<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1997
REGISTRATION NO. 333-38177
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------------------------
MADE2MANAGE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
INDIANA 7372 35-1665080
(State or other jurisdiction (Primary S.I.C. Code Number) (I.R.S. Employer
of incorporation or Identification
organization) No.)
</TABLE>
9002 PURDUE ROAD
INDIANAPOLIS, INDIANA 46268
(317) 875-9750
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
STEPHEN R. HEAD
VICE PRESIDENT, FINANCE AND ADMINISTRATION, CHIEF FINANCIAL OFFICER, SECRETARY
AND TREASURER
MADE2MANAGE SYSTEMS, INC.
9002 PURDUE ROAD
INDIANAPOLIS, INDIANA 46268
(317) 875-9750
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
--------------------------
COPIES TO:
STEVEN K. HUMKE, ESQ. RUBI FINKELSTEIN, ESQ.
Ice Miller Donadio & Ryan Orrick, Herrington & Sutcliffe LLP
One American Square, Box 82001 666 Fifth Avenue
Indianapolis, Indiana 46282-0002 New York, New York 10103
(317) 236-2394 (212) 506-5000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Common Stock (no par value)................. 2,587,500 shares $10.00 $25,875,000 $7,841
</TABLE>
(1) Includes 337,500 shares of Common Stock that may be sold if the
over-allotment option granted to the Underwriters is exercised in full. See
"Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) $7,667 previously paid in connection with initial filing.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1997
2,250,000 SHARES
[LOGO]
COMMON STOCK
----------------
Of the 2,250,000 shares of Common Stock offered hereby (the "Shares"), 2,050,000
Shares are being sold by Made2Manage Systems, Inc. (the "Company") and 200,000
Shares are being sold by certain shareholders of the Company. The Company will
not receive any of the proceeds from the sale of Shares by the selling
shareholders, including those referenced below (the "Selling Shareholders"). See
"Principal and Selling Shareholders." Prior to this offering there has been no
public market for the Common Stock. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. It is
currently anticipated that the initial public offering price will be between
$8.50 and $10.00 per share. The Common Stock has been approved for quotation on
The Nasdaq National Market under the symbol "MTMS" subject to official notice of
issuance.
------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. FOR A SUMMARY OF
CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS," COMMENCING ON PAGE 5 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC(1) DISCOUNTS(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
</TABLE>
(1) The initial public offering price will be determined by agreement between
the Company and the Representatives of the several Underwriters in
accordance with the recommendation of a "qualified independent underwriter"
as required by the Rules of the National Association of Securities Dealers,
Inc. The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $550,000.
(3) Certain shareholders have granted the Underwriters a 45-day option to
purchase up to 337,500 additional shares of Common Stock solely for the
purpose of covering over-allotments, if any. If the Underwriters exercise
this option in full, the total Price to Public, Underwriting Discounts and
Proceeds to Selling Shareholders will be $ , $ and $ , respectively. See
"Underwriting."
------------------------------
The Shares are offered by the several Underwriters, subject to prior sale, when,
as and if delivered to and accepted by them, subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of the certificates representing such
shares will be made against payment therefor at the office of First Albany
Corporation, New York, New York on or about December , 1997.
First Albany Corporation
Van Kasper & Company
RvR Securities Corp.
THE DATE OF THIS PROSPECTUS IS DECEMBER , 1997
<PAGE>
The inside front cover of the prospectus contains four photographs of
individuals performing their jobs and in the middle of the pictures the
following text appears: "Power to the People." Below the photographs is the
following text: "Manufacturing Software That Gives Your People The Power To Work
Better, Together."
The inside cover page of the Prospectus then folds out and a schematic of the
various functions of Made2Manage appears. In the center of this fold-out, the
following words appear in a pyramid: Production, Finance, EIS, and Sales. Around
the pyramid is a circle containing the following words in clockwise order:
"Internet, Reporting and Messaging." Then in a concentric circle surrounding the
initial circle is the word "Vendor" on the right side of the concentric circle,
and on the left side is the word "Customer."
Stemming outward from this circle are six rays connecting a graphic and text
summarizing the feature displayed. The following is a summary of the graphic and
the exact language of the text. This summary begins with the ray extending
vertically upward from the center and continues in clockwise describing all
graphics and corresponding text.
1. The first ray connects the word "Production" in the center circle with a
three graphics and text. The main graphic is a computer screen illustrating the
Job Packet feature of Made2Manage. To the right of the main graphic are a small
picture of a welder and a small blow-up from the computer screen tool bar which
contains the following abbreviation "Prod." To the right of the main graphic is
the following text:
"JOB ORDERS
Made2Manage provides an easy-to-use, yet sophisticated job order tracking
feature. Because of the central database, the information related to a job
is available at the touch of a button from this screen. The Job Packet is a
unique feature that lets users view items on screen, thereby eliminating the
traditional paper documents that accompany a job through production.
Complete integration makes this possible."
2. The second ray connects the word "Internet" in the center circle with two
graphics and text. The main graphic is a computer screen of the Microsoft
Internet Explorer feature. To the right of the screen is a small graphic of an
individual performing his job. To the right of the main graphic is the following
text:
"INTERNET
Made2Manage's Internet Applications provide "self-service" access to
critical business information for your remote employees as well as access to
services for your customers and preferred vendors. Available to selected
individuals "on-demand" from anywhere via browser access, information and
services can keep people better informed and coordinated."
3. The third ray connects the word "Finance" in the center circle with three
graphics and text. The main graphic is a computer screen illustrating the
reporting function of Made2Manage. To the right of the main graphic are a small
graphic of an individual performing his job and a small blow-up from the
computer screen tool bar which contains the word "Finance." Below the main
graphic is the following text:
"REPORTING
Made2Manage supports a variety of reporting needs. Information about the
business is readily available. Users have the flexibility of using or
modifying standard Made2Manage reports or creating reports with the report
customization feature."
4. The fourth ray connects "EIS" in the center circle with two graphics and
text. The main graphic is a computer screen illustrating the EIS function of
Made2Manage. To the right of the screen is a small blow-up from the computer
screen tool bar which contains "EIS." To the left of the graphic is the
following text:
"EIS
The Executive Information System was developed just for management and made
to be easy to use. By means of exception reporting, EIS overviews display
real-time information on critical key indicators about the business. More
detailed reports are then available at the push of a button, which can then
be graphed as needed. Reports and graphs can be viewed or printed."
5. The fifth ray connects the word "Sales" in the center circle with three
graphics and text. The main graphic is a computer screen illustrating the
Product Configurator function of Made2Manage. To the right of the main graphic
is a small graphic of an individual performing his job and a small blow-up from
the computer screen tool bar which contains the word "Sales." Below the main
graphic is the following text.
"PRODUCT CONFIGURATOR
Made2Manage's Product Configurator helps Order Entry and Sales personnel
configure a custom product using a question and answer format. On-line
graphics, help files and document links provide all the information needed
to configure a product. Product Configurator will then create a bill of
material and rating for each item of a quote or sales order for use by
manufacturing."
6. The sixth ray connects the word "Messaging" in the center circle with three
graphics and text. The main graphic is a computer screen illustraing the
Notifier function of Made2Manage. To the right of the main graphic is a small
graphic of an individual performing her job and a small blow-up from the
computer screen tool bar which contains the word "Notifier." Below the main
graphic is the following text.
"MESSAGING
Workflow-enabled messaging is possible throughout the enterprise and the
supply chain with Notifier. Notifier will automatically send messages to
customers, employees, or vendors when pre-defined events occur. Messages can
be sent by fax, e-mail or pop-up message."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
"MADE2MANAGE" IS A REGISTERED TRADEMARK OF THE COMPANY, AND "NOTIFIER" IS A
TRADEMARK OF THE COMPANY FOR WHICH A FEDERAL REGISTRATION IS PENDING. THIS
PROSPECTUS ALSO INCLUDES TRADE NAMES AND TRADEMARKS OF OTHER COMPANIES.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND THE COMPANY'S FINANCIAL STATEMENTS
AND RELATED NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Made2Manage Systems, Inc. (the "Company") develops, markets and supports fully
integrated, Microsoft Windows-based business applications software for
manufacturers. The Company's principal product, Made2Manage for Windows
("Made2Manage"), is an enterprise resource planning ("ERP") software application
designed to meet the unique needs of small and midsize discrete manufacturers
engaged in engineer-to-order, make-to-order, make-to-stock and mixed mode
operations. Made2Manage is a comprehensive application suite designed to be the
only business software these manufacturers need to effectively manage their
entire organizations, and includes customer order management, manufacturing
resource planning and scheduling, materials management, decision support and
data warehousing, and finance and accounting. Since its introduction in late
1995, Made2Manage has been licensed by more than 500 manufacturers in North
America, primarily in the United States. In addition, the Company continues to
support more than 150 manufacturing sites using the DOS-and UNIX-based
predecessors of Made2Manage.
The Company strategically targets manufacturers with annual revenues of between
$5 million and $50 million with a scalable product designed to support its
customers' growth. Advanced Manufacturing Research, Inc. ("AMR"), an independent
market research firm, has estimated that the ERP software market reached $7.2
billion in 1996 and projected that the market will grow at an average annual
rate of over 34% for the next five years. While the largest share of the ERP
software market in 1996 was attributable to applications aimed at large
manufacturers, the Company believes that the small and midsize segment of the
market is not only rapidly growing, but is also fragmented and underserved. In
addition, Windows NT is emerging as the platform of choice among small and
midsize manufacturing operations.
Unlike many competing ERP software applications, Made2Manage is a native, 32-bit
product that takes full advantage of the Microsoft Windows and Windows NT
platforms. Furthermore, Made2Manage was designed specifically as an integrated
business solution for small and midsize manufacturers, providing simplicity of
operation, rapid implementation, ease of administration and low total cost of
ownership. It is a fully integrated solution providing easy access to shared
information from all functional areas of a manufacturing organization.
Made2Manage improves information flow throughout a company and across the supply
chain. This enables a manufacturer to better meet the needs of its customers and
realize numerous competitive advantages, including the ability to customize
production, shorten manufacturing cycles and improve customer service.
The Company's objective is to be a leading provider of fully-integrated ERP
software solutions for manufacturers in its target market. The Company's
strategy for achieving this objective includes (i) maintaining its focus on the
unique requirements of small and midsize manufacturers; (ii) expanding its
distribution channels by increasing its direct sales and marketing force,
strengthening its relationship with value added resellers ("VARS") and exploring
international expansion opportunities; (iii) evaluating potential strategic
acquisitions; (iv) capitalizing on Year 2000 replacement opportunities; (v)
leveraging the scalable functionality and flexibility of its products to
accommodate customer growth; and (vi) continuing to achieve high levels of
customer satisfaction.
The Company was incorporated under the laws of Indiana as Teksyn, Inc. in 1986
and changed its name to Made2Manage Systems, Inc. in 1995. The Company's
principal executive offices are located at 9002 Purdue Road, Indianapolis, IN
46268, and its telephone number is (317) 875-9750.
3
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
Shares offered by the Company................... 2,050,000 Shares
<S> <C>
Shares offered by the Selling Shareholders...... 200,000 Shares
Common Stock to be outstanding after the 5,011,299 shares of Common Stock(1)
offering......................................
Use of proceeds................................. For repayment of certain indebtedness,
capital expenditures, and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol................... MTMS
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................................................. $ 4,452 $ 5,935 $ 9,379 $ 6,138 $ 11,041
Operating income............................................... 546 447 700 374 573
Income tax provision (benefit)(2).............................. 5 6 (1,028) 17 197
Net income..................................................... 443 392 1,606 299 323
Pro forma net income per share(3).............................. .61 .15
Pro forma average number of shares(3).......................... 2,846 2,886
Supplemental pro forma net income per share(3)(4).............. .63 .13
Supplemental pro forma average number of shares(3)(4).......... 2,531 2,544
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
ACTUAL AS ADJUSTED(5)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................. $ 1,856 $ 17,998
Working capital........................................................................ 1,222 17,630
Total assets........................................................................... 8,566 24,708
Long-term obligations, less current portion............................................ 733 --
Total shareholders' equity............................................................. 2,485 19,626
</TABLE>
- ------------------------------
(1) Based on shares outstanding at September 30, 1997, including conversion of
1,479,824 shares of convertible preferred stock ("Convertible Preferred
Stock") convertible into the same number of shares of Common Stock, and
including (i) 1,060,785 shares of Common Stock issuable upon the exercise of
stock options outstanding as of September 30, 1997, of which 399,867 were
exercisable as of that date, and (ii) 14,063 shares of Common Stock issuable
upon the exercise and conversion of warrants outstanding as of September 30,
1997. See "Capitalization," "Management--Stock Option Plan" and Note 5 of
Notes to Financial Statements.
(2) Net income for the year ended December 31, 1996 includes an income tax
benefit of $1.2 million or $.44 per share resulting from the reversal of a
valuation allowance which had been established to offset future tax benefits
of net operating loss carryforwards. The valuation allowance was reversed
during 1996 based on management's analysis which considered the Company's
profitable operating results and future outlook because of the market
acceptance of its Windows product. As a result of this analysis, management
determined it was more likely than not that the deferred income taxes at
December 31, 1996 would be realized. For subsequent periods the Company has
provided for income taxes utilizing federal and state statutory income tax
rates. See Note 7 of Notes to Financial Statements.
(3) Computed on the basis described in Note 1 of Notes to Financial Statements.
(4) Supplemental pro forma net income per share has been determined in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128").
(5) Adjusted to reflect the exercise and conversion of outstanding warrants to
purchase 14,063 shares of Common Stock and the sale of 2,050,000 Shares
offered by the Company hereby (after deducting the estimated underwriting
discounts and offering expenses payable by the Company), assuming an initial
public offering price of $9.25 per share, and the receipt of net proceeds
therefrom.
------------------------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS, INCLUDING
FINANCIAL INFORMATION, SHARE AND PER SHARE DATA: (I) REFLECTS THE AUTOMATIC
CONVERSION OF ALL OF THE SHARES OF THE COMPANY'S OUTSTANDING CONVERTIBLE
PREFERRED STOCK INTO SHARES OF COMMON STOCK ON A ONE-FOR-ONE BASIS UPON THE
COMPLETION OF THIS OFFERING; (II) REFLECTS THE EXERCISE AND CONVERSION OF
OUTSTANDING WARRANTS FOR 14,063 SHARES OF COMMON STOCK; AND (III) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE UP TO 337,500
SHARES OF COMMON STOCK. SEE "UNDERWRITING."
4
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS MAY BE DEEMED TO INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY
AND ITS MANAGEMENT WITH RESPECT TO (I) THE COMPANY'S STRATEGIC PLANS, (II) THE
POLICIES OF THE COMPANY REGARDING CAPITAL EXPENDITURES, FINANCING OR OTHER
MATTERS AND (III) INDUSTRY TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. ACTUAL RESULTS OR EVENTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN ANY FORWARD-LOOKING STATEMENTS FOR THE REASONS DISCUSSED IN
THIS SECTION AND THE SECTIONS ENTITLED "MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS, OR FOR OTHER REASONS.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH BELOW, IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, IN EVALUATING AN
INVESTMENT IN THE SHARES OFFERED HEREBY.
FLUCTUATIONS OF QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has experienced in the past, and expects to experience in the
future, significant fluctuations in quarterly operating results. A substantial
portion of the Company's software license revenue in each quarter is from
licenses signed and product shipped in that quarter, and such revenues
historically have been recorded largely in the third month of a quarter, with a
concentration of revenues mostly in the last week of that third month.
Accordingly, the Company's quarterly results of operations are difficult to
predict, and delays in product delivery or in closings of sales near the end of
a quarter could cause quarterly revenues and, to a greater degree, net income to
fall substantially short of anticipated levels. In addition, the Company has
experienced a seasonal pattern in its operating results, with the fourth quarter
typically having the highest total revenues and operating income and the first
quarter having historically reported lower revenues and operating income
compared to the fourth quarter of the preceding year. Other factors, many of
which are beyond the Company's control, that may contribute to fluctuations in
quarterly operating results include the size of individual orders, the timing of
product introductions or enhancements by the Company and its competitors,
competition and pricing in the manufacturing software industry, market
acceptance of new products, reduction in demand for existing products, the
shortening of product life cycles as a result of new product introductions by
the Company or its competitors, product quality problems, personnel changes,
conditions or events in the manufacturing industry, and general economic
conditions. The sales cycle for Made2Manage typically ranges from three to nine
months. However, license signing may be delayed for a number of reasons outside
the control of the Company. Since software is generally shipped as orders are
received, the Company historically has operated without significant backlog.
Because the Company's operating expenses are based on anticipated revenue levels
and a high percentage of the Company's expenses are relatively fixed in the
short term, small variations in the timing of revenue recognition can cause a
significant fluctuation in operating results from quarter to quarter and may
result in unanticipated quarterly earnings shortfalls or losses. In addition,
the Company currently intends to increase its operating expenses in anticipation
of continued growth and to fund expanded product development efforts. To the
extent such expenses precede, or are not subsequently followed by, increased
revenues, the Company's business, financial condition and results of operations
could be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results."
PRODUCT AND MARKET CONCENTRATION
All of the Company's revenues are currently derived from licenses of Made2Manage
and related sales of support, services and hardware. In the near term,
Made2Manage and related enhancements and services are expected to continue to
account for substantially all of the Company's revenues. Accordingly, any event
that adversely affects the sale of Made2Manage, such as competition from other
products, significant quality problems, incompatibility with third party
hardware or software products, negative publicity or
5
<PAGE>
evaluation, reduced market acceptance of, or obsolescence of the hardware
platforms on, or software environments in, which Made2Manage operates, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's business depends substantially upon the software expenditures of
small and midsize manufacturers, which in part depend upon the demand for such
manufacturers' products. A recession or other adverse event affecting
manufacturing industries in the United States could impact such demand, forcing
manufacturers in the Company's target market to curtail or postpone capital
expenditures on business information systems. While in the long term the Company
plans to distribute Made2Manage in international markets, the Company has no
significant experience in international markets and there can be no assurance
that such expansion can be successfully accomplished. Any adverse change in the
amount or timing of software expenditures by the Company's target customers
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Product Development",
"--Competition," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business--The Product" and "Business--Competition."
DEPENDENCE ON THIRD PARTY TECHNOLOGIES
Made2Manage utilizes a variety of third party technologies, including operating
systems and other applications developed and supported by Microsoft Corporation
("Microsoft"). There can be no assurance that Microsoft will continue to support
the operating systems utilized by Made2Manage or that such operating systems
will continue to be widely accepted in the Company's target market. Made2Manage
relies heavily on Microsoft's Visual Studio, and there can be no assurance that
Microsoft will not discontinue, or that it will continue to support, Visual
Studio or any of its components. In addition, the Company utilizes a number of
other programming tools and applications, including ActiveX, OLE, ODBC, OLEDB
and Internet Information Server. The Company also sub-licenses and resells
various third party products, including InstallShield, Microsoft Project and bar
code hardware and software. There can be no assurance that these third party
vendors will continue to support these technologies or that these technologies
will retain their level of acceptance among manufacturers in the Company's
target market. The occurrence of any of these events could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--The Product."
PRODUCT DEVELOPMENT
The Company's growth and future financial performance depend in part upon its
ability to enhance existing applications and to develop and introduce new
applications to incorporate technological advances and satisfy customer
requirements or expectations. As a result of the complexities inherent in
product development, there can be no assurance that either improvements to
Made2Manage or applications the Company develops in the future will be delivered
on a timely basis or ultimately accepted in the market. Any failure by the
Company to anticipate or respond adequately to technological development or
end-user requirements, or any significant delays in product development or
introduction, could damage the Company's competitive position and have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Dependence on Key Personnel," "--Product and
Market Concentration," "--Competition," "Business--The Product" and
"Business--Product Development."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon a number of key
employees, including members of senior management. None of the Company's
employees is subject to an employment contract. The Company's ability to
implement its business strategy is substantially dependent on its ability to
attract, on a timely basis, and retain skilled personnel, especially sales,
service and support personnel. Competition for such personnel is intense, and
the Company competes for such personnel against numerous companies, including
larger, more established companies with significantly greater financial
resources than the
6
<PAGE>
Company. There can be no assurance that the Company will be successful in
attracting and retaining skilled personnel. The loss of the services of one or
more of the key employees or the failure to attract and retain qualified
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Management of Growth,"
"Business--Employees" and "Management--Executive Officers and Directors."
MANAGEMENT OF GROWTH
The Company has experienced rapid growth in its business and operations. While
the Company has managed this growth to date, there can be no assurance that it
will be able to effectively do so in the future. The ability of the Company to
manage its growth successfully is contingent on a number of factors including
its ability to implement and improve its own operational, financial and
management information systems and to motivate and effectively manage its
employees. If the Company were unable to manage future growth effectively, its
business, financial condition and results of operations would be materially and
adversely affected. See "--Dependence on Key Personnel,"
"Business--Competition," "Business-- Employees" and "Management--Executive
Officers and Directors."
INSUFFICIENT CUSTOMER COMMITMENT
To obtain the maximum rewards of Made2Manage, customers must commit resources to
implement and manage the product and to train their employees in the use of the
product. The failure of customers to commit sufficient resources to those tasks
or to carry them out effectively could result in customer dissatisfaction with
Made2Manage. If a significant number of customers became dissatisfied, the
Company's reputation could be tarnished and the Company's business, financial
condition and results of operations could be materially and adversely affected.
COMPETITION
The business management applications software market is intensely competitive,
rapidly changing and significantly affected by new product offerings and other
market activities. The Company faces competition from a variety of software
vendors, including application software vendors, software tool vendors and
relational database management systems vendors. A number of companies offer
Windows compatible products that are directed at the market for ERP systems. The
technologies the Company used to develop Made2Manage are generally available and
widely known and include technologies developed by Microsoft. There can be no
assurance that the Company's competitors will not develop products based on the
same technology upon which Made2Manage is based. The Company's competitors
include a large number of software and system vendors, including Dataworks
Corporation, Effective Management Systems, Inc., Fourth Shift Corporation, and
Symix Computer Systems which are public companies, and Lilly Software
Associates, which is a private company. In addition, there are numerous national
and regional vendors that offer alternative systems. Several software companies
that have traditionally marketed ERP systems to larger manufacturers, including
Baan Company, J.D. Edwards & Company, PeopleSoft, Inc., QAD, Inc. and SAP
America, Inc., have announced initiatives to market ERP systems to midsize
manufacturers. Many of the Company's existing competitors, as well as a number
of potential competitors, have significantly greater financial, technical and
marketing resources and a larger installed base of customers than the Company.
There can be no assurance that such competitors will not offer or develop
products that are superior to Made2Manage or that achieve greater market
acceptance. If such competition were to result in significant price declines or
loss of market share by Made2Manage, the Company's business, financial condition
and results of operation would be adversely affected. See
"Business--Competition."
7
<PAGE>
RELATIONSHIPS WITH VALUE ADDED RESELLERS
Historically, the Company has distributed its software products through a direct
sales force and a network of VARs. A significant portion of licenses of
Made2Manage sold to new customers is sold by VARs. If some or all of the VARs in
the Company's network reduce their efforts to sell Made2Manage, promote
competing products or terminate their relationships with the Company, the
Company's business, financial condition and results of operation would be
materially and adversely affected. Furthermore, VARs frequently develop strong
relationships with their customers, so if VARs in the Company's network
criticize the Company or its products to their customers, the Company's
reputation could be damaged, which could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Sales and Marketing."
PRODUCT LIABILITY AND LACK OF INSURANCE
The Company markets, sells and supports a software product used by manufacturers
to manage their business operations and to store substantially all of their
operational data. Software programs as complex as those offered by the Company
may contain undetected errors or "bugs," despite testing by the Company, which
are discovered only after the product has been installed and used by customers.
There can be no assurance that errors will not be found in existing or future
releases of the Company's software or that any such errors will not impair the
market acceptance of these products. See "--Product and Market Concentration." A
customer could be required to cease operations temporarily and some or all of
its key operational data could be lost or damaged if its information systems
fail as the result of human error, mechanical difficulties or quality problems
in Made2Manage or third party technologies utilized by Made2Manage. The Company
has insurance covering product liability or damages arising from negligent acts,
errors, mistakes or omissions; however there can be no assurance that this
insurance will be adequate. A claim against the Company, if successful and of a
sufficient magnitude, could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
The Company relies primarily on a combination of trade secret, copyright and
trademark laws, nondisclosure agreements and other contractual provisions and
technical measures to protect its proprietary rights. There can be no assurance
that these protections will be adequate or that the Company's competitors will
not independently develop products incorporating technology that is
substantially equivalent or superior to the Company's technology. Furthermore,
other than a pending United States patent application for software related to
the Material Requirements Planning regeneration feature included in Made2Manage,
the Company has no patents or patent applications pending, and existing
copyright laws afford only limited protection. In the event that the Company is
unable to protect its proprietary rights, the Company's business, financial
condition and results of operations could be materially and adversely affected.
There can be no assurance that the Company will not be subject to claims that
its technology infringes on the intellectual property of third parties, that the
Company would prevail against any such claims or that a licensing agreement will
be available on reasonable terms in the event of an unfavorable ruling on any
such claim. Any such claim, with or without merit, would likely be time
consuming and expensive to defend and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Intellectual Property."
SUBSTANTIAL CONTROL BY SINGLE SHAREHOLDER
Following completion of the offering, Hambrecht & Quist ("H&Q") and its
affiliates, as a group, will beneficially own approximately 32.8% of the
Company's outstanding Common Stock. As a result, H&Q and its affiliates will be
able to exercise significant influence over all matters requiring shareholder
8
<PAGE>
approval, including the election of directors and approval of significant
corporate transactions. Concentration of stock ownership could also have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Shareholders" and "Underwriting."
EFFECT OF ANTITAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation (the "Articles")
authorize the Board of Directors to issue, without shareholder approval, up to
two million shares of preferred stock with such rights and preferences as the
Board of Directors may determine in its sole discretion. The Made2Manage System,
Inc. Stock Option Plan (the "Stock Option Plan") provides that, unless a
committee of the Company's Board of Directors decides to the contrary, all
outstanding options vest and become immediately exercisable upon a merger or
similar transaction. See "Management--Stock Option Plan." In addition, certain
provisions of Indiana law could have the effect of making it more difficult for
a third party to acquire, or discouraging a third party from attempting to
acquire, control of the Company. Further, certain provisions of Indiana law
impose various procedural and other requirements that could make it more
difficult for shareholders to effect certain corporate actions. The foregoing
provisions could discourage an attempt by a third party to acquire a controlling
interest in the Company without the approval of the Company's management even if
such third party were willing to purchase shares of Common Stock at a premium
over its then market price. See "Description of Capital Stock--Other
Restrictions on Acquisition of Company."
BENEFITS OF OFFERING TO CURRENT SHAREHOLDERS AND MANAGEMENT
As a result of the offering contemplated by this Prospectus, assuming an initial
public offering price per share of $9.25, the Company's existing shareholders,
including certain members of the Company's management, will realize an immediate
increase of $3.63 in the net tangible book value per share of their investment
in the Company. See "Dilution." The offering also will result in the creation of
a public market for the Company's Common Stock, which the Company believes will
substantially increase the value of the interests in the Company held by
existing shareholders, including management. Assuming an initial public offering
price of $9.25 per share, the aggregate value of all shares of Common Stock held
by the Company's management and all vested and unvested options to purchase
shares of the Company's Common Stock granted to the Company's management will
increase by approximately $3.9 million from the sum of the cost of such Common
Stock and the exercise price of such options. Assuming that the Underwriters'
over-allotment option is exercised in full, at an initial public offering price
of $9.25 per share, the Selling Shareholders, including the Company's Chairman,
will sell 537,500 shares of Common Stock and will realize proceeds, net of
applicable underwriting discounts, of approximately $4.6 million, of which
$430,000 of such net proceeds will be realized by the Company's Chairman. Other
than the Chairman, no executive officer or director is selling any shares of
Common Stock in the offering.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; DILUTION
Prior to the offering contemplated by this Prospectus, there has been no public
market for the Shares, and there can be no assurance that an active public
market will develop or be sustained after the offering. The initial public
offering price will be determined by negotiations between the Company and the
Representatives, in accordance with the recommendation of a qualified
independent underwriter, based upon a number of factors. The trading price of
the Company's Common Stock could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new applications by the Company or its competitors, the failure
of the Company's earnings to meet the expectations of securities analysis and
investors, as well as other events or factors. In addition, the stock market has
from time to time experienced extreme price and volume fluctuations which have
particularly affected the market price of many high technology companies and
which often have been unrelated to the operating performance of these companies.
These broad market fluctuations may
9
<PAGE>
adversely affect the market price of the Common Stock. Furthermore, purchasers
of the Shares offered by this Prospectus will suffer an immediate and
substantial dilution in the net tangible book value per share of the Common
Stock from the initial public offering price. See "--Fluctuations of Quarterly
Operating Results; Seasonality," "Underwriting" and "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
The sale of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Shares.
Upon completion of this offering, the Company will have outstanding an aggregate
of 3,950,514 shares of Common Stock. The Shares sold in this offering will be
freely tradeable without restriction under the Securities Act.
The remaining 1,700,514 shares of Common Stock are "Restricted Shares," certain
of which are subject to restrictions under the Securities Act. Substantially all
of the Restricted Shares are subject to lock-up agreements under which the
holders have agreed not to sell or otherwise dispose of any of their shares for
a period of six months after the date of this Prospectus without the prior
written consent of the Company and First Albany Corporation. In its sole
discretion and at any time without notice, First Albany Corporation may release
all or any portion of the shares of Common Stock subject to the lock-up
agreements. Of the Restricted Shares subject to lock-up agreements,
approximately 390,000 will become available for sale in the public market
immediately following expiration of the six month lock-up period, pursuant to
Rule 144(k), and approximately 1,300,000 Restricted Shares subject to lock-up
agreements will become eligible for sale in the public market following the
expiration of the six month lock-up period, subject to the volume and other
limitations of Rule 144 and Rule 701.
The Company also intends to file a registration statement covering the sale of
shares of Common Stock reserved for issuance under the Stock Option Plan and the
Made2Manage Systems, Inc. Employee Stock Purchase Plan (the "Stock Purchase
Plan") approximately 30 days following the date of this Prospectus. As of
September 30, 1997, there were options outstanding to purchase 1,060,785 shares
of Common Stock at a weighted average price of $3.31 per share under the
Company's Stock Option Plan, of which 399,867 shares of Common Stock were then
vested and exercisable. All holders of options exercisable as of September 30,
1997 have signed six month lock-up agreements. On November 21, 1997, the Company
adopted the Stock Purchase Plan. The Company has reserved 100,000 shares of
Common Stock for issuance under the Stock Purchase Plan, but to date no Shares
of Common Stock have been issued under the Stock Purchase Plan. Shares of Common
Stock issued upon the exercise of options granted under the Stock Option Plan
and under the Stock Purchase Plan will, with some restrictions in the case of
the Stock Purchase Plan, become available for sale in the public market upon the
registration of the Stock Option Plan and the Stock Purchase Plan. See
"Management--Stock Option Plan," "--Stock Purchase Plan," "Description of
Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
Following this offering, holders of approximately 1,367,950 shares of Common
Stock, have certain rights with respect to the registration of those shares
under the Securities Act. See "Description of Capital Stock--Registration
Rights." If the holders of registration rights cause a large number of shares of
Common Stock to be registered and sold in the public market, such sales could
have a material adverse effect on the market price for the Shares. If the
Company were required to include shares in a Company-related registration under
the Securities Act pursuant to the exercise of piggyback registration rights,
such sales could have a material adverse effect on the Company's ability to
raise capital. See "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future. The Company currently intends to retain its earnings, if
any, for the development of its business. The Company is currently restricted
from paying cash dividends under the terms of its lines of credit without the
prior written consent of the lender. See "Dividend Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,050,000 Shares being
offered by it are estimated to be $17,085,000, assuming an initial public
offering price of $9.25 per share and after deducting the estimated underwriting
discounts and offering expenses payable by the Company. The remaining net
proceeds will be used by the Company to repay outstanding indebtedness of
approximately $1.0 million at September 30, 1997, to fund capital expenditures
of approximately $1.1 million and for working capital and general corporate
purposes. The principal purpose of this offering is to obtain additional capital
to create a public market for the Company's Common Stock and to facilitate the
Company's access to the public equity markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources." A portion of the net proceeds may also be used for strategic
acquisitions of businesses, products or technologies complementary to those of
the Company. However, there are no current negotiations, commitments or
agreements with respect to any such acquisitions. The Company has not yet
determined the specific amount to be allocated to each of the foregoing uses,
hence the Company's management will retain broad discretion in the allocation of
the net proceeds. Pending such uses, the Company will invest the net proceeds in
short-term, investment-grade securities. The Company will not receive any
proceeds from the sale of Shares by the Selling Shareholders.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain any future earnings to develop
and expand its business. The Company is currently restricted from paying cash
dividends under the terms of its lines of credit without the prior written
consent of the lender. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
11
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30, 1997,
after giving effect to the conversion of all outstanding shares of Convertible
Preferred Stock and the exercise and conversion of warrants outstanding, was
$2,541,000 or $1.34 per share. The net tangible book value per share is equal to
the Company's total tangible assets less total liabilities, divided by the total
number of shares of Common Stock outstanding. After giving effect to the sale by
the Company of 2,050,000 Shares offered hereby (resulting in estimated net
proceeds of $17,085,000 assuming an initial public offering price of $9.25 per
share and after deducting the estimated underwriting discounts and offering
expenses payable by the Company), the adjusted pro forma net tangible book value
of the Company as of September 30, 1997 would be approximately $19,626,000 or
$4.97 per share. This represents an immediate increase of $3.63 per share to
existing shareholders and an immediate dilution of $4.28 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $ 9.25
Pro forma net tangible book value per share as of September 30,
1997......................................................... $ 1.34
Increase per share attributable to new investors............... 3.63
---------
Adjusted pro forma net tangible book value per share at September
30, 1997 after offering giving effect to the offering by the
Company........................................................ 4.97
---------
Dilution per share to new investors.............................. $ 4.28
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis after giving effect to the
offering, the number of Shares purchased from the Company, the total
consideration paid and the average price per share paid by existing shareholders
and by the new investors purchasing the Shares offered hereby assuming an
initial public offering price of $9.25 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
--------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)............................. 1,900,514 48.1 $ 4,454,000 19.0% $ 2.34
New investors(1)..................................... 2,050,000 51.9 18,962,500 81.0 9.25
---------- --------- ------------- ---------
Total................................................ 3,950,514 100.0% $ 23,416,500 100.0%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
- ------------------------
(1) The above computations assume the exercise and conversion of warrants
outstanding and no exercise after September 30, 1997 of any options
outstanding under the Stock Option Plan. As of September 30, 1997, there
were options outstanding to purchase a total of 1,060,785 shares of Common
Stock at a weighted average exercise price of $3.31 per share and warrants
outstanding for 14,063 shares at an exercise price of $4.00 per share. To
the extent these options are exercised, there will be further dilution to
new investors. See "Capitalization," "Management--Stock Option Plan" and
Note 5 of Notes to Financial Statements.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of September
30, 1997, (i) on an actual basis and (ii) on an as adjusted basis after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the closing of this offering, to the exercise and conversion
of warrants and to the receipt of the estimated net proceeds from the sale by
the Company of 2,050,000 shares of Common Stock pursuant to this offering at the
initial public offering price of $9.25 per share:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations--including current portion............................................. $ 999 $ --
--------- ---------
Shareholders' equity:
Preferred Stock, no par value; 3,662,111 shares authorized and 1,479,824 shares outstanding
(actual); 2,000,000 shares authorized and none outstanding (as adjusted)................. 4,042 --
Common Stock, no par value; 10,000,000 shares authorized; 406,627 shares outstanding
(actual); 3,950,514 shares outstanding (as adjusted)(1).................................. 356 21,539
Accumulated deficit...................................................................... (1,913) (1,913)
--------- ---------
Total shareholder's equity............................................................... 2,485 19,626
--------- ---------
Total capitalization................................................................... $ 3,484 $ 19,626
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) The above computations assume the exercise and conversion of warrants
outstanding and no exercise after September 30, 1997 of any options
outstanding under the Stock Option Plan. As of September 30, 1997, there
were options outstanding to purchase a total of 1,060,785 shares of Common
Stock at a weighted average exercise price of $3.31 per share and warrants
outstanding for 14,063 shares at an exercise price of $4.00 per share. To
the extent these options are exercised, there will be further dilution to
new investors. See "Management--Stock Option Plan" and Note 5 of Notes to
Financial Statements.
13
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected statement of operations data for the years ended December
31, 1994, 1995 and 1996 and the nine months ended September 30, 1997 and the
balance sheet data as of December 31, 1995 and 1996 and September 30, 1997 are
derived from and should be read in conjunction with the financial statements and
notes thereto included elsewhere herein, audited by Coopers & Lybrand L.L.P. The
selected statement of operations data for the years ended December 31, 1992 and
1993 and selected balance sheet data as of December 31, 1992, 1993 and 1994 are
also derived from audited financial statements which are not included herein.
The selected statement of operations data for the nine months ended September
30, 1996 is derived from and should be read in conjunction with the unaudited
financial statements and notes thereto included elsewhere herein. In the opinion
of the Company, such unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for such period. The financial results for the nine
months ended September 30, 1997, are not necessarily indicative of the results
to be expected for any other interim period or the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software............................ $ 2,793 $ 2,414 $ 2,494 $ 3,572 $ 6,140 $ 3,733 $ 6,916
Services............................ 723 1,068 1,748 2,160 2,998 2,238 3,728
Hardware............................ 974 456 210 203 241 167 397
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................... 4,490 3,938 4,452 5,935 9,379 6,138 11,041
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
Software............................ 545 470 382 417 599 318 430
Services............................ 542 836 977 1,175 1,762 1,214 2,409
Hardware............................ 731 406 171 163 164 121 262
--------- --------- --------- --------- --------- --------- ---------
Total costs of revenues........... 1,818 1,712 1,530 1,755 2,525 1,653 3,101
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................... 2,672 2,226 2,922 4,180 6,854 4,485 7,940
--------- --------- --------- --------- --------- --------- ---------
OPERATING EXPENSES:
Sales and marketing................. 1,355 1,054 1,122 1,717 3,282 2,093 4,324
Product development................. 191 318 530 1,189 1,718 1,210 1,663
General and administrative.......... 1,540 830 724 827 1,154 808 1,380
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.......... 3,086 2,202 2,376 3,733 6,154 4,111 7,367
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............... (414) 24 546 447 700 374 573
Other expense, net.................... 108 114 98 49 122 58 53
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes..... (522) (90) 448 398 578 316 520
Income tax provision (benefit)(1)..... -- -- 5 6 (1,028) 17 197
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................... $ (522) $ (90) $ 443 $ 392 $ 1,606 $ 299 $ 323
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income per share(2)..... $ .61 $ .15
--------- ---------
--------- ---------
Pro forma average number of
shares(2)........................... 2,846 2,886
--------- ---------
--------- ---------
Supplemental pro forma net income per
share(2)(3)......................... $ .63 $ .13
--------- ---------
--------- ---------
Supplemental pro forma average number
of shares(2)(3)..................... 2,531 2,544
--------- ---------
--------- ---------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 399 $ 158 $ 893 $ 1,033 $ 1,139 $ 1,856
Working capital................................... (728) (585) 219 461 1,173 1,222
Total assets...................................... 1,567 1,496 2,270 3,576 6,666 8,566
Long-term obligations, less current portion....... 390 651 349 452 436 733
Total shareholders' equity (deficit).............. (787) (877) 80 509 2,116 2,485
</TABLE>
- ------------------------
(1) Net income for the year ended December 31, 1996 includes an income tax
benefit of $1.2 million or $.44 per share resulting from the reversal of a
valuation allowance which had been established to offset future tax benefits
of net operating loss carryforwards. The valuation allowance was reversed
during 1996 based on management's analysis which considered the Company's
profitable operating results and future outlook because of the market
acceptance of its Windows product. As a result of this analysis, management
determined it was more likely than not that the deferred income taxes at
December 31, 1996 would be realized. For subsequent periods the Company has
provided for income taxes utilizing federal and state statutory income tax
rates. See Note 7 of Notes to Financial Statements.
(2) Computed on the basis described in Note 1 of Notes to Financial Statements.
(3) Supplemental pro forma net income per share has been determined in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128").
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSIONS IN THIS PROSPECTUS CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND IN THE SECTION ENTITLED "RISK FACTORS" AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company develops, markets, licenses and supports Made2Manage, an open
architecture, standards-based client/server ERP software solution for small and
midsize manufacturers engaged in engineer-to-order, make-to-order, make-to-stock
and mixed mode operations. The Company has developed manufacturing software
applications for this market since its inception in 1986. The Company's first
generation of Made2Manage, designed for PC networks running the DOS operating
system on Novell networks, was introduced in 1988, and the Company introduced a
UNIX version of Made2Manage in 1990. The Company continues to support its
existing DOS and UNIX customers, but ceased offering the DOS and UNIX versions
to new customers in 1995 and 1994, respectively.
Beginning in mid-1994, the Company made a significant investment in the
development of the Windows version of Made2Manage. The Company further increased
its expenditures for developing its Windows product in 1995 and introduced this
product late in that year. Development expenses continued to increase during
1996 and 1997 but have represented a smaller percentage of total revenues. As of
December 31, 1995, the Company had fully amortized the capitalized development
costs incurred in connection with the DOS and UNIX versions of Made2Manage and
the Company currently expenses software development costs as they are incurred.
In 1995, 1996 and 1997, sales and marketing expenses increased in conjunction
with the introduction of the Company's new Windows product. License revenues
after 1995 have been derived principally from Made2Manage for Windows, including
licenses sold to a significant number of licensees of prior versions of
Made2Manage.
The Company's revenues are derived from software licenses, services and
hardware. Software revenues are generated from licensing software to new
customers, from the conversion of existing DOS or UNIX customers to the Windows
version, from current customers increasing the number of licensed users and from
licensing new modules. The Company recognizes revenue from software license fees
and hardware revenues upon shipment of software to the customer following
execution of a sales agreement. Service revenues are generated from annual fees
paid by customers to receive the Company's customer support services and
Made2Manage software upgrades. Support contracts are typically purchased with
the initial software license and are renewable annually. Support contract
renewal fees are due in advance of the support period and are recognized ratably
over the term of the contract. Service revenues are also derived from
implementation, education and consulting services, the majority of which are
purchased as part of the initial contract. The Company recognizes revenue from
these services as they are performed. Hardware revenues are generated primarily
from the sale of bar-coding and data collection equipment used in connection
with Made2Manage and constitute a relatively small component of total revenues.
The sales cycle for the Company's products is typically three to nine months and
software revenues for a particular quarter depend substantially on orders
received and products shipped in that quarter. Furthermore, large orders may be
significant to operating income in the quarter in which the corresponding
revenue is recognized. Accordingly, the Company believes that quarter-to-quarter
comparisons of its results of operations are not necessarily indicative of the
results to be expected for any future periods. See "Risk Factors--Fluctuations
of Quarterly Operating Results; Seasonality" and "--Quarterly Results."
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues represented by
certain items included in the Company's statements of operations for the periods
indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Software............................................................. 56.0% 60.2% 65.4% 60.8% 62.6%
Services............................................................. 39.3 36.4 32.0 36.5 33.8
Hardware............................................................. 4.7 3.4 2.6 2.7 3.6
--------- --------- --------- --------- ---------
Total revenue...................................................... 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Cost of revenues:
Software............................................................. 8.6 7.0 6.4 5.2 3.9
Services............................................................. 21.9 19.8 18.7 19.7 21.8
Hardware............................................................. 3.9 2.8 1.8 2.0 2.4
--------- --------- --------- --------- ---------
Total cost of revenues............................................. 34.4 29.6 26.9 26.9 28.1
--------- --------- --------- --------- ---------
Gross profit....................................................... 65.6 70.4 73.1 73.1 71.9
--------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing.................................................. 25.2 28.9 35.0 34.1 39.1
Product development.................................................. 11.9 20.0 18.3 19.7 15.1
General and administrative........................................... 16.2 14.0 12.3 13.2 12.5
--------- --------- --------- --------- ---------
Total operating expenses........................................... 53.3 62.9 65.6 67.0 66.7
--------- --------- --------- --------- ---------
Operating income....................................................... 12.3 7.5 7.5 6.1 5.2
Other expense, net..................................................... 2.2 .8 1.3 1.0 .5
--------- --------- --------- --------- ---------
Income before taxes.................................................... 10.1 6.7 6.2 5.1 4.7
Income tax provision (benefit)......................................... .1 0.1 (10.9) .2 1.8
--------- --------- --------- --------- ---------
Net income............................................................. 10.0% 6.6% 17.1% 4.9% 2.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
REVENUES
Revenues are derived from software license fees, service and support fees and
hardware sales. Total revenues increased by $4.9 million, or 79.9%, to $11.0
million in the first nine months of 1997 from $6.1 million in the same period in
1996. This increase was primarily due to a greater volume of license
transactions, an increase in average contract size and sales of new software
modules. The increase in revenue was primarily attributable to increased market
awareness and acceptance of the Company's Windows product and expansion of the
Company's sales and marketing organizations. The Company does not expect
revenues to continue to grow at this rate. The Company has not historically
recognized significant quarterly revenues from any single customer.
SOFTWARE REVENUES. Software revenues increased by $3.2 million, or 85.3%, to
$6.9 million in the first nine months of 1997 from $3.7 million in the same
period in 1996. Software license revenues constituted 62.6% and 60.8% of total
revenues in the first nine months of 1997 and 1996, respectively. The increase
in revenues in the first nine months of 1997 compared to the same period in 1996
was primarily due to a greater volume of license transactions and an increase in
average transaction size.
17
<PAGE>
SERVICES REVENUES. Services revenues increased by $1.5 million, or 66.6%, to
$3.7 million in the first nine months of 1997 from $2.2 million in the same
period in 1996. These revenues constituted 33.8% and 36.5% of total revenues in
the first nine months of 1997 and 1996, respectively. The increase in the dollar
amount recognized was primarily due to increased support fees from a larger
installed base of customers and increased revenues from implementation,
education and consulting services. Although services revenues as a percentage of
total revenues has decreased in recent years as the result of the Company's
significant software license revenue growth, management anticipates that
services revenues as a percentage of total revenues will increase in the future
due to a larger installed base of customers.
HARDWARE REVENUES. Hardware revenues as a percent of total revenues were 3.6%
in the first nine months of 1997 and 2.7% in the same period of 1996. Management
of the Company anticipates that hardware revenues will continue to represent a
relatively small percentage of the Company's total revenues.
COSTS OF REVENUES
COST OF SOFTWARE REVENUES. Costs of software revenues consist primarily of
costs of third-party software, product media, documentation, duplication and
shipping. Costs of software revenues totaled $430,000 and $318,000 in the first
nine months of 1997 and 1996, respectively, resulting in gross profits of 93.8 %
and 91.5 % of software revenues, respectively.
COST OF SERVICE REVENUES. Costs of services revenues consist primarily of the
costs of providing customer technical support, implementation and consulting
services and education. Costs of services totaled $2.4 million and $1.2 million
in the first nine months of 1997 and 1996, respectively, resulting in gross
profits of 35.4% and 46.8% of service revenues, respectively. The dollar
increase was primarily due to increased costs of providing implementation and
consulting services.
COST OF HARDWARE. Costs of hardware are directly related to the hardware
revenues. Costs of hardware totaled $262,000 and $121,000 during the first nine
months of 1997 and 1996, respectively. The gross profit from hardware was 34.0%
and 27.5% of hardware revenues in the first nine months of 1997 and 1996,
respectively. Gross profit from hardware revenue has not been a significant part
of the Company's gross profit and the Company expects this to continue.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES. Sales and marketing expenses include personnel
costs, commissions, travel, advertising, public relations programs and
promotional events such as trade shows and seminars. Sales and marketing
expenses were $4.3 million and $2.1 million in the first nine months of 1997 and
1996, respectively, representing 39.1% and 34.1% of total revenues in the first
nine months of 1997 and 1996, respectively. The increase in sales and marketing
expenses was primarily due to increased personnel related expenses and travel
costs.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses include salaries and
related benefits, occupancy and other overhead costs. Product development
expenses were $1.7 million and $1.2 million in the first nine months of 1997 and
1996, respectively, representing 15.1% and 19.7% of total revenues in the first
nine months of 1997 and 1996, respectively. The dollar increase was primarily
due to increased staffing required to complete new versions of Made2Manage. The
Company did not capitalize any software costs in either of these periods.
Management anticipates that the dollar amount of product development expenses
will continue to increase.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include the costs of the Company's finance, human resources, information systems
and administrative departments. General and administrative expenses were $1.4
million and $808,000 in the first nine months of 1997 and 1996, respectively,
representing 12.5% and 13.2% of total revenues in the nine months of 1997 and
1996,
18
<PAGE>
respectively. The dollar increase resulted primarily from increased number of
personnel. Management anticipates that the dollar amount of general and
administrative expenses will continue to increase.
OTHER EXPENSE, NET
Other expense, net primarily consists of interest expense on bank term loans to
fund equipment additions and subordinated financing of the development and
commercialization of Made2Manage offset in part by interest earned on invested
cash balances. Other expense, net was $53,000 and $58,000 in the first nine
months of 1997 and 1996, respectively, representing 0.5% and 0.9% of total
revenues in the first quarter of 1997 and 1996, respectively. On March 31, 1997,
the Company repaid the outstanding balance of the commercialization funding
obligation which was incurred to fund the development and commercialization of
the Company's products. The obligation carried a 20% interest rate.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
REVENUES
Total revenues increased by $3.4 million, or 58.0%, to $9.4 million in 1996 from
$5.9 million in 1995. Total revenues increased by $1.5 million, or 33.3%, in
1995 from $4.5 million in 1994. The increase in revenue was primarily
attributable to increased market awareness and acceptance of the Company's
Windows product and expansion of the Company's sales and marketing
organizations. The Company has not historically recognized significant annual
revenues from any single customer.
SOFTWARE REVENUES. Software revenues increased by $2.6 million, or 71.9%, to
$6.1 million in 1996 from $3.6 million in 1995. Software license revenues
constituted 65.4% and 60.2% of total revenues in 1996 and 1995, respectively.
The increase in software license revenues in 1996 compared to 1995 was primarily
due to a greater volume of license transactions and an increase in average
contract size.
Software revenues increased by $1.1 million, or 43.2%, to $3.6 million in 1995
from $2.5 million in 1994. Software license revenues constituted 56.0% of total
revenues in 1994. The increase in software license revenue in 1995 compared to
1994 was due to a greater volume of license transactions and an increase in
average contract size.
SERVICES REVENUES. Services revenues increased by $838,000, or 38.8%, to $3.0
million in 1996 from $2.2 million in 1995. These revenues increased by $412,000,
or 24.0%, in 1995 from $1.7 million in 1994. These revenues constituted 32.0%,
36.4% and 39.3% of total revenues in 1996, 1995 and 1994, respectively. The
increases in the dollar amount recognized were due to (i) increased support fees
from an expanded user base as a result of product installations, (ii) revenues
from expanded implementation and consulting services offerings and (iii)
revenues from expanded educational offerings.
HARDWARE REVENUES. Hardware revenues have remained relatively constant in
dollar amounts for the three years ended December 31, 1996 and have decreased as
a percent of revenue to 2.6% in 1996 from 3.4% and 4.7% in 1995 and 1994,
respectively. During this period, the Company limited the type of hardware
equipment it sold to certain bar-coding and data collection equipment necessary
to utilize certain features of Made2Manage.
COSTS OF REVENUES
COSTS OF SOFTWARE REVENUES. Costs of software revenues totaled $599,000,
$417,000 and $382,000 in 1996, 1995 and 1994, respectively, resulting in gross
profits of 90.2%, 88.3% and 84.7% of software revenues, respectively. Costs of
software in 1995 and 1994 also included the amortization of the remaining
software development costs capitalized in connection with the DOS and UNIX
versions of Made2Manage and certain royalty payments related to the DOS version
of Made2Manage. No development costs have been capitalized for the Windows
version of Made2Manage.
19
<PAGE>
COSTS OF SERVICE REVENUES. Costs of service revenues totaled $1.8 million, $1.2
million and $977,000 in 1996, 1995 and 1994, respectively, resulting in gross
profits of 41.2%, 45.6% and 44.1% of service revenues, respectively. The dollar
increases were due primarily to the growth in the Company's installed customer
base and related support services revenue, which resulted in an increase in the
staffing levels for technical support, implementation, consulting and education
services.
COSTS OF HARDWARE. Costs of hardware totaled $164,000, $163,000 and $171,000 in
1996, 1995 and 1994, respectively. The gross profit from hardware was 32.0%,
19.7% and 18.6% of hardware revenues in 1996, 1995 and 1994, respectively.
OPERATING EXPENSES
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $3.3 million,
$1.7 million and $1.1 million in 1996, 1995 and 1994, respectively, representing
35.0%, 28.9% and 25.2% of total revenues, respectively. The increase in sales
and marketing expenses was primarily due to increased (i) staffing as the
Company expanded its field sales force and marketing staff, (ii) commissions as
a result of increased software license revenues, (iii) marketing activities,
including promotional activities and (iv) travel expenses related to sales and
marketing efforts.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses were $1.7 million,
$1.2 million and $530,000 in 1996, 1995 and 1994, respectively, representing
18.3%, 20.0% and 11.9% of total revenues, respectively. The Company did not
capitalize any software development costs in 1996 or 1995. The increase in
product development expenses in 1995 from 1994 reflects the increase in staffing
to develop the Windows version of Made2Manage. The Windows version was initially
released in late 1995. Product development expenses increased during 1996 in
relation to 1995, but decreased as a percentage of revenue over the same period
as the Company spread development expenses across a broader revenue base.
GENERAL ADMINISTRATIVE EXPENSES. General and administrative expenses were $1.2
million, $827,000 and $724,000 in 1996, 1995 and 1994, respectively,
representing 12.3%, 14.0% and 16.2% of total revenues, respectively. The dollar
increases resulted primarily from additional costs incurred to support the
growth of the Company's operations and, to a lesser extent, as a result of the
addition of personnel.
OTHER EXPENSE, NET
Other expense, net was $122,000, $49,000 and $98,000 in 1996, 1995 and 1994,
respectively, representing 1.3%, 0.8% and 2.2% of total revenues, respectively.
The interest on the BMT obligation accounted for $66,000 of the 1996 other
expense, net of $122,000. The increase in 1996 compared to 1995 was due
primarily to increased borrowings. The decrease in 1995 from 1994 was due to a
restructuring of debt resulting in reduced borrowing costs.
INCOME TAX PROVISION (BENEFIT)
In 1994 and 1995, the Company's income tax provision was significantly reduced
as a result of the utilization of net operating loss carryforwards. Net income
for the year ended December 31, 1996 includes an income tax benefit of $1.2
million resulting from the reversal of a valuation allowance which had been
established to offset future tax benefits of net operating loss carryforwards.
The valuation allowance was reversed during 1996 based on management's analysis
which considered the Company's profitable operating results and future outlook
because of the market acceptance of its Windows product. As a result of this
analysis, management determined it was more likely than not that the deferred
income taxes at December 31, 1996 would be realized. For subsequent periods the
Company provided for income taxes utilizing federal and state statutory income
tax rates. See Note 7 of Notes to Financial Statements.
20
<PAGE>
QUARTERLY RESULTS
The following table sets forth the unaudited quarterly results of operations for
each of the quarters in 1996 and for the first three quarters of 1997. In
management's opinion, this unaudited quarterly information has been prepared on
the same basis as the annual financial statements and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented when read in
conjunction with the financial statements and notes thereto included elsewhere
in this Prospectus. The operating results in any quarter are not necessarily
indicative of future fiscal period results.
<TABLE>
<CAPTION>
1996 1997
-------------------------------------------------- ------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software................................... $ 1,013 $ 1,174 $ 1,546 $ 2,407 $ 1,986 $ 2,545
Services................................... 672 783 783 760 1,097 1,188
Hardware................................... 30 55 82 74 140 104
----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................... 1,715 2,012 2,411 3,241 3,223 3,837
----------- ----------- ----------- ----------- ----------- -----------
Cost of Revenues:
Software................................... 45 92 181 281 157 156
Services................................... 357 432 425 548 628 885
Hardware................................... 24 39 58 43 97 74
----------- ----------- ----------- ----------- ----------- -----------
Total costs of revenues.................. 426 563 664 872 882 1,115
----------- ----------- ----------- ----------- ----------- -----------
Gross profit............................. 1,289 1,449 1,747 2,369 2,341 2,722
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Sales and marketing........................ 527 688 878 1,189 1,221 1,509
Product development........................ 362 408 440 508 521 550
General and administrative................. 287 233 288 346 434 470
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses................. 1,176 1,329 1,606 2,043 2,176 2,529
----------- ----------- ----------- ----------- ----------- -----------
Operating income............................. 113 120 141 326 165 193
Other expense, net........................... 19 19 20 64 22 19
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes................... 94 101 121 262 143 174
Income tax provision (benefit)............... 6 11 -- (1,045) 55 66
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 88 $ 90 $ 121 $ 1,307 $ 88 $ 108
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
(AS A PERCENT OF TOTAL REVENUES)
Revenues:
Software................................... 59.1% 58.4% 64.1% 74.3% 61.6% 66.3%
Services................................... 39.2 38.9 32.5 23.4 34.0 31.0
Hardware................................... 1.7 2.7 3.4 2.3 4.4 2.7
----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................... 100.0 100.0 100.0 100.0 100.0 100.0
----------- ----------- ----------- ----------- ----------- -----------
Cost of Revenues:
Software................................... 2.6 4.6 7.5 8.7 4.9 4.1
Services................................... 20.8 21.5 17.7 16.9 19.5 23.1
Hardware................................... 1.4 1.9 2.4 1.3 3.0 1.9
----------- ----------- ----------- ----------- ----------- -----------
Total costs of revenues.................. 24.8 28.0 27.6 26.9 27.4 29.1
----------- ----------- ----------- ----------- ----------- -----------
Gross profit................................. 75.2 72.0 72.4 73.1 72.6 70.9
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Sales and marketing........................ 30.7 34.2 36.4 36.7 37.8 39.3
Product development........................ 21.1 20.3 18.3 15.6 16.2 14.3
General and administrative................. 16.8 11.6 11.9 10.7 13.5 12.3
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses................. 68.6 66.1 66.6 63.0 67.5 65.9
----------- ----------- ----------- ----------- ----------- -----------
Operating income............................. 6.6 5.9 5.8 10.1 5.1 5.0
Other expense, net........................... 1.1 .9 .8 2.0 .7 .5
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes................... 5.5 5.0 5.0 8.1 4.4 4.5
Income tax provision (benefit)............... .4 .5 -- (32.2) 1.7 1.7
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... 5.1% 4.5% 5.0% 40.3% 2.7% 2.8%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
THIRD
QUARTER
-----------
<S> <C>
Revenues:
Software................................... $ 2,385
Services................................... 1,443
Hardware................................... 153
-----------
Total revenues........................... 3,981
-----------
Cost of Revenues:
Software................................... 117
Services................................... 896
Hardware................................... 91
-----------
Total costs of revenues.................. 1,104
-----------
Gross profit............................. 2,877
-----------
Operating Expenses:
Sales and marketing........................ 1,594
Product development........................ 592
General and administrative................. 476
-----------
Total operating expenses................. 2,662
-----------
Operating income............................. 215
Other expense, net........................... 12
-----------
Income before income taxes................... 203
Income tax provision (benefit)............... 76
-----------
Net income................................... $ 127
-----------
-----------
Revenues:
Software................................... 59.9%
Services................................... 36.2
Hardware................................... 3.9
-----------
Total revenues........................... 100.0
-----------
Cost of Revenues:
Software................................... 2.9
Services................................... 22.5
Hardware................................... 2.3
-----------
Total costs of revenues.................. 27.7
-----------
Gross profit................................. 72.3
-----------
Operating Expenses:
Sales and marketing........................ 40.0
Product development........................ 14.9
General and administrative................. 12.0
-----------
Total operating expenses................. 66.9
-----------
Operating income............................. 5.4
Other expense, net........................... .3
-----------
Income before income taxes................... 5.1
Income tax provision (benefit)............... 1.9
-----------
Net income................................... 3.2%
-----------
-----------
</TABLE>
21
<PAGE>
The Company has experienced in the past, and expects to experience in the
future, significant fluctuations in quarterly operating results. A substantial
portion of the Company's software license revenue in each quarter is from
product shipped in that quarter, and such revenues historically have been
recorded largely in the third month of a quarter, with a concentration of
revenues mostly in the last week of that third month. Accordingly, the Company's
quarterly results of operations are difficult to predict, and delays in product
delivery or in closings of sales near the end of a quarter could cause quarterly
revenues and, to a greater degree, net income to fall substantially short of
anticipated levels. In addition, the Company has experienced a seasonal pattern
in its operating results, with the fourth quarter typically having the highest
total revenues and operating income and the first quarter having historically
reported lower revenues and operating income compared to the fourth quarter of
the preceding year. Other factors, many of which are beyond the Company's
control, that may contribute to fluctuations in quarterly operating results
include the size of individual orders, the timing of product introductions or
enhancements by the Company and its competitors, competition and pricing in the
manufacturing software industry, market acceptance of new products, reduction in
demand for existing products, the shortening of product life cycles as a result
of new product introductions by the Company or its competitors, product quality
problems, personnel changes, conditions or events in the manufacturing industry,
and general economic conditions. The sales cycle for Made2Manage typically
ranges from three to nine months. However, license signing may be delayed for a
number of reasons outside the control of the Company. Since software is
generally shipped as orders are received, the Company historically has operated
without significant backlog. Because the Company's operating expenses are based
on anticipated revenue levels and a high percentage of the Company's expenses
are relatively fixed in the short term, small variations in the timing of
revenue recognition can cause a significant fluctuation in operating results
from quarter to quarter and may result in unanticipated quarterly earnings
shortfalls or losses. In addition, the Company currently intends to increase its
operating expenses in anticipation of continued growth and to fund expanded
research and development efforts. To the extent such expenses precede, or are
not subsequently followed by, increased revenues, the Company's business,
financial condition and results of operations could be materially and adversely
affected. See "Risk Factors--Fluctuations of Quarterly Operating Results;
Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through equity capital,
debt and cash generated from operations. At September 30, 1997, the Company had
$1.9 million of cash and cash equivalents.
Cash flows from operations were $1.5 million for the nine months ended September
30, 1997 and $560,000, $506,000 and $732,000 in 1996, 1995 and 1994,
respectively. Cash used in investing activities was primarily related to the
purchase of computer equipment and office furniture and aggregated $1,091,000
for the nine months ended September 30, 1997 and $584,000, $517,000 and $20,000
in 1996, 1995 and 1994, respectively. Net borrowings increased $206,000 during
the nine months ended September 30, 1997, including the repayment of the
outstanding balance of $167,000 for the commercialization funding obligation on
March 31, 1997. Net borrowings increased by $129,000 and by $111,000 in 1996 and
1995, respectively, and decreased by $232,000 in 1994.
At September 30, 1997, the Company had working capital of $1.2 million. Accounts
receivable, net of allowance for doubtful accounts, was $3.9 million at
September 30, 1997 and $3.4 million and $1.9 million at December 31, 1996 and
1995, respectively. The average accounts receivable days' outstanding was 89
days as of September 30, 1997. The current portion of deferred revenue increased
to $3.3 million at September 30, 1997 from $2.3 million and $1.3 million at
December 31, 1996 and 1995, respectively. Deferred revenue is related to support
agreements or contracted services, and the current portion of deferred revenue
is expected to be realized during the next twelve months.
The Company has an equipment line of credit available which provides for
borrowings of up to $400,000. The line of credit expires on December 1, 1997,
and borrowings bear interest at the rate of prime plus 0.75% (9.25% at September
30, 1997). The Company has a second line of credit which provides for borrowings
of up to $600,000, $424,000 of which was used as of September 30, 1997. The
second line of credit expires on May 1, 1998. Borrowings under the second line
of credit are evidenced by an installment
22
<PAGE>
business loan note, which matures on May 1, 2001. Borrowings under the note bear
interest at the rate of prime plus 0.75% (9.25% at September 30, 1997). In
addition, the Company has a working capital facility with a commercial bank
which expires on July 1, 1998, and borrowings thereunder bear interest at the
rate of prime plus 0.75% (9.25% at September 30, 1997). Loans under the working
capital facility are limited, in the aggregate, to the lesser of $1 million and
a "borrowing base" amount. As of September 30, 1997, the Company satisfied the
borrowing base requirements and was eligible to borrow up to $1 million under
this facility. The Company has not borrowed under the working capital facility.
The covenants in the credit agreements restrict, among other things, the
Company's ability to pay dividends.
Management believes that the net proceeds from the Company's portion of the
offering, combined with existing cash and cash equivalents, cash flow from
operations and credit commitments, will be sufficient to meet the Company's
currently anticipated working capital and capital expenditure requirements at
least through 1998.
INFLATION
The Company believes that inflation has not had a material impact on its
operations.
ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share, was issued which establishes new standards for computing and
presenting earnings per share ("EPS"). Specifically, SFAS No. 128: (a)
eliminates the presentation of primary EPS and replace it with basic EPS, (b)
eliminates the modified treasury stock method and the three percent materiality
provision and (c) revised the contingent share provision and the supplemental
EPS data requirements. SFAS No. 128, also makes a number of changes to existing
disclosure requirements. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997; early implementation is not
permitted. As the Company is currently required to calculate EPS under the
modified treasury stock method, adoption of SFAS No. 128 will result in the
Company retroactively restating pro forma EPS for the nine months ended
September 30, 1997 and year ended December 31, 1996 from $.61 and $.15,
respectively, to $.63 and $.13, respectively.
In February 1997, the Financial Accounting Standards Board issued SFAS 129,
Disclosure of Information about Capital Structure. SFAS 129 requires companies
to disclose descriptive information about securities that is not necessarily
related to the computation of earnings per share. It also requires disclosure of
information about the liquidation preference of preferred stock and redeemable
stock. SFAS 129 is effective for financial statements for periods ending after
December 15, 1997. The Company does not expect that SFAS 129 will require
significant revision of prior disclosures.
In June 1997, SFAS No. 130, Comprehensive Income, was issued which becomes
effective in 1998 and requires reclassification of earlier financial statements
for comparative purposes. SFAS No. 130 requires that changes in the amounts of
certain items, including foreign currency translation adjustments and gains and
losses on certain securities, be shown in the financial statements. SFAS No. 130
does not require a specific format for the financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. The Company does not
expect that SFAS No. 130 will have a material effect upon the Company's
financial statements.
Also in June 1997, SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, was issued. This Statement will change the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity-wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues, and its major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company does not expect that SFAS No. 131 will have a material
effect upon the Company's financial statements.
23
<PAGE>
BUSINESS
The Company develops, markets and supports fully integrated, Microsoft
Windows-based business applications software for manufacturers. The Company's
principal product, Made2Manage, is an ERP software application designed to meet
the unique needs of small and midsize discrete manufacturers engaged in
engineer-to-order, make-to-order, make-to-stock and mixed mode operations.
Made2Manage is a comprehensive application suite designed to be the only
business software these manufacturers need to effectively manage their entire
organizations, and includes customer order management, manufacturing resource
planning and scheduling, materials management, decision support and data
warehousing, and finance and accounting. Since its introduction in late 1995,
Made2Manage has been licensed by more than 500 manufacturers in North America,
primarily in the United States. In addition, the Company continues to support
more than 150 manufacturing sites using the DOS and UNIX-based predecessors of
Made2Manage.
INDUSTRY BACKGROUND
Over the past decade, manufacturers have been re-engineering their businesses in
response to increasing competitive pressures, more demanding vendor-customer
relationships and rapidly changing market requirements. Through this
re-engineering, manufacturers are striving to increase the efficiency of their
operations by reducing manufacturing time, developing greater flexibility to
respond to changes in market demand, lowering costs, providing superior customer
service and managing assets more productively across their operations. In order
to achieve these goals, manufacturers require information systems ("IS") that
effectively collect, organize and distribute enterprise-wide information from
disparate business functions.
In the 1960s and 1970s, manufacturers addressed their IS needs through highly
customized mainframe-based material requirements planning ("MRP") systems which
allowed manufacturers to manage the flow of materials at various stages of the
production process. MRP systems were superseded in the 1980s by manufacturing
resource planning ("MRP II") systems, also predominantly mainframe-based, which
allowed manufacturers to manage the labor and equipment components of the
production process as part of materials planning. More recently, there has been
a significant shift away from the traditional MRP II systems to ERP systems that
leverage the advantages of open client/server architectures and allow easier
access to information from all areas of the enterprise. Today's ERP systems
integrate many business applications, including customer quotations and order
entry, procurement and inventory management, manufacturing planning and control,
decision support, and finance and accounting.
According to AMR, the ERP software market reached $7.2 billion in 1996, an
increase of 31% over 1995. AMR projected the market will reach $9.6 billion in
1997 and grow at a compound annual growth rate of 36%, to over $20 billion in
2001. The Company believes that small and midsize manufacturers are a rapidly
growing segment of the ERP market because they are particularly impacted by the
following factors: (i) mass migration of small and midsize manufacturers to
Windows NT platforms; (ii) replacement of existing systems that no longer meet
current needs; (iii) implementation of ERP software to improve business
processes and reduce costs; (iv) improvement required in customer service,
including time-to-market and quality of service; and (v) need for a solution of
the Year 2000 problem.
MARKET OPPORTUNITY
While sales of large-scale ERP systems have grown dramatically in recent years,
these systems have achieved only limited acceptance by small and midsize
manufacturers, which the Company attributes to several factors. Small and
midsize manufacturers are often risk averse and resource constrained. These
manufacturers seek information systems that provide functional, scalable
solutions and that are easy to use, cost-effective, quick to deploy and require
limited IS infrastructure. These manufacturers have also found that ERP
solutions designed for large scale manufacturing operations lack the
flexibility, rapid deployment and ease of use that they require. Furthermore,
these ERP systems are designed for users whose roles are highly specialized,
whereas the roles of users of ERP systems at small and midsize manufacturers are
broader and less clearly defined. Large scale ERP systems are designed for a
broad set
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<PAGE>
of manufacturing processes, including repetitive or continuous flow
manufacturing, and do not effectively address the needs of the flexible
engineer-to-order, make-to-order, make-to-stock and mixed mode manufacturing
typically performed by small and midsize manufacturers. These manufacturers lack
the economies of scale that distinguish large competitors and compete on the
basis of customizable, high quality manufacturing with rapid response times and
superior customer service.
The Company believes that while the largest share of the software market in 1996
was attributable to applications aimed at large scale manufacturers, the small
and midsize segment of the market is not only rapidly growing, but is also
fragmented and underserved by products focused on the needs of larger
manufacturers. Currently this market is being served by more than 50 ERP
vendors, many of whom are niche players.
Windows NT is rapidly emerging as the platform of choice among small and midsize
manufacturers. According to International Data Corporation estimates, Windows NT
is the fastest growing server operating system for new client/server
applications. Systems that are 32-bit and native to Windows take best advantage
of this rapidly emerging industry standard platform. Several ERP vendors are
targeting the small and midsize manufacturer market segments with legacy
applications that were originally designed for use by larger scale manufacturers
and are not true Windows-based products. The Company believes that such legacy
systems which have been modified to run Windows do not fully exploit the
benefits of Windows NT. The Company consequently believes that manufacturing
software vendors are becoming increasingly segmented into two groups, one that
has made the technological migration to Windows NT and the other that continues
to focus on offering legacy systems based on platforms such as UNIX and AS/400
and that of the two groups the former is growing more quickly than the latter.
THE MADE2MANAGE SOLUTION
Unlike many competing ERP software applications, Made2Manage is a native,
32-bit, Windows-based product designed specifically as an integrated business
solution for small and midsize manufacturers. Made2Manage is designed for
simplicity of operation, rapid implementation, ease of administration and low
total cost of ownership. It is a fully integrated solution providing easy access
to shared information from all functional areas of a manufacturing organization.
Made2Manage improves information flow throughout a company and across the supply
chain. This enables a manufacturer to better meet the needs of its customers and
realize numerous competitive advantages, including the ability to customize
production, shorten manufacturing cycles and improve customer service.
The Company believes it is uniquely positioned to meet the ERP needs of
manufacturers in its target market as a result of the following principal
elements of the Company's solution:
DESIGNED FOR SMALL AND MIDSIZE MANUFACTURERS
From overall business processes to individual user functions, Made2Manage is
designed to be the only business software required to manage and operate a small
or midsize manufacturing business. The Company employs a people and process
centered approach to product design which focuses on the role of the individual
within these organizations. Made2Manage is designed to enable users to do their
jobs more effectively on a consistent basis. It provides a fully integrated set
of modules specific to the demands of its target market in the areas of sales,
production, financial management and executive information systems all
integrated through system-wide capabilities and Internet applications linking a
manufacturers' employees, customers and vendors.
STANDARD MICROSOFT TECHNOLOGY PLATFORM
The Company designed and built Made2Manage for Windows from the ground up as a
32-bit native Windows application, rather than piecing together a solution by
adding a GUI to its existing DOS-based solution. Made2Manage received Mircosoft
Windows 95 certification in January 1996, and the Company was one of the
earliest vendors to offer a full ERP solution based on Windows NT. The Company
intends
25
<PAGE>
to continue its integration with Microsoft Office, BackOffice and other major
Microsoft initiatives. The Company believes its focus on Microsoft technologies,
rather than offering products that function on many different platforms, is
particularly suited to the needs of small and midsize manufacturers and
increases the Company's ability to leverage its product development efforts.
RAPID IMPLEMENTATION
To minimize the effects of business interruption and inconvenience from the
introduction of a new software system, the Company has developed an effective
implementation process supported by extensive consulting and training services.
As a result of this process, Made2Manage can be fully implemented in as little
as three months to six months.
LOWER TOTAL COST OF OWNERSHIP
The Company's ERP solution is designed to minimize the overall cost of
ownership, a key requirement of resource-constrained small and midsize
manufacturers. The ease of implementation and maintenance, as well as the cost
effectiveness of its open architecture, standards-based platform makes
Made2Manage a complete ERP software solution for its target market. In addition,
by providing extensive customer training and superior customer service and
support, Made2Manage minimizes the customer's need for IS personnel.
OBJECT-ORIENTED SCALABLE ARCHITECTURE
Made2Manage uses object-oriented techniques, facilitating the reuse of
internally written components, embedding third party components and remote
automation through OLE. Object-oriented architecture, along with standards based
technologies, shortens the development and implementation cycle, facilitates the
integration of acquired components, reduces the cost of product enhancements and
provides more efficient environments for customer support. Made2Manage scales
effectively across the range of requirements of customers within its target
market.
STRATEGY
The Company's objective is to be a leading provider of complete, integrated ERP
software solutions for small and midsize manufacturers. The Company's strategy
for achieving this objective incorporates the following elements:
MAINTAIN FOCUSED MARKET APPROACH
The Company targets small and midsize discrete manufacturers, focusing primarily
on manufacturers with annual revenues of between $5 and $50 million. The Company
has principally concentrated on four primary manufacturing sectors: fabricated
metal products; industrial machinery and equipment; computer and office
equipment; and transportation products. This approach has enabled the Company to
better understand the needs of its customers and use that knowledge to tailor
its product and services to meet those needs.
EXPAND DISTRIBUTION CHANNELS
The Company continues to add direct sales and marketing personnel and strengthen
its relationship with VARs in order to continue its growth in the United States
and Canada. The Company intends to explore international expansion strategies
and, in the longer term, plans to enter into relationships with overseas
distributors in order to expand into the international market. In anticipation
of international marketing, Made2Manage is double-byte enabled and includes
features that permit foreign currency translations and the use of different date
formats and languages.
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<PAGE>
EVALUATE POTENTIAL STRATEGIC ACQUISITIONS
The Company intends to evaluate, on a case by case basis, potential strategic
acquisitions that could enhance its current products and strengthen its
competitive position. However, there are no current negotiations, commitments or
agreements with respect to any such acquisitions.
CAPITALIZE ON YEAR 2000 REPLACEMENT OPPORTUNITIES
Many companies are facing significant business problems due to the failure of
their existing ERP systems to appropriately recognize years that follow 1999.
The Company believes that this problem will accelerate the migration to open
architecture, client/server-based ERP solutions that are configured to handle
this transition. The Company's Windows-based product has been fully Year 2000
compliant since inception. The Company believes that its Microsoft standardized
application is well positioned to meet customers' needs for Year 2000 compliant
solutions.
GROW WITH CUSTOMERS
Made2Manage's scalability allows small and midsize manufacturers to change
levels of operation, increase the number of concurrent users and expand
application functionality to accommodate growth. The Company provides tools and
services to support the conversion of the Company's DOS-based customers to its
Windows-based product. In the last 21 months, nearly 60% of the Company's DOS
customers have licensed its Windows-based product. Also, Made2Manage is able to
add additional product enhancements and modules developed by the Company or
third-party software developers. The Company believes this focus on scalable
functionality and flexibility contributes to long-term customer relationships.
ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION
The Company is committed to maintaining high levels of customer satisfaction
with Made2Manage. To achieve this objective, the Company focuses its efforts on
delivering a high quality product that addresses specific application needs, is
easy to implement, incorporates an intuitive, user-friendly interface and
enables increased productivity. The Company offers extensive implementation
services, education programs, on-line and telephone support and user
documentation to facilitate the successful adoption and use of Made2Manage. The
Company believes that a continued commitment in this area is critical to its
long-term success.
THE PRODUCT
Made2Manage is an enterprise-wide, open architecture, standards-based,
client/server software solution designed for use on PCs running Windows NT
Workstation or Windows 95 over LANs that utilize Windows NT or Novell Netware
servers. It is a 32-bit application with an object-oriented structure developed
using Microsoft's Visual Studio. The object-oriented architecture shortens
development cycles, reduces costs of product enhancements and provides a more
efficient environment for customer support. Made2Manage utilizes open
architecture standards including OLE, OCX and ActiveX. Made2Manage can import
data from or export data to 14 different file formats, including industry
standard formats. Made2Manage is ODBC compliant and its data dictionary and
table structure are available on-line, facilitating the use of third party tools
for the retrieval and manipulation of Made2Manage data.
The Company believes that Made2Manage compares favorably with other products
because (i) it is a fully integrated software product that provides easy access
to shared information from all functional areas of a manufacturing organization;
(ii) its user interface and architecture are consistent with Microsoft
standards, are familiar to the user and may be used with popular business
applications; and (iii) it contains unique messaging features which are designed
to enhance collaboration within the manufacturer's organization and across the
supply chain.
27
<PAGE>
A graphic of the messaging function of Made2Manage, Notifier, will be inserted
here. On the left side of the page is a graphic of a computer screen, which
contains a number of tool bars along with a message to a customer. The text of
the message is as follows: "Larry, Here's the sales order we discussed on the
phone. Please review and approve, forwarding me your purchase order number and
we proceed with the job. Thanks for the opportunity. Bob." On the right side of
the page are graphics of how that message can be delivered to the customer. At
the top of the right side is a graphic of the message being delivered via a
"pop-up" screen on the customer's computer, in the middle of the right side is a
graphic of the message as delivered by e-mail and at the bottom of the right
side is a graphic of the message being delivered via facsimile.
NOTIFIER ENHANCES COLLABORATION WITHIN THE MANUFACTURER'S
ORGANIZATION AND ACROSS THE SUPPLY CHAIN.
The Company began offering the Windows version of Made2Manage in late 1995 when
it discontinued sales of the DOS version. The Company licensed Made2Manage to 87
new customers in 1995 (DOS as well as Windows), 138 in 1996 and 149 for the
first nine months of 1997. The cost of a Made2Manage license varies based upon
the number of concurrent users and the optional modules licensed. See "--Sales
and Marketing."
Made2Manage's features are fully integrated, allowing the user to navigate
through the system quickly and easily. Made2Manage minimizes the complexity of
purchasing decisions by selling its enterprise-wide application as a single
unit. However, the Company separately licenses certain optional features that
support requirements that are not common to all manufacturers. The product
features are organized into five basic categories as follows:
<TABLE>
<S> <C> <C> <C>
I. EXECUTIVE INFORMATION SYSTEM
<CAPTION>
System Overviews
Reports and Graphs
Sales Performance
Production Performance Financial Performance
<S> <C> <C> <C>
II. SALES MANAGEMENT III. PRODUCTION MANAGEMENT IV. FINANCIAL MANAGEMENT
- - Quotations - Job Order Entry and - Job Splitting - Accounts Receivable
- - Sales Orders Release - Cycle Counting and - Accounts Payable
Processing - Labor Entry Physical Inventory - General Ledger
- - Features and Options - Purchasing and - Bill of Materials and - Cash Flow Projections
- - Rules-Based Product Inventory Routings - Order Costing
Configuration - Material Requirements - Production Scheduling - Payroll and Human
- - Customer Service Planning - Quality Control Resources
- - Sales Reports and - Shipping and - Production Reports - Financial Reports,
Graphs Receiving and Graphs Statements and Graphs
- - Sales Overview - Lot Control - Production Overview - Financial Overview
- Bar Code Data
Collection
</TABLE>
<TABLE>
<S> <C> <C>
V. SYSTEM-WIDE CAPABILITIES
<CAPTION>
Notifier SmartLink User Permissions and Preferences
Locator User-Defined Reports Internet applications
Navigator
<S> <C> <C>
</TABLE>
EXECUTIVE INFORMATION SYSTEM
The Executive Information System ("EIS") provides management with a tool to
promote high level planning, and enables line item "drill-downs" for thorough
and rapid analysis of enterprise-wide business activities. Executives are able
to obtain an overview of their entire business, with automatic data retrieval
28
<PAGE>
from sales, production and finance. Performance and exception results are
generated in report or graphical format, and can be easily customized or
exported to spreadsheets, word processors and other business tools.
SALES MANAGEMENT
Sales Management provides the ability to track sales, quotes and order activity.
Sales Order Processing manages the activities from the time the customer
confirms the order, into production and through shipment, including
acknowledging the order, receiving stock materials and handling multiple
releases and partial shipments. The Rules-Based Product Configurator allows the
sales person to guide customers through specific product choices to precisely
meet their product needs while assuring that quotes meet profitability and
manufacturability guidelines.
PRODUCTION MANAGEMENT
Production Management facilitates the planning, execution and monitoring of the
manufacturing process. Job orders are created to drive material and production
requirements and to track jobs through the production process. Job orders
identify the part number, the bill of material, the routing, the status and the
job packet (i.e., the set of instructions, diagrams and photographs required to
manufacture the part). Actual material and labor costs are tracked to jobs
during the production process. Made2Manage's manufacturing planning functions
include materials requirements planning for controlling inventory procurement
and job creation, as well as infinite and finite Production Scheduling.
Execution level support is provided through functions which include cycle
counting functionality, physical inventory capabilities and on-hand
availability. Lot Control enables companies to track raw materials,
sub-assemblies and final assemblies to their origin.
FINANCIAL MANAGEMENT
Financial Management is fully integrated with Sales Management and Production
Management. Up-to-date records of income, expenses and financial commitments
flow through the product's extensive library of financial reports. Standard
features include Accounts Receivable, Accounts Payable, Cash Flow Forecasting
and Job Order Costing. The General Ledger integrates the monetary flow from all
aspects of Made2Manage. "Drill-down" features, available throughout the product,
finely detail many areas, such as cost attributes of work in process, inventory
and product shipped.
SYSTEM-WIDE CAPABILITIES
As a result of the Company's focus on the user, Made2Manage contains features
which the Company believes are unique in the industry. Advanced features like
Notifier provide a solid foundation for workflow management. Notifier monitors
the manufacturer's system, detects the occurrence of specified events and
automatically sends a message via e-mail, fax or pop-up message to customers,
employees or vendors. This messaging feature promotes collaboration within the
manufacturer's organization and across the supply chain. Locator is used to find
information with very little effort and a minimum of information. By knowing
only a portion of a customer name, part number or customer purchase order
number, a Made2Manage user can use the locator function to find a quote, sales
order status, job order status or purchase order. Additional "drill down" to
underlying data is supported. Navigator provides a visual representation of the
entire Made2Manage system and the relationship of the system components.
Navigator is designed to assist novice or infrequent users. The Company recently
released its first Internet applications designed to enhance information flow,
including a report agent, a customer service component and an application for
improving communication with vendors.
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<PAGE>
A graphic of the Navigator function of Made2Manage will be inserted here. The
graphic is a computer screen which contains a number of tool bars and graphic
functions along with a schematic containing the following text:
System Data System Utilities
---------------------------------------------
Sales Management Production Management Financial Management
- ------------------------------------------------------------------------------
Executive Standard System Standard System User-Defined
Overview Reports Graphs Reports
NAVIGATOR PROVIDES A VISUAL REPRESENTATION OF THE ENTIRE MADE2MANAGE SYSTEM
AND THE RELATIONSHIP OF SYSTEM COMPONENTS.
SERVICE AND SUPPORT
The Company offers a full complement of services that allows its customers to
maximize the benefits of Made2Manage and facilitates a successful installation,
including implementation assistance using the Company's Keystone Implementation
Methodology, customer support and education programs.
THE KEYSTONE IMPLEMENTATION METHODOLOGY
The Company's Keystone Implementation Methodology consists of the following
steps:
PLANNING: The Company assists the customer in assigning tasks to the customer's
project team members and creating a Made2Manage implementation and education
plan.
EDUCATION: The Company conducts classes either at its offices or the customer's
facility to instruct the project team and key users in fundamentals of
Made2Manage as well as provide in-depth knowledge of individual features.
CONFERENCE ROOM MODELING: The Company assists the customer in building a pilot
implementation allowing its customers to simulate live operation. The Company
uses this technique to reinforce and validate decisions and processes adopted
during the implementation.
OPERATIONAL DEVELOPMENT: The Company assists the customer in developing
policies and procedures for a smooth conversion to Made2Manage, including the
development of a final conversion plan.
USER TRAINING AND LIVE OPERATION: The Company employs a "train-the-trainer"
approach with the customer and provides direction for detailed training so users
become more proficient with Made2Manage. The Company and the customer use
feedback from these training sessions to make final adjustments to the
implementation prior to live operation.
FOLLOW-UP: After implementation, the Company reviews the status of the
customer's system and recommends any adjustments and additional training.
CUSTOMER SUPPORT
The Company provides ongoing product support services under its support
agreements. Support agreements are typically sold to customers for a one year
term at the time of the initial product license and may be renewed for
additional annual periods. Telephone and electronic support and periodic
software updates are included as part of the support agreement.
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<PAGE>
The Company utilizes tools and procedures for incident tracking, call
escalation, customer profiling, knowledge building and automated incident
resolution. Many of these functions are also provided to customers via
SmartLink, a feature of Made2Manage that allows customers to log inquiries,
search knowledge bases and retrieve responses electronically. The Company also
uses electronic communications and the Internet to provide technical bulletins,
new product features, product changes and education course catalogs to its
customer base. Customers can also check the status of their change requests,
submit new requests and examine the content of existing and future releases via
the Internet. Users are required to have a valid support agreement to access
this information.
EDUCATION PROGRAMS
The Company offers classroom education courses for each of the major user roles
present in a small and midsize manufacturing business. These courses are offered
at the Company's headquarters, in regional locations, and on-site at the
customer's facility. Each course includes hands-on exercises using the software
in the context of the user's typical workflow.
PRODUCT DEVELOPMENT
The Company seeks to enhance its competitive position by incorporating
additional functionality in Made2Manage to meet the evolving needs of
manufacturers in its target market. Product enhancement ideas originate from
existing customers, prospective customers and industry trend analysis. Input is
collected through surveys, interviews, user groups and customer service and
support activities. The Company's sophisticated tracking system captures
feedback regarding requested enhancements or software problems, categorizing the
feedback by urgency, product functional area and applicable screen or report.
The Company analyzes this input and identifies changes for future product
releases. The Company's product development personnel have experience in
software development, quality assurance and documentation and are familiar with
the specific manufacturing or financial area to be addressed by the change.
The Company intends to continue to incorporate the latest technology standards
into Made2Manage. Internet modules scheduled for future release include field
sales support, executive information and order status applications. The Company
plans to release an enhanced version of Made2Manage including screen
customization, improved EDI support, OLE server support and
internationalization. The Company also intends to offer a choice of database
technology by adding support for Microsoft's SQL Server database product.
The Company's development methodology incorporates comprehensive quality
assurance procedures. A substantial component of its development budget is
allocated to quality assurance. Its testing processes include component level
tests, unit tests, posting tests, validation tests, regression tests,
installation tests, CD tests and production tests. Risk assessment documents are
prepared and maintained throughout the development process to identify potential
roadblocks to a timely and quality release early enough to allow corrective
action. Criterion-based (as opposed to date-based) release guidelines insure
consistent release quality.
The Company's product development expenditures were $636,000, $1.2 million, $1.7
million and $1.7 million for the years ended December 31, 1994, 1995 and 1996
and the nine months ended September 30, 1997, respectively. The Company
capitalized certain of the development costs it incurred in developing the
predessor DOS and UNIX versions of Made2Manage. Remaining unamortized
development costs were expensed in 1995. The Company has expensed all the
development costs associated with the development of the Windows version of
Made2Manage. At September 30, 1997, the Company's development staff consisted of
approximately 35 individuals involved in design, development, documentation and
quality assurance.
As a result of the complexities inherent in software design and development,
there can be no assurance that the Company will be able to complete features and
products currently under development in a timely
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<PAGE>
manner or to develop features and products that find market acceptance in the
future. See "Risk Factors-- Product Concentration" and "Risk Factors--Product
Development and Technological Change."
SALES AND MARKETING
The Company markets its products and services in markets throughout the United
States and Canada. The Company currently has 16 United States sales
representatives, supported by two regional managers and six manufacturing
applications consultants. The Company also distributes Made2Manage through
approximately 20 VARs. The Company has implemented procedures to reduce conflict
between its direct and indirect sales channels and between individual VARs.
The Company manages its sales efforts through a structured, multi-stage sales
process. The first stage, lead qualification, is often performed at the
Company's headquarters. The direct sales representative is then provided with
detailed information about the prospective customer, its operations, its system
requirements and its decision making process. This enables the field
representative to manage a greater number of accounts and to focus on the later
states of the sales cycle. The Company believes its sales process provides it
with a competitive advantage.
MARKETS AND CUSTOMERS
The Company's customers are small and midsize discrete manufacturers engaged in
engineer-to-order, make-to-order, make-to-stock or mixed mode production.
Discrete manufacturers fabricate and assemble parts into a finished product as
distinguished from process manufacturers, which combine raw materials to create
finished products. Engineer-to-order manufacturing is a subset of make-to-order
where the product is expressly designed and manufactured to meet a customer's
unique requirements, often as a "one-time" item. Make-to-order manufacturing
involves fabricating and assembling products that are either standardized or
that meet a customer's unique specifications. Make-to-stock refers to
manufacturing in which standard products are fabricated, assembled and placed in
finished goods inventory based on projected customer demand. Mixed mode
manufacturing involves a combination of some or all of these production
techniques.
The Company's target market consists primarily of small and midsize discrete
manufacturers with an emphasis on manufacturers with annual revenues of between
$5 million and $50 million. Based on data provided by Dun & Bradstreet
Corporation, the Company believes there are approximately 26,000 manufacturing
operations in the United States that meet the Company's target market
parameters.
COMPETITION
The business management applications software market is fragmented, intensely
competitive and rapidly changing. The Company faces competition from a variety
of software vendors, including application software vendors, software tool
vendors and relational database management systems vendors. The Company's
competitors include a large number of independent software and systems vendors,
including Dataworks Corporation, Effective Management Systems, Fourth Shift
Corporation and Symix Computer Systems, all of which are public companies, and
Lilly Software Associates, which is a private company. In addition, there are
numerous small and regional vendors that offer alternative systems. Several
software companies that have traditionally marketed ERP systems to larger
manufacturers, including Baan Company, J.D. Edwards & Company, PeopleSoft, Inc.,
QAD, Inc. and SAP America, Inc., have announced initiatives to market ERP
systems to midsize manufacturers. Many of the Company's existing competitors, as
well as a number of potential competitors, have significantly greater financial,
technical and marketing resources and a larger base of customers than the
Company.
A number of companies offer products similar to Made2Manage that are directed at
the market for ERP systems. The technologies utilized by the Company to develop
Made2Manage are generally available and widely known, including technology
developed by Microsoft. As a result, competition is likely to increase
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<PAGE>
substantially. Made2Manage competes with other products, principally on the
basis that it is specifically designed for small and midsize manufacturers, is
relatively easy to implement and use and is supported by a well-developed system
of service and support. In addition, the Company believes that advanced features
for messaging and Internet access largely differentiate Made2Manage from its
peers. The Company believes that Made2Manage competes favorably with the
products offered by its competitors, but there can be no assurance that it will
continue to compete favorably against such products or that it will be able to
compete successfully against potential competitors.
INTELLECTUAL PROPERTY
The Company regards its software products as proprietary in that title to and
ownership of the software it develops resides exclusively with the Company. The
Company relies largely upon its license agreements with customers, dealer
agreements with suppliers, its own software protection schemes, confidentiality
procedures and employee agreements to maintain the trade secret aspects of its
products. The Company seeks to protect its programs, documentation and other
written materials under copyright law. There can be no assurance that these
means of protection will be effective against unauthorized reproduction or
"pirating." Policing unauthorized use of computer software is difficult, and
software "piracy" is and can be expected to remain a persistent problem within
the software industry.
The Company has a U.S. patent application pending for software related to the
Material Requirements Planning feature included in Made2Manage. The Company has
no other patents or patent applications. The Company believes that, due to the
rapid pace of innovation within the computer industry, factors such as
technological and creative skill of personnel, knowledge and experience of
management, name recognition, maintenance and support of software products, the
ability to develop, enhance, market and acquire software products and services
and the establishment of strategic relationships in the industry are as
important as patent, copyright and other legal protections for its technology.
The Company believes that it has all necessary rights to market its products,
although there can be no assurance that third parties will not assert
infringement claims in the future. See "Risk Factors-- Intellectual Property."
EMPLOYEES
As of September 30, 1997, the Company employed 137 people, consisting of 44 in
sales and marketing, 35 in product development, 41 in services and 17 in
administration. Competition for qualified management and technical employees is
intense in the software industry and the Company has from time to time
experienced difficulty in locating candidates with appropriate qualifications.
The Company's success will depend in large part upon its ability to continue to
attract and retain qualified employees. Each employee signs a confidentiality
and nondisclosure agreement upon joining the Company. The Company believes that
its relations with its employees are satisfactory.
FACILITIES
The Company is headquartered in Indianapolis, Indiana, where it leases space
housing administrative, sales and marketing, customer service and product
development activities. In addition, the Company leases office space under
leases that are for one year or less in one other location in the United States.
The Company believes that its facilities are adequate for the present, but
anticipates expanding its facilities, as necessary, in the future.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Ira Coron(1)(2).................... 68 Chairman of the Board of Directors
David B. Wortman................... 46 President, Chief Executive Officer and Director
Christopher D. Clapp............... 37 Vice President, Marketing
Oliver C. Fowler................... 44 Vice President, Sales
Stephen R. Head.................... 44 Vice President, Finance and Administration, Chief Financial Officer,
Secretary, and Treasurer
Gary W. Rush....................... 39 Vice President, Development
Joseph S. Swern.................... 44 Vice President, Service and Support
Gregory F. Ehlinger(1)(2).......... 35 Director
Standish H. O'Grady(1)............. 37 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
IRA CORON has been the Chairman of the Board of Directors of the Company since
1993. Mr. Coron has served as Chairman of California Amplifier, Inc. since March
1994 and served also as that Company's Chief Executive Officer until August
1997. From 1989 to 1994, he was an independent management consultant to several
companies and venture capital firms. He retired from TRW, Inc. in 1989, after
serving in numerous senior management positions since 1967, including Vice
President and General Manager of TRW's Electronic Components Group. He is also a
director of the Wireless Cable Association, and a director of CMC Industries. He
is a graduate of The U.S. Military Academy with a B.S. in engineering.
DAVID B. WORTMAN joined the Company in September 1993 as Senior Vice President
and has served as President and Chief Executive Officer and a director since
January 1994. Prior to joining the Company, Mr. Wortman held a succession of
senior executive positions with Pritsker Corporation, a computer software
company he co-founded in 1973. Mr. Wortman is a past President of the Institute
of Industrial Engineers and a recipient of its Outstanding Young Industrial
Engineer award. He is currently President and a Director of the Indiana Software
Association. Mr. Wortman holds B.S. and M.S. degrees in industrial engineering
from Purdue University.
CHRISTOPHER D. CLAPP joined the Company as Vice President, Marketing in April
1996. From November 1993 to February 1996, Mr. Clapp was employed by Centillion
Data Systems, Inc., a company which develops and markets software and services
for the telecommunications industry, last serving as Vice President and General
Manager of that company's communications division. From January 1989 to November
1993, Mr. Clapp was employed at Pritsker Corporation, holding various positions,
including Product Manager and Manager, Sales Operations. As Product Manager at
Pritsker Corporation, Mr. Clapp designed and implemented the worldwide marketing
strategy for that company's manufacturing planning and scheduling software
system. Mr. Clapp holds a B.S. degree in industrial engineering from Purdue
University.
OLIVER C. FOWLER joined the Company as Vice President, Sales in April 1995. Mr.
Fowler has been involved in the sales of computer hardware and software products
since 1975. From 1989 to 1995, Mr. Fowler held a succession of sales management
positions, including Director of Strategic Accounts, with Symix Computer
Systems, Inc. a computer software company specializing in the ERP systems market
for discrete, midsize manufacturers. Mr. Fowler holds a B.A. from Marietta
College in Management/Economics and has a
36
<PAGE>
Certification in Production and Inventory Management from the American
Production and Inventory Control Society.
STEPHEN R. HEAD joined the Company as Vice President, Finance and Administration
and Chief Financial Officer in December 1996 and has served as Secretary and
Treasurer since January 1997. From January 1994 through November 1996, Mr. Head
served as Vice President, Finance and Chief Financial Officer of Software
Artistry, Inc., a software company which became a public company in March 1995.
From 1991 through December 1993, he served as a part-time Chief Financial
Officer and Controller for Software Artistry, Inc. and rendered similar services
to other small and growing companies, including four other software companies.
He is a founding member and former Treasurer of the Indiana Software
Association. Mr. Head is a Certified Public Accountant and holds B.S. and M.B.A.
degrees from Indiana University.
GARY W. RUSH joined the Company as Vice President, Development in May 1994.
Prior to joining the Company, Mr. Rush was President of Micro Data Base Systems,
Inc., a provider of relational and network database management software. During
his 14 year tenure at Micro Data Base Systems, Mr. Rush held various other
positions, including Chief Operating Officer, Vice President of Development, and
Vice President of Consulting. Mr. Rush holds a B.S.E.E. and a M.S.M. with a
focus on management information systems from Purdue University.
JOSEPH S. SWERN joined the Company in September 1995 as Vice President, Service
and Support. Prior to joining the Company, Mr. Swern was Vice President of
Professional Services at Symix Computer Systems, Inc. During his seven year
tenure at Symix, Mr. Swern also served as Director of Consulting Services,
Manager of Implementation Consulting and Senior Implementation Consultant.
Preceding his employment with Symix Computer Systems, Inc., Mr. Swern spent ten
years working in both discrete and process manufacturing, holding various
management positions. Mr. Swern holds a B.S. degree in industrial management
from Franklin University and a M.B.A. from Capital University. He has a
Certification in Production and Inventory Management from the American
Production and Inventory Control Society.
GREGORY F. EHLINGER has been a Director of the Company since 1990. He has been a
Vice President and Treasurer of Irwin Financial Corporation since 1992. From
1988 through 1992, Mr. Ehlinger was an associate of Miller Venture Partners. Mr.
Ehlinger has a B.A. in economics and psychology and a M.B.A. from the University
of Virginia.
STANDISH H. O'GRADY has been a Director of the Company since 1987. Mr. O'Grady
is a Managing Director in the venture capital department of Hambrecht & Quist
California, a subsidiary of Hambrecht & Quist Group, a venture capital,
investment banking and securities brokerage firm specializing in emerging growth
companies. Mr. O'Grady has served in various positions with Hambrecht & Quist
California's venture capital department since 1986. Mr. O'Grady previously
worked at Intel Corporation. He is currently a director of numerous private
companies. He holds a B.S.E. degree in chemical engineering from Princeton
University and an M.B.A. from the Amos Tuck School of Business Administration at
Dartmouth College.
Each Director holds office until the next annual meeting of stockholders and
until his successor is duly elected and qualified. Officers are elected by the
Board of Directors at each annual meeting and serve at the pleasure of the Board
of Directors.
The Board of Directors has established an Audit Committee consisting of Messrs.
Coron and Ehlinger and a Compensation Committee consisting of Messrs. Coron,
Ehlinger and O'Grady. The Audit Committee reviews with the Company's independent
auditors the scope and timing of their audit services and any other services
they are asked to perform, the auditor's report on the Company's financial
statements following completion of their audit, and the Company's policies and
procedures with respect to internal accounting and financial controls. In
addition, the Audit Committee makes annual recommendations to the Board of
Directors for the appointment of independent auditors for the ensuing year. The
Compensation Committee reviews and recommends to the Board of Directors the
compensation and benefits of all
37
<PAGE>
officers of the Company, reviews general policy matters relating to compensation
and benefits of employees of the Company and administers the Stock Option Plan.
See "--Stock Option Plan."
DIRECTORS COMPENSATION
Mr. Coron is paid $4,000 per quarter plus expenses for each meeting of the Board
of Directors he attends. Messrs. Coron, Ehlinger and O'Grady each annually
receive an option for 5,000 shares of Common Stock, pursuant to the Stock Option
Plan, at the fair market value of the stock on the date of grant, 25% of which
is exercisable on the first anniversary of the date of the grant and 75% of
which is exercisable at the rate of 1/48th of the amount granted each month
thereafter. See "--Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth the total annual compensation paid to, or for the
account of, the Chief Executive Officer of the Company and the Company's other
most highly compensated executive officers whose total annual salary and bonus
exceeded $100,000 during the year ended December 31, 1996 (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS (# OF SHARES) COMPENSATION(1)
- ---------------------------------------------------------- ---------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
David B. Wortman
President and Chief Executive Officer................... $ 140,000 $ 48,151 75,000 $ 2,531
Oliver C. Fowler
Vice President, Sales................................... 100,000 44,287 25,000 2,262
Gary W. Rush
Vice President, Development............................. 90,000 27,244 62,000 2,136
Joseph S. Swern
Vice President, Services and Support.................... 92,000 30,150 20,000 1,246
</TABLE>
- ------------------------
(1) Consists of Company matching contributions to the 401(k) plan and life
insurance premiums.
38
<PAGE>
OPTIONS
The following table sets forth certain information concerning grants of stock
options to each of the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
GRANTED(1)(2) IN YEAR ($/SHARE)(3) DATE 5% 10%
------------- ------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David B. Wortman.................... 75,000 14.2% $ 3.50 1/26/06 $ 165,085 $ 418,357
Oliver C. Fowler.................... 25,000 4.7 3.50 1/26/06 55,028 139,457
Gary W. Rush........................ 62,000 11.7 3.50 1/26/06 136,470 345,842
Joseph S. Swern..................... 20,000 3.8 3.50 1/26/06 44,023 111,562
</TABLE>
- ------------------------
(1) Options granted under the Stock Option Plan become exercisable over a
four-year period, 25% on the first anniversary of the date of grant and
1/48 of the total each month thereafter, with vesting subject to the
employee's continued employment. Stock options are issued at the estimated
fair market value at the date of grant. The exercise of the options may be
accelerated in the event of certain occurrences including the sale of the
Company.
(2) Subsequent to December 31, 1996, the Company granted options to purchase
shares of Common Stock to the Named Executive Officers at $5.75 per share as
follows: Mr. Wortman, 30,000 shares; Mr. Fowler, 15,000 shares; Mr. Rush,
20,000 shares; and Mr. Swern, 20,000 shares.
(3) All options were granted at fair market value as determined by the Board of
Directors of the Company on the date of grant based upon a third-party
valuation. The exercise price may in some cases be paid by delivery of other
shares or by offset of the shares subject to the options.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any Named Executive Officer or any other holder
of the Company's securities that the actual stock price appreciation over
the ten year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants made
to the Named Executive Officers.
39
<PAGE>
The following table sets forth certain information concerning exercisable and
unexercisable stock options held by the Named Executive Officers at December 31,
1996.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
ON VALUE -------------------------- --------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David B. Wortman................ -- $ -- 33,957 96,043 $ 188,461 $ 285,539
Oliver C. Fowler................ -- -- 20,833 54,167 115,623 218,127
Gary W. Rush.................... -- -- 14,322 75,668 79,543 215,357
Joseph S. Swern................. -- -- 9,375 40,625 50,156 155,344
</TABLE>
- ------------------------
(1) Calculated on the basis of the fair market value of the underlying shares of
Common Stock at December 31, 1996 of $5.75 per share, as determined by the
Company's Board of Directors based upon a third-party valuation, minus the
per share exercise price.
STOCK OPTION PLAN
A total of 1,800,000 shares of Common Stock are reserved for issuance upon
exercise of options granted under the Stock Option Plan, as adopted on August
16, 1990 and amended on July 8, 1996 and November 21, 1997. As of September 30,
1997, options to purchase an aggregate of 1,060,785 shares of Common Stock were
outstanding at a weighted average exercise price of $3.31 per share. There are
currently 509,163 shares of Common Stock reserved for grant under the Stock
Option Plan. No stock options may be granted under the Stock Option Plan after
August 16, 2000.
The Stock Option Plan is administered by the Compensation Committee, which is
composed solely of non-employee directors of the Company. Participants in the
Stock Option Plan are employees, including officers of the Company, non-employee
directors, independent contractors, consultants, vendors and suppliers to the
Company as may be selected from time to time by the Compensation Committee.
Subject to the terms of the Stock Option Plan, the Compensation Committee is
authorized to determine the number of shares of Common Stock subject to each
option granted thereunder, the exercise price of such option, the time and
conditions of exercise of such option and all other terms and conditions of such
option. The Stock Option Plan does, however, provide that non-employee directors
will automatically be granted an option to purchase 20,000 shares of Common
Stock upon becoming a member of the Board of Directors and an option to purchase
5,000 shares of Common Stock on each yearly anniversary of joining the Board of
Directors. Such options are exercisable at the fair market value of the Common
Stock on the date of grant.
Options granted under the Stock Option Plan may be incentive stock options
("ISOs"), as defined by Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") or nonqualified stock options that do not meet the
requirements of Section 422 of the Code ("NQSOs"). ISOs may be granted only to
employees of the Company. The per share exercise price of a NQSO will not be
less than 85% of the fair market value of the Common Stock at the date of grant,
and the per share exercise price of an ISO will be not less than 100% of the
fair market value of the Common Stock on the date of the grant, except that the
per share exercise price for ISOs granted to holders of 10% or more of the total
combined voting power of all outstanding classes of stock of the Company ("10%
Shareholders") will be not less than 110% of such fair market value. In
addition, for each participant, the maximum aggregate fair market value on the
date of grant of all shares subject to ISOs first exercisable in any one year
may not exceed $100,000.
40
<PAGE>
Options will expire on a date determined by the Compensation Committee, provided
that in the case of ISOs, the options will expire not more than ten years from
the date of grant (five years in the case of ISOs issued to 10% Shareholders).
If an option holder's service with the Company is terminated, whether by
retirement or otherwise, options granted under the Stock Option Plan generally
will expire 30 days after the termination of employment or of service as a
director, as the case may be, unless termination occurs as a result of death or
permanent disability, in which case such options will expire one year after such
event. In addition, the Compensation Committee has the discretion to extend the
expiration, date of options following termination of employment or termination
of services as a director, as the case may be. Options are not transferable
other than by will or the laws of descent and distribution.
Pursuant to the Stock Option Plan, options become exercisable with respect to
1/4 of the shares on the first anniversary of the date of the grant and with
respect to 1/48 of the shares on the last day of each of the next 36 consecutive
months. The Stock Option Plan provides for an acceleration of the exercisability
of option grants at the discretion of the Compensation Committee. In the event
of a merger of the Company with or into another corporation in which the Company
does not survive or a sale of substantially all of the Company's assets, all
outstanding options vest immediately and become fully exercisable, provided that
if the Board of Directors determines that such immediate vesting is not in the
best interests of the Company, then all outstanding options shall be assumed or
an equivalent option substituted by the successor corporation. If any options
become exercisable immediately, the Compensation Committee must notify each
holder that the option is exercisable for a period of not less than 10 or more
60 days from the date of the notice and that all options not exercised by such
date will terminate.
STOCK PURCHASE PLAN
On November 21, 1997, the Company adopted the Stock Purchase Plan. The Company
has reserved 100,000 shares of Common Stock for issuance under the Stock
Purchase Plan. Any full-time employee of the Company, including officers, may
elect to have a specified amount deducted from his or her compensation, up to a
maximum of 10% of his or her adjusted wages each payroll period. On the last
business day of each quarter, the cash withheld from each employee's
compensation during that quarter will be used to purchase directly from the
Company the largest number of whole shares of Common Stock that can be purchased
with such amount at a price equal to the greater of (i) 85% of the closing price
of the Common Stock on The Nasdaq National Market on the first business day of
the quarter or (ii) 90% of the average closing price of the Common Stock on The
Nasdaq National Market for each business day of the quarter.
An employee may not purchase shares of Common Stock in any year having a fair
market value of more than $25,000, and no shares of Common Stock will be
purchased on behalf of an employee, if after such purchase the employee would
own 5% or more of the total combined voting power or value of all classes of
stock of the Company. An employee's interest in the amount of cash and/or shares
held on his or her behalf will be fully vested and nonforfeitable at all times.
All shares of Common Stock purchased by an employee will be held by the Company
or an agent of the Company and will be registered in the name of the Stock
Purchase Plan. The Company or its agent will abstain from voting any shares held
under the Stock Purchase Plan.
An employee may have any shares of Common Stock held on his or her behalf under
the Stock Purchase Plan distributed to him or her, if such shares have been held
for at least six months. Any increase in the number of shares of Common Stock
reserved for issuance under the Stock Purchase Plan must be approved by the
Company's shareholders.
401(K) SAVINGS PLAN
The Company has a defined contribution retirement plan (the "401(k) Plan"),
intended to qualify under Sections 401(a) and 401(k) of the Code. All employees
of the Company are eligible to participate in the
41
<PAGE>
401(k) Plan on the first day of the calendar quarter concurrent with or
following 90 days of employment. The 401(k) Plan provides that each participant
may contribute from 1% to 15% of compensation, subject to statutory limitations.
The Company may also make discretionary contributions based on a certain
percentage of a participant's contributions under the 401(k) Plan, as determined
by the Company, or such other additional amounts as the Company may deem
appropriate. The Board of Directors approved a matching contribution of 25% of
the first 6% of employee contributions beginning January 1996. The Company
contributions under the 401(k) Plan totaled $39,000 for the year ended December
31, 1996.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Indiana Business Corporation Law, Articles of the Company
require the Company to indemnify its officers and directors from certain
liabilities, if the officer or director acted in good faith and in a manner he
reasonably believed, in the case of conduct in his official capacity, was in the
best interests of the Company, and in all other cases, was not opposed to the
best interests of the Company, and, with respect to any criminal proceeding, the
officer or director had reasonable cause to believe his conduct was lawful or
had no reasonable cause to believe his conduct was unlawful. The Articles
further provide that the Company may advance to its officers and directors
expenses incurred in connection with proceedings against them for which they may
be indemnified, if the Company receives a written affirmation from such officer
or director of his good faith belief that he met the standard of conduct
described above and that he will repay all advanced expenses if it is ultimately
determined that he did not meet such standard of conduct. At present, the
Company is not aware of any pending or threatened litigation or proceeding
involving an officer, director, employee or agent of the Company in which
indemnification would be required or permitted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ira Coron, Standish O'Grady and Greg Ehlinger served on the Compensation
Committee during 1996. None of the members of the Compensation Committee is now
serving or has previously served as an employee or officer of the Company and
none of the Company's executive officers serves as a director of, or in any
compensation related capacity for, companies with which members of the
Compensation Committee are affiliated.
42
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 17, 1997 and immediately
following the completion of this offering, by (i) each person who is known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each Named Executive Officer,
(iv) all directors and executive officers of the Company as a group and (v) each
Selling Shareholder. This table assumes no exercise of the Underwriters'
overallotment option. See "Underwriting." Unless otherwise noted, all addresses
are in care of the Company at 9002 Purdue Road, Indianapolis, Indiana 46268
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1)(2) SHARES TO OFFERING(1)(2)
----------------------- BE SOLD IN -----------------------
NAME NUMBER PERCENT OFFERING NUMBER PERCENT
- --------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with Hambrecht & Quist Group(3)...... 1,210,601 64.2% -- 1,210,601 30.6
John Hancock Leasing Corporation......................... 13,008 * 13,008 -- --
Richard B. Lapin......................................... 1,055 * 1,055 -- --
J. Irwin Miller(4)....................................... 249,259 13.2 125,937 123,322 3.1
Gerald V. Roch(5)........................................ 91,982 4.9 30,000 61,982 1.6
Norma Roch(6)............................................ 86,982 4.6 30,000 56,982 1.4
Ira Coron(7)............................................. 105,041 5.3 -- 105,041 2.6
Gregory F. Ehlinger(8)................................... 16,541 * -- 16,541 *
Standish H. O'Grady(9)................................... 1,233,142 65.3 -- 1,233,142 31.2
David B. Wortman(10)..................................... 130,937 6.7 -- 130,937 3.2
Oliver C. Fowler(11)..................................... 44,791 2.3 -- 44,791 1.1
Gary W. Rush(12)......................................... 49,332 2.6 -- 49,332 1.2
Joseph S. Swern(13)...................................... 26,041 1.4 -- 26,041 *
Joseph A. Bielawski(14).................................. 30,881 1.6 -- 30,881 *
Robert J. Johnson(15).................................... 16,946 * -- 16,946 *
Alan R. McLean(16)....................................... 6,000 * -- 6,000 *
William I. Miller(17).................................... 25,941 1.3 -- 25,941 *
Mark A. Patterson(18).................................... 7,145 * -- 7,145 *
David O. Thomas(19)...................................... 30,000 1.6 -- 30,000 *
All executive officers and directors as a group
(9 persons)(20)........................................ 1,644,181 73.8 -- 1,644,181 38.3
</TABLE>
- ------------------------
* Less than 1% of outstanding Common Stock.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the Company believes that the persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock.
(2) Applicable percentage of ownership as of October 17, 1997 is based upon
1,886,451 shares of Common Stock outstanding, including 1,479,824 shares of
Common Stock issuable upon the conversion of the Convertible Preferred
Stock. Applicable percentage ownership after the offering is based upon
3,950,514 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission.
(3) Consists of: 33,355 shares of Common Stock owned by Hamco Capital
Corporation; 623,406 shares of Common Stock owned by H&Q London Ventures;
202,614 shares of Common Stock owned by Ivory & Sime Enterprise Capital,
plc; 287,044 shares of Common Stock owned by Hambrecht & Quist California;
1,730 shares of Common Stock owned by Hambrecht & Quist Venture Partners;
and 62,452 shares of Common Stock owned by Hambrecht 1980 Revocable Trust.
All of the aforementioned entities (the "H&Q Entities") are controlled,
directly or indirectly, by Hambrecht & Quist Group. The address for each of
the H&Q Entities is One Bush Street, San Francisco, California, 94104.
43
<PAGE>
(4) The address from Mr. Miller is 301 Washington Street, Columbus, Indiana
47201. If the Underwriters' overallotment option is exercised in full, Mr.
Miller will sell an additional 123,322 shares of Common Stock, and
thereafter will not beneficially own any shares of Common Stock.
(5) If the Underwriters' overallotment option is exercised in full, Mr. Roch
will sell 26,633 shares of Common Stock and thereafter beneficially own
35,349 shares of Common Stock, representing less than 1% of the outstanding
Common Stock. Until early 1997, Mr. Roch was a director and an executive
vice president of the Company.
(6) If the Underwriters' overallotment option is exercised in full, Mrs. Roch
will sell 26,632 shares of Common Stock and thereafter beneficially own
30,350 shares of Common Stock, representing less than 1% of the outstanding
Common Stock.
(7) Includes 105,041 shares of Common Stock issuable upon the exercise of
options within 60 days of October 17, 1997. If the Underwriters'
overallotment option is exercised in full, Mr. Coron will sell 50,000
shares of Common Stock and thereafter beneficially own 55,041 shares of
Common Stock, representing 1.4% of the outstanding Common Stock.
(8) Includes 1,416 shares of Common Stock issuable upon the exercise of options
within 60 days of October 17, 1997.
(9) Includes 1,210,601 shares of Common Stock owned by the H&Q Entities. Mr.
O'Grady, a director of the Company, is an affiliate of the H&Q Entities,
and accordingly may be attributed beneficial ownership of the shares of
Common Stock owned by the H&Q Entities. Mr. O'Grady disclaims beneficial
ownership of the shares of Common Stock held by the H&Q Entities, except to
the extent of his pecuniary interest therein. Also includes 2,583 shares of
Common Stock issuable upon the exercise of options within 60 days of
October 17, 1997.
(10) Includes 80,937 shares of Common Stock issuable upon the exercise of
options within 60 days of October 17, 1997.
(11) Includes 44,791 shares of Common Stock issuable upon the exercise of
options within 60 days of October 17, 1997.
(12) Includes 45,332 shares of Common Stock issuable upon the exercise of
options within 60 days of October 17, 1997.
(13) Includes 26,041 shares of Common Stock issuable upon the exercise of
options within 60 days of October 17, 1997.
(14) If the Underwriters' overallotment option is exercised in full, Mr.
Bielawski will sell 30,881 shares of Common Stock and thereafter will not
beneficially own any shares of Common Stock.
(15) If the Underwriters' overallotment option is exercised in full, Mr.
Johnson will sell 16,946 shares of Common Stock and thereafter will not
beneficially own any shares of Common Stock.
(16) If the Underwriters' overallotment option is exercised in full, Mr. McLean
will sell 6,000 shares of Common Stock and thereafter will not
beneficially own any shares of Common Stock.
(17) If the Underwriters' overallotment option is exercised in full, Mr. Miller
will sell 25,941 shares of Common Stock and thereafter will not
beneficially own any shares of Common Stock.
(18) If the Underwriters' overallotment option is exercised in full, Mr.
Patterson will sell 7,145 shares of Common Stock and thereafter will not
beneficially own any shares of Common Stock.
(19) If the Underwriters' overallotment option is exercised in full, Mr. Thomas
will sell 24,000 shares of Common Stock and thereafter beneficially own
6,000 shares of Common Stock, representing less than 1% of the outstanding
Common Stock.
(20) Includes 340,474 shares of Common Stock issuable upon the exercise of
options within 60 days of October 17, 1997.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the Company
will consist of ten million shares of Common Stock and two million shares of
preferred stock (the "Preferred Stock"). As of September 30, 1997, there were
406,627 shares of Common Stock issued and outstanding held of record by 27
shareholders.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held on
matters voted upon by shareholders, subject to limitations discussed under the
caption "Other Restrictions on Acquisition of the Company," below. Under Indiana
law and pursuant to the Articles, the holders of the Common Stock possess
exclusive voting power in the Company and will continue to possess exclusive
voting power, unless a new class of Preferred Stock is issued and voting rights
are granted to the holders thereof or unless the Articles are amended as
provided therein and pursuant to Indiana law. Subject to preferences that may be
applicable to shares of Preferred Stock issued in the future, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board out of funds legally available therefor and, in the event of liquidation
or dissolution of the Company, all assets of the Company (after payment or
provision for payment of all debts and liabilities of the Company) available for
distribution, in cash or in kind. See "Dividend Policy." Shareholders of the
Company have no pre-emptive rights to acquire additional shares of Common Stock
which may be subsequently issued. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board is authorized, without further action by the shareholders, to issue up
to two million shares of Preferred Stock in one or more series. The Board is
authorized to fix and state the relative rights, preferences, privileges and
restrictions thereof, including voting rights, dividend rights, conversion
rights, terms of redemption, liquidation preferences, the number of shares
constituting any series and the designation of such series. Preferred Stock may
rank prior to the Common Stock as to dividend rights and/ or liquidation
preferences and may have full or limited voting rights. The holders of Preferred
Stock will be entitled to vote as a separate class or series under certain
circumstances (principally in cases directly affecting the rights of the then
existing holders of Preferred Stock, such as a merger, share exchange or
modification of terms of the Preferred Stock), regardless of any other voting
rights which such holders may have. Accordingly, the Board can, without
shareholder approval, issue Preferred Stock with voting and conversion rights
that would materially adversely affect the voting power of the holders of the
Common Stock. The issuance of Preferred Stock could have the effect of
decreasing the market price of the Shares. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company. If the Company issues any Preferred Stock that would disproportionately
reduce the voting rights of the Common Stock, the Common Stock could be required
to delist from The Nasdaq National Market. The Company has no current plan to
issue any Preferred Stock.
REGISTRATION RIGHTS
Upon the closing of the offering, the holders of 1,367,950 shares of Common
Stock (the "Registrable Securities") are entitled to certain rights with respect
to the registration of such shares under the Securities Act. See "Shares
Eligible for Future Sale." Under the terms of an agreement between the Company
and the holders of the Registrable Securities, if the Company proposes to
register any of its securities under the Securities Act, either for its own
account or the account of other security holders exercising registration rights,
those holders are entitled to notice of registration and are entitled to include
shares of Registrable
45
<PAGE>
Securities therein. The holders of Registrable Securities may also require the
Company to file a registration statement under the Securities Act at its expense
with respect to their Registrable Securities, and the Company is required to use
its best efforts to effect the registration of at least 20% of the Registrable
Securities of each holder making the request and of each holder joining such
request, subject to, among other things, the right of the Company not to effect
any registration within 180 days following the offering made hereby. Further,
certain holders of the Registrable Securities may require the Company to file
additional registration statements on Form S-3. These registration rights are
subject to certain conditions and limitations, among them the reasonably
anticipated aggregate price of the shares offered to the public must exceed one
million dollars. See "Risk Factors--Shares Eligible for Future Sale;
Registration Rights."
OTHER RESTRICTIONS ON ACQUISITION OF THE COMPANY
As an Indiana corporation, the Company is governed by the provisions of the
Indiana Business Corporation Law (the "IBCL").
VOTING REQUIREMENTS FOR CERTAIN BUSINESS COMBINATIONS. Chapter 43 of the IBCL
establishes a five-year period beginning with the beneficial acquisition of 10%
of the voting power of the outstanding voting shares of a "resident domestic
corporation" (which definition includes the Company) during which certain
business transactions involving the acquiring shareholder are prohibited unless,
prior to the acquisition of such interest, the board of directors approves the
acquisition of such interest or the proposed business combination. After the
five-year period expires, a business combination involving the acquiring
shareholder may take place only upon approval by a majority of the disinterested
shares, or if the other shareholders receive a formula price based on the higher
of the highest price paid by the acquiring shareholder or the market value at
the time of the announcement of the proposed transaction, whichever is higher.
The minimum price for shares other than common shares is to be determined under
criteria similar to that for common shares, except the minimum price as defined
cannot be less than the highest preferential amount to which the shares are
entitled in the event of any liquidation, dissolution or winding up of the
corporation.
CHANGES OF CONTROL. Under Chapter 42 of the IBCL, with certain exceptions, a
person proposing to acquire or acquiring voting shares of an "issuing public
corporation" (which definition includes corporations having at least 100
shareholders, their principal place of business, office or substantial assets
within Indiana, and in which more than 10% of shareholders are Indiana
residents, 10% of shares are owned by Indiana residents, or 10,000 or more
shareholders are Indiana residents) sufficient to entitle that person to
exercise voting power within any of the ranges of one-fifth to one-third of all
voting power, more than one-third but less than one-half of all voting power, or
a majority or more of all voting power (a "control share acquisition") may give
a notice of such fact to the corporation containing certain specified data. The
acquiring person may request that the directors call a special meeting of
shareholders for the purpose of considering the voting rights to be accorded the
shares so acquired ("control shares"), and the control shares have voting rights
only to the extent granted by a resolution approved by the shareholders. The
resolution must be approved by a majority of the votes entitled to be cast by
each voting group entitled to vote separately on the proposal, excluding shares
held by the acquiring person and shares held by management. Control shares as to
which the required notice has not been filed may be redeemed at fair market
value by the corporation if the corporation is authorized to do so by its
articles of incorporation or bylaws before a control share acquisition has
occurred. The Company has not adopted such a provision in its Articles or
Bylaws. Control shares not afforded full voting rights by the shareholders may
also be redeemed. Shareholders are entitled to dissenters rights with respect to
the control share acquisition in the event that the control shares are accorded
full voting rights and the acquiring person has acquired control shares with a
majority of all voting power.
OTHER PROVISIONS OF THE IBCL. The IBCL specifically authorizes directors, in
considering the best interest of a corporation, to consider both the long- and
short-term interests of the corporation, as well as the effects of any action on
shareholders, employees, suppliers and customers of the corporation, and
communities in
46
<PAGE>
which offices or other facilities of the corporation are located and any other
factors the directors consider pertinent. Under the IBCL, directors are not
required to approve a proposed business combination or other corporate action if
they determine in good faith that the action is not in the best interests of the
corporation. In addition, the IBCL states that directors are not required to
redeem any rights under or render inapplicable a shareholder rights plan or to
take or decline to take any other action solely because of the effect such
action or inaction might have on a proposed change of control of the corporation
or the amounts to be paid to shareholders upon such a change of control. The
Delaware Supreme Court has held that defensive measures in response to a
potential takeover must be "reasonable in relation to the threat posed." The
IBCL explicitly provides that the different or higher degree of scrutiny imposed
in Delaware and certain other jurisdictions upon director actions taken in
response to potential changes in control will not apply.
The IBCL requires directors to discharge their duties, based on the facts then
known to them, in good faith, with the care an ordinary, prudent person in a
like position would exercise under similar circumstances and in a manner the
director reasonably believes to be in the best interests of the corporation. A
director is not liable for any action taken as a director or for failure to take
any action unless the director has breached or failed to perform the duties of
the director's office in compliance with the foregoing standard and the breach
or failure to perform constitutes willful misconduct or recklessness.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock Transfer
& Trust Company, 40 Wall Street, New York, New York 10005.
INFORMATION PROVIDED TO SHAREHOLDERS
The Company intends to furnish its shareholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each fiscal year containing unaudited summary financial information.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have outstanding an
aggregate of 3,950,514 shares of Common Stock. Of these shares, all the Shares
sold in this offering will be freely tradeable without restrictions or further
registration under the Securities Act and the remaining 1,700,514 shares of
Common Stock held by existing shareholders will be "restricted securities" as
that term is defined in Rule 144 under the Securities Act (the "Restricted
Shares"). Restricted Shares may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act.
The officers, directors, certain shareholders, and holders of outstanding stock
options of the Company have agreed not to, directly or indirectly, issue, offer
to sell, sell, grant an option for the purchase or sale of, transfer, pledge,
assign, hypothecate, or otherwise encumber or dispose of any securities issued
by the Company, including shares of Common Stock or securities convertible into
or exchangeable or exercisable for or evidencing any right to purchase or
subscribe for any share of Common Stock for a period of six months from the
effective date of the Registration Statement, without the prior written consent
of the First Albany Corporation and the Company. An appropriate legend shall be
marked on the face of certificates representing all such securities. The Company
also has agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or any options or warrants to purchase Common
Stock other than shares or options issued under the Company's stock option
plans, for a period of six months after the date of this Prospectus, except with
the prior written consent of First Albany Corporation.
47
<PAGE>
Substantially all of the Restricted Shares are subject to the Lock-Up Agreements
(the "Lock-up Restricted Shares"). Approximately 390,000 Lock-Up Restricted
Shares will be available for sale in the public market immediately following the
expiration of the six month lock-up period, pursuant to Rule 144(k), and
approximately 1,300,000 Lock-Up Restricted Shares will become eligible for sale
in the public market immediately following the expiration of the six month
lock-up period, subject to the volume and other limitations of Rule 144 and Rule
701, as discussed below. The remaining Lock-up Restricted Shares will begin to
be eligible for sale at various times thereafter pursuant to Rule 144.
In general, under Rule 144 beginning 90 days after the date of this Prospectus,
any holder of Restricted Shares, including an affiliate of the Company, as to
which at least one year has elapsed since the later of the date of acquisition
of the shares from the Company or an affiliate, would be entitled within any
three-month period to sell a number of shares of Common Stock that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 40,000 shares upon the completion of this offering) or the
average weekly trading volume of the Common Stock on the Nasdaq National Market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who beneficially
owns Restricted Shares is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above, provided that at least two years have
elapsed since the later of the date the shares were acquired from the Company or
from an affiliate of the Company. The foregoing is a summary of Rule 144 and is
not intended to be a complete description of it.
As of September 30, 1997, there were 1,060,785 shares of Common Stock subject to
outstanding options issued pursuant to the Stock Option Plan, of which 399,867
were vested as of that date. The Company intends to file a registration
statement under the Securities Act to register shares of Common Stock reserved
for issuance under the Stock Option Plan, thus permitting the sale of such
shares by non-affiliates in the public market without restriction under the
Securities Act. Such registration statement will become effective immediately
upon filing.
Subject to certain limitations on the aggregate offering price of a transaction
and other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from the Company by its employees, directors,
officers, consultants or advisers prior to the closing of this offering pursuant
to written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Commission has indicated that
Rule 701 will apply to stock options granted by the Company before this
offering, along with the shares acquired upon exercise of such options.
Securities issued in reliance on Rule 701 are deemed to be Restricted Shares
and, subject to the contractual limitations described above, beginning 90 days
after the date of this Prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements. See "Risk Factors--Shares Eligible for Future Sale; Registration
Rights."
On November 21, 1997, the Company adopted the Stock Purchase Plan. The Company
has reserved 100,000 shares of Common Stock for issuance under the Stock
Purchase Plan, but to date no shares of Common Stock have been issued
thereunder. Pursuant to the Stock Purchase Plan, all shares of Common Stock
issued thereunder must be held for six months before they may be sold. The
Company intends to file a registration statement under the Securities Act to
register shares of Common Stock reserved for issuance under the Stock Purchase
Plan thus permitting sale of such shares by non-affiliates in the public market
without restriction under the Securities Act after the six month holding period
required by the Stock Purchase Plan. Such registration statement will become
effective immediately upon filing.
48
<PAGE>
UNDERWRITING
The underwriters of this offering of Common Stock (the "Underwriters"), for whom
First Albany Corporation, Van Kasper & Company and RvR Securities Corp. are
serving as representatives (the "Representatives"), have agreed, subject to the
terms and conditions of the Underwriting Agreement (the form of which is filed
as an exhibit to the Registration Statement of which this Prospectus is a part)
to purchase, and the Company and the Selling Shareholder have agreed to sell
them severally, the number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
First Albany Corporation.........................................................
Van Kasper & Company.............................................................
RvR Securities Corp..............................................................
----------
Total........................................................................ 2,250,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters to
purchase shares of Common Stock are subject to certain conditions, and that if
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all shares of Common Stock agreed to be purchased by
the Underwriters pursuant to the Underwriting Agreement must be so purchased
(other than those subject to the Underwriters' overallotment option described
below).
The Company has been advised that the Underwriters propose to offer the shares
of Common Stock directly to the public initially at the public offering price
set forth on the cover page of this Prospectus, and to certain selected dealers
(who may include the Underwriters) at such public offering price less a
concession not in excess of $ per share. The Underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $ per share to
certain other brokers and dealers. After the public offering, the public
offering price, the concession to selected dealers and the reallowance to other
dealers may be changed by the Underwriters.
Certain of the Selling Shareholders of the Company have granted to the
Underwriters an option, exercisable no later than 45 days after the date of this
Prospectus, to purchase up to 337,500 additional shares of Common Stock at the
price to public set forth on the cover page of this Prospectus, less the
underwriting discounts set forth on the cover page of this Prospectus, solely to
cover over-allotments. To the extent that the Underwriters exercise this option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof as the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total shares offered, and
such Selling Shareholders will be obligated, pursuant to the option, to sell
such shares of Common Stock to the Underwriters.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The officers, directors, certain shareholders, and holders of outstanding stock
options of the Company have agreed not to, directly or indirectly, issue, offer
to sell, sell, grant an option for the purchase or sale of, transfer, pledge,
assign, hypothecate, or otherwise encumber or dispose of any securities issued
by the Company, including shares of Common Stock or securities convertible into
or exchangeable or exercisable for or evidencing any right to purchase or
subscribe for any share of Common Stock for a period of six months from the
effective date of the Registration Statement, without the prior written consent
of First Albany Corporation and the Company. An appropriate legend shall be
marked on the face of certificates representing all such securities. The Company
also has agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or any options or warrants to purchase Common
Stock other than shares
49
<PAGE>
or options issued under the Company's stock option plans, for a period of six
months after the date of this Prospectus, except with the prior written consent
of First Albany Corporation. First Albany Corporation may release all or a
portion of the shares of Common Stock from the terms of the lock-up agreements
at its discretion.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with this offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
At the request of the Company, the Underwriters have reserved up to 100,000 of
the Shares offered by the Company hereby for sale at the initial public offering
price to certain employees of the Company and other persons, none of whom is
expected to be a director or executive officer of the Company. The number of
Shares available for sale to the general public will be reduced to the extent
that such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other Shares offered hereby.
Prior to the offering, there has been no public market for the Company's Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives of the Underwriters and
does not necessarily bear any direct relationship to the Company's assets,
current earnings or book value or to any other established criteria of value,
although these factors considered in establishing the initial public offering
price. Among the other factors to be considered in determining the initial
public offering price will be prevailing market conditions, the industry in
which the Company operates, as assessment of the Company's management, its
operating results, its capital structure, the business potential of the Company
and the demand for similar securities of comparable companies.
Persons affiliated and associated with RvR Securities Corp. beneficially own an
aggregate of 1,233,142 shares of the Company's Common Stock. See "Principal and
Selling Shareholders." Consequently, this offering will be conducted in
accordance with the applicable provisions of Rule 2720 of the Rules of the
National Association of Securities Dealers, Inc. In accordance with those
provisions, First Albany Corporation (the "Independent Underwriter") has served
as a "qualified independent underwriter." The Independent Underwriter has
performed due diligence with respect to the information contained herein and has
participated in the preparation of the Registration Statement of which this
Prospectus is a part. The price of the shares of Common Stock to be offered
hereby will not be higher than the maximum public offering price recommended by
the Independent Underwriter.
50
<PAGE>
LEGAL MATTERS
The validity of Shares offered hereby will be passed upon for the Company and
for the Selling Shareholders by Ice Miller Donadio & Ryan, Indianapolis,
Indiana. Orrick, Herrington & Sutcliffe LLP, New York, New York has acted as
counsel for the Underwriters in connection with this offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996 and
September 30, 1997, and for each of the three years in the period ended December
31, 1996 and the nine months ended September 30, 1997, included in the
Registration Statement of which this Prospectus is a part, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, Washington,
D.C. 20549 (the "Commission"), a Registration Statement on Form S-1 under the
Securities Act with respect to the Shares offered hereby. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and the Shares offered hereby, reference is made to the Registration
Statement and the exhibits and schedules filed as part thereof through the
Electronic Data Gathering, Analysis and Retrieval system. Statements contained
in this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and, in each instance, if such
contract or document is filed as an exhibit, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement.
Each statement is qualified in all respects by such reference to such exhibit.
The Registration Statement, including exhibits and schedules thereto, is
publicly available through the Commissions' World Wide Web site
(http:/www.sec.gov) or may be inspected without charge at the Commission's
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission.
51
<PAGE>
MADE2MANAGE SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Financial Statements:
Report of Independent Accountants.......................................................................... F-2
Balance Sheets as of December 31, 1995, 1996 and September 30, 1997........................................ F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 (unaudited) and 1997.................................................................. F-4
Statements of Shareholders' Equity for the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997................................................................................. F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 (unaudited) and 1997.................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Made2Manage Systems, Inc.
We have audited the accompanying balance sheets of Made2Manage Systems, Inc. as
of December 31, 1995 and 1996 and September 30, 1997, and the statements of
operations, changes in shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996 and for the nine months ended
September 30, 1997. 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 generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Made2Manage Systems, Inc. at
December 31, 1995 and 1996 and September 30, 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 and for the nine months ended September 30, 1997, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
November 12, 1997
F-2
<PAGE>
MADE2MANAGE SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
-------------------- ------------------------
1995 1996 ACTUAL
--------- --------- ----------- PRO FORMA
-----------
(UNAUDITED)
(NOTE 9)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 1,033 $ 1,139 $ 1,856
Trade accounts receivable, net of allowance for doubtful accounts
of $92, $188 and $256 in 1995, 1996 and 1997, respectively..... 1,880 3,450 3,917
Prepaid expenses and other....................................... 78 99 187
Deferred income taxes............................................ -- 554 393
--------- --------- -----------
Total current assets........................................... 2,991 5,242 6,353
Property and equipment, net........................................ 585 921 1,738
Deferred income taxes.............................................. -- 503 475
--------- --------- -----------
Total assets................................................... $ 3,576 $ 6,666 $ 8,566
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................................ $ 212 $ 357 $ 266
Accounts payable................................................. 190 426 561
Accrued liabilities.............................................. 266 480 404
Accrued compensation and related expenses........................ 547 539 591
Deferred revenue................................................. 1,315 2,267 3,309
--------- --------- -----------
Total current liabilities...................................... 2,530 4,069 5,131
Long-term obligations, net of current portion...................... 452 436 733
Deferred revenue................................................... 85 45 217
--------- --------- -----------
Total liabilities.............................................. 3,067 4,550 6,081
--------- --------- -----------
Commitments (Note 6)
Shareholders' Equity:
Convertible preferred stock, no par value:
Series A; 79,137 shares authorized, issued and outstanding in
1995, 1996 and 1997, no shares pro forma..................... 178 178 178 $ --
Series B; 255,331 shares authorized, issued and outstanding in
1995, 1996 and 1997, no shares pro forma..................... 471 471 471 --
Series C; 577,643 shares authorized and 563,580 issued and
outstanding in 1995, 1996 and 1997, no shares pro forma...... 2,234 2,234 2,234 --
Series D; 750,000 shares authorized and 581,776 issued and
outstanding in 1995, 1996 and 1997, no shares pro forma...... 1,159 1,159 1,159 --
Preferred stock, no par value; 2,000,000 shares authorized, no
shares issued and outstanding in 1996, 1997 and pro forma...... -- -- --
Common stock, no par value; 10,000,000 shares authorized,
373,106, 376,544, 406,627 and 1,886,451 shares issued and
outstanding in 1995, 1996, 1997 and pro forma, respectively.... 309 310 356 4,398
Accumulated deficit.............................................. (3,842) (2,236) (1,913) (1,913)
--------- --------- ----------- -----------
Total shareholders' equity..................................... 509 2,116 2,485 $ 2,485
--------- --------- ----------- -----------
-----------
Total liabilities and shareholders' equity..................... $ 3,576 $ 6,666 $ 8,566
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
MADE2MANAGE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------------
1994 1995 1996 1997
--------- --------- --------- 1996 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software................................................ $ 2,494 $ 3,572 $ 6,140 $ 3,733 $ 6,916
Services................................................ 1,748 2,160 2,998 2,238 3,728
Hardware................................................ 210 203 241 167 397
--------- --------- --------- ----------- -----------
Total revenues........................................ 4,452 5,935 9,379 6,138 11,041
--------- --------- --------- ----------- -----------
Costs of revenues:
Software................................................ 382 417 599 318 430
Services................................................ 977 1,175 1,762 1,214 2,409
Hardware................................................ 171 163 164 121 262
--------- --------- --------- ----------- -----------
Total costs of revenues............................... 1,530 1,755 2,525 1,653 3,101
--------- --------- --------- ----------- -----------
Gross profit.......................................... 2,922 4,180 6,854 4,485 7,940
--------- --------- --------- ----------- -----------
Operating expenses:
Sales and marketing..................................... 1,122 1,717 3,282 2,093 4,324
Product development..................................... 530 1,189 1,718 1,210 1,663
General and administrative.............................. 724 827 1,154 808 1,380
--------- --------- --------- ----------- -----------
Total operating expenses.............................. 2,376 3,733 6,154 4,111 7,367
--------- --------- --------- ----------- -----------
Operating income.......................................... 546 447 700 374 573
Other expense, net........................................ 98 49 122 58 53
--------- --------- --------- ----------- -----------
Income before income taxes................................ 448 398 578 316 520
Income tax provision (benefit)............................ 5 6 (1,028) 17 197
--------- --------- --------- ----------- -----------
Net income................................................ $ 443 $ 392 $ 1,606 $ 299 $ 323
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Per share amounts:
Pro forma:
Net income per share.................................. $ .61 $ .15
--------- -----------
--------- -----------
Average number of shares.............................. 2,846 2,886
--------- -----------
--------- -----------
Unaudited Supplemental pro forma determined based on
SFAS No. 128 (Note 1):
Net income per share.................................. $ .63 $ .13
--------- -----------
--------- -----------
Average number of shares.............................. 2,531 2,544
--------- -----------
--------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
MADE2MANAGE SYSTEMS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-----------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------------ ------------------------ ------------------------ -----------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994....... 79,137 $ 178 255,331 $ 471 563,580 $ 2,234 329,461
Issuance of shares............ -- -- -- -- -- -- 252,315
Exercise of stock options..... -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- --
----------- ----- ----------- ----- ----------- ----------- -----------
Balances, December 31, 1994..... 79,137 178 255,331 471 563,580 2,234 581,776
Exercise of stock options..... -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- --
----------- ----- ----------- ----- ----------- ----------- -----------
Balances, December 31, 1995..... 79,137 178 255,331 471 563,580 2,234 581,776
Exercise of stock options..... -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- --
----------- ----- ----------- ----- ----------- ----------- -----------
Balances, December 31, 1996..... 79,137 178 255,331 471 563,580 2,234 581,776
Exercise of stock options..... -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- --
----------- ----- ----------- ----- ----------- ----------- -----------
Balances, September 30, 1997.... 79,137 $ 178 255,331 $ 471 563,580 $ 2,234 581,776
----------- ----- ----------- ----- ----------- ----------- -----------
----------- ----- ----------- ----- ----------- ----------- -----------
<CAPTION>
COMMON STOCK
------------------------ TOTAL
NUMBER OF ACCUMULATED SHAREHOLDERS'
AMOUNT SHARES AMOUNT DEFICIT EQUITY
----------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1994....... $ 654 199,075 $ 263 $ (4,677) $ (877)
Issuance of shares............ 505 -- -- -- 505
Exercise of stock options..... -- 33,000 10 -- 10
Net income.................... -- -- -- 443 443
----------- ----------- ----- ------------- ------
Balances, December 31, 1994..... 1,159 232,075 273 (4,234) 81
Exercise of stock options..... -- 141,031 36 -- 36
Net income.................... -- -- -- 392 392
----------- ----------- ----- ------------- ------
Balances, December 31, 1995..... 1,159 373,106 309 (3,842) 509
Exercise of stock options..... -- 3,438 1 -- 1
Net income.................... -- -- -- 1,606 1,606
----------- ----------- ----- ------------- ------
Balances, December 31, 1996..... 1,159 376,544 310 (2,236) 2,116
Exercise of stock options..... -- 30,083 46 -- 46
Net income.................... -- -- -- 323 323
----------- ----------- ----- ------------- ------
Balances, September 30, 1997.... $ 1,159 406,627 $ 356 $ (1,913) $ 2,485
----------- ----------- ----- ------------- ------
----------- ----------- ----- ------------- ------
</TABLE>
See accompanying notes.
F-5
<PAGE>
MADE2MANAGE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------------
1994 1995 1996 1997
--------- --------- --------- 1996 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............................................. $ 443 $ 392 $ 1,606 $ 299 $ 323
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment.......................................... 58 91 204 134 274
Amortization of software development costs........... 112 196 -- -- --
Provision for doubtful accounts...................... 132 90 140 93 280
Loss on disposition of property and equipment........ 11 17 44 -- --
Deferred income taxes................................ -- -- (1,057) -- 189
Changes in assets and liabilities:
Trade accounts receivable.......................... (223) (1,080) (1,710) (383) (747)
Prepaid expenses and other 64 29 (21) (3) (88)
Accounts payable and accrued liabilities........... (197) 213 450 20 59
Accrued compensation and related expenses.......... 153 218 (8) (143) 52
Deferred revenue................................... 179 340 912 185 1,214
--------- --------- --------- ----------- -----------
Net cash provided by operating activities............ 732 506 560 202 1,556
--------- --------- --------- ----------- -----------
Investing activities:
Purchases of property and equipment.................... (20) (517) (584) (416) (1,091)
Proceeds from sales of property and equipment.......... 1 4 -- -- --
Capitalization of software development costs........... (106) -- -- -- --
--------- --------- --------- ----------- -----------
Net cash used in investing activities................ (125) (513) (584) (416) (1,091)
--------- --------- --------- ----------- -----------
Financing activities:
Proceeds from long-term obligations.................... -- 282 333 252 604
Payments on long-term obligations...................... (232) (171) (204) (158) (398)
Proceeds from common stock options exercised........... 10 36 1 1 46
Proceeds from issuance of Series D preferred stock..... 350 -- -- -- --
--------- --------- --------- ----------- -----------
Net cash provided by financing activities............ 128 147 130 95 252
--------- --------- --------- ----------- -----------
Change in cash and cash equivalents...................... 735 140 106 (119) 717
Cash and cash equivalents, beginning of period........... 158 893 1,033 1,033 1,139
--------- --------- --------- ----------- -----------
Cash and cash equivalents, end of period................. $ 893 $ 1,033 $ 1,139 $ 914 $ 1,856
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Supplemental disclosures:
Cash paid for:
Interest expense..................................... $ 129 $ 93 $ 75 $ 55 $ 78
Income taxes......................................... -- 26 18 17 21
Noncash investing and financing activities:
Equipment acquired under capital lease obligations..... 70 -- -- -- --
Conversion of notes payable and related accrued
interest to Series D preferred stock................. 155 -- -- -- --
</TABLE>
See accompanying notes.
F-6
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Made2Manage Systems, Inc. develops, markets and supports innovative management
information systems for small and midsize manufacturing companies located
primarily in the United States. The Company is dependent upon its primary
product, Made2Manage for Windows, which is a fully integrated, Windows NT-based
ERP business software for manufacturing companies.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The unaudited financial statements for the nine months ended September 30, 1996
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of the results of operations and cash flows for that period in
accordance with generally accepted accounting principles. Results for interim
periods are not necessarily indicative of results for the entire year.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Such investments are valued at cost
which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Leasehold improvements are amortized
over the lesser of the term of the related lease or estimated useful life. All
other assets are depreciated using the straight-line method over their estimated
useful lives which range from 3 to 10 years.
COMPUTER SOFTWARE DEVELOPMENT COSTS
The Company accounts for computer software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Costs incurred
prior to establishing the technological feasibility of computer software
products and enhancements to such products are expensed as incurred. Software
development costs incurred by the Company following technological feasibility,
defined by the Company as the existence of a working model of the product, and
prior to the time the product is available for general release to customers,
have not been material and, therefore, have not been capitalized in 1995, 1996
or during the nine months ended September 30, 1997.
F-7
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capitalized costs are amortized on a product-by-product basis once the product
is available for general release. Amortization is the greater of the amount
computed using the ratio of the current year's gross revenues and the total of
current and anticipated future gross revenues for that product or the
straight-line method over the remaining economic life of such products, which
does not exceed 36 months.
REVENUE RECOGNITION AND DEFERRED REVENUE
The Company recognizes revenue from the sale of its software and hardware upon
receipt of an executed sales agreement and shipment to the customer provided
there are no vendor obligations to be fulfilled and collectibility is probable
in accordance with Statement of Position 91-1.
Services revenue includes support, education and consulting services. The
Company provides software support and product upgrades to its customers through
separately priced agreements. These support revenues are recognized on a
straight-line basis over the term of the contract. Revenues from technical
training and consulting services are recognized as provided to customers.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is based upon the pro forma weighted average
number of common and common equivalent shares outstanding for the period. Pro
forma common equivalent shares consist of convertible preferred stock (using the
"if converted" method) and stock options and warrants (using the modified
treasury stock method). In accordance with Securities and Exchange Commission
Staff Accounting Bulletins and staff policy, common and common equivalent shares
issued during the twelve months immediately preceding the initial public
offering are included in the calculation of pro forma net income per share for
all periods presented, using the estimated offering price of $9.25 per share.
Under the modified treasury stock method, the assumed proceeds from the exercise
of stock options and warrants are first applied to the repurchase of 20% of the
shares of common stock outstanding, and are thereafter applied to the reduction
of outstanding debt, with the remaining proceeds invested in short-term
investments. As a result, net income used to calculate net income per share for
the years ended December 31, 1996 and the nine months ended September 30, 1997
has been increased by $117,000 and $110,000, respectively. This increase in pro
forma net income reflects the net of tax effect of the assumed decrease in
interest expense from the assumed retirement of outstanding debt and the assumed
increase in interest income from the assumed investment in short-term
investments.
Because of the significant impact the assumed conversion has on the Company's
capital structure and net income per share, historical net income per share has
been excluded from the financial statements as it is not considered meaningful.
SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE
In January 1997, the Financial Standards Board issued Statement of Financial
Accounting Standards No. 128 ("SFAS No. 128"), "Earning Per Share." SFAS No. 128
specifies new standards designed to improve the earnings per share ("EPS")
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
the comparability of EPS
F-8
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
data. Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic EPS,
with the principal difference being that common stock equivalents are not
considered in computing basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision, and (c) revising the
contingent share provision and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirement.
The supplemental pro forma net income presented on the Statement of Operations
presents EPS determined in accordance with SFAS No. 128 and is based upon the
pro form weighted average number of common and common equivalent shares
outstanding for the period, using the estimated offering price. Pro forma common
equivalent shares consist of convertible preferred stock (using the "if
converted" method) and stock options and warrants (using the treasury stock
method) as prescribed by SFAS No. 128. Under the treasury stock method the
assumed proceeds from the exercise of stock options and warrants are applied
solely to the repurchase of common stock. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997.
The computational method used to determine the Company's supplemental pro forma
net income per share determined in accordance with SFAS No. 128 differs
significantly from the method used to determine pro forma net income per share
in accordance with current generally accepted accounting principles. The effect
of these different computational methods on net income per share varies
depending on the relative level of net income. Earnings per share presented in
the Company's quarterly and annual financial statements at December 31, 1997 and
thereafter will be determined in accordance with SFAS No. 128.
FAIR VALUE OF FINANCIAL INSTRUMENT
The fair value of the Company's financial instruments, which include cash and
cash equivalents and bank notes payable, approximate their carrying value at
December 31, 1995 and 1996 and September 30, 1997. The Company's
commercialization funding obligation (see Note 4), which has a carrying value of
$334,000 and $201,000 at December 31, 1995 and 1996 respectively, has a fair
market value of approximately $449,000 and $254,000 as of those dates and is
estimated based on the current rate offered to the Company on debt with similar
maturities. The commercialization funding obligation was repaid in full on March
31, 1997.
2. COMPUTER SOFTWARE DEVELOPMENT COSTS
During 1994 and 1995, the Company recorded amortization expense for previously
capitalized computer software development costs. As a result of the completion
of the Company's Windows-based product in late 1995, management fully amortized
those costs associated with the predecessor product.
F-9
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Computer equipment........................................... $ 480 $ 763 $ 1,324
Furniture and equipment...................................... 282 406 821
Leasehold improvements....................................... 4 15 130
--------- --------- ------
766 1,184 2,275
Less accumulated depreciation and amortization............... 181 263 537
--------- --------- ------
$ 585 $ 921 $ 1,738
--------- --------- ------
--------- --------- ------
</TABLE>
4. DEBT AND CREDIT AGREEMENTS
LINE OF CREDIT
The Company has a $1,000,000 working capital facility with a bank which had no
amounts outstanding at September 30, 1997. This line of credit expires July 1,
1998. Interest is at the prime rate plus 0.75% (9.25% at September 30, 1997).
EQUIPMENT LINES OF CREDIT
The Company has two equipment lines of credit with a bank totaling $1,000,000.
One line of credit, which expires May 1, 1998, provides for borrowings of up to
$600,000 and had $424,000 outstanding at September 30, 1997. Amounts borrowed
under this line of credit are repayable in equal monthly installments with
interest at the prime rate plus 0.75% (9.25% at September 30, 1997). The other
line of credit provides for borrowings of up to $400,000, expires December 1,
1997 and had no amounts outstanding at September 30, 1997.
LONG TERM OBLIGATIONS
Long-term obligations are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Bank notes payable........................................... $ 279 $ 556 $ 974
Commercialization funding obligation......................... 334 200 --
Other........................................................ 51 37 25
--------- --------- ------
664 793 999
Less current portion......................................... 212 357 266
--------- --------- ------
$ 452 $ 436 $ 733
--------- --------- ------
--------- --------- ------
</TABLE>
F-10
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
4. DEBT AND CREDIT AGREEMENTS (CONTINUED)
Bank notes payable at September 30, 1997 require monthly payments of $22,000,
plus interest at the prime rate plus 1.0% (9.50% at September 30, 1997). The
notes are collateralized by accounts receivable and property and equipment, and
include restrictive covenants, the most significant of which require the Company
to maintain a specified ratio of total liabilities to tangible net worth and
cash flow coverage of interest and principal.
The commercialization funding obligation required monthly principal payments of
$11,000 plus interest at 3%. The effective interest on the obligation was 20%
with the balance of the unpaid interest payable based on Company revenues
following the repayment of principal. This obligation and all accrued interest
was repaid on March 31, 1997. This loan was subordinate to the other borrowings.
Scheduled repayments of long-term obligations as of September 30, 1997 for the
years ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997................................................................................. $ 69
1998................................................................................. 325
1999................................................................................. 333
2000................................................................................. 201
2001................................................................................. 71
---------
$ 999
---------
---------
</TABLE>
5. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock has the same voting and dividend participation
rights as common stock, and has a preference in liquidation over common stock.
Under their provisions, all series of preferred stock will automatically convert
to common stock upon the consummation of an initial public offering in
accordance with their terms or if the holders of not less than 75% of such
preferred shares approve the conversion. Each share of Series A, B, C and D
preferred stock are convertible into one share of common stock. At any time
after the conversion of 63,310 shares of Series A preferred, 204,264 shares of
Series B preferred, 462,114 shares of Series C preferred and 320,000 shares of
Series D preferred, the Company, at its option, may redeem the remaining
outstanding shares of preferred stock at a per share price of $3.06, $3.36,
$4.40 and $2.20 for Series A, B, C and D preferred stock, respectively.
The Series A has a fourth liquidation preference of $2.78 per share, the Series
B has a third liquidation preference up to $1.96 per share and fourth
liquidation preference of $1.098 per share, the Series C has a second
liquidation preference of $4.00 per share and the Series D has a first
liquidation preference of $2.00 per share.
PREFERRED STOCK
Authorized preferred stock not currently designated is issuable in series under
such terms and conditions as the board of directors may determine.
F-11
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK WARRANTS
In conjunction with a 1990 capital lease transaction, the Company issued
warrants that entitle the holders to purchase 14,063 shares of series C
preferred stock through November 1998 at an exercise price of $4.00 per share.
COMMON STOCK OPTIONS
The Company's Stock Option Plan, adopted in 1990 and amended in July 1996,
authorizes the granting of incentive and nonqualified stock options. The Board
of Directors has approved up to an aggregate of 1,600,000 shares for issuance
under this plan. The exercise price of the options must not be less than the
fair market value of the common stock for incentive options, or 85% of the fair
market value for nonqualified options, at the date of grant. Options granted
under the Stock Option Plan generally vest over four years, with 25% exercisable
one year from date of grant and the remaining 75% at the rate of 1/48th of the
amount granted at the end of each succeeding full month. Options granted prior
to 1996 generally expire five years from the date of grant and options granted
subsequently expire ten years from date of grant. The plan terminates in 2001
but may be terminated by the Board of Directors at any time.
At September 30, 1997, options for 325,663 shares of common stock were available
for future grants under the plan.
Activity in the option plan is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1995 1996 1997
---------------------- ----------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- ---------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period................... 294,250 $ 0.24 318,250 $ 0.23 349,325 $ 0.22 856,368 $ 2.45
Granted.................. 61,000 0.20 176,500 0.25 529,500 3.86 254,500 5.91
Exercised................ (33,000) 0.30 (141,031) 0.26 (3,438) 0.20 (30,083) 1.55
Forfeited................ (4,000) 0.30 (4,394) 0.21 (19,019) 1.18 (20,000) 2.55
--------- ---------- --------- ----------
Outstanding at end of
period................... 318,250 0.23 349,325 0.22 856,368 2.45 1,060,785 3.31
--------- ---------- --------- ----------
--------- ---------- --------- ----------
Options exercisable at end
of period................ 247,123 0.23 137,751 0.20 217,622 0.21 399,867 1.61
</TABLE>
F-12
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
Options outstanding at September 30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
NUMBER CONTRACTUAL NUMBER OF SHARES
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE
- ---------------- ----------- --------------- -----------------
<C> <C> <S> <C>
$0.20 275,618 2.58 years 220,234
0.40 30,000 2.93 15,000
3.50 368,167 8.35 145,572
4.40 61,000 8.69 19,061
5.30 74,000 9.17 --
5.75 214,000 9.35 --
6.85 38,000 9.83 --
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting for
its option plan. Accordingly, no compensation cost has been recognized. The
following table presents pro forma net income had compensation cost been
determined based on the fair value at the grant date for awards under the plan
in accordance with Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
Pro forma net income (in thousands).......................... $ 388 $ 1,403 $ 50
Pro forma net income per share............................... .53 .06
</TABLE>
Based on the option-pricing model, the fair value at grant date of options
granted for the years ended December 31, 1995, 1996 and the nine months ended
September 30, 1996 and 1997 was $0.12, $1.84 and $2.81, respectively.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest rate of 6%; expected life of one year beyond vesting date; and
volatility of 60%. In accordance with SFAS No. 123, only options granted in
1995, 1996 and 1997 are included in these calculations and, accordingly, the
disclosures are not likely to be representative of the effect on pro forma net
income for future years because awards vest over several years and the
disclosures do not take into consideration pro forma expense related to grants
made prior to 1995 and additional awards generally are made each year.
F-13
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
6. OPERATING LEASES
The Company has certain commitments, principally for office space, under
long-term operating leases. Future minimum lease payments required under these
noncancellable operating leases as of September 30, 1997 for the years ended
December 31 are as follows (in thousands):
<TABLE>
<S> <C>
Payable in:
1997.............................................................. $ 83
1998.............................................................. 411
1999.............................................................. 450
2000.............................................................. 459
2001.............................................................. 462
Thereafter........................................................ 581
---------
$ 2,446
---------
---------
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997 was $73,000, $142,000, $171,000 and $207,000,
respectively.
7. INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires the
use of the asset and liability approach of accounting for deferred income taxes.
Deferred tax assets and liabilities are recognized on differences between the
book and tax bases of assets and liabilities using presently enacted tax rates.
The provision (benefit) for income taxes is the tax payable or recoverable for
the period and the change during the period in deferred tax assets and
liabilities.
In the fourth quarter of 1996, the Company recorded an income tax benefit of
$1,199,000, reflecting the elimination of the remaining balance of a valuation
allowance which had been established to offset future tax benefits of net
operating loss carryforwards. The valuation allowance was reversed during 1996
based on management's analysis which considered the Company's profitable
operating results and future outlook because of the market acceptance of its
Windows product. As a result of this analysis, management determined it was more
likely than not that the deferred income taxes at December 31, 1996 would be
realized.
F-14
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
The components of the income tax provision (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
------------------------------- ENDED SEPTEMBER
1994 1995 1996 30, 1997
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Current:
Federal........................................... $ -- $ -- $ 4 $ --
State............................................. 5 6 25 8
--------- --------- --------- -----
5 6 29 8
--------- --------- --------- -----
Deferred:
Federal........................................... -- -- (962) 166
State............................................. -- -- (95) 23
--------- --------- --------- -----
-- -- (1,057) 189
--------- --------- --------- -----
$ 5 $ 6 $ (1,028) $ 197
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
The provision for income taxes differs from the federal statutory tax rate as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS
------------------------------- ENDED SEPTEMBER
1994 1995 1996 30, 1997
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Federal tax at statutory rate..................... $ 152 $ 135 $ 197 $ 177
State income tax, net of federal tax benefit...... 17 16 23 21
Non-deductible expenses........................... 4 7 14 15
Research and experimentation credit............... -- -- (97) (20)
Reduction in valuation allowance.................. (169) (155) (1,199) --
Other............................................. (1) 3 34 4
--------- --------- --------- -----
$ 5 $ 6 $ (1,028) $ 197
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
F-15
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward............................................ $ 1,159 $ 919 $ 611
Research and experimentation tax credits carry forward..................... -- 97 117
Accounts receivable allowance.............................................. 34 70 83
Accrued vacation pay....................................................... 7 23 64
Deferred revenue........................................................... 32 17 80
Accrued interest expense................................................... -- 16 --
Other...................................................................... 1 4 11
--------- --------- -----
1,233 1,146 966
--------- --------- -----
Deferred tax liabilities:
Depreciation............................................................... (34) (54) (63)
Deferred state tax......................................................... -- (35) (35)
--------- --------- -----
(34) (89) (98)
--------- --------- -----
Valuation allowance.......................................................... (1,199) -- --
--------- --------- -----
Total...................................................................... $ -- $ 1,057 $ 868
--------- --------- -----
--------- --------- -----
Recorded as:
Current deferred income tax asset.......................................... $ -- $ 554 $ 393
Long-term deferred income tax asset........................................ -- 503 475
--------- --------- -----
$ -- $ 1,057 $ 868
--------- --------- -----
--------- --------- -----
</TABLE>
As of September 30, 1997, the Company had net operating loss carryforwards for
income tax reporting purposes which expire as follows (in thousands):
<TABLE>
<S> <C>
2005........................................................ $ 176
2006........................................................ 1,145
2007........................................................ 298
2008........................................................ 281
---------
$ 1,900
---------
</TABLE>
The Company also has research and experimentation tax credits of $117,000 which
expire commencing in 2009.
8. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan which is qualified under Section 401(k)
of the Internal Revenue Code. This plan covers substantially all employees who
meet minimum age requirements and allows participants to defer a portion of
their annual compensation on a pre-tax basis. Company
F-16
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
8. EMPLOYEE SAVINGS PLAN (CONTINUED)
contributions to the plan may be made at the discretion of the Board of
Directors. No Company contributions had been made through December 31, 1995. The
Board of Directors approved a matching contribution of 25% of the first 6% of
employee contributions beginning January 1996. The Company's matching
contribution to the savings plan was $39,000 in 1996 and $53,000 in the nine
months ended September 30, 1997.
9. SUBSEQUENT EVENTS (UNAUDITED)
In October 1997, the Company initiated an initial public offering of its common
stock. Upon completion of this offering, all of the Company's outstanding
convertible preferred stock will convert into an aggregate of 1,479,824 shares
of its common stock.
The pro forma shareholders' equity as of September 30, 1997 is presented on the
face of the balance sheet to reflect the pro forma automatic conversion of the
Company's outstanding convertible preferred stock as if the transaction had
occurred at that date.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR, THE SELLING SHAREHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
BY THIS PROSPECTUS OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 11
Dilution.................................................................. 12
Capitalization............................................................ 13
Selected Financial Data................................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 16
Business.................................................................. 24
Management................................................................ 36
Principal and Selling Shareholders........................................ 43
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 47
Underwriting.............................................................. 49
Legal Matters............................................................. 51
Experts................................................................... 51
Additional Information.................................................... 51
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THE
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,250,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
FIRST ALBANY CORPORATION
VAN KASPER & COMPANY
RVR SECURITIES CORP.
DECEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
The following is a statement of the estimated expenses to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Securities and Exchange Commission Registration fee............................... $ 7,841
National Association of Securities Dealers, Inc. fee.............................. 3,088
Nasdaq National Market listing fee................................................ 16,500
Printing and engraving expenses................................................... 125,000
Legal fees and expenses........................................................... 150,000
Accounting fees and expenses...................................................... 125,000
Blue Sky fees and expenses (including fees of counsel)............................ 25,000
Transfer agent and registrar fees and expenses.................................... 5,000
Miscellaneous..................................................................... 92,571
----------
Total......................................................................... $ 550,000
----------
----------
</TABLE>
* All of the above items, except the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. fee
and the Nasdaq fee, are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Business Corporation Law ("IBCL"), the provisions of which govern
the Registrant, empowers an Indiana corporation to indemnify present and former
directors, officers, employees, or agents or any person who may have served at
the request of the corporation as a director, officer, employee, or agent of
another corporation ("Eligible Persons") against liability incurred in any
proceeding, civil or criminal, in which the Eligible Person is made a party by
reason of being or having been in any such capacity, or arising out of his
status as such, if the individual acted in good faith and reasonably believed
that (a) the individual was acting in the best interests of the corporation, or
(b) if the challenged action was taken other than in the individual's official
capacity as an officer, director, employee or agent, the individual's conduct
was at least not opposed to the corporation's best interests, or (c) if in a
criminal proceeding, either the individual had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe his conduct was unlawful.
The IBCL further empowers a corporation to pay or reimburse the reasonable
expenses incurred by an Eligible Person in connection with the defense of any
such claim, including counsel fees; and, unless limited by its Articles of
Incorporation, the corporation is required to indemnify an Eligible Person
against reasonable expenses if he is wholly successful in any such proceeding,
on the merits or otherwise. Under certain circumstances, a corporation may pay
or reimburse an Eligible Person for reasonable expenses prior to final
disposition of the matter. Unless a corporation's articles of incorporation
otherwise provide, an Eligible Person may apply for indemnification to a court
which may order indemnification upon a determination that the Eligible Person is
entitled to mandatory indemnification for reasonable expenses or that the
Eligible Person is fairly and reasonably entitled to indemnification in view of
all the relevant circumstances without regard to whether his actions satisfied
the appropriate standard of conduct.
Before a corporation may indemnify any Eligible Person against liability or
reasonable expenses under the IBCL, a quorum consisting of directors who are not
parties to the proceeding must (1) determine that indemnification is permissible
in the specific circumstances because the Eligible Person met the requisite
II-1
<PAGE>
standard of conduct, (2) authorize the corporation to indemnify the Eligible
Person and (3) if appropriate, evaluate the reasonableness of expenses for which
indemnification is sought. If it is not possible to obtain a quorum of
uninvolved directors, the foregoing action may be taken by a committee of two or
more directors who are not parties to the proceeding, special legal counsel
selected by the Board or such a committee, or by the shareholders of the
corporation.
In addition to the foregoing, the IBCL states that the indemnification it
provides shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any provision of the articles of incorporation
or bylaws, resolution of the board of directors or shareholders, or any other
authorization adopted after notice by a majority vote of all the voting shares
then issued and outstanding. The IBCL also empowers an Indiana corporation to
purchase and maintain insurance on behalf of any Eligible Person against any
liability asserted against or incurred by him in any capacity as such, or
arising out of his status as such, whether or not the corporation would have had
the power to indemnify him against such liability.
Reference is made to Article 9 of the Articles of Incorporation of the
Registrant concerning indemnification of directors, officers, employees and
agents.
The Registrant may obtain directors' and officers' liability insurance, the
effect of which will be to indemnify the directors and officers of the
corporation and its subsidiaries against certain losses caused by errors,
misleading statements, wrongful acts, omissions, neglect or breach of duty by
them or any matter claimed against them in their capacities as directors and
officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has issued the following securities during the three year period
ending October 17, 1997:
1. An aggregate of 164,052 shares of Common Stock were issued to 19 key
employees, former employees and members of the Registrant's Board of Directors
at various times upon the exercise of options granted pursuant to the
Registrant's Stock Option Plan for consideration equal to the fair market value
of the shares purchased on the date of the option grant. The issuances of these
shares of Common Stock were exempt from registration under the Securities Act by
reason of Rule 701 of the Securities and Exchange Commission and Section 4(2)
thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
The list of exhibits is incorporated herein by reference to the Index to
Exhibits on pages E-1 through E-2.
(b) FINANCIAL STATEMENT SCHEDULES:
The following Schedule is filed as part of this Registration Statement:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the financial statements and notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
II-2
<PAGE>
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification for such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liabilities under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus to be filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Indianapolis, State of
Indiana, on the 24th day of November, 1997.
<TABLE>
<S> <C> <C>
MADE2MANAGE SYSTEMS, INC.
By: /s/ DAVID B. WORTMAN
-----------------------------------------
David B. Wortman
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ DAVID B. WORTMAN Officer and Director
- ------------------------------ (Principal Executive November 24, 1997
David B. Wortman Officer)
Vice President, Finance
and Administration,
/s/ STEPHEN R. HEAD* Chief Financial Officer,
- ------------------------------ Secretary and Treasurer November 24, 1997
Stephen R. Head (Principal Financial
Officer and Principal
Accounting Officer)
/s/ IRA CORON*
- ------------------------------ Chairman of the Board of November 24, 1997
Ira Coron Directors
/s/ GREGORY F. EHLINGER*
- ------------------------------ Director November 24, 1997
Gregory F. Ehlinger
/s/ STANDISH H. O'GRADY*
- ------------------------------ Director November 24, 1997
Standish H. O'Grady
*Signed /s/ DAVID B. WORTMAN
By: -------------------------
David B. Wortman
ATTORNEY-IN-FACT
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Made2Manage Systems, Inc.
In connection with our audits of the financial statements of Made2Manage
Systems, Inc. as of December 31, 1995 and 1996 and September 30, 1997, and for
each of the three years in the period ended December 31, 1996 and the nine
months ended September 30, 1997, which financial statements are included in the
Prospectus, we have also audited the financial statement schedules listed in
Item 16b herein.
In our opinion, these financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Indianapolis, Indiana
November 12, 1997
S-1
<PAGE>
MADE2MANAGE SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
------------------------
CHARGED CHARGED
BALANCE AT TO COSTS TO BALANCE
BEGINNING AND SUPPORT AT THE END
DESCRIPTION OF PERIOD EXPENSES REVENUE DEDUCTIONS OF PERIOD
- --------------------------------------------------- --------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts.................. $ 46 $ 132 $ -- $ (103) $ 75
Year Ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts.................. $ 75 $ 90 $ -- $ (73) $ 92
Year Ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts.................. $ 92 $ 140 $ -- $ (44) $ 188
Nine Months Ended September 30, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts.................. $ 188 $ 165 $ 115 $ (212) $ 256
</TABLE>
S-2
<PAGE>
MADE2MANAGE SYSTEMS, INC.
REGISTRATION STATEMENT
ON
FORM S-1
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER ASSIGNED IN EXHIBIT
REGULATION S-K ITEM 601 NUMBER DESCRIPTION OF EXHIBIT
- ----------------------- ----------- ------------------------------------------------------------------------------------
<S> <C> <C>
(1) 1.1 Form of Underwriting Agreement
(2) No Exhibit
(3) 3.1 Amended and Restated Articles of Incorporation of Made2Manage Systems, Inc.
3.2 Amended and Restated Code of By-Laws of Made2Manage Systems, Inc.
(4) 4.1 Specimen Stock Certificate for Common Stock
4.2 See Exhibits 3.1 and 3.2
(5) 5.1 Opinion of Ice Miller Donadio & Ryan
(8) No Exhibit
(9) No Exhibit
(10) 10.1 [Intentionally deleted and not replaced.]
10.2 [Intentionally deleted and not replaced.]
10.3 Abra Cadabra Software Reseller Agreement between Abra Cadabra Software, Inc. and
Made2Manage Systems, Inc., dated August 1, 1995*
10.4 License Agreement by and between Sourcemate Information Systems, Inc. and Teksyn,
Inc. dated April 1, 1986*
10.5 Term Loan Agreement by and between NBD Bank, N.A. and Teksyn, Inc. dated March 20,
1995, in the amount of $112,500.00*
10.6 Installment Business Loan Note by and between NBD Bank, N.A. and Teksyn, Inc. dated
March 20, 1995, in the amount of $112,500.00*
10.7 [Intentionally deleted and not replaced.]
10.8 [Intentionally deleted and not replaced.]
10.9 Business Credit Note by and between NBD Bank, N.A. and Made2Manage Systems, Inc.
dated September 27, 1995, in the amount of $212,500.00*
10.10 Business Credit Note by and between NBD Bank, N.A. and Made2Manage Systems, Inc.
dated March 27, 1996, in the amount of $510,000.00*
10.11 First Amendment to Credit Agreement by and between NBD Bank, N.A. and Made2Manage
Systems, Inc. dated September 27, 1995*
10.12 Second Amendment to Credit Agreement by and between NBD Bank, N.A. and Made2Manage
Systems, Inc. dated March 27, 1996*
10.13 Third Amendment to Credit Agreement by and between NBD Bank, N.A. and Made2Manage
Systems, Inc. dated June 25, 1996*
10.14 Extension Agreement by and between NBD Bank, N.A. and Made2Manage Systems, Inc.
dated January 14, 1997*
10.15 Continuing Security Agreement by and between NBD Bank, N.A. and Made2Manage Systems,
Inc. dated March 20, 1995*
10.16 Form of Made2Manage Systems, Inc. Stock Option Agreement
10.17 Made2Manage Systems, Inc. Employee Stock Option Plan
10.18 Fourth Amendment to Credit Agreement by and between NBD Bank, N.A. and Made2Manage
Systems, Inc. dated May 14, 1997
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER ASSIGNED IN EXHIBIT
REGULATION S-K ITEM 601 NUMBER DESCRIPTION OF EXHIBIT
- ----------------------- ----------- ------------------------------------------------------------------------------------
<S> <C> <C>
10.19 Master Demand Business Loan Note by and between NBD Bank, N.A. and Made2Manage
Systems, Inc. dated May 14, 1997, in the amount of $1,000,000
10.20 Installment Business Loan Note by and between NBD Bank, N.A. and Made2Manage
Systems, Inc. dated May 14, 1997, in the amount of $600,000
10.21 Continuing Security Agreement by and between NBD Bank, N.A. and Made2Manage Systems,
Inc. dated June 25, 1996
10.22 Made2Manage Systems, Inc. Employee Stock Purchase Plan
10.23 Third Amended and Restated Modification Agreement
10.24 Credit Agreement by and between NBD Bank, N.A. and Teksyn, Inc., dated June 9, 1995
(11) 11.1 Statement Regarding Computation of Per Share Earnings*
(12) No Exhibit
(15) No Exhibit
(16) No Exhibit
(21) No Exhibit
(23) 23.1 Consent of Ice Miller Donadio & Ryan (included in Exhibit 5.1)
23.2 Consent of Coopers & Lybrand L.L.P., independent public accountants
(24) See Signature Page
(25) No Exhibit
(26) No Exhibit
(27) 27.1 Financial Data Schedule*
(99) No Exhibit
</TABLE>
- ------------------------
* Previously filed
E-2
<PAGE>
OHS DRAFT 11/21/97
MADE2MANAGE SYSTEMS, INC.
2,250,000 Shares of Common Stock*
UNDERWRITING AGREEMENT
__________ __, 1997
First Albany Corporation
Van Kasper & Company
RvR Securities Corp.,
As Representatives of
the several Underwriters
c/o First Albany Corporation
One Penn Plaza, 42nd Floor
New York, NY 10119
Ladies and Gentlemen:
Section 1. INTRODUCTORY. Made2Manage Systems, Inc., an Indiana
corporation (the "Company"), has an authorized capital stock consisting of
10,000,000 shares, no par value, of Common Stock ("Common Stock") and
3,662,111 shares, no par value, of Preferred Stock, of which 1,479,824 shares
were outstanding as of October 15, 1997. The Company, and the persons named
in Schedule II (the "Primary Selling Shareholders"), propose to sell
2,250,000 shares (the "Firm Shares") of Common Stock, of which 2,050,000
shares are to be issued and sold by the Company and 200,000 shares are to be
sold by the Primary Selling Shareholders to the several underwriters named in
Schedule I (the "Underwriters"), who are acting severally and not jointly.
In addition, certain persons named in Schedule III (the "Option Selling
Shareholders") propose to grant to the Underwriters an option to purchase up
to 337,500 additional shares of Common Stock ("Option Shares"), in the
respective amounts set forth opposite their respective names in Schedule III,
as provided in Section 5 hereof. The Firm Shares and, to the extent such
option is exercised, the Option Shares, are hereinafter collectively referred
to as the "Shares." The Primary Selling Shareholders and the Option Selling
Shareholders are hereinafter collectively referred to as the "Selling
Shareholders." Each Selling Shareholder has executed and delivered a Custody
Agreement and a Power of Attorney in the form attached hereto as Exhibit A
(collectively, the "Custody Agreement and Power of Attorney") pursuant to
which each Selling Shareholder has placed his Shares in custody and appointed
the persons designated therein as a committee (the "Committee") with
authority to execute and deliver this Agreement on behalf of such Selling
Shareholder and to take certain other actions with respect thereto and hereto.
- ----------------------------
*Plus an option to acquire up to 337,500 additional shares to cover
over-allotments.
<PAGE>
You have advised the Company that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon as you
deem advisable after the registration statement hereinafter referred to
becomes effective, if it has not already yet become effective. You have also
advised the Company that the Underwriters will offer and sell the Shares to
the public only in those jurisdictions, and in such amounts, where due
qualification and/or registration has been effected or an exemption from such
qualification and/or registration is available under the applicable
securities or blue sky laws of such jurisdiction.
The Company and the Selling Shareholders hereby confirm their agreement with
the Underwriters as follows:
Section 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents, warrants and covenants to each Underwriter that:
(a) The Company meets the requirements for use of Form S-1 and a
registration statement (Registration No. 333-38177) on Form S-1 relating to
the Shares, including a preliminary prospectus and such amendments to such
registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder, and has been filed
with the Commission. The term "preliminary prospectus" as used herein means
a preliminary prospectus as contemplated by Rule 430 or Rule 430A of the
Rules and Regulations included at any time as part of the registration
statement. Copies of such registration statement and amendments and of each
related preliminary prospectus have been delivered to the Representatives.
If such registration statement has not become effective, a further amendment
to such registration statement, including a form of final prospectus,
necessary to permit such registration statement to become effective will be
filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule 430A of the
Rules and Regulations will be filed promptly by the Company with the
Commission in accordance with Rule 424(b) of the Rules and Regulations. The
term "Registration Statement" means the registration statement as amended at
the time it becomes or became effective (the "Effective Date"), including
financial statements and all exhibits and any information deemed to be
included by Rule 430A. The term "Prospectus" means the prospectus as first
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no such filing is required, the form of final prospectus
included in the Registration Statement at the Effective Date.
(b) On the Effective Date, the date the Prospectus is first filed
with the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date (as defined herein) and, if
later, the Option Closing Date (as defined herein) and when any
post-effective amendment to the Registration Statement becomes effective or
any amendment or supplement to the Prospectus is filed with the Commission,
the Registration Statement and the Prospectus (as amended or supplemented if
the Company shall have filed with the Commission any amendment or supplement
thereto) did or will comply with all applicable provisions of the Act and the
Rules and Regulations and will contain all statements required to be
2
<PAGE>
stated therein in accordance with the Act and the Rules and Regulations. On
the Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement, the
Prospectus or any such amendment or supplement did or will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. At the
Effective Date, the date the Prospectus or any amendment or supplement to the
Prospectus is filed with the Commission and at the Closing Date and, if
later, the Option Closing Date, the Prospectus did not or will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The foregoing representations and
warranties in this Section 2(b) do not apply to any statements or omissions
made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives or
relating to any Selling Shareholder furnished in writing to the Company by
such Selling Shareholder specifically for inclusion in the Registration
Statement or Prospectus or any amendment or supplement thereto. The Company
acknowledges that (i) the information on the cover page of the Prospectus
with respect to price, underwriting discounts and commissions, the terms of
the offering and (ii) the statements set forth under the heading
"Underwriting" in the Prospectus constitute the only information relating to
any Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement.
(c) The Company is, and at the Closing Date will be, a corporation
duly organized, and validly existing under the laws of its jurisdiction of
incorporation. The Company has, and at the Closing Date will have, full
power and authority to conduct all the activities conducted by it, to own or
lease all the assets owned or leased by it and to conduct its business as
described in the Registration Statement and the Prospectus. The Company is,
and at the Closing Date will be, duly licensed or qualified to do business
and in good standing as a foreign corporation in all jurisdictions in which
the nature of the activities conducted by it or the character of the assets
owned or leased by it makes such license or qualification necessary, except
where the failure to be so qualified would not have a material adverse effect
on the business, business prospects, financial condition or results of
operations of the Company ("Material Adverse Effect"). The Company does not
own, and at the Closing Date will not own, directly or indirectly, any shares
of stock or any other equity or long-term debt securities of any corporation
or have any equity interest in any firm, partnership, joint venture,
association or other entity. Complete and correct copies of the articles of
incorporation and of the by-laws of the Company and all amendments thereto
have been delivered to the Representatives, and no changes therein will be
made subsequent to the date hereof and prior to the Closing Date or, if
later, the Option Closing Date.
(d) The outstanding shares of Common Stock have been, and the
Shares to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and will not be
subject to any preemptive or similar right. The description of the Common
Stock in the Registration Statement and the Prospectus is, and at the Closing
Date will be, complete and accurate in all respects. Except as set forth in
the Prospectus, the Company does not have outstanding, and at the Closing
Date will not have outstanding, any options to purchase, or any rights or
warrants to subscribe for, or any securities
3
<PAGE>
or obligations convertible into, or any contracts or commitments to issue or
sell, any shares of Common Stock, any shares of capital stock of any
subsidiary or any such warrants, convertible securities or obligations.
(e) The financial statements and schedules included in the
Registration Statement or the Prospectus present fairly in all material
respects the financial condition of the Company as of the respective dates
thereof and the results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire
period involved, except as otherwise disclosed in the Prospectus. No other
financial statements or schedules of the Company are required by the Act or
the Rules and Regulations to be included in the Registration Statement or the
Prospectus. Coopers & Lybrand, L.L.P., (the "Accountants") who have reported
on such financial statements and schedules, are independent accountants with
respect to the Company as required by the Act and the Rules and Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been
any change in the capitalization of the Company, or in the business,
properties, business prospects, condition (financial or otherwise) or results
of operations of the Company arising for any reason whatsoever which could
have a Material Adverse Effect, (ii) the Company has not incurred nor will it
incur any material liabilities or obligations, direct or contingent, nor has
it entered into nor will it enter into any material transactions other than
in the ordinary course of business or pursuant to this Agreement and the
transactions referred to herein and (iii) the Company has not and will not
have paid or declared any dividends or other distributions of any kind on any
class of its capital stock.
(g) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended.
(h) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
of its respective officers in their capacity as such, before or by any
Federal or state court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding might have a Material Adverse Effect.
(i) The Company has, and at the Closing Date will have, (i) all
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to carry on its business as contemplated in the
Prospectus, (ii) complied in all respects with all laws, regulations and
orders applicable to it or its business and (iii) performed all its
obligations required to be performed by it, and is not, and at the Closing
Date will not be, in default, under any contract or other instrument to which
it is a party or by which its property is bound or affected and, to the
knowledge of the Company, there does not exist any state of facts which
constitutes an event of default as defined in such contract or instrument or
which, with notice or lapse of time or both,
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would constitute such an event of default, except, in each case, where such
failure or default would not have a Material Adverse Effect. To the
knowledge of the Company, no other party under any contract or other
instrument to which it is a party is in default in any respect thereunder.
The Company is not, nor at the Closing Date will be, in violation of any
provision of its articles of incorporation or by-laws.
(j) No consent, approval, authorization or order of, or any filing
or declaration with, any court or governmental agency or body is required for
the execution of this Agreement or the consummation by the Company of the
transactions on its part herein contemplated, except such as have been
obtained under the Act or the Rules and Regulations and such as may be
required under state securities or Blue Sky laws or the by-laws and rules of
the National Association of Securities Dealers, Inc. (the "NASD") in
connection with the purchase and distribution by the Underwriters of the
Shares to be sold by the Company.
(k) The Company has full corporate power and authority to enter
into this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and assuming the due authorization, execution and
delivery of this Agreement by the Representatives constitutes a valid and
binding agreement of the Company and is enforceable against the Company in
accordance with the terms hereof subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles and except as rights to indemnity and contribution
hereunder may be limited by applicable law. The performance of this Agreement
and the consummation of the transactions contemplated hereby will not result
in the creation or imposition of any lien, charge or encumbrance upon any of
the assets of the Company pursuant to the terms or provisions of, or result
in a breach or violation of any of the terms or provisions of, or constitute
a default under, or result in the acceleration of any obligation under, the
articles of incorporation or by-laws of the Company, any indenture, mortgage,
deed of trust, voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company is a party or by which the
Company or any of its properties is bound or affected, except, where any such
lien, charge or encumbrance, breach or violation, default, or acceleration
would not have a Material Adverse Effect, or violate or conflict with any
judgment, ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company except where any such violation or conflict would not have a
Material Adverse Effect.
(l) There are no holders of securities of the Company having
preemptive rights to purchase Common Stock.
(m) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as are described in
the Prospectus or except for those which would not have a Material Adverse
Effect. The Company has valid, subsisting and enforceable leases for the
properties described in the Prospectus as leased by it, with such exceptions
as are not material and do not materially interfere with the use made and
proposed to be made of such properties by the Company.
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(n) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company is a party have been duly
authorized, executed and delivered by the Company, constitute valid and
binding agreements of the Company and are enforceable against the Company in
accordance with the terms thereof subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(o) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Representatives was or will be, when
made, inaccurate, untrue or incorrect.
(p) Neither the Company nor any or its directors, officers or
controlling persons has taken, directly or indirectly, any action designed,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(q) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement
under the Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in
the securities registered pursuant to a Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act.
(r) Prior to the Effective Date, the Shares will be duly authorized
for listing by the Nasdaq National Market, upon official notice of issuance.
(s) To the Company's knowledge, none of the trademarks, trade
names, service marks, service names, copyrights, patents and patent
applications, and none of the licenses and rights to the foregoing, presently
owned or held by the Company are in dispute or are in conflict with the right
of any other person or entity. The Company (i) owns or has the right to use,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
all trademarks, trade names, service marks, service names, copyrights,
patents and patent applications, and licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed
to be conducted and, to the knowledge of the Company, the foregoing do not
infringe upon or otherwise adversely affect the right or claimed right of any
person, corporation or other entity under or with respect to any of the
foregoing and (ii) is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any trademark, trade name, service mark, service
name, copyright, patent or patent application except as set forth in the
Registration Statement or the Prospectus. There is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental
or other proceeding, domestic or foreign, pending or, to the knowledge of the
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Company, threatened (or circumstances that may give rise to the same) against
the Company which challenges the exclusive rights of the Company with respect
to any trademarks, trade names, service marks, service names, copyrights,
patents, patent applications or licenses or rights to the foregoing used in
the conduct of its business.
(t) No labor dispute with the employees of the Company exists or,
to the best knowledge of the Company, is imminent that might have a Material
Adverse Effect.
(u) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE SELLING
SHAREHOLDERS. Each Selling Shareholder, severally and not jointly,
represents, warrants and covenants to each Underwriter that:
(a) Such Selling Shareholder has full power and authority to enter
into this Agreement and the Custody Agreement and Power of Attorney. All
authorizations and consents necessary for the execution and delivery by such
Selling Shareholder of the Custody Agreement and Power of Attorney, and for
the execution of this Agreement on behalf of such Selling Shareholder, have
been given. Each of the Custody Agreement and Power of Attorney and this
Agreement has been duly authorized, executed and delivered by or on behalf of
such Selling Shareholder and, assuming the due authorization, execution and
delivery by the Representatives constitutes a valid and binding agreement of
such Selling Shareholder and is enforceable against such Selling Shareholders
in accordance with the terms thereof and hereof subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles and except as rights to indemnity and contribution
hereunder may be limited by applicable law.
(b) Such Selling Shareholder now has, and at the time of delivery
thereof hereunder will have, (i) good and marketable title to the Shares to
be sold by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances and claims whatsoever (other than pursuant to the Custody
Agreement and Power of Attorney) and (ii) full legal right and power, and all
authorizations and approvals required by law, to sell, transfer and deliver
such Shares to the Underwriters hereunder and to make the representations,
warranties and agreements made by such Selling Shareholder herein. Upon the
delivery of and payment for such Shares hereunder, such Selling Shareholder
will deliver good and marketable title thereto, free and clear of all liens,
encumbrances and claims whatsoever.
(c) On the Closing Date or Option Closing Date, as the case may be,
all stock transfer or other taxes (other than income taxes) which are
required to be paid in connection with the sale and transfer of the shares to
be sold by such Selling Shareholder to the several Underwriters hereunder
will have been fully paid or provided for by such Selling Shareholder and all
laws imposing such taxes will have been fully complied with.
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(d) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of such
Selling Shareholder pursuant to the terms or provisions of, or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or result in the acceleration of any obligation under, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which such Selling Shareholder
is a party or by which such Selling Shareholder or any of its property is
bound or affected, or under any ruling, decree, judgment, order, statute,
rule or regulation of any court or other governmental agency or body having
jurisdiction over such Selling Shareholder or the property of such Selling
Shareholder.
(e) No consent, approval, authorization or order of, or any filing
or declaration with, any court or governmental agency or body is required for
the consummation by such Selling Shareholder of the transactions on its part
contemplated herein and in the Custody Agreement and Power of Attorney,
except such as have been obtained under the Act or the Rules and Regulations
and such as may be required under state securities or Blue Sky laws or the
by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by such Selling
Shareholder.
(f) Such Selling Shareholder has no knowledge of any material fact
or condition not set forth in the Registration Statement or Prospectus which
has adversely affected, or may have a Material Adverse Effect, and the sale
of the Shares proposed to be sold by such Selling Shareholder is not prompted
by any such knowledge.
(g) All information with respect to such Selling Shareholder
contained in the Registration Statement and the Prospectus (as amended or
supplemented, if the Company shall have filed with the Commission any
amendment or supplement thereto) complied and will comply with all applicable
provisions of the Act and the Rules and Regulations, contains and will
contain all statements required to be stated therein in accordance with the
Act and the Rules and Regulations, and does not and will not contain an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(h) Other than as permitted by the Act and the Rules and
Regulations, such Selling Shareholder has not distributed and will not
distribute any preliminary prospectus, the Prospectus or any other offering
material in connection with the offering and sale of the Shares. Such
Selling Shareholder has not taken, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or result in, under
the Act or otherwise, or which has caused or resulted in, stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares.
(i) Certificates in negotiable form for the Shares to be sold
hereunder by such Selling Shareholder have been placed in custody, for the
purpose of making delivery of such Shares under this Agreement, under the
Custody Agreement and Power of Attorney which appoints David B. Wortman and
Stephen R. Head as custodian (the "Custodian") for each Selling
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<PAGE>
Shareholder. Such Selling Shareholder agrees that the Shares represented by
the certificates held in custody for him or it under the Agreement and Power
of Attorney are for the benefit of and coupled with and subject to the
interest hereunder of the Custodian, the Committee, the Underwriters, each
other Selling Shareholder and the Company, that the arrangements made by such
Selling Shareholder for such custody and the appointment of the Custodian and
the Committee by such Selling Shareholder are irrevocable, and that the
obligations of such Selling Shareholder hereunder shall not be terminated by
operation of law, whether by the death, disability, incapacity or liquidation
of any Selling Shareholder or the occurrence of any other event. If any
Selling Shareholder should die, become disabled or incapacitated or is
liquidated or if any other such event should occur before the delivery of the
Shares hereunder, certificates for the Shares shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement and
actions taken by the Committee and the Custodian pursuant to the Agreement
and Power of Attorney shall be as valid as if such death, liquidation,
incapacity or other event had not occurred, regardless of whether or not the
Custodian or the Committee, or either of them, shall have received notice
thereof.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS. The
Representatives, on behalf of the several Underwriters, represent and warrant
to the Company that the information set forth (a) on the cover page of the
Prospectus with respect to price, underwriting discounts and commissions and
terms of the offering and (b) under "Underwriting" in the Prospectus was
furnished to the Company by and on behalf of the Underwriters for use in
connection with the preparation of the Registration and is correct and
complete in all material respects.
Section 5. AGREEMENT TO SELL AND PURCHASE.
(a) The Company and each of the Primary Selling Shareholders,
severally and not jointly, agree to sell to the Underwriters named in
Schedule I, and upon the basis of the respective representations, warranties
and agreements of the Company and the Primary Selling Shareholders herein
contained and subject to all the terms and conditions of this Agreement, each
Underwriter agrees, severally and not jointly, to purchase from the Company
and the Primary Selling Shareholders, at a purchase price of $_____ per
share of Common Stock, the respective number of Firm Shares set forth
opposite its name on Schedule I.
(b) Subject to all the terms and conditions of this Agreement, the
Option Selling Shareholders grant the Option to the several Underwriters to
purchase, severally and not jointly, up to 337,500 Option Shares at the same
price per share as the Underwriters shall pay for the Firm Shares. The
Option may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters and may be exercised in whole or in part at any
time (but not more than once) on or before the 45th day after the date of
this Agreement upon written or telegraphic notice (the "Option Shares
Notice") by the Representatives to the Company no later than 12:00 noon, New
York City time, at least two and no more than five business days before the
date specified for closing on the Option Shares Notice (the "Option Closing
Date") setting forth the aggregate number of Option Shares to be purchased
and the time and date for such purchase. On the Option Closing Date, the
Option Selling Shareholders will sell to the Underwriters the number of
Option Shares set forth in the Option Shares Notice, and each
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<PAGE>
Underwriter will purchase such percentage of the Option Shares as is equal to
the percentage of Firm Shares that such Underwriter is purchasing, as
adjusted by the Representatives in such manner as they deem advisable to
avoid fractional Shares.
Section 6. DELIVERY AND PAYMENT. Delivery of the Firm Shares shall be
made to the Representatives for the accounts of the Underwriters against
payment of the purchase price by certified or official bank checks payable in
same day funds to the order of each of the Company and the Selling
Shareholders at the office of First Albany Corporation, New York, New York or
through the facilities of the Depository Trust Company for the accounts of
the several underwriters at 10:00 a.m., New York City time, on the third
business day following the date of this Agreement, or at such time on such
other date, not later than seven calendar days after the date of this
Agreement, as may be agreed upon by the Company and the Representatives (such
date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and
date (which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and shall
be registered in such names and in such denominations as the Representatives
shall request at least two (2) business days prior to the Closing Date or the
Option Closing-Date, as the case may be, by written notice to the Company.
For the purpose of expediting the checking and packaging of certificates for
the Shares, the Company agrees to make such certificates available for
inspection at least 24 hours prior to the Closing Date or the Option Closing
Date, as the case may be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Firm Shares by the Company to the respective
Underwriters shall be borne by the Company. The cost of tax stamps, if any,
in connection with the sale of the Shares by the Selling Shareholders shall
be borne by the Selling Shareholders. The Company and the Selling
Shareholders will pay and save each Underwriter and any subsequent holder of
the Shares harmless from any and all liabilities with respect to or resulting
from any failure or delay in paying Federal and state stamp and other
transfer taxes, if any, which may be payable or determined to be payable in
connection with the original issuance or sale to such Underwriter of the Firm
Shares and Option Shares.
Section 7. AGREEMENTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
The Company and the Selling Shareholders agree, severally and not jointly,
with the several Underwriters as follows:
(a) If the Effective Date of the Registration Statement is prior to
the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by First Albany
Corporation, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date.
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(b) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing
thereof and the Representatives shall not have objected thereto in good faith.
(c) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly,
and will confirm such advice in writing, (1) when the Registration Statement
has become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the Commission for amendments or supplements
to the Registration Statement or Prospectus or for additional information,
(3) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose or the threat thereof, (4) of the happening of
any event during the period mentioned in the second sentence of Section 7(e)
that in the judgment of the Company makes any statement made in the
Registration Statement or the Prospectus untrue or that requires the making
of any changes in the registration Statement or Prospectus in order to make
the statements therein, in light of the circumstances in which they are made,
not misleading, and (5) of receipt by the Company or any representative or
attorney of the Company of any other communication from the Commission
relating to the Company, the Registration Statement, any preliminary
prospectus or the Prospectus. If at any time the Commission shall issue any
order suspending the effectiveness of the Registration Statement, the Company
will make every reasonable effort to obtain the withdrawal of such order at
the earliest possible moment. If the Company has omitted any information
from the Registration Statement pursuant to Rule 430A of the Rules and
Regulations, the Company will use its best efforts to comply with the
provisions of and make all requisite filings with the Commission pursuant to
said Rule 430A and to notify the Representatives promptly of all such filings.
(d) The Company will furnish to the Representatives, without
charge, two signed copies of the Registration Statement and of any
post-effective amendment thereto, including financial statements and
schedules, and all exhibits thereto, and will furnish to the Representatives,
without charge, for transmittal to each of the other Underwriters, a copy of
the Registration Statement and any post-effective amendment thereto,
including financial statements and schedules but without exhibits.
(e) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(f) During such period as a prospectus is required by law to be
delivered in connection with offers and sales of the Shares by an
Underwriter, the Company will deliver to each of the Underwriters, without
charge, as many copies of the Prospectus or any amendment or supplement
thereto as the Representatives may reasonably request. The Company consents
to the use of the Prospectus or any amendment thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be
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delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or counsel to the
Underwriters should be set forth in the Prospectus in order to make any
statement therein, in light of the circumstances under which it was made, not
misleading, or if it is necessary to supplement or amend the Prospectus to
comply with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement or amendment thereto, and will deliver
to each of the Underwriters, without charge, such number of copies thereof as
the Representatives may reasonably request.
(g) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
shareholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date) that will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes such Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end
of such fourth fiscal quarter.
(h) Prior to any public offering of the Shares by the Underwriters,
the Company will cooperate with the Representatives and counsel to the
Underwriters in connection with the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives may request; provided, that in no event
shall the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would subject it
to general service of process in any jurisdiction where it is not now so
subject.
(i) During the period of two years commencing on the Effective
Date, the Company will furnish to the Representatives and each other
Underwriter who may so request copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will furnish
to the Representatives and each other Underwriter who may so request a copy
of each annual or other report it shall be required to file with the
Commission.
(j) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for a period of 12 months ended
commencing after the Effective Date, and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
(k) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company and the Selling
Shareholders, in such proportions (aggregating 100%) as they may agree upon
among themselves, will pay, or reimburse if paid by the Representatives, all
costs and expenses incident to the performance of the obligations of the
Company and the Selling Shareholders under this Agreement, including but not
limited to costs and expenses of or relating to (1) the preparation, printing
and filing of the Registration Statement and exhibits to it, each preliminary
prospectus, the Prospectus and any
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amendment or supplement to the Registration Statement or Prospectus, (2) the
preparation and delivery of certificates representing the Shares, (3) the
printing of this Agreement, the Agreement Among Underwriters, any Dealer
Agreements, any Underwriters' Questionnaire and the Custody Agreement and
Power of Attorney, (4) furnishing (including costs of shipping and mailing)
such copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be requested
for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom shares may be sold, (5) the quotation of
the Shares on the National Association of Securities Dealers Automated
Quotation System, (6) any filings required to be made by the Underwriters
with the NASD, and the fees, disbursements and other charges of counsel for
the Underwriters in connection therewith, (7) the registration or
qualification of the Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions designated pursuant to Section 7(f), including
the fees, disbursements and other charges of counsel to the Underwriters in
connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (8) counsel to the Company and
counsel to the Selling Shareholders and (9) the transfer agent for the Shares.
(l) If this Agreement shall be terminated by the Company or the
Selling Shareholders pursuant to any of the provisions hereof or if for any
reason the Company or any Selling Shareholder shall be unable to perform its
obligations hereunder, the Company and the Selling Shareholders, in such
proportions (aggregating 100%) as they may agree among themselves, will
reimburse the several Underwriters for all out-of-pocket expenses (including
the fees, disbursements and other charges of counsel to the Underwriters)
reasonably incurred by them in connection herewith.
(m) Each Selling Shareholder agrees to deliver to First Albany
Corporation, Attention: Corporate Finance Department, on or prior to the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(n) The Company will not at any time, directly or indirectly, take
any action designed, or which might reasonably be expected, to cause or
result in, or which will constitute, stabilization of the price of the shares
of Common Stock to facilitate the sale or resale of any of the Shares.
(o) The Company will apply the net proceeds from the offering and
sale of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the
Act.
(p) During the period of six months commencing at the Closing Date,
the Company will not, without the prior written consent of the
Representatives, grant options to purchase shares of Common Stock at a price
less than the fair market value of the Company's Common Stock on the date of
the grant.
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(q) On or before the Effective Date, the Company shall provide the
Representatives with true copies of duly executed, legally binding and
enforceable agreements pursuant to which for a period of six months from the
Effective Date, the officers and directors of the Company, holders of all
shares of Common Stock and holders of securities exchangeable or exercisable
for or convertible into shares of Common Stock, agree that it or he or she
will not directly or indirectly, issue, offer to sell, sell, grant an option
for the sale of, assign, transfer, pledge, hypothecate, distribute or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein without the prior written consent of First Albany
Corporation. In addition, for a period of six months from the Effective
Date, the Company will not directly or indirectly issue, offer to sell,
offer, sell, contract to sell, pledge or otherwise dispose of or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Common Stock or securities convertible into or
exchangeable or exercisable for any shares of its Common Stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of First Albany Corporation, except
(i) issuances of Common Stock pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, (ii) grants of employee
or non-employee director stock options pursuant to the terms of a plan in
effect on the date hereof, (iii) issuances of Common Stock pursuant to the
Company's employee stock purchase plan, or (iv) the filing with the
Commission of registration statements on Form S-8 relating to option plans
and employee stock purchase plans in effect on the date hereof.
(r) The Selling Shareholders will not, for a period of six months
after the commencement of the public offering of the Shares, without the
prior written consent of First Albany Corporation, sell, contract to sell or
otherwise dispose of any shares of Common Stock.
(s) The Selling Shareholders will not, without the prior written
consent of the Representatives, make any bid for or purchase any shares of
Common Stock during the six month period commencing on the date hereof.
(t) As soon as any Selling Shareholder is advised thereof, such
Selling Shareholder will advise the Representatives and confirm such advice
in writing, (1) of receipt by such Selling Shareholder, or by any
representative of such Selling Shareholder, of any communication from the
Commission relating to the Registration Statement, the Prospectus or any
preliminary prospectus, or any notice or order of the Commission relating to
the Company or any of the Selling Shareholders in connection with the
transactions contemplated by this Agreement and (2) of the happening of any
event during the period from and after the Effective Date that in the
judgment of such Selling Shareholder makes any statement made in the
Registration Statement or the Prospectus untrue or that requires the making
of any changes in the Registration Statement or the Prospectus in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
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Section 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of each Underwriter are subject to the following conditions:
(a) Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00 p.m.,
New York City time, on the date of this Agreement or at such later date and
time as shall be consented to in writing by the Representatives and all
filings required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the
qualification or registration of the Shares under the securities or Blue Sky
laws of any jurisdiction shall be in effect and no proceeding for such
purpose shall be pending before or threatened or contemplated by the
Commission or the authorities of such jurisdiction, (iii) any request for
additional information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff of
the Commission or such authorities and (iv) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the
Representatives and the Representatives did not object thereto in good faith,
and the Representatives shall have received certificates, dated the Closing
Date and the Option Closing Date and signed by the Chief Executive Officer or
the Chairman of the Board of Directors of the Company and the Chief Financial
Officer of the Company (who may, as to proceedings threatened, rely upon the
best of their information and belief), to the effect of clauses (i), (ii),
(iii) and (iv).
(c) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (i) there shall not have been
a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or
results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
in each case other than as set forth in or contemplated by the Registration
Statement or Prospectus and (ii) the Company shall not have sustained any
material loss or interference with its business or properties from fire,
explosion, flood or other casualty, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in the judgment of the Representatives any such
development makes it impracticable or inadvisable to consummate the sale and
delivery of the Shares by the Underwriters at the initial public offering
price.
(d) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
respective officers or directors in their capacities as such, before or by
any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling, decision or finding
would have a Material Adverse Effect.
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(e) Each of the representations and warranties of the Company and
the Selling Shareholders contained herein shall be true and correct in all
material respects at the Closing Date and, with respect to the Option Shares,
at the Option Closing Date, as if made at the Closing Date and, with respect
to the Option Shares, at the Option Closing Date, and all covenants and
agreements herein contained to be performed on the part of the Company and
the Selling Shareholders and all conditions herein contained to be fulfilled
or complied with by the Company and the Selling Shareholders at or prior to
the Closing Date and, with respect to the Option Shares, at or prior to the
Option Closing Date, shall have been duly performed, fulfilled or complied
with.
(f) The Representatives shall have received an opinion, dated the
Closing Date and, with respect to the Option Shares, the Option Closing Date,
and satisfactory in form and substance to counsel for the Underwriters, from
Ice, Miller, Donadio & Ryan, counsel to the Company and the Selling
Shareholders, to the effect set forth in Exhibit B.
(g) The Representatives shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Orrick, Herrington & Sutcliffe
LLP, counsel to the Underwriters, with respect to the Registration Statement,
the Prospectus and this Agreement, which opinion shall be satisfactory in all
respects to the Representatives.
(h) Concurrently with the execution and delivery of this Agreement,
the Accountants shall have furnished to the Representatives and the Board of
Directors of the Company a "comfort" letter, dated the date of its delivery,
addressed to the Representatives and in form and substance satisfactory to
the Representatives, confirming that they are independent public accountants
within the meaning of the act and the applicable published Rules and
Regulations thereunder and stating to the effect that:
i) in their opinion the financial statements and schedules and
summary of earnings examined by them and included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published Rules and Regulations;
ii) on the basis of a reading of the latest available interim
financial statements of the Company, inquiries of officials of the
Company who have responsibility for financial and accounting matters
and other specified procedures, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statement and summary of
earnings included in the Registration Statements do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to such
unaudited financial statements for them to be in conformity with
generally accepted accounting principles;
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(B) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not more
than three business days prior to the date of this Agreement,
there was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of the Company or, at
the date of the latest available balance sheet read by such
accountants, there was any decrease in net current assets, as
compared with amounts shown on the latest balance sheet included
in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period of the previous year and with the period of corresponding
length ended the date of the latest income statement included in
the Prospectus, in net sales or net operating income in the total
or per share amounts of net income,
except in all cases set forth in clauses B and C above, for changes,
increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
iii) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statement (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company subject
to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such letter and
have found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as otherwise
specified in such letter.
At the Closing Date and, as to the Option Shares, the Option
Closing Date, the Accountants shall have furnished to the Representatives a
letter, dated the date of its delivery, which shall confirm, on the basis of
a review in accordance with the procedures set forth in the "comfort" letter
from the Accountants, that nothing has come to their attention during the
period from the date of the "comfort" letter to a date (specified in the
letter) not more than five days prior to the Closing Date and the Option
Closing Date which would require any change in their letter dated the date
hereof if it were required to be dated and delivered at the Closing Date and
the Option Closing Date.
(i) Concurrently with the execution and delivery of this Agreement
and at the Closing Date and, as to the Option Shares, the Option Closing
Date, there shall be furnished to the Representatives an accurate
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer, in form and substance
satisfactory to the Representatives, to the effect that:
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i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) to the signer's
knowledge, as of the date of such certificate, such documents are true and
correct in all material respects and do not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
untrue or misleading and (B) in the case of the certificate delivered at
the Closing Date and the Option Closing Date, since the Effective Date no
event has occurred of which the signer has knowledge as a result of which
it is necessary to amend or supplement the Prospectus in order to make the
statements therein not untrue or misleading in any material respect.
ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is dated, true and correct in all material respects.
iii) Each of the covenants required herein to be performed by the
Company on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be complied with
by the Company on or prior to the date of such certificate has been duly,
timely and fully complied with.
iv) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are contemplated by the Commission.
(j) Concurrently with the execution and delivery of this Agreement
and at the Closing Date and, as to the Option Shares, the Option Closing Date,
there shall have been furnished to the Representatives an accurate certificate,
dated the date of its delivery, signed by the Committee on behalf of each of the
Selling Shareholders, in form and substance satisfactory to the Representatives,
to the effect that the representations and warranties of each of the Selling
Shareholders contained herein are true and correct in all material respects on
and as of the date of such certificate as if made on and as of the date of such
certificate, and each of the covenants and conditions required herein to be
performed or complied with by the Selling Shareholders on or prior to the date
of such certificate has been duly, timely and fully performed or complied with.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 7(n).
(l) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, and each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing Date
and the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the Nasdaq National Market upon official notice of
issuance.
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(n) The Company and the Selling Shareholders shall have furnished
to the Representatives such certificates, in addition to those specifically
mentioned herein, as the Representatives may have reasonably requested as to
the accuracy and completeness at the Closing Date and the Option Closing Date
of any statement in the Registration Statement or the Prospectus, as to the
accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company and the Selling Shareholders
herein, as to the performance by the Company and the Selling Shareholders of
its and their respective obligations hereunder, or as to the fulfillment of
the conditions concurrent and precedent to the obligations hereunder of the
Representatives.
Section 9. QUALIFIED INDEPENDENT UNDERWRITER. The Company hereby
confirms that at its request First Albany Corporation has without
compensation acted as "qualified independent underwriter" (in such capacity,
the "QIU") within the meaning of Rule 2710 of the Conduct Rules of the
National Association of Securities Dealers, Inc. in connection with the
offering of the Shares. The Company and the Selling Shareholders will
severally and not jointly indemnify and hold harmless the QIU against any
losses, claims, damages or liabilities, joint or several, to which the QIU
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon the QIU's acting (or alleged failing to act) as such
"qualified independent underwriter" and will reimburse the QIU for any legal
or other expenses reasonably incurred by the QIU in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred; provided, however, that neither the Company
nor any of the Selling Shareholders shall be obligated to indemnify or hold
harmless the QIU against any loss, claim, damage or liability arising from or
related to the gross negligence or willful misconduct of the QIU; provided
further, that each Selling Shareholder shall only be subject to liability
under this Section to the extent such liability arises out of or is based
upon any untrue statement or alleged untrue statement or upon an omission or
alleged omission based upon information provided by such Selling Shareholder
or contained in a representation or warranty given by such Selling
Shareholder in this Agreement or the Custody Agreement; and provided,
further, that the liability under this Section of each Selling Shareholder
shall be limited to an amount equal to the aggregate gross proceeds to such
Selling Shareholder from the sale of Common Stock sold by such Selling
Shareholder hereunder.
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Section 10. INDEMNIFICATION.
(a) The Company will indemnify and hold harmless each Underwriter,
the directors, officers, employees and agents of each Underwriter and each
person, if any, who controls each Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted),
to which they, or any of them, may become subject under the Act, the Exchange
Act or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or
the Prospectus, or the omission or alleged omission to state in such document
a material fact required to be stated in it or necessary to make the
statements in it, in light of the circumstances under which they were made,
not misleading, provided that the Company and the Selling Shareholders will
not be liable to the extent that such loss, claim, liability, expense or
damage arises from the sale of the Shares in the public offering to any
person by an Underwriter and is based on an untrue statement or alleged
untrue statement or omission made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company
by the Representatives on behalf of any Underwriter expressly for inclusion
in the Registration Statement, any preliminary prospectus or the Prospectus,
and provided further that the Company and the Selling Shareholders will not
be liable to any Underwriter, the directors, officer, employees or agents of
such Underwriter or any person controlling such Underwriter with respect to
any loss, claim, liability, expense, charge or damage arising out of or
based on any untrue statement or alleged untrue statement or omission or
alleged omission to state a material fact in any preliminary prospectus which
is corrected in the Prospectus if the person asserting any such loss, claim,
liability, charge or damage purchased Shares from such Underwriter but was
not sent or given a copy of the Prospectus at or prior to the written
confirmation of the sale of such Shares to such Person. The Company and the
Selling Shareholders acknowledge that (i) the information on the cover page
of the Prospectus with respect to price, underwriting discounts and omissions
and terms of the offering and (ii) the statements set forth under the heading
"Underwriting" in any preliminary prospectus and the Prospectus constitute
the only information relating to any Underwriter furnished in writing to the
Company by the Representatives on behalf of the Underwriters expressly for
inclusion in the Registration Statement, any preliminary prospectus or the
Prospectus. This indemnity agreement will be in addition to any liability
that the Company or any Selling Shareholder might otherwise have.
(b) Insofar as the foregoing indemnity agreement, or the
representations and warranties contained in Section 2, may permit
indemnification for liabilities under the Act of any person who is an
Underwriter or a partner or controlling person of an Underwriter within the
meaning of Section 15 of the Act and who, at the date of this Agreement, is a
director, officer or controlling person of the Company, the Company has been
advised that in the opinion of the Commission such provisions may contravene
Federal public policy as expressed in the act and may therefore be
unenforceable. In the event that a claim for indemnification under such
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agreement or such representations and warranties for any such liabilities
(except insofar as such agreement provides for the payment by the Company of
expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such a
person, the Company will submit to a court of appropriate jurisdiction
(unless in the opinion of counsel for the Company the matter has already been
settled by controlling precedent) the question of whether or not
indemnification by it for such liabilities is against public policy as
expressed in the Act and therefore unenforceable, and the Company will be
governed by the final adjudication of such issue.
(c) Each Selling Shareholder will indemnify and hold harmless the
Company and the Underwriters, each person, if any, who controls the Company
and the Underwriters within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, each director of the Company and each officer of the
Company who signs the Registration Statement to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only so far as
losses, claims, liabilities, expenses and damages arise out of or are based
on any untrue statement or omission made in reliance on and in conformity
with information relating to any Selling Shareholder furnished in writing to
the Company or Underwriters by such Shareholder expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus.
(d) Each Underwriter will indemnify and hold harmless the Company,
the Selling Shareholders, each person, if any, who controls the Company or
the Selling Shareholders within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, each director of the Company and each officer
of the Company who signs the Registration Statement to the same extent as the
foregoing indemnity from the Company and the Selling Shareholders to each
Underwriter, but only insofar as losses, claims, liabilities, expenses and
damages arise out of or are based on any untrue statement or omission or
alleged untrue statement or omission made in reliance on and in conformity
with information relating to any Underwriter furnished in writing to the
Company by the Representatives on behalf of such Underwriter expressly for
use in the Registration Statement, any preliminary prospectus or the
Prospectus or arise out of, or are based upon a failure or alleged failure of
such Underwriter to deliver the Prospectus as required by applicable laws.
The Company and the Selling Shareholders acknowledge that (i) information on
the cover page of the Prospectus with respect to price underwriting discounts
and commissions and the terms of the offering and (ii) the statements set
forth under the heading "Underwriting" in any preliminary prospectus and the
Prospectus constitute the only information relating to any Underwriter
furnished in writing to the Company by the Representatives on behalf of the
Underwriters expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus. This indemnity will be in addition
to any liability that each Underwriter might otherwise have.
(e) Any party that proposes to assert the right to be indemnified
under Section 9 or this Section 10 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is
to be made against an indemnifying party or parties under Section 9 or this
Section 10, notify each such indemnifying party of the commencement of such
action, enclosing a copy of all papers served, but the omission so to notify
such indemnifying party will not relieve it from any liability that it may
have to any indemnified party under Section 9 or this Section 10 unless, and
only to the extent that, such omission results in the
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forfeiture of substantive rights or defenses by the indemnifying party. If
any such action is brought against any indemnified party and it notifies the
indemnifying party of its commencement, the indemnifying party will be
entitled to participate in and, to the extent that it elects by delivering
written notice to the indemnified party promptly after receiving notice of
the commencement of the action from the indemnified party, jointly with any
other indemnifying party similarly notified, to assume the defense of the
action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to
the indemnified party for any legal or other expenses except as provided
below. The indemnified party will have the right to employ its own counsel
in any such action, but the fees, expenses and other charges of such counsel
will be at the expense of such indemnified party unless (l) the employment of
counsel by the indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably concluded (based
on advice of counsel) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict exists (based on advice
of counsel to the indemnified party) between the indemnified party and the
indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm admitted
to practice in such jurisdiction at any one time for all such indemnified
party or parties. All such fees, disbursements and other charges will be
reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or
claim effected without its written consent (which consent will not be
unreasonably withheld).
(f) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 9 or the
foregoing paragraphs of this Section 10 is applicable in accordance with its
terms but for any reason is held to be unavailable from the Company, the
Selling Shareholders or the Underwriters, the Company, the Selling
Shareholders and the Underwriters will contribute to the total losses,
claims, liabilities, expenses and damages (including any investigative, legal
and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted,
but after deducting any contribution received by the Company or the Selling
Shareholders from persons other than the Underwriters, such as persons who
control the Company or the Selling Shareholders within the meaning of the
Act, officers of the Company who signed the Registration Statement and
directors of the Company, who also may be liable for contribution) to which
the Company or the Selling Shareholders and any one or more of the
Underwriters may be subject in such proportion so that the Underwriters are
responsible for that portion represented by the percentage that the
underwriting discount appearing on the cover of the Prospectus bears to the
public offering price appearing on the cover and the Company and the Selling
Shareholders are responsible in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and Selling
Shareholders. If, but only if, the allocation
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provided by the foregoing sentence is not permitted by applicable law, the
allocation of contribution shall be made in such proportion as is appropriate
to reflect not only the relative benefits referred to in the foregoing
sentence but also the relative fault of the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other, with
respect to the statement or omissions which resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as well as any
other relevant equitable considerations with respect to such offering. Such
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company or
the Representatives on behalf of the Underwriters, the intent of the parties
and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to above in this subsection (e) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of
this subsection (e). Notwithstanding the provisions of this subsection (e),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Common Stock underwritten by it
and distributed to the public was offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission and no Selling Shareholder shall be required to contribute any
amount in excess of the net proceeds received by such Selling Shareholder
from the sale of shares of Common Stock sold by such Shareholder in the
offering. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
The Company, the Selling Shareholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section
10(e) were to be determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 10(e) shall be deemed to include,
for purpose of this Section 10(e), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 10(e), no Underwriter shall be required contribute any amount in
excess of the underwriting discounts received by it, and no person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute as provided in this Section 10(e) are several in proportion to
their respective underwriting obligations and not joint. For purposes of
this Section 10(e), any person who controls a party to this Agreement within
the meaning of the Act will have the same rights to contribution as that
party, and each officer of the Company who signed the Registration Statement
will have the same rights to contribution as the Company, subject in each
case to the provisions hereof. Any party entitled to contribution, promptly
after receipt of notice of commencement of any action against such party in
respect of which a claim for contribution may be made under this Section
10(e), will notify any such party or parties from whom contribution may be
sought, but the omission so to notify will not relieve the party or parties
from
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whom contribution may be sought from any other obligation it or they may have
under this Section 10(e). No party will be liable for contribution with
respect to any action or claim settled without its written consent (which
consent will not be unreasonably withheld).
(g) The indemnity and contribution agreements contained in Section
9 and this Section 10 and the representations and warranties of the Company,
the Underwriters and the Selling Shareholders contained in this Agreement
shall remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Underwriters, (ii) acceptance of
any of the Shares and payment therefor or (iii) any termination of this
Agreement.
Section 11. TERMINATION. The obligations of the several Underwriters
under this Agreement may be terminated at any time prior to the Closing Date
(or, with respect to the Option Shares, on or prior to the Option Closing
Date), by notice to the Company from the Representatives, without liability
on the part of any Underwriter to the Company, if, prior to delivery and
payment for the Shares (or the Option Shares, as the case may be), in the
sole judgment of the Representatives, (i) trading in any of the equity
securities of the Company shall have been suspended by the Commission, by an
exchange that lists the Shares or by the National Association of Securities
Dealers Automated Quotation Market System, (ii) trading in securities
generally on the New York Stock Exchange shall have been suspended or limited
or minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on
the date of this Agreement, shall have been imposed upon trading in
securities generally by such exchange or by order of the Commission or any
court or other governmental authority, (iii) a general banking moratorium
shall have been declared by either Federal or New York State authorities or
(iv) any material adverse change in the financial or securities markets in
the United States or in political, financial or economic conditions in the
United States or any outbreak or material escalation of hostilities or other
calamity or crisis shall have occurred, the effect of which is such as to
make it, in the sole judgment of the Representatives, impracticable to market
the Shares.
Section 12. SUBSTITUTION OF UNDERWRITERS. If any one or more of the
Underwriters shall fail or refuse to purchase any of the Firm Shares which it
or they have agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of
Firm Shares, the other Underwriters shall be obligated, severally, to
purchase the Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase, in the proportions which the number
of Firm Shares which they have respectively agreed to purchase pursuant to
Section 5 bears to the aggregate number of Firm Shares which all such
non-defaulting Underwriters have so agreed to purchase, or in such other
proportions as the Representatives may specify. If any Underwriter or
Underwriters shall fail or refuse to purchase any Firm Shares and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refuse to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the
Representatives and the Company for the purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter or the
Company for the purchase or sale of any Shares under this Agreement. In any
such case either the
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Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven business days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus
or in any other documents or arrangements may be effected. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 12. Any action taken pursuant to this Section
12 shall not relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
Section 13. MISCELLANEOUS. Notice given pursuant to any of the
provisions of this Agreement shall be in writing and, unless otherwise
specified, shall be mailed or delivered (a) if to the Company, at the office
of the Company, Made2Manage Systems, Inc., 9002 Purdue Road, Indianapolis, IN
46268, Attention: David B. Workman or (b) if to the Underwriters, to the
Representatives at the offices of (i) First Albany Corporation, One Penn
Plaza, 42nd Floor, New York, New York 10119, Attention: Corporate Finance
Department, (ii) RvR Securities Corp., One Bush Street, San Francisco, CA
94104, Attention: ____________________; and (iii) Van Kasper & Company, 600
California Street, Suite 1700, San Francisco, CA 94108, Attention
____________________. Any such notice shall be effective only upon receipt.
Any notice under Section 10 or 11 may be made by telex or telephone, but if
so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company and the Selling Shareholders and of the controlling
persons, directors and officers referred to in Section 9, and their
respective successors and assigns, and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" as used in this Agreement shall not include a purchaser, as such
purchaser, of Shares from any of the several Underwriters.
The Representatives will act for the several Underwriters in connection
with the transactions contemplated by this Agreement, and any action under
this Agreement taken by the Representatives -- jointly or by First Albany
Corporation -- will be binding upon all the Underwriters. David B. Wortman
and Stephen R. Head will act for the Selling Shareholders in connection with
such transactions, and any action under or in respect of this Agreement taken
by David B. Wortman and Stephen R. Head will be binding upon the Selling
Shareholders.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in the City of New York
in any suit or proceeding arising
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out of or relating to this Agreement or the transactions contemplated hereby.
This Agreement shall supersede any agreement or understanding, oral or
written, express or implied, between the Company, the Selling Shareholders
and the Underwriters relating to the sale of any of the Shares.
No change, amendment or supplement to, or waiver of this Agreement or any
term, provision or condition contained herein, shall be valid or of any
effect, unless in writing and signed by the party against whom such is
asserted.
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Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
MADE2MANAGE SYSTEMS, INC.
By:____________________________________
Name:
Title:
The Selling Shareholders Named on
Schedule II and III Hereto
By:_____________________________________
Attorney-in-Fact
Confirmed as of the date first
above mentioned:
FIRST ALBANY CORPORATION
VAN KASPER & COMPANY
RvR SECURITIES CORP.
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule II hereof.
BY: FIRST ALBANY CORPORATION
By:___________________________________
Name:
Title:
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SCHEDULE I
UNDERWRITERS
Name Number of Shares
---- ----------------
First Albany Corporation _______________
Van Kasper & Company _______________
RvR Securities Corp. _______________
Total _______________
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SCHEDULE II
PRIMARY SELLING SHAREHOLDERS
Name Number of Shares
---- ----------------
____________
____________
Total ____________
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SCHEDULE III
OPTION SELLING SHAREHOLDERS
Name Number of Shares
---- ----------------
____________
Total ____________
30
<PAGE>
EXHIBIT B
Matters to be Covered in the Opinion of
Ice Miller Donadio & Ryan
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation;
2. The Company has the corporate power to own, lease and operate its
properties and to conduct its business as described in the Prospectus;
3. The Company is duly qualified to do business as a foreign corporation
and is in good standing in the following jurisdictions:
____________________________________;
4. The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as of
the dates stated therein; all outstanding shares of Convertible Preferred
Stock of the Company shall automatically convert into shares of Common Stock
as of the Closing as described in the Prospectus; the issued and outstanding
shares of capital stock of the Company have been duly and validly authorized
and issued, are fully paid and nonassessable and have not been issued in
violation of any preemptive right or other rights to subscribe for or
purchase securities or, except to the extent any such violations would not be
material to the Company (whether because of the magnitude of the violation,
because any claims thereof would be barred by the statute of limitations or
otherwise), in violation of any applicable federal or state securities laws
or in violation of any applicable federal or state securities laws, provided
that in rendering their opinion as to non-violation of federal and state
securities laws, such counsel may assume, unless counsel has knowledge of
facts that may render such assumption unreasonable, that any purchasers had,
to the extent relevant and represented by such purchasers in writing, any
required investment intent;
5. The Company has corporate power and authority to enter into the
Agreement and to carry out all the terms and provisions thereof;
6. The execution, delivery and performance of this Agreement and the
issuance and sale of the Shares to be sold by the Company do not (A) conflict
with, violate, result in a breach of or constitute a default (or an event
that with notice or lapse of time, or both, would constitute a default) under
the Articles of Incorporation or By-laws of the Company or any agreement
(including, without limitation, an agreement with respect to registration
rights) to which the Company is a party or by which it or any of its
properties or assets is bound and which is known to such counsel or (B)
result in violation of any federal or Indiana law, rule or regulation or, to
________________________
(1) In rendering this opinion, counsel may rely as to questions of law not
involving the laws of the United States or the State of Indiana on opinions
of local counsel (provided that such counsel states that they believe they
and the Underwriters are justified in relying thereon) and, as to questions
of fact, upon representations or certificates of officers of the Company and
government officials, in which case their opinion is explicitly to state that
they are so relying thereon and that they have no knowledge of any material
misstatement or inaccuracy in such opinions, representations or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to the Representative and counsel to the Underwriters.
B-1
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the knowledge of such counsel, any writ, judgment, order, injunction or
decree of any government, governmental body, agency or court or any
arbitration tribunal having jurisdiction over the Company or any of its
properties, which violation would have a Material Adverse Effect/
7. The Shares to be sold by the Company are duly authorized and, when
issued and delivered against payment in full therefor, will be validly
issued, fully paid, non-assessable, and free of preemptive rights;
8. The Underwriting Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery of the Agreement by the Representatives, is the valid and binding
agreement of the Company enforceable against the Company in accordance with
its terms, except insofar as the indemnification and contribution provisions
of the Underwriting Agreement may be limited by public policy concerns and
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles;
9. Except for the order of the Commission making the Registration
Statement effective, similar authorizations required under the securities or
Blue Sky laws of certain jurisdictions (as to which such counsel need express
no opinion), no consent, approval, authorization or other order of any
federal or Indiana governmental body or, to the knowledge of such counsel,
other person is required in connection with the authorization, issuance, sale
and delivery of the Shares and the execution, delivery and performance by the
Company of the Underwriting Agreement;
10. The Registration Statement has become effective under the Securities
Act and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act;
11. The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements, financial data and
supporting schedules included therein, as to which such counsel need express
no opinion), as of the effective date of the Registration Statement, complied
as to form in all material respects with the requirements of the Securities
Act and the applicable Rules and Regulations. The Company satisfies the
requirements for filing a registration statement on Form S-1;
12. The terms and provisions of the capital stock of the Company conform
in all material respects to the description thereof contained in the
Registration Statement and Prospectus, and the information in the Prospectus
under the caption "Description of Capital Stock," to the extent they
constitute matters of law or legal conclusions, has been reviewed by such
counsel and is correct and the form of certificate for the Shares complies
with Indiana law;
13. The description in the Registration Statement and the Prospectus of
the articles of incorporation and bylaws of the Company and of statutes and
contracts are accurate in all material respects and fairly present in an
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material respects the information required to be presented by the Securities
Act and the Rules and Regulations;
14. To the knowledge of such counsel, there are no agreements,
contracts, licenses, leases or documents of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement that are not described or
referred to therein and filed as required;
15. To the knowledge of such counsel, there are no legal or governmental
proceedings pending or threatened against the Company or of a character which
are required to be disclosed in the Registration Statement or the Prospectus
by the Securities Act or the applicable Rules and Regulations, other than
those described therein;
16. To the knowledge of such counsel, the Company is not presently in
breach of, or in default under, any bond, debenture, note or other evidence
of indebtedness or any contract, indenture, mortgage, deed of trust, loan
agreement, lease, license or, without limitation, other agreement or
instrument to which the Company is a party or by which any of its properties
are bound that, individually or in the aggregate, would have a Material
Adverse Effect;
17. To the knowledge of such counsel, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock, Preferred
Stock or other securities of the Company have registration rights with
respect to any securities of the Company; and
18. With respect to each Selling Shareholder:
(A) each Selling Shareholder has the full right, power and authority
to enter into the Underwriting Agreement and the Custody Agreement and to
carry out all the terms and provisions thereof;
(B) the Underwriting Agreement, the Custody Agreement and the
Power-of-Attorney have been duly authorized, executed and delivered by each
Selling Shareholder and, assuming due authorization, execution and delivery
by the Representatives and/or Custodian, as applicable, the Underwriting
Agreement, the Custody Agreement and the Power-of-Attorney are the legal,
valid, binding and enforceable agreements or instruments of such Selling
Shareholder, except insofar as the indemnification and contribution
provisions of the Underwriting Agreement may be limited by public policy
concerns and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles;
(C) assuming that (i) the Underwriters have no notice of any
adverse claims with respect to the Shares being sold hereunder by such
Selling Shareholder, and (ii) the certificates representing the Shares being
sold by such Selling Shareholder are delivered to the Underwriters duly
endorsed or accompanied by a duly executed assignment separate from
certificate in the State of Indiana, the delivery by such Selling Shareholder
to the several Underwriters of certificates for the Shares being sold
hereunder by such Selling Shareholder against payment therefor as provided
herein, will convey good and marketable title to such Shares to the several
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Underwriters, free and clear of all "adverse claims" (as that term is defined
in Section 8302 of the Commercial Code of the State of California); and
(D) the sale of the Shares to the Underwriters by such Selling
Shareholder pursuant to the Underwriting Agreement, the compliance by such
Selling Shareholder with the other provisions of the Underwriting Agreement
and the Custody Agreement, and the consummation of the other transactions
therein contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except
such as have been obtained and such as may be required under state securities
or blue sky laws, or (ii) conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
statute or, to the knowledge of such counsel, any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which such Selling
Shareholder is a party or by which such Selling Shareholder or any of such
Selling Shareholder's properties are bound or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Shareholder.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, the independent public accountants of the Company, the
Representatives and counsel to the Underwriters, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although they have not independently verified the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention
of such counsel that caused them to believe that, at the time the
Registration Statement became effective, the Registration Statement (except
as to financial statement, financial data and supporting schedules contained
therein, as to which such counsel need express no opinion) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing Date or any later date on which the Option
Shares are to be purchased, as the case may be, the Prospectus contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Such opinion shall also state that Underwriters' counsel is entitled
to rely thereon. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991) or any comparable state accord.
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MADE2MANAGE SYSTEMS, INC.
Made2Manage Systems, Inc. (hereinafter referred to as the "Corporation"),
existing pursuant to the Indiana Business Corporation Law, as the same may be
amended from time to time (hereinafter referred to as the "Act"), desiring to
give notice of corporate action effectuating an Amendment and Restatement of
its Articles of Incorporation, sets forth the following facts:
ARTICLE 1
NAME
The name of the corporation is Made2Manage Systems, Inc.
ARTICLE 2
PURPOSE AND POWERS
SECTION 2.01 PURPOSE. The purpose for which the Corporation is formed
is the transaction of any or all lawful business for which corporations may
be incorporated under the Act.
SECTION 2.02 POWERS. The Corporation shall have the capacity to act
possessed by natural persons and, subject to any limitations or restrictions
imposed by the Act, other law or the Articles of Incorporation, shall have
the power to do all acts and things necessary, convenient or expedient to
carry out the purposes for which it is formed.
SECTION 2.03 LIMITATIONS. Nothing in these Articles of Incorporation
shall be construed to authorize the conduct by the Corporation of the
business of rural loan and savings associations, credit unions, or
corporations for the conduct of banking, railroad, insurance, surety, trust,
safe deposit, mortgage guarantee, or building and loan business, or to
authorize the Corporation to carry on the business of receiving deposits of
money, bullion, or foreign coins, or issuing bills, notes or other evidences
of debt for circulation as money.
ARTICLE 3
PERIOD OF EXISTENCE
SECTION 3.01 PERIOD. The period during which the Corporation shall
continue is perpetual.
<PAGE>
ARTICLE 4
PRINCIPAL OFFICE AND RESIDENT AGENT
SECTION 4.01 PRINCIPAL OFFICE. The post office address of the principal
office of the Corporation is:
9002 Purdue Road
Indianapolis, Indiana 46268
SECTION 4.02 RESIDENT AGENT. The name and post office address of its
Resident Agent in charge of such office are:
Stephen R. Head
9002 Purdue Road
Indianapolis, Indiana 46268
ARTICLE 5
SHARES
SECTION 5.01 NUMBER. The total number of shares which the Corporation
shall have authority to issue is 12,000,000 shares, all of which are without
par value.
SECTION 5.02 DESIGNATION OF CLASSES AND NUMBER OF SHARES. The
authorized shares shall be divided into Ten Million (10,000,000) shares of
the Corporation which shall be designated as "Common Stock" and Two Million
(2,000,000) shares of the Corporation which shall be designated as "Preferred
Stock."
SECTION 5.03 RIGHTS, PRIVILEGES, LIMITATIONS AND RESTRICTIONS OF COMMON
STOCK.
(a) SINGLE CLASS. The Common Stock shall constitute a separate and
single class and shall not be issued in series. All shares of Common Stock
shall be identical with each other in all respects.
(b) DIVIDENDS. Subject to any limitations prescribed in this ARTICLE V
and any further limitations prescribed in accordance therewith, and subject
to any prior rights that may be conferred upon the holders of any series of
Preferred Stock established by the Board of Directors pursuant to authority
herein provided, and except as otherwise provided by law, the holders of
shares of Common Stock shall be entitled to receive when and as declared by
the Board of Directors, out of the assets of the Corporation which are by law
available therefor, pro rata dividends payable either in cash, in property or
securities of the Corporation.
(c) LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
shares of Common Stock shall be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation and of all
shares
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of Preferred Stock having priority over the shares of Common Stock, to
share ratably in the remaining net assets of the Corporation.
(d) VOTING RIGHTS. Subject to any voting rights that may be conferred
upon holders of any shares of any series of Preferred Stock established by
the Board of Directors pursuant to authority herein provided or as otherwise
provided by law, every holder of Common Stock shall have the right, at every
shareholders' meeting, to one vote for each share of Common Stock standing in
such shareholder's name on the books of the Corporation.
SECTION 5.04 RIGHTS, PRIVILEGES, LIMITATIONS AND RESTRICTIONS OF
PREFERRED STOCK.. The Board of Directors of the Corporation is vested with
authority to determine and state the designations and the relative
preferences, limitations, voting rights, if any, and other rights of the
Preferred Stock and of each series of Preferred Stock by the adoption and
filing in accordance with the Act, before the issuance of any shares of
Preferred Stock or any series of Preferred Stock, of an amendment or
amendments to these Amended and Restated Articles of Incorporation as the
same may, from time to time, be amended, determining the terms of the shares
of Preferred Stock or the series of Preferred Stock ("Preferred Share
Designation"). All shares of Preferred Stock of the same series shall be
identical with each other in all respects. The number of authorized shares
of Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the voting power of all of the then outstanding shares of the
Corporation entitled to vote generally in the election of Directors ("Voting
Shares"), voting as a single class, without a separate vote of the holders of
the shares of Preferred Stock or any series thereof, unless a vote of any
such holders is required pursuant to the Preferred Share Designation.
SECTION 5.05 ISSUANCE OF SHARES. The Board of Directors has authority
to authorize and direct the issuance by the Corporation of shares of Common
Stock and Preferred Stock at such times, in such amounts, to such persons,
for such considerations and upon such terms and conditions as it may, from
time to time, determine upon, subject only to the restrictions, limitations,
conditions and requirements imposed by the Act, other applicable laws and
these Amended and Restated Articles, as the same may, from time to time, be
amended.
SECTION 5.06 DISTRIBUTION UPON SHARES. Subject only to the
restrictions, limitations, conditions and requirements imposed by the Act,
other applicable laws and these Amended and Restated Articles, as the same
may, from time to time, be amended, the Board of Directors has authority to
authorize and direct the payment of dividends and the making of other
distributions by the Corporation in respect of the issued and outstanding
shares of Common Stock and Preferred Stock (i) at such times, in such amounts
and forms, from such sources and upon such terms and conditions as it may,
from time to time, determine upon, and (ii) in shares of the same class or
series or in shares of any other class or series without obtaining the
affirmative vote or the written consent of the holders of the shares of the
class or series in which the payment or distribution is to be made.
SECTION 5.07 ACQUISITION OF SHARES. The Board of Directors has
authority to authorize and direct the acquisition by the Corporation of the
issued and outstanding shares of Common Stock and
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Preferred Stock at such times, in such amounts, from such persons, for such
considerations, from such sources and upon such terms and conditions as it
may, from time to time, determine upon, subject only to the restrictions,
limitations, conditions and requirements imposed by the Act, other applicable
laws and these Amended and Restated Articles, as the same may, from time to
time, be amended.
SECTION 5.08 NO PRE-EMPTIVE RIGHTS. Neither the holders of shares of
Common Stock nor the holders of shares of Preferred Stock (or any series
thereof) shall have preemptive rights to subscribe to or purchase any shares
of Common Stock, Preferred Stock or other securities of the Corporation.
SECTION 5.09 RECORD OWNERSHIP OF SHARES OR RIGHTS. The Corporation, to
the extent permitted by law, shall be entitled to treat the person in whose
name any share or right of the Corporation is registered on the books of the
Corporation as the owner thereof for all purposes, and shall not be bound to
recognize any equitable or any other claim to, or interest in, such share or
right on the part of any other person, whether or not the Corporation shall
have notice hereof.
ARTICLE 6
CAPITAL
SECTION 6.01 AMOUNT. The Corporation shall not transact any business
or incur any indebtedness, except such business or indebtedness as shall be
incidental to its organization or to obtaining subscriptions to or payment
for the shares of the Corporation, until consideration of the value of at
least One Thousand Dollars ($1,000.00) has been received for the issuance of
shares and allocated to the stated capital of the Corporation.
ARTICLE 7
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
SECTION 7.01 LOCATION OF MEETINGS. Meetings of the Shareholders, the
Board of Directors or any committees of the Board of Directors may be held at
such place, within or without the State of Indiana, as may be specified in
the respective notices or waivers of notice thereof.
SECTION 7.02 PROVISIONS OF WORKING CAPITAL. The Board of Directors of
the Corporation shall have power, from time to time, to fix and determine and
to vary the amount to be reserved as working capital of the Corporation and,
before the payment of any dividends, it may set aside out of the net profits
of the Corporation such sum or sums as it may from time to time in its
absolute discretion determine to be proper, whether as a reserve fund to meet
contingencies or for the equalizing of dividends, or for repairing or
maintaining any property of the Corporation, or for an addition to surplus,
or for any corporate purposes that the Board of Directors shall think
conducive to the best interest of the Corporation, subject only to such
limitations as the Code of Bylaws of the Corporation may from time to time
impose.
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SECTION 7.03 INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other
transaction between the Corporation and one or more of its Directors, or
between the Corporation and any firm of which one or more of its Directors
are members or employees, or in which they are interested, or between the
Corporation and any corporation, partnership or association of which one or
more of its Directors are shareholders, members, directors, officers, or
employees, or in which they are interested, or in which the Corporation is a
member, shareholder, or otherwise interested, shall be valid for all
purposes, notwithstanding the presence of such Director or Directors at the
meeting of the Board of Directors of the Corporation which acts upon, or in
reference to, such contract or transaction and notwithstanding his or their
participation in such action, if the fact of such interest shall be disclosed
or known to the Board of Directors and the Board of Directors shall,
nevertheless, authorize, approve or ratify such contract or transaction by a
vote of a majority of the disinterested Directors present, notwithstanding
the fact that such majority of the disinterested Directors present may not
constitute a quorum, a majority of the Board of Directors, or a majority of
the Directors present at the meeting at which the contract or transaction is
considered. This Section shall not be construed to invalidate any contract
or other transaction which would otherwise be valid under the common and
statutory law applicable thereto.
SECTION 7.04 DIRECTION OF PURPOSES AND EXERCISE OF POWERS BY DIRECTORS.
The Board of Directors, subject to any specific limitations or restrictions
imposed by the Act or these Articles of Incorporation, shall direct the
carrying out of the purpose and exercise the powers of the Corporation,
without previous authorization or subsequent approval by the Shareholders of
the Corporation. In addition to any other considerations which the Board of
Directors may lawfully take into account, in determining whether to take or
to refrain from taking corporate action on any matter, including making or
declining to make any recommendation to the Shareholders of the Corporation,
the Board of Directors may in its discretion consider the long-term as well
as short-term best interests of the Corporation (including the possibility
that these interests may be best served by the continued independence of the
Corporation), taking into account, and weighing as the Directors deem
appropriate, the social and economic effects of such action on present and
future employees, suppliers and customers of the Corporation and any
subsidiaries of the Corporation (including account holders and borrowers of
any such subsidiaries), the effect upon communities in which offices or other
facilities of the Corporation are located, the effect on the Corporation's
ability to fulfill its corporate obligations, and any other factors the
Directors consider pertinent. The Corporation intends to be subject to the
provisions of the Indiana Control Share Acquisitions Statute (codified at IC
23-I-42, ET. SEQ.) and the Indiana Business Combinations Statute (codified at
IC 23-1-43, ET. SEQ.).
SECTION 7.05 AMENDMENTS OF ARTICLES OF INCORPORATION. The Corporation
reserves the right to amend, alter, change or repeal any provision contained
in the Articles of Incorporation, or in any amendment hereto, or to add any
provision to the Articles of Incorporation or to any amendment hereto, in any
manner now or hereafter prescribed or permitted by the provisions of the Act
or any amendment thereto, or by the provisions of any other applicable
statute of the State of Indiana; and all rights conferred upon Shareholders
in the Articles of Incorporation or any amendment hereto are granted subject
to this reservation.
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ARTICLE 8
INDEMNIFICATION
SECTION 8.01 GENERAL. The Corporation shall, to the fullest extent to
which it is empowered to do so by the Act, or any other applicable laws, as
from time to time in effect, indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, by reason of the fact that he
is or was a Director, Officer, employee or agent of the Corporation, or who,
while serving as such Director, Officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, whether for profit or not, against expenses (including
counsel fees), judgments, settlements, penalties and fines (including excise
taxes assessed with respect to employee benefit plans) actually or reasonably
incurred by him in accordance with such action, suit or proceeding, if he
acted in good faith and in a manner he reasonably believed, in the case of
conduct in his official capacity, was in the best interests of the
Corporation, and in all other cases, was not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, he
either had reasonable cause to believe his conduct was lawful or no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not meet the prescribed standard of
conduct.
SECTION 8.02 AUTHORIZATION OF INDEMNIFICATION. To the extent that a
Director, Officer, employee or agent of the Corporation has been successful,
on the merits or otherwise, in the defense of any action, suit or proceeding
referred to in Section 8.01 of this Article, or in the defense of any claim,
issue or matter therein, the Corporation shall indemnify that person against
expenses (including counsel fees) actually and reasonably incurred by that
person in connection therewith. Any other indemnification under Section 8.01
of this Article (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case, upon a determination that
indemnification of the Director, Officer, employee or agent is permissible in
the circumstances because he has met the applicable standard of conduct.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who were not at the time parties to
such action, suit or proceeding; or (b) if a quorum cannot be obtained under
subdivision (a), by a majority vote of a committee duly designated by the
Board of Directors (in which designation Directors who are parties may
participate), consisting solely of two (2) or more Directors not at the time
parties to such action, suit or proceeding; or (c) by special legal counsel:
(i) selected by the Board of Directors or its committee in the manner
prescribed in subdivision (a) or (b), or (ii) if a quorum of the Board of
Directors cannot be obtained under subdivision (a) and a committee cannot be
designated under subdivision (b), selected by a majority vote of the full
Board of Directors (in which selection Directors who are parties may
participate); or (c) by the Shareholders, but shares owned by or voted under
the control of Directors who are at the time parties to such action, suit or
proceeding may not be voted on the determination.
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Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subdivision
(c) to select counsel.
SECTION 8.03 GOOD FAITH DEFINED. For purposes of any determination
under Section 8.01 of this Article 8, a person shall be deemed to have acted
in good faith and to have otherwise met the applicable standard of conduct
set forth in Section 8.01 if his action is based on information, opinions,
reports or statements, including financial statements and other financial
data, if prepared or presented by (a) one or more Officers or employees of
the Corporation or another enterprise whom he reasonably believes to be
reliable and competent in the matters presented; (b) legal counsel, public
accountants, appraisers or other persons as to matters he reasonably believes
are within the person's professional or expert competence; or (c) a committee
of the Board of Directors of the Corporation or another enterprise of which
the person is not a member if he reasonably believes the committee merits
confidence. The term "another enterprise" as used in this Section 8.03 shall
mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which the person is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee
or agent. The provisions of this Section 8.03 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standards of conduct set forth in Section
8.01 of this Article 8.
SECTION 8.04 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in
connection with any civil or criminal action, suit or proceeding may be paid
for or reimbursed by the Corporation in advance of the final disposition of
such action, suit or proceeding, as authorized in the specific case in the
same manner described in Section 8.02 of this Article 8, upon receipt of a
written affirmation of the Director, Officer, employee or agent's good faith
belief that he has met the standard of conduct described in Section 8.01 of
this Article 8 and upon receipt of a written undertaking by or on behalf of
the Director, Officer, employee or agent to repay such amount if it shall
ultimately be determined that he did not meet the standard of conduct set
forth in Section 8.01 of this Article 8, and a determination is made that the
facts then known to those making the determination would not preclude
indemnification under this Article 8.
SECTION 8.05 PROVISIONS NOT EXCLUSIVE. The indemnification provided by
this Article 8 shall not be deemed exclusive of any other rights to which a
person seeking indemnification may be entitled under these Articles, the
Corporation's Code of Bylaws, any resolution of the Board of Directors or
shareholders, any other authorization, whenever adopted, after notice, by a
majority vote of all voting stock then outstanding, or any contract, both as
to action in his official capacity and as to action in another capacity while
holding that office, and shall continue as to a person who has ceased to be a
Director, Officer, employee or agent, and shall inure to the benefit of the
heirs, executors and administrators of that person.
SECTION 8.06 VESTED RIGHT TO INDEMNIFICATION. The right of any
individual to indemnification under this Article shall vest at the time of
occurrence or performance of any event, act or omission
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giving rise to any action, suit or proceeding of the nature referred to in
Section 8.01 of this Article 8 and, once vested, shall not later be impaired
as a result of any amendment, repeal, alteration or other modification of any
or all of these provisions. Notwithstanding the foregoing, the
indemnification afforded under this Article 8 shall be applicable to all
alleged prior acts or omissions of any individual seeking indemnification
hereunder, regardless of the fact that such alleged acts or omissions may
have occurred prior to the adoption of this Article 8. To the extent such
prior acts or omissions cannot be deemed to be covered by this Article 8, the
right of any individual to indemnification shall be governed by the
indemnification provisions in effect at the time of the prior acts or
omissions.
SECTION 8.07 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, employee
or agent of the Corporation, or who is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against any liability asserted against or incurred by
the individual in that capacity or arising from the individual's status as a
Director, Officer, employee or agent, whether or not the Corporation would
have power to indemnify the individual against the same liability under this
Article.
SECTION 8.08 ADDITIONAL DEFINITIONS. For purposes of this Article,
references to the "Corporation" shall include any domestic or foreign
predecessor entity of the Corporation in a merger or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
For purposes of this Article 8, "serving an employee benefit plan at the
request of the Corporation" shall include any service as a Director, Officer,
employee or agent of the Corporation which imposes duties on, or involves
services by that Director, Officer, employee, or agent with respect to an
employee benefit plan, its participants, or beneficiaries. A person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interest
of the Corporation" referred to in this Article 8.
For purposes of this Article 8, "party" includes any individual who is or
was a plaintiff, defendant or respondent in any action, suit or proceeding,
or who is threatened to be made a named defendant or respondent in any
action, suit or proceeding.
For purposes of this Article 8, "official capacity," when used with
respect to a Director, shall mean the position of director of the
Corporation; and when used with respect to an individual other than a
Director, shall mean the office in the Corporation held by the Officer or the
employment or agency relationship undertaken by the employee or agent on
behalf of the Corporation.
"Official capacity" does not include service for any other foreign or
domestic corporation or any partnership, joint venture, trust, employee
benefit plan, or other enterprise, whether for profit or not.
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SECTION 8.09 PAYMENTS, A BUSINESS EXPENSES. Any payments made to any
indemnified party under this Article under any other right to
indemnification shall be deemed to be an ordinary and necessary business
expense of the Corporation, and payment thereof shall not subject any person
responsible for the payment, or the Board of Directors, to any action for
corporate waste or to any similar action."
IN WITNESS WHEREOF, the undersigned, being the Corporate Secretary,
executes these Restated Articles of Incorporation and verifies and affirms,
subject to penalties for perjury, that the facts herein stated are true this
______ day of October, 1997.
-----------------------------------
By: Stephen R. Head
Its: Secretary
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AMENDED AND RESTATED
CODE OF BY-LAWS
OF
MADE2MANAGE SYSTEMS, INC.
ARTICLE 1
IDENTIFICATION
SECTION 1.01. NAME. The name of the Corporation is MADE2MANAGE SYSTEMS,
INC. (hereinafter referred to as the "Corporation").
SECTION 1.02. PLACE OF KEEPING CORPORATE BOOKS AND RECORDS. The books of
account, records, documents and papers of the Corporation shall be kept at any
place or places within or without the State of Indiana as directed by the Board
of Directors of the Corporation (the "Board of Directors"). In the absence of a
direction, the books of account, records, documents and papers shall be kept at
the principal office of the Corporation.
SECTION 1.03. SEAL. The Board of Directors may designate the design and
cause the Corporation to obtain and use a corporate seal, but the failure of the
Board to designate a seal or the absence of the impression of the corporate seal
from any document shall not affect in any way the validity or effect of such
document.
SECTION 1.04. FISCAL YEAR. The fiscal year of the Corporation shall end
at such time as the Board of Directors shall determine. In the event the Board
of Directors shall not make such a determination, the fiscal year of the
Corporation shall be the fiscal year adopted in the first federal income tax
return of the Corporation.
ARTICLE 2
SHARES
SECTION 2.01. CERTIFICATES FOR SHARES. Each holder of shares of Common
Stock or Preferred Stock of the Corporation shall be entitled to a certificate
in such form as the Board of Directors may prescribe from time to time, signed
by the President or the Vice-President, and the Secretary (or an Assistant
Secretary, if any) of the Corporation.
SECTION 2.02. TRANSFER OF SHARES. The Common Stock and Preferred Stock of
the Corporation shall be transferable only on the books of the Corporation upon
surrender of the certificate or certificates representing the same, properly
endorsed by the registered holder or by his duly authorized attorney, such
endorsement or endorsements to be witnessed by one witness. The requirement for
such witnessing may be waived in writing upon the form of endorsement by the
President of the Corporation.
SECTION 2.03. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
issue a new certificate for shares of Common Stock and Preferred Stock in the
place of any certificate theretofore
<PAGE>
issued and alleged to have been lost, stolen or destroyed, but the Board of
Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as it may direct to
indemnify the Corporation against any claim that may be made on account of
the alleged loss, theft or destruction of such certificate. A new
certificate may be issued without requiring any bond when, in the judgment of
the Board of Directors, it is not imprudent to do so.
ARTICLE 3
MEETINGS OF SHAREHOLDERS
SECTION 3.01. PLACE OF MEETINGS. All meetings of Shareholders of the
Corporation shall be held at the principal office of the Corporation or at such
other place, within or without the State of Indiana, as may be specified in the
respective notices or waivers of notice thereof.
SECTION 3.02. ANNUAL MEETING. Unless otherwise determined by the Board of
Directors, the annual meeting of the Shareholders for the election of Directors,
and for the transaction of such other business as may properly come before the
meeting, shall be held at 10:00 a.m. on the third Saturday of the third month
following the close of each fiscal year, if such day is not a legal holiday, and
if a holiday then on the first following day that is not a legal holiday.
Failure to hold the annual meeting at the designated time shall not work any
forfeiture or a dissolution of the Corporation.
SECTION 3.03. SPECIAL MEETINGS. Special meetings of the Shareholders
may be called by the President or by a majority of the Board of Directors.
Any request for a special meeting of the Shareholders shall state the purpose
or purposes of the proposed meeting.
SECTION 3.04. RECORD DATE. The Board of Directors may fix a record date,
not exceeding seventy (70) days prior to the date of any meeting of
Shareholders, for the purpose of determining the Shareholders entitled to notice
of and to vote at such meeting. In the absence of action by the Board of
Directors fixing a record date as herein provided, the record date shall be the
fourteenth day prior to the date of the meeting.
SECTION 3.05. NOTICE OF MEETINGS. A written or printed notice, stating
the place, day and hour of the meeting, and, in the case of a special meeting or
when otherwise required by any provision of Indiana Business Corporation Law,
the Articles of Incorporation, as amended, or the Code of By-Laws, the purpose
or purposes for which the meeting is called, shall be delivered or mailed by the
Secretary or by the persons calling the meeting to each holder of Common Stock
and Preferred Stock of the Corporation at the time entitled to vote, at such
address as appears on the records of the Corporation, at least ten (10) days
before the date of the meeting. Each Shareholder who has in the
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manner provided below waived notice of a Shareholders' meeting, or who
personally attends a Shareholders' meeting, or who is represented thereat by
a proxy duly authorized to appear or by an instrument of proxy complying with
the requirements hereinafter set forth, shall be conclusively presumed to
have been given due notice of such meeting.
SECTION 3.06. WAIVER OF NOTICE. Notice of any such meeting may be waived
in writing by any Shareholder if the waiver sets forth in reasonable detail the
purpose or purposes for which the meeting is called, and the time and place
thereof. Attendance at any meeting, in person or by proxy, shall constitute a
waiver of notice of such meeting.
SECTION 3.07. PROXIES. A Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy executed in writing by the
Shareholder or a duly authorized attorney-in-fact of such Shareholder. For
purposes of this section, a proxy granted by telegram, telex, telecopy or other
document transmitted electronically for or by a Shareholder shall be deemed
"executed in writing by the Shareholder." The general proxy of a fiduciary
shall be given the same effect as the general proxy of any other Shareholder.
No proxy shall be valid after eleven months from the date of its execution
unless a longer time is expressly provided therein.
SECTION 3.08. QUORUM. At any meeting of Shareholders, the holders of a
majority of the outstanding shares which may be voted on the business to be
transacted at such meeting, represented thereat in person or by proxy, shall
constitute a quorum, and a majority vote of such quorum shall be necessary for
the transaction of any business by the meeting, unless a greater number is
required by law, the Articles of Incorporation, as amended, or the Code of
By-Laws. In case a quorum shall not be present at any meeting, the holders of
record of a majority of such shares so present in person or by proxy may adjourn
the meeting from time to time, without notice, other than announcement at the
meeting, until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
scheduled.
SECTION 3.09. VOTING LISTS. The Secretary of the Corporation shall make,
at least five (5) days before each election of Directors, a complete list of the
Shareholders entitled by the Articles of Incorporation, as amended, to vote at
such election, arranged in alphabetical order, with the address and number of
shares so entitled to vote held by each, which list shall be on file at the
principal office of the Corporation and subject to inspection by any shareholder
at any time during usual business hours for a period of five (5) days prior to
such election. Such list shall be produced and kept open at the time and place
of election and subject to the inspection of any Shareholder during the holding
of such election. The original stock register or transfer book, or a duplicate
thereof kept in the State of Indiana, shall be the only evidence as to who are
the Shareholders entitled to examine such list, or the stock ledger or transfer
book, or to vote at any meeting of the Shareholders.
SECTION 3.10. ORDER OF BUSINESS. The order of business at the annual
meetings, and so far as practicable at all other meetings, of Shareholders,
shall be:
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ITEM (1). Proof of due notice of meeting.
ITEM (2). Determination of quorum.
ITEM (3). Reading and disposal of any unapproved minutes.
ITEM (4). Reports of Officers and Committees.
ITEM (5). Unfinished business.
ITEM (6). New business.
ITEM (7). Election of Directors.
ITEM (8). Adjournment.
SECTION 3.11. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Shareholders may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by all the
Shareholders entitled to vote with respect thereto, and such written consent is
filed with the proceedings of the Shareholders.
ARTICLE 4
BOARD OF DIRECTORS
SECTION 4.01. DUTIES AND NUMBER. The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors which
shall consist of a minimum of three (3) Directors.
SECTION 4.02. ELECTION, TERM OF OFFICE AND QUALIFICATION. Directors shall
be elected at each annual meeting of the Shareholders by the holders of the
Common Stock and Preferred Stock entitled by the Articles of Incorporation, as
amended, to elect Directors. Directors shall be elected for a term of one year
and shall hold office until their respective successors are elected and
qualified. Directors need not be Shareholders of the Corporation. No decrease
in the number of Directors at any time provided for by the Code of By-Laws shall
have the effect of shortening the term of any incumbent Director.
SECTION 4.03. POWERS OF DIRECTORS. The Board of Directors shall exercise
all the powers of the Corporation, subject to the restrictions imposed by law,
the Articles of Incorporation, as amended, or the Code of By-Laws.
SECTION 4.04. ANNUAL MEETING. Unless otherwise determined by the
President or the Board of Directors, the Board of Directors shall meet each year
immediately after the annual meeting of the
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Shareholders, at the place where such meeting of the Shareholders has been
held, for the purpose of organization, election of Officers, and
consideration of any other business that may properly be brought before the
meeting. No notice shall be necessary for the holding of this annual
meeting. If such meeting is not held as above provided, the election of
Officers may be held at any subsequent duly constituted meeting of the Board
of Directors.
SECTION 4.05. OTHER MEETINGS. Regular meetings of the Board of
Directors may be held, without notice, at such time as may from time to time
be fixed by resolution of the Board of Directors. Special meetings of the
Board of Directors may be called at any time by the President, and shall be
called on the written request of any member of the Board of Directors.
Notice of such a special meeting shall be sent by the Secretary to each
Director at his residence or usual place of business by letter or telegram,
at such time that, in regular course, such notice would reach such place not
later than during the second day immediately preceding the day for such
meeting; or may be delivered by the Secretary to a Director personally at any
time during such second preceding day. At any meeting at which all Directors
are present, notice of the time, place and purpose thereof shall be deemed
waived; and notice may be waived (either before or after the time of the
meeting) by absent Directors, either by written instrument or telegram. Such
meetings may be held at any place within or without the State of Indiana, as
may be specified in the respective notices, or waivers of notice, thereof.
SECTION 4.06. MEETING BY TELEPHONE, ETC. Any or all of the members of the
Board of Directors or of any committee designated by the Board of Directors may
participate in a meeting of the Board of Directors or the committee by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can communicate with each other, and participation
by these means constitutes presence in person at the meeting.
SECTION 4.07. QUORUM. The presence of a majority of the actual number of
Directors then elected and qualified shall be necessary to constitute a quorum
for the transaction of any business except as may otherwise be required in the
Articles of Incorporation, as amended, with respect to the filling of vacancies
in the Board of Directors. The act of the majority of the Directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors unless the act of a greater number is required by law, the Articles of
Incorporation, as amended, or the Code of By-Laws. Anything herein to the
contrary notwithstanding, two-thirds of the Directors present at a meeting at
which a quorum is present shall be necessary to approve the (i) sale or merger
of the Corporation, the disposition of all or substantially all of its assets or
any similar transaction, (ii) engagement of the Company in any business other
than microcomputer hardware and software design, manufacture, sale and service,
(iii) declaration of dividends or similar distributions, (iv) acquisition of any
material business or assets, (v) incurrence or forgiveness of a loan to any
Corporation shareholder or officer, (vi) annual budget, (vii) compensation plans
for top management including bonuses, (viii) incurrence of any capital
expenditures in excess of budget, (ix) employee stock incentive plans, (x)
incurrence of debt or issuance of new equity, (xi) hiring relatives of employees
and (xii) any amendment, alteration or repeal of the Code of By-Laws.
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SECTION 4.08. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if a written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 4.09. RESIGNATIONS. Any Director may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.10. COMPENSATION OF DIRECTORS. The Board of Directors is
empowered and authorized to fix and determine the compensation of Directors for
attendance at meetings of the Board of Directors and additional compensation for
such additional services any of such Directors may perform for the Corporation.
ARTICLE 5
OFFICERS
SECTION 5.01. NUMBER AND QUALIFICATIONS. The Officers of the Corporation
shall consist of the President, one (l) or more Vice-Presidents (if any), the
Secretary, the Treasurer, and such other officers as may be chosen by the Board
of Directors at such time and in such manner and for such terms as the Board of
Directors may prescribe. The President shall be chosen from among the
Directors. Any two (2) or more offices may be held by the same person.
SECTION 5.02. ELECTION AND TERM OF OFFICE. The officers shall be chosen
annually by the Board of Directors. Each officer shall hold office until his
successor is chosen and qualified, or until his death, or until he shall have
resigned, or shall have been removed in the manner hereinafter provided.
SECTION 5.03. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 5.04. REMOVAL. Any Officer may be removed either with or without
cause, at any time, by the vote of a majority of the actual number of Directors
elected and qualified.
SECTION 5.05. VACANCIES. Whenever any vacancies shall occur in any office
by death, resignation, removal, increase in the number of offices of the
Corporation, or otherwise, the same shall be filled by the Board of Directors,
and the Officer so chosen shall hold office during the remainder of the term for
which his predecessor was chosen or as otherwise provided herein.
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SECTION 5.06. PRESIDENT. Subject to the general control of the Board of
Directors, the President shall manage and supervise all the affairs and
personnel of the Corporation and shall discharge all the usual functions of the
chief executive officer of a corporation. He shall preside at all meetings of
Shareholders and Directors, discharge all the duties which devolve upon a
presiding officer, and perform such other duties as the Code of By-Laws or the
Board of Directors may prescribe. The President shall have full authority to
execute proxies in behalf of the Corporation, to vote stock owned by it in any
other corporation, and to execute, with the Secretary, powers of attorney
appointing other corporations, partnerships, or individuals the agent of the
Corporation, all subject to the provisions of Indiana Business Corporation Law,
the Articles of Incorporation, as amended, and the Code of By-Laws.
SECTION 5.07. VICE-PRESIDENTS. The Vice-Presidents, in the order
designated by the President or the Board of Directors, shall have all powers of,
and perform all duties incumbent upon, the President during his absence or
disability and shall have such other powers and duties as the Code of By-Laws,
the Board of Directors or the President may prescribe.
SECTION 5.08. SECRETARY. The Secretary shall attend all meetings of the
Shareholders and of the Board of Directors, and shall keep or cause to be kept
in a book provided for the purpose a true and complete record of the proceedings
of such meetings, and shall perform a like duty, when required, for all
committees appointed by the Board of Directors. He shall perform such other
duties as the Code of By-Laws, the Board of Directors or the President may
prescribe. He shall give all notices of the Corporation and, in case of his
absence, negligence or refusal so to do, any notice may be given by a person so
directed by the President or by the requisite number of Directors or
Shareholders upon whose request the meeting is called as provided by these the
Code of By-Laws.
SECTION 5.09. TREASURER. The Treasurer shall keep correct and complete
records of account, showing accurately at all times the financial condition of
the Corporation. He shall be the legal custodian of all moneys, notes,
securities and other valuables which may from time to time come into the
possession of the Corporation. He shall immediately deposit all funds of the
Corporation coming into his hands in some reliable bank or other depository to
be designated by the Board of Directors, and shall keep such bank account in the
name of the Corporation. He shall furnish at meetings of the Board of
Directors, or whenever requested, a statement of the financial condition of the
Corporation, and shall perform such other duties as the Code of By-Laws, the
Board of Directors or the President may prescribe. The Treasurer may be
required to furnish bond in such amount as shall be determined by the Board of
Directors.
SECTION 5.10. ASSISTANT OFFICERS. The Board of Directors may from time to
time designate and elect assistant officers who shall have such powers and
duties as the officers whom they are elected to assist shall specify and
delegate to them, and such other powers and duties as the Code of By-Laws, the
Board of Directors or the President may prescribe. An Assistant Secretary may,
in the absence or disability of the Secretary, attest the execution of all
documents by the Corporation.
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SECTION 5.11. DELEGATION OF AUTHORITY. In case of the absence of any
Officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may delegate the powers or duties of
such Officer to any other Officer or to any Director, for the time being,
provided a majority of the entire Board of Directors concurs therein.
ARTICLE 6
SPECIAL CORPORATE ACTS, NEGOTIABLE
INSTRUMENTS, DEEDS, CONTRACTS AND STOCK
SECTION 6.01. EXECUTION OF NEGOTIABLE INSTRUMENTS. All checks, drafts,
bills of exchange and orders for the payment of money of the Corporation shall,
unless otherwise directed by the Board of Directors, or unless otherwise
required by law, be signed by any two of the following officers: President,
Vice-President, Secretary or Treasurer. The Board of Directors may, however,
authorize any one or more of such officers to sign checks, drafts, bills of
exchange and orders for the payment of money by the Corporation singly and
without necessity of countersignature; and the Board of Directors may designate
any employee or employees of the Corporation, in addition to those named above,
who may, in the name of the Corporation, execute checks, drafts, bills of
exchange and orders for the payment of money by the Corporation or in its
behalf.
SECTION 6.02. EXECUTION OF DEEDS, CONTRACTS, ETC. All deeds, notes, bonds
and mortgages made by the Corporation and all other written contracts and
agreements, other than those executed in the ordinary course of corporate
business, to which the Corporation shall be a party shall be executed in its
name by the President, the Vice-President or by any other Officer so authorized
by the Board of Directors, acting by resolution; and the Secretary, when
necessary or required, shall attest the execution thereof.
SECTION 6.03. ORDINARY CONTRACTS AND AGREEMENTS. All written contracts
and agreements into which the Corporation enters in the ordinary course of
business operations shall be executed by any Officer of the Corporation or by
any other employee of the Corporation designated by the President to execute
such contracts and agreements.
SECTION 6.04. ENDORSEMENT OF CERTIFICATES FOR SHARES. Unless otherwise
directed by the Board of Directors, any share or shares issued by any
corporation and owned by the Corporation (including reacquired shares of the
Corporation) may, for sale or transfer, be endorsed in the name of the
Corporation by the President or the Vice-President, and such endorsement shall
be duly attested by the Secretary.
SECTION 6.05. VOTING OF SHARES OWNED BY CORPORATION. Unless otherwise
directed by the Board of Directors, any share or shares issued by any other
corporation and owned, or controlled by the Corporation may be voted at any
shareholders' meeting of such other corporation by the President of the
Corporation if he be present, or in his absence by the Vice-President of the
Corporation. Whenever, in the judgment of the President, it is desirable for
the Corporation to execute a proxy or
-8-
<PAGE>
give a shareholders' consent in respect to any share or shares issued by any
other corporation and owned by the Corporation, such proxy or consent shall
be executed in the name of the Corporation by the President or the
Vice-President of the Corporation. Any person or persons designated in the
manner above stated as the proxy or proxies of the Corporation shall have
full right, power and authority to vote the share or shares issued by such
other corporation and owned by the Corporation in the same manner as such
share or shares might be voted by the Corporation.
ARTICLE 7
AMENDMENTS
SECTION 7.01. AMENDMENT OF BY-LAWS. Subject to the requirements of
Section 4.07, the power to make, alter, amend or repeal the Code of By-Laws of
the Corporation is vested in the Board of Directors.
-9-
<PAGE>
SPECIMIN
COMMON SHARES COMMON SHARES
---------- ----------
NUMBER SHARES
MADE2MANAGE SYSTEMS, INC.
INCORPORATED UNDER THE LAWS CUSIP 556468100
OF THE STATE OF INDIANA SEE REVERSE FOR CERTAIN DEFINITIONS
This certifies that
is the OWNER of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF,
Made2Manage Systems, Inc.
(hereinafter referred to as the "Corporation"), transferable on the books of
the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed. This Certificate and
the Shares represented hereby are issued and shall be held subject to all of
the provisions of the Amended and Restated Articles of Incorporation, as
amended from time to time, of the Corporation, to all of which the holder, by
acceptance hereof, assents. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile signatures of its duly authorized officers.
DATED:
Countersigned and Registered: AMERICAN STOCK TRANSFER &
TRUST COMPANY
Transfer Agent and Registrar,
/S/ STEPHEN R. HEAD By: /S/DAVID B. WORTMAN
- --------------------- -------------------------------------------
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
Authorized Signature
<PAGE>
Made2Manage Systems, Inc.
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE CORPORATION PROVIDE
FOR THE ISSUANCE OF PREFERRED SHARES WITH SUCH RIGHTS AS MAY BE DETERMINED,
IN WHOLE OR IN PART, BY THE BOARD OF DIRECTORS PRIOR TO THE ISSUANCE THEREOF.
THE CORPORATION SHALL FURNISH TO THE HOLDER OF THIS CERTIFICATE, ON REQUEST
IN WRITING AND WITHOUT CHARGE, A SUMMARY OF THE DESIGNATIONS, RELATIVE
RIGHTS, PREFERENCES, AND LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES OF
THE CORPORATION, AND VARIATIONS AND RIGHTS, PREFERENCES AND LIMITATIONS
DETERMINED FOR EACH SERIES, IF ANY, WITHIN A CLASS (AND THE AUTHORITY OF THE
BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES, IF ANY).
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of
survivorship and not as tenants in common
UNIF GIFT MIN ACT -____ Custodian _____ under Uniform Gifts to Minors Act____
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above list.
For value received __________ hereby sells, assigns and transfers unto
- -------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE
- -------------------------------------------------------------------------------
______________ Shares of the capital stock represented by the within Certificate
and do hereby irrevocably constitute and appoint ______________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated: ________________________
__________________________________
Signature
__________________________________
Signature
NOTICE: THE SIGNATURES TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE
EXACTLY, WITHOUT ANY CHANGE WHATEVER.
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANK, STOCK
BROKER, SAVINGS AND LOAN ASSOCIATION AND CREDIT
Signature Guaranteed: UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
By:___________________________ PURSUANT TO S.E.C. RULE 17 Ad-15.
<PAGE>
ICE
MILLER
DONADIO
& RYAN
November 24, 1997
Board of Directors
Made2Manage Systems, Inc.
9002 Purdue Road
Indianapolis, IN 46268
Gentlemen:
We have acted as counsel to Made2Manage Systems, Inc., an Indiana
corporation (the "Company"), in connection with the filing of a Registration
Statement on Form S-1 File No. 333-38177 (the "Registration Statement") with
the Securities and Exchange Commission (the "Commission") for the purposes of
registering under the Securities Act of 1933, as amended (the "Securities
Act"), an aggregate of up to 2,587,500 shares of Common Stock of the Company
(the "Shares") which are to be offered to the public. Of the Shares,
2,050,000 Shares will be sold by the Company (the "Company Shares"), 200,000
Shares will be sold by certain shareholders of the Company and up to 337,500
Shares may be sold by certain shareholders of the Company to cover the
over-allotment option to be granted to the underwriters (collectively, the
"Shareholder Shares") as set forth and described in the Registration
Statement.
In connection therewith, we have investigated those questions of law we
have deemed necessary or appropriate for purposes of this opinion. We have
also examined originals, or copies certified or otherwise identified to our
satisfaction, of those documents, corporate or other records, certificates
and other papers that we deemed necessary to examine for the purpose of this
opinion, including:
1. The proposed form of Amended and Restated Articles of Incorporation
of the Company;
2. A proposed form of specimen certificate representing the Shares; and
3. The Registration Statement.
For purposes of this opinion, we have assumed (i) that the Company
Shares will be issued pursuant to the terms of the Registration Statement;
and (ii) that no changes will occur in the applicable law or the pertinent
facts before the issuance and sale of the Shares.
<PAGE>
Board of Directors
October 16, 1997
Page 2
Based upon the foregoing and subject to the qualifications set forth in
this letter, we are of the opinion that when (a) the pertinent provisions of
the Securities Act and all relevant state securities laws have been complied
with and (b) the Company Shares have been delivered against payment therefor
as contemplated by the Registration Statement, the Shares will be validly
authorized, legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this Firm under the caption
"Legal Matters" in the Prospectus, included as a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category or persons whose consent is required under Section 7 of the
Securities Act or under the rules and regulations relating thereto.
Very truly yours,
/s/ Ice Miller Donadio & Ryan
----------------------------------
<PAGE>
MADE2MANAGE SYSTEMS, INC.
STOCK OPTION AGREEMENT
This Stock Option Agreement is entered into by and between _______________
(the "Optionee") hereinbelow set forth and Made2Manage Systems, Inc., an Indiana
corporation (the "Company").
1. OPTIONEE: BASIC TERMS. The Optionee is hereby granted an option to
purchase the number of fully paid and non-assessable shares of the
Common Stock, without par value, of the Company at the option price
hereinbelow set forth, subject to the following additional terms and
conditions:
A. DEFINITIONS.
1. "Code" shall mean the Internal Revenue Code of 1986, and as
amended from time to time.
2. "Incentive Option" shall mean an option described in Section
422 of the Code. TO QUALIFY FOR FAVORABLE TAX TREATMENT
PROVIDED BY AN INCENTIVE OPTION, THE SHARES PURCHASED UPON
EXERCISE MUST BE HELD FOR A PERIOD OF TWO (2) YEARS FROM THE
DATE OF THE OPTION GRANT AND FOR A PERIOD OF ONE (1) YEAR
AFTER THE SHARES ARE TRANSFERRED TO OPTIONEE.
3. "Non-Qualified Option" shall mean an option other than an
Incentive Option, the exercise of which generally results in
an immediate taxable event.
4. Unless otherwise indicated, all capitalized terms set forth
in this Agreement shall have the meaning provided to them
under the Plan, a copy of which Optionee acknowledges having
received.
B. GRANT OF OPTION.
1. The Company hereby grants to the Optionee an option (the
"Option") to purchase _____ shares of Common Stock of the
Company, upon the terms and conditions set forth below. The
date of grant of the Option is _________________________
(the "Grant Date").
2. This Option is intended to be a(n):
/ / Incentive Option (to be received only by EMPLOYEES of
the Company).
<PAGE>
/ / Non-Qualified Option.
3. The Optionee is a(n) (if applicable, check more than one):
/ / Employee / / Officer / / Director
/ / Consultant / / Other Person providing services
C. DURATION OF OPTION.
1. INCENTIVE OPTION: If this Option is an Incentive Option, as
set forth above, it shall expire ten (10) years from the
Grant Date, provided, however, for any Optionee who owns
more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Company, the
duration of this Option shall be five (5) years.
2. NON-QUALIFIED OPTION: If this Option is a Non-Qualified
Option, as set forth above, it shall expire ten (10) years
from the Grant Date.
D. PURCHASE PRICE.
The purchase price for the shares subject to the Option shall be
$___________ per share, which is either: (a) equal to at least
eighty-five percent (85%) of Fair Market Value if the Option is a
Non-Qualified Option, (b) equal to at least one-hundred percent
(100%) of Fair Market Value if the Option is an Incentive Option,
or (c) equal to at least one-hundred ten percent (110%) of Fair
Market Value if the Option is an Incentive Option and Optionee
holds more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Company.
2. EXERCISABILITY. This Option shall not be exercisable in whole or in
part until ___________________, 19____. Subject to Section 6
regarding termination of Optionee's employment, consulting,
directorship, or other relationships with the Company and Section 10A
regarding Incentive Options, this Option shall become exercisable on
or after _________________, 19____, with respect to _____% of the
shares of Common Stock and on the first day of each month thereafter
through __________________, 19 ____, with respect to an additional
1/_____ of the shares of Common Stock subject to the Option.
- 2 -
<PAGE>
3. METHOD OF EXERCISE AND PAYMENT. This Option may be exercised from
time to time, in whole or in part, to the extent exercisable, only by
delivery to an officer of the Company of the original of this Option
with an appropriate Notice of Exercise duly signed by the holder,
together with the full purchase price of the shares purchased pursuant
to the exercise of the Option; provided, however, that this Option may
not be exercised if such exercise would violate any law or
governmental order or regulation. If the offer and sale of the shares
subject to the Option has not been registered under the Securities Act
of 1933, as amended (the "Act"), Optionee shall deliver to the
Company, at the time of exercise, an appropriate "investment letter"
in form and content satisfactory to the Company unless, in the opinion
of counsel for the Company, the shares issued would not be deemed
"restricted securities" within the meaning of such Act or the rules
and regulations promulgated thereunder. Payment for the shares
purchased pursuant to any exercise shall be made in full at the time
of such exercise, in any of the following methods, as may be elected
by the Optionee, except for those PROHIBITED methods indicated by a
check mark within any of the boxes below (A CHECK MARK MEANS THE
METHOD IS PROHIBITED):
/ / In cash or by check payable to the order of the Company;
/ / In Common Stock of the Company already owned by the Optionee for
a period of six (6) months prior to such exercise, valued as of
the date of exercise of the Option at Fair Market Value;
/ / By a promissory note payable to the order of the Company; if a
promissory note is tendered, such note shall bear interest at an
interest rate determined by, and shall be subject to such terms
and conditions as are prescribed by, the Board of Directors of
the Company as set forth in the form of promissory note.
Optionee agrees to have withheld from any remuneration payable to
him/her by the Company and/or to pay to the Company, at the time of
exercise of the Option, an amount which is required to be withheld or
paid pursuant to any Federal, State or Local tax or revenue laws or
regulation, as may be determined by the Company.
The Optionee:
may / / or may not / /
- 3 -
<PAGE>
satisfy such tax withholding by instructing the Company to withhold
such number of option shares exercised which, when valued at fair
Market Value on the date of Exercise, equal the total tax obligations
required to be withheld.
4. NON-TRANSFERABILITY. This Option shall not be transferred, sold,
pledged, assigned, hypothecated, or disposed of in any manner by
Optionee other than by will or the laws of descent and distribution to
the extent hereinafter set forth. This Option may be exercised during
the holder's lifetime only by the holder hereof or, upon the holder's
legal incapacity to act on his/her own behalf, by the holder's
conservator or other lawful representative. The Option shall be null
and void and without effect upon any attempted assignment or transfer,
except as hereinabove provided, including without limitation, any
purported assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition contrary to the provisions
hereof, or levy of execution, attachment, trustee process or similar
process, whether legal or equitable, upon the Option.
5. TERMINATION. To the extent that this Option shall not have been
exercised in full prior to its termination or expiration date,
whichever shall be sooner, it shall terminate and become void and of
no effect.
6. CESSATION OF CONTINUOUS STATUS -- TERMINATION RETIREMENT DEATH OR
DISABILITY. If the holder shall voluntarily or involuntarily cease
his/her Continuous Status (as such term is defined in the Plan)
(hereinafter referred to as a "Termination"), the Option of the holder
shall terminate forthwith, except that the holder shall have thirty
(30) days (or such longer period as the Board may approve) following
the Termination to exercise this Option or any portion hereof which
the holder could have exercised on the date of Termination; provided,
however, that if the Termination is due to retirement by the holder on
or after attaining the age of sixty-five (65) years, the disability of
the holder or the death of the holder, the holder or the
representative of the estate of the holder shall have the privilege of
exercising the entire unexercised portion of this Option (regardless
of whether otherwise exercisable on the date of such Termination),
provided that such exercise be accomplished: (1) prior to the
expiration of this Option and (2) either within thirty (30) days of
the holder's retirement, or within twelve (12) months after the date
of death of the holder, as the case may be. Notwithstanding any of
the foregoing, if the Termination is "for cause" (as defined in
Section (d) of the Plan), or the holder is terminated due to his
expropriation of Company property (including trade secrets or other
proprietary rights), the existence of which shall be determined by the
Board of Directors or the Committee established to administer the Plan
(such decision to be made by the Board or Committee in its sole
discretion and which determination shall be conclusive), this Option
shall terminate immediately upon the Termination and the holder in
such event shall have no right
- 4 -
<PAGE>
after such Termination to exercise any unexercised Option he might
have exercised on or prior to the Termination.
7. STOCK SPLITS AND CAPITAL ADJUSTMENTS. If, prior to the complete
exercise of this Option, there shall be declared and paid a stock
dividend upon the Common Stock of the Company or if such stock shall
be split up, converted, exchanged or reclassified, this Option, to the
extent that it has not been exercised, shall entitle the holder, upon
the future exercise of this Option, to such number and kind of
securities or other property, subject to the terms of the Option, to
which the holder would be entitled had he/she actually owned the stock
subject to the unexercised portion of the Option at the time of the
occurrence of such stock dividend, split up, conversion, exchange,
reclassification or substitution; and the aggregate purchase price
upon the future exercise of the Option shall be the same as if shares
of Common Stock of the Company originally optioned were being
purchased as provided herein.
8. ACCELERATION OF EXERCISE DATE.
A. REORGANIZATION. Notwithstanding anything to the contrary
contained in this Agreement, all outstanding unexercised Options
shall become fully vested under the Plan and shall be fully
exercisable in the event of any reorganization, sale of all or
substantially all of the assets of the Company in a transaction
in which the Company does not survive in its present form (other
than a sale or transfer to a subsidiary or parent of the
Company), merger, consolidation, liquidation or similar
transaction pursuant to which the Company is not the surviving
corporation; provided, however, such Options shall not become
fully vested or immediately exercisable (1) if, in its sole
discretion, the Board has affirmatively determined that such
immediate vesting is not in the best interests of the Company, in
which event the Option shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or
subsidiary thereof, or (2) if such transaction is effected by the
Company for the principal purpose of changing the Company's state
of incorporation.
B. TIME OF EXERCISE. In the event of such accelerated vesting
pursuant to Section 8.A. above, the Option shall be fully
exercisable during a period to be designated by the Board (but
not less than ten (10) nor more than sixty (60) days prior to the
closing date of any such transaction).
C. DEFINITION OF SUBSIDIARY. For purposes of this paragraph, the
term "subsidiary" means a "subsidiary corporation" of the
Company, whether now or hereafter existing, as defined in Section
424(f) of the Code.
- 5 -
<PAGE>
9. COMPLIANCE WITH SECURITIES LAWS.
A. Postpone Issuance. Notwithstanding any provision of this Option
to the contrary, the Company may postpone the issuance and
delivery of shares upon any exercise of this Option until one of
the following conditions shall be met:
1. The shares with respect to which such Option has been
exercised are at the time of the issue of such shares
effectively registered under applicable Federal and State
securities laws now in force or hereafter enacted or
amended; or
2. Counsel for the Company shall have given an opinion that
registration of such shares under applicable Federal and
State securities laws, as now in force or hereafter enacted
or amended, is not required.
B. INVESTMENT REPRESENTATION. In the event that for any reason the
shares to be issued upon exercise of the Option shall not be
effectively registered under the Securities Act of 1933 (the
"1933 Act"), upon any date on which the Option is exercised in
whole or in part, the Company shall be under no further
obligation to issues shares covered by the Option, unless the
Optionee shall give a written representation to the Company, in
form satisfactory to the Company, that such person is acquiring
the shares issued pursuant to such exercise of the Option for
investment and not with a view to, or for sale in connection
with, the distribution of any such shares, and that he/she will
make no transfer of the same except in compliance with the 1933
Act and the rules and regulations promulgated thereunder and then
in force, and in such event, the Company may place an "investment
legend" upon any certificate for the shares issued by reason of
such exercise.
10. SPECIAL RULES REGARDING INCENTIVE OPTIONS.
A. NOTICE OF TRANSFER. If this Option is an Incentive Option, the
employee-optionee hereby agrees to notify the Company in writing
within three (3) days after any sale, transfer or other
disposition of shares acquired upon the exercise of this Option
which occurs within either twelve (12) months following the date
of exercise or twenty-four (24) months following the date of
grant.
B. $100,000 PER YEAR EXERCISE LIMIT. If this Option is an Incentive
Stock Option it shall be exercisable in accordance with the above
Section 2, but in no event shall it be exercised to the extent
that the aggregate fair market
- 6 -
<PAGE>
value of Common Stock covered by such Option which is exercisable
for the first time during any calendar year, when combined with
the aggregate fair market value of all stock covered by incentive
stock options (as defined in the Code) granted to Optionee after
December 31, 1986 by the Company, its parent or a subsidiary of
the Company which are exercisable for the first time during the
same calendar year, exceeds $100,000.
11. NO AGREEMENT OF EMPLOYMENT. Neither the grant of this Option nor this
Agreement shall be deemed to create any agreement with, or obligation
by, the Company to employ the Optionee for any period of time, it
being understood that employment is strictly "at will" in the absence
of any written agreement to the contrary and, in the absence of such
written agreement, such person may be terminated by the Company at any
time, with or without cause.
12. SUBJECT TO PLAN. This Option is issued subject and pursuant to the
provisions of the Plan, receipt of a copy of which the holder
acknowledges. A determination of the Board of Directors or the
Committee established pursuant to the Plan as to any questions which
may arise with respect to the interpretation of the provisions of this
Option and of the Plan shall be final. The Board of Directors or the
Committee may authorize and establish such rules and regulations, and
revisions thereof, not inconsistent with the provisions of the Plan,
as it may deem advisable. Any provision hereof which is inconsistent
with, or contrary to, the terms and conditions of the Plan shall be
superseded and governed by the Plan.
13. SEVERABILITY. If any condition, term or provision of this Agreement
is determined by a court to be illegal or in conflict with any law,
State or Federal, the validity of the remaining portions or provisions
shall not be affected, and the rights and obligations of the parties
shall be construed and enforced as if this Agreement did not contain
the particular condition, terms or provisions determined to be
unenforceable.
14. ENTIRE AGREEMENT; INDIANA LAW. This Agreement contains the entire
understanding and agreement between the parties hereto respecting the
within subject matter, and there are no representations, agreements,
arrangements or understandings, oral or written, between the parties
hereto relating to the subject matter of this Agreement that are not
fully expressed herein. The Company is an Indiana corporation, and
this Agreement shall be governed by and construed in accordance with
the laws and the State of Indiana.
WITNESS the signature of its duly authorized office of the Company as of
the date of grant hereof.
MADE2MANAGE SYSTEMS, INC.
- 7 -
<PAGE>
By:
------------------------------------
Name: David B. Wortman
----------------------------------
Title: President and CEO
---------------------------------
Acknowledged and Agreed to:
- -----------------------------------
Signature
- -----------------------------------
Name
- -----------------------------------
Street Address
- -----------------------------------
City, State, Zip Code
- -----------------------------------
Social Security No.
- 8 -
<PAGE>
MADE2MANAGE, INC.
STOCK OPTION PLAN
As adopted on August 16, 1990 and amended as of November 21, 1997.
1. PURPOSE OF THE PLAN. The Made2Manage, Inc. Stock Option Plan is
intended to promote the growth of the Company by attracting and motivating key
employees, directors, consultants, independent contractors, vendors, suppliers,
and other persons whose efforts are deemed worthy of encouragement through the
incentive effects of stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed, or, if
no Committee has been appointed, the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code, the rules and regulations
promulgated thereunder, and the interpretations thereof, all from time to time
in effect.
(c) "COMMITTEE" shall mean the Committee, if any, appointed by the Board
of Directors in accordance with Section 3(a) and consisting solely of two or
more Non-Employee Directors.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean Made2Manage, Inc., an Indiana corporation.
(f) "CONSULTANT" shall mean any person who is engaged by the Company or
any Parent or Subsidiary to render consulting services.
(g) "CONTINUOUS STATUS" shall mean the absence of any interruption or
termination of service as an Employee, Consultant, or other person providing
services on a regular basis to the Company or its Parent or any Subsidiary.
Continuous Status shall not be considered interrupted in the case of sick leave,
military leave, or any other leave of absence approved by the Board, provided
that either such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is provided or guaranteed by
contract or statute.
(h) "DIRECTOR" shall mean any person serving on the Board of Directors.
(i) "EMPLOYEE" shall mean any person, including Officers and Directors,
employed by the Company or its Parent or any Subsidiary. The payment or a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
<PAGE>
(j) "FAIR MARKET VALUE" shall mean the average of the closing bid and
asked prices of a share of Common Stock, as reported by The Wall Street Journal
(or, if not reported, as otherwise quoted by the National Association of
Securities Dealers through NASDAQ), on the date of the grant the Option, or, if
the Common Stock is listed on the NASDAQ National Market System or is listed on
a national stock exchange, the closing price on such System or such exchange on
the date of the grant of the option, as reported in The Wall Street Journal. In
the event the Common Stock is not traded publicly, the Fair Market Value of a
share of Common Stock on the date of the grant of the option shall be
determined, in good faith, by the Board or the Committee and such determination
shall be conclusive for all purposes. The Board or Committee shall take into
account such factors affecting value as it, in its sole and absolute discretion,
may deem relevant.
(k) "NON-EMPLOYEE DIRECTOR" shall mean any Director of the Company who is
not an Employee of the Company or its Parent or any Subsidiary.
(l) "OFFICER" shall mean any person, which may include directors, employed
by the Company or its Parent or any Subsidiary who has been elected an officer
by the respective board of directors.
(m) "OPTION" shall mean stock options issued pursuant to the Plan.
Options may be either "INCENTIVE OPTIONS," which are defined as Options intended
to meet the requirements of Section 422 of the Code, or "NONQUALIFIED OPTIONS,"
which are defined as options not intended to meet such requirements of the Code.
(n) "OPTION AGREEMENT" shall mean the written agreement setting forth the
terms and conditions of an option.
(o) "OPTIONED STOCK" shall mean the Common Stock subject to an Option.
(p) "OPTIONEE" shall mean a person who receives an Option.
(q) "PARENT" shall mean a "parent corporation" of the Company, whether now
or hereafter existing, as defined in Section 424(e) of the Code.
(r) "PARTICIPANT" shall mean a person to whom an Option has been granted.
(s) "PLAN" shall mean this Made2Manage, Inc. Stock Option Plan (1990).
(t) "SHARE" shall mean a share of Common Stock, as may be adjusted in
accordance with Section 6 below.
(u) "SUBSIDIARY" shall mean a "subsidiary corporation" of the Company,
whether now or hereafter existing, as defined in Section 424(f) of the Code.
-2-
<PAGE>
3. ADMINISTRATION OF THE PLAN.
(a) BY THE BOARD OF DIRECTORS OR BY THE COMMITTEE. The Plan shall be
administered by the Board of Directors or, if appointed, by a Committee. The
Board and the Committee shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and to
adopt such rules and regulations for administering the Plan as it may deem
necessary in order to comply with the requirements of the Plan, or in order that
any Option that is intended to be an Incentive Option will be classified as an
incentive stock option under the Code, or in order to conform to any regulation
or to any change in any law or regulation applicable thereto. The Board of
Directors may reserve to itself any of the authority granted to the Committee as
set forth herein, and it may perform and discharge all of the functions and
responsibilities of the Committee at any time that a duly constituted committee
is not appointed and serving.
(b) ACTIONS OF THE BOARD AND THE COMMITTEE. All actions taken and all
interpretations and determinations made by the Board or by the Committee in good
faith (including determinations of Fair Market Value) shall be final and binding
upon all Participants, the Company, and all other interested persons. No member
of the Board or the Committee shall be personally liable for any action,
determination, or interpretation made in good faith with respect to the Plan,
and all members of the Board or the Committee shall, in addition to their rights
as directors, be fully protected by the Company with respect to any such action,
determination, or interpretation.
(c) POWERS OF THE BOARD AND THE COMMITTEE. Subject to the provisions of
the Plan, the Board and, if appointed, the Committee shall have the authority,
in their discretion: (i) to determine, upon review of the relevant
information, the Fair Market Value of the Common Stock; (ii) to determine the
persons to whom Options shall be granted, the time or times at which Options
shall be granted, the number of shares to be represented by each Option, and the
exercise price per share; (iii) to interpret the Plan; (iv) to prescribe, amend,
and rescind rules and regulations relating to the Plan; (v) to determine whether
an option granted shall be an Incentive Option or a Nonqualified Option and to
determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, to modify or amend each
option, including reductions in the exercise price thereof; (vi) to accelerate
or defer (with the consent of the Optionee) the exercise date of any Option;
(vii) to authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the Board;
and (viii) to make all other determinations deemed necessary or advisable for
the administration of the Plan.
4. ELIGIBILITY AND PARTICIPATION.
(a) ELIGIBILITY. Grants of Options may be made to any Employee or
Consultant
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(which may include officers and/or Directors) of the Company or of its Parent
or Subsidiary, any Non-Employee Director (according to the terms provided in
Section 4(c)), or any independent contractor, vendor, supplier, or any other
person providing services to the Company or a Parent or Subsidiary whose
efforts are deemed worthy of encouragement by the Board; provided, however,
an Incentive Option may only be granted to an Employee.
(b) PARTICIPATION BY DIRECTOR. Members of the Board who are either
eligible for Options or have been granted Options may vote on any matters
affecting the administration of the Plan or the grant of any Options pursuant to
the Plan, except that no such member shall act upon the granting of an option to
himself, but any such member may be counted in determining the existence of a
forum at any meeting of the Board and may be counted as part of an action by
unanimous written consent during or with respect to which action is taken to
grant Options to him.
(c) FORMULA GRANTS TO NON-EMPLOYEE DIRECTORS.
(i) INITIAL GRANTS AND ANNUAL GRANTS FOR NON-EMPLOYEE DIRECTORS ENTITLED
TO INITIAL GRANTS. If an individual first becomes a Non-Employee Director after
November 21, 1997, he or she shall automatically be granted an option to
purchase 20,000 shares of Common Stock. Such grant shall be effective as of the
date on which the individual becomes a Non-Employee Director, and the option
shall become exercisable (i) with respect to 1/4 of the shares subject to the
option on the first anniversary of the effective date of the grant and (ii)
with respect to 1/48th of the shares initially subject to the option on the same
day of the month as the first anniversary in each of the 36 consecutive months
immediately following the month in which such anniversary occurs. Each
Non-Employee Director entitled to an initial grant pursuant to this paragraph
shall also automatically be granted an option to purchase 5,000 shares of Common
Stock, effective as of the first anniversary of the date on which he or she
first becomes a Non-Employee Director, and the option shall become exercisable
(i) with respect to 1/4 of the shares initially subject to the option on the
first anniversary of the effective date of such grant and (ii) with respect to
1/48th of the shares subject to the option on the same day of the month as the
first anniversary in each of the 36 consecutive months immediately following the
month in which such anniversary occurs.
(ii) OTHER ANNUAL GRANTS. Each Non-Employee Director not entitled to a
grant to purchase 20,000 pursuant to the preceding paragraph shall automatically
be granted an option to purchase 5,000 shares of Common Stock on the first
anniversary of the most recent grant of options to directors before November 21,
1997, and an option to purchase an additional 5,000 shares of Common Stock on
each anniversary of such date. Options granted pursuant to this subparagraph
(ii) shall become exercisable with respect to 1/4 of the shares
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<PAGE>
granted pursuant to the option on the first anniversary of the effective date
of the grant and with respect to 1/48th of the shares initially subject to
the option on the same day of the month as the first anniversary in each of
the 36 consecutive months immediately following the month in which such
anniversary occurs.
(iii) ELIGIBILITY FOR GRANTS. A Non-Employee Director shall be
eligible for a grant pursuant to this Section 4(c) only if he or she is a
Non-Employee Director on the effective date of the grant.
(iv) TERMINATION OF OPTION. Options granted pursuant to this Section 4(c)
shall terminate on the earliest of (i) ten years after the effective date of the
grant, (ii) thirty (30) days after the Non-Employee Director's cessation of
Continuous Status, or (iii) such earlier date as required by another provision
of this Plan.
(v) OPTION PRICE. The option price for each share of Common Stock granted
to a Non-Employee Director pursuant to this Section 4(c) shall be its Fair
Market Value on the effective date of the grant.
5. EXERCISE PRICE CONSIDERATION AND FORM OF OPTION AGREEMENT.
(a) EXERCISE PRICE. The exercise price of any Incentive Option shall be
not less than one hundred percent (100%) of the Fair Market Value of a share of
Common Stock on the date of the grant of the Option. The exercise price of a
Nonqualified Option shall not be less than eighty-five percent (85%) of the Fair
Market Value on the date of the grant of the option. If an Incentive Option is
granted to an Optionee who then owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or its Parent or
any Subsidiary, the exercise price of such Incentive Option shall be at least
one hundred ten percent (110%) of the Fair Market Value of the Company's Common
Stock on the date of the grant of such option.
(b) CONSIDERATION. The exercise price shall be paid in full, at the time
of exercise of the Option, by personal or bank cashier's check or in such other
form of lawful consideration as the Board of Directors or the Committee may
approve from time to time, including, without limitation, the transfer of
outstanding shares of Common Stock or the withholding of Optioned Stock as
provided in Section 7(c) or the Optionee's promissory note in form satisfactory
to the Company and bearing interest at a rate of not less than 6% per annum.
(c) FORM OF OPTION AGREEMENT. Each option shall be evidenced by an option
Agreement specifying the number of shares which may be purchased upon exercise
of the option and containing such terms and provisions as the Board or the
Committee may determine, subject to the provisions of the Plan.
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6. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) NUMBER. The aggregate number of shares of Common Stock subject to
Options which may be granted under the Plan shall be 1,800,000, subject to
adjustment as provided herein. To the extent any Option granted under the Plan
shall expire or terminate unexercised or for any reason become unexercisable,
the shares subject to such Option shall thereafter be available for future
grants under the Plan.
(b) CAPITAL CHANGES. Except as hereinafter provided, no adjustment shall
be made in the number of shares of Common stock issued to a Participant, or in
any other rights of the Participant upon exercise of an Option, by reason of any
dividend, distribution, or other right granted to stockholders for which the
record date is prior to the date of exercise of the Participant's Option. In
the event any change is made to the shares of Common Stock (whether by reason of
a merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, exchange of shares, change in corporate structure,
or otherwise), appropriate adjustments shall be made in: (i) the number of
shares of Common Stock theretofore made subject to Options, and in the exercise
price of such shares; and (ii) the aggregate number of shares which may be made
subject to Options. If any of the foregoing adjustments shall result in a
fractional share, the fraction shall be disregarded, and the Company shall have
no obligation to make any cash or other payment with respect to such a
fractional share.
7. EXERCISE OF STOCK OPTIONS.
(a) TIME OF EXERCISE. Subject to the provisions of the Plan, including
without limitation Section 7(d) and Section 8, the Board or the Committee, in
its discretion, shall determine the time when an Option, or a portion of an
Option, shall become exercisable, and the time when an Option, or a portion of
an option, shall expire; provided, however, that (i) an Incentive Option shall
expire, to the extent not exercised, no later than the tenth anniversary of the
date on which it was granted; and (ii) any Incentive Option granted to any
person who owns shared possessing more than 10% of the total combined voting
power or value of all classes of stock of the Company or of its Parent or a
Subsidiary shall have a term not to exceed five (5) years. Such time or times
shall be set forth in the Option Agreement evidencing such Option.
(b) NOTICE OF EXERCISE. An Optionee electing to exercise an Option shall
give written notice to the Company, as specified by the Option Agreement, of
his/her election to purchase a specified number of shares, such notice shall be
accompanied by the instrument evidencing such Option and any other documents
required by the Company, and shall tender the exercise price of the shares
he/she has elected to purchase. If the notice of election to exercise is given
by the executor or administrator of a deceased Participant, or by the person or
persons to whom the Option has been transferred by the participant's will or the
applicable laws of descent and distribution,
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<PAGE>
the Company will be under no obligation to deliver shares pursuant to such
exercise unless and until the Company is satisfied that the person or persons
giving such notice is or are entitled to exercise the Option.
(c) EXCHANGE OF OUTSTANDING STOCK OR OPTIONED STOCK. As part or full
payment for the exercise of an Option, the Board, in its sole discretion, may
permit an Optionee (i) to surrender to the Company shares of Common Stock
previously acquired by the Optionee at least six (6) months prior to such
surrender or (ii) to authorize the Corporation to withhold Optioned Stock. Such
surrendered shares shall be valued at their Fair Market Value on the date of
exercise of the option.
(d) TERMINATION OF CONTINUOUS STATUS BEFORE EXERCISE. If a Participant's
Continuous Status with the Company or its Parent or any Subsidiary shall cease
for any reason (other than the Participant's death, retirement, or disability as
provided below), any Option then held by the Participant or his/her estate, to
the extent then exercisable, shall remain exercisable after such cessation of
the Continuous Status for a period of thirty (30) days commencing upon the date
of such cessation (or such longer period as the Board may allow, either in the
form of Option Agreement or by Board action). If the Option is not exercised
during this period it shall be deemed to have been forfeited and be of no
further force or effect. Notwithstanding the exercise period hereinabove
described, if the holder of an option (i) is terminated for "cause" (as
hereinafter defined) or (ii) is terminated due to his expropriation of Company
property (including trade secrets or other proprietary rights), the Board shall
have the authority, by notice to the holder of an Option, to immediately
terminate such Option, effective on the date of termination, and such Option
shall no longer be exercisable to any extent whatsoever. As used herein,
"cause" shall mean that the holder of an Option has willfully and intentionally
engaged in material misconduct, gross neglect of duties or grossly negligent
failure to act which materially and adversely affects the business or affairs of
the Company, or has committed any act of fraud or any act not approved by the
Board involving any material conflict of interest or self-dealing adverse to the
Company, or has been convicted of a felony or any offense involving moral
turpitude, or has unreasonably failed to comply with any reasonable direction
from the Board or its Chairman with respect to a major policy decision affecting
the Company, issued pursuant to its authority under the By-Laws of the company,
which direction is approved by a majority of the Board.
(e) DEATH. If a Participant dies at a time when he is entitled to
exercise an Option, then at any time or times within twelve (12) months after
his/her death (or such further period as the Board may allow) such option may be
exercised, as to all or any of the shares which the Participant was entitled to
purchase immediately prior to his/her death by his/her executor or administrator
or the person(s) to whom the Option is transferred by will or the applicable
laws of descent and distribution, and except as so exercised such Option will
expire at the end of such period. In no event, however, may any Option be
exercised after the expiration of the term.
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<PAGE>
(f) RETIREMENT AND DISABILITY. If a Participant retires from service at
age 65 or older or retires at less than age 63 with the consent of the Board of
Directors or becomes disabled (within the meaning of Section 105(d) (4) of the
Code) at a time when he is entitled to exercise an Option, then, at any time or
times within thirty (30) days of the date of such retirement or within twelve
(12) months of the date of such disability, he may exercise much Option as to
all or any of the shares which he was entitled to purchase under such Option
immediately prior to such retirement or disability. Except as so exercised,
such Option shall expire at the end of such period. In no event, however, may
any Option be exercised after the expiration of its term.
(g) DISPOSITION OF TERMINATED STOCK OPTIONS. Any shares of Common Stock
subject to Options which have been terminated as provided above shall not
thereafter be eligible for purchase by the Participant but shall again be
available for grant by the Board to other Participants.
8. SPECIAL PROVISIONS RELATING TO INCENTIVE OPTIONS. The Company shall
not grant Incentive Options under the Plan to any Optionee to the extent that
the aggregate Fair Market Value of the Common Stock Covered by such Incentive
Options which are exercisable for the first time during any calendar year, when
combined with the aggregate Fair Market Value of all stock covered by Incentive
Options granted to such optionee after December 31, 1986 by the Company, its
Parent or a Subsidiary thereof which are exercisable for the first time during
the same calendar year, exceeds $100,000. Incentive Options shall be granted
only to persons who, on the date of grant, are Employees of the Company or its
Parent or Subsidiary.
9. NO CONTRACT OF EMPLOYMENT. Unless otherwise expressed in a writing
signed by an authorized officer of the Company, all Employees of the Company are
for an unspecified period of time and are considered to be "at-will employees."
Nothing in this Plan shall confer upon any Participant the right to continue in
the employ of the Company, its Parent or any Subsidiary, nor shall it limit or
restrict in any way the right of the Company, its Parent or any such Subsidiary
to discharge the Participant at any time for any reason whatsoever, with or
without cause.
10. NO RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a
stockholder with respect to any shares of Common Stock subject to an option.
11. NONTRANSFERABILITY OF OPTIONS; DEATH OF PARTICIPANT. No option
acquired by a Participant under the Plan shall be assignable or transferable by
a Participant, other than by will or the laws of descent and distribution, and
such Options are exercisable, during his lifetime, only by Optionee. Subject to
Section 7(e), in the event of Optionee's death, the Option may be exercised by
the personal representative of the Participant's estate or if no personal
representative has been appointed, by the successor(s) in interest determined
under the Participant's will or under the applicable laws of descent
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<PAGE>
and distribution.
12. LIQUIDATION OR MERGER OF THE COMPANY.
(a) LIQUIDATION. In the event of a proposed dissolution or liquidation of
the Company, the Option shall terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board. The Board may, in
the exercise of its sole discretion in such instances, declare that any Option
shall terminate as of a date fixed by the Board and give each Optionee the right
to exercise his Option, as to all or any part of the Shares covered by an
Option, including Shares as to which the option would not otherwise be
exercisable.
(b) SALE OF ASSETS MERGER OR CONSOLIDATION. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation in a transaction
in which the Company does not survive, all Options shall vest immediately and
may be fully exercised without regard to the normal vesting schedules of the
Options; provided, however, that if the Board determines, after giving due
consideration to the effects of any such sale, merger, or consolidation on the
Employees of the Company, that such immediate vesting is not in the best
interests of the Company, the Option shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. If the Option becomes fully exercisable
immediately, the Board shall notify the Optionee that the option shall be fully
exercisable for a period of not less than ten (10) nor more than sixty (60) days
from the date of such notice and, if such Option shall not be exercised, the
Option shall terminate upon the expiration of such period and be of no further
force or effect.
13. AMENDMENTS; DISCONTINUANCE OF PLAN. The Board may from time to time
alter, amend, suspend, or discontinue the Plan, including, where applicable, any
modifications or amendments as it shall deem advisable for any reason, including
satisfying the requirements of any law or regulation or any change thereof;
provided, however, that no such action shall adversely affect the rights and
obligations with respect to Options at any time outstanding under the Plan; and
provided further, that no such action shall, without the approval of the
stockholders of the Company, (a) increase the maximum number of shares of Common
Stock that may be made subject to options (unless necessary to effect the
adjustments required by Section 6(b)), (b) change the formula for determining
the exercise price or the maximum term of Options that may be granted under the
Plan or (c) materially lessen the requirements as to eligibility for
participation in the Plan. No such amendment shall materially adversely affect
the rights of any Participant under any Option previously granted without such
Participant's prior consent.
14. REGISTRATION OF OPTIONED SHARES. The Options shall not be exercisable
unless the purchase of such Optioned Shares is pursuant to an applicable
effective
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registration statement under the Securities Act of 1933, as amended, or
unless, in the opinion of counsel to the Company, the proposed purchase of
such Optioned Shares would be exempt from the registration requirements of
the Securities Act of 1933, as amended.
15. WITHHOLDING TAXES; SATISFIED BY WITHHOLDING OPTIONED SHARES.
(a) GENERAL. The Company, its Parent, or any Subsidiary may take such
steps as it may deem necessary or appropriate for the withholding of any taxes
which the Company, its Parent, or any Subsidiary is required by law or
regulation of any governmental authority, whether Federal, state, or local,
domestic or foreign, to withhold in connection with any Option including, but
not limited to, requiring the Optionee to pay such tax at the time of exercise
or the withholding of issuance of shares of Common Stock to be issued upon the
exercise of any Option until the Participant reimburses the Company for the
amount the Company is required to withhold with respect to such taxes, or, at
the Company's sole discretion, canceling any portion of such issuance of Common
Stock in any amount sufficient to reimburse itself for the amount it is required
to so withhold.
(b) SATISFYING TAXES BY WITHHOLDING OPTIONED SHARES. Option Agreements
under the Plan may, at the discretion of the Board, contain a provision to the
effect that all Federal and state taxes required to be withheld or collected
from an Optionee upon exercise of an Option may be satisfied by the withholding
of a sufficient number of exercised Option Shares which, valued at Fair Market
Value on the date or exercise, would be equal to the total withholding
obligation of the Optionee for the exercise of such Option; provided, however,
that if the Company is a public reporting corporation, no person who is an
"officer" of the Company as such term is defined in Rule 3b-2 under the
Securities Exchange Act of 1934 may elect to satisfy the withholding of Federal
and state taxes upon the exercise of an Option by the withholding of Optioned
Shares unless such election is made either (i) at least six months prior to the
date that the exercise of the Option becomes a taxable event or (ii) during any
of the periods beginning on the third business day following the date on which
the Company issues a news release containing the operating results of a fiscal
quarter or fiscal year and ending on the twelfth business day following such
date. Such election shall be deemed made upon receipt of notice thereof by an
officer of the Company, by mail, personal delivery, or by facsimile message, and
shall (unless notice to the contrary is provided to the Company) be operative
for all Option exercises which occur during the twelve-month period following
election.
16. EFFECTIVE DATE AND TERM OF PLAN. The Plan is effective as of the date
of adoption by the Board and Options may be granted at any time on or after such
date; provided, however, that the Plan shall terminate if the stockholders of
the Company do not approve and adopt it within twelve (12) months of such date.
No Options shall be granted subsequent to ten years after the effective date of
the Plan; however, Options
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outstanding subsequent to ten years after the effective date of the Plan
shall continue to be governed by the provisions of the Plan until exercised
or terminated in accordance with the Plan or the respective Option Agreements.
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Exhibit 10.18
Amendment to Credit Agreement
FOURTH AMENDMENT TO CREDIT AGREEMENT
- ------------------------------------
THIS FOURTH AMENDMENT is entered into as of May 14, 1997 by and between
MADE2MANAGE SYSTEMS, INC. (the "Borrower") and NBD Bank, N.A. (the "Bank").
WITNESSETH:
WHEREAS, Borrower and Bank have entered into a certain Credit Agreement dated
as of June 9, 1995 as amended by First Amendment dated September 27, 1997, as
amended by Second Amendment dated March 27, 1996, as amended by Third
Amendment dated June 25, 1996, as amended (the "Agreement"); and
WHEREAS, the Borrower has requested and the Bank has agreed to an extension
of the maturity date of Facility A described in the Agreement; and
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Section 1.1 of the Agreement is hereby amended to read as follows;
1.1 FACILITY A. The Bank has approved an uncommitted Credit
Authorization to the Borrower in the principal sum not to exceed
$1,000,000.00 in the aggregate at any one time outstanding ("Facility
A"). Credit under Facility A shall be in the form of disbursements
evidenced by credits to the Borrower's account and shall be
repayable as set forth in a Master Demand Business Loan Note
executed concurrently (referred to in this agreement both singularly
and together with any other promissory notes referenced in this
Section as the "Notes"). The proceeds of Facility A shall be used
for the following purpose: working capital. Facility A shall expire
on July 1, 1998 unless earlier withdrawn.
2. Upon execution of this agreement, the Borrower shall pay the Bank the
following fees, all of which the Borrower acknowledges have been earned by
the Bank: A Closing Fee of Two Thousand and 00/100 Dollars ($2,000.00 for
Facility A, a Closing Fee of One Thousand Eight Hundred and 00/100
Dollars ($1,800.00) for Facility D and a Closing Fee of Two Thousand Seven
Hundred and 00/100 Dollars ($2,700.00) For Facility E.
3. The following are added to the Agreement as Sections 1.4 and 1.5:
1.4 FACILITY D (PURCHASE MONEY TERM LOANS AND LEASES). The Bank has
approved an uncommitted Credit Authorization to the Borrower in the
principal sum not to exceed $400,000.00 in the aggregate at any one
time outstanding ("Facility D"). Facility D shall be in the form of
loans and/or leases evidenced by the Borrower's notes on the Bank's
form (referred to in this agreement both singularly and together
with any other promissory notes referenced in this Section as the
"Notes"), the proceeds of which shall be used to purchase the
following; telephone system. Interest on each loan shall accrue at
a rate to be agreed upon by the Bank and the Borrower at the time
the loan or lease is made. The maturity of each Note shall not
exceed 60 months from the Note date. Notwithstanding the aggregate
amount of Facility D stated above, the original principal amount of
each loan or lease shall not exceed the lesser of 75% (100% for
leases) of the cost of the equipment purchased with loan or lease
proceeds or $400,000.00. Facility D shall expire on December 1, 1997
unless earlier withdrawn.
1.5 FACILITY E (CONVERTING TO A TERM LOAN). The Bank has approved a
credit facility to the Borrower in the principal sum not to exceed
$600,000.00 in the aggregate at any one time outstanding ("Facility
E"). Facility E shall be in the form of advances evidenced by the
Borrower's Promissory Note. The proceeds of Facility E shall be used
for the following purposes: acquisition of computers, workstations
furniture and training room equipment. Interest on each loan shall
accrue at a rate to be agreed upon by the Bank and the Borrower at the
time the loan is made. Notwithstanding the aggregate amount of
Facility E stated above, the original principal amount of each
advance shall not exceed 75.0% of the cost of the equipment
purchased with Facility B proceeds. Availability of advances under
Facility E shall expire on May 1, 1998 unless earlier withdrawn,
whereupon the outstanding balance of Facility E shall convert to a
amortizing three (3) year term loan.
4. Section 7.4 of the Agreement is hereby amended to read as follows:
7.4 COLLATERAL AUDITS. Permit the Bank or its agents to perform
semi-annual audits of the Collateral. The borrower shall compensate
the Bank for those audits in accordance with the Bank's schedule of
fees as may be amended from time to time. The Bank shall retain the
right to inspect the Collateral and business records related to it
at such times and at such intervals as the Bank may reasonably
require.
5. Section 7.6(C) of the Agreement is hereby amended to read as follows:
The Borrower will furnish to the Bank...
C. When Borrower has outstanding debt, within 15 days after and as of
the end of each calendar month, the following, each certified as
correct by one of its authorized agents:
1) a list of accounts receivable, aged from date of invoice; and
2) a borrowing base certificate in the form of Exhibit A; and
3) a deferred revenue listing, indicating those that are subject to
offset.
<PAGE>
6. Sections 8.3(A), 8.3(B) and 8.3(H) of the Agreement are hereby amended to
read as follows:
The Borrower will not....
A. TANGIBLE NET WORTH. Permit its Tangible Net Worth (plus Subordinated
Debt) to be less than $1,500,000.00.
B. LEVERAGE RATIO. Permit the ratio of its total liabilities to its
Tangible Net Worth to exceed 2.70 to 1.00.
H. WORKING CAPITAL. Permit its Working Capital to be less than $0.00.
7. The following are added to the Agreement as Sections 8.3(I) and 8.3(J):
The Borrower will not....
J. DEBT AND/OR LEASES. Permit an aggregate total of debt and/or equipment
leases other than that approved by the Bank to exceed $30,000.00.
8. Except as modified herein, the Agreement, as heretofore amended, shall
remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Fourth Amendment to be
entered into and effective as of the date first hereinabove written.
MADE2MANAGE SYSTEMS, INC.
By: /s/ Stephen R. Head V.P Finance 5/21/97
----------------------------------------
----------------------------------------
Printed name Title
NBD BANK, N.A.
By: /s/ Edward R. Selm
------------------------------------
Edward R. Selm Vice President
2
<PAGE>
[LOGO] Master Demand Business Loan Note
Due on Demand $1,000,000.00
Note No. 0201 Date: May 14, 1997
Account No. 0026624 Indianapolis, Indiana
Promise to Pay: For value received, the undersigned MADE2MANAGE SYSTEMS,
INC. (the "Borrower") promise to pay On Demand to NBD Bank, N.A., a national
banking association (the "Bank") or order, at any office of the Bank in the
State of Indiana, the sum of One Million and 00/100 Dollars ($1,000,000.00)
plus interest computed on the basis of the actual number of days elapsed in a
year of 360 days at the rate of:
0.75% per annum above the rate announced from time to time by the
Bank as for "prime" rate (the "Note Rate"), which rate may
not be the lowest rate charged by the Bank to any of its
customers, until maturity, whether by demand, acceleration
or otherwise, and at the rate of 3% per annum above the Note
Rate on overdue principal from the date when due until paid.
Each change in the "prime" rate will immediately change the
Note Rate.
In no event shall the interest rate exceed the maximum rate allowed by law;
any interest payment which would for any reason be unlawful under applicable
law shall be applied to principal. Payments may, at the option of the Bank,
be applied first to charges, then to interest and then to principal.
Acceptance by the Bank of any payment which is less than payment in full of
all amounts due and owing at such time shall not constitute a waiver of the
Bank's right to receive payment in full at such or any other time.
Interest will be computed on the unpaid principal balance from the date of
each borrowing.
The Borrower will pay this sum plus accrued interest on demand. Until demand,
the Borrower will pay consecutive monthly installments of interest only
commencing June 1, 1997.
LATE FEE: If any payment is not received by the Bank within fifteen (15) days
after its due date, the Bank may access and the Borrower agrees to pay a late
fee equal to the less of five percent (5%) of the past due amount or Two
Hundred and 00/100 Dollars ($200.00).
MASTER DEMAND NOTE: The Bank has authorized an uncommitted credit facility to
the Borrower in a principal amount not to exceed the face amount of this
Note. The credit facility is in the form of loans made from time to time by
the Bank to the Borrower at the Bank's sole discretion. This Note evidences
the Borrower's obligation to repay those loans. The aggregate principal
amount of debt evidenced by this Note shall be the amount reflected from time
to time in the records of the Bank but shall not exceed the face amount of
this Note. Until demand or acceleration, the Borrower may borrow, pay down
and reborrow under this Note. The Borrower acknowledges and agrees that no
provision of this Note and no course of dealing by the Bank shall commit the
Bank to make loans to the Borrower and that notwithstanding any provision of
this Note or any instrument or document, all loans evidenced by this Note are
due and payable on demand, which may be made by the Bank at any time, whether
or not any event of acceleration then exists.
CREDIT AGREEMENT: This Note evidences a debt under the terms of a Credit
Authorization Agreement between the Bank and the Borrower dated as of June 9,
1995, and any amendments.
SECURITY: To secure the payment of this Note and any other present or future
liability of the borrower to the Bank, whether several, joint, or joint and
several, the Borrower pledges and grants to the Bank a continuing security
interest in the following described property and all of its additions,
substitutions, increments, proceeds and products, whether now owned or later
acquired (the "Collateral"):
1. All investment property and other property of the Borrower in the
custody, possession or control of the Bank (other than property held by
the Bank solely in a fiduciary capacity);
2. All property or Investment property declared or acknowledged to constitute
security for any past, present or future liability of the Borrower to the
Bank;
3. All balances of deposit accounts of the Borrower with the Bank.
4. The following additional property: All Accounts, Inventory and Equipment.
SETOFF: The Bank has the right at any time to apply its own debt or liability
to the Borrower or to any other party liable on this Note in whole or partial
payment of this Note or other present or future liabilities of the Borrower
to the Bank, without any requirement of mutual maturity.
RELATED DOCUMENTS: The terms and provisions of any loan agreement, mortgage,
security agreement or any other document executed as part of the loans
evidenced by this Note are incorporated by reference and made part of this
Note.
REPRESENTATIONS BY BORROWER: Each Borrower represents that: (a) the execution
and delivery of this Note and the performance of the obligations it imposes
do not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or other third
party, (b) this note is a valid and binding agreement, enforceable according
to its terms; and (c) all balance sheets, profit and loss statements and
other financial statements furnished to the Bank are accurate and fairly
reflect the financial condition of the organizations and persons to which
they apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and
adversely since those dates. Each Borrower also represents that this Note
evidences a business loan exempt from the Federal Truth in Lending Act (15
USC 1601, et seq), the Federal Reserve Bank's Regulation 2 (12 CFR 226, et
seq), and the Indiana Uniform Consumer Credit Code (IC 24-45-1-101, et seq).
Each Borrower, other than a natural person, further represents that; (a) it
is duly organized, existing and in good standing pursuant to the laws under
which it is organized; and (b) the execution and delivery of this Note and
the performance of the obligations it imposes (i) are within its powers and
have been duly authorized by all necessary notion of its governing body, and
(ii) do not contradict the terms of its articles of incorporation or
organization, its by-laws, or any partnership, operating or other agreement
governing its affairs.
<PAGE>
EVENTS OF ACCELERATION: This Note shall become due immediately, without
notice, at the Bank's option, if any of the following events occurs:
1. The Borrower or any guarantor of this Note ("Guarantor") fails to pay
when due any amount payable under this Note or under any agreement or
instrument evidencing debt to any creditor.
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this Note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (d) defaults
under the terms of any agreement or instrument relating to any debt for
borrowed money (other than the debt evidenced by this Note) such that
the creditor declares the debt due before its maturity.
3. There is a default under the terms of any loan agreement, mortgage,
security agreement, or any other document executed as part of the loan
evidenced by this Note, or any guaranty of the loan evidenced by this
Note, becomes unenforceable in whole or in part, or any Guarantor fails
to promptly perform under its guaranty.
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of
the Borrower or any affiliate of the Borrower.
5. The Borrower or any Guarantor becomes insolvent or unable to pay its
debts as they become due.
6. The Borrower or any Guarantor (a) makes an assignment for the benefit of
creditors; (b) consents to the appointment of a custodian, receiver, or
trustee for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction.
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without its consent
and is not removed within 60 days after the appointment.
8. Proceedings are commenced against the Borrower or any Guarantor under
any bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and they remain undismissed for 60 days after
commencement; or the Borrower or Guarantor consents to the commencement
of such proceedings.
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor.
10. The Borrower or any Guarantor dies.
11. The Borrower or any Guarantor, without the Bank's written consent (a) is
dissolved, (b) merges or consolidates with any third party, (c) leases,
sells or otherwise conveys a material part of its assets or business
outside the ordinary course of its business, (d) leases, purchases, or
otherwise acquires a material part of the assets of any other corporation
or business entity, except in the ordinary course of its business, or
(e) agrees to do any of the foregoing (notwithstanding the foregoing,
any subsidiary may merge or consolidate with any other subsidiary, or
with the Borrower, so long as the Borrower is the survivor).
12. The loan to value ratio of any pledged securities at any time exceeds
the Bank's limit for type of securities pledged and such excess
continues for five (5) days after notice from the Bank to the Borrower.
13. There is a substantial change in the management or ownership or the
existing or prospective financial condition of the Borrower or any
Guarantor which the Bank in good faith determines to be materially
adverse.
14. The Bank in good faith deems itself insecure.
REMEDIES: If this Note is not paid at maturity, whether by demand,
acceleration or otherwise, the Bank shall have all of the rights and remedies
provided by any law or agreement. Any requirement of reasonable notice shall
be met if the Bank sends the notice to the Borrower at least seven (7) days
prior to the date of sale, disposition or other event giving rise to the
required notice. The Bank is authorized to cause all or any part of the
Collateral to be transferred to or registered in its name or in the name of
any other person, or business entity, with or without designation of the
capacity of that nominee. The Borrower is liable for any deficiency remaining
after disposition of any Collateral. The Borrower is liable to the Bank for
all reasonable costs and expenses of every kind incurred in the making or
collection of this Note, including, without limitation, reasonable attorneys'
fees and court costs. These costs and expenses include, without limitation,
any costs or expenses incurred by the Bank in any bankruptcy, reorganization,
insolvency or other similar proceeding.
WAIVER: Each endorser and any other party liable on this Note severally
waives demand, presentment, notice of dishonor and protest, and consents to
any extension or postponement of time of its payment without limit as to the
number or period, to any substitution, exchange or release of all or part of
the Collateral, to the addition of any party, and to the release or discharge
of, or suspension of any rights and remedies against, any person who may be
liable for the payment of this Note. No delay on the part of the Bank in the
exercise of any right or remedy operates as a waiver. No single or partial
exercise by the Bank of any right or remedy precludes any other future
exercise of it or the exercise of any other right or remedy. No waiver or
indulgence by the Bank of any default is effective unless it is in writing
and signed by the Bank, nor does a waiver on one occasion bar or waive that
right on any future occasion.
MISCELLANEOUS: The Borrower, if more than one, is jointly and severally
liable for the obligations represented by this Note, the term "Borrower"
means any one or more of them, and the receipt of value by any one of them
constitutes the receipt of value by the others. This Note binds the Borrower
and its successors, and insures to the benefit of the Bank, its successors
and assigns. Any reference to the Bank includes any holder of this Note. This
Note is delivered in the State of Indiana and governed by Indiana law. Section
headings are for convenience of reference only and do not affect the
interpretation of this Note. This Note and any related loan documents embody
the entire agreement between the Borrower and the Bank regarding the terms of
the loan evidenced by this
-2-
<PAGE>
Note and supercede all oral statements and prior writings relating to that
loan. This note is a renewal/replacement of a prior note and represents a
continuation and increase of the indebtedness described in such prior note
and a continuation of the obligation to pay advances made under such prior
note.
WAIVER OF JURY TRIAL: The Bank and the Borrower, after consulting or having
had the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in
any litigation based upon or arising out of this Note or any related
Instrument or agreement or any of the transactions contemplated by this Note
or any course of conduct, dealing, statements (whether oral or written), or
actions of either of them. Neither the Bank nor the Borrower shall seek to
consolidate, by counterclaim or otherwise, any action in which a jury trial
has been waived, with any other action in which a jury trial cannot be or has
not been waived. These provisions shall not be deemed to have been modified
in any respect or relinquished by either the Bank or the Borrower except by a
written instrument executed by both of them.
Address: Borrower:
MADE2MANAGE SYSTEMS, INC.
9002 Purdue Road By: Stephen R. Head
Indianapolis, IN 46268 ------------------------
Stephen R. Head
Vice President Finance
5/21/97
------------------------
Printed Name
Tax I.D. Number 35-1665089
3
<PAGE>
______________________________________________________________________________
[LOGO] Installment Business Loan Note
______________________________________________________________________________
Due May 1, 2001 $600,000.00
Note No. Date: May 14, 1997
Account No. 0026624 Indianapolis, Indiana
Promise to Pay: On or before May 1, 2001 for value received, the
undersigned MADE2MANAGE SYSTEMS, INC. (the "Borrower") promises to pay to NBD
Bank, N.A., a national banking association (the "Bank") or order, at any
office of the Bank in the State of Indiana the sum of Six Hundred Thousand
and 00/100 Dollars ($600,000.00) plus interest computed on the basis of the
actual number of days elapsed in a year of 360 days at the rate of:
0.75% per annum above the rate announced from time to time by the Bank
as its "prime" rate (the "Note Rate"), which rate may not be the
lowest rate charged by the Bank to any of its customers, until
maturity, whether by acceleration or otherwise, and at the rate
of 3% per annum above the Note Rate on overdue principal from the
date when due until paid. Each change in the "prime" rate will
immediately change the Note Rate.
In no event shall the interest rate exceed the maximum rate allowed by law;
any interest payment which would for any reason be unlawful under applicable
law shall be applied to principal. Payments may, at the option of the Bank,
be applied first to charges, then to interest and then to principal.
Acceptance by the Bank of any payment which is less than payment in full of
all amounts due and owing at such time shall not constitute a waiver of the
Bank's right to receive payment in full at such or any other time.
The Borrower will pay this sum in 11 consecutive monthly installments of
interest only on the 1st day of each month, commencing July 1, 1997, and 35
consecutive monthly installments equal to one thirty-sixth of the outstanding
principal balance as of May 1, 1998, plus interest, commencing June 1, 1998
until May 1, 2001 at which time the balance plus accrued interest then unpaid
shall be due and payable immediately.
LATE FEE: If any payment is not received by the Bank within fifteen (15) days
after its due date, the Bank may assess and the Borrower agrees to pay a late
fee equal to the lesser of five percent (5%) of the past due amount or Two
Hundred and 00/100 Dollars ($200.00).
PREPAYMENT: All prepayments shall be applied to installments of principal in
their inverse order of maturity, and no prepayments shall reduce the dollar
amount of fixed principal installments required to be paid, until this Note
is paid in full.
AGREEMENT: This Note evidences a debt which is subject to the additional
terms and conditions of a Credit Agreement between the Borrower and the Bank
dated as of June 9, 1995, and any amendments.
SECURITY: To secure the payment of this Note and any other present or future
liability of the Borrower to the Bank, whether several, joint, or joint and
several, the Borrower pledges and grants to the Bank's continuing security
interest in the following described property and all of its additions,
substitutions, increments, proceeds and products, whether now owned or later
acquired (the "Collateral"):
1. All investment property and other property of the Borrower in the
custody, possession or control of the Bank (other than property held by the
Bank solely in a fiduciary capacity);
2. All property or investment property declared or acknowledged to
constitute security for any past, present or future liability of the
Borrower to the Bank;
3. All balances of deposit accounts of the Borrower with the Bank;
4. The following additional property: All Accounts, Inventory and Equipment.
SETOFF: The Bank has the right at any time to apply its own debt or liability
to the Borrower or to any other party liable on this Note in whole or partial
payment of this Note or other present or future liabilities of the Borrower
to the Bank, without any requirement of mutual maturity.
RELATED DOCUMENTS: The terms and provisions of any loan agreement, mortgage,
security agreement or any other document executed as part of the loans
evidenced by this Note are incorporated by reference and made part of this
Note.
REPRESENTATIONS BY BORROWER: Each Borrower represents that: (a) the execution
and delivery of this Note and the performance of the obligations it imposes
do not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or other third
party; (b) this Note is a valid and binding agreement, enforceable recording
to its terms; and (c) all balance sheets, profit and loss statements, and
other financial statements furnished to the Bank are accurate and fairly
reflect the financial condition of the organizations and persons to which
they apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially and
adversely since those dates. Each Borrower also represents that this note
evidences a business loan except from the Federal Truth in Lending Act (15
USC.1601, et seq), the Federal Reserve Bank's Regulation Z (12 CFR 226, et
seq), and the Indiana Uniform Consumer Credit Code (IC 24-4-5-1-101, et
seq). Each Borrower, other than a natural person, further represents that (a)
it is duly organized, existing and in good standing pursuant to the laws
under which it is organized; and (b) the execution and delivery of this Note
and the performance of the obligations it imposes (i) are within its powers
and have been duly authorized by all necessary action of its governing body;
and (ii) do not contravene the terms of its articles of incorporation or
organization, its by-laws, or any partnership, operating or other agreement
governing its affairs.
EVENTS OF DEFAULT/ACCELERATION: This Note shall become due immediately,
without notice, at the Banks option, if any of the following events occurs:
1. The Borrower or any guarantor of this Note ("Guarantor") fails to pay
when due any amount payable under this Note or under any agreement or
instrument evidencing debt to any creditor.
2. The Borrower or any Guarantor (a) fails to observe or perform any other
term of this Note; (b) makes any materially incorrect or misleading
representation, warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any financial statement
or other information delivered to the Bank; or (d) defaults under the terms
of any agreement or instrument relating to any debt for borrowed money
(other than the debt evidenced by this Note) such that the creditor declares
the debt due before its maturity.
3. There is a default under the terms of any loan agreement, mortgage,
security agreement, or any other document executed as part of the loan
evidenced by this Note or any guaranty of the loan evidenced by this Note
becomes unenforceable in whole or in part, or any Guarantor fails to
promptly perform under its guaranty.
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension
Benefit Guaranty Corporation to terminate any employee benefit plan of
the Borrower or any affiliate of the Borrower.
5. The Borrower or any Guarantor become insolvent or unable to pay its debts
as they become due.
6. The Borrower or any Guarantor (a) makes an assignment for the benefit of
creditors; (b) consent to the appointment of a custodian, receiver, or
trustee for itself or for a substantial part of its assets; or (c)
commences any proceeding under any bankruptcy, reorganization, liquidation,
insolvency or similar laws of any jurisdiction.
7. A custodian, receiver, or trustee is appointed for the Borrower or any
Guarantor or for a substantial part of its assets without its consent and is
not removed within 60 days after the appointment.
8. Proceedings are commenced against the Borrower or any Guarantor under any
bankruptcy, reorganization, liquidation, or similar laws of any
jurisdiction, and they remain undismissed for 60 days after commencement
or the Borrower or Guarantor consents to such proceedings.
9. Any judgment is entered against the Borrower or any Guarantor, or any
attachment, levy, or garnishment is issued against any property of the
Borrower or any Guarantor.
10. The Borrower or any Guarantor dies.
11. The Borrower or any Guarantor, without the Bank's written consent (a) is
dissolved, (b) merges or consolidations with any third party, (c) losses,
sells or otherwise conveys a material part of its assets or business outside
the ordinary course of its business, (d) leases, purchases, or otherwise
acquires a material part of the assets of any other corporation or business
entity, except in the ordinary course of its business, or (c) agrees to do
any of the foregoing (notwithstanding the foregoing, any subsidiary may
merge or consolidate with any other subsidiary, or with the Borrower, so
long as the Borrower is the survivor).
12. The loan-to-value ratio of any pledged securities at any time exceeds
the Bank's limit for the type of securities pledged and such excess
continues for five (5) days after notice from the Bank to the Borrower.
13. There is a substantial change in the management or ownership or the
existing or prospective financial condition of the Borrower or any Guarantor
which the Bank in good faith determines to be materially adverse.
14. The Bank in good faith deems itself insecure.
REMEDIES: If this Note is not paid at maturity by demand, whether by
acceleration or otherwise, the Bank shall have all of the rights and remedies
provided by any law or agreement. Any requirement of reasonable notice shall
be met if the Bank sends the notice to the Borrower at least seven (7) days
prior to the date of sale, disposition or other event giving rise to the
required notice. The Bank is authorized to cause all or any part of the
Collateral to be transferred to or registered in its name or in the name of
any other person, or business entity, with or without designation of the
capacity of such nominee. The Borrower is liable for any deficiency remaining
after disposition of any Collateral. The Borrower is liable to the Bank for
all reasonable costs and expenses of every kind incurred in the making or
collection of this Note, including, without limitation, reasonable attorneys'
fees and court costs. These costs and expenses include without limitation any
costs or expenses incurred by the Bank in any bankruptcy, reorganization,
insolvency or other similar proceeding.
WAIVER: Each endorser and any other party liable on this Note severally
waives demand, presentment, notice of dishonor and protest, and consents to
any extension or postponement of time of its payment without limit as to the
number or period, to any substitution, exchange or release of all or part of
the Collateral, to the addition of any party, and to the release or discharge
of, or suspension of any rights and remedies against, any person who may be
liable for the payment of this Note. No delay on the part of the Bank in the
exercise of any right or remedy operates as a waiver. No single or partial
exercise by the Bank of any right or remedy precludes any other future
exercise of it or the exercise of any other right or remedy. No waiver or
indulgence by the Bank of any defaults is effective unless it is in writing
and signed by the Bank, nor does a waiver on one occasion bar or waive that
right on any future occasion.
MISCELLANEOUS: The Borrower, if more than one, shall be jointly and severally
liable for the obligations represented by this Note, and the term "Borrower"
means any one or more of them, and the receipt of value by any one of them
constitutes receipt of value by the others. This Note binds the Borrower and
its successors, and inures to the benefit of the Bank, its successors and
assigns. Any reference to the Bank includes any holder of this Note. This
Note is delivered in the State of Indiana and governed by Indiana law.
Section headings are for convenience of reference only and do not affect the
interpretation of this Note. This Note and all related loan documents embody
the entire agreement between the Borrower and the Bank regarding the terms of
the loan evidenced by this Note and supersede all oral statements and prior
writings relating to that loan.
WAIVER OF JURY TRIAL: The Bank and the Borrower, after consulting or having
had the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in
any litigation based upon or arising out of this Note or any related
instrument or agreement, or any of the transactions contemplated by this
Note, or any course of conduct, dealing, statements (whether oral or
written), or actions of either of them. Neither the Bank nor the Borrower
shall seek to consolidate, by counterclaim or otherwise, any action in which
a jury trial has been waived with any other action in which a jury trial
cannot be or has not been waived. These provisions shall not be deemed to
have been modified in any respect or relinquished by either the Bank or the
Borrower except by a written instrument executed by both of them.
Address: Borrower:
MADE2MANAGE SYSTEMS, INC.
9002 Purdue Road
Indianapolis, IN 46268 By: /s/ Stephen R. Head
------------------------------------
Stephen R. Head V.P. Finance 5/2/97
------------------------------------
Printed Name Title
Tax ID Number: 35-1665080
<PAGE>
Exhibit 10.21
[Logo] CONTINUING SECURITY AGREEMENT
NAME OF DEBTOR: MADE2MANAGE SYSTEMS, INC. ("the Debtor")
TAXPAYER I.D. NO.: 35-1665080
DEBTOR'S ADDRESS (Chief executive office): 9002 Purdue Road,
Indianapolis, IN 46268
GRANT OF SECURITY INTEREST: The Debtor grants to NBD Bank, N.A., a national
banking association the secured party, (referred to as the "Bank"), whose
address is One Indiana Square, Indianapolis, IN 46266, a continuing security
interest in the Collateral listed below, to secure the payment and
performance of all of Debtor's debt to the Bank.
Debt shall include each and every debt, liability and obligation of every
type and description now owed or arising at a later time, whether direct or
indirect, joint, several, or joint and several and whether or not of the same
type or class as presently outstanding, which shall collectively be referred
to as "Liabilities". Liabilities shall also include all interest, costs,
expenses and reasonable attorneys' fees accruing to or incurred by the Bank
in collecting the Liabilities or in the protection, maintenance or
liquidation of the Collateral.
DESCRIPTION OF COLLATERAL: The Collateral covered by this agreement is all of
the Debtor's property defined below, present and future, including but not
limited to any items listed on any schedule or list attached. Also included
are all proceeds, including but not limited to stock rights, subscription
rights, dividends, stock dividends, stock splits, or liquidating dividends,
and all cash, accounts, chattel paper and general intangibles arising from
the sale, rent, lease, casualty loss or other disposition of the Collateral,
and any Collateral returned to, repossessed by or stopped in transit by the
Debtor. Also included are the Debtor's books and records which reflect the
Collateral. Where the Collateral is in the possession of the Bank, the Debtor
agrees to deliver to the Bank any property which represents an increase in
the Collateral or profits or proceeds of the Collateral.
1. "Accounts; Chattel Paper; General Intangibles" consists of accounts,
chattel paper, general intangibles, instruments and documents, as those terms
are defined in the Uniform Commercial Code ("UCC"). Also included is any
right to a refund of taxes paid at any time to any governmental entity. Also
included are letters of credit, and drafts under them, given in support of
Accounts Receivable. The Debtor warrants that its chief executive office is
at the address shown above.
2. "Inventory" consists of all property held at any location by or for the
Debtor for sale, rent, or lease, or furnished or to be furnished by the
Debtor under any contract of service, or raw materials or work in process and
their products, or materials used or consumed in its business, and includes
containers and shelving useful for storing. Without limiting the security
interest granted, the Debtor's Inventory is presently located at 9002 PURDUE
ROAD, INDIANAPOLIS, IN 46268.
3. "Equipment" consists of any goods at any time acquired, owned or held by
Debtor at any location primarily for use in its business, including, but not
limited to machinery, fixtures, furniture, furnishings and vehicles, and any
accessions, parts, attachments, accessories, tools, dies, additions,
substitutions, replacements and appurtenances to them or intended for use
with them. Without limiting the security interest granted, equipment is
presently located at 9002 PURDUE ROAD, INDIANAPOLIS, IN 46268.
WARRANTIES & covenants: The Debtor warrants and covenants to the Bank that:
1. It will pay all Liabilities to the Bank secured by this agreement;
2. It is or will become the owner of the Collateral free from any liens,
encumbrances or security interests except for this security interest and
existing liens disclosed to and accepted by the Bank in writing, and will
defend the Collateral against all claims and demands of all persons at any
time claiming any interest in it;
3. It will keep the Collateral free of liens, encumbrances and other security
interests except for this security interest, maintain it in good repair, not
use it illegally and exhibit it to Bank on demand;
4. At its own expense, the Debtor will maintain comprehensive casualty
insurance on the Collateral against such risks, in such amounts, with such
deductibles and with such companies as may be satisfactory to the Bank. Each
insurance policy shall contain a lender's loss payable endorsement
satisfactory to the Bank and a prohibition against cancellation or amendment
of the policy or removal of the Bank as loss payee without at least 30 days
prior written notice to the Bank. In all events, the amounts of such
insurance coverages shall conform to prudent business practices and shall be
in such minimum amounts that the Debtor will not be deemed a co-insurer. The
policies, or certificates evidencing them, shall, if the Bank so request, be
deposited with the Bank;
5. It will not sell or offer to sell or otherwise transfer the Collateral,
or change the location of the Collateral, without the written consent of the
Bank, except in the ordinary course of business;
6. It will pay promptly when due all taxes and assessments upon the
Collateral, or for its use or operation;
7. No financing statement covering all or any part of the Collateral or any
proceeds is on file in any public office, unless the Bank has approved that
filing, and at the Bank's request, the Debtor will execute one or more
financing statements in form satisfactory to the Bank and will pay the cost
of filing them in all public offices where filing is deemed by the Bank to
be necessary or desirable;
8. It will immediately notify the Bank in writing of any change in its name,
in its business organization, or its chief executive office, and of any
additional places of business;
9. It will provide any information that the Bank may reasonably request and
will permit the Bank, upon prior notice, to inspect and copy its books and
records during normal business hours.
ACCOUNTS; CHATTEL PAPER; GENERAL INTANGIBLES: The Debtor acknowledges that if
the Collateral includes "Accounts, Chattel Paper, and General Intangibles"
and until the Bank gives notice to the Debtor to the contrary, the Debtor
will, in the usual course of its business and at its own expense, on the
Bank's behalf but not as the Bank's agent, demand and receive and use its
best efforts to collect all moneys due or to become due. Until the Bank gives
notice to Debtor to the contrary or until the Debtor is in default, it may
use the funds collected in its business. Upon notice from the Bank or upon
default, the Debtor agrees that all sums of money it receives on account of
or in payment or settlement of the Accounts, Chattel Paper and General
Intangibles shall be held by it as trustee for the Bank without commingling
with any of its funds, and shall immediately be delivered to the Bank with
endorsement to the Bank's order of any check or similar instrument. It is
agreed that, at any time the Bank so elects, it shall be entitled, in its own
name or in the name of the Debtor or otherwise, but at the expense and cost
of the Debtor, to collect, demand, receive, sue for or compromise any and all
Accounts, Chattel Paper and General Intangibles, and to give good and
sufficient releases, to endorse any checks, drafts or other orders for the
payment of money payable to the Debtor and, in its discretion, to file any
claims or take any action or proceeding which the Bank may deem necessary or
advisable. It is expressly understood and agreed, however, that the Bank
shall not be required or obligated in any manner to make any demand or to
make any inquiry as to the nature or sufficiency of any payment received by
it or to present or file any claim or take any other action to collect or
enforce the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times. All notices required in this
<PAGE>
paragraph will be immediately effective when sent. Such notices need not be
given prior to the Bank's taking action. The Debtor appoints the Bank or the
Bank's designee as the Debtor's as the Debtor's attorney-in-fact to do all
things with reference to the Collateral as provided for in this section
including without limitation (1) to notify the post office authorities to
change the Debtor's mailing address to one designated by the Bank, (2) to
receive, open and dispose of mail addressed to the Debtor (3) to sign the
Debtor's name on any invoice or bill of lading relating to any Collateral on
assignments and verifications of account and on notices to the Debtor's
customers, and (4) to do all things necessary to carry out this agreement.
The Debtor ratifies and approves all acts of the Bank as attorney-in-fact.
The Bank shall not be liable for any act or omission, nor any error of
judgment or mistake of fact or law, but only for its gross negligence or
willful misconduct. This power being coupled with an interest is irrevocable
until the Liabilities have been fully satisfied.
The Bank shall have the right now, and at any time in the future in its sole
and absolute discretion, without notice to the Debtor, to (a) prepare, file
and sign the Debtor's name on any proof of claim in bankruptcy or similar
document against any owner of the Collateral and (b) prepare, file and sign
the Debtor's name on any notice of lien, assignment or satisfaction of lien
or similar document in connection with the Collateral.
Immediately upon the Debtor's receipt of any Collateral evidenced by an
agreement, instrument, chattel paper or document ("Special Collateral"), the
Debtor shall mark the Special Collateral the show that it is subject to the
Bank's security interest and shall deliver the original to the Bank together
with appropriate endorsements and other specific evidence of assignment in
form and substance satisfactory to the Bank.
REPRESENTATIONS: Each Debtor represents that: (a) the execution and delivery
of this agreement and the performance of the obligations it imposes do not
violate any law, do not conflict with any agreement by which it is bound, and
do not require the consent or approval of any governmental authority or any
third party; (b) this agreement is a valid and binding agreement, enforceable
according to its terms; and (c) all balance sheets, profit and loss
statements, and other financial statements furnished to the Bank are accurate
and fairly reflect the financial condition of the organizations and persons
to which they apply on their effective dates, including contingent
liabilities of every type, which financial condition has not changed
materially and adversely since those dates. Each Debtor, other than a natural
person, further represents: (a) it is duly organized, existing and in good
standing under the laws where it is organized; and (b) the execution and
delivery of this agreement and the performance of the obligations it imposes
(i) are within its powers and have been duly authorized by all necessary
action of its governing body, and (ii) do not contravene the terms of its
articles of incorporation or organization, its by-laws, or any agreement
governing its affairs.
PLEDGE: If the Debtor is not liable for all or any part of the Borrower's
obligations to the Bank (the "Debt"), then it agrees that: (a) If any
monies become available to the Bank that it can apply to any Debt, the Bank
may apply them to Debt not secured by this agreement. (b) Without notice to
or the consent of the Debtor, the Bank may (i) take any action it chooses
against any Borrower, against any collateral for the Debt, or against any
other person liable for the Debt; (ii) release any Borrower or any other
person liable for the Debt; release any collateral for the Debt, and neglect
to perfect any interest in any such collateral; (iii) forbear or agree to
forbear from exercising any rights or remedies, including any right of
setoff, that it has against the Borrower, any other person liable for the
Debt, or any other collateral for the Debt; (iv) renew, extend, modify or
amend any Liability, and deal with any Borrower or any other person liable
for the Debt as it chooses. (c) None of the Debtor's obligations under this
agreement shall be affected by (i) any act or omission of the Bank; (ii) the
voluntary or involuntary liquidation, sale or other disposition of all or
substantially all of the assets of any Borrower; (iii) any receivership,
insolvency, bankruptcy, reorganization or other similar proceedings affecting
any Borrower or any of its assets; or (iv) any change in the composition or
structure of any Borrower or any Debtor, including a merger or consolidation
with any other entity. (d) The Bank's rights under this section and this
agreement are unconditional and absolute, regardless of the unenforceability
of any provision of any agreement between any Borrower and the Bank, or the
existence of any defense, setoff or counterclaim that a Borrower may be able
to assert against the Bank. (e) It waives all rights of subrogation,
contribution, reimbursement, indemnity, exoneration, implied contract,
recourse to security, and any other claim (as that term is defined in the
federal Bankruptcy Code, as amended from time to time) that it may have or
acquire in the future against any Borrower, any other person liable for the
Debt, or any collateral for the Debt, because of the existence of this
agreement, the Debtor's performance under this agreement, or the Bank's
availing itself of any rights or remedies under this agreement. (f) If any
payment to the Bank on any of the Liabilities are wholly or partially
invalidated, set aside, declared fraudulent or required to be repaid to the
Borrower or anyone representing the Borrower or the Borrower's creditors
under any bankruptcy or insolvency act or code, under any state or federal
law, or under common law or equitable principles, then this agreement shall
remain in full force and effect or be reinstated, as the case may be, until
payment in full to the Bank of the repaid amounts, and of the Liabilities. If
this agreement must be reinstated, the Debtor agrees to execute and deliver
to the Bank new agreements and financing statements, if necessary, in form
and substance acceptable to the Bank, covering the Collateral.
DEFAULT/REMEDIES: If the Debtor fails to pay any of the Liabilities when due,
or if a default by anyone occurs under the terms of any agreement related to
any of the Liabilities, or if the Debtor dies or fails to observe or perform
any term of this agreement, or if any representation or warranty contained in
this agreement is untrue, or if there is a material change in the financial
condition of the Debtor which the Bank in good faith determines to be
materially adverse, then the Bank shall have the rights and remedies provided
by law or this agreement, including but not limited to the right to require
the Debtor to assemble the Collateral and make it available to the Bank at a
place designated by the Bank which is reasonably convenient to both
parties, the right to take possession of the Collateral with or without
demand and with or without process of law, and the right to sell and dispose
of it and distribute the proceeds according to law. In connection with the
right of Bank to take possession of the Collateral, the Bank may take
possession of any other items of property in or on the Collateral at the time
of taking possession, and hold them for the Debtor without liability on the
part of Bank. If there is any statutory requirement for notice, that
requirement shall be met if the Bank sends notice to the Debtor at least
seven (7) days prior to the date of sale, disposition or other event giving
rise to the required notice. The Debtor is liable for any deficiency
remaining after disposition of the Collateral.
MISCELLANEOUS:
1. At its option the Bank may, but shall be under no duty or obligation to,
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral, pay for insurance on the Collateral, and
pay for the maintenance and preservation of the Collateral, and the Debtor
agrees to reimburse the Bank on demand for any payment made or expense
incurred by the Bank, with interest at the highest rate permitted under any
of the instruments evidencing the Liabilities.
2. No delay on the part of Bank in the exercise of any right or remedy shall
operate as a waiver, no single or partial exercise by Bank of any right or
remedy shall preclude any other exercise of it or the exercise of any other
right or remedy, and no waiver or indulgence by the Bank of any default
shall be effective unless in writing and signed by Bank, nor shall a waiver
on one occasion be construed as a waiver of that right on any future
occasion.
<PAGE>
3. If any provision of this agreement is invalid, it shall be ineffective
only to the extent of its invalidity, and the remaining provisions shall be
valid and effective.
4. Except as provided in the Accounts paragraph above, notice from one party
to another relating to this agreement shall be deemed effective if made in
writing (including telecommunications) and delivered to the recipient's
address, telex number or facsimile number set forth above by any of the
following means: (a) hand delivery, (b) registered or certified mail,
postage prepaid, with return receipt requested, (c) first class or express
mail, postage prepaid, (d) Federal Express, Purolator Courier or like
overnight courier service or (e) facsimile, telex or other wire transmission
with request for assurance of receipt in a manner typical with respect to
communications of that type. Notice made in accordance with this section
shall be deemed delivered on receipt if delivered by hand or wire
transmission, on the third business day after mailing if mailed by first
class, registered or certified mail, or on the next business day after
mailing or deposit with an overnight courier service if delivered by express
mail or overnight courier.
5. All rights of Bank shall inure to the benefit of the Bank's successors
and assigns; and all obligations of the Debtor shall bind the Debtor's
heirs, executors, administrators, successors and assigns. If there is
more than one Debtor, their obligations are joint and several.
6. A carbon, photographic or other reproduction of this agreement is
sufficient, and can be filed as a financing statement. The Bank is
irrevocably appointed the Debtor's attorney-in-fact to execute any financing
statement on Debtor's behalf covering the Collateral.
7. The terms and provisions of this security agreement shall be governed by
Indiana law.
WAIVER OF JURY TRIAL: The Bank and the Debtor, after consulting or having had
the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in
any litigation based upon or arising out of this agreement or any related
instrument or agreement, or any of the transactions contemplated by this
agreement, or any course of conduct, dealing, statements (whether oral or
written), or actions of either of them. Neither the Bank nor the Debtor shall
seek to consolidate, by counterclaim or otherwise, any action in which a jury
trial has been waived with any other action in which a jury trial cannot be
or has not been waived. These provisions shall not be deemed to have been
modified in any respect or relinquished by either the Bank or the Debtor
except by a written instrument executed by both of them.
Dated: JUNE 25, 1996 Debtor:
MADE2MANAGE SYSTEMS, INC.
By: /s/ David B. Wortman
------------------------------------
David B. Wortman, President
------------------------------------
PRINTED NAME TITLE
3
<PAGE>
MADE2MANAGE SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE AS OF JANUARY 1, 1998
<PAGE>
MADE2MANAGE SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
Effective as of January 1, 1998
TABLE OF CONTENTS
PAGE
SECTION 1 PURPOSE......................................................1
SECTION 2 DEFINITIONS AND INTERPRETATION...............................1
SECTION 3 ELIGIBILITY AND PARTICIPATION................................3
SECTION 4 PARTICIPANT CONTRIBUTIONS....................................4
SECTION 5 PURCHASE OF SHARES...........................................4
SECTION 6 VESTING......................................................5
SECTION 7 DISTRIBUTIONS................................................6
SECTION 8 ADMINISTRATION...............................................6
SECTION 9 AMENDMENT OR TERMINATION OF THE PLAN.........................7
SECTION 10 GENERAL PROVISIONS...........................................7
<PAGE>
MADE2MANAGE SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1
PURPOSE
1.1 This Plan has been established, effective January 1, 1998, to enable
Employees to acquire shares of Company Stock at a discounted price, so as
to encourage continued employee interest in the operation, growth, and
development of the Company and to provide an additional investment
opportunity to Employees. The Plan is intended to satisfy requirements of
Code Section 423(b), and it shall be interpreted in accordance with that
purpose.
1.2 The Board has reserved 100,000 Shares for issuance pursuant to the Plan.
The Board may reserve additional Shares in the future by Plan amendment,
provided that the amendment is approved by Company's shareholders within 12
months of the Board's adoption of such amendment. Upon the occurrence of
an event described in Section 5.4, the number of Shares reserved for
issuance under the Plan that have not yet been issued shall be increased or
decreased in the same manner as provided in that Section.
1.3 The shareholders of the Company approved the adoption of the Plan at their
meeting on November 21, 1997.
SECTION 2
DEFINITIONS AND INTERPRETATION
2.1 For purposes of the Plan, the definitions and rules of interpretation
specified in this Section 2 shall apply.
2.2 "Account" means, with respect to a Participant, the bookkeeping account
that reflects the Participant's interest under the Plan.
2.3 "Adjusted Wages" means, with respect to an Employee, the Employee's
taxable wages for federal income tax purposes, increased by amounts
that would have been included in taxable wages except for a deferral
election by the Employee under a Code Section 401(k) plan or a
nonqualified deferred compensation plan or amounts that would have been
included in the Employee's taxable wages except for the Employee's
election under a Code Section 125 plan; provided, however, benefits
received by the Employee under this Plan or any stock option plan of an
Employer shall not constitute "Adjusted Wages."
2.4 "Administrator" means the Company; provided, however, the Company may
delegate some or all of its administrative duties under the Plan to
another person, in which case such person shall be considered the
Administrator to the extent such duties have been so delegated.
<PAGE>
2.5 "Agent" means the person designated by the Company to hold Shares
pursuant to the Plan; provided, however, if the Company does not
designate an Agent, the Company shall carry out the duties of the Agent.
2.6 "Applicable Form" means the form or forms prescribed by the Administrator
from time to time for purposes of the Plan.
2.7 "Beneficiary" means, with respect to a Participant, the person
designated by the Participant as his or her beneficiary on an Applicable
Form filed with the Designated Person during the Participant's life. If
the Participant does not designate a Beneficiary, or if the person
designated by the Participant pre-deceases the Participant, the
Participant's Beneficiary shall be his or her spouse, if the Participant
is married on the date of his or her death, or, if the Participant is
not married on the date of death, the Participant's estate.
2.8 "Board" means the Company's Board of Directors.
2.9 "Business Day" means a day on which quotations are made over the NASDAQ
system.
2.10 "Calendar Quarter" means a three-month period beginning January 1, April 1,
July 1, or October 1.
2.11 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.12 "Company" means Made2Manage Systems, Inc.
2.13 "Company Stock" means the common stock of the Company.
2.14 "Designated Person" means the person or persons designated by the Company
as responsible for accepting Applicable Forms on behalf of the Company.
2.15 "Discounted Value" means, with respect to a Share acquired by the Plan
as of the last day of a Calendar Quarter, the greater of (i) 85% of the
closing price on the first Business Day of the Calendar Quarter or (ii)
90% of the average closing price for each Business Day of the Calendar
Quarter. For purposes of the preceding sentence, closing price for a
Business Day means the average of the closing bid and asked prices for a
Share, as reported by The Wall Street Journal (or, if not reported, as
otherwise quoted by the National Association of Securities Dealers
through the NASDAQ system), on the Business Day, or, if the Shares are
listed on the NASDAQ National Market System or a national stock
exchange, the closing price on such system or exchange on the Business
Day, as reported by The Wall Street Journal. If the Shares are not
publicly traded, the closing price shall be the fair market value, as
determined in good faith by the Board of Directors, and the Board's
determination shall be conclusive.
2.16 "Election Date" means with respect to a Calendar Quarter, the number of
days before the beginning of the Calendar Quarter designated by the
Administrator.
2
<PAGE>
2.17 "Employee" means a common-law employee of an Employer receiving Adjusted
Wages; provided, however, "Employee" does not include a person employed
as a temporary employee for an expected period of fewer than five months
in a calendar year.
2.18 "Employer" means the Company and any other entity organized under the
laws of a state within the United States, at least 80% of the equity and
voting power of which is owned directly or indirectly by the Company.
2.19 "Financial Hardship" means an unforeseeable financial hardship that the
Participant is unable to satisfy with his or her other resources.
2.20 "Participant" means an individual who has enrolled in the Plan pursuant to
Section 3.1 and has an account balance under the Plan.
2.21 "Plan" means the Made2Manage Systems, Inc. Employee Stock Purchase Plan,
as set forth in this document, as amended and in effect from time to time.
2.22 "Purchase Date" means, with respect to a Calendar Quarter, the last
Business Day of the Calendar Quarter.
2.23 "Share" means a share of Company Stock.
2.24 Unless the context requires otherwise, references to the male gender
include the female gender, words used in the singular include the
plural, and words used in the plural include the singular.
2.25 Division of this Plan into sections and the insertion of headings are for
convenience only and shall not affect the interpretation of this Plan.
2.26 This Plan is established under the laws of the State of Indiana, and the
rights of all parties and the interpretation of each and every provision
of the Plan shall be governed by and construed in accordance with the
laws of the State of Indiana.
SECTION 3
ELIGIBILITY AND PARTICIPATION
3.1 An Employee may enroll in the Plan as of the first payroll date of any
Calendar Quarter by filing a completed Applicable Form with the Designated
Person on or before the Election Date for such Calendar Quarter. An
Employee who has previously participated in the Plan and who has elected to
cease contributions or has withdrawn the cash balance of his or her Account
pursuant to Section 7.4 may resume contributions as of the first payroll
date of any following Calendar Quarter.
3.2 The Company shall, from time to time, provide each Participant with the
following:
3
<PAGE>
(a) a written explanation of the pertinent provisions of the Plan
(including amendments thereto applicable to the Participant); and
(b) any other information regarding the Plan required to be provided, and
in a manner prescribed, under any applicable laws.
SECTION 4
PARTICIPANT CONTRIBUTIONS
4.1 A Participant may elect to contribute through payroll deduction an amount
per payroll period that does not exceed 10% of his or her Adjusted Wages
for such payroll period. A Participant's contributions pursuant to this
Section 4.1 shall be subject to the minimum contribution amount established
by the Company from time to time. A Participant must make his or her
initial election by filing a completed Applicable Form with the Designated
Person as provided in Section 3.1.
4.2 Subject to Section 3.1 and the limitations on Participant contributions in
Section 4.1, a Participant may elect to change his or her election pursuant
to Section 4.1 effective as of the first payroll date of a Calendar Quarter
by filing a completed Applicable Form designating the new election with the
Designated Person on or before the Election Date for the Calendar Quarter.
4.3 Contributions made by a Participant pursuant to Sections 4.1 and 4.2 shall
be deducted by the Employer from each regular payroll payment and credited
to the Participant's Account as of the date of withholding.
4.4 A Participant may not purchase shares of Company Stock pursuant to the Plan
in any calendar year having a fair market value of more than $25,000. For
purposes of the preceding sentence, the determination of fair market value
shall be made by the Administrator in accordance with requirements of the
Code.
4.5 Contributions shall not be credited with earnings pending their use for the
purchase of Shares.
SECTION 5
PURCHASE OF SHARES
5.1 As of each Purchase Date, the cash allocated to each Participant's Account
shall be used to purchase directly from the Company the highest number of
whole Shares that can be purchased with the cash balance credited to such
Account at a purchase price equal to the Discounted Value of such Shares.
Shares may be purchased pursuant to the Plan only to the extent that they
have been reserved by the Board for issuance pursuant to the Plan. If the
cash amounts credited to Participants' Accounts as of the last day of a
Calendar Quarter exceed the Discounted Value of the Shares available for
purchase, the Administrator shall
4
<PAGE>
reduce pro-rata the amount of cash available from each Account for the
purchase of Shares. The whole Shares purchased with cash from a
Participant's Account shall be credited to such Account as of the
Purchase Date, and any cash remaining after the purchase of such Shares
shall remain credited to the Participant's Account.
5.2 All non-cash dividends, rights to acquire additional Shares, and other
rights, preferences, or privileges paid or distributed on Shares credited
to an Account shall be allocated to the same Account as of the date of
receipt, and used as directed by the Company. All cash dividends on Shares
credited to an Account shall be allocated to the same Account as of the
date of receipt and used to purchase additional Shares for such Account on
the next following Purchase Date.
5.3 All Shares purchased or otherwise acquired pursuant to Section 5.1 or 5.2
shall held by the Agent and shall be registered in the name of the Plan or
the Plan's nominee. The Agent shall abstain from voting such Shares.
5.4 (a) If Shares are subdivided into a greater number of Shares, any
additional Shares received with respect to Shares allocated to an
Account shall be allocated to the same Account.
(b) If Shares are consolidated into a lesser number of Shares, any Shares
received in exchange for Shares allocated to an Account shall be
allocated to the same Account.
(c) In the event of any capital reorganization, reclassification of, or
change to outstanding Shares, other than as described in paragraph
5.4(a) or 5.4(b), or in the event of any consolidation or merger of
the Company with or into another entity or in the event of any sale of
the property of the Company as or substantially as an entity at any
time, the shares or other securities or property received with respect
to the Shares allocated to an Account shall be allocated to the same
Account.
(d) The adjustments provided for in this Section 5.4 are cumulative.
5.5 Notwithstanding any other provision of the Plan, no Shares shall be
purchased with respect to a Participant, if immediately after the purchase,
the Participant would own 5% or more of the total combined voting power or
value of all classes of stock of the Company or a subsidiary thereof, which
percentage shall be determined after application of the attribution rules
of Code Section 423(d).
SECTION 6
VESTING
6.1 A Participant's interest in his or her Account shall be 100% vested and
nonforfeitable at all times.
5
<PAGE>
SECTION 7
DISTRIBUTIONS
7.1 A Participant may submit a written request to the Designated Person that
any Shares allocated to his or her Account be distributed to him or her,
provided that such Shares have been allocated to his or her Account for at
least six months. Such Shares shall be distributed to the Participant as
soon as administratively practicable after the Designated Person receives
the Participant's notice. At such time as all remaining Shares allocated
an Account are distributed, any cash allocated to the Account shall be
distributed to the Participant.
7.2 As soon as practicable after a Participant's death, all Shares and cash
allocated to the Participant's Account shall be distributed to the
Participant's Beneficiary.
7.3 In the event of Financial Hardship, as determined by the Company, a
Participant may request by written notice to the Designated Person that the
Company repurchase any Shares allocated to his or her Account during the
immediately preceding six months for the lesser of (i) the closing price of
such Shares quoted over NASDAQ on the date such notice is received or (ii)
the price for which such Shares were purchased from the Company. If the
Company approves the repurchase, the purchase price referred to in the
preceding sentence shall be credited to the Participant's Account in
exchange for the Shares, and the cash value of the Participant's Account
shall be distributed to him or her as soon as administratively practicable
after the repurchase.
7.4 A Participant may withdraw from active participation in the Plan and
request distribution of the cash allocated to his or her Account by filing
a written notice of withdrawal with the Designated Person. In the case of
a Participant's withdrawal, the Company shall distribute to the Participant
as soon as practicable after the Designated Person receives the notice of
withdrawal all cash allocated to the Participant's Account on the date of
distribution. Withdrawal pursuant to this Section 7.4 shall not affect the
distribution of Shares allocated to the Participant's Account.
SECTION 8
ADMINISTRATION
8.1 The Plan shall be administered by the Company or its designee. The Company
may, from time to time, establish such administrative rules and regulations
relating to the operation of the Plan as it deems advisable to carry out or
implement the Plan or to comply with applicable laws and may amend or
repeal such rules and regulations and may delegate to its employees or
agents such powers and duties in connection with the administration of the
Plan as it deems advisable. Any rules and regulations established
hereunder and the good faith decisions of the Company with respect to any
question arising under the Plan, including under such rules and
regulations, shall be final binding for all purposes.
6
<PAGE>
8.2 No member of the Board and no employee or agent of the Company shall be
liable for any act of failure to act hereunder of any other member,
employee or agent, except in circumstances involving bad faith, gross
negligence, or fraud by such member, employee or agent.
SECTION 9
AMENDMENT OR TERMINATION OF THE PLAN
9.1 The Company, acting through its Board, reserves the right to terminate,
amend, or suspend the Plan at any time, provided, however, that (i) any
approvals required by applicable law are obtained and, (ii) unless
required by law, the Company's action shall not adversely affect the
existing rights of any Participant to contributions already made or
Shares already acquired under the Plan, unless the Participant gives his
or her prior written consent to the action. Notwithstanding the
preceding sentence, any amendment increasing the number of Shares that
may be issued pursuant to the Plan or changing the class of employees
eligible for participation in the Plan shall not be effective, unless
approved by the Company's shareholders within 12 months after such
amendment is adopted by the Board.
9.2 Upon termination of the Plan, no further Shares shall be purchased, any
unused contributions and any undistributed interest, dividends, or other
amounts allocated to an Account shall be distributed to the Participant
to whom such Account relates, and certificates for Shares credited to an
Account shall be issued to the Participant to whom such Account relates.
SECTION 10
GENERAL PROVISIONS
10.1 Except as required by law or as expressly provided for under the terms
of the Plan, a Participant may not assign or transfer his or her
interest under the Plan.
10.2 Participation in this Plan shall not affect the right of the Company to
terminate the employment of a Participant. The establishment and
implementation of the Plan shall not constitute an enlargement of any
rights which a Participant has apart from the Plan.
10.3 The Administrator shall withhold taxes, file returns, and distribute
notices to the extent that the Administrator determines such action is
required by applicable tax laws.
10.4 The Plan and the implementation thereof are subject to applicable
governmental and stock exchange approvals. As a condition of
participating in the Plan, each Participant agrees to comply with all
applicable laws, rules, and regulations relating to participation in the
Plan and agrees to furnish to the Designated Person all information and
undertakings that the Company may reasonably request in connection with
the Plan.
7
<PAGE>
By signing below, the undersigned duly authorized officer verifies that the
Company has adopted the Made2Manage Systems, Inc. Employee Stock Purchase Plan.
MADE2MANAGE SYSTEMS, INC.
By:______________________
__________________________
(Office)
__________________________
(Date)
ATTEST:
__________________________
8
<PAGE>
THIRD AMENDED AND RESTATED
MODIFICATION AGREEMENT
THIS AGREEMENT is made as of the 23rd day of November, 1988, amended as of
February 16, 1990, and amended as of April 12, 1991, between Teksyn, Inc., an
Indiana corporation (the "Company"), the purchasers of shares of Series A
Preferred Stock of the Company (the "Series A Purchasers") pursuant to she
Series A Preferred Stock Purchase Agreement dated as of June 23, 1987 (the
"Series A Agreement"), the purchasers of shares of Series B Preferred Stock of
the Company (the "Series B Purchasers") pursuant to the Series B Preferred Stock
Purchase Agreement dated November 23, 1988 (the "Series B Agreement"), the
purchasers of shares of Series C Preferred Stock of the Company (the "Series C
Purchasers") pursuant to the Series C Preferred Stock Purchase Agreement dated
as of February 16, 1990 (the "Series C Agreement"), the Merger Agreement by and
between the Company and TS Capital Corporation (the "Merger Agreement"), or
pursuant to the Series C Preferred Stock Purchase Agreement No. 2 dated as of
April 12, 1991 (the "Series C Agreement the Company (the "Series D Purchasers")
pursuant to the Series D Preferred stock Purchase Agreement dated as of March
12, 1993 (the "Series D Agreement").
RECITALS
A. Pursuant to the Series A Agreement, the Series A Purchasers were
granted certain rights (i) with respect to the registration of the company's
securities under the Securities Act of 1933, as amended (the "Securities Act"),
as set forth in Section 8 of the Series A Agreement; and (ii) of first refusal
to purchase new securities of the Company, as set forth in Section 9 of the
Series A Agreement.
B. The Company issued 255,331 shares of its Series B Preferred Stock (the
"Series B Preferred") pursuant to the Series B Agreement and the Merger
Agreement.
C. On November 23, 1988, the Company, the Series A Purchasers and the
Series B Purchasers entered into a Modification Agreement (the "Initial
Modification Agreement").
D. The Company issued 312,500 shares of its Series C Preferred Stock (the
"Series C Preferred") pursuant to the Series C Agreement.
E. On February 16, 1990, the Company, the Series A Purchasers, the Series
B Purchasers, and the Series C Purchasers entered into an Amended and Restated
Modification Agreement (the "Amended and Restated Modification Agreement").
F. The Company issued 251,080 shares of its Series C Preferred Stock
pursuant to the Series C Agreement No. 2.
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G. On April 12, 1991, the Company, the Series A Purchasers, the Series B
Purchasers, and the Series C Purchasers entered into a Second Amended and
Restated Modification Agreement (the "Second Amended and Restated Modification
Agreement").
H. The Company proposes to issue 400,000 shares of its Series D Preferred
Stock pursuant to the Series D Agreement.
I. The Company has requested, and the Series A Purchasers have agreed,
that the registration rights set forth in Section 8 of the Series A Agreement be
of no further force and effect, that the Series A Purchasers waive their right
of first refusal set forth in Section 9 of the Series A Agreement with respect
to the purchase of the Series B Preferred issued pursuant to the Series B
Agreement and the Merger Agreement, that the covenants set forth in Sections 7.6
and 7.7 of the Series A Agreement be of no further force and effect and that the
rights granted to Series A Purchasers herein supersede the rights granted in the
Series A Agreement.
J. Pursuant to Section 10.4 of the Series A Agreement, the holders of not
less than 75% of the shares of the Company's Series A Preferred Stock ("Series A
Preferred") and the Common Stock issuable upon conversion of the Series A
Preferred may amend the provisions of the Series A Agreement on behalf of all
Series A Purchasers.
K. The Company has further agreed to grant the Series A Purchasers, the
Series B Purchasers, the Series C Purchasers and the Series D Purchasers the
right to purchase certain future issuances of the Company's securities, and the
Series A Purchasers, Series B Purchasers, Series C Purchasers and the Series D
Purchasers have agreed to grant the Company the right of first refusal with
respect to certain future sales or transfers of their Series A Preferred, Series
B Preferred, Series C Preferred and Series D Preferred and Common Stock issuable
upon conversion thereof on the terms and conditions set forth herein.
L. This Third Amended and Restated Modification Agreement completely
amends and supersedes the Initial Modification Agreement, the Amended and
Restated Modification Agreement and the Second Amended and Restated Modification
Agreement.
NOW THEREFORE, the parties agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
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"COMMISSION" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"CONVERSION STOCK" shall mean the Common Stock issued or issuable upon
conversion of the Preferred Stock.
"PREFERRED STOCK" shall mean Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred.
"PURCHASER" shall mean any Series A Purchaser, Series B Purchaser, Series C
Purchaser and Series D Purchaser.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"RESTRICTED SECURITIES" shall mean the securities of the Company required
to bear the legend set forth in Section 1.3 hereof.
"REGISTRABLE SECURITIES" means (i) shares of the Company's Common Stock
issued or issuable pursuant to the conversion of the Preferred Stock; and (ii)
any Common Stock of the Company issued or issuable in respect of the shares of
the Company's Common Stock or other securities issued or issuable pursuant to
the conversion of the Preferred Stock upon any stock split, stock dividend,
recapitalization, or similar event, or any Common Stock otherwise issued or
issuable with respect to the Preferred Stock, provided, however, that shares of
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as they have not been (A) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(B) sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale.
The terms "REGISTER" "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in
complying with Sections 1.5 and 1.6 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, including fees and
disbursements of such counsel in representing the Holders, blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
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"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for any Holders other than
Holders who are represented by counsel for the Company.
"HOLDER" shall mean any Purchaser holding Registrable Securities and any
person holding Registrable Securities to whom the rights under this Section 1
have been transferred in accordance with Section 1.14 hereof.
"INITIATING HOLDERS" shall mean any Purchasers or transferees of Purchasers
under Section 1.14 hereof who in the aggregate are Holders of not less than 75%
of the Registrable Securities.
1.2 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock and the
Conversion Stock shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Section l, which conditions are intended to
ensure compliance with the provisions of the Securities Act. Each Purchaser and
any transferee of such Purchaser will cause any proposed purchaser, assignee,
transferee, or pledgee of the Preferred Stock or such Common Stock held by a
Purchaser to agree to take and hold such securities subject to the provisions
and upon the conditions specified in this Section 1.
1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Preferred
Stock, (ii) shares of the Company's Common Stock issued upon conversion of the
Preferred Stock and (iii) any other securities issued in respect of the
Preferred Stock or Common Stock issued upon conversion of the Preferred Stock
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
1.4 below) be stamped or otherwise imprinted with legends in the following form
(in addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED AT ANY TIME EXCEPT UPON
DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION AND/OR THE SUBMISSION TO THE CORPORATION OF SUCH OTHER EVIDENCE
AS MAY BE SATISFACTORY TO THE CORPORATION THAT ANY SUCH TRANSFER SHALL NOT
BE IN VIOLATION OF THE SECURITIES LAWS, OR ANY RULE OR REGULATION
PROMULGATED THEREUNDER. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO
TRANSFER PURSUANT TO AN AGREEMENT WITH THE CORPORATION, A COPY OF WHICH MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY
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OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
INFORMATION REGARDING THE RELATIVE RIGHTS, PREFERENCES, AND LIMITATIONS
APPLICABLE TO THE CLASS (AND SERIES, IF ANY) OF WHICH THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE A PART, WILL BE FURNISHED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON REQUEST SUBMITTED IN WRITING TO THE SECRETARY OF
THE CORPORATION.
Certificates issued pursuant to the Merger Agreement may also bear the
following legend:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Each Purchaser and Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Preferred Stock or
the Common Stock in order to implement the restrictions on transfer established
in this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 1.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership or (ii) in transactions
involving the distribution without consideration of Restricted Securities by any
of the Purchasers to any of their partners, or retired partners, or to the
estate of any of its partners or retired partners), unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice to the Company of any such holder's
intention to effect such transfer, sale, assignment or pledge. Each such notice
shall describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail, and shall be accompanied, at such
holder's expense by either (i) an unqualified written opinion of legal counsel
who shall, and whose legal opinion shall be, reasonably satisfactory to the
Company addressed to the Company, to the effect that the proposed transfer of
the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144, the appropriate restrictive legend set
forth in Section 1.3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for such holder and the Company
such legend is
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not required in order to establish compliance with any provisions of the
Securities Act or any state securities law.
1.5 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall receive from
Initiating Holders, at any time following the earlier of June 30, 1990 -or six
months following the effective date of the initial public offering of Common
Stock of the Company, a written request that the Company effect any
registration, qualification or compliance with respect to Registrable Securities
the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect the
registration, qualification or compliance (including, without limitation, to
execute an undertaking to file post-effective amendments, to make appropriate
qualification under applicable blue sky or other state securities laws and to
make appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) of at
least 20% of the Registrable Securities of each Holder who made such request,
together with at least 20% of the Registrable Securities of any Holder or
Holders joining in such request as specified in a written request received by
the Company within 20 days after receipt of such written notice from the
Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 1.5:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) Prior to the expiration of 180 days after the effective date of
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan);
(C) During the period starting with the date sixty (60) days prior to
the Company's estimated date of filing of, and ending on the date six (6) months
immediately following, the effective date of any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective and that the Company's
estimate of the date of filing such registration statement is made in good
faith;
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(D) After the Company has effected two such registrations pursuant to
this subparagraph 1.5(a) and such registrations have been declared or ordered
effective;
(E) If the Company shall furnish to such Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company or its
shareholders for a registration statement to be filed in the near future, then
the Company's obligation to use its best efforts to register, qualify or comply
under this Section 1.5 shall be deferred for a period not to exceed 120 days
during which period the Company may not file a registration statement for its
own account (other than a registration of securities in a Rule 145 transaction
or with respect to an employee benefit plan).
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
(b) UNDERWRITING. The right of any Holder to registration pursuant
to Section 1.5 shall be conditioned upon such Holder's participating in the
underwriting arrangements required by this Section 1.5 and the inclusion of such
Holder's Registrable Securities to the extent requested in the underwriting to
the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders. Notwithstanding any other
provision of this Section 1.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Initiating Holders shall so advise
all holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. No Registrable Securities excluded
from the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw theref rom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 90 days after the effective date
of such registration; provided, however, that, if by the withdrawal of such
Registrable Securities a greater number of Registrable Securities held by other
Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used in
determining the underwriter limitation in this Section 1.5(b).
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1.6 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Securities and Exchange Commission Rule 145 transaction,
the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 120 days after receipt of such written notice from the
Company, by any Holder.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a) (i). In such event the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration. The Company shall so advise all
Holders and the number of shares of Registrable Securities that may be included
in the registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to ninety days after the effective
date of the registration statement relating thereto.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
1.7 REGISTRATION ON FORM 5-3.
(a) If any Holder or Holders representing not less than 20% of the
Registrable Securities request that the Company file a registration statement on
Form 5-3 (or any successor form
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to Form 5-3) for a public offering of shares of the Registrable Securities
the reasonably anticipated aggregate price to the public of which would
exceed $1,000,000, and the Company is a registrant entitled to use Form 5-3
to register the Registrable Securities for such an offering, the Company
shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form; provided, however, that the Company
shall riot be required to effect more than one registration pursuant to this
Section 1.7 in any six (6) month period. The substantive provisions of
Section l.5.,(a)(i), the first paragraph of (a) (ii) and (b) shall be
applicable to each registration initiated under this Section 1.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) if the Company, within
ten (10) days of the receipt of the request of the Holder or Holders, gives
notice of its bona fide intention to effect the filing of a registration
statement with the Commission within ninety (90) days of receipt of such request
(other than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities); (iii) during
the period starting with the date sixty (60) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following, the effective date of any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and that the Company's estimate of
the date of filing such registration statement is made in good faith; (iv) if
the Company shall furnish to such Holder a certificate signed by the President
of the Company stating that in the good faith judgment of the Board of Directors
it would be seriously detrimental to the Company or its shareholders for
registration statements to be filed in the near future, then the Company s
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed 120 days from the receipt of the request to
file such registration by such Holder during which period the Company may not
file a registration statement for its own account (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan); or (v) after the Company has effected three such registrations pursuant
to this subparagraph 1.7 and such registrations have been declared or ordered
effective. In no event shall the Company be required to keep any such
registration statement effective for a period of more than six months.
1.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS:
TERMINATION OF REGISTRATION RIGHTS.
(a) LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS From and after the
date of this Agreement, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless (i)
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such new registration rights are on a shared pro rata basis with rights of
the Holders hereunder; or (ii) such new registration rights are subordinate
to the registration rights granted Holders hereunder.
(b) TERMINATION OF REGISTRATION RIGHTS. Notwithstanding any other
provision in this Section 1, registration rights granted pursuant to Section 1
hereof shall terminate: (i) with respect to Holders other than affiliates (as
defined in Rule 405 under the Securities Act) of the Company, if granted under
Section 1.6, five (5) years after the effective date of the Company's initial
public offering having a minimum aggregate gross offering price of $5,000,000
and a minimum price per share of $5.56 adjusted for stock splits, stock
dividends and recapitalizations, and if granted under Section 1.7 on December
31, 1998; and (ii) as to any Holder, at the later of five (5) years after the
effective date of the Company's initial public offering having a minimum gross
offering price of $5,000,000 and a minimum price per share of $5.56 adjusted for
stock splits, stock dividends and recapitalizations or the date such Holder can
sell all Registrable Securities held by such Holder within a single three month
period pursuