent or any Lender will be,
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true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided. On the Closing Date, the Closing Date Projections
represent, and as of the date on which any other Projections are delivered to
Agent, such additional Projections represent Borrowers' good faith best estimate
of its future performance for the periods covered thereby.
5.20 INDEBTEDNESS. Set forth on Schedule 5.20 is a true and
complete list of all Indebtedness of each Borrower outstanding immediately prior
to the Closing Date that is to remain outstanding after the Closing Date and
such Schedule accurately reflects the aggregate principal amount of such
Indebtedness and the principal terms thereof.
5.21 MAINTENANCE CONTRACTS. Each Maintenance Contract entered
into by a Borrower is substantially in the form attached hereto as EXHIBIT M-1.
6. AFFIRMATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrowers shall and shall cause each of their respective
Subsidiaries to do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that
enables Borrowers to produce financial statements in accordance with GAAP and
maintain records pertaining to the Collateral that contain information as from
time to time reasonably may be requested by Agent.
6.2 COLLATERAL REPORTING. Provide Agent (and if so requested
by Agent, with copies for each Lender) with the following documents at the
following times in form satisfactory to Agent:
================================================================================
Daily (a) a sales journal, collection journal, and
credit register since the last such schedule and
a calculation of the Borrowing Base as of such
date, and
(b) notice of all returns, disputes, or claims.
--------------------------------------------------------------------------------
Monthly (not later (c) a detailed calculation of the Borrowing Base
than the (including detail regarding those
10th day of Accounts that are not Eligible Accounts),
each month)
(d) a detailed aging, by total, of the Accounts,
together with a reconciliation to the detailed
calculation of the Borrowing Base previously
provided to Agent,
(e) a summary aging, by vendor, of Borrowers'
accounts payable and any book overdraft,
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
(f) a calculation of Dilution for the prior month,
and
(g) a list of any software license agreements,
Maintenance Contracts or other agreements giving
rise to Accounts of a Borrower which contain
proscriptions of, or limitations on, a Borrower's
right to assign such agreements.
--------------------------------------------------------------------------------
Quarterly (h) a detailed list of each Borrower's customers,
(i) a report regarding each Borrower's accrued, but
unpaid, ad valorem taxes,
--------------------------------------------------------------------------------
Upon request by (j) copies of invoices in connection with the
Agent Accounts, credit memos, remittance advices,
deposit slips, shipping and delivery documents in
connection with the Accounts and, for Inventory
and Equipment acquired by Borrowers, purchase
orders and invoices, and
(k) such other reports as to the Collateral, or the
financial condition of Borrowers as Agent may
request.
================================================================================
In addition, each Borrower agrees to cooperate fully with
Agent to facilitate and implement a system of electronic collateral reporting in
order to provide electronic reporting of each of the items set forth above.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Agent, with copies to each Lender:
(a) as soon as available, but in any event within 30 days
(45 days in the case of a month that is the end of one of the first 3 fiscal
quarters in a fiscal year) after the end of each month during each of Parent's
fiscal years,
(i) a company prepared consolidated balance sheet,
income statement, and statement of cash flow covering Parent's and its
Subsidiaries' operations during such period,
(ii) a certificate signed by the chief financial
officer of Parent to the effect that:
A. the financial statements delivered hereunder
have been prepared in accordance with GAAP (except for the
lack of footnotes and being subject to year-end audit
adjustments) and fairly present in all material respects
the financial condition of Parent and its Subsidiaries,
provided that the financial statements for any month
(other than a month that is the end of a fiscal quarter)
are not required to be prepared in accordance with GAAP,
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B. the representations and warranties of
Borrowers contained in this Agreement and the other Loan
Documents are true and correct in all material respects on
and as of the date of such certificate, as though made on
and as of such date (except to the extent that such
representations and warranties relate solely to an earlier
date), and
C. there does not exist any condition or event
that constitutes a Default or Event of Default (or, to the
extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge
and what action Borrowers have taken, are taking, or
propose to take with respect thereto), and
(iii) for each month that is the date on which a
financial covenant in SECTION 7.20 is to be tested, a Compliance
Certificate demonstrating, in reasonable detail, compliance at the end
of such period with the applicable financial covenants contained in
SECTION 7.20, and
(b) as soon as available, but in any event within 90 days
after the end of each of Parent's fiscal years,
(i) financial statements of Parent and its
Subsidiaries for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Agent and
certified, without any qualifications, by such accountants to have been
prepared in accordance with GAAP (such audited financial statements to
include a balance sheet, income statement, and statement of cash flow
and, if prepared, such accountants' letter to management),
(ii) a certificate of such accountants addressed to
Agent and the Lenders stating that such accountants do not have
knowledge of the existence of any Default or Event of Default under
SECTION 7.20,
(c) as soon as available, but in any event within 30 days
prior to the start of each of Parent's fiscal years,
(i) copies of Borrowers' Projections, in form and
substance (including as to scope and underlying assumptions)
satisfactory to Agent, in its sole discretion, for the forthcoming 3
years, year by year, and for the forthcoming fiscal year, month by
month, certified by the chief financial officer of Parent as being such
officer's good faith best estimate of the financial performance of
Parent and its Subsidiaries during the period covered thereby,
(d) if and when filed by any Borrower,
(i) 10-Q quarterly reports, Form 10-K annual reports,
and Form 8-K current reports,
(ii) any other filings made by any Borrower with the
SEC,
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(iii) copies of Borrowers' federal income tax returns,
and any amendments thereto, filed with the Internal Revenue Service,
and
(iv) any other information that is provided by Parent
to its shareholders generally,
(e) if and when filed by any Borrower and as requested by
Agent, satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which (i) any Borrower conducts business or is required to pay
any such excise tax, (ii) where any Borrower's failure to pay any such
applicable excise tax would result in a Lien on the properties or assets of any
Borrower, or (iii) where any Borrower's failure to pay any such applicable
excise tax reasonably could be expected to result in a Material Adverse Change,
(f) if and when filed by the Parent, but in any event by
September 30, 2001, a copy of the certificate of merger or other applicable
document filed with the Secretary of State of the State of Ohio in respect of
the merger of brightwhite with and into the Parent in accordance with SECTION
6.13;
(g) promptly, but in any event within 3 Business Days
after the release of any deposit materials under any agreement between DSI and
any Borrower or any of their respective predecessors including, without
limitation, that certain Sourceflex Software Source Code Escrow Agreement -
Sourcefile Number 7470 between FileSafe, Inc. and Symix Computer Systems, Inc.,
notice of the release of such deposit materials,
(h) as soon as a Borrower has knowledge of any event or
condition that constitutes a Default or an Event of Default, notice thereof and
a statement of the curative action that Borrowers propose to take with respect
thereto, and
(i) upon the request of Agent, any other report reasonably
requested relating to the financial condition of Borrowers.
In addition to the financial statements referred to above, Borrowers agree to
deliver financial statements prepared on both a consolidated and consolidating
basis and that no Borrower, or any Subsidiary of a Borrower, will have a fiscal
year different from that of Parent. Borrowers agree that their independent
certified public accountants are authorized to communicate with Agent and to
release to Agent whatever financial information concerning Borrowers that Agent
reasonably may request. Each Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Agent pursuant to or in accordance
with this Agreement, and agree that Agent may contact directly any such
accounting firm or service bureau in order to obtain such information.
6.4 [INTENTIONALLY OMITTED]
6.5 RETURN. Cause returns and allowances as between Borrowers
and their Account Debtors, to be on the same basis and in accordance with the
usual customary practices of the applicable Borrower, as they exist at the time
of the execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to any Borrower, the applicable Borrower promptly shall determine
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the reason for such return and, if the applicable Borrower accepts such return,
issue a credit memorandum (with a copy to be sent to Agent) in the appropriate
amount to such Account Debtor. If, at a time when an Event of Default has
occurred and is continuing, any Account Debtor returns any Inventory to any
Borrower, the applicable Borrower promptly shall determine the reason for such
return and, if Agent consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to Agent) in the
appropriate amount to such Account Debtor.
6.6 MAINTENANCE OF PROPERTIES. Maintain and preserve all of
its properties which are necessary or useful in the proper conduct to its
business in good working order and condition, ordinary wear and tear excepted,
and comply at all times with the provisions of all leases to which it is a party
as lessee, so as to prevent any loss or forfeiture thereof or thereunder.
6.7 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Borrowers or any of their assets to be paid in full, before delinquency
or before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a Permitted Protest.
Borrowers will make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Agent with proof satisfactory to
Agent indicating that the applicable Borrower has made such payments or
deposits. Borrowers shall deliver satisfactory evidence of payment of applicable
excise taxes in each jurisdictions in which any Borrower is required to pay any
such excise tax.
6.8 INSURANCE.
(a) At Borrowers' expense, maintain insurance respecting
its property and assets wherever located, covering loss or damage by fire,
theft, explosion, and all other hazards and risks as ordinarily are insured
against by other Persons engaged in the same or similar businesses. Borrowers
also shall maintain business interruption, public liability, and product
liability insurance, as well as insurance against larceny, embezzlement, and
criminal misappropriation. All such policies of insurance shall be in such
amounts and with such insurance companies as are reasonably satisfactory to
Agent. Borrowers shall deliver copies of all such policies to Agent with a
satisfactory lender's loss payable endorsement naming Agent as sole loss payee
or additional insured, as appropriate. Each policy of insurance or endorsement
shall contain a clause requiring the insurer to give not less than 30 days prior
written notice to Agent in the event of cancellation of the policy for any
reason whatsoever.
(b) Administrative Borrower shall give Agent prompt notice
of any loss covered by such insurance. Agent shall have the exclusive right to
adjust any losses payable under any such insurance policies in excess of
$50,000, without any liability to Borrowers whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy mentioned above (other than liability insurance policies) or as payment
of any award or compensation for condemnation or taking by eminent domain, shall
be paid over to Agent to be applied at the option of the Required Lenders either
to the prepayment of the Obligations or shall be disbursed to Administrative
Borrower under staged payment terms reasonably satisfactory to the Required
Lenders for application to the cost of repairs,
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replacements, or restorations. Any such repairs, replacements, or restorations
shall be effected with reasonable promptness and shall be of a value at least
equal to the value of the items or property destroyed prior to such damage or
destruction.
(c) Borrowers shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this SECTION 6.8, unless Agent is included thereon as named
insured with the loss payable to Agent under a lender's loss payable endorsement
or its equivalent. Administrative Borrower immediately shall notify Agent
whenever such separate insurance is taken out, specifying the insurer thereunder
and full particulars as to the policies evidencing the same, and copies of such
policies promptly shall be provided to Agent.
6.9 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory
and Equipment only at the locations identified on Schedule 5.5; PROVIDED,
HOWEVER, that Administrative Borrower may amend Schedule 5.5 so long as such
amendment occurs by written notice to Agent not less than 30 days prior to the
date on which the Inventory or Equipment is moved to such new location, so long
as such new location is within the continental United States, and so long as, at
the time of such written notification, the applicable Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Agent's Liens on such assets and also provides to Agent a
Collateral Access Agreement.
6.10 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental Authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not result in and reasonably could not
be expected to result in a Material Adverse Change.
6.11 LEASES. Pay when due all rents and other amounts payable
under any leases to which any Borrower is a party or by which any Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest.
6.12 BROKERAGE COMMISSIONS. Pay any and all brokerage
commission or finders fees incurred in connection with or as a result of
Borrowers' obtaining financing from the Lender Group under this Agreement.
Borrowers agree and acknowledge that payment of all such brokerage commissions
or finders fees shall be the sole responsibility of Borrowers, and each Borrower
agrees to indemnify, defend, and hold Agent and the Lender Group harmless from
and against any claim of any broker or finder arising out of Borrowers'
obtaining financing from the Lender Group under this Agreement.
6.13 EXISTENCE. At all times preserve and keep in full force
and effect each Borrower's valid existence and good standing and any rights and
franchises material to Borrowers' businesses, except that brightwhite shall be
merged with and into the Parent on or before September 30, 2001.
6.14 ENVIRONMENTAL.
(a) Keep any property either owned or operated by any
Borrower free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the
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obligations or liability evidenced by such Environmental Liens, (b) comply, in
all material respects, with Environmental Laws and provide to Agent
documentation of such compliance which Agent reasonably requests, (c) promptly
notify Agent of any release of a Hazardous Material of any reportable quantity
from or onto property owned or operated by any Borrower and take any Remedial
Actions required to abate said release or otherwise to come into compliance with
applicable Environmental Law, and (d) promptly provide Agent with written notice
within 10 days of the receipt of any of the following: (i) notice that an
Environmental Lien has been filed against any of the real or personal property
of any Borrower, (ii) commencement of any Environmental Action or notice that an
Environmental Action will be filed against any Borrower, and (iii) notice of a
violation, citation, or other administrative order which reasonably could be
expected to result in a Material Adverse Change.
6.15 DISCLOSURE UPDATES. Promptly and in no event later than 5
Business Days after obtaining knowledge thereof, (a) notify Agent if any written
information, exhibit, or report furnished to the Lender Group contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made, and (b) correct any material defect or error
that may be discovered therein or in any Loan Document or in the execution,
acknowledgement, filing, or recordation thereof.
6.16 INTELLECTUAL PROPERTY. Comply with its continuing
obligations described in SECTION 5.16, the Copyright Security Agreement and the
Trademark Security Agreement.
6.17 COPYRIGHT REGISTRATIONS; DEPOSIT MATERIALS.
(a) No less frequently than once per calendar quarter,
but in any event prior to the generation of any Accounts from the marketing,
sale, license or distribution of computer software products or other Copyrights,
unless Agent in Agent's sole discretion agrees otherwise, each Borrower shall
(i) cause all domestic Copyrights that are used in or related to any Marketed
Software owned by a Borrower that are not already the subject of a registration
with the Copyright Office to be registered with the Copyright Office in a manner
sufficient to impart constructive notice of such Borrower's ownership thereof
which obligation may be satisfied by such Borrower by filing applications for
registration in proper form for filing with the Copyright Office and otherwise
making proper application for, and paying all fees necessary to obtain,
expedited treatment from the Copyright Office for registration of the Copyrights
related to such applications for registration, and (ii) cause to be prepared,
executed, and filed with the Copyright Office, an amendment to Copyright
Security Agreement substantially in the form of Schedule C to the Copyright
Security Agreement, with supplemental schedules reflecting the security interest
of Agent in such new copyrights, which shall be in form and content suitable for
registration with the Copyright Office so as to give constructive notice of the
transfer by such Borrower to Agent of a security interest in such Copyrights
and, in any event, substantially in the form of Schedule C to the Copyright
Security Agreement. Agent agrees to file the amendment to Copyright Security
Agreement encumbering specific copyrights with the Copyright Office promptly
upon receipt of notice by a Borrower of all information necessary to file such
amendment to Copyright Security Agreement.
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(b) Prior to the generation of any Accounts from the
marketing, sale, license or distribution of any Software (including any new
version of any Marketed Software), each Borrower shall cause all versions of
such Software to be deposited in escrow with DSI in accordance with Section 1.7
of the Source Code Escrow Agreement.
6.18 MAINTENANCE CONTRACTS. Enter into Maintenance Contracts
that are substantially in the form attached hereto as EXHIBIT M-1.
7. NEGATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrowers will not and will not permit any of their respective
Subsidiaries to do any of the following:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the other
Loan Documents, together with Indebtedness owed to Underlying Issuers with
respect to Underlying Letters of Credit;
(b) Indebtedness set forth on SCHEDULE 5.20;
(c) Permitted Purchase Money Indebtedness;
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this SECTION 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the terms
and conditions of such refinancings, renewals, or extensions do not, in Agent's
judgment, materially impair the prospects of repayment of the Obligations by
Borrowers or materially impair Borrowers' creditworthiness, (ii) such
refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate with respect to, the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions, that, taken as a whole, are materially more burdensome or
restrictive to the applicable Borrower, (iv) if the Indebtedness that is
refinanced, renewed, or extended was subordinated in right of payment to the
Obligations, then the terms and conditions of the refinancing, renewal, or
extension Indebtedness must be include subordination terms and conditions that
are at least as favorable to the Lender Group as those that were applicable to
the refinanced, renewed, or extended Indebtedness, and (v) no Indebtedness owing
to Softech is refinanced, renewed or extended by Softech or any Affiliate
thereof;
(e) Indebtedness owing by a Borrower to another Borrower,
provided that such Indebtedness is subject to the terms of the Intercompany
Subordination Agreement; and
(f) Indebtedness outstanding under the PSI Notes in an
aggregate principal amount not to exceed $1,573,413 at any one time outstanding,
provided that Parent shall not make any payments of principal or interest on the
PSI Notes if, at the time of making
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any such payment and immediately after giving effect thereto, a Default or Event
of Default shall exist; and
(g) Indebtedness comprising Permitted Investments.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under SECTION 7.1(d) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES.
(a) Enter into any merger, consolidation, reorganization,
or recapitalization, or reclassify its Stock.
(b) Liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution).
(c) Convey, sell, lease, license, assign, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its assets.
Clauses (a), (b) and (c) of this SECTION 7.3 shall not apply to the merger or
consolidation of brightwhite with and into the Parent in accordance with SECTION
6.13.
7.4 DISPOSAL OF ASSETS. Other than Permitted Dispositions,
convey, sell, lease, license, assign, transfer, or otherwise dispose of any of
the assets of any Borrower.
7.5 CHANGE NAME. Change any Borrower's name, FEIN, corporate
structure or identity, or add any new fictitious name; PROVIDED, HOWEVER, that a
Borrower may change its name upon at least 30 days prior written notice by
Administrative Borrower to Agent of such change and so long as, at the time of
such written notification, such Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected Agent's Liens.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except (a) by endorsement of
instruments or items of payment for deposit to the account of Borrowers or which
are transmitted or turned over to Agent and (b) for guarantees of Indebtedness
permitted under SECTION 7.1.
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7.7 NATURE OF BUSINESS. Engage in any business other than the
business of providing integrated enterprise software solutions for mid-sized
manufacturing and distribution companies and business units of larger companies,
including e-commerce, e-procurement, enterprise resource planning, supply chain
and CRM solutions and other activities necessary to conduct the foregoing.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
SECTION 7.1(d), prepay, redeem, defease, purchase, or otherwise acquire any
Indebtedness of any Borrower, other than the Obligations in accordance with this
Agreement; provided, however, any Borrower or any of its Subsidiaries may prepay
Indebtedness owing by such Person to any Borrower, and
(b) Except in connection with a refinancing permitted by
SECTION 7.1(d), directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under SECTIONS 7.1(b), (c), (e) OR (f).
(c) Amend, modify or otherwise change (i) the Governing
Documents of any Borrower, including, without limitation, by the filing or
modification of any certificate of designation, or (ii) any agreement or
arrangement entered into by it with respect to any of its Stock (including any
shareholders' agreement), or enter into any new agreement with respect to the
Stock of any Borrower, except any such amendments, modifications or changes or
any such new agreements or arrangements pursuant to clause (ii) of this
paragraph (c) that either individually or in the aggregate, could not reasonably
be expected (A) to have a Material Adverse Effect, (B) to have an adverse impact
on the Warrants or the Registration Rights Agreement, or (C) to impair any
Borrower's ability to conduct any aspect of its business or perform or satisfy
any representation, warranty or covenant contained in this Agreement or any
other Loan Document.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory
on bill and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or other property, other than Common Stock) on, or
purchase, acquire, redeem, or retire any of any Borrower's Stock, of any class,
whether now or hereafter outstanding, other than (a) distributions or
declaration and payment of dividends by a Borrower to another Borrower or by a
Subsidiary of a Borrower to any Borrower, (b) the issuance of Common Stock
pursuant to Parent's employee compensation or benefit plans which have been
approved by Parent's Board of Directors, (c) the conversion of Parent's
preferred Stock into shares of its Common Stock or (d) the issuance of shares of
Parent's Common Stock upon the exercise of Parent's warrants outstanding as of
the Closing Date (including the Warrants).
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7.12 ACCOUNTING METHODS. Modify or change its method of
accounting (other than as may be required to conform to GAAP) or enter into,
modify, or terminate any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service bureau for the
preparation or storage of Borrowers' accounting records without said accounting
firm or service bureau agreeing to provide Agent information regarding the
Collateral or Borrowers' financial condition.
7.13 INVESTMENTS. Except for Permitted Investments, directly
or indirectly, make or acquire any Investment, or incur any liabilities
(including contingent obligations) for or in connection with any Investment;
PROVIDED, HOWEVER, that Borrowers shall not have Permitted Investments (other
than in the Cash Management Accounts) in excess of $500,000 outstanding at any
one time unless the applicable Borrower and the applicable securities
intermediary or bank have entered into Control Agreements or similar
arrangements governing such Permitted Investments, as Agent shall determine in
its Permitted Discretion, to perfect (and further establish) the Agent's Liens
in such Permitted Investments.
7.14 TRANSACTIONS WITH AFFILIATES. Except for agreements set
forth on Schedule 7.14 or transactions among the Borrowers, directly or
indirectly enter into or permit to exist any transaction with any Affiliate of
any Borrower except for transactions that are in the ordinary course of
Borrowers' business, upon fair and reasonable terms, that are fully disclosed to
Agent, and that are no less favorable to Borrowers than would be obtained in an
arm's length transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.16 COMPENSATION. Increase the annual fee or per-meeting fees
paid to the members of its Board of Directors during any year by more than 15%
over the prior year; pay or accrue total cash compensation, during any year, to
its officers and senior management employees in an aggregate amount in excess of
115% of that paid or accrued in the prior year except pursuant to employee
compensation packages approved by Parent's Board of Directors or the
compensation committee of Parent's Board of Directors that are either (i)
disclosed in filings made by Parent with the SEC, if required, copies of which
have been furnished to Agent in accordance with SECTION 6.3(d) or (ii) in the
event any such compensation package is not disclosed in filings made by Parent
with the SEC, copies of such compensation package have been furnished by Parent
to Agent.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the
Term Loan for any purpose other than (a) on the Closing Date, (i) to repay in
full the outstanding principal, accrued interest, and accrued fees and expenses
owing to Existing Lender, (ii) to pay amounts due and payable under the PSI
Notes to the extent permitted hereunder, and (iii) to pay transactional fees,
costs, and expenses incurred in connection with this Agreement, the other Loan
Documents, and the transactions contemplated hereby and thereby, and (b)
thereafter, consistent with the terms and conditions hereof, for its lawful and
permitted purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new
location without Administrative Borrower providing 30 days prior written
notification thereof to Agent and so
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long as, at the time of such written notification, the applicable Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected the Agent's Liens and also provides to Agent a Collateral
Access Agreement with respect to such new location. The Inventory and Equipment
shall not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party without Agent's prior written consent.
7.19 SECURITIES ACCOUNTS. Establish or maintain any Securities
Account unless Agent shall have received a Control Agreement in respect of such
Securities Account. Borrowers agree to not transfer assets out of any Securities
Account; PROVIDED, HOWEVER, that, so long as no Event of Default has occurred
and is continuing or would result therefrom, Borrowers may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement.
7.20 FINANCIAL COVENANTS.
(a) Fail to maintain:
(i) MINIMUM EBITDA. EBITDA, measured on a fiscal
quarter-end basis, of not less than the required amount set forth in
the following table for the applicable period set forth opposite
thereto:
----------------------------------------------------------------------------------------------------
APPLICABLE AMOUNT APPLICABLE PERIOD
----------------------------------------------------------------------------------------------------
$(20,500,000) For the 12 month period ending
June 30, 2001
----------------------------------------------------------------------------------------------------
$3,000,000 For the 3 month period ending
September 30, 2001
----------------------------------------------------------------------------------------------------
$6,600,000 For the 6 month period ending
December 31, 2001
----------------------------------------------------------------------------------------------------
$8,500,000 For the 9 month period ending
March 31, 2002
----------------------------------------------------------------------------------------------------
$11,300,000 For the 12 month period ending
June 30, 2002
----------------------------------------------------------------------------------------------------
$12,000,000 For the 12 month period ending
each fiscal quarter thereafter
----------------------------------------------------------------------------------------------------
(ii) TANGIBLE NET WORTH. Tangible Net Worth of at
least the required amount set forth in the following table as of the
applicable date set forth opposite thereto:
----------------------------------------------------------------------------------------------------
APPLICABLE AMOUNT APPLICABLE DATE
----------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------
APPLICABLE AMOUNT APPLICABLE DATE
----------------------------------------------------------------------------------------------------
$10,100,000 June 30, 2001
----------------------------------------------------------------------------------------------------
$12,500,000 September 30, 2001
----------------------------------------------------------------------------------------------------
$14,500,000 December 31, 2001
----------------------------------------------------------------------------------------------------
$15,400,000 March 31, 2002
----------------------------------------------------------------------------------------------------
$17,000,000 June 30, 2002 and each
fiscal quarter end thereafter
----------------------------------------------------------------------------------------------------
(iii) LEVERAGE RATIO. Permit the ratio of (i) the
aggregate amount of the Indebtedness of Parent and its Subsidiaries
divided by (ii) EBITDA, for the applicable period set forth below to be
less than the applicable ratio set forth below:
----------------------------------------------------------------------------------------------------
LEVERAGE RATIO APPLICABLE PERIOD
----------------------------------------------------------------------------------------------------
5.40:1 For the 3 month period ending
September 30, 2001
----------------------------------------------------------------------------------------------------
2.20:1 For the 6 month period ending
December 31, 2001
----------------------------------------------------------------------------------------------------
1.50:1 For the 9 month period ending
March 31, 2002
----------------------------------------------------------------------------------------------------
1.00:1 For the 12 month period ending
June 30, 2002
----------------------------------------------------------------------------------------------------
0.85:1 For the 12 month period ending
each fiscal quarter thereafter
----------------------------------------------------------------------------------------------------
(b) Make:
(i) CAPITAL EXPENDITURES. Capital expenditures (excluding
expenditures relating to capitalized Software) in any fiscal year in
excess of the amount set forth in the following table for the
applicable period:
----------------------------------------------------------------------------------------------------
Fiscal Year 2002 Fiscal Year 2003 Fiscal Year 2004
----------------------------------------------------------------------------------------------------
$2,600,000 $3,500,000 $4,600,000
----------------------------------------------------------------------------------------------------
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8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrowers fail to pay when due and payable or when
declared due and payable (a) all or any portion of the principal amount of any
Advance or the Term Loan or (b) all or any portion of the other Obligations
(whether of interest (including any interest which, but for the provisions of
the Bankruptcy Code, would have accrued on such amounts), fees and charges due
the Lender Group, reimbursement of Lender Group Expenses, or other amounts
constituting Obligations), in the case of this clause (b), within 3 days after
the due date for such Obligations ;
8.2 If Borrowers fail to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in SECTIONS 6.1, 6.2 (but
only up to three times during any 12-month period), 6.3, 6.6, 6.9, 6.10, 6.11
and 6.15 of this Agreement, or comparable provisions of the other Loan
Documents, within 15 days of the date when required (or within 5 days of the
date when required in the case of SECTION 6.2 or SECTION 6.3), or if a Borrower
otherwise fails to perform, keep, or observe any other term, provision,
condition, covenant, or agreement contained in this Agreement or in any of the
other Loan Documents (to the extent not otherwise provided for in SECTION 8.1 or
this SECTION 8.2);
8.3 If any material portion of any Borrower's or any of its
Subsidiaries' assets is attached, seized, subjected to a writ or distress
warrant, levied upon, or comes into the possession of any third Person;
8.4 If an Insolvency Proceeding is commenced by any Borrower
or any of its Subsidiaries;
8.5 If an Insolvency Proceeding is commenced against any
Borrower, or any of its Subsidiaries, and any of the following events occur: (a)
the applicable Borrower or the Subsidiary consents to the institution of the
Insolvency Proceeding against it, (b) the petition commencing the Insolvency
Proceeding is not timely controverted, (c) the petition commencing the
Insolvency Proceeding is not dismissed within 60 calendar days of the date of
the filing thereof; PROVIDED, HOWEVER, that, during the pendency of such period,
Agent (including any successor agent) and each other member of the Lender Group
shall be relieved of their obligation to extend credit hereunder, (d) an interim
trustee is appointed to take possession of all or any substantial portion of the
properties or assets of, or to operate all or any substantial portion of the
business of, any Borrower or any of its Subsidiaries, or (e) an order for relief
shall have been entered therein;
8.6 If any Borrower or any of its Subsidiaries is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs;
8.7 If a notice of Lien, levy, or assessment securing or
otherwise with respect to Indebtedness or an obligation for the payment of money
in an aggregate amount in excess of $100,000 is filed of record with respect to
any Borrower's or any of its Subsidiaries' assets by the
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United States, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any Borrower's or any of its Subsidiaries'
assets and the same is not paid on the payment date thereof;
8.8 If a judgment or other claim becomes a Lien or encumbrance
upon any material portion of any Borrower's or any of its Subsidiaries'
properties or assets;
8.9 If there is a default in any material agreement to which
any Borrower or any of its Subsidiaries is a party and such default (a) occurs
at the final maturity of the obligations thereunder, or (b) results in a right
by the other party thereto, irrespective of whether exercised, to accelerate the
maturity of the applicable Borrower's or its Subsidiaries' obligations
thereunder, to terminate such agreement, or to refuse to renew such agreement
pursuant to an automatic renewal right therein;
8.10 If any Borrower or any of its Subsidiaries makes any
payment on account of Indebtedness that has been contractually subordinated in
right of payment to the payment of the Obligations, except to the extent such
payment is permitted by the terms of the subordination provisions applicable to
such Indebtedness;
8.11 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or Record made to
the Lender Group by any Borrower, its Subsidiaries, or any officer, employee,
agent, or director of any Borrower or any of its Subsidiaries;
8.12 [Intentionally Omitted];
8.13 If this Agreement or any other Loan Document that
purports to create a Lien, shall, for any reason, fail or cease to create a
valid and perfected and, except to the extent permitted by the terms hereof or
thereof, first priority Lien on or security interest in the Collateral covered
hereby or thereby; or
8.14 Any provision of any Loan Document shall at any time for
any reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any Borrower, or a proceeding shall be commenced
by any Borrower, or by any Governmental Authority having jurisdiction over any
Borrower, seeking to establish the invalidity or unenforceability thereof, or
any Borrower shall deny that any Borrower has any liability or obligation
purported to be created under any Loan Document.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default, the Required Lenders (at their election
but without notice of their election and without demand) may authorize and
instruct Agent to do any one or more of the following on behalf of the Lender
Group (and Agent, acting upon the instructions of the Required Lenders, shall do
the same on behalf of the Lender Group), all of which are authorized by
Borrowers:
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(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrowers under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrowers and the Lender Group;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Lender Group, but
without affecting any of the Agent's Liens in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Agent considers advisable, and
in such cases, Agent will credit the Loan Account with only the net amounts
received by Agent in payment of such disputed Accounts after deducting all
Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Borrowers to hold all returned Inventory in
trust for the Lender Group, segregate all returned Inventory from all other
assets of Borrowers or in Borrowers' possession and conspicuously label said
returned Inventory as the property of the Lender Group;
(f) Without notice to or demand upon any Borrower, make
such payments and do such acts as Agent considers necessary or reasonable to
protect its security interests in the Collateral. Each Borrower agrees to
assemble the Collateral if Agent so requires, and to make the Collateral
available to Agent at a place that Agent may designate which is reasonably
convenient to both parties. Each Borrower authorizes Agent to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
Lien that in Agent's determination appears to conflict with the Agent's Liens
and to pay all expenses incurred in connection therewith and to charge
Borrowers' Loan Account therefor. With respect to any of Borrowers' owned or
leased premises, each Borrower hereby grants Agent a license to enter into
possession of such premises and to occupy the same, without charge, in order to
exercise any of the Lender Group's rights or remedies provided herein, at law,
in equity, or otherwise;
(g) Without notice to any Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of any Borrower
held by the Lender Group (including any amounts received in the Cash Management
Accounts), or (ii) Indebtedness at any time owing to or for the credit or the
account of any Borrower held by the Lender Group;
(h) Hold, as cash collateral, any and all balances and
deposits of any Borrower held by the Lender Group, and any amounts received in
the Cash Management Accounts, to secure the full and final repayment of all of
the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Each
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Borrower hereby grants to Agent a license or other right to use, without charge,
such Borrower's labels, patents, copyrights, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and such Borrower's rights
under all licenses and all franchise agreements shall inure to the Lender
Group's benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrowers' premises) as
Agent determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Agent shall give notice of the disposition of the
Collateral as follows:
(i) Agent shall give Administrative Borrower (for the
benefit of the applicable Borrower) a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Collateral,
the time on or after which the private sale or other disposition is to
be made; and
(ii) The notice shall be personally delivered or
mailed, postage prepaid, to Administrative Borrower as provided in
SECTION 12, at least 10 days before the earliest time of disposition
set forth in the notice; no notice needs to be given prior to the
disposition of any portion of the Collateral that is perishable or
threatens to decline speedily in value or that is of a type customarily
sold on a recognized market;
(l) Agent, on behalf of the Lender Group may credit bid
and purchase at any public sale;
(m) Agent may seek the appointment of a receiver or keeper
to take possession of all or any portion of the Collateral or to operate same
and, to the maximum extent permitted by law, may seek the appointment of such a
receiver without the requirement of prior notice or a hearing;
(n) The Lender Group shall have all other rights and
remedies available to it at law or in equity pursuant to any other Loan
Documents; and
(o) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Agent to Administrative Borrower (for the benefit of the applicable
Borrower).
9.2 REMEDIES CUMULATIVE. The rights and remedies of the Lender
Group under this Agreement, the other Loan Documents, and all other agreements
shall be cumulative. The Lender Group shall have all other rights and remedies
not inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be
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deemed a continuing waiver. No delay by the Lender Group shall constitute a
waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fails
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, Agent, in its sole discretion
and without prior notice to any Borrower, may do any or all of the following:
(a) make payment of the same or any part thereof, (b) set up such reserves in
Borrowers' Loan Account as Agent deems necessary to protect the Lender Group
from the exposure created by such failure, or (c) in the case of the failure to
comply with SECTION 6.8 hereof, obtain and maintain insurance policies of the
type described in SECTION 6.8 and take any action with respect to such policies
as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender
Group Expenses and any such payments shall not constitute an agreement by the
Lender Group to make similar payments in the future or a waiver by the Lender
Group of any Event of Default under this Agreement. Agent need not inquire as
to, or contest the validity of, any such expense, tax, or Lien and the receipt
of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Except as provided in this
Agreement or in the other Loan Documents, each Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of documents, instruments, chattel paper, and guarantees at any time
held by the Lender Group on which each such Borrower may in any way be liable.
11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. Each
Borrower hereby agrees that: (a) so long as the Lender Group complies with its
obligations, if any, under the Code, Agent shall not in any way or manner be
liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss
or damage thereto occurring or arising in any manner or fashion from any cause,
(iii) any diminution in the value thereof, or (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all
risk of loss, damage, or destruction of the Collateral shall be borne by
Borrowers.
11.3 INDEMNIFICATION. Each Borrower shall pay, indemnify,
defend, and hold the Agent-Related Persons, the Lender-Related Persons with
respect to each Lender, each Participant, and each of their respective officers,
directors, employees, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them (a) in connection with or as a
result of or related to the execution, delivery, enforcement, performance,
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or administration of this Agreement, any of the other Loan Documents, or the
transactions contemplated hereby or thereby, and (b) with respect to any
investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission, event, or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the
contrary notwithstanding, Borrowers shall have no obligation to any Indemnified
Person under this SECTION 11.3 with respect to any Indemnified Liability that a
court of competent jurisdiction finally determines to have resulted from the
gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations. If any Indemnified Person makes any payment to any other
Indemnified Person with respect to an Indemnified Liability as to which
Borrowers were required to indemnify the Indemnified Person receiving such
payment, the Indemnified Person making such payment is entitled to be
indemnified and reimbursed by Borrowers with respect thereto. WITHOUT
LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH
RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE
OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER
PERSON.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by Borrowers or Agent to the other relating to this Agreement or any
other Loan Document shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight courier, electronic mail
(at such email addresses as the Administrative Borrower or Agent, as applicable,
may designate to each other in accordance herewith), or telefacsimile to
Borrowers in care of Administrative Borrower or to Agent, as the case may be, at
its address set forth below:
If to Administrative FRONTSTEP, INC.
Borrower: 2800 Corporate Exchange Drive
Columbus, Ohio 43231
Attn: Daniel P. Buettin
Fax No. 614-895-2504
with copies to: VORYS, SATER SEYMOUR & PEASE LLP
52 East Gay Street
Columbus, Ohio 43231
Attn: Ivery D. Foreman, Esq.
Fax No. 614-464-6350
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If to Agent: FOOTHILL CAPITAL CORPORATION
2450 Colorado Avenue
Suite 3000 West
Santa Monica, CA 90404
Attn: Business Finance Division
Manager
Fax No. 310-453-7443
with copies to: SCHULTE ROTH & ZABEL LLP
919 Third Avenue
New York, New York 10022
Attn: Frederic L. Ragucci, Esq.
Fax No. 212-593-5955
Agent and Borrowers may change the address at which they are
to receive notices hereunder, by notice in writing in the foregoing manner given
to the other party. All notices or demands sent in accordance with this SECTION
12, other than notices by Agent in connection with enforcement rights against
the Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Each Borrower acknowledges and agrees that notices sent by
the Lender Group in connection with the exercise of enforcement rights against
Collateral under the provisions of the Code shall be deemed sent when deposited
in the mail or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY
OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH
ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWERS AND
THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
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NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13(b).
BORROWERS AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. BORROWERS AND THE LENDER GROUP REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
14.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Any Lender may, with the written consent of Agent
(provided that no written consent of Agent shall be required in connection with
any assignment and delegation by a Lender to an Eligible Transferee), assign and
delegate to one or more assignees (each an "Assignee") all, or any ratable part
of all, of the Obligations, the Commitments and the other rights and obligations
of such Lender hereunder and under the other Loan Documents, in a minimum amount
of $5,000,000; PROVIDED, HOWEVER, that Borrowers and Agent may continue to deal
solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses, and related information with respect to the
Assignee, have been given to Administrative Borrower and Agent by such Lender
and the Assignee, (ii) such Lender and its Assignee have delivered to
Administrative Borrower and Agent an Assignment and Acceptance in form and
substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has
paid to Agent for Agent's separate account a processing fee in the amount of
$5,000. Anything contained herein to the contrary notwithstanding, the consent
of Agent shall not be required (and payment of any fees shall not be required)
if such assignment is in connection with any merger, consolidation, sale,
transfer, or other disposition of all or any substantial portion of the business
or loan portfolio of such Lender.
(b) From and after the date that Agent notifies the
assignor Lender (with a copy to Administrative Borrower) that it has received an
executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Lender under the Loan Documents, and (ii) the assignor Lender shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights (except with respect to SECTION 11.3 hereof) and be released from its
obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
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and obligations under this Agreement and the other Loan Documents, such Lender
shall cease to be a party hereto and thereto), and such assignment shall affect
a novation between Borrowers and the Assignee.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm
to and agree with each other and the other parties hereto as follows: (1) other
than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto, (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrowers or the performance or observance by Borrowers of any of their
obligations under this Agreement or any other Loan Document furnished pursuant
hereto, (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance, (4) such Assignee will, independently and without
reliance upon Agent, such assigning Lender or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement, (5) such Assignee appoints and authorizes Agent to take such
actions and to exercise such powers under this Agreement as are delegated to
Agent, by the terms hereof, together with such powers as are reasonably
incidental thereto, and (6) such Assignee agrees that it will perform all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(d) Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance and receipt and
acknowledgment by Agent of such fully executed Assignment and Acceptance, this
Agreement shall be deemed to be amended to the extent, but only to the extent,
necessary to reflect the addition of the Assignee and the resulting adjustment
of the Commitments arising therefrom. The Commitment allocated to each Assignee
shall reduce such Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written consent
of Agent, sell to one or more commercial banks, financial institutions, or other
Persons not Affiliates of such Lender (a "Participant") participating interests
in its Obligations, the Commitment, and the other rights and interests of that
Lender (the "Originating Lender") hereunder and under the other Loan Documents
(provided that no written consent of Agent shall be required in connection with
any sale of any such participating interests by a Lender to an Eligible
Transferee); PROVIDED, HOWEVER, that (i) the Originating Lender shall remain a
"Lender" for all purposes of this Agreement and the other Loan Documents and the
Participant receiving the participating interest in the Obligations, the
Commitments, and the other rights and interests of the Originating Lender
hereunder shall not constitute a "Lender" hereunder or under the other Loan
Documents and the Originating Lender's obligations under this Agreement shall
remain unchanged, (ii) the Originating Lender shall remain solely responsible
for the performance of such obligations, (iii) Borrowers, Agent, and the Lenders
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender's rights and obligations under this
Agreement
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and the other Loan Documents, (iv) no Lender shall transfer or grant any
participating interest under which the Participant has the right to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment to, or consent or
waiver with respect to this Agreement or of any other Loan Document would (A)
extend the final maturity date of the Obligations hereunder in which such
Participant is participating, (B) reduce the interest rate applicable to the
Obligations hereunder in which such Participant is participating, (C) release
all or a material portion of the Collateral or guaranties (except to the extent
expressly provided herein or in any of the Loan Documents) supporting the
Obligations hereunder in which such Participant is participating, (D) postpone
the payment of, or reduce the amount of, the interest or fees payable to such
Participant through such Lender, or (E) change the amount or due dates of
scheduled principal repayments or prepayments or premiums; and (v) all amounts
payable by Borrowers hereunder shall be determined as if such Lender had not
sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement. The rights of any Participant only shall be derivative through
the Originating Lender with whom such Participant participates and no
Participant shall have any rights under this Agreement or the other Loan
Documents or any direct rights as to the other Lenders, Agent, Borrowers, the
Collections, the Collateral, or otherwise in respect of the Obligations. No
Participant shall have the right to participate directly in the making of
decisions by the Lenders among themselves.
(f) In connection with any such assignment or
participation or proposed assignment or participation, a Lender may disclose all
documents and information which it now or hereafter may have relating to
Borrowers or Borrowers' business.
(g) Any other provision in this Agreement
notwithstanding, any Lender may at any time create a security interest in, or
pledge, all or any portion of its rights under and interest in this Agreement in
favor of any Federal Reserve Bank in accordance with Regulation A of the Federal
Reserve Bank or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal
Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.
14.2 SUCCESSORS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrowers may not assign this Agreement or any rights or
duties hereunder without the Lenders' prior written consent and any prohibited
assignment shall be absolutely void ab initio. No consent to assignment by the
Lenders shall release any Borrower from its Obligations. A Lender may assign
this Agreement and the other Loan Documents and its rights and duties hereunder
and thereunder pursuant to SECTION 14.1 hereof and, except as expressly required
pursuant to SECTION 14.1 hereof, no consent or approval by any Borrower is
required in connection with any such assignment.
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15. AMENDMENTS; WAIVERS.
15.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by Borrowers therefrom, shall be effective unless the
same shall be in writing and signed by the Required Lenders (or by Agent at the
written request of the Required Lenders) and Administrative Borrower (on behalf
of all Borrowers) and then any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; PROVIDED,
HOWEVER, that no such waiver, amendment, or consent shall, unless in writing and
signed by all of the Lenders affected thereby and Administrative Borrower (on
behalf of all Borrowers) and acknowledged by Agent, do any of the following:
(a) increase or extend any Commitment of any Lender,
(b) postpone or delay any date fixed by this Agreement or
any other Loan Document for any payment of principal, interest, fees, or other
amounts due hereunder or under any other Loan Document,
(c) reduce the principal of, or the rate of interest on,
any loan or other extension of credit hereunder, or reduce any fees or other
amounts payable hereunder or under any other Loan Document,
(d) change the percentage of the Commitments that is
required to take any action hereunder,
(e) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders,
(f) release Collateral other than as permitted by SECTION
16.12,
(g) change the definition of "Required Lenders",
(h) contractually subordinate any of the Agent's Liens,
(i) release any Borrower from any obligation for the
payment of money, or
(j) change the definition of Borrowing Base or the
definitions of Eligible Accounts, Maximum Revolver Amount, Term Loan Amount, or
change SECTION 2.1(b); or
(k) amend any of the provisions of SECTION 16.
and, PROVIDED FURTHER, HOWEVER, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, Issuing Lender, or Swing Lender, affect
the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable,
under this Agreement or any other Loan Document. The foregoing notwithstanding,
any amendment, modification, waiver, consent, termination, or release of, or
with respect to, any provision of this Agreement or any other Loan
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Document that relates only to the relationship of the Lender Group among
themselves, and that does not affect the rights or obligations of Borrowers,
shall not require consent by or the agreement of Borrowers.
15.2 REPLACEMENT OF HOLDOUT LENDER. If any action to be taken
by the Lender Group or Agent hereunder requires the unanimous consent,
authorization, or agreement of all Lenders, and a Lender ("Holdout Lender")
fails to give its consent, authorization, or agreement, then Agent, upon at
least 5 Business Days prior irrevocable notice to the Holdout Lender, may
permanently replace the Holdout Lender with one or more substitute Lenders
(each, a "Replacement Lender"), and the Holdout Lender shall have not right to
refuse to be replaced hereunder. Such notice to replace the Holdout Lender shall
specify an effective date for such replacement, which date shall not be later
than 15 Business Days after the date such notice is given.
Prior to the effective date of such replacement, the Holdout
Lender and each Replacement Lender shall execute and deliver an Assignment and
Acceptance Agreement, subject only to the Holdout Lender being repaid its share
of the outstanding Obligations (including an assumption of its Pro Rata Share of
the Risk Participation Liability) without any premium or penalty of any kind
whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver
any such Assignment and Acceptance Agreement prior to the effective date of such
replacement, the Holdout Lender shall be deemed to have executed and delivered
such Assignment and Acceptance Agreement. The replacement of any Holdout Lender
shall be made in accordance with the terms of SECTION 14.1. Until such time as
the Replacement Lenders shall have acquired all of the Obligations, the
Commitments, and the other rights and obligations of the Holdout Lender
hereunder and under the other Loan Documents, the Holdout Lender shall remain
obligated to make the Holdout Lender's Pro Rata Share of Advances and to
purchase a participation in each Letter of Credit, in an amount equal to its Pro
Rata Share of the Risk Participation Liability of such Letter of Credit.
15.3 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or
any Lender to exercise any right, remedy, or option under this Agreement or, any
other Loan Document, or delay by Agent or any Lender in exercising the same,
will operate as a waiver thereof. No waiver by Agent or any Lender will be
effective unless it is in writing, and then only to the extent specifically
stated. No waiver by Agent or any Lender on any occasion shall affect or
diminish Agent's and each Lender's rights thereafter to require strict
performance by Borrowers of any provision of this Agreement. Agent's and each
Lender's rights under this Agreement and the other Loan Documents will be
cumulative and not exclusive of any other right or remedy that Agent or any
Lender may have.
16. AGENT; THE LENDER GROUP.
16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender
hereby designates and appoints Foothill as its representative under this
Agreement and the other Loan Documents and each Lender hereby irrevocably
authorizes Agent to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform
such duties as are expressly delegated to Agent by the terms of this Agreement
or any other Loan Document, together with such powers as are reasonably
incidental
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thereto. Agent agrees to act as such on the express conditions contained in this
SECTION 16. The provisions of this SECTION 16 are solely for the benefit of
Agent, and the Lenders, and Borrowers shall have no rights as a third party
beneficiary of any of the provisions contained herein. Any provision to the
contrary contained elsewhere in this Agreement or in any other Loan Document
notwithstanding, Agent shall not have any duties or responsibilities, except
those expressly set forth herein, nor shall Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against Agent; it being
expressly understood and agreed that the use of the word "Agent" is for
convenience only, that Foothill is merely the representative of the Lenders, and
only has the contractual duties set forth herein. Except as expressly otherwise
provided in this Agreement, Agent shall have and may use its sole discretion
with respect to exercising or refraining from exercising any discretionary
rights or taking or refraining from taking any actions that Agent expressly is
entitled to take or assert under or pursuant to this Agreement and the other
Loan Documents. Without limiting the generality of the foregoing, or of any
other provision of the Loan Documents that provides rights or powers to Agent,
Lenders agree that Agent shall have the right to exercise the following powers
as long as this Agreement remains in effect: (a) maintain, in accordance with
its customary business practices, ledgers and records reflecting the status of
the Obligations, the Collateral, the Collections, and related matters, (b)
execute or file any and all financing or similar statements or notices,
amendments, renewals, supplements, documents, instruments, proofs of claim,
notices and other written agreements with respect to the Loan Documents, (c)
make Advances, for itself or on behalf of Lenders as provided in the Loan
Documents, (d) exclusively receive, apply, and distribute the Collections as
provided in the Loan Documents, (e) open and maintain such bank accounts and
cash management accounts as Agent deems necessary and appropriate in accordance
with the Loan Documents for the foregoing purposes with respect to the
Collateral and the Collections, (f) perform, exercise, and enforce any and all
other rights and remedies of the Lender Group with respect to Borrowers, the
Obligations, the Collateral, the Collections, or otherwise related to any of
same as provided in the Loan Documents, and (g) incur and pay such Lender Group
Expenses as Agent may deem necessary or appropriate for the performance and
fulfillment of its functions and powers pursuant to the Loan Documents.
16.2 DELEGATION OF DUTIES. Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
16.3 LIABILITY OF AGENT. None of the Agent-Related Persons
shall (i) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by any Borrower or any
Subsidiary or Affiliate of any Borrower, or any officer or director thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection with, this Agreement or any other
Loan Document, or the validity, effectiveness, genuineness,
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enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of any Borrower or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the Books or
properties of Borrowers or the books or records or properties of any of
Borrowers' Subsidiaries or Affiliates.
16.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to Borrowers or counsel to any Lender), independent accountants and other
experts selected by Agent. Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless Agent
shall first receive such advice or concurrence of the Lenders as it deems
appropriate and until such instructions are received, Agent shall act, or
refrain from acting, as it deems advisable. If Agent so requests, it shall first
be indemnified to its reasonable satisfaction by Lenders against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action. Agent shall in all cases be fully protected
in acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Lenders and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all of the Lenders.
16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest,
fees, and expenses required to be paid to Agent for the account of the Lenders,
except with respect to Events of Default of which Agent has actual knowledge,
unless Agent shall have received written notice from a Lender or Administrative
Borrower referring to this Agreement, describing such Default or Event of
Default, and stating that such notice is a "notice of default." Agent promptly
will notify the Lenders of its receipt of any such notice or of any Event of
Default of which Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other
Lenders and Agent of such Event of Default. Each Lender shall be solely
responsible for giving any notices to its Participants, if any. Subject to
SECTION 16.4, Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Required Lenders in accordance with
SECTION 9; PROVIDED, HOWEVER, that unless and until Agent has received any such
request, Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable.
16.6 CREDIT DECISION. Each Lender acknowledges that none of
the Agent-Related Persons has made any representation or warranty to it, and
that no act by Agent hereinafter taken, including any review of the affairs of
Borrowers and their Subsidiaries or Affiliates, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
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deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers and any other Person (other than the Lender Group)
party to a Loan Document, and all applicable bank regulatory laws relating to
the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to Borrowers. Each Lender also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrowers and any other Person (other than the Lender Group)
party to a Loan Document. Except for notices, reports, and other documents
expressly herein required to be furnished to the Lenders by Agent, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of Borrowers and any other
Person party to a Loan Document that may come into the possession of any of the
Agent-Related Persons.
16.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and
pay Lender Group Expenses to the extent Agent reasonably deems necessary or
appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including court costs, reasonable
attorneys fees and expenses, costs of collection by outside collection agencies
and auctioneer fees and costs of security guards or insurance premiums paid to
maintain the Collateral, whether or not Borrowers are obligated to reimburse
Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise.
Agent is authorized and directed to deduct and retain sufficient amounts from
Collections received by Agent to reimburse Agent for such out-of-pocket costs
and expenses prior to the distribution of any amounts to Lenders. In the event
Agent is not reimbursed for such costs and expenses from Collections received by
Agent, each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether
or not the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by
or on behalf of Borrowers and without limiting the obligation of Borrowers to do
so), according to their Pro Rata Shares, from and against any and all
Indemnified Liabilities; PROVIDED, HOWEVER, that no Lender shall be liable for
the payment to any Agent-Related Person of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct nor shall any Lender be liable for the obligations of any Defaulting
Lender in failing to make an Advance or other extension of credit hereunder.
Without limitation of the foregoing, each Lender shall reimburse Agent upon
demand for such Lender's ratable share of any costs or out-of-pocket expenses
(including attorneys fees and expenses) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment, or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrowers. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.
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16.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in, and generally engage in any kind of banking,
trust, financial advisory, underwriting, or other business with Borrowers and
their Subsidiaries and Affiliates and any other Person (other than the Lender
Group) party to any Loan Documents as though Foothill were not Agent hereunder,
and, in each case, without notice to or consent of the other members of the
Lender Group. The other members of the Lender Group acknowledge that, pursuant
to such activities, Foothill or its Affiliates may receive information regarding
Borrowers or their Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents that is subject to confidentiality obligations in
favor of Borrowers or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in such
circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall not be under any obligation to provide such information to them. The
terms "Lender" and "Lenders" include Foothill in its individual capacity.
16.9 SUCCESSOR AGENT. Agent may resign as Agent upon 45 days
notice to the Lenders. If Agent resigns under this Agreement, the Required
Lenders shall appoint a successor Agent for the Lenders. If no successor Agent
is appointed prior to the effective date of the resignation of Agent, Agent may
appoint, after consulting with the Lenders, a successor Agent. If Agent has
materially breached or failed to perform any material provision of this
Agreement or of applicable law, the Required Lenders may agree in writing to
remove and replace Agent with a successor Agent from among the Lenders. In any
such event, upon the acceptance of its appointment as successor Agent hereunder,
such successor Agent shall succeed to all the rights, powers, and duties of the
retiring Agent and the term "Agent" shall mean such successor Agent and the
retiring Agent's appointment, powers, and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this SECTION 16 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement. If no successor Agent
has accepted appointment as Agent by the date which is 45 days following a
retiring Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of Agent hereunder until such time, if any, as the Lenders appoint a
successor Agent as provided for above.
16.10 LENDER IN INDIVIDUAL CAPACITY. Any Lender and its
respective Affiliates may make loans to, issue letters of credit for the account
of, accept deposits from, acquire equity interests in and generally engage in
any kind of banking, trust, financial advisory, underwriting or other business
with Borrowers and their Subsidiaries and Affiliates and any other Person (other
than the Lender Group) party to any Loan Documents as though such Lender were
not a Lender hereunder without notice to or consent of the other members of the
Lender Group. The other members of the Lender Group acknowledge that, pursuant
to such activities, such Lender and its respective Affiliates may receive
information regarding Borrowers or their Affiliates and any other Person (other
than the Lender Group) party to any Loan Documents that is subject to
confidentiality obligations in favor of Borrowers or such other Person and that
prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver such Lender will use its reasonable
best efforts to obtain), such Lender not shall be under any
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obligation to provide such information to them. With respect to the Swing Loans
and Agent Advances, Swing Lender shall have the same rights and powers under
this Agreement as any other Lender and may exercise the same as though it were
not the sub-agent of the Agent.
16.11 WITHHOLDING TAXES.
(a) If any Lender is a "foreign corporation, partnership
or trust" within the meaning of the IRC and such Lender claims exemption from,
or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC,
such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent
and Administrative Borrower:
(i) if such Lender claims an exemption from
withholding tax pursuant to its portfolio interest exception, (a) a
statement of the Lender, signed under penalty of perjury, that it is
not a (I) a "bank" as described in Section 881(c)(3)(A) of the IRC,
(II) a 10% shareholder (within the meaning of Section 881(c)(3)(B) of
the IRC), or (III) a controlled foreign corporation described in
Section 881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form
W-8BEN, before the first payment of any interest under this Agreement
and at any other time reasonably requested by Agent or Administrative
Borrower;
(ii) if such Lender claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty,
properly completed IRS Form W-8BEN before the first payment of any
interest under this Agreement and at any other time reasonably
requested by Agent or Administrative Borrower;
(iii) if such Lender claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form W-8ECI
before the first payment of any interest is due under this Agreement
and at any other time reasonably requested by Agent or Administrative
Borrower;
(iv) such other form or forms as may be required
under the IRC or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Lender agrees promptly to notify Agent and Administrative
Borrower of any change in circumstances which would modify or render invalid any
claimed exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form W-8BEN
and such Lender sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of Borrowers to such Lender, such
Lender agrees to notify Agent of the percentage amount in which it is no longer
the beneficial owner of Obligations of Borrowers to such Lender. To the extent
of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no
longer valid.
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(c) If any Lender is entitled to a reduction in the applicable
withholding tax, Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax.
(d) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Lender shall indemnify and hold Agent harmless for all amounts
paid, directly or indirectly, by Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to Agent under this Section, together with all costs and expenses
(including attorneys fees and expenses). The obligation of the Lenders under
this subsection shall survive the payment of all Obligations and the resignation
or replacement of Agent.
(e) All payments made by Borrowers hereunder or under any note
or other Loan Document will be made without setoff, counterclaim, or other
defense, except as required by applicable law other than for Taxes (as defined
below). All such payments will be made free and clear of, and without deduction
or withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction (other than the United States) or by any political subdivision or
taxing authority thereof or therein (other than of the United States) with
respect to such payments (but excluding, any tax imposed by any jurisdiction or
by any political subdivision or taxing authority thereof or therein (i) measured
by or based on the net income or net profits of a Lender, or (ii) to the extent
that such tax results from a change in the circumstances of the Lender,
including a change in the residence, place of organization, or principal place
of business of the Lender, or a change in the branch or lending office of the
Lender participating in the transactions set forth herein) and all interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed,
each Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any note, including any amount paid pursuant to this SECTION
16.11(e) after withholding or deduction for or on account of any Taxes, will not
be less than the amount provided for herein; PROVIDED, HOWEVER, that Borrowers
shall not be required to increase any such amounts payable to Agent or any
Lender (i) that is not organized under the laws of the United States, if such
Person fails to comply with the other requirements of this SECTION 16.11, or
(ii) if the increase in such amount payable results from Agent's or such
Lender's own willful misconduct or gross negligence. Borrowers will furnish to
Agent as promptly as possible after the date the payment of any Taxes is due
pursuant to applicable law certified copies of tax receipts evidencing such
payment by Borrowers.
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16.12 COLLATERAL MATTERS.
(a) The Lenders hereby irrevocably authorize Agent, at
its option and in its sole discretion, to release any Lien on any Collateral (i)
upon the termination of the Commitments and payment and satisfaction in full by
Borrowers of all Obligations, (ii) constituting property being sold or disposed
of if a release is required or desirable in connection therewith and if
Administrative Borrower certifies to Agent that the sale or disposition is
permitted under SECTION 7.4 of this Agreement or the other Loan Documents (and
Agent may rely conclusively on any such certificate, without further inquiry),
(iii) constituting property in which no Borrower owned any interest at the time
the security interest was granted or at any time thereafter, or (iv)
constituting property leased to a Borrower under a lease that has expired or is
terminated in a transaction permitted under this Agreement. Except as provided
above, Agent will not execute and deliver a release of any Lien on any
Collateral without the prior written authorization of (y) if the release is of
all or substantially all of the Collateral, all of the Lenders, or (z)
otherwise, the Required Lenders. Upon request by Agent or Administrative
Borrower at any time, the Lenders will confirm in writing Agent's authority to
release any such Liens on particular types or items of Collateral pursuant to
this SECTION 16.12; PROVIDED, HOWEVER, that (1) Agent shall not be required to
execute any document necessary to evidence such release on terms that, in
Agent's opinion, would expose Agent to liability or create any obligation or
entail any consequence other than the release of such Lien without recourse,
representation, or warranty, and (2) such release shall not in any manner
discharge, affect, or impair the Obligations or any Liens (other than those
expressly being released) upon (or obligations of Borrowers in respect of) all
interests retained by Borrowers, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(b) Agent shall have no obligation whatsoever to any of
the Lenders to assure that the Collateral exists or is owned by Borrowers or is
cared for, protected, or insured or has been encumbered, or that the Agent's
Liens have been properly or sufficiently or lawfully created, perfected,
protected, or enforced or are entitled to any particular priority, or to
exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent pursuant to any of the Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission, or event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its
sole discretion given Agent's own interest in the Collateral in its capacity as
one of the Lenders and that Agent shall have no other duty or liability
whatsoever to any Lender as to any of the foregoing, except as otherwise
provided herein.
16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.
(a) Each of the Lenders agrees that it shall not,
without the express consent of Agent, and that it shall, to the extent it is
lawfully entitled to do so, upon the request of Agent, set off against the
Obligations, any amounts owing by such Lender to Borrowers or any deposit
accounts of Borrowers now or hereafter maintained with such Lender. Each of the
Lenders further agrees that it shall not, unless specifically requested to do so
by Agent, take or cause to be taken any action, including, the commencement of
any legal or equitable proceedings, to foreclose any Lien on, or otherwise
enforce any security interest in, any of the
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Collateral the purpose of which is, or could be, to give such Lender any
preference or priority against the other Lenders with respect to the Collateral.
(b) If, at any time or times any Lender shall receive
(i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or
any payments with respect to the Obligations arising under, or relating to, this
Agreement or the other Loan Documents, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender's ratable portion of all such
distributions by Agent, such Lender promptly shall (1) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for application to the Obligations in accordance with
the applicable provisions of this Agreement, or (2) purchase, without recourse
or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; PROVIDED,
HOWEVER, that if all or part of such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.
16.14 AGENCY FOR PERFECTION. Agent hereby appoints each other
Lender as its agent (and each Lender hereby accepts such appointment) for the
purpose of perfecting the Agent's Liens in assets which, in accordance with
Article 9 of the UCC can be perfected only by possession. Should any Lender
obtain possession of any such Collateral, such Lender shall notify Agent
thereof, and, promptly upon Agent's request therefor shall deliver such
Collateral to Agent or in accordance with Agent's instructions.
16.15 PAYMENTS BY AGENT TO THE LENDERS. All payments to be
made by Agent to the Lenders shall be made by bank wire transfer or internal
transfer of immediately available funds pursuant to such wire transfer
instructions as each party may designate for itself by written notice to Agent.
Concurrently with each such payment, Agent shall identify whether such payment
(or any portion thereof) represents principal, premium, or interest of the
Obligations.
16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS.
Each member of the Lender Group authorizes and directs Agent to enter into this
Agreement and the other Loan Documents relating to the Collateral, for the
benefit of the Lender Group. Each member of the Lender Group agrees that any
action taken by Agent in accordance with the terms of this Agreement or the
other Loan Documents relating to the Collateral and the exercise by Agent of its
powers set forth therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.
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16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY;
DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By becoming a party to
this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by
Agent, and Agent shall so furnish each Lender with such Reports,
(b) expressly agrees and acknowledges that Agent does
not (i) make any representation or warranty as to the accuracy of any Report,
and (ii) shall not be liable for any information contained in any Report,
(c) expressly agrees and acknowledges that the Reports
are not comprehensive audits or examinations, that Agent or other party
performing any audit or examination will inspect only specific information
regarding Borrowers and will rely significantly upon the Books, as well as on
representations of Borrowers' personnel,
(d) agrees to keep all Reports and other material,
non-public information regarding Borrowers and their Subsidiaries and their
operations, assets, and existing and contemplated business plans in a
confidential manner; it being understood and agreed by Borrowers that in any
event such Lender may make disclosures (a) to counsel for and other advisors,
accountants, and auditors to such Lender, (b) reasonably required by any bona
fide potential or actual Assignee or Participant in connection with any
contemplated or actual assignment or transfer by such Lender of an interest
herein or any participation interest in such Lender's rights hereunder, provided
that such Assignee or Participant agrees to hold such information confidential
on terms consistent with those set forth in this SECTION 16.17(b), (c) of
information that has become public by disclosures made by Persons other than
such Lender, its Affiliates, assignees, transferees, or Participants, or (d) as
required or requested by any court, governmental or administrative agency,
pursuant to any subpoena or other legal process, or by any law, statute,
regulation, or court order; PROVIDED, HOWEVER, that, unless prohibited by
applicable law, statute, regulation, or court order, such Lender shall notify
Administrative Borrower of any request by any court, governmental or
administrative agency, or pursuant to any subpoena or other legal process for
disclosure of any such non-public material information concurrent with, or where
practicable, prior to the disclosure thereof, and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold Agent
and any such other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to Borrowers, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of Borrowers; and (ii) to pay and protect, and indemnify,
defend and hold Agent, and any such other Lender preparing a Report harmless
from and against, the claims, actions, proceedings, damages, costs, expenses,
and other amounts (including, attorneys fees and costs) incurred by Agent and
any such other Lender preparing a Report as the direct or indirect result of any
third parties who might obtain all or part of any Report through the
indemnifying Lender.
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(f) In addition to the foregoing: (x) any Lender may
from time to time request of Agent in writing that Agent provide to such Lender
a copy of any report or document provided by Borrowers to Agent that has not
been contemporaneously provided by Borrowers to such Lender, and, upon receipt
of such request, Agent shall provide a copy of same to such Lender, (y) to the
extent that Agent is entitled, under any provision of the Loan Documents, to
request additional reports or information from Borrowers, any Lender may, from
time to time, reasonably request Agent to exercise such right as specified in
such Lender's notice to Agent, whereupon Agent promptly shall request of
Administrative Borrower the additional reports or information reasonably
specified by such Lender, and, upon receipt thereof from Administrative
Borrower, Agent promptly shall provide a copy of same to such Lender, and (z)
any time that Agent renders to Administrative Borrower a statement regarding the
Loan Account, Agent shall send a copy of such statement to each Lender.
16.18 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be executed
only by or in favor of Agent in its capacity as such, and not by or in favor of
the Lenders, any and all obligations on the part of Agent (if any) to make any
credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in SECTION 16.7, no member of the Lender Group shall
have any liability for the acts or any other member of the Lender Group. No
Lender shall be responsible to any Borrower or any other Person for any failure
by any other Lender to fulfill its obligations to make credit available
hereunder, nor to advance for it or on its behalf in connection with its
Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.
17. GENERAL PROVISIONS.
17.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrowers, Agent, and each Lender whose signature is
provided for on the signature pages hereof.
17.2 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each Section applies equally to this entire
Agreement.
17.3 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Lender Group or Borrowers, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to accomplish fairly the purposes and intentions of all parties hereto.
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17.4 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
17.5 AMENDMENTS IN WRITING. This Agreement only can be amended
by a writing in accordance with SECTION 15.1.
17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by any Borrower or the transfer to the
Lender Group of any property should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, or other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if the Lender
Group is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that the Lender Group is
required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of the Lender Group related thereto, the liability
of Borrowers automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
17.8 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
17.9 PARENT AS AGENT FOR BORROWERS. Each Borrower hereby
irrevocably appoints Parent as the borrowing agent and attorney-in-fact for all
Borrowers (the "Administrative Borrower") which appointment shall remain in full
force and effect unless and until Agent shall have received prior written notice
signed by each Borrower that such appointment has been revoked and that another
Borrower has been appointed Administrative Borrower. Each Borrower hereby
irrevocably appoints and authorizes the Administrative Borrower (i) to provide
Agent with all notices with respect to Advances and Letters of Credit obtained
for the benefit of any Borrower and all other notices and instructions under
this Agreement and (ii) to take such action as the Administrative Borrower deems
appropriate on its behalf to obtain Advances and Letters of Credit and to
exercise such other powers as are reasonably incidental thereto to carry out the
purposes of this Agreement. It is understood that
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the handling of the Loan Account and Collateral of Borrowers in a combined
fashion, as more fully set forth herein, is done solely as an accommodation to
Borrowers in order to utilize the collective borrowing powers of Borrowers in
the most efficient and economical manner and at their request, and that Lender
Group shall not incur liability to any Borrower as a result hereof. Each
Borrower expects to derive benefit, directly or indirectly, from the handling of
the Loan Account and the Collateral in a combined fashion since the successful
operation of each Borrower is dependent on the continued successful performance
of the integrated group. To induce the Lender Group to do so, and in
consideration thereof, each Borrower hereby jointly and severally agrees to
indemnify each member of the Lender Group and hold each member of the Lender
Group harmless against any and all liability, expense, loss or claim of damage
or injury, made against the Lender Group by any Borrower or by any third party
whosoever, arising from or incurred by reason of (a) the handling of the Loan
Account and Collateral of Borrowers as herein provided, (b) the Lender Group's
relying on any instructions of the Administrative Borrower, or (c) any other
action taken by the Lender Group hereunder or under the other Loan Documents,
except that Borrowers will have no liability to the relevant Agent-Related
Person or Lender-Related Person under this SECTION 17.9 with respect to any
liability that has been finally determined by a court of competent jurisdiction
to have resulted solely from the gross negligence or willful misconduct of such
Agent-Related Person or Lender-Related Person, as the case may be.
17.10 CURRENCY; JUDGMENT. This is an international financial
transaction in which the specification of a currency and payment in New York
City is of the essence. Unrestricted and transferable Dollars shall be the
currency of account in the case of all payments pursuant to or arising under
this Agreement or under any other Loan Document, and all such payments shall be
transferred to the Agent's Account in immediately available funds. The
obligations of Borrowers to the Agent and the Lenders under this Agreement and
under the other Loan Documents shall not be discharged by any amount paid in any
other currency to the extent that the amount so paid after conversion under this
Agreement and transfer to New York City does not yield the amount of Dollars in
New York City due under this Agreement and under the other Loan Documents. If,
for the purposes of obtaining judgment in any court, it is necessary to convert
a sum due hereunder in Dollars into another currency (the "OTHER Currency"), the
rate of exchange used shall be that at which Agent could, in accordance with
normal banking procedures, purchase Dollars with the Other Currency on the
business day preceding that on which final judgment is given. The obligation of
Borrowers in respect of any such sum due from it to the Agent or the Lenders
hereunder shall, notwithstanding any judgment in such Other Currency, be
discharged only to the extent that, on the business day immediately following
the date on which the Agent receives any sum adjudged to be so due in the Other
Currency, the Agent may, in accordance with normal banking procedures, purchase
Dollars with the Other Currency. If the Dollars so purchased are less than the
sum originally due to the Agent and the Lenders in Dollars, each Borrower
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Agent and the Lenders against such loss, and if the Dollars so
purchased exceed the sum originally due to the Agent and the Lenders in Dollars,
the Agent and the Lenders agree to remit to the Borrowers such excess.
-98-
101
18. ISSUANCE OF EQUITY INTERESTS TO FOOTHILL.
18.1 AUTHORIZATION AND ISSUANCE OF WARRANTS. On the Closing
Date, the Parent shall issue to Foothill one or more warrant certificates
covering the purchase of 550,000 shares of the Common Stock of the Parent
substantially in the form of EXHIBIT W-1 hereto (such certificates, together
with the rights to purchase Common Stock provided thereby and all warrant
certificates covering such stock issued upon transfer, division or combination
of, or in substitution for, any thereof, being herein called the "WARRANTS").
The exercise price thereof shall be an amount equal to $3.36. It is understood
and agreed that the Warrants contain provisions affecting the number of shares
of Common Stock that may be acquired by the holder of such Warrant or issued by
the Parent, which provisions are set forth in the Warrants.
18.2 SECURITIES ACT MATTERS. (a) Foothill represents and
warrants to the Parent that:
(i) Foothill is acquiring the Warrants hereunder for
its own account, without a view to the distribution thereof, all
without prejudice, however, to the right of Foothill at any time, in
accordance with this Agreement, lawfully to sell or otherwise to
dispose of all or any part of the Warrants or Warrant Stock held by it.
(ii) Foothill is an "accredited investor" within the
meaning of Regulation D under the Securities Act and was not organized
for the specific purpose of acquiring the Warrant or the Warrant Stock.
(iii) Foothill has sufficient knowledge and
experience in investing in companies similar to Parent so as to be able
to evaluate the risks and merits of its investment in Parent and is
able financially to bear the risks thereof; and
(iv) Foothill understands that (A) this Warrant and
the Warrant Stock have not been registered under the Securities Act in
reliance upon an exemption from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 506 promulgated
under such act and under applicable state securities laws, (B) this
Warrant and the Warrant Stock must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act
and under applicable state securities laws or is exempt from such
registration, (C) this Warrant and the Warrant Stock will bear a legend
to such effect, and (D) Parent will make a notation on its transfer
books to such effect..
(b) The Parent represents and warrants to Foothill that:
(i) Assuming the truth and accuracy of Foothill's
representations and warranties contained in the immediately preceding
paragraphs, the issuance of the Warrants to Foothill hereunder and the
issuance of shares of Common Stock to Foothill pursuant to the Warrants
are exempt from the registration and prospectus delivery requirements
of the Securities Act.
(ii) All stock and securities of the Parent heretofore
issued and sold by the Parent were, and all securities of the Parent
issued and sold by the Parent on
-99-
102
and after the date hereof are or will be issued and sold in accordance
with, or are or will be exempt from, the registration and prospectus
delivery requirements of the Securities Act.
(iii) The Parent agrees that neither it nor any Person
acting on its behalf has offered or will offer the Warrants or Warrant
Stock or any part thereof or any similar securities for issue or sale
to, or has solicited or will solicit any offer to acquire any of the
same from, any Person so as to bring the issuance and sale of the
Warrants or Warrant Stock hereunder within the provisions of the
registration and prospectus delivery requirements of the Securities
Act.
18.3 CERTAIN TAXES. The Parent shall pay all taxes (other than
Federal, state or local income taxes) which may be payable in connection with
the execution and delivery of this Agreement or the issuance of the Warrants or
Warrant Stock hereunder or in connection with any modification of this Agreement
or the Warrants and shall hold the Lenders and Foothill harmless without
limitation as to time against any and all liabilities with respect to all such
taxes. The obligations of the Parent under this SECTION 18.3 shall survive any
redemption, repurchase or acquisition of Warrants or Warrant Stock by the
Parent, any termination of this Agreement, and any cancellation or termination
of the Warrants.
18.4 CANCELLATION AND ISSUANCE. If Foothill assigns or
otherwise transfers all or any of its portion of the Advances or the Term Loan
(including by selling participations therein) to any Person, Foothill may
request (upon 10 days' prior notice to the Parent) that (a) a number of Warrants
held by Foothill be canceled on the date of such assignment and transfer and (b)
a like number of Warrants be issued by the Parent to the Person to whom such
Obligations are being assigned or otherwise transferred. Upon the date specified
in such request:
(i) The Parent shall issue, and Foothill shall
surrender (or cause to be surrendered) for cancellation, such number of
Warrants as aforesaid, provided that such issuance shall not violate
the Securities Act or any applicable state securities laws;
(ii) The Parent will deliver to each Person that
receives a certificate for Warrants a favorable legal opinion from
counsel to the Parent acceptable to such Person, covering the matters
set forth in the opinion of counsel to the Parent and its Subsidiaries
delivered to the Agent on the Closing Date (to the extent relating to
the Warrants);
(iii) each Person that receives Warrants will deliver
a certificate to the Parent affirming the representations and
warranties contained in SECTION 18.2(a) hereof as applied to such
Person as of such date; and
(iv) The Parent will deliver a certificate to each
Person that receives Warrants affirming the representations and
warranties contained in SECTION 18.2(b) hereof as of such date.
[Signature page to follow.]
-100-
103
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
FRONTSTEP, INC.
an Ohio corporation
By: /s/ Daniel P. Buettin
----------------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
FRONTSTEP SOLUTIONS GROUP, INC.
an Ohio corporation
By: /s/ Daniel P. Buettin
----------------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
brightwhite solutions, inc.
an Ohio corporation
By: /s/ Daniel P. Buettin
----------------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
FRONTSTEP CANADA, INC.
an Ontario corporation
By: /s/ Daniel P. Buettin
----------------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent and as a Lender
By: /s/ Katy J. Brooks
----------------------------------------------
Name: Katy J. Brooks
Title: VP
-101-
104
9062208.6
TABLE OF CONTENTS
PAGE
----
1. DEFINITIONS AND CONSTRUCTION..........................................................................1
1.1 DEFINITIONS...........................................................................................1
-----------
1.2 ACCOUNTING TERMS.....................................................................................24
----------------
1.3 CODE.................................................................................................24
----
1.4 CONSTRUCTION.........................................................................................24
------------
1.5 SCHEDULES AND EXHIBITS...............................................................................25
----------------------
2. LOAN AND TERMS OF PAYMENT............................................................................25
2.1 REVOLVER ADVANCES....................................................................................25
-----------------
2.2 TERM LOAN............................................................................................26
---------
2.3 BORROWING PROCEDURES AND SETTLEMENTS.................................................................26
------------------------------------
2.4 PAYMENTS.............................................................................................32
--------
2.5 OVERADVANCES.........................................................................................35
------------
2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND CALCULATIONS..........................35
---------------------------------------------------------------------------
2.7 CASH MANAGEMENT......................................................................................37
---------------
2.8 CREDITING PAYMENTS; FLOAT CHARGE.....................................................................38
--------------------------------
2.9 DESIGNATED ACCOUNT...................................................................................38
------------------
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS...............................................39
------------------------------------------------------
2.11 FEES.................................................................................................39
----
2.12 LETTERS OF CREDIT....................................................................................40
-----------------
2.13 LIBOR OPTION.........................................................................................43
------------
2.14 CAPITAL REQUIREMENTS.................................................................................45
--------------------
2.15 JOINT AND SEVERAL LIABILITY OF BORROWERS.............................................................45
----------------------------------------
3. CONDITIONS; TERM OF AGREEMENT........................................................................48
3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT..............................................48
-------------------------------------------------------
3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT.............................................51
--------------------------------------------------------
3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT.....................................................52
------------------------------------------------
3.4 TERM.................................................................................................52
----
3.5 EFFECT OF TERMINATION................................................................................53
---------------------
3.6 EARLY TERMINATION BY BORROWERS.......................................................................53
------------------------------
4. CREATION OF SECURITY INTEREST........................................................................53
4.1 GRANT OF SECURITY INTEREST...........................................................................53
--------------------------
4.2 NEGOTIABLE COLLATERAL................................................................................54
---------------------
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE COLLATERAL...............................54
----------------------------------------------------------------------
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED........................................................54
---------------------------------------------
4.5 POWER OF ATTORNEY....................................................................................55
-----------------
4.6 RIGHT TO INSPECT.....................................................................................55
----------------
105
4.7 CONTROL AGREEMENTS...................................................................................55
------------------
5. REPRESENTATIONS AND WARRANTIES.......................................................................55
5.1 NO ENCUMBRANCES......................................................................................56
---------------
5.2 ELIGIBLE ACCOUNTS....................................................................................56
-----------------
5.3 [Intentionally Omitted]..............................................................................56
5.4 EQUIPMENT............................................................................................56
---------
5.5 LOCATION OF INVENTORY AND EQUIPMENT..................................................................57
-----------------------------------
5.6 INVENTORY RECORDS....................................................................................57
-----------------
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN.............................................................57
----------------------------------------
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.....................................................57
------------------------------------------------
5.9 DUE AUTHORIZATION; NO CONFLICT.......................................................................58
------------------------------
5.10 LITIGATION...........................................................................................58
----------
5.11 NO MATERIAL ADVERSE CHANGE...........................................................................58
--------------------------
5.12 FRAUDULENT TRANSFER..................................................................................59
-------------------
5.13 EMPLOYEE BENEFITS....................................................................................59
-----------------
5.14 ENVIRONMENTAL CONDITION..............................................................................59
-----------------------
5.15 BROKERAGE FEES.......................................................................................59
--------------
5.16 INTELLECTUAL PROPERTY................................................................................59
---------------------
5.17 LEASES...............................................................................................61
------
5.18 DDAS.................................................................................................61
----
5.19 COMPLETE DISCLOSURE..................................................................................61
-------------------
5.20 INDEBTEDNESS.........................................................................................62
------------
5.21 MAINTENANCE CONTRACTS................................................................................62
---------------------
6. AFFIRMATIVE COVENANTS................................................................................62
6.1 ACCOUNTING SYSTEM....................................................................................62
-----------------
6.2 COLLATERAL REPORTING.................................................................................62
--------------------
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES..........................................................63
-------------------------------------------
6.4 [INTENTIONALLY OMITTED]..............................................................................65
6.5 RETURN...............................................................................................65
------
6.6 MAINTENANCE OF PROPERTIES............................................................................66
-------------------------
6.7 TAXES................................................................................................66
-----
6.8 INSURANCE............................................................................................66
---------
6.9 LOCATION OF INVENTORY AND EQUIPMENT..................................................................67
-----------------------------------
6.10 COMPLIANCE WITH LAWS.................................................................................67
--------------------
6.11 LEASES...............................................................................................67
------
6.12 BROKERAGE COMMISSIONS................................................................................67
---------------------
6.13 EXISTENCE............................................................................................67
---------
6.14 ENVIRONMENTAL........................................................................................67
-------------
6.15 DISCLOSURE UPDATES...................................................................................68
------------------
6.16 INTELLECTUAL PROPERTY................................................................................68
---------------------
6.17 COPYRIGHT REGISTRATIONS; DEPOSIT MATERIALS...........................................................68
------------------------------------------
6.18 MAINTENANCE CONTRACTS................................................................................69
---------------------
106
7. NEGATIVE COVENANTS...................................................................................69
------------------
7.1 INDEBTEDNESS.........................................................................................69
------------
7.2 LIENS................................................................................................70
-----
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES..................................................................70
-----------------------------------
7.4 DISPOSAL OF ASSETS...................................................................................70
------------------
7.5 CHANGE NAME..........................................................................................70
-----------
7.6 GUARANTEE............................................................................................70
---------
7.7 NATURE OF BUSINESS...................................................................................71
------------------
7.8 PREPAYMENTS AND AMENDMENTS...........................................................................71
--------------------------
7.9 CHANGE OF CONTROL....................................................................................71
-----------------
7.10 CONSIGNMENTS.........................................................................................71
------------
7.11 DISTRIBUTIONS........................................................................................71
-------------
7.12 ACCOUNTING METHODS...................................................................................72
------------------
7.13 INVESTMENTS..........................................................................................72
-----------
7.14 TRANSACTIONS WITH AFFILIATES.........................................................................72
----------------------------
7.15 SUSPENSION...........................................................................................72
----------
7.16 COMPENSATION.........................................................................................72
------------
7.17 USE OF PROCEEDS......................................................................................72
---------------
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT WITH BAILEES...................72
----------------------------------------------------------------------------------
7.19 SECURITIES ACCOUNTS..................................................................................73
-------------------
7.20 FINANCIAL COVENANTS..................................................................................73
-------------------
8. EVENTS OF DEFAULT....................................................................................75
9. THE LENDER GROUP'S RIGHTS AND REMEDIES...............................................................76
9.1 RIGHTS AND REMEDIES..................................................................................76
-------------------
9.2 REMEDIES CUMULATIVE..................................................................................78
-------------------
10. TAXES AND EXPENSES...................................................................................79
11. WAIVERS; INDEMNIFICATION.............................................................................79
11.1 DEMAND; PROTEST; ETC.................................................................................79
--------------------
11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL..........................................................79
-------------------------------------------
11.3 INDEMNIFICATION......................................................................................79
---------------
12. NOTICES..............................................................................................80
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...........................................................81
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS...........................................................82
14.1 ASSIGNMENTS AND PARTICIPATIONS.......................................................................82
------------------------------
14.2 SUCCESSORS...........................................................................................84
----------
107
15. AMENDMENTS; WAIVERS..................................................................................85
15.1 AMENDMENTS AND WAIVERS...............................................................................85
----------------------
15.2 REPLACEMENT OF HOLDOUT LENDER........................................................................86
-----------------------------
15.3 NO WAIVERS; CUMULATIVE REMEDIES......................................................................86
-------------------------------
16. AGENT; THE LENDER GROUP..............................................................................86
16.1 APPOINTMENT AND AUTHORIZATION OF AGENT...............................................................86
--------------------------------------
16.2 DELEGATION OF DUTIES.................................................................................87
--------------------
16.3 LIABILITY OF AGENT...................................................................................87
------------------
16.4 RELIANCE BY AGENT....................................................................................88
-----------------
16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT................................................................88
-------------------------------------
16.6 CREDIT DECISION......................................................................................88
---------------
16.7 COSTS AND EXPENSES; INDEMNIFICATION..................................................................89
-----------------------------------
16.8 AGENT IN INDIVIDUAL CAPACITY.........................................................................90
----------------------------
16.9 SUCCESSOR AGENT......................................................................................90
---------------
16.10 LENDER IN INDIVIDUAL CAPACITY.....................................................................90
-----------------------------
16.11 WITHHOLDING TAXES.................................................................................91
-----------------
16.12 COLLATERAL MATTERS................................................................................93
------------------
16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS...........................................93
-------------------------------------------------------
16.14 AGENCY FOR PERFECTION.............................................................................94
---------------------
16.15 PAYMENTS BY AGENT TO THE LENDERS..................................................................94
--------------------------------
16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS..............................................94
----------------------------------------------------
16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS BY LENDERS;
-------------------------------------------------------------------------------
OTHER REPORTS AND INFORMATION.....................................................................95
-----------------------------
16.18 SEVERAL OBLIGATIONS; NO LIABILITY.................................................................96
---------------------------------
17. GENERAL PROVISIONS...................................................................................96
17.1 EFFECTIVENESS........................................................................................96
-------------
17.2 SECTION HEADINGS.....................................................................................96
----------------
17.3 INTERPRETATION.......................................................................................96
--------------
17.4 SEVERABILITY OF PROVISIONS...........................................................................97
--------------------------
17.5 AMENDMENTS IN WRITING................................................................................97
---------------------
17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION................................................................97
-------------------------------------
17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS.............................................................97
----------------------------------------
17.8 INTEGRATION..........................................................................................97
-----------
17.9 PARENT AS AGENT FOR BORROWERS........................................................................97
-----------------------------
17.10 CURRENCY; JUDGMENT................................................................................98
------------------
18. ISSUANCE OF EQUITY INTERESTS TO FOOTHILL.............................................................99
18.1 AUTHORIZATION AND ISSUANCE OF WARRANTS...............................................................99
--------------------------------------
18.2 SECURITIES ACT MATTERS...............................................................................99
----------------------
18.3 CERTAIN TAXES.......................................................................................100
-------------
18.4 CANCELLATION AND ISSUANCE...........................................................................100
-------------------------
108
Exhibit A-1 Form of Assignment and Acceptance
Exhibit B-1 Form of Borrowing Base Certificate
Exhibit C-1 Form of Compliance Certificate
Exhibit L-1 Form of LIBOR Notice
Exhibit M-1 Form of Maintenance Contract
Exhibit S-1 Form of Source Code Escrow Agreement
Exhibit W-1 Form of Warrant
Schedule C-1 Commitments
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 2.8(a) Cash Management Banks
Schedule 5.5 Locations of Inventory and Equipment
Schedule 5.7 Chief Executive Office; FEIN
Schedule 5.8(b) Capitalization of Borrowers
Schedule 5.8(c) Capitalization of Borrowers' Subsidiaries
Schedule 5.10 Litigation
Schedule 5.14 Environmental Matters
Schedule 5.16(a) Intellectual Property
Schedule 5.16(d) Syteline Software
Schedule 5.16(e) Breakdown of Maintenance Revenues
Schedule 5.18 Demand Deposit Accounts
Schedule 5.20 Permitted Indebtedness
Schedule 7.13 Permitted Investments
Schedule 7.14 Affiliate Transactions
*The Registrant has filed separately Exhibit W-1, the Form of Warrant, as
Exhibit 4(g) to this Annual Report on Form 10-K. The Registrant has omitted all
other listed Exhibits and Schedules from this filing. The Registrant will
furnish a copy of any such omitted Exhibit or Schedule to the Securities and
Exchange Commission upon request.
EX-10.X
7
l90205aex10-x.txt
EXHIBIT 10(X)
1
EXHIBIT 10(y) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
PLEDGE AND SECURITY AGREEMENT (FOREIGN)
---------------------------------------
PLEDGE AND SECURITY AGREEMENT dated July 17, 2001, made by
Frontstep, Inc., an Ohio corporation (THE "PARENT"), and Frontstep Solutions
Group, Inc., an Ohio corporation ("SOLUTIONS" and, together with the Parent,
individually a "PLEDGOR" and collectively the "PLEDGORS"), in favor of Foothill
Capital Corporation, as agent for the Lenders party to the Loan Agreement
referred to below (in such capacity, the "AGENT").
WITNESSETH:
----------
WHEREAS, the Pledgors, brightwhite solutions, inc., Frontstep
Canada, Inc. (together with the Pledgors, the "BORROWERS"), the lenders from
time to time party thereto (the "LENDERS") and the Agent, are parties to a Loan
and Security Agreement, dated as of July 17, 2001 (such Agreement, as amended,
restated or otherwise modified from time to time, being hereinafter referred to
as the "LOAN AGREEMENT");
WHEREAS, pursuant to the Loan Agreement, the Lenders have
agreed to make loans (each a "LOAN" and collectively the "LOANS") to the
Borrowers in an aggregate principal amount at any one time outstanding not to
exceed the Maximum Revolver Amount (as defined in the Loan Agreement);
WHEREAS, it is a condition precedent to the making of any Loan
pursuant to the Loan Agreement that each Pledgor shall have executed and
delivered to the Agent a pledge and security agreement providing for the pledge
to the Agent for the benefit of the Lenders of, and the grant to the Agent for
the benefit of the Lenders of a security interest in, certain indebtedness from
time to time owing to any Pledgor and certain of the outstanding shares of
capital stock from time to time owned by each Pledgor of each Subsidiary and
other corporation now or hereafter existing and in which such Pledgor has any
interest at any time;
WHEREAS, the Pledgors are mutually dependent on each other in
the conduct of their respective businesses as an integrated operation, with the
credit needed from time to time by each Pledgor often being provided through
financing obtained by the other Pledgor and the ability to obtain such financing
being dependent on the successful operations of all of the Pledgors as a whole;
and
WHEREAS, each Pledgor has determined that the execution,
delivery and performance of this Agreement directly benefits, and are in the
best interest of such Pledgor;
NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to induce the Lenders to make and maintain the
Loans pursuant to the Loan Agreement, the Pledgors hereby jointly and severally
agree with the Agent as follows:
SECTION 1. DEFINITIONS. All terms used in this Agreement which
are defined in the Loan Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the "CODE") currently in effect in the State of New York and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein.
3
SECTION 2. PLEDGE AND GRANT OF SECURITY INTEREST. As
collateral security for all of the Obligations (as defined in Section 3 hereof),
each Pledgor hereby pledges and assigns to the Agent, and grants to the Agent
for the benefit of the Lenders a continuing security interest in, the following
(the "PLEDGED COLLATERAL"):
(a) sixty-six percent (66%) of the shares of stock and other
equity interests, whether or not evidenced or represented by any stock
certificate, certificated security or other instrument, as more fully described
in Schedule I hereto (the "PLEDGED SHARES"), issued by the corporations,
companies and other Persons described in such Schedule I (the "EXISTING
SUBSIDIARIES"), the certificates (if any) representing the Pledged Shares, all
options and other rights, contractual or otherwise, in respect thereof and all
dividends, distributions, cash, instruments, investment property and other
property (including but not limited to, any stock dividend and any distribution
in connection with a stock split) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares;
(b) sixty-six percent (66%) of the shares of stock,
partnership interests, member interests and other equity interests and all other
shares of stock, partnership interests, member interests and other equity
interests now or hereafter owned by any Pledgor and issued by any Subsidiary of
a Pledgor that is organized outside the United States of America and by any
other corporation, partnership, limited liability company, trust or any other
Person organized outside the United States of America (together with the
Existing Subsidiaries, collectively, the "ISSUERS"), whether or not evidenced or
represented by any stock certificate, certificated security or other instrument
and whether now or hereafter owned by a Pledgor (together with the Pledged
Shares, collectively, the "PLEDGED SECURITIES"), the certificates (if any)
representing the Pledged Securities, shares or other interests, all options and
other rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Securities and such other shares and
interests;
(c) sixty-six percent (66%) of all additional shares of stock
or other equity interests, from time to time acquired by any Pledgor, of any
Issuer, the certificates (if any) representing such additional shares, all
options and other rights, contractual or otherwise, in respect thereof and all
dividends, distributions, cash, instruments, investment property and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such additional shares;
(d) all security entitlements of any Pledgor in any and all of
the foregoing; and
(e) all proceeds of any and all of the foregoing;
in each case, whether now owned or hereafter acquired by any Pledgor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise); PROVIDED, HOWEVER, if the pledge of any
Pledged Securities hereunder shall be prohibited under the laws of the
jurisdiction under which such Pledged Securities are issued, such Pledged
Securities shall be excluded from the Pledged Collateral.
-2-
4
SECTION 3. SECURITY FOR OBLIGATIONS. The security interest
created hereby in the Pledged Collateral constitutes continuing collateral
security for all of the following obligations, whether now existing or hereafter
incurred (the "OBLIGATIONS"):
(a) the prompt payment by each Pledgor, as and when due and
payable (by scheduled maturity, required prepayment, acceleration, demand or
otherwise), of all amounts from time to time owing by it in respect of the Loan
Agreement and the other Loan Documents, including, without limitation, principal
of and interest on the Loans (including, without limitation, all interest that
accrues after the commencement of any case, proceeding or other action relating
to the bankruptcy, insolvency or reorganization of any Pledgor, whether or not
the payment of such interest is unenforceable or is not allowable due to the
existence of such case, proceeding or other action), all fees, commissions,
expense reimbursements, indemnifications and all other amounts due or to become
due under any Loan Document; and
(b) the due performance and observance by each Pledgor of all
of its other obligations from time to time existing in respect of the Loan
Agreement and all other Loan Documents.
SECTION 4. DELIVERY OF THE PLEDGED COLLATERAL.
(a) (i) All certificates currently representing the Pledged
Securities shall be delivered to the Agent on or prior to the execution and
delivery of this Agreement. All other certificates and instruments constituting
Pledged Collateral from time to time or required to be pledged to the Agent
pursuant to the terms of this Agreement or the Loan Agreement (the "ADDITIONAL
COLLATERAL") shall be delivered to the Agent promptly upon the receipt thereof
by or on behalf of a Pledgor. All such certificates and instruments shall be
held by or on behalf of the Agent pursuant hereto and shall be delivered in
suitable form for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
reasonably satisfactory to the Agent. If any Pledged Collateral consists of
uncertificated securities, the relevant Pledgor shall cause the Agent (or its
designated custodian or nominee) to become the registered holder thereof, or
cause each issuer of such securities to agree that it will comply with
instructions originated by the Agent with respect to such securities without
further consent by such Pledgor. If any Pledged Collateral consists of security
entitlements, the relevant Pledgor shall transfer such security entitlements to
the Agent (or its custodian, nominee or other designee ), or cause the
applicable securities intermediary to agree that it will comply with entitlement
orders by the Agent without further consent by such Pledgor.
(ii) Within 5 Business Days of the receipt by a Pledgor
of any Additional Collateral, a Pledge Amendment, duly executed by such
Pledgor, in substantially the form of Schedule II hereto (a "PLEDGE AMENDMENT")
shall be delivered to the Agent, in respect of the Additional Collateral which
must be pledged pursuant to this Agreement and the Loan Agreement, which Pledge
Amendment shall from and after delivery thereof constitute part of Schedule I
hereto. Each Pledgor hereby authorizes the Agent to attach each Pledge
Amendment to this Agreement and agrees that all certificates or instruments
listed on any Pledge Amendment delivered to the Agent shall for all purposes
hereunder constitute Pledged Collateral and such Pledgor shall be deemed upon
delivery thereof to have made the representations and warranties set forth in
Section 5 with respect to such Additional Collateral.
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(b) If any Pledgor shall receive, by virtue of its being or
having been an owner of any Pledged Collateral, any (i) stock certificate
(including, without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by a Pledgor pursuant to Section
7 hereof) or in securities or other property or (iv) dividends or other
distributions in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or paid-in
surplus, such Pledgor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of
the Agent, shall segregate it from such Pledgor's other property and shall
deliver it forthwith to the Agent in the exact form received, with any necessary
indorsement and/or appropriate stock powers duly executed in blank, to be held
by the Agent for the benefit of the Lenders as Pledged Collateral and as further
collateral security for the Obligations.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Each Pledgor
jointly and severally represents and warrants as follows:
(a) The Pledged Securities have been duly authorized and
validly issued, are fully paid and nonassessable and, except as noted in
Schedule I hereto, constitute sixty-six percent (66%) of the issued shares of
capital stock of the applicable Issuer as of the date hereof. All other shares
of stock constituting Pledged Collateral will be, when issued, duly authorized
and validly issued, fully paid and nonassessable.
(b) The Pledgors are and will be at all times the legal and
beneficial owners of the Pledged Collateral free and clear of any Lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement and other Permitted Liens.
(c) The exercise by the Agent of any of its rights and
remedies hereunder will not contravene any law or any contractual restriction
binding on or affecting any Pledgor or any of its properties and will not result
in or require the creation of any Lien, security interest or other charge or
encumbrance upon or with respect to any of its properties other than pursuant to
this Agreement.
(d) With respect to the Pledged Securities issued by Frontstep
Canada, no authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required to be obtained or made for
(i) the due execution, delivery and performance by the applicable Pledgor of
this Agreement, (ii) the grant by the applicable Pledgor, or the perfection, of
the security interest purported to be created hereby in such Pledged Securities
or (iii) the exercise by the Agent of any of its rights and remedies hereunder
in respect of such Pledged Securities, except as may be required in connection
with any sale of such Pledged Securities by laws affecting the offering and sale
of securities generally.
(e) This Agreement creates a valid security interest in favor
of the Agent in the Pledged Collateral, as security for the Obligations. The
Agent's having possession of the
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certificates representing the Pledged Securities and all other certificates and
cash constituting Pledged Collateral from time to time results in the perfection
of such security interest. Such security interest is, or in the case of Pledged
Collateral constituting certificates and/or cash in which the Pledgor obtains
rights after the date hereof, will be, a perfected, first priority security
interest. All action necessary or desirable to perfect and protect such security
interest has been duly taken, except for the Agent's having possession of
certificates and cash constituting Pledged Collateral after the date hereof.
SECTION 6. COVENANTS AS TO THE PLEDGED COLLATERAL. So long as
any of the Obligations shall remain outstanding or any Commitment shall have not
been terminated, each Pledgor will, unless the Agent shall otherwise consent in
writing:
(a) keep adequate records concerning the Pledged Collateral
and permit the Agent or any agents or representatives thereof from time to time
as permitted by the Loan Agreement to examine and make copies of and abstracts
from such records;
(b) at its expense, promptly deliver to the Agent a copy of
each material notice or other material communication received by it in respect
of the Pledged Collateral;
(c) at its expense, defend the Agent's right, title and
security interest in and to the Pledged Collateral against the claims of any
Person;
(d) at its expense, at any time and from time to time,
promptly execute and deliver all further instruments and documents and take all
further action that may be reasonably necessary or desirable or that the Agent
may reasonably request in order to (i) perfect and protect the security interest
purported to be created hereby, (ii) enable the Agent to exercise and enforce
its rights and remedies hereunder in respect of the Pledged Collateral or (iii)
otherwise effect the purposes of this Agreement, including, without limitation,
delivering to the Agent irrevocable proxies in respect of the Pledged
Collateral;
(e) not sell, assign (by operation of law or otherwise),
exchange or otherwise dispose of any Pledged Collateral or any interest therein
except as permitted by Section 7(a)(i) hereof and by the Loan Agreement;
(f) not create or suffer to exist any Lien, security interest
or other charge or encumbrance upon or with respect to any Pledged Collateral
except for the security interest created hereby or other Permitted Liens;
(g) not make or consent to any amendment or other modification
or waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral except
pursuant to or as otherwise permitted under the Loan Documents;
(h) except as otherwise permitted under the Loan Agreement,
not permit the issuance by any Subsidiary of (i) any additional shares of any
class of capital stock of any Issuer that is a Subsidiary, (ii) any securities
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or
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exchangeable for, any such shares of capital stock or (iii) any warrants,
options, contracts or other commitments entitling any Person to purchase or
otherwise acquire any such shares of capital stock; and
(i) not take or fail to take any action which would in
any manner impair the enforceability of the Agent's security interest in any
Pledged Collateral.
SECTION 7. VOTING RIGHTS, DIVIDENDS, ETC. IN RESPECT OF THE
PLEDGED COLLATERAL.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) the Pledgors may exercise any and all voting and other
consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent with the terms of this Agreement, the Loan Agreement or the other
Loan Documents; PROVIDED, HOWEVER, that (A) no Pledgor will exercise or refrain
from exercising any such right, as the case may be, if the Agent gives a Pledgor
notice that, in the Agent's reasonable judgment, such action is reasonably
likely to have a Material Adverse Effect unless the Parent's Board of Directors
has authorized such right and (B) each Pledgor will give the Agent at least 5
Business Days' notice of the manner in which it intends to exercise, or the
reasons for refraining from exercising, any such right which is reasonably
likely to have a Material Adverse Effect;
(ii) the Pledgors may receive and retain any and all
dividends, interest or other distributions paid in respect of the Pledged
Collateral to the extent permitted by the Loan Agreement; PROVIDED, HOWEVER,
that any and all (A) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable or
otherwise distributed in respect of or in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and (C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, together with any
dividend, distribution or interest payment which at the time of such dividend,
distribution or interest payment was not permitted by the Loan Agreement shall
be, and shall forthwith be delivered to the Agent to hold as, Pledged Collateral
and shall, if received by a Pledgor, be received in trust for the benefit of the
Agent, shall be segregated from the other property or funds of such Pledgor, and
shall be forthwith delivered to the Agent in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Agent as Pledged Collateral and as further collateral security
for the Obligations; and
(iii) the Agent will execute and deliver (or cause to be
executed and delivered) to a Pledgor all such proxies and other instruments as
such Pledgor may reasonably request for the purpose of enabling such Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) of this Section 7(a) and to receive the dividends which it is
authorized to receive and retain pursuant to paragraph (ii) of this Section
7(a).
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(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to paragraph (i) of subsection (a) of this Section 7, and to receive
the dividends and interest payments which it would otherwise be authorized to
receive and retain pursuant to paragraph (ii) of subsection (a) of this Section
7, shall cease, and all such rights shall thereupon become vested in the Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends
and interest payments;
(ii) without limiting the generality of the foregoing, the
Agent may at its option exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any of the
Pledged Collateral as if it were the absolute owner thereof, including, without
limitation, the right to exchange, in its discretion, any and all of the Pledged
Collateral upon the merger, consolidation, reorganization, recapitalization or
other adjustment of any Issuer, or upon the exercise by any Issuer of any right,
privilege or option pertaining to any Pledged Collateral, and, in connection
therewith, to deposit and deliver any and all of the Pledged Collateral with any
committee, depository, transfer agent, registrar or other designated agent upon
such terms and conditions as it may determine; and
(iii) all dividends, distributions, interest and other
payments which are received by any Pledgor contrary to the provisions of
paragraph (i) of this Section 7(b) shall be received in trust for the benefit of
the Agent, shall be segregated from other funds of such Pledgor, and shall be
forthwith paid over to the Agent as Pledged Collateral in the exact form
received with any necessary indorsement and/or appropriate stock powers duly
executed in blank, to be held by the Agent as Pledged Collateral and as further
collateral security for the Obligations.
SECTION 8. ADDITIONAL PROVISIONS CONCERNING THE PLEDGED
COLLATERAL.
(a) Each Pledgor hereby authorizes the Agent to file, without
the signature of any Pledgor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Pledged
Collateral.
(b) Each Pledgor hereby irrevocably appoints the Agent as its
attorney-in-fact and proxy, with full authority in the place and stead of such
Pledgor and in the name of such Pledgor or otherwise, from time to time in the
Agent's discretion after the occurrence and during the continuance of an Event
of Default, to take any action and to execute any instrument which the Agent may
deem reasonably necessary or advisable to accomplish the purposes of this
Agreement (subject to the rights of such Pledgor under Section 7(a) hereof),
including, without limitation, to receive, indorse and collect all instruments
made payable to the Pledgor representing any dividend, interest payment or other
distribution in respect of any Pledged Collateral and to give full discharge for
the same. This power is coupled with an interest and is irrevocable until all of
the Obligations are paid in full after all Commitments have been terminated.
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(c) If any Pledgor fails to perform any agreement or
obligation contained herein, the Agent itself may perform, or cause performance
of, such agreement or obligation, and the expenses of the Agent incurred in
connection therewith shall be jointly and severally payable by the Pledgors
pursuant to Section 10 hereof and shall be secured by the Pledged Collateral.
(d) Other than the exercise of reasonable care to assure the
safe custody of the Pledged Collateral while held hereunder, the Agent shall
have no duty or liability to preserve rights pertaining thereto and shall be
relieved of all responsibility for the Pledged Collateral upon surrendering it
or tendering surrender of it to the Pledgor. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Agent accords its own property, it being
understood that the Agent shall not have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relating to any Pledged Collateral, whether or not the Agent
has or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral.
(e) The powers conferred on the Agent hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any Pledged
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Agent shall have no duty as to any Pledged Collateral or as to
the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Pledged Collateral.
(f) The Agent may at any time in its discretion after the
occurrence and during the continuance of an Event of Default (i) without notice
to any Pledgor, transfer or register in the name of the Agent or any of its
nominees any or all of the Pledged Collateral, subject only to the revocable
rights of the Pledgors under Section 7(a) hereof, and (ii) exchange certificates
or instruments constituting Pledged Collateral for certificates or instruments
of smaller or larger denominations.
SECTION 9. REMEDIES UPON DEFAULT. If any Event of Default
shall have occurred and be continuing:
(a) The Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the Code then in effect in the State of New York; and without
limiting the generality of the foregoing and without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Agent may deem commercially
reasonable. Each Pledgor agrees that, to the extent notice of sale shall be
required by law, at least 10 days' notice to such Pledgor of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be obligated to make any
sale of Pledged Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
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(b) Each Pledgor recognizes that it may be impracticable to
effect a public sale of all or any part of the Pledged Securities or any other
securities constituting Pledged Collateral and that the Agent may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the
seller than the prices and other terms which might have been obtained at a
public sale and, notwithstanding the foregoing, agrees that such private sales
shall be deemed to have been made in a commercially reasonable manner and that
the Agent shall have no obligation to delay sale of any such securities for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act of 1933, as amended
(the "SECURITIES ACT"). Each Pledgor further acknowledges and agrees that any
offer to sell such securities which has been (i) publicly advertised on a bona
fide basis in a newspaper or other publication of general circulation in the
financial community of New York, New York (to the extent that such an offer may
be so advertised without prior registration under the Securities Act) or (ii)
made privately in the manner described above to not less than fifteen BONA FIDE
offerees shall be deemed to involve a "public disposition" for the purposes of
Section 9-610 of the Code (or any successor or similar, applicable statutory
provision) as then in effect in the State of New York, notwithstanding that such
sale may not constitute a "public offering" under the Securities Act, and that
the Agent may, in such event, bid for the purchase of such securities.
(c) Any cash held by the Agent as Pledged Collateral and all
cash proceeds received by the Agent in respect of any sale of, collection from,
or other realization upon, all or any part of the Pledged Collateral may, in the
discretion of the Agent, be held by the Agent as collateral for, and/or then or
at any time thereafter applied (after payment of any amounts payable to the
Agent pursuant to Section 10 hereof) in whole or in part by the Agent against,
all or any part of the Obligations in accordance with Section 2.4(b) of the Loan
Agreement. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all of the Obligations after all Commitments
have been terminated shall be paid over to the Pledgors or to such Person as may
be lawfully entitled to receive such surplus.
(d) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all amounts to which the Agent
and the Lenders are legally entitled, the Pledgors shall be jointly and
severally liable for the deficiency, together with interest thereon at the
highest rate specified in the Loan Agreement for interest on overdue principal
thereof or such other rate as shall be fixed by applicable law, together with
the costs of collection and the reasonable fees, costs and expenses of any
attorneys employed by the Agent to collect such deficiency.
SECTION 10. INDEMNITY AND EXPENSES.
(a) Each Pledgor jointly and severally agrees to indemnify and
hold the Agent harmless from and against any and all claims, damages, losses,
liabilities, obligations, penalties, reasonable costs and expenses (including,
without limitation, reasonable legal fees and disbursements of the Agent's
counsel) to the extent that they arise out of or otherwise result from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims,
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losses or liabilities resulting solely and directly from the Agent's gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction.
(b) The Pledgors jointly and severally agree that upon demand
the Pledgors will pay to the Agent the amount of any and all reasonable
out-of-pocket costs and expenses, including the reasonable fees and
disbursements of the Agent's counsel and of any experts and agents, which the
Agent may incur in connection with (i) the preparation, negotiation, execution,
delivery, recordation, administration, amendment, waiver or other modification
or termination of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Pledged Collateral, (iii) the exercise or enforcement of any of the rights of
the Agent hereunder, or (iv) the failure by any Pledgor to perform or observe
any of the provisions hereof.
SECTION 11. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to a Pledgor or to the Agent, to such Person at its address specified in the
Loan Agreement; or as to any such Person at such other address as shall be
designated by such Person in a written notice to such other Persons complying as
to delivery with the terms of this Section 11. All such notices and other
communications shall be effective (i) if sent by certified mail, return receipt
requested, when received or 3 Business Days after mailing, whichever first
occurs, (ii) if telecopied, when transmitted and confirmation is received, if
transmitted on a Business Day and, if not, on the next Business Day or (iii) if
delivered, upon delivery, if delivered on a Business Day and, if not, on the
next Business Day.
SECTION 12. MISCELLANEOUS.
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by each Pledgor and the Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
any Pledgor therefrom, shall be effective unless it is in writing and signed by
the Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) No failure on the part of the Agent to exercise, and no
delay in exercising, any right hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Agent or any Lender provided herein
and in the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the Agent
under any Loan Document against any party thereto are not conditional or
contingent on any attempt by such Agent to exercise any of its rights under any
other Loan Document against such party or against any other Person, including
but not limited to, any Pledgor.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
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(d) This Agreement shall create a continuing security interest
in the Pledged Collateral and shall (i) remain in full force and effect until
the payment in full or release of the Obligations after all Commitments have
been terminated and (ii) be binding on each Pledgor and its successors and
assigns and shall inure, together with all rights and remedies of the Agent and
the Lenders hereunder, to the benefit of the Agent and the Lenders and their
respective successors, transferees and assigns. Without limiting the generality
of clause (ii) of the immediately preceding sentence, the Agent and the Lenders
may assign or otherwise transfer their rights and obligations under this
Agreement and any other Loan Document to any other Person in accordance with
Section 14.1 of the Loan Agreement, and such other Person shall thereupon become
vested with all of the benefits in respect thereof granted to the Agent and the
Lenders herein or otherwise. Upon any such assignment or transfer, all
references in this Agreement to the Agent or any Lender shall mean the assignee
of the Agent or such Lender. None of the rights or obligations of the Pledgor
hereunder may be assigned or otherwise transferred without the prior written
consent of the Agent, and any such assignment or transfer shall be null and
void.
(e) Upon the satisfaction in full of the Obligations after the
all Commitments have been terminated, (i) this Agreement and the security
interests created hereby shall terminate and all rights to the Pledged
Collateral shall revert to the Pledgors, and (ii) the Agent will, upon the
Pledgors' request and at the Pledgors' expense, (A) return to the Pledgors such
of the Pledged Collateral as shall not have been sold or otherwise disposed of
or applied pursuant to the terms hereof, and (B) execute and deliver to the
Pledgors, without recourse, representation or warranty, such documents as the
Pledgors shall reasonably request to evidence such termination.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except as required by
mandatory provisions of law and except to the extent that the validity and
perfection or the perfection and the effect of perfection or non-perfection of
the security interest created hereby, or remedies hereunder, in respect of any
particular Pledged Collateral are governed by the law of a jurisdiction other
than the State of New York.
(g) This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
(h) The Agent may, in its sole and absolute discretion,
enforce the provisions hereof against any of the Pledgors and shall not be
required to proceed against all Pledgors jointly or seek payment from the
Pledgors ratably. In addition, the Agent may, in its sole and absolute
discretion, select the Pledged Collateral of any one or more of the Pledgors for
sale or application to the Obligations, without regard to the ownership of such
Pledged Collateral, and shall not be required to make such selection ratably
from the Pledged Collateral owned by all of the Pledgors. The release or
discharge of any Pledgor by the Agent shall not release or discharge any other
Pledgor from the obligations of such Person hereunder.
SECTION 13. SUBMISSION TO JURISDICTION; WAIVERS. Each Pledgor
hereby irrevocably and unconditionally:
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(a) Submits for itself and its property in any action, suit or
proceeding relating to this Pledge Agreement or any other Loan Document to which
it is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts thereof;
(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process
in any such action, suit or proceeding by the mailing of copies of such process
by registered or certified mail (or any substantially similar form of mail),
postage prepaid, to such Pledgor, at its address set forth in Section 11 hereof
or at such other address of which the Agent shall have been notified pursuant
thereto;
(d) To the extent that such Pledgor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to itself or its
property, such Pledgor hereby irrevocably waives such immunity in respect of its
obligations under this Agreement;
(e) Agrees that nothing herein shall affect the right of the
Agent to effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(f) Waives any right it may have to claim or recover in any
legal action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
SECTION 14. JURY TRIAL WAIVER. EACH PLEDGOR AND THE AGENT (BY
ITS ACCEPTANCE OF THIS AGREEMENT) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING
THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY AMENDMENT, MODIFICATION OR OTHER
DOCUMENT NOW OR HEREAFTER DELIVERED IN CONNECTION WITH ANY OF THE FOREGOING, AND
AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each Pledgor has caused this Agreement to
be executed and delivered by its officer thereunto duly authorized, as of the
date first above written.
Frontstep, Inc.
By: /s/ Daniel P. Buettin
-------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
Frontstep Solutions Group, Inc.
By: /s/ Daniel P. Buettin
------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
ACCEPTED AND AGREED:
FOOTHILL CAPITAL CORPORATION,
as Agent
By: /s/ Katy J. Brooks
---------------------------------------
Name: Katy J. Brooks
Title: V.P.
15
SCHEDULE I TO PLEDGE AND SECURITY AGREEMENT
Pledged Shares
--------------
Record Number of
Name of Issuer Owner Shares Pledged
-------------- ----- --------------
Frontstep Canada, Inc. Frontstep, Inc. 3
Symix (UK) Ltd. (fka Frontstep Frontstep, Inc. .66
(UK) Ltd)
Frontstep (UK) Ltd. (fka Symix Frontstep, Inc. 190,600
(UK) Ltd.)
Frontstep B.V. (fka Symix Frontstep, Inc. 11.88 (no share certificates issued)
Systems, B.V.)
Symix France, SA Frontstep, Inc. 19,800 (no share certificates issued)
Frontstep (Europe) Ltd. Frontstep, Inc. .66
Frontstep (Singapore) Pte Ltd. Frontstep Solutions 7,616
(fka Symix Computer Systems Group, Inc.
(Singapore) Pte. Ltd.)
Frontstep (Thailand) Ltd. (fka Frontstep Solutions 13,200
Symix Asia Co. Ltd.) Group, Inc.
Symix Japan Ltd. Frontstep Solutions 990
Group, Inc.
Symix Japan Ltd. Frontstep, Inc. .66
Symix Computer Systems Frontstep Solutions
(Shanghai) Co. Ltd. Group, Inc.
Symix Computer Systems (Mexico) Frontstep Solutions Group .66 quota at $100 (no share certificates
S. De R.L. de C.V. Inc. issued)
Symix Computer Systems (Mexico) Frontstep, Inc. .66 quota at $2,900 (no share
S. De R.L. de C.V. certificates issued)
Pledged Shares
--------------
Number of Certificate
Name of Issuer Shares Outstanding Class No.(s)
-------------- ------------------ ----- ------
Frontstep Canada, Inc. 3 Common C-2
Symix (UK) Ltd. (fka Frontstep 1 Ordinary 1
(UK) Ltd)
Frontstep (UK) Ltd. (fka Symix 288,788 Ordinary 1A
(UK) Ltd.)
Frontstep B.V. (fka Symix 18 Ordinary N/A
Systems, B.V.)
Symix France, SA 30,000 Ordinary N/A
Frontstep (Europe) Ltd. 1 Ordinary 1
Frontstep (Singapore) Pte Ltd. 11,539 Ordinary 3 & 4
(fka Symix Computer Systems
(Singapore) Pte. Ltd.)
Frontstep (Thailand) Ltd. (fka 20,000 Ordinary 24
Symix Asia Co. Ltd.)
Symix Japan Ltd. 1,500 Common 1A
Symix Japan Ltd. 1,500 Common 1B
Symix Computer Systems
(Shanghai) Co. Ltd.
Symix Computer Systems (Mexico) 2 quota Quota N/A
S. De R.L. de C.V.
Symix Computer Systems (Mexico) 2 quota Quota N/A
S. De R.L. de C.V.
16
SCHEDULE II
TO
PLEDGE AND SECURITY AGREEMENT
PLEDGE AMENDMENT
----------------
This Pledge Amendment, dated ___________________________, is
delivered pursuant to Section 4 of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement, dated as of _______, 2001, made by Frontstep, Inc. and
Frontstep Solutions Group, Inc., each an Ohio corporation, in favor of Foothill
Capital Corporation, as Agent for the Lenders party to the Loan Agreement
referred to in the Pledge Agreement, as it may heretofore have been or hereafter
may be amended or otherwise modified or supplemented from time to time and that
the promissory notes or shares listed on this Pledge Amendment shall be and
become part of the Pledged Collateral referred to in said Pledge Agreement and
shall secure all of the Obligations referred to in said Pledge Agreement.
PLEDGED SHARES
Name of Issuer Number of Shares Class Certificate No(s)
-------------- ---------------- ----- -----------------
[PLEDGOR]
By: ___________________________
Name:
Title:
EX-10.Y
8
l90205aex10-y.txt
EXHIBIT 10(Y)
1
EXHIBIT 10(z) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
PLEDGE AND SECURITY AGREEMENT (DOMESTIC)
----------------------------------------
PLEDGE AND SECURITY AGREEMENT dated July 17, 2001 (this
"AGREEMENT"), made by Frontstep, Inc., an Ohio corporation (the "PARENT"), and
Frontstep Solutions Group, Inc., an Ohio corporation ("SOLUTIONS" and, together
with the Parent, individually a "PLEDGOR" and collectively the "PLEDGORS"), in
favor of Foothill Capital Corporation, as agent for the Lenders party to the
Loan Agreement referred to below (in such capacity, the "Agent").
WITNESSETH:
-----------
WHEREAS, the Pledgors, brightwhite solutions, inc., Frontstep
Canada, Inc. (together with the Pledgors, the "BORROWERS"), the lenders from
time to time party thereto (the "LENDERS") and the Agent, are parties to a Loan
and Security Agreement, dated as of July 17, 2001 (such Agreement, as amended,
restated or otherwise modified from time to time, being hereinafter referred to
as the "LOAN AGREEMENT");
WHEREAS, pursuant to the Loan Agreement, the Lenders have
agreed to make loans (each a "LOAN" and collectively the "LOANS") to the
Borrowers in an aggregate principal amount at any one time outstanding not to
exceed the Maximum Revolver Amount (as defined in the Loan Agreement);
WHEREAS, it is a condition precedent to the making of any Loan
pursuant to the Loan Agreement that each Pledgor shall have executed and
delivered to the Agent a pledge and security agreement providing for the pledge
to the Agent for the benefit of the Lenders of, and the grant to the Agent for
the benefit of the Lenders of a security interest in, certain indebtedness from
time to time owing to any Pledgor and certain of the outstanding shares of
capital stock from time to time owned by each Pledgor of each Subsidiary and
other corporation now or hereafter existing and in which such Pledgor has any
interest at any time;
WHEREAS, the Pledgors are mutually dependent on each other in
the conduct of their respective businesses as an integrated operation, with the
credit needed from time to time by each Pledgor often being provided through
financing obtained by the other Pledgor and the ability to obtain such financing
being dependent on the successful operations of all of the Pledgors as a whole;
and
WHEREAS, each Pledgor has determined that the execution,
delivery and performance of this Agreement directly benefits, and are in the
best interest of such Pledgor;
NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to induce the Lenders to make and maintain the
Loans pursuant to the Loan Agreement, the Pledgors hereby jointly and severally
agree with the Agent as follows:
SECTION 1. DEFINITIONS. All terms used in this Agreement which
are defined in the Loan Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the
3
"CODE") currently in effect in the State of New York and which are not otherwise
defined herein shall have the same meanings herein as set forth therein.
SECTION 2. PLEDGE AND GRANT OF SECURITY INTEREST. As
collateral security for all of the Obligations (as defined in Section 3 hereof),
each Pledgor hereby pledges and assigns to the Agent, and grants to the Agent
for the benefit of the Lenders a continuing security interest in, the following
(the "PLEDGED COLLATERAL"):
(a) the indebtedness described in Schedule I hereto and all
indebtedness from time to time required to be pledged to the Agent pursuant to
the terms of the Loan Agreement (the "PLEDGED DEBT"), the promissory notes and
other instruments evidencing the Pledged Debt and all interest, cash,
instruments, investment property and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Debt;
(b) the shares of stock and other equity interests described
in Schedule II hereto (the "PLEDGED SHARES") whether or not evidenced or
represented by any stock certificate, certificated security or other instrument,
issued by the corporations, limited partnerships and limited liability companies
described in such Schedule II (the "EXISTING SUBSIDIARIES"), the certificates
(if any) representing the Pledged Shares, all options and other rights,
contractual or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property (including but not
limited to, any stock dividend and any distribution in connection with a stock
split) from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
(c) the shares of stock, partnership interests, member
interests and other equity interests and all other shares of stock, partnership
interests, member interests and other equity interests now or hereafter owned by
any Pledgor and issued by any Subsidiary of a Pledgor that is organized under
the laws of any state of the United States of America and by any other
corporation, partnership, limited liability company, trust or any other Person
organized under the laws of any state of the United States of America (together
with the Existing Subsidiaries, collectively, the "ISSUERS"), whether or not
evidenced or represented by any stock certificate, certificated security or
other instrument and whether now or hereafter owned by a Pledgor (together with
the Pledged Shares, collectively, the "PLEDGED SECURITIES"), the certificates
(if any) representing the Pledged Securities, shares or other interests, all
options and other rights, contractual or otherwise, in respect thereof and all
dividends, distributions, cash, instruments, investment property and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Securities and such
other shares and interests;
(d) all additional shares of stock or other equity interests,
from time to time acquired by any Pledgor, of any Issuer, the certificates (if
any) representing such additional shares, all options and other rights,
contractual or otherwise, in respect thereof and all dividends, distributions,
cash, instruments, investment property and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such additional shares;
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(e) all security entitlements of any Pledgor in any and all of
the foregoing; and
(f) all proceeds of any and all of the foregoing;
in each case, whether now owned or hereafter acquired by any Pledgor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
SECTION 3. SECURITY FOR OBLIGATIONS. The security interest
created hereby in the Pledged Collateral constitutes continuing collateral
security for all of the following obligations, whether now existing or hereafter
incurred (the "OBLIGATIONS"):
(a) the prompt payment by each Pledgor, as and when due and
payable (by scheduled maturity, required prepayment, acceleration, demand or
otherwise), of all amounts from time to time owing by it in respect of the Loan
Agreement and the other Loan Documents, including, without limitation, principal
of and interest on the Loans (including, without limitation, all interest that
accrues after the commencement of any case, proceeding or other action relating
to the bankruptcy, insolvency or reorganization of any Pledgor, whether or not
the payment of such interest is unenforceable or is not allowable due to the
existence of such case, proceeding or other action), all fees, commissions,
expense reimbursements, indemnifications and all other amounts due or to become
due under any Loan Document; and
(b) the due performance and observance by each Pledgor of all
of its other obligations from time to time existing in respect of the Loan
Agreement and all other Loan Documents.
SECTION 4. DELIVERY OF THE PLEDGED COLLATERAL.
(a) (i) All promissory notes currently evidencing the Pledged
Debt and all certificates currently representing the Pledged Securities shall be
delivered to the Agent on or prior to the execution and delivery of this
Agreement. All other promissory notes, certificates and instruments constituting
Pledged Collateral from time to time or required to be pledged to the Agent
pursuant to the terms of this Agreement or the Loan Agreement (the "ADDITIONAL
COLLATERAL") shall be delivered to the Agent promptly upon the receipt thereof
by or on behalf of a Pledgor. All such promissory notes, certificates and
instruments shall be held by or on behalf of the Agent pursuant hereto and shall
be delivered in suitable form for transfer by delivery or shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance reasonably satisfactory to the Agent. If any Pledged Collateral
consists of uncertificated securities, the relevant Pledgor shall cause the
Agent (or its designated custodian or nominee) to become the registered holder
thereof, or cause each issuer of such securities to agree that it will comply
with instructions originated by the Agent with respect to such securities
without further consent by such Pledgor. If any Pledged Collateral consists of
security entitlements, the relevant Pledgor shall transfer such security
entitlements to the Agent (or its custodian, nominee or other designee ), or
cause the applicable securities intermediary to agree that it will comply with
entitlement orders by the Agent without further consent by such Pledgor.
(ii) Within 5 Business Days of the receipt by a
Pledgor of any Additional Collateral, a Pledge Amendment, duly executed by such
Pledgor, in substantially the form of
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Schedule III hereto (a "PLEDGE AMENDMENT") shall be delivered to the Agent, in
respect of the Additional Collateral which must be pledged pursuant to this
Agreement and the Loan Agreement, which Pledge Amendment shall from and after
delivery thereof constitute part of Schedules I or II hereto, as the case may
be. Each Pledgor hereby authorizes the Agent to attach each Pledge Amendment to
this Agreement and agrees that all promissory notes, certificates or instruments
listed on any Pledge Amendment delivered to the Agent shall for all purposes
hereunder constitute Pledged Collateral and such Pledgor shall be deemed upon
delivery thereof to have made the representations and warranties set forth in
Section 5 with respect to such Additional Collateral.
(b) If any Pledgor shall receive, by virtue of its being or
having been an owner of any Pledged Collateral, any (i) stock certificate
(including, without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spin-off or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by a Pledgor pursuant to Section
7 hereof) or in securities or other property or (iv) dividends or other
distributions in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or paid-in
surplus, such Pledgor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of
the Agent, shall segregate it from such Pledgor's other property and shall
deliver it forthwith to the Agent in the exact form received, with any necessary
indorsement and/or appropriate stock powers duly executed in blank, to be held
by the Agent for the benefit of the Lenders as Pledged Collateral and as further
collateral security for the Obligations.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Each Pledgor
jointly and severally represents and warrants as follows:
(a) The Pledged Securities have been duly authorized and
validly issued, are fully paid and nonassessable and, except as noted in
Schedule II hereto, constitute 100% of the issued shares of capital stock of the
applicable Issuer as of the date hereof. All other shares of stock constituting
Pledged Collateral will be, when issued, duly authorized and validly issued,
fully paid and nonassessable.
(b) The promissory notes currently evidencing the Pledged Debt
have been, and all other promissory notes from time to time evidencing Pledged
Debt, when executed and delivered, will have been, duly authorized, executed and
delivered by the respective makers thereof, and all such promissory notes are or
will be, as the case may be, legal, valid and binding obligations of such
makers, enforceable against such makers in accordance with their respective
terms, except as may be limited by equitable principles or by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws.
(c) The Pledgors are and will be at all times the legal and
beneficial owners of the Pledged Collateral free and clear of any Lien, security
interest, option or other charge or encumbrance except for the security interest
created by this Agreement and other Permitted Liens.
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(d) The exercise by the Agent of any of its rights and
remedies hereunder will not contravene any law or any contractual restriction
binding on or affecting any Pledgor or any of its properties and will not result
in or require the creation of any Lien, security interest or other charge or
encumbrance upon or with respect to any of its properties other than pursuant to
this Agreement.
(e) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority is required to be obtained
or made for (i) the due execution, delivery and performance by any Pledgor of
this Agreement, (ii) the grant by any Pledgor, or the perfection, of the
security interest purported to be created hereby in the Pledged Collateral or
(iii) the exercise by the Agent of any of its rights and remedies hereunder,
except as may be required in connection with any sale of any Pledged Collateral
by laws affecting the offering and sale of securities generally.
(f) This Agreement creates a valid security interest in favor
of the Agent in the Pledged Collateral, as security for the Obligations. The
Agent's having possession of the promissory notes evidencing the Pledged Debt,
the certificates representing the Pledged Securities and all other certificates,
instruments and cash constituting Pledged Collateral from time to time results
in the perfection of such security interest. Such security interest is, or in
the case of Pledged Collateral constituting certificates, instruments and/or
cash in which the Pledgor obtains rights after the date hereof, will be, a
perfected, first priority security interest. All action necessary or desirable
to perfect and protect such security interest has been duly taken, except for
the Agent's having possession of certificates, instruments and cash constituting
Pledged Collateral after the date hereof.
SECTION 6. COVENANTS AS TO THE PLEDGED COLLATERAL. So long as
any of the Obligations shall remain outstanding or any Commitment shall have not
been terminated, each Pledgor will, unless the Agent shall otherwise consent in
writing:
(a) keep adequate records concerning the Pledged Collateral
and permit the Agent or any agents or representatives thereof from time to time
as permitted by the Loan Agreement to examine and make copies of and abstracts
from such records;
(b) at its expense, promptly deliver to the Agent a copy of
each material notice or other material communication received by it in respect
of the Pledged Collateral;
(c) at its expense, defend the Agent's right, title and
security interest in and to the Pledged Collateral against the claims of any
Person;
(d) at its expense, at any time and from time to time,
promptly execute and deliver all further instruments and documents and take all
further action that may be reasonably necessary or desirable or that the Agent
may reasonably request in order to (i) perfect and protect the security interest
purported to be created hereby, (ii) enable the Agent to exercise and enforce
its rights and remedies hereunder in respect of the Pledged Collateral or (iii)
otherwise effect the purposes of this Agreement, including, without limitation,
delivering to the Agent irrevocable proxies in respect of the Pledged
Collateral;
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(e) not sell, assign (by operation of law or otherwise),
exchange or otherwise dispose of any Pledged Collateral or any interest therein
except as permitted by Section 7(a)(i) hereof and by the Loan Agreement;
(f) not create or suffer to exist any Lien, security interest
or other charge or encumbrance upon or with respect to any Pledged Collateral
except for the security interest created hereby or other Permitted Liens;
(g) not make or consent to any amendment or other modification
or waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral except
pursuant to or as otherwise permitted under the Loan Documents;
(h) except as otherwise permitted under the Loan Agreement,
not permit the issuance by any Subsidiary of (i) any additional shares of any
class of capital stock of any Issuer that is a Subsidiary, (ii) any securities
convertible voluntarily by the holder thereof or automatically upon the
occurrence or non-occurrence of any event or condition into, or exchangeable
for, any such shares of capital stock or (iii) any warrants, options, contracts
or other commitments entitling any Person to purchase or otherwise acquire any
such shares of capital stock; and
(i) not take or fail to take any action which would in any
manner impair the enforceability of the Agent's security interest in any Pledged
Collateral.
SECTION 7. VOTING RIGHTS, DIVIDENDS, ETC. IN RESPECT OF THE
PLEDGED COLLATERAL.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) the Pledgors may exercise any and all voting and other
consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent with the terms of this Agreement, the Loan Agreement or the other
Loan Documents; PROVIDED, HOWEVER, that (A) no Pledgor will exercise or refrain
from exercising any such right, as the case may be, if the Agent gives a Pledgor
notice that, in the Agent's reasonable judgment, such action is reasonably
likely to have a Material Adverse Effect unless the Parent's Board of Directors
has authorized such right and (B) each Pledgor will give the Agent at least 5
Business Days' notice of the manner in which it intends to exercise, or the
reasons for refraining from exercising, any such right which is reasonably
likely to have a Material Adverse Effect;
(ii) the Pledgors may receive and retain any and all
dividends, interest or other distributions paid in respect of the Pledged
Collateral to the extent permitted by the Loan Agreement; PROVIDED, HOWEVER,
that any and all (A) dividends and interest paid or payable other than in cash
in respect of, and instruments and other property received, receivable or
otherwise distributed in respect of or in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and (C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, together with any
dividend, distribution or interest
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payment which at the time of such dividend, distribution or interest payment was
not permitted by the Loan Agreement shall be, and shall forthwith be delivered
to the Agent to hold as, Pledged Collateral and shall, if received by a Pledgor,
be received in trust for the benefit of the Agent, shall be segregated from the
other property or funds of such Pledgor, and shall be forthwith delivered to the
Agent in the exact form received with any necessary indorsement and/or
appropriate stock powers duly executed in blank, to be held by the Agent as
Pledged Collateral and as further collateral security for the Obligations; and
(iii) the Agent will execute and deliver (or cause to be
executed and delivered) to a Pledgor all such proxies and other instruments as
such Pledgor may reasonably request for the purpose of enabling such Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) of this Section 7(a) and to receive the dividends which it is
authorized to receive and retain pursuant to paragraph (ii) of this Section
7(a).
(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to exercise
pursuant to paragraph (i) of subsection (a) of this Section 7, and to receive
the dividends and interest payments which it would otherwise be authorized to
receive and retain pursuant to paragraph (ii) of subsection (a) of this Section
7, shall cease, and all such rights shall thereupon become vested in the Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends
and interest payments;
(ii) the Agent is authorized to notify each debtor with
respect to the Pledged Debt to make payment directly to the Agent and may
collect any and all monies due or to become due to any Pledgor in respect of the
Pledged Debt and each Pledgor hereby authorizes each such debtor to make such
payment directly to the Agent without any duty of inquiry;
(iii) without limiting the generality of the foregoing,
the Agent may at its option exercise any and all rights of conversion, exchange,
subscription or any other rights, privileges or options pertaining to any of the
Pledged Collateral as if it were the absolute owner thereof, including, without
limitation, the right to exchange, in its discretion, any and all of the Pledged
Collateral upon the merger, consolidation, reorganization, recapitalization or
other adjustment of any Issuer, or upon the exercise by any Issuer of any right,
privilege or option pertaining to any Pledged Collateral, and, in connection
therewith, to deposit and deliver any and all of the Pledged Collateral with any
committee, depository, transfer agent, registrar or other designated agent upon
such terms and conditions as it may determine; and
(iv) all dividends, distributions, interest and other
payments which are received by any Pledgor contrary to the provisions of
paragraph (i) of this Section 7(b) shall be received in trust for the benefit of
the Agent, shall be segregated from other funds of such Pledgor, and shall be
forthwith paid over to the Agent as Pledged Collateral in the exact form
received with any necessary indorsement and/or appropriate stock powers duly
executed in blank, to be held by the Agent as Pledged Collateral and as further
collateral security for the Obligations.
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9
SECTION 8. ADDITIONAL PROVISIONS CONCERNING THE PLEDGED
COLLATERAL.
(a) Each Pledgor hereby authorizes the Agent to file, without
the signature of any Pledgor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Pledged
Collateral.
(b) Each Pledgor hereby irrevocably appoints the Agent as its
attorney-in-fact and proxy, with full authority in the place and stead of such
Pledgor and in the name of such Pledgor or otherwise, from time to time in the
Agent's discretion after the occurrence and during the continuance of an Event
of Default, to take any action and to execute any instrument which the Agent may
deem reasonably necessary or advisable to accomplish the purposes of this
Agreement (subject to the rights of such Pledgor under Section 7(a) hereof),
including, without limitation, to receive, indorse and collect all instruments
made payable to the Pledgor representing any dividend, interest payment or other
distribution in respect of any Pledged Collateral and to give full discharge for
the same. This power is coupled with an interest and is irrevocable until all of
the Obligations are paid in full after all Commitments have been terminated.
(c) If any Pledgor fails to perform any agreement or
obligation contained herein, the Agent itself may perform, or cause performance
of, such agreement or obligation, and the expenses of the Agent incurred in
connection therewith shall be jointly and severally payable by the Pledgors
pursuant to Section 10 hereof and shall be secured by the Pledged Collateral.
(d) Other than the exercise of reasonable care to assure the
safe custody of the Pledged Collateral while held hereunder, the Agent shall
have no duty or liability to preserve rights pertaining thereto and shall be
relieved of all responsibility for the Pledged Collateral upon surrendering it
or tendering surrender of it to the Pledgor. The Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Agent accords its own property, it being
understood that the Agent shall not have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relating to any Pledged Collateral, whether or not the Agent
has or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral.
(e) The powers conferred on the Agent hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any Pledged
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Agent shall have no duty as to any Pledged Collateral or as to
the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Pledged Collateral.
(f) The Agent may at any time in its discretion after the
occurrence and during the continuance of an Event of Default (i) without notice
to any Pledgor, transfer or register in the name of the Agent or any of its
nominees any or all of the Pledged Collateral, subject only to the revocable
rights of the Pledgors under Section 7(a) hereof, and (ii) exchange
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certificates or instruments constituting Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 9. REMEDIES UPON DEFAULT. If any Event of Default
shall have occurred and be continuing:
(a) The Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the Code then in effect in the State of New York; and without
limiting the generality of the foregoing and without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Agent may deem commercially
reasonable. Each Pledgor agrees that, to the extent notice of sale shall be
required by law, at least 10 days' notice to such Pledgor of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be obligated to make any
sale of Pledged Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(b) Each Pledgor recognizes that it may be impracticable to
effect a public sale of all or any part of the Pledged Securities or any other
securities constituting Pledged Collateral and that the Agent may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the
seller than the prices and other terms which might have been obtained at a
public sale and, notwithstanding the foregoing, agrees that such private sales
shall be deemed to have been made in a commercially reasonable manner and that
the Agent shall have no obligation to delay sale of any such securities for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act of 1933, as amended
(the "SECURITIES ACT"). Each Pledgor further acknowledges and agrees that any
offer to sell such securities which has been (i) publicly advertised on a bona
fide basis in a newspaper or other publication of general circulation in the
financial community of New York, New York (to the extent that such an offer may
be so advertised without prior registration under the Securities Act) or (ii)
made privately in the manner described above to not less than fifteen BONA FIDE
offerees shall be deemed to involve a "public disposition" for the purposes of
Section 9-610 of the Code (or any successor or similar, applicable statutory
provision) as then in effect in the State of New York, notwithstanding that such
sale may not constitute a "public offering" under the Securities Act, and that
the Agent may, in such event, bid for the purchase of such securities.
(c) Any cash held by the Agent as Pledged Collateral and all
cash proceeds received by the Agent in respect of any sale of, collection from,
or other realization upon, all or any part of the Pledged Collateral may, in the
discretion of the Agent, be held by the Agent as collateral for, and/or then or
at any time thereafter applied (after payment of any amounts payable to the
Agent pursuant to Section 10 hereof) in whole or in part by the Agent against,
all
-9-
11
or any part of the Obligations in accordance with Section 2.4(b) of the Loan
Agreement. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all of the Obligations after all Commitments
have been terminated shall be paid over to the Pledgors or to such Person as may
be lawfully entitled to receive such surplus.
(d) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all amounts to which the Agent
and the Lenders are legally entitled, the Pledgors shall be jointly and
severally liable for the deficiency, together with interest thereon at the
highest rate specified in the Loan Agreement for interest on overdue principal
thereof or such other rate as shall be fixed by applicable law, together with
the costs of collection and the reasonable fees, costs and expenses of any
attorneys employed by the Agent to collect such deficiency.
SECTION 10. INDEMNITY AND EXPENSES.
(a) Each Pledgor jointly and severally agrees to indemnify and
hold the Agent harmless from and against any and all claims, damages, losses,
liabilities, obligations, penalties, reasonable costs and expenses (including,
without limitation, reasonable legal fees and disbursements of the Agent's
counsel) to the extent that they arise out of or otherwise result from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting solely and directly from the Agent's
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) The Pledgors jointly and severally agree that upon demand
the Pledgors will pay to the Agent the amount of any and all reasonable
out-of-pocket costs and expenses, including the reasonable fees and
disbursements of the Agent's counsel and of any experts and agents, which the
Agent may incur in connection with (i) the preparation, negotiation, execution,
delivery, recordation, administration, amendment, waiver or other modification
or termination of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
Pledged Collateral, (iii) the exercise or enforcement of any of the rights of
the Agent hereunder, or (iv) the failure by any Pledgor to perform or observe
any of the provisions hereof.
SECTION 11. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to a Pledgor or to the Agent, to such Person at its address specified in the
Loan Agreement; or as to any such Person at such other address as shall be
designated by such Person in a written notice to such other Persons complying as
to delivery with the terms of this Section 11. All such notices and other
communications shall be effective (i) if sent by certified mail, return receipt
requested, when received or 3 Business Days after mailing, whichever first
occurs, (ii) if telecopied, when transmitted and confirmation is received, if
transmitted on a Business Day and, if not, on the next Business Day or (iii) if
delivered, upon delivery, if delivered on a Business Day and, if not, on the
next Business Day.
-10-
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SECTION 12. MISCELLANEOUS.
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by each Pledgor and the Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
any Pledgor therefrom, shall be effective unless it is in writing and signed by
the Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
(b) No failure on the part of the Agent to exercise, and no
delay in exercising, any right hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Agent or any Lender provided herein
and in the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the Agent
under any Loan Document against any party thereto are not conditional or
contingent on any attempt by the Agent to exercise any of its rights under any
other Loan Document against such party or against any other Person, including
but not limited to, any Pledgor.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest
in the Pledged Collateral and shall (i) remain in full force and effect until
the payment in full or release of the Obligations after all Commitments have
been terminated and (ii) be binding on each Pledgor and its successors and
assigns and shall inure, together with all rights and remedies of the Agent and
the Lenders hereunder, to the benefit of the Agent and the Lenders and their
respective successors, transferees and assigns. Without limiting the generality
of clause (ii) of the immediately preceding sentence, the Agent and the Lenders
may assign or otherwise transfer their rights and obligations under this
Agreement and any other Loan Document to any other Person in accordance with
Section 14.1 of the Loan Agreement, and such other Person shall thereupon become
vested with all of the benefits in respect thereof granted to the Agent and the
Lenders herein or otherwise. Upon any such assignment or transfer, all
references in this Agreement to the Agent or any Lender shall mean the assignee
of the Agent or such Lender. None of the rights or obligations of the Pledgor
hereunder may be assigned or otherwise transferred without the prior written
consent of the Agent, and any such assignment or transfer shall be null and
void.
(e) Upon the satisfaction in full of the Obligations after the
all Commitments have been terminated, (i) this Agreement and the security
interests created hereby shall terminate and all rights to the Pledged
Collateral shall revert to the Pledgors, and (ii) the Agent will, upon the
Pledgors' request and at the Pledgors' expense, (A) return to the Pledgors such
of the Pledged Collateral as shall not have been sold or otherwise disposed of
or applied pursuant to the terms hereof, and (B) execute and deliver to the
Pledgors, without recourse, representation or warranty, such documents as the
Pledgors shall reasonably request to evidence such termination.
-11-
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(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except as required by
mandatory provisions of law and except to the extent that the validity and
perfection or the perfection and the effect of perfection or non-perfection of
the security interest created hereby, or remedies hereunder, in respect of any
particular Pledged Collateral are governed by the law of a jurisdiction other
than the State of New York.
(g) This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
(h) The Agent may, in its sole and absolute discretion,
enforce the provisions hereof against any of the Pledgors and shall not be
required to proceed against all Pledgors jointly or seek payment from the
Pledgors ratably. In addition, the Agent may, in its sole and absolute
discretion, select the Pledged Collateral of any one or more of the Pledgors for
sale or application to the Obligations, without regard to the ownership of such
Pledged Collateral, and shall not be required to make such selection ratably
from the Pledged Collateral owned by all of the Pledgors. The release or
discharge of any Pledgor by the Agent shall not release or discharge any other
Pledgor from the obligations of such Person hereunder.
SECTION 13. SUBMISSION TO JURISDICTION; WAIVERS. Each Pledgor
hereby irrevocably and unconditionally:
(a) Submits for itself and its property in any action, suit or
proceeding relating to this Pledge Agreement or any other Loan Document to which
it is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States of America for the Southern District
of New York, and appellate courts thereof;
(b) Agrees that any such action, suit or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action, suit or proceeding in any such court or
that such action, suit or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) Irrevocably consents to the service of any and all process
in any such action, suit or proceeding by the mailing of copies of such process
by registered or certified mail (or any substantially similar form of mail),
postage prepaid, to such Pledgor, at its address set forth in Section 11 hereof
or at such other address of which the Agent shall have been notified pursuant
thereto;
(d) To the extent that such Pledgor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to itself or its
property, such Pledgor hereby irrevocably waives such immunity in respect of its
obligations under this Agreement;
-12-
14
(e) Agrees that nothing herein shall affect the right of the
Agent to effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(f) Waives any right it may have to claim or recover in any
legal action or proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
SECTION 14. JURY TRIAL WAIVER. EACH PLEDGOR AND THE AGENT (BY
ITS ACCEPTANCE OF THIS AGREEMENT) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING
THIS AGREEMENT, ANY LOAN DOCUMENT OR ANY AMENDMENT, MODIFICATION OR OTHER
DOCUMENT NOW OR HEREAFTER DELIVERED IN CONNECTION WITH ANY OF THE FOREGOING, AND
AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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15
IN WITNESS WHEREOF, each Pledgor has caused this Agreement to
be executed and delivered by its officer thereunto duly authorized, as of the
date first above written.
Frontstep, Inc.
By: /s/ Daniel P. Buettin
--------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
Frontstep Solutions Group, Inc.
By: Daniel P. Buettin
--------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
ACCEPTED AND AGREED:
FOOTHILL CAPITAL CORPORATION,
as Agent
By: Katy J. Brooks
------------------------------
Name: Katy J. Brooks
Title: V.P.
16
SCHEDULE I TO PLEDGE AND SECURITY AGREEMENT
PLEDGED DEBT
Name of Maker Description Original Principal Amount
------------------ --------------------------------- --------------------------
Stephen A. Yount Promissory Note dated February 15, $100,000
1997 issued to Symix Systems, Inc.
17
PROMISSORY NOTE
---------------
$100,000.00 Columbus, Ohio
FOR VALUE RECEIVED, the undersigned, Stephen A. Yount ("Debtor"), an individual
residing in Franklin County, Ohio, promises to pay to the order of Symix
Systems, Inc., an Ohio corporation ("Symix"), or its successor(s) and assign(s)
(Symix and such successor(s) and assign(s) being hereinafter referred to
collectively and individually as "Payee"), at its corporate offices located at
2800 Corporate Exchange Drive, Columbus, Ohio 43231, or at such other address or
place as the holder hereof from time to time may designate in writing, the
principal amount of ONE HUNDRED THOUSAND AND 00/100 DOLLARS ($100,000.00),
together with interest thereon and payable as stated herein. Interest shall
accrue on the unpaid principal balance evidenced hereby at a rate of five
percent (5%) per annum.
Subject to the terms and conditions hereof, the total principal amount hereof,
plus accrued interest due hereunder, shall be due and payable on October 1, 2000
(the "Due Date"). The principal amount due hereunder shall be reduced on a
cumulative basis in accordance with the schedule set forth below after each
fiscal year of Symix specified in such schedule in the event Employee meets or
exceeds seventy-five percent (75%) of the annual sales quota for new license
revenue for Symix products assigned to him by Symix for such fiscal year:
PRINCIPAL AMOUNT SYMIX FISCAL YEAR
REDUCED CUMULATIVELY BY ENDED JUNE 30
------------------------- --------------------
$12,500.00 1997
$25,000.00 1998
$37,500.00 1999
$50,000.00 2000
The principal amount due hereunder shall be reduced to Fifty Thousand and
00/Dollars ($50,000.00) immediately in the event that Debtor's employment with
Symix and all subsidiaries of Symix is terminated by Symix and/or such
subsidiaries. In addition, the accrued interest due on this Promissory Note
shall be reduced proportionately and shall be determined based upon the actual
principal amount due on this Promissory Note at the time that the indebtedness
evidenced hereby becomes due and payable.
This Promissory Note may be prepaid, in whole or in part, at any time without
premium or penalty. All payments received by Payee hereunder shall be (a) in
lawful money of the United States, and (b) credited as of the time received in
cash or when finally collected by Payee. Subject to the terms hereof, in the
event of (i) the termination of Debtor's employment with Symix and all
subsidiaries of Symix, for any reason, or (ii) the sale of Debtor's primary
residence located at 7762 Fenway, New Albany, Ohio, or (iii) any default in the
payment of any amount due hereunder when due and payable or the performance of
any agreements or covenants to be performed by Debtor hereunder, then the whole
or any part of the unpaid indebtedness evidenced hereby and due hereunder shall
immediately become due and payable without notice or demand therefor, the same
being expressly waived by Debtor, at the option of Payee; except that if Debtor
voluntarily terminates his employment with Symix and all subsidiaries of Symix
prior to the Due Date, then the unpaid indebtedness evidenced hereby shall
become due 120 days after such voluntary termination. A failure of Payee or any
subsequent holder hereof to insist upon strict compliance with the terms hereof
or to assert any right hereunder shall not be a waiver of any default and shall
not be deemed to constitute a modification of the terms hereof or to establish
any claim or defense. No delay or omission on the part of Payee or any
subsequent holder hereof in exercising any right hereunder shall operate as a
waiver of such right or of any other right under this Promissory Note. A waiver
by Payee on any one occasion shall not be construed as a bar to or a waiver of
any such right and/or remedy on any future occasion
Payment of the indebtedness evidenced hereby is secured by a Mortgage executed
on even date herewith encumbering real Property in the County of Franklin, State
of Ohio.
18
Debtor, for himself and all persons now or hereafter liable, primarily or
secondarily, for the payment of the indebtedness evidence hereby or any part
thereof, hereby expressly waives notice of default, notice of intent to
accelerate, notice of acceleration, presentment for payment, notice of dishonor,
protest and notice of protest, and Debtor agrees that the time for payment or
payments of any part of the indebtedness evidenced hereby may be extended
without releasing or otherwise affecting his or their liability hereunder.
Debtor, for himself and all other persons now or hereafter liable hereunder,
primarily or secondarily, hereby agrees that the local laws of the State of
Ohio, without regards to principles of conflict of laws, shall govern his and/or
their rights and duties hereunder and the construction and effect hereof.
However, if any provision hereof is or becomes invalid or unenforceable under
any law of mandatory application, it is the express intent of Debtor, Payee and
all persons primarily or secondarily liable hereunder that such provision will
be deemed severed and omitted herefrom, the remaining portions hereof to remain
in full force and effect as written.
IN WITNESS WHEREOF, Debtor has executed this Promissory Note to be effective as
of the 15th day of February, 1997.
/s/ Stephen A. Yount
-------------------------------
STEPHEN A. YOUNT
19
ALLONGE
This allonge is attached to that certain Promissory Note dated
February 15, 1997 made by Stephen A. Yount, an individual residing in Franklin
County, Ohio, payable to the order of Symix Systems, Inc. (now known as
Frontstep, Inc.).
Pay to the order of _______________________________, without
recourse or warranty.
Dated: _______________ ____, ________
FRONTSTEP, INC.
By: /s/Daniel P. Buettin
---------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
20
SCHEDULE II TO PLEDGE AND SECURITY AGREEMENT
Pledged Shares
--------------
Record Number of Number of Certificate
Name of Issuer Owner Shares Pledged Shares Outstanding Class No.(s)
-------------- ----- -------------- ------------------ ----- ------
Frontstep Solutions Group, Inc. Frontstep, Inc. 101 101 Common 4
Frontstep distribution.com, inc. Frontstep, Inc. 200 200 Common 2
brightwhite solutions, inc. Frontstep Solutions 144 150 Common 2
Group, Inc.
21
SCHEDULE III
TO
PLEDGE AND SECURITY AGREEMENT
PLEDGE AMENDMENT
----------------
This Pledge Amendment, dated ___________________________, is
delivered pursuant to Section 4 of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement, dated as of _______, 2001, made by Frontstep, Inc. and
Frontstep Solutions Group, Inc., each an Ohio corporation, in favor of Foothill
Capital Corporation, as Agent for the Lenders party to the Loan Agreement
referred to in the Pledge Agreement, as it may heretofore have been or hereafter
may be amended or otherwise modified or supplemented from time to time and that
the promissory notes or shares listed on this Pledge Amendment shall be and
become part of the Pledged Collateral referred to in said Pledge Agreement and
shall secure all of the Obligations referred to in said Pledge Agreement.
Pledged Debt
------------
Name of Maker Description Original Principal Amount
------------- ----------- -------------------------
Pledged Shares
--------------
Name of Issuer Number of Shares Class Certificate No(s)
-------------- ---------------- ----- -----------------
[PLEDGOR]
By: ___________________________
Name:
Title:
EX-10.Z
9
l90205aex10-z.txt
EXHIBIT 10(Z)
1
EXHIBIT 10(a)(a) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
COPYRIGHT SECURITY AGREEMENT
----------------------------
THIS COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as
of July 17, 2001 is made by FRONTSTEP, INC., an Ohio corporation, FRONTSTEP
SOLUTIONS GROUP, INC., an Ohio corporation, and BRIGHTWHITE SOLUTIONS, INC., an
Ohio corporation (each a "Debtor" and collectively, jointly and severally, the
"Debtors"), in favor of FOOTHILL CAPITAL CORPORATION, a California corporation,
as agent for the Lenders referred to below (the "Secured Party").
RECITALS
--------
A. The Debtors, Frontstep Canada, Inc., the financial
institutions party thereto from time to time (the "Lenders") and the Secured
Party have entered into that certain Loan and Security Agreement, dated as of
July 17, 2001 (as amended, restated, modified, renewed or extended from time to
time, the "Loan Agreement"), pursuant to which the Lenders have agreed (among
other things) to make loans to the Debtors in an aggregate principal amount at
any one time outstanding not to exceed the Maximum Revolver Amount (as defined
in the Loan Agreement), and pursuant to which the Debtors have granted to the
Secured Party for the benefit of the Lenders security interests in (among other
things) all or substantially all of the general intangibles of the Debtors.
B. Each Debtor has granted to Secured Party for the benefit of
the Lenders, a continuing first priority security interest in (among other
things) all general intangibles of such Debtor in order to secure the Debtors'
obligations under each of the Loan Documents.
C. Pursuant to the Loan Agreement and as one of the conditions
to the obligations of the Secured Party and the Lenders under the Loan
Agreement, the Debtors have agreed to execute and deliver this Agreement to the
Secured Party for filing with the United States Copyright Office and with any
other relevant recording systems in any domestic or foreign jurisdiction, and as
further evidence of and to effectuate Secured Party's existing security
interests in the Copyright Collateral (as hereinafter defined).
ASSIGNMENT
----------
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, each Debtor hereby agrees in favor of
Secured Party as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"COPYRIGHT COLLATERAL" has the meaning set forth in SECTION 2
(a).
"COPYRIGHT RIGHTS" has the meaning set forth in SECTION
2(a)(i).
3
"COPYRIGHTS" has the meaning set forth in SECTION 2.
"LIEN" means any pledge, security interest, assignment, charge
or encumbrance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"PROPRIETARY RIGHTS" has the meaning set forth in SECTION
2(a)(ii).
"REGISTRATIONS" has the meaning set forth in SECTION 2(a)(i).
"SECURED OBLIGATIONS" means, with respect to each Debtor, all
liabilities, Obligations, and undertakings owing by such Debtor to Secured Party
and the Lenders of any kind or description arising out of or outstanding under,
advanced or issued pursuant to, or evidenced by, the Loan Agreement, the other
Loan Documents, or this Agreement, irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
voluntary or involuntary, whether now existing or hereafter arising, and
including all interest (including interest that accrues after the filing of a
case under the Bankruptcy Code) and any and all costs, fees (including attorneys
fees), and expenses which the Debtor is required to pay pursuant to any of the
foregoing, by law, or otherwise.
"UCC" means the Uniform Commercial Code, as in effect from
time to time in the State of New --- York.
"UNITED STATES" and "U.S." each mean the United States of
America.
(b) TERMS DEFINED IN UCC. Where applicable and
except as otherwise defined herein, terms used in this Agreement shall have the
meanings ascribed to them in the UCC.
(c) INTERPRETATION. In this Agreement, except
to the extent the context otherwise requires:
(i) Any reference to a Section or a
Schedule is a reference to a section hereof, or a schedule hereto, respectively,
and to a subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the reference
appears.
(ii) The words "hereof," "here,"
"hereunder," and the like mean and refer to this Agreement as a whole and not
merely to the section, subsection, paragraph or clause in which the respective
word appears.
(iii) The meaning of defined terms shall
be equally applicable to both the singular and plural forms of the terms
defined.
(iv) The words "including," "includes"
and "include" shall be deemed to be followed by the words "without limitation."
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4
(v) References to agreements and other
contractual instruments shall be deemed to include all subsequent amendments,
restatements, supplements, refinancings, renewals, extensions, and other
modifications thereto and thereof.
(vi) References to statutes or
regulations are to be construed as including all statutory and regulatory
provisions consolidating, amending or replacing the statute or regulation
referenced.
(vii) Any captions and headings are for
convenience of reference only and shall not affect the construction of this
Agreement.
(viii) Capitalized words not otherwise
defined herein shall have the respective meanings ascribed to them in the Loan
Agreement.
(ix) In the event of a direct conflict
between the terms and provisions of this Agreement and the Loan Agreement, it is
the intention of the parties hereto that both such documents shall be read
together and construed, to the fullest extent possible, to be in concert with
each other. In the event of any actual, irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of the Loan Agreement shall
control and govern; PROVIDED, HOWEVER, that (A) the inclusion herein of
additional obligations on the part of the Debtors and supplemental rights and
remedies in favor of Secured Party, in each case in respect of the Copyright
Collateral, shall not be deemed a conflict with the Loan Agreement and (B) the
exclusion of any property from the Copyright Collateral pursuant to Section 2(b)
hereof shall be deemed to be an exclusion of such property from the Collateral
under the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY. Each
Debtor, as security for the payment and performance of the Debtors' Secured
Obligations, hereby grants, assigns, transfers and conveys to Secured Party for
the benefit of the Lenders a continuing first priority security interest in all
of such Debtor's right, title and interest in, to and under the following
property, whether now existing or hereafter acquired or arising or in which such
Debtor now has or hereafter acquires or develops an interest and wherever the
same may be located (the "Copyright Collateral"):
(i) all copyrights, rights, titles and
interests in and to published and unpublished original and derivative works of
authorship, whether registered or unregistered, including without limitation,
all software (whether or not considered to be a "good" rather than an intangible
and including the source code version thereof) that such Debtor owns or uses in
its business or will in the future adopt and so use, including without
limitation the Software, and all copyrights in any original or derivative works
of authorship and all works protectable by copyright that are presently, or in
the future may be, owned, created, acquired or used (whether pursuant to a
license or otherwise) by such Debtor, in whole or in part (collectively, the
"Copyrights"), all Copyright registrations and applications for Copyright
registration that have been heretofore or may hereafter be issued thereon or
applied for in the United States or throughout the Universe, including renewal
registrations, recordings, supplemental registrations and pending applications
for registration in the United States Copyright Office (the
-3-
5
"Registrations"), all common law and other rights in and to the Copyrights
throughout the Universe, including all Copyright licenses (collectively, the
"Copyright Rights"), and all renewals, extensions, restorations and reversions
thereof, throughout the Universe, including all proceeds thereof (such as, by
way of example and not by limitation, license royalties and proceeds of
infringement suits), the right (but not the obligation) to renew, extend and
restore such Copyrights, Registrations and Copyright Rights and to register
works protectable by Copyright and the right (but not the obligation) to sue or
bring proceedings in the name of such Debtor or in the name of Secured Party for
past, present and future infringements or violations of the Copyrights,
registrations and Copyright Rights, and recover damages for past, present and
future infringements or violations thereof, and all rights corresponding thereto
throughout the Universe, including:
(A) all of such Debtor's right,
title and interest in and to all Copyrights or rights or interests in Copyrights
registered or recorded in the United States Copyright Office, including the
Registrations listed on SCHEDULE A attached hereto, as the same may be amended
or supplemented pursuant hereto from time to time;
(B) all of such Debtor's right,
title and interest in and to all Copyrights relating to the works set forth on
SCHEDULE B attached hereto, including without limitation all Registrations
therefor, as the same may be amended or supplemented from time to time,
including in connection with an Amendment to Copyright Security Agreement;
(C) all of such Debtor's right,
title and interest in and to all renewals and extensions of any such Copyrights,
including renewals or extensions of the Registrations listed on Schedule A
attached hereto, that may be secured under the law now or hereafter in force and
effect;
(D) all of such Debtor's right,
title and interest to make and exploit all derivative works based on or adopted
from all works covered by any of the Copyright Collateral; and
(E) all of such Debtor's right,
title and interest pursuant to or under licensing or other contracts in favor of
Debtor pertaining to copyrights and works protectable by copyright presently or
in the future owned or used by third parties;
(ii) all inventions, designs, patents,
patent applications, registrations, trade secrets, proprietary rights, corporate
or other business records, source codes, object codes, data bases and all other
intangible personal property at any time used in connection with the businesses
of such Debtor (referred to herein as "Proprietary Rights");
(iii) all rights and interests pursuant
to or under licensing or other contracts in favor of Debtor pertaining to
Copyrights and works protectable by Copyright presently or in the future owned
or used by third parties;
(iv) all general intangibles (as defined
in the UCC) and all intangible intellectual or other similar property of such
Debtor of any kind or nature, whether now owned or hereafter acquired or
developed, associated with or arising out of any of the
-4-
6
Copyrights, Registrations, Copyright Rights or Proprietary Rights and not
otherwise described above; and
(v) all proceeds of any and all of the
foregoing Copyright Collateral (including license royalties, rights to payment,
accounts receivable and proceeds of infringement suits) and, to the extent not
otherwise included, all payments under insurance (whether or not Secured Party
is the loss payee thereof) or any indemnity, warranty or guaranty payable by
reason of loss or damage to or otherwise with respect to the foregoing Copyright
Collateral. For purposes of this Agreement, the term "proceeds" includes
whatever is receivable or received when Copyright Collateral or proceeds are
sold, licensed, collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes, without limitation, all
rights to payment, including returned premiums, with respect to any insurance
relating thereto.
(b) CERTAIN EXCLUSIONS FROM GRANT OF SECURITY
INTEREST. Anything in this Agreement and the other Loan Documents to the
contrary notwithstanding, the foregoing grant, assignment, transfer, and
conveyance of a security interest shall not extend to, and the term "Copyright
Collateral" shall not include, any item of Copyright Collateral described in
Section 2(a) above that is now or hereafter held by any Debtor as licensee or
otherwise, solely in the event and to the extent that and only for the times
that: (i) as the proximate result of the foregoing grant, assignment, transfer,
or conveyance of a security interest, such Debtor's rights in or with respect to
such item of Copyright Collateral would be forfeited or would become void,
voidable, terminable, or revocable pursuant to the restrictions in the
underlying license or other agreement that governs such item of Copyright
Collateral; and (ii) any such restriction shall be effective and enforceable
under applicable law, including Section 9-408 of the Code; PROVIDED, HOWEVER,
that the foregoing grant, assignment, transfer, and conveyance of security
interest shall extend to, and the term "Copyright Collateral" shall include, (y)
any and all proceeds of such item of Copyright Collateral to the extent that the
assignment or encumbering of such proceeds is not so restricted, and (z) upon
any such licensor or other applicable party's consent with respect to any such
otherwise excluded item of Copyright Collateral being obtained, thereafter such
item of Copyright Collateral as well as any proceeds thereof that might
theretofore have been excluded from such grant, assignment, transfer, and
conveyance of a security interest and the term Copyright Collateral.
(c) CONTINUING SECURITY INTEREST. Debtor agrees
that this Agreement shall create a continuing security interest in the Copyright
Collateral which shall remain in effect until terminated in accordance with
Section 17 hereof.
(d) INCORPORATION INTO LOAN AGREEMENT. This
Agreement shall be fully incorporated into the Loan Agreement and all
understandings, agreements and provisions contained in the Loan Agreement shall
be fully incorporated into this Agreement. Without limiting the foregoing, the
Copyright Collateral described in this Agreement shall constitute part of the
Collateral in the Loan Agreement.
(e) PERMITTED LICENSING. Anything in the Loan
Agreement or this Agreement to the contrary notwithstanding, Debtor may license
to any other Person the Copyright Collateral on an exclusive or non-exclusive
basis (subject to the security interest of
-5-
7
the Secured Party in such Collateral) in the ordinary course of business
consistent with past practice.
3. REPRESENTATIONS AND WARRANTIES. Each Debtor jointly
and severally represents and warrants to Secured Party and for the benefit of
Secured Party the following:
(a) TRUE AND COMPLETE LIST. Set forth in
SCHEDULE A is a true and complete list, as of the date of this Agreement, of all
Registrations in the United States Copyright Office and applications for
Registrations in the United States Copyright Office owned by the Debtors, in
whole or in part; SCHEDULE B attached hereto includes a true and complete list
of all versions of the Syteline Software and, on and after the 30th day
following the Closing Date, all other Marketed Software, including all prior
versions of Software for which any version of the Marketed Software constitutes
a derivative work under U.S. copyright law, and the dates of creation for each
such version, as such Schedule B is modified from time to time pursuant to
Section 4(a) hereof.
(b) POWERS. Each Debtor has full power,
authority and legal right to pledge and to grant to Secured Party a continuing
first priority security interest in all right, title, and interest of such
Debtor in and to the Copyright Collateral pursuant to this Agreement, and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other Person except as
already obtained;
(c) VALIDITY. Each of the Registrations of
each Debtor referred to in SCHEDULE A is valid, subsisting and enforceable, and
such Debtor has properly complied in all material respects with all applicable
statutory and regulatory requirements, including all notice requirements, in
connection with each of such Registrations, and, except as disclosed in the
litigation schedule or annex to the Loan Agreement, to the best of each Debtor's
knowledge, no claim has been made that the use of any of such Copyrights does or
may infringe or otherwise violate the rights of any third Person;
(d) TITLE. Each Debtor has rights in and good
title to the Copyright Collateral shown on the schedules hereto as being owned
by it, is the sole and exclusive owner of the entire and unencumbered right,
title and interest in and to such Copyright Collateral, free and clear of any
Liens (other than Liens in favor of Secured Party and other than the rights of
the licensor of a license made by such licensor to such Debtor as licensee, or
the rights of other licensees under non-exclusive licenses of the same subject
matter if such Debtor's license of such subject matter is a non-exclusive
license). For any Copyright Collateral for which a Debtor is either a licensor
or a licensee pursuant to a license or licensing agreement regarding such
Copyright Collateral, each such license or licensing agreement is in full force
and effect, such Debtor is not in default of any of its obligations thereunder
and, other than the parties to such licenses or licensing agreements, no other
Person has any rights in or to any of such Copyright Collateral;
(e) NO VIOLATION. The execution, delivery and
performance by each Debtor of this Agreement do not violate any provision of law
or the articles of incorporation or by-laws of such Debtor or result in a breach
of or constitute a material default under any
-6-
8
contract, obligation, indenture or other instrument to which any Debtor is a
party or by which such Debtor may be bound;
(f) AUTHORIZATION. This Agreement has been
duly authorized, executed and delivered, and constitutes, a legal, valid and
binding agreement of each Debtor, enforceable in accordance with its terms; and
(g) SECRECY. Each Debtor has taken and will
continue to take all reasonable steps to protect the secrecy of all trade
secrets relating to any of its unpublished Copyright Collateral and its
Proprietary Rights.
4. COVENANTS. Each Debtor covenants that so long as
this Agreement shall be in effect, such Debtor shall:
(a) FURTHER ACTS. On a continuing basis,
make, execute, acknowledge and deliver, and file and record in the proper filing
and recording places (including, without limitation, the United States Copyright
Office, all such instruments and documents, including appropriate financing and
continuation statements and security agreements, and take all such action as
Secured Party deems in its Permitted Discretion necessary or advisable or as may
be requested by Secured Party to carry out the intent and purposes of this
Agreement, or for assuring, confirming or protecting the grant or perfection of
the security interest granted or purported to be granted hereby, to ensure such
Debtor's compliance with this Agreement or to enable Secured Party to exercise
and enforce its rights and remedies hereunder with respect to the Copyright
Collateral, provided that in no event shall any Debtor be required to register
any Copyright Collateral other than as provided in Section 6 hereof and in
accordance with the applicable provisions of the Loan Agreement. Without
limiting the generality of the foregoing sentence, each Debtor:
(i) authorizes Secured Party, in its
Permitted Discretion, to modify this Agreement without first obtaining the
Debtor's approval of or signature to such modification by amending SCHEDULE A
and/or SCHEDULE B hereof to include a reference to any right, title or interest
in any existing Copyright, Registration, Copyright Right or Proprietary Rights
or any Copyright, Registration, Copyright Right or Proprietary Rights acquired
or developed by such Debtor after the execution hereof, or to delete any
reference to any right, title or interest in any Copyright, Registration,
Copyright Right or Proprietary Rights in which such Debtor no longer has or
claims any right, title or interest, provided that Secured Party has requested
that such Debtor so modify this Agreement and Debtor fails to do so within ten
(10) days of Secured Party's request; and
(ii) hereby authorizes Secured Party, in
its Permitted Discretion, to file one or more financing or continuation
statements, and after ten (10) days prior notice to such Debtor, amendments
thereto, relative to all or any portion of the Copyright Collateral without the
signature of such Debtor where permitted by law;
(b) COMPLIANCE WITH LAW. Comply, in all
material respects, with all applicable statutory and regulatory requirements in
connection with any and all of the Copyright Collateral that is the subject of
the Registrations and give such notice of Copyright, prosecute
-7-
9
such material claims, and do all other acts and take all other measures which
may be reasonably necessary or desirable to preserve, protect and maintain such
Copyright Collateral and all of such Debtor's rights therein, including
diligently prosecute any material Copyright application pending as of the date
of this Agreement or thereafter;
(c) COMPLIANCE WITH AGREEMENT. Comply with
each of the terms and provisions of this Agreement, and not enter into any
agreement (for example, a license agreement) which is inconsistent with the
obligations of such Debtor under this Agreement without Secured Party's prior
written consent; and
(d) LIEN PROTECTION. Not permit, without
the prior written consent of Secured Party, the inclusion in any contract to
which such Debtor becomes a party, any provision that could or might impair or
prevent the creation of a security interest in favor of Secured Party in such
Debtor's rights and interest in any property included within the definitions of
the Copyrights, Registrations and Copyright Rights acquired under such
contracts.
5. NEW COPYRIGHTS; REGISTRATIONS AND COPYRIGHT RIGHTS. If any
Debtor shall obtain rights to or develop any new works protectable by Copyright,
or become entitled to the benefit of any Copyright Rights, Registrations,
application for Registrations or Proprietary Rights not described on the
schedules hereto, or any renewals or extension of any Copyright, Copyright
Rights, Registrations or Proprietary Rights, the provisions of this Agreement
shall automatically apply thereto. Each Debtor shall give Secured Party written
notice, in accordance with the applicable provisions of the Loan Agreement, (a)
of any such work or such rights of material value to such Debtor or the
operation of its businesses and (b) any such Registration, applications for
Registration or renewal or extension of any Copyright. Concurrently with its
filing of an application for any Registration for any Copyright, such Debtor
shall execute and deliver an amendment to this Agreement in the form of SCHEDULE
C attached hereto (or, at the election of Secured Party, a new Copyright
Security Agreement substantially in the form of this Agreement and otherwise in
form and substance satisfactory to the Secured Party), pursuant to which such
Debtor shall grant and reaffirm its grant of a security interest to the extent
of its interest in such Registration as provided herein to Secured Party, and
such Debtor shall cause such agreement to be recorded in the offices and
jurisdictions indicated by Secured Party and promptly shall provide proof of
such recordations to Secured Party.
6. COPYRIGHT REGISTRATION. RENEWAL AND LITIGATION.
(a) REGISTRATION. Each Debtor shall have the
duty diligently to make any application for Registration, in accordance with the
applicable provisions of the Loan Agreement, on any existing or future
unregistered but Copyrightable works that are used in or are related to any
Marketed Software and to do any and all acts which are reasonably necessary or
desirable to preserve, renew and maintain all rights in all Copyrights,
Registrations, Copyright Rights and Proprietary Rights. Any expenses incurred in
connection therewith shall be borne solely by the Debtors. Except as otherwise
permitted in the Loan Agreement or this Section 6(a), the Debtors shall not do
any act or omit to do any act whereby any of the Copyright Collateral may become
abandoned or fall into the public domain or fail to renew any Copyright,
Registration or Copyright Right owned by the Debtor without the prior written
consent of Secured Party.
-8-
10
(b) PROTECTION. Except as provided in Section 8
and notwithstanding Section 2(a)(i), each Debtor shall have the right and
obligation to commence and diligently prosecute in its own name, as real party
in interest, for its own benefit and at its own expense, such suits, proceedings
or other actions for infringement or other damage as are reasonably necessary to
protect the Copyright Collateral or any of such Debtor's rights therein. Each
Debtor shall provide to Secured Party any information with respect thereto
requested by Secured Party. Secured Party shall provide at such Debtor's expense
all necessary cooperation in connection with any such suit, proceeding or action
including joining as a nominal party if Secured Party shall have been satisfied
that it is not incurring any risk of liability because of such joinder. Each
Debtor shall provide at its expense representation acceptable to Secured Party
for the common interest of such Debtor and Secured Party with respect to such
proceedings.
(c) NOTICE. Each Debtor shall, promptly upon
its becoming aware thereof, notify Secured Party in writing of the institution
of, or any material adverse determination in, any proceeding, application, suit
or action of any kind described in Section 6(a) or 6(b), or regarding such
Debtor's claim of ownership in any of the Copyrights, Registrations, Copyright
Rights or Proprietary Rights, its right to register the same, or its right to
keep and maintain such registration, whether before the United States Copyright
Office or any United States or foreign court or governmental agency, including
(x) any petition under the Bankruptcy Code filed by or against any licensor of
any of the Copyrights as to which such Debtor is a licensee, and (y) any other
claims asserted in a judicial, administrative or other proceeding concerning the
Copyrights. Each Debtor shall provide promptly to Secured Party any information
with respect thereto requested from time to time by Secured Party.
7. EVENTS OF DEFAULT. The occurrence of any "Event of
Default" under the Loan Agreement or any other Loan Document shall constitute an
Event of Default hereunder.
8. REMEDIES. Following the occurrence and during the
continuation of an Event of Default, Secured Party shall have all rights and
remedies available to it under the Loan Agreement and the other Loan Documents
and applicable law (which rights and remedies are cumulative) with respect to
its security interests in any of the Copyright Collateral or any other
collateral. Each Debtor agrees that such rights and remedies include the right
of Secured Party as a secured party to sell or otherwise dispose of its
collateral after the occurrence and during the continuance of a default,
pursuant to UCC Section 9-610. Each Debtor agrees that Secured Party shall at
all times have such royalty free licenses, to the extent permitted by law, for
any Copyright, Copyright Rights, Proprietary Right and any other Copyright
Collateral that is reasonably necessary to permit the exercise of any of Secured
Party's rights or remedies after the occurrence of (and during the continuance
of) an Event of Default with respect to (among other things) any asset of such
Debtor in which Secured Party has a security interest, including Secured Party's
rights to sell or license general intangibles, inventory, tooling or packaging
which is acquired by such Debtor (or its successors, permitted assignees, or
trustee in bankruptcy). In addition to, and without limiting any of the
foregoing, upon the occurrence and during the continuance of an Event of
Default, Secured Party shall have the right but shall in no way be obligated to
bring suit, or to take such other action as Secured Party deems necessary or
advisable, in the name of any Debtor or Secured Party, to enforce or protect any
Copyright, Registration, Copyright Right or Proprietary Right, and any license
thereunder, in which event each Debtor shall, at the request of Secured Party,
do any and all lawful acts and execute any
-9-
11
and all documents required by Secured Party in aid of such enforcement. To the
extent that Secured Party shall elect not to bring suit to enforce any
Copyright, Registration, Copyright Rights, Proprietary Right, or any license
thereunder, each Debtor agrees to use all reasonable measures and its diligent
efforts, whether by action, suit, proceeding or otherwise, to prevent the
infringement, misappropriation or violation thereof by others and for that
purpose agrees diligently to maintain any action, suit or proceeding against any
Person necessary to prevent such infringement; misappropriation or violation.
9. AUTHORIZATION. If any Debtor fails to comply with any of
its obligations hereunder, Secured Party may do so in such Debtor's name or in
Secured Party's name, but at the Debtor's expense, and each Debtor hereby agrees
to reimburse Secured Party in full upon demand for all reasonable expenses,
including reasonable attorney's fees, incurred by Secured Party in protecting,
defending, maintaining, registering or recording any of the Copyright Collateral
or any right, title or interest of such Debtor or Secured Party therein. Each
Debtor hereby appoints Secured Party, and authorizes, directs and empowers
Secured Party to make, constitute and appoint any officer or agent of Secured
Party as Secured Party may select, in its exclusive discretion, as the true and
lawful attorney-in-fact of the Debtor, with the power, (a) if such Debtor
refuses or fails to do so within ten (10) days of the delivery of written notice
of such request to such Debtor by Agent, to execute in the name of such Debtor
any financing statement or other similar instrument, any supplement or amendment
to this Agreement, or any supplemental Copyright Security Agreement, in each
case, described in Sections 4(a) or 5 hereof, and do such other acts on such
Debtor's behalf, that Secured Party may deem necessary or advisable to
accomplish the purposes of this clause (a), and (b) upon and after the
occurrence and continuation of any Event of Default, (i) to endorse such
Debtor's name on all applications, documents, papers and instruments necessary
for Secured Party to use any of the Copyright Collateral, (ii) to assert or
retain any rights under any license agreement for any of the Copyright
Collateral, including any rights of such Debtor arising under Section 365(n) of
the Bankruptcy Code, (iii) to grant or issue any exclusive or nonexclusive
license under any of the Copyright Collateral to anyone else, or as may be
necessary for Secured Party to assign, pledge, convey or otherwise transfer
title in or dispose of any of the Copyright Collateral or any other Collateral
to anyone else and (iv) do such other acts on such Debtor's behalf, that Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement. Each Debtor hereby ratifies all that such attorney shall lawfully do
or cause to be done by virtue hereof. This power of attorney is coupled with an
interest and is irrevocable until termination of this Agreement.
10. NOTICES. All notices and other communications
hereunder to or from Secured Party and any Debtor shall be in writing and shall
be mailed, sent or delivered in accordance with the Loan Agreement.
11. GOVERNING LAW AND VENUE: JURY TRIAL WAIVER. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE ASSIGNMENT
AND SECURITY INTERESTS HEREUNDER IN RESPECT OF ANY PROPERTY ARE GOVERNED BY
FEDERAL LAW, IN WHICH CASE SUCH CHOICE OF NEW YORK LAW SHALL NOT BE DEEMED TO
DEPRIVE SECURED PARTY OF SUCH RIGHTS AND REMEDIES AS MAY BE AVAILABLE UNDER
FEDERAL LAW. THE PARTIES
-10-
12
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
SHALL BE TRIED AND LITIGATED ONLY IN THE STATE OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PLEDGED COLLATERAL MAY BE BROUGHT,
AT SECURED PARTY'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PLEDGED
COLLATERAL MAY BE FOUND OR WHERE IT IS NECESSARY TO BRING SUIT IN ORDER TO
OBTAIN SUBJECT MATTER JURISDICTION. THE DEBTOR AND SECURED PARTY WAIVES, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE OT THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11.
THE DEBTORS AND SECURED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. THE DEBTORS AND SECURED PARTY REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12. ENTIRE AGREEMENT: AMENDMENT. This Agreement, together with
the Schedules hereto, and the Loan Agreement contain the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
drafts and communications relating to such subject matter. Neither this
Agreement nor any provision hereof may be modified, amended or waived except by
the written agreement of the parties, as provided in the Loan Agreement.
Notwithstanding the foregoing, Secured Party may re-execute this Agreement,
modify, amend or supplement the Schedules hereto or execute a supplemental
Copyright Security Agreement, as provided herein, and the terms of any such
modification, amendment, supplement or supplemental Copyright Security Agreement
shall be deemed to be incorporated herein by this reference.
13. SEVERABILITY. If one or more provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
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13
15. LOAN AGREEMENT. Each Debtor acknowledges that the rights
and remedies of Secured Party with respect to the secured interest in the
Copyright Collateral granted hereby are more fully set forth in the Loan
Agreement, and the other Loan Documents and all such rights and remedies are
cumulative.
16. NO INCONSISTENT REQUIREMENTS. Each Debtor acknowledges
that this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
each Debtor agrees that all such covenants, terms and provisions are cumulative
and all shall be performed and satisfied in accordance with their respective
terms.
17. TERMINATION. Upon the indefeasible payment in full of the
Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, this Agreement shall
terminate and Secured Party shall execute and deliver such documents and
instruments and take such further action reasonably requested by the Debtors,
all without representation or warranty and at the Debtors' expense, as shall be
necessary to evidence termination of the security interests granted by the
Debtors to Secured Party hereunder.
[The remainder of this page has been intentionally left blank]
-12-
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
FRONTSTEP GROUP, INC.
FRONTSTEP SOLUTIONS GROUP, INC.
BRIGHTWHITE SOLUTIONS, INC.,
each an Ohio corporation
By: /s/ Daniel P. Buettin
-----------------------
Name: Daniel P. Buettin
Title: Vice President & Chief Financial
Officer
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Katy J. Brooks
----------------------
Name: Katy J. Brooks
Title: V.P.
-13-
15
STATE OF OHIO )
) ss
COUNTY OF Franklin )
On July 12, 2001, before me, Mark K. Chidester, Notary Public,
personally appeared Daniel P. Buettin, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity(ies)
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Mary K. Chidester
---------------------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF Los Angeles )
On July 12, 2001, before me, Suzanne Witkowsky, Notary Public,
personally appeared Katy Brooks, personally known to me to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity(ies) upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Suzanne Witkowsky
--------------------------------------------
Signature
[SEAL]
-14-
16
SCHEDULE A
COPYRIGHT REGISTRATIONS (US)
------------------------------------------------------------------------ ------------------------------------
TITLE REGISTRATION NUMBER
------------------------------------------------------------------------ ------------------------------------
Mongoose TX4892002
------------------------------------------------------------------------ ------------------------------------
SYMIX manufacturing and accounting control system: software; SYMIX TX3321575
------------------------------------------------------------------------ ------------------------------------
SYMIX Manufacturing and Accounting Control System: Software; SYMIX TX 3-059-578
------------------------------------------------------------------------ ------------------------------------
Syman Source Code TX 2-123-578
------------------------------------------------------------------------ ------------------------------------
Syman source code TX3059889
------------------------------------------------------------------------ ------------------------------------
AweSim! TX4539251
------------------------------------------------------------------------ ------------------------------------
MAPICS XZ finite capacity planning and schedule (FCPS) product TX4322234
training workshop: version 2.2.
------------------------------------------------------------------------ ------------------------------------
SLAMsystem V4.5 OS/2 TX3994757
------------------------------------------------------------------------ ------------------------------------
Packaging line simulation system, V2.0 TX4042474
------------------------------------------------------------------------ ------------------------------------
SLAMsystem Version 4.5 MS DOS TX4008988
------------------------------------------------------------------------ ------------------------------------
Factor: AIM modeling reference: version 5.3 TX3658472
------------------------------------------------------------------------ ------------------------------------
Factor. TX3607077
------------------------------------------------------------------------ ------------------------------------
Factor/Aim: Version 5.1 / Beth Ann Reed, author TX3510044
------------------------------------------------------------------------ ------------------------------------
Slamsystem, version 2.0
------------------------------------------------------------------------ ------------------------------------
Factory-in-the-computer TXU532780
------------------------------------------------------------------------ ------------------------------------
Packaging line simulation system TX3017155
------------------------------------------------------------------------ ------------------------------------
SLAMSYSTEM V.3.0 TX2972489
------------------------------------------------------------------------ ------------------------------------
TESS: The Extended simulation support system/Charles R. Standridge, TX2629676
A. Alan B. Pritsker -- 7/18/1989
------------------------------------------------------------------------ ------------------------------------
TESS V.4.0 TX2835171
------------------------------------------------------------------------ ------------------------------------
SlamSystem: total simulation project support TX2809649
------------------------------------------------------------------------ ------------------------------------
SLAM II/material handling extension: V.2/11 - TX2679475
------------------------------------------------------------------------ ------------------------------------
MAP/1:3.1 TX2679474
------------------------------------------------------------------------ ------------------------------------
Map/1: manufacturing analysis program using simulation/Laurie J. TX2635394
Rolston, Robin J. Miller
------------------------------------------------------------------------ ------------------------------------
Introduction to simulation and Slam II/A. Alan B. Pritsker TX2629675
------------------------------------------------------------------------ ------------------------------------
Tess 3.1 TX2623026
------------------------------------------------------------------------ ------------------------------------
Factor TX2621991
TX 3-141-758
TXu 306-456
------------------------------------------------------------------------ ------------------------------------
Simchart TX 715-669
------------------------------------------------------------------------ ------------------------------------
The Simchart User's Manual TX 715-668
------------------------------------------------------------------------ ------------------------------------
Simchart Installation/Operations Guide TX 860-758
------------------------------------------------------------------------ ------------------------------------
Modeling & Analysis Using Q-Gert Networks. 2nd Edition TX 255-677
------------------------------------------------------------------------ ------------------------------------
Resources in Q-Gert: The Next Chapter TX 14-894
------------------------------------------------------------------------ ------------------------------------
The Q-Gert Analysis Program TX 260-050
------------------------------------------------------------------------ ------------------------------------
Modeling & Analysis Using Q-Gert Networks A 891-429
------------------------------------------------------------------------ ------------------------------------
The Q-Gert User's Manual A 547-069
------------------------------------------------------------------------ ------------------------------------
Technical Reference Manual For The SLAM Simulation Program TX 519-723
------------------------------------------------------------------------ ------------------------------------
Introduction To Simulation & SLAM TX 179-361
------------------------------------------------------------------------ ------------------------------------
Aid Installation/Operations Guide TX 860-755
------------------------------------------------------------------------ ------------------------------------
Aid-Fitting Distributions To Observations: A Graphical Approach TX 715-667
------------------------------------------------------------------------ ------------------------------------
Improved SDL Database Management Capabilities TX 860-757
------------------------------------------------------------------------ ------------------------------------
SDL Installation/Operations Guide TX 860-754
------------------------------------------------------------------------ ------------------------------------
The Simulation Data Language TX 538-886
------------------------------------------------------------------------ ------------------------------------
17
------------------------------------------------------------------------ ------------------------------------
TITLE REGISTRATION NUMBER
------------------------------------------------------------------------ ------------------------------------
The Simulation Data Language I(SDL/I) Language Reference Manual TX 538-432
------------------------------------------------------------------------ ------------------------------------
SLAM II TX 716-749
------------------------------------------------------------------------ ------------------------------------
SLAM II, v. 2.0 TX 1-680-967
------------------------------------------------------------------------ ------------------------------------
SLAM II Installation/Operations Guide TX 860-756
------------------------------------------------------------------------ ------------------------------------
SLAM II: Enhanced Simulation Capabilities TX 716-750
------------------------------------------------------------------------ ------------------------------------
VR 90* TXu 890-082
TXu 824-684
TXu 786-701
------------------------------------------------------------------------ ------------------------------------
VR-10E* TXu 861-253
------------------------------------------------------------------------ ------------------------------------
VR-BIZ* TXu 861-252
------------------------------------------------------------------------ ------------------------------------
Distribution Architects Visible Results: VR Alert* TXu 861-251
------------------------------------------------------------------------ ------------------------------------
Distribution Architects Visible Results: VR-EC* TXu 861-250
------------------------------------------------------------------------ ------------------------------------
MDS, Version 8.1* TXu 786-701
------------------------------------------------------------------------ ------------------------------------
MDS-90119* TXu 786-700
------------------------------------------------------------------------ ------------------------------------
Symix Manufacturing and Accounting Control System Computer Software,
v2.7
------------------------------------------------------------------------ ------------------------------------
Symix Manufacturing and Accounting Control System Computer Software,
v3.0
------------------------------------------------------------------------ ------------------------------------
Symix Manufacturing and Accounting Control System Computer Software,
v4.0
------------------------------------------------------------------------ ------------------------------------
SyteLine Enterprise Resource Planning System, v2.0
------------------------------------------------------------------------ ------------------------------------
SyteLine Enterprise Resource Planning System, v3.0
------------------------------------------------------------------------ ------------------------------------
SyteLine Enterprise Resource Planning System, v3.5
------------------------------------------------------------------------ ------------------------------------
SyteLine Enterprise Resource Planning System, v4.0
------------------------------------------------------------------------ ------------------------------------
SyteLine Enterprise Resource Planning System, v4.5
------------------------------------------------------------------------ ------------------------------------
SyteLine Enterprise Resource Planning System, v5.0
------------------------------------------------------------------------ ------------------------------------
SyteLine Enterprise Resource Planning System, v6.0
------------------------------------------------------------------------ ------------------------------------
Copyright proprietor is Frontstep, Inc. for all works above except those
identified with an asterisk (*). For works identified with an asterisk (*),
copyright proprietor is Frontstep Solutions Group, Inc.
Applications for Registration submitted to counsel for Secured Party:
- Symix Manufacturing and Accounting Control System Computer Software, v.2.7 -
Symix Manufacturing and Accounting Control System Computer Software, v.3.0 -
Symix Manufacturing and Accounting Control System Computer Software, v.4.0 -
SyteLine Enterprise Resource Planning System, v2.0 - SyteLine Enterprise
Resource Planning System, v3.0 - SyteLine Enterprise Resource Planning System,
v3.5 - SyteLine Enterprise Resource Planning System, v4.0 - SyteLine Enterprise
Resource Planning System, v4.5 - SyteLine Enterprise Resource Planning System,
v5.0 - SyteLine Enterprise Resource Planning System, v6.0
Copyright proprietor is Frontstep, Inc.
-2-
18
SCHEDULE B
TO THE COPYRIGHT SECURITY AGREEMENT
JULY 12, 2001
------------------------------------------------------- -----------------------------------------------------
Works of Authorship Publication Date
------------------------------------------------------- -----------------------------------------------------
SYMIX/SYTELINE
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SYMAN 9/30/85
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SYMIX 2.6 4/26/91
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SYMIX 2.7 8/15/92
------------------------------------------------------- -----------------------------------------------------
SYMIX 3.0 3/01/94
------------------------------------------------------- -----------------------------------------------------
SYMIX 4.0 (a/k/a SYMIX 4.1) 11/01/94 (new name used after 12/12/97)
------------------------------------------------------- -----------------------------------------------------
SyteLine 2.0 3/15/96
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SyteLine 3.0 9/30/97
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SyteLine 3.5 5/05/98
------------------------------------------------------- -----------------------------------------------------
SyteLine 4.0 12/14/98
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SYTELINE 4.5 8/09/99
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SYTELINE 5.0 3/31/00
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SYTELINE 6.0 3/20/01
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FRONTOFFICE
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FRONTOFFICE 5.0
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FRONTOFFICE 4.5
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FRONTOFFICE 4.0
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FRONTOFFICE 3.0
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DISTRIBUTION
------------------------------------------------------- -----------------------------------------------------
SYTEDISTRIBUTION 9.2
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SYTEDISTRIBUTION 9.1
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APS
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APS 4.6
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APS 4.5
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APS 4.1
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APS 3.5
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AIM
------------------------------------------------------- -----------------------------------------------------
AIM 9.0
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AIM 8.1
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AIM 8.0
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AIM 7.0
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FACTOR (WINDOWS)
------------------------------------------------------- -----------------------------------------------------
FACTOR 8.1
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Factor 8.0
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SUPPLY CHAIN
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SC 3.0
------------------------------------------------------- -----------------------------------------------------
SC 2.0
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SC 1.0
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AWESIM
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AWESIM 3.0
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19
------------------------------------------------------- -----------------------------------------------------
Works of Authorship Publication Date
------------------------------------------------------- -----------------------------------------------------
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TEAM BUILDER
------------------------------------------------------- -----------------------------------------------------
TEAMBUILDER 2.0
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TEAMBUILDER 4.0
------------------------------------------------------- -----------------------------------------------------
------------------------------------------------------- -----------------------------------------------------
ECRM
------------------------------------------------------- -----------------------------------------------------
ECRM 5.0
------------------------------------------------------- -----------------------------------------------------
ECRM 5.1
------------------------------------------------------- -----------------------------------------------------
ECRM 5.2
------------------------------------------------------- -----------------------------------------------------
ECRM 5.3
------------------------------------------------------- -----------------------------------------------------
ECRM 5.4
------------------------------------------------------- -----------------------------------------------------
------------------------------------------------------- -----------------------------------------------------
PROJECTS (A/K/A SINGLE SOURCE SYSTEMS PROJECTS
EXTENSION)
------------------------------------------------------- -----------------------------------------------------
for Symix v. 4.0
------------------------------------------------------- -----------------------------------------------------
for Symix v. 4.1
------------------------------------------------------- -----------------------------------------------------
for Symix v. 3.5
------------------------------------------------------- -----------------------------------------------------
for SyteLine v. 4.0
------------------------------------------------------- -----------------------------------------------------
for SyteLine v. 4.5
------------------------------------------------------- -----------------------------------------------------
Copyright proprietor is Frontstep, Inc. for all listed works.
Works listed in BOLD are Marketed Software as of the date hereof.
This Schedule lists all prior versions of the Symix/SyteLine product
line, together with all versions of works (that is, the Projects
module) as to which the Symix/SyteLine product line constitutes a
derivative work.
For Marketed Software which is not the Symix/SyteLine product line,
this Schedule lists some but not necessarily all prior versions, and
some but not necessarily all works as to which such non-Symix/SyteLine
works constitute derivative works.
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20
SCHEDULE C
AMENDMENT
TO
COPYRIGHT SECURITY AGREEMENT
This Amendment (the "AMENDMENT"), dated as of________ ___,
200__ (the "Amendment Effective Date") to the Copyright Security Agreement,
dated as of July __, 2001 (the "AGREEMENT"), among FOOTHILL CAPITAL CORPORATION,
a California corporation (the "SECURED PARTY") and FRONTSTEP, INC., an Ohio
corporation, FRONTSTEP SOLUTIONS GROUP, INC., an Ohio corporation, and
BRIGHTWHITE SOLUTIONS, INC., an Ohio corporation (each a "DEBTOR" and
collectively, jointly and severally, the "DEBTORS").
WHEREAS the Secured Party and the Debtors desire to amend
certain terms of the Agreement (a true copy of which is attached as Exhibit 1
hereto). Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Secured Party and Debtors
hereby agree as follows:
1. DEFINITIONS. All capitalized terms used herein and not
otherwise defined herein are used herein as defined in the Agreement.
2. AMENDMENT TO SCHEDULE A. SCHEDULE A to the Agreement is
hereby amended to add the works identified on ANNEX I attached hereto
(collectively, the "ANNEX I WORKS"). All Agreement terms and provisions
(including without limitation all conditions, representations, warranties,
covenants and other agreements) shall apply to the Annex I Works as if such
works had been included on Schedule A as of July ___, 2001. Without limiting the
foregoing provisions, as of the date hereof, the term "Copyright Collateral"
shall include without limitation the works set forth in Annex I hereto.
3. GRANT OF SECURITY INTEREST. Each Debtor, as security for
the payment and performance of its Secured Obligations, hereby grants, assigns,
transfers and conveys to the Secured Party for the benefit of the Lenders a
continuing first priority security interest in all of its right, title and
interest in, to and under the Copyright Collateral, including without limitation
Copyright Collateral in or otherwise concerning the Annex I Works.
4. REPRESENTATIONS AND WARRANTIES. Each Debtor jointly and
severally represents and warrants to the Secured Party as follows:
(a) TRUE AND COMPLETE LIST. Set forth in
SCHEDULE A as amended by Annex I is a true and complete list, as of the date of
this Amendment, of (i) all works registered with the United States Copyright
Office in which any of the Debtors
21
own Copyright Collateral and (ii) all works for which are pending applications
for registration with the United States Copyright Office in which any of the
Debtors own Copyright Collateral.
(b) VALIDITY. Each of the Registrations owned
by Debtors identified in SCHEDULE A as amended by Annex I, and all other
Copyright Collateral owned and otherwise claimed by any Debtor (including rights
relating to works identified on Annex I hereto) is valid, subsisting and
enforceable. Each Debtor has properly complied in all material respects with all
applicable statutory and regulatory requirements, including all notice
requirements, in connection with the Copyright Collateral, and, except as
disclosed in the litigation schedule or annex to the Loan Agreement, no claim
has been made that use (or other exploitation) of any Debtor's rights in and to
the Copyright Collateral does or may infringe or otherwise violate the rights of
any third Person.
(c) TITLE. Each Debtor has rights in and good
title to the Copyright Collateral owned or otherwise claimed by such Debtor
(including rights relating to works identified on SCHEDULE A as amended by Annex
I) and is the sole and exclusive owner of the entire and unencumbered right,
title and interest in and to such Copyright Collateral, free and clear of any
Liens (other than Liens in favor of the Secured Party and other than the rights
of the licensor of a license made by such licensor to a Debtor as licensee, or
the rights of other licensees under non-exclusive licenses of the same subject
matter if a Debtor's license of such subject matter is a non-exclusive license).
For any Copyright Collateral for which a Debtor is either a licensor or a
licensee pursuant to a license or licensing agreement regarding such Copyright
Collateral, each such license or licensing agreement is in full force and
effect, such Debtor is not in default of any of its obligations thereunder and,
other than the parties to such licenses or licensing agreements, no other Person
has any rights in or to any of such Copyright Collateral.
(d) NO VIOLATION. The execution, delivery and
performance by each Debtor of this Amendment do not violate any provision of law
or the articles of incorporation or by-laws of such Debtor or result in a breach
of or constitute a material default under any contract, obligation, indenture or
other instrument to which such Debtor is a party or by which such Debtor may be
bound.
(e) AUTHORIZATION. This Agreement has been
duly authorized, executed and delivered, and constitutes, a legal, valid and
binding agreement of each Debtor, enforceable in accordance with its terms; and
(f) SECRECY. Each Debtor has taken and will
continue to take all reasonable steps to protect the secrecy of all trade
secrets relating to any of its Copyright Collateral.
5. CONTINUED EFFECTIVENESS OF AGREEMENT. Each Debtor hereby
(i) confirms and agrees that each Loan Document to which it is a party is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects except
-2-
22
that on and after the Amendment Effective Date of this Amendment all references
in any such Loan Document to "the Agreement", "thereto", "thereof", "thereunder"
or words of like import referring to the Agreement shall mean the Agreement as
amended by this Amendment, and (ii) confirms and agrees that to the extent that
any such Loan Document purports to assign or pledge to the Secured Party, or to
grant to the Secured Party a Lien on any collateral as security for the
Obligations of the Debtors from time to time existing in respect of the
Agreement and the Loan Documents, such pledge, assignment and/or grant of a Lien
is hereby ratified and confirmed in all respects.
6. MISCELLANEOUS.
(a) This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
(b) Section and paragraph headings herein are
included for convenience of reference only and shall not constitute a part of
this Amendment for any other purpose.
(c) This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
agreements made and wholly performed therein.
(d) The Debtors will pay on demand all
reasonable out-of-pocket costs and expenses of the Secured Party in connection
with the preparation, execution and delivery of this Amendment, including,
without limitation, the reasonable fees, disbursements and other charges of
Schulte Roth & Zabel LLP, counsel to the Secured Party.
-3-
23
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
FRONTSTEP GROUP, INC.
FRONTSTEP SOLUTIONS GROUP, INC.
BRIGHTWHITE SOLUTIONS, INC.,
each an Ohio corporation
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
FOOTHILL CAPITAL CORPORATION
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
-4-
24
STATE OF )
) ss
COUNTY OF )
On ________ __ 2001, before me, ____________________________,
Notary Public, personally appeared ________________________, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity(ies) upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
------------------------------------------
Signature
[SEAL]
STATE OF )
) ss
COUNTY OF )
On _________ __, 2001, before me, ____________________, Notary
Public, personally appeared ________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity(ies) upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------------------
Signature
[SEAL]
-5-
EX-10.A.A
10
l90205aex10-a_a.txt
EXHIBIT 10(A)(A)
1
EXHIBIT 10(a)(b) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
TRADEMARK SECURITY AGREEMENT
----------------------------
This TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as
of July 17, 2001 is made by FRONTSTEP, INC., an Ohio corporation, FRONTSTEP
SOLUTIONS GROUP, INC., an Ohio corporation, and BRIGHTWHITE SOLUTIONS, INC., an
Ohio corporation (each a "Debtor" and collectively, jointly and severally, the
"Debtors"), in favor of FOOTHILL CAPITAL CORPORATION, a California corporation,
as agent for the Lenders referred to below (the "Secured Party").
RECITALS
--------
A. The Debtors, Frontstep Canada, Inc., the financial
institutions party thereto from time to time (the "Lenders") and the Secured
Party have entered into that certain Loan and Security Agreement, of even date
herewith (as amended, restated, modified, renewed or extended from time to time,
the "Loan Agreement"), pursuant to which the Lenders have agreed (among other
things) to make loans to the Debtors in an aggregate principal amount at any one
time outstanding not to exceed the Maximum Revolver Amount (as defined in the
Loan Agreement), and pursuant to which the Debtors have granted to the Secured
Party for the benefit of the Lenders security interests in (among other things)
all or substantially all of the general intangibles of the Debtors.
B. Pursuant to the Loan Agreement and as one of the conditions
precedent to the obligations of the Secured Party and the Lenders under the Loan
Agreement, each of the Debtors have agreed to execute and deliver this Agreement
to the Secured Party for filing with the PTO and with any other relevant
recording systems in any domestic jurisdiction, and as further evidence of and
to effectuate the Secured Party's existing security interests in the trademarks
and other general intangibles described herein.
ASSIGNMENT
----------
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, each Debtor hereby agrees in favor of
the Secured Party as follows:
1. DEFINITIONS; INTERPRETATION.
(a) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"DEBTORS" shall have the meaning ascribed to such term in the
recitals to this Agreement.
"DEBTOR" and "DEBTORS" shall have the meaning ascribed to such
terms in the introductory paragraph of this Agreement.
3
"EVENT OF DEFAULT" means any Event of Default under the Loan
Agreement.
"PROCEEDS" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Trademark Collateral, including
"proceeds" as defined in UCC Section 9-102(a)(64), all insurance proceeds, and
all proceeds of Proceeds. Proceeds shall include (i) any and all accounts,
chattel paper, instruments, general intangibles, cash and other proceeds,
payable to or for the account of any Debtor, from time to time in respect of any
of the Trademark Collateral, (ii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to or for the account of any Debtor from
time to time with respect to any of the Trademark Collateral, (iii) any and all
claims and payments (in any form whatsoever) made or due and payable to any
Debtor from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Trademark
Collateral by any Person acting under color of governmental authority, and (iv)
any and all other amounts from time to time paid or payable under or in
connection with any of the Trademark Collateral or for or on account of any
damage or injury to or conversion of any Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and
any successor thereto.
"SECURED OBLIGATIONS" shall mean, with respect to each Debtor,
all liabilities, obligations, or undertakings owing by such Debtor to the
Secured Party and the Lenders of any kind or description arising out of or
outstanding under, advanced or issued pursuant to, or evidenced by the Loan
Agreement, any of the other Loan Documents, or this Agreement, irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, voluntary or involuntary, whether now existing
or hereafter arising, and including all interest (including interest that
accrues after the filing of a case under the Bankruptcy Code) and any and all
costs, fees (including attorneys fees), and expenses which such Debtor is
required to pay pursuant to any of the foregoing, by law, or otherwise.
"SECURED PARTY" shall have the meaning ascribed to such term
in the introductory paragraph of this Agreement.
"TRADEMARK COLLATERAL" has the meaning set forth in SECTION 2.
"TRADEMARKS" has the meaning set forth in SECTION 2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the State of New York.
"UNITED STATES" and "U.S." each mean the United States of
America.
(b) TERMS DEFINED IN UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
ascribed to them in the UCC.
(c) INTERPRETATION. In this Agreement, except to the extent
the context otherwise requires:
2
4
(i) Any reference to a Section or a Schedule is a reference to
a section hereof, or a schedule hereto, respectively, and to a
subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the
reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to
the specific Section, subsection, paragraph or clause in which the
respective word appears.
(iii) The meaning of defined terms shall be equally applicable
to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual instruments
shall be deemed to include all subsequent amendments, restatements,
supplements, refinancings, renewals, extensions, and other
modifications thereto.
(vi) References to statutes or regulations are to be construed
as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to.
(vii) Any captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
(viii) Capitalized words not otherwise defined herein shall
have the respective meanings assigned to them in the Loan Agreement.
(ix) In the event of a direct conflict between the terms and
provisions of this Agreement and the Loan Agreement, it is the
intention of the parties hereto that both such documents shall be read
together and construed, to the fullest extent possible, to be in
concert with each other. In the event of any actual, irreconcilable
conflict that cannot be resolved as aforesaid, the terms and provisions
of the Loan Agreement shall control and govern; PROVIDED, HOWEVER, that
the inclusion herein of additional -------- ------- obligations on the
part of any Debtor and supplemental rights and remedies in favor of the
Secured Party (whether under New York law or applicable federal law),
in each case in respect of the Trademark Collateral, shall not be
deemed a conflict with the Loan Agreement.
2. SECURITY INTEREST.
(a) ASSIGNMENT AND GRANT OF SECURITY IN RESPECT OF THE SECURED
OBLIGATIONS. To secure the prompt payment and performance of the Secured
Obligations, each Debtor hereby grants, assigns, transfers and conveys to the
Secured Party for the benefit of the Lenders a continuing, first priority
security interest in all of such Debtor's right, title and interest in and to
the following property, whether now existing or hereafter acquired or arising
and whether registered or unregistered (collectively, the "Trademark
Collateral"):
3
5
(i) all common law, state and federal trademarks, service
marks and trade names, corporate names, company names, business names,
fictitious business names, trade styles, trade dress, logos, Internet
domain names, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or
acquired, together with and including all licenses therefor held by
such Debtor, and all registrations and recordings thereof, and all
applications filed or to be filed in connection therewith, including
registrations and applications in the PTO, any State of the United
States (but excluding each application to register any trademark,
service mark, or other mark prior to the filing under applicable law of
a verified and accepted Statement of Use (or the equivalent) for such
trademark or service mark) and all extensions or renewals thereof,
including without limitation any of the foregoing identified on
SCHEDULE A hereto and any and all variations thereof (as such schedule
may be amended, modified or supplemented from time to time), and the
right (but not the obligation) to register claims under any state or
federal trademark law or regulation and to apply for, renew and extend
any of the same, to sue or bring opposition or cancellation proceedings
in the name of the applicable Debtor or in the name of the Secured
Party or in the name of the Secured Party for past, present or future
infringement or unconsented use thereof, and all rights arising
therefrom throughout the world (collectively, the "Trademarks");
(ii) all claims, causes of action and rights to sue for past,
present or future infringement or unconsented use of any Trademarks and
all rights arising therefrom and pertaining thereto;
(iii) all general intangibles (as defined in the UCC) related
to or arising out of any of the Trademarks and all the goodwill of
Debtors' business symbolized by the Trademarks or associated therewith;
and
(iv) all Proceeds of any and all of the foregoing.
(b) CONTINUING SECURITY INTEREST. Each Debtor hereby agrees that
this Agreement shall create a continuing security interest in the Trademark
Collateral which shall remain in effect until terminated in accordance with
SECTION 18.
(c) INCORPORATION INTO LOAN AGREEMENT. This Agreement shall be fully
incorporated into the Loan Agreement and all understandings, agreements and
provisions contained in the Loan Agreement shall be fully incorporated into this
Agreement. Without limiting the foregoing, the Trademark Collateral described in
this Agreement shall constitute part of the Collateral in the Loan Agreement.
(d) LICENSES. Anything in the Loan Agreement or this Agreement to
the contrary notwithstanding, each Debtor may grant exclusive or non-exclusive
licenses of the Trademark Collateral (subject to the security interest of the
Secured Party therein) in the ordinary course of business consistent with past
practice.
3. FURTHER ASSURANCES; APPOINTMENT OF THE SECURED PARTY AS
ATTORNEY-IN-FACT. Each Debtor at its expense shall execute and deliver, or cause
to be executed and delivered, to
4
6
the Secured Party any and all documents and instruments, in form and substance
satisfactory to the Secured Party, and take any and all action, which the
Secured Party, in the exercise of its Permitted Discretion, may request from
time to time, to perfect and continue the perfection or to maintain the priority
of, or provide notice of the security interest in, or maintain, preserve and
protect the Trademark Collateral held by the Secured Party and to accomplish the
purposes of this Agreement. Each Debtor hereby irrevocably constitutes and
appoints the Secured Party (and any of the Secured Party's officers or employees
or agents designated by the Secured Party) as such Debtor's true and lawful
attorney-in-fact with full power and authority (i) if any Debtor refuses to
execute and deliver, or fails timely to execute and deliver, any of the
documents it is requested to execute and deliver by the Secured Party in
accordance with the foregoing after written notice of such request has been
delivered by the Secured Party to such Debtor and such Debtor has failed to do
so within ten (10) days thereof, the Secured Party shall have the right, in the
name of such Debtor, or in the name of the Secured Party or otherwise, without
notice to or assent by such Debtor, to sign the name of such Debtor on all or
any of such documents or instruments and perform all other acts that the Secured
Party in the exercise of its Permitted Discretion deems necessary or advisable
in order to perfect or continue the perfection of, maintain the priority or
enforceability of or provide notice of the security interest in the Trademark
Collateral held by the Secured Party, and (ii) after the occurrence and during
the continuance of any Event of Default, to execute any and all other documents
and instruments, and to perform any and all acts and things for and on behalf of
such Debtor, which the Secured Party, in the exercise of its Permitted
Discretion, may deem necessary or advisable to perfect or continue the
perfection of, maintain the priority or enforceability of, provide notice of the
security interest in the Trademark Collateral held by the Secured Party or
maintain, preserve and protect the Trademark Collateral and to accomplish the
purposes of this Agreement, including (A) to defend, settle, adjust or institute
any action, suit or proceeding with respect to the Trademark Collateral, (B) to
assert or retain any rights under any license agreement for any of the Trademark
Collateral, including any rights of such Debtor arising under Section 365(n) of
the Bankruptcy Code, and (C) to execute any and all applications, documents,
papers and instruments for the Secured Party to use the Trademark Collateral, to
grant or issue any exclusive or non-exclusive license with respect to any
Trademark Collateral, and to assign, convey or otherwise transfer title in or
dispose of the Trademark Collateral. The power of attorney set forth in this
SECTION 3, being coupled with an interest, is irrevocable so long as this
Agreement shall not have terminated in accordance with SECTION 18.
4. REPRESENTATIONS AND WARRANTIES. Each Debtor jointly and severally
represents and warrants to the Secured Party, as follows:
(a) NO OTHER TRADEMARKS. SCHEDULE A sets forth a true and correct
list of all of the existing Trademarks that are registered, or for which any
application for registration has been filed with the PTO or any corresponding
or similar trademark office of any other U.S. jurisdiction, and that are owned
or held (whether pursuant to a license or otherwise) and used by such Debtor.
(b) TRADEMARKS SUBSISTING. Each of the Trademarks listed on
SCHEDULE A is subsisting and has not been adjudged invalid or unenforceable, in
whole or in part, and, to the best of such Debtor's knowledge, each of the
Trademarks set forth on SCHEDULE A is valid and enforceable.
5
7
(c) OWNERSHIP OF TRADEMARK COLLATERAL; NO VIOLATION. Except as set
forth on Schedule 5.16(a) to the Loan Agreement, (i) such Debtor has rights in
and good and defensible title to the existing Trademark Collateral, (ii) with
respect to the Trademark Collateral shown on SCHEDULE A hereto as owned by it,
such Debtor is the sole and exclusive owner thereof, free and clear of any Liens
and rights of others (other than Permitted Liens), including licenses,
registered user agreements and covenants by such Debtor not to sue third
persons, and (iii) with respect to any Trademarks for which such Debtor is
either a licensor or a licensee pursuant to a license or licensing agreement
regarding such Trademark, each such license or licensing agreement is in full
force and effect, such Debtor is not in default of any of its obligations
thereunder and, other than (A) the parties to such licenses or licensing
agreements, or (B) in the case of any non-exclusive license or license agreement
entered into by such Debtor or any such licensor regarding such Trademark, the
parties to any other such non-exclusive licenses or license agreements entered
into by such Debtor or any such licensor with any other Person, no other Person
has any rights in or to any of the Trademark Collateral. To the best of each
Debtor's knowledge, the past, present and contemplated future use of the
Trademark Collateral by such Debtor has not, does not and will not infringe upon
or violate any right, privilege or license agreement of or with any other
Person.
(d) NO INFRINGEMENT. To each Debtor's knowledge, except as set forth on
Schedule 5.16(a) to the Loan Agreement (i) no material infringement or
unauthorized use presently is being made of any of the Trademark Collateral by
any Person, and (ii) the past, present, and contemplated future use of the
Trademark Collateral by such Debtor has not, does not and will not infringe upon
or violate any right, privilege, or license agreement of or with any other
Person.
(e) POWERS. Each Debtor has the unqualified right, power and authority
to pledge and to grant to the Secured Party a security interest in all of its
Trademark Collateral pursuant to this Agreement, and to execute, deliver and
perform its obligations in accordance with the terms of this Agreement, without
the consent or approval of any other Person except as already obtained.
5. COVENANTS. Each Debtor covenants that so long as this Agreement
shall be in effect, each such Debtor shall:
(a) COMPLIANCE WITH LAW. Comply, in all material respects, with all
applicable statutory and regulatory requirements in connection with any and all
of the Trademark Collateral and give such notice of trademark, prosecute such
material claims, and do all other acts and take all other measures which, in
such Debtor's reasonable business judgment, may be necessary or desirable to
preserve, protect and maintain such Trademark Collateral and all of such
Debtor's rights therein, including diligently prosecute any material trademark
application pending as of the date of this Agreement or thereafter;
(b) COMPLIANCE WITH AGREEMENT. Comply with each of the terms and
provisions of this Agreement, the Loan Agreement, and the other Loan Documents,
and not enter into any agreement (for example, a license agreement) which is
inconsistent with the obligations of such Debtor under this Agreement without
the Secured Party's prior written consent; and
6
8
(c) LIEN PROTECTION. Not permit the inclusion in any contract to
which such Debtor becomes a party of any provision that could impair or prevent
the creation of security interests in favor of the Secured Party in such
Debtor's rights and interest in the Trademark and the Trademark Collateral, and
each such Debtor will promptly give the Secured Party written notice of the
occurrence of any event that could have a material adverse effect on any of the
Trademark or the Trademark Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Trademarks for
which such Debtor is a licensee.
6. FUTURE RIGHTS. For so long as any of the Secured Obligations shall
remain outstanding, or, if earlier, until the Secured Party shall have released
or terminated, in whole but not in part, its interest in the Trademark
Collateral, if and when any Debtor shall obtain rights to any new Trademarks, or
any reissue, renewal or extension of any Trademarks, the provisions of SECTION 2
shall automatically apply thereto and the applicable Debtor shall give to the
Secured Party prompt notice thereof. Each Debtor shall do all things deemed
necessary or advisable by the Secured Party in the exercise of its Permitted
Discretion to ensure the validity, perfection, priority and enforceability of
the security interests of the Secured Party in such future acquired Trademark
Collateral. If any Debtor refuses to execute and deliver, or fails timely to
execute and deliver, any of the documents it is requested in writing to execute
and deliver by the Secured Party in connection herewith, each Debtor hereby
authorizes the Secured Party to modify, amend or supplement the Schedules hereto
and to re-execute this Agreement from time to time on such Debtor's behalf and
as its attorney-in-fact to include any future Trademarks which are or become
Trademark Collateral and to cause such re-executed Agreement or such modified,
amended or supplemented Schedules to be filed with the PTO.
7. DUTIES OF THE SECURED PARTY. Notwithstanding any provision contained
in this Agreement, the Secured Party shall have no duty to exercise any of the
rights, privileges or powers afforded to it and shall not be responsible to the
Debtors or any other Person for any failure to do so or delay in doing so.
Except for the accounting for moneys actually received by the Secured Party
hereunder or in connection herewith, the Secured Party shall have no duty or
liability to exercise or preserve any rights, privileges or powers pertaining to
the Trademark Collateral.
8. [INTENTIONALLY OMITTED]
9. REMEDIES. From and after the occurrence and during the continuation
of an Event of Default, the Secured Party shall have all rights and remedies
available to it under the Loan Agreement, any other Loan Documents and
applicable law (which rights and remedies are cumulative) with respect to the
security interests in any of the Trademark Collateral or any other Collateral.
Each Debtor hereby agrees that such rights and remedies include the right of the
Secured Party as a secured party to sell or otherwise dispose of the Trademark
Collateral after default, pursuant to UCC Section 9-610. Each Debtor hereby
agrees that the Secured Party shall at all times have such royalty-free
licenses, to the extent permitted by law and the Loan Documents, for any
Trademark Collateral that is reasonably necessary to permit the exercise of any
of the Secured Party's rights or remedies upon or after the occurrence of (and
during the continuance of) an Event of Default with respect to (among other
things) any tangible asset of such Debtor in which the Secured Party has a
security interest, including the Secured Party's
7
9
rights to sell inventory, tooling or packaging which is acquired by such Debtor
(or its successor, assignee or trustee in bankruptcy). In addition to and
without limiting any of the foregoing, upon the occurrence and during the
continuance of an Event of Default, the Secured Party shall have the right but
shall in no way be obligated to bring suit, or to take such other action as the
Secured Party deems necessary or advisable, in the name of any Debtor or the
Secured Party, to enforce or protect any of the Trademark Collateral, in which
event any such Debtor shall, at the request of the Secured Party, do any and all
lawful acts and execute any and all documents required by the Secured Party in
aid of such enforcement. To the extent that the Secured Party shall elect not to
bring suit to enforce such Trademark Collateral after the occurrence and during
the continuation of an Event of Default, the applicable Debtor agrees to use all
reasonable measures and its diligent efforts, whether by action, suit,
proceeding or otherwise, to prevent the infringement, misappropriation or
violations thereof by others and for that purpose agrees diligently to maintain
any action, suit or proceeding against any Person necessary to prevent such
infringement, misappropriation or violation.
10. BINDING EFFECT. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by each of the Debtors and the Secured Party and
their respective successors and assigns.
11. NOTICES. All notices and other communications hereunder shall be in
writing and shall be mailed, sent or delivered in accordance with the Loan
Agreement.
12. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York, except to
the extent the validity or perfection of the security interests hereunder in
respect of any Trademark Collateral are governed by federal law, in which case
such choice of New York law shall not be deemed to deprive the Secured Party of
such rights and remedies as may be available under federal law.
13. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Loan Agreement,
together with the Schedules hereto and thereto, contain the entire agreement of
the parties with respect to the subject matter hereof and supersede all prior
drafts and communications relating to such subject matter. Neither this
Agreement nor any provision hereof may be modified, amended or waived except by
the written agreement of the parties as provided in the Loan Agreement.
Notwithstanding the foregoing, the Secured Party may reexecute this Agreement or
modify, amend or supplement the Schedules hereto as provided in SECTION 6
hereof.
14. SEVERABILITY. If one or more provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect in any jurisdiction or
with respect to any party, such invalidity, illegality or unenforceability in
such jurisdiction or with respect to such party shall, to the fullest extent
permitted by applicable law, not invalidate or render illegal or unenforceable
any such provision in any other jurisdiction or with respect to any other party,
or any other provisions of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
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10
16. LOAN AGREEMENT. Each Debtor acknowledges that the rights and
remedies of the Secured Party with respect to the security interest in the
Trademark Collateral granted hereby are more fully set forth in the Loan
Agreement and all such rights and remedies are cumulative.
17. NO INCONSISTENT REQUIREMENTS. Each Debtor acknowledges that this
Agreement and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and each
Debtor agrees that all such covenants, terms and provisions are cumulative and
all shall be performed and satisfied in accordance with their respective terms.
18. TERMINATION. Upon the payment and performance in full in cash of
the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, this Agreement shall
terminate, and the Secured Party shall execute and deliver such documents and
instruments and take such further action reasonably requested by Debtors and at
Debtors' expense, as shall be reasonably necessary to evidence termination of
the security interests granted by Debtors to the Secured Party.
[Signature page follows]
9
11
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
FRONTSTEP, INC.
FRONTSTEP SOLUTIONS GROUP, INC.
BRIGHTWHITE SOLUTIONS, INC.,
each an Ohio corporation
By: /s/ Daniel P. Buettin
-------------------------------
Name: Daniel P.Buettin
Title: Vice President & CFO
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Katy J. Brooks
-------------------------------
Name: Katy J. Brooks
Title: V.P.
12
STATE OF New York )
) ss
COUNTY OF New York )
On July 17, 2001, before me, Tom Caplis, Notary Public,
personally appeared Daniel P. Buettin, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Thomas W. Caplis
-------------------------
Signature
[SEAL]
STATE OF New York )
) ss
COUNTY OF New York )
On July 17, 2001, before me, Tom Caplis, Notary Public,
personally appeared Katy J. Brooks, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity(ies)
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Thomas W. Caplis
-----------------------------------------
Signature
[SEAL]
13
A-1
SCHEDULE A
to the Trademark Security Agreement
TRADEMARKS OF FRONTSTEP SOLUTIONS GROUP, INC.
REGISTRATIONS AND PENDING APPLICATIONS (EXCLUDING INTENT-TO USE APPLICATIONS)
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Registration/ Registration/
Type Jurisdiction Mark Application Date Application No.
---- ------------ ---- ---------------- --------------
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US SYTECENTRE 27-Jul-98 75/526,359
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US PUTTING YOUR 16-May-2000 2,350,110
CUSTOMERS FIRST
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US SOLUTION SERVER 08-Oct-96 2,007,093
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US SYMIX 16-May-2000 2,350,217
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US SYMIX 04-Sep-90 1,611,920
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US SYTEAPS 06-June-2000 2,355,181
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US SYTELINE 23-Dec-97 2,123,552
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Mark US SYTEPOWER 14-Jul-98 2,172,499
------------------------- -------------------- ----------------------- ------------------------ ----------------------
Common Law Trademarks
FRONTSTEP
FRONTSTEP FRONT OFFICE
A-1
EX-10.A.B
11
l90205aex10-a_b.txt
EXHIBIT 10(A)(B)
1
EXHIBIT 10(a)(c) TO FRONTSTEP, INC. ANNUAL REPORT ON FORM 10-K
2
INTERCOMPANY SUBORDINATION AGREEMENT
THIS intercompany SUBORDINATION AGREEMENT (this "Agreement"),
dated as of July 17, 2001, is made among the Obligors (as defined below), and
FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), as agent
for the Lender Group (in such capacity, together with its successors, if any, in
such capacity, "Agent").
WHEREAS, certain of the Obligors and the Lender Group are
parties to that certain Loan and Security Agreement dated as of even date
herewith (as amended, modified, renewed, extended, or replaced from time to
time, the "Loan Agreement"), pursuant to which the Lender Group has agreed to
make certain financial accommodations to one or more of the Obligors;
WHEREAS, each Obligor has made or may make certain loans or
advances from time to time to one or more other Obligors;
WHEREAS, each Obligor has agreed to the subordination of such
indebtedness of each other Obligor to such Obligor, upon the terms and subject
to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, conditions, representations, and warranties set forth herein and for
other good and valuable consideration, the parties hereto agree as follows:
SECTION 1. DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN LOAN AGREEMENT. All capitalized terms
used in this Agreement and not otherwise defined herein shall have the meanings
assigned to them in the Loan Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"Insolvency Event" has the meaning set forth in Section 3.
"Lender Group" shall mean, individually and collectively, each
of the Lenders and Foothill, in its capacity as "Agent" (as such term is defined
in the Loan Agreement) for the Lenders.
"Lenders" means, individually and collectively, each of the
financial institutions (including Foothill) listed on the signature pages of the
Loan Agreement and any other Person made a party thereto in accordance with the
provisions of Section 14.1 thereof (together with their respective successors
and assigns).
3
"Obligors" means, individually and collectively, jointly and
severally, Frontstep, Inc., an Ohio corporation, Frontstep Solutions Group,
Inc., an Ohio corporation, brightwhite solutions, inc., an Ohio corporation,
Frontstep Canada, Inc., an Ontario corporation, and any other Obligor that now
or in the future executes and delivers a joinder to the Loan Agreement as a
"Borrower".
"Senior Debt" means the Obligations and other indebtedness and
liabilities of the Obligors to Lender Group under or in connection with the Loan
Agreement and the other Loan Documents, including all unpaid principal of the
Advances and the Term Loan, all interest accrued thereon, all fees due under the
Loan Agreement and the other Loan Documents, and all other amounts payable by
the Obligors to the Lender Group thereunder or in connection therewith, whether
now existing or hereafter arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined.
"Subordinated Debt" means, with respect to each Obligor, all
indebtedness, liabilities, and other obligations of any other Obligor owing to
such Obligor in respect of any and all loans or advances made by such Obligor to
such other Obligor whether now existing or hereafter arising, and whether due or
to become due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, including all fees and all other amounts payable by any other
Obligor to such Obligor under or in connection with any documents or instruments
related thereto.
"Subordinated Debt Payment" means any payment or distribution
by or on behalf of the Obligors, directly or indirectly, of assets of the
Obligors of any kind or character, whether in cash, property, or securities,
including on account of the purchase, redemption, or other acquisition of
Subordinated Debt, as a result of any collection, sale, or other disposition of
collateral, or by setoff, exchange, or in any other manner, for or on account of
the Subordinated Debt.
(c) INTERPRETATION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. References to agreements and other
contractual instruments shall be deemed to include all subsequent amendments and
other modifications thereto. References to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending, or replacing the statute or regulation referred to. The captions and
headings are for convenience of reference only and shall not affect the
construction of this Agreement.
SECTION 2. SUBORDINATION TO PAYMENT OF SENIOR DEBT. As to each
Obligor, all payments on account of the Subordinated Debt shall be subject,
subordinate, and junior, in right of payment and exercise of remedies, to the
extent and in the manner set forth herein, to the prior payment, in full, in
cash or cash equivalents of the Senior Debt.
2
4
SECTION 3. SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF
THE OBLIGORS. As to each Obligor, in the event of any payment or distribution of
assets of any other Obligor of any kind or character, whether in cash, property,
or securities, upon the dissolution, winding up, or total or partial liquidation
or reorganization, readjustment, arrangement, or similar proceeding relating to
such other Obligor or its property, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership, arrangement, or similar proceedings or
upon an assignment for the benefit of creditors, or upon any other marshaling or
composition of the assets and liabilities of such other Obligor, or otherwise
(such events, collectively, the "Insolvency Events"): (i) all amounts owing on
account of the Senior Debt shall first be paid, in full, in cash, or payment
provided for in cash or in cash equivalents, before any Subordinated Debt
Payment is made; and (ii) to the extent permitted by applicable law, any
Subordinated Debt Payment to which such Obligor would be entitled except for the
provisions hereof, shall be paid or delivered by the trustee in bankruptcy,
receiver, assignee for the benefit of creditors, or other liquidating agent
making such payment or distribution directly to the Agent for application to the
payment of the Senior Debt in accordance with clause (i), after giving effect to
any concurrent payment or distribution or provision therefor to the Agent in
respect of such Senior Debt.
SECTION 4. PAYMENTS ON SUBORDINATED DEBT.
(a) PERMITTED PAYMENTS. So long as no Event of Default has
occurred and is continuing, each Obligor may make, and each other Obligor shall
be entitled to accept and receive, payments on account of the Subordinated Debt.
(b) NO PAYMENT UPON SENIOR DEBT DEFAULTS. Upon the occurrence
of any Event of Default, and until such Event of Default is cured or waived,
each Obligor shall not make, and each other Obligor shall not accept or receive,
any Subordinated Debt Payment.
Section 5. SUBORDINATION OF REMEDIES. As long as any Senior
Debt shall remain outstanding and unpaid, following the occurrence of any Event
of Default and until such Event of Default is cured or waived, each Obligor
shall not, without the prior written consent of the Agent:
(a) accelerate, make demand, or otherwise make due and payable
prior to the original due date thereof any Subordinated Debt or bring suit or
institute any other actions or proceedings to enforce its rights or interests in
respect of the obligations of any other Obligor owing to such Obligor;
(b) exercise any rights under or with respect to guaranties of
the Subordinated Debt, if any;
(c) exercise any rights to set-offs and counterclaims in
respect of any indebtedness, liabilities, or obligations of such Obligor to any
other Obligor against any of the Subordinated Debt; or
(d) commence, or cause to be commenced, or join with any
creditor other than the Agent on behalf thereof in commencing, any bankruptcy,
insolvency, or receivership proceeding against the other Obligor.
3
5
SECTION 6. PAYMENT OVER TO THE AGENT. In the event that,
notwithstanding the provisions of SECTIONS 3, 4, AND 5, any Subordinated Debt
Payments shall be received in contravention of such SECTIONS 3, 4, AND 5 by any
Obligor before all Senior Debt is paid, in full, in cash or cash equivalents,
such Subordinated Debt Payments shall be held in trust for the benefit of the
Agent and shall be paid over or delivered to the Agent for application to the
payment, in full, in cash or cash equivalents of all Senior Debt remaining
unpaid to the extent necessary to give effect to such SECTIONS 3, 4, AND 5,
after giving effect to any concurrent payments or distributions to the Agent in
respect of the Senior Debt.
SECTION 7. AUTHORIZATION TO THE AGENT. If, while any
Subordinated Debt is outstanding, any Insolvency Event shall occur and be
continuing with respect to another Obligor or its property: (i) the Agent is
hereby irrevocably authorized and empowered (in the name of each Obligor or
otherwise), but shall have no obligation, to demand, sue for, collect, and
receive every payment or distribution in respect of the Subordinated Debt and
give acquittance therefor and to file claims and proofs of claim and take such
other action (including voting the Subordinated Debt) as it may deem necessary
or advisable for the exercise or enforcement of any of the rights or interests
of the Lender Group; and (ii) each Obligor shall promptly take such action as
the Agent reasonably may request (A) to collect the Subordinated Debt for the
account of the Lender Group and to file appropriate claims or proofs of claim in
respect of the Subordinated Debt, (B) to execute and deliver to the Agent such
powers of attorney, assignments, and other instruments as it may request to
enable it to enforce any and all claims with respect to the Subordinated Debt,
and (C) to collect and receive any and all Subordinated Debt Payments.
SECTION 8. CERTAIN AGREEMENTS OF EACH OBLIGOR.
(a) NO BENEFITS. Each Obligor understands that there may be
various agreements between the Lender Group and any other Obligor evidencing and
governing the Senior Debt, and each Obligor acknowledges and agrees that such
agreements are not intended to confer any benefits on such Obligor and that the
Lender Group and Agent on behalf thereof shall have no obligation to such
Obligor or any other Person to exercise any rights, enforce any remedies, or
take any actions which may be available to them under such agreements.
(b) NO INTERFERENCE. Each Obligor acknowledges that each other
Obligor has granted to Agent for the benefit of the Lender Group security
interests in all of such other Obligor' assets, and agrees not to interfere with
or in any manner oppose a disposition of any Collateral by the Lender Group or
Agent on behalf thereof in accordance with applicable law.
(c) RELIANCE BY THE LENDER GROUP. Each Obligor acknowledges
and agrees that the Lender Group will have relied upon and will continue to rely
upon the subordination provisions provided for herein and the other provisions
hereof in entering into the Loan Documents and making or issuing the Loans
thereunder.
(d) WAIVERS. Except as provided under the Loan Agreement, each
Obligor hereby waives any and all notice of the incurrence of the Senior Debt or
any part thereof and any right to require marshaling of assets.
4
6
(e) OBLIGATIONS OF EACH OBLIGOR NOT AFFECTED. Each Obligor
hereby agrees that at any time and from time to time, without notice to or the
consent of such Obligor except as otherwise provided in the Loan Agreement,
without incurring responsibility to such Obligor, and without impairing or
releasing the subordination provided for herein or otherwise impairing the
rights of the Lender Group hereunder: (i) the time for any other Obligor's
performance of or compliance with any of its agreements contained in the Loan
Documents may be extended or such performance or compliance may be waived by the
Lender Group or Agent on behalf thereof; (ii) the agreements of any other
Obligor with respect to the Loan Documents may from time to time be modified by
such other Obligor and the Lender Group or Agent on behalf thereof for the
purpose of adding any requirements thereto or changing in any manner the rights
and obligations of such other Obligor or the Lender Group thereunder; (iii) the
manner, place, or terms for payment of Senior Debt or any portion thereof may be
altered or the terms for payment extended, or the Senior Debt may be renewed in
whole or in part; (iv) the maturity of the Senior Debt may be accelerated in
accordance with the terms of any present or future agreement by any other
Obligor and the Lender Group or Agent on behalf thereof; (v) any Collateral may
be sold, exchanged, released, or substituted and any Lien in favor of Agent for
the benefit of the Lender Group may be terminated, subordinated, or fail to be
perfected or become unperfected; (vi) any Person liable in any manner for Senior
Debt may be discharged, released, or substituted; and (vii) all other rights
against the other Obligor, any other Person, or with respect to any Collateral
may be exercised (or the Lender Group or Agent on behalf thereof may waive or
refrain from exercising such rights).
(f) RIGHTS OF THE LENDER GROUP NOT TO BE IMPAIRED. No right of
the Lender Group or Agent on behalf thereof to enforce the subordination
provided for herein or to exercise its other rights hereunder shall at any time
in any way be prejudiced or impaired by any act or failure to act by any other
Obligor, the Lender Group, or Agent hereunder or under or in connection with the
other Loan Documents or by any noncompliance by the other Obligor with the terms
and provisions and covenants herein or in any other Loan Document, regardless of
any knowledge thereof the Lender Group or Agent on behalf thereof may have or
otherwise be charged with.
(g) FINANCIAL CONDITION OF THE OBLIGORS. Except as provided
under the Loan Agreement, each Obligor shall not have any right to require the
Lender Group to obtain or disclose any information with respect to: (i) the
financial condition or character of any other Obligor or the ability of the
other Obligor to pay and perform Senior Debt; (ii) the Senior Debt; (iii) the
Collateral or other security for any or all of the Senior Debt; (iv) the
existence or nonexistence of any guarantees of, or any other subordination
agreements with respect to, all or any part of the Senior Debt; (v) any action
or inaction on the part of the Lender Group or any other Person; or (vi) any
other matter, fact, or occurrence whatsoever.
(h) ACQUISITION OF LIENS OR GUARANTIES. Each Obligor shall
not, without the prior consent of Agent, acquire any right or interest in or to
any Collateral not owned by such Obligor or accept any guaranties for the
Subordinated Debt except as permitted under the Loan Agreement.
5
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SECTION 9. SUBROGATION.
(a) SUBROGATION. Until the payment and performance in full of
all Senior Debt and the termination of the Loan Agreement, each Obligor shall
not have, and shall not directly or indirectly exercise, any rights that it may
acquire by way of subrogation under this Agreement, by any payment or
distribution to the Lender Group hereunder or otherwise. Upon the payment and
performance in full of all Senior Debt, each Obligor shall be entitled to
exercise in full any subrogated rights it may possess with respect to the rights
of the Lender Group to receive payments or distributions applicable to the
Senior Debt until the Subordinated Debt shall be paid in full. For the purposes
of the foregoing subrogation, no payments or distributions to the Lender Group
of any cash, property, or securities to which any Obligor would be entitled
except for the provisions of Section 3, 4, or 5 shall, as among such Obligor,
its creditors (other than the Lender Group), and the other Obligors, be deemed
to be a payment by the other Obligors to or on account of the Senior Debt.
(b) PAYMENTS OVER TO THE OBLIGORS. If any payment or
distribution to which any Obligor would otherwise have been entitled but for the
provisions of Section 3, 4, or 5 shall have been applied pursuant to the
provisions of Section 3, 4, or 5 to the payment of all amounts payable under the
Senior Debt, such Obligor shall be entitled to receive from the Lender Group any
payments or distributions received by the Lender Group in excess of the amount
sufficient to pay in full all amounts payable under or in respect of the Senior
Debt. If any such excess payment is made to the Lender Group, the Lender Group
shall promptly remit such excess to such Obligor and until so remitted shall
hold such excess payment for the benefit of such Obligor.
SECTION 10. CONTINUING AGREEMENT; REINSTATEMENT.
(a) CONTINUING AGREEMENT. This Agreement is a continuing
agreement of subordination and shall continue in effect and be binding upon each
Obligor until payment and performance in full of the Senior Debt. The
subordinations, agreements, and priorities set forth herein shall remain in full
force and effect regardless of whether any party hereto in the future seeks to
rescind, amend, terminate, or reform, by litigation or otherwise, its respective
agreements with the other Obligor.
(b) REINSTATEMENT. This Agreement shall continue to be
effective or shall be reinstated, as the case may be, if, for any reason, any
payment of the Senior Debt by or on behalf of any other Obligor shall be
rescinded or must otherwise be restored by the Lender Group, whether as a result
of an Insolvency Event or otherwise.
SECTION 11. TRANSFER OF SUBORDINATED DEBT. Each Obligor may
not assign or transfer its rights and obligations in respect of the Subordinated
Debt except to another Obligor without the prior written consent of Agent, and
any such transferee or assignee, as a condition to acquiring an interest in the
Subordinated Debt shall agree to be bound hereby, in form satisfactory to Agent.
SECTION 12. OBLIGATIONS OF THE OBLIGORS NOT AFFECTED. The
provisions of this Agreement are intended solely for the purpose of defining the
relative rights of each Obligor
6
8
against the other Obligors, on the one hand, and of the Lender Group and Agent
on behalf thereof against the other Obligors, on the other hand. Nothing
contained in this Agreement shall (i) impair, as between each Obligor and the
other Obligors, the obligation of the other Obligors to pay their respective
obligations with respect to the Subordinated Debt as and when the same shall
become due and payable, or (ii) otherwise affect the relative rights of each
Obligor against the other Obligors, on the one hand, and of the creditors (other
than the Lender Group) of the other Obligors against the other Obligors, on the
other hand.
SECTION 13. ENDORSEMENT OF OBLIGOR DOCUMENTS; FURTHER
ASSURANCES AND ADDITIONAL ACTS.
(a) ENDORSEMENT OF OBLIGOR DOCUMENTS. At the request of Agent,
all documents and instruments evidencing any of the Subordinated Debt, if any,
shall be endorsed with a legend noting that such documents and instruments are
subject to this Agreement, and each Obligor shall promptly deliver to Agent
evidence of the same.
(b) FURTHER ASSURANCES AND ADDITIONAL ACTS. Each Obligor shall
execute, acknowledge, deliver, file, notarize, and register at its own expense
all such further agreements, instruments, certificates, financing statements,
documents, and assurances, and perform such acts as Agent reasonably shall deem
necessary or appropriate to effectuate the purposes of this Agreement, and
promptly provide Agent with evidence of the foregoing reasonably satisfactory in
form and substance to Agent.
SECTION 14. NOTICES. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including by facsimile transmission) and shall be mailed, sent, or delivered in
accordance with the notice provisions contained in the Loan Agreement.
SECTION 15. NO WAIVER; CUMULATIVE REMEDIES. No failure on the
part of the Lender Group or Agent on behalf thereof to exercise, and no delay in
exercising, any right, remedy, power, or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power, or privilege preclude any other or further exercise thereof or
the exercise of any other right, remedy, power, or privilege. The rights and
remedies under this Agreement are cumulative and not exclusive of any rights,
remedies, powers, and privileges that may otherwise be available to the Lender
Group.
SECTION 16. COSTS AND EXPENSES.
(a) PAYMENTS BY THE OTHER OBLIGOR. Each of the Obligors
jointly and severally agrees to pay to Agent for the benefit of the Lender Group
on demand the reasonable out-of-pocket costs and expenses of the Lender Group,
and the reasonable fees and disbursements of counsel to the Lender Group, in
connection with the negotiation, preparation, execution, delivery, and
administration of this Agreement, and any amendments, modifications, or waivers
of the terms thereof.
(b) PAYMENTS BY THE OBLIGORS. Each of the Obligors jointly and
severally agrees to pay to Agent for the benefit of the Lender Group on demand
all costs and expenses of
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the Lender Group, and the fees and disbursements of counsel, in connection with
the enforcement or attempted enforcement of, and preservation of rights or
interests under, this Agreement, including any losses, costs and expenses
sustained by the Lender Group as a result of any failure by such Obligor to
perform or observe its obligations contained in this Agreement.
SECTION 17. SURVIVAL. All covenants, agreements,
representations and warranties made in this Agreement shall, except to the
extent otherwise provided herein, survive the execution and delivery of this
Agreement, and shall continue in full force and effect so long as any Senior
Debt remains unpaid. Without limiting the generality of the foregoing, the
obligations of each Obligor under Section 16 shall survive the satisfaction of
the Senior Debt.
SECTION 18. BENEFITS OF AGREEMENT. This Agreement is entered
into for the sole protection and benefit of the parties hereto and their
successors and assigns, and no other Person shall be a direct or indirect
beneficiary of, or shall have any direct or indirect cause of action or claim in
connection with, this Agreement.
SECTION 19. BINDING EFFECT. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by each Obligor and the Lender
Group and their respective successors and permitted assigns.
SECTION 20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 21. SUBMISSION TO JURISDICTION. EACH OBLIGOR HEREBY
(i) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND THE FEDERAL COURTS OF THE UNITED STATES SITTING IN THE COUNTY OF New York,
STATE OF new york, FOR THE PURPOSE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS, OR AT THE SOLE
OPTION OF AGENT, IN ANY OTHER COURT IN WHICH AGENT SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY (iii) IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE
LAW) ANY OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF
ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY
OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM AND (iv) AGREES THAT A FINAL JUDGMENT IN
ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW.
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SECTION 22. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of each of the Obligors and the Lender Group with respect to the
matters set forth herein and supersedes any prior agreements, commitments,
drafts, communications, discussions, and understandings, oral or written, with
respect thereto.
(b) AMENDMENTS AND WAIVERS. No amendment to any provision of
this Agreement shall in any event be effective unless the same shall be in
writing and signed by each of the Obligors and Agent; and no waiver of any
provision of this Agreement, or consent to any departure by any Obligor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Agent. Any such amendment, waiver, or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 23. CONFLICTS. In case of any conflict or
inconsistency between any terms of this Agreement, on the one hand, and any
documents or instruments in respect of the Subordinated Debt, on the other hand,
then the terms of this Agreement shall control.
SECTION 24. SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 25. INTERPRETATION. This Agreement is the result of
negotiations between, and have been reviewed by the respective counsel to, the
Obligors and the several members of the Lender Group and is the product of all
parties hereto. Accordingly, this Agreement shall not be construed against the
Lender Group merely because of the Lender Group's involvement in the preparation
hereof.
SECTION 26. COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
SECTION 27. TERMINATION OF AGREEMENT. Upon payment and
performance in full of the Senior Debt and the termination of the Loan
Agreement, this Agreement shall terminate and Agent on behalf of the Lender
Group shall promptly execute and deliver to each Obligor such documents and
instruments as shall be necessary to evidence such termination; provided,
however, that the obligations of each Obligor under Section 16 shall survive
such termination.
SECTION 28. ADDITIONAL OBLIGORS. The initial Obligors
hereunder shall be such of the Obligors as are signatories hereto as of the date
hereof. From time to time subsequent to
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the date hereof, additional Obligors, as required by the Loan Agreement or the
other Loan Documents, may become parties hereto, as additional Obligors (each,
an "Additional Obligor"), by executing and delivering a counterpart of this
Agreement. Upon delivery of any such counterpart to Agent, notice of which is
hereby waived by any other Obligor, each such Additional Obligor shall be an
Obligor and shall be as fully a party hereto as if such Additional Obligor were
an original signatory hereof. Each Obligor expressly agrees that its obligations
arising hereunder shall not be affected or diminished by the addition or release
of any other Obligor hereunder. This Agreement shall be fully effective as to
any Obligor that is or becomes a party hereto regardless of whether any other
Person becomes or fails to become or ceases to be an Obligor hereunder.
[Signature pages follow.]
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IN WITNESS WHEREOF, the undersigned has duly executed and
delivered this Agreement as of the date first written above.
FRONTSTEP, INC.,
an Ohio corporation
By: /s/ Daniel P. Buettin
------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
FRONTSTEP SOLUTIONS GROUP, INC.,
an Ohio corporation
By: /s/ Daniel P. Buettin
------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
BRIGHTWHITE SOLUTIONS, INC.,
an Ohio corporation
By: /s/ Daniel P. Buettin
------------------------------------
Name: Daniel P. Buettin
Title: Vice President & CFO
FRONTSTEP CANADA, INC.,
an Ontario corporation
By: /s/ Daniel P. Buettin
------------------------------------
Name: Daniel P. Buetin
Title: Vice President & CFO
S-1
EX-21
12
l90205aex21.txt
EXHIBIT 21
1
EXHIBIT 21 TO ANNUAL REPORT ON FORM 10-K FOR FRONTSTEP, INC.
SUBSIDIARIES OF THE REGISTRANT
2
EXHIBIT 21
SUBSIDIARY NAME JURISDICTION OF PERCENTAGE OF SECURITIES
ORGANIZATION HELD DIRECTLY/INDIRECTLY
BY REGISTRANT
----------------------------------------------------------------------- ------------------------ --------------------------
Symix Computer Systems (Mexico) S. De R.L. de C.V. Mexico 100%
Frontstep (Canada) Inc. Ontario, Canada 100%
Frontstep (Malaysia) Sdn Bhd (formerly Symix Computer Systems Malaysia 87%
(Malaysia) Sdn Bhd).
Frontstep (Singapore) Pte Ltd. (formerly Symix Computer Systems Singapore 87%
(Singapore) Pte Ltd.).
Frontstep Pty Ltd. (formerly Symix Computer Systems (Australia) Pty Australia 87%
Ltd).
Frontstep (Hong Kong) Limited (formerly Symix Computer Systems (Hong Hong Kong 87%
Kong) Limited).
Frontstep (Thailand) Ltd. Thailand 99%
Frontstep Limited (formerly Symix New Zealand, Limited). New Zealand 87%
Frontstep B.V. Netherlands 100%
Symix (U.K.) Limited. United Kingdom 100%
Frontstep GmbH. Germany 100%
Symix Italia S.r.l. Italy 100%
Symix France, SA France 99%
Frontstep (UK) Ltd. United Kingdom 100%
Frontstep (Europe) Limited United Kingdom 100%
Symix Japan Ltd. Japan 85%
Symix Computer Systems (Shanghai) Co. Ltd. Shanghai, China
Symix Computer Systems Delaware, Inc. Delaware 100%
Frontstep distribution.com, inc. Ohio 100%
Frontstep Solutions Group, Inc. Ohio 100%
EX-23
13
l90205aex23.txt
EXHIBIT 23
1
EXHIBIT 23 TO ANNUAL REPORT ON FORM 10-K FOR FRONTSTEP, INC.
CONSENT OF INDEPENDENT AUDITORS
2
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Frontstep, Inc.:
We consent to the incorporation by reference in the registration statements on
Form S-3 (Nos. 333-42894) and Form S-8 (Nos. 33-40546, 33-45416, 33-73014,
33-73016, 333-660, 333-10631, 33-10633, 333-43947, and 333-91811) of Frontstep,
Inc. of our report dated August 13, 2001, relating to the consolidated balance
sheet of Frontstep, Inc. and subsidiaries as of June 30, 2001, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended June 30, 2001, which report appears in the June 30, 2001 annual
report on Form 10-K of Frontstep, Inc.
/s/ KPMG LLP
Columbus, Ohio
September 27, 2001
3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-40546, No. 33-45416, No. 33-73014, No. 33-73016, No. 333-660,
No. 333-10631, No. 333-10633, No. 333-43947, and No. 333-91811, and Form S-3
No. 333-42894) of Frontstep, Inc. (formerly Symix Systems, Inc.) of our report
dated July 27, 2000, with respect to the consolidated balance sheet of
Frontstep, Inc. (formerly Symix Systems, Inc.) as of June 30, 2000 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended June 30, 2000 included in
this Annual Report (Form 10-K) of Frontstep, Inc.
/s/ Ernst & Young LLP
Columbus, Ohio
September 27, 2001
EX-24
14
l90205aex24.txt
EXHIBIT 24
1
EXHIBIT 24 TO ANNUAL REPORT ON FORM 10-K FOR FRONTSTEP, INC.
POWER OF ATTORNEY
-----------------
2
EXHIBIT 24
FRONTSTEP, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and/or officers of Frontstep, Inc., an Ohio corporation, hereby constitutes and
appoints each of Lawrence J. Fox, Stephen A. Sasser and Daniel P. Buettin as the
true and lawful attorney or attorney-in-fact, with full power of substitution
and revocation, for each of the undersigned and in the name, place and stead of
each of the undersigned, to sign on behalf of each of the undersigned an Annual
Report on Form 10-K for the fiscal year ended June 30, 2001 pursuant to the
Securities Exchange Act of 1934, as amended, and to sign any amendments to such
Annual Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting to each attorney or attorney-in-fact full power and authority to do so
and to perform any act requisite and necessary to be done as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that each attorney or attorney-in-fact or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts, each of which
shall be deemed an original with respect to the person executing it.
IN WITNESS WHEREOF, the undersigned have subscribed these presents as
of the 7th day of September, 2001.
/s/ Lawrence J. Fox /s/ Stephen A. Sasser
----------------------------------------------------- -------------------------------------------------------
Lawrence J. Fox Stephen A. Sasser
Chairman of the Board and Director President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Daniel P. Buettin /s/ John T. Tait
----------------------------------------------------- -------------------------------------------------------
Daniel P. Buettin John T. Tait
Vice President, Finance, Chief Financial Officer and Director
Secretary
(Principal Financial and Accounting Officer)
/s/ Duke W. Thomas /s/ Larry L.. Liebert
----------------------------------------------------- -------------------------------------------------------
Duke W. Thomas Larry L. Liebert
Director Director
/s/ James A. Rutherford /s/ Roger D. Blackwell
----------------------------------------------------- -------------------------------------------------------
James A. Rutherford Roger D. Blackwell
Director Director
/s/ Guy de Chazal /s/ Barry Goldsmith
----------------------------------------------------- -------------------------------------------------------
Guy de Chazal Barry Goldsmith
Director Director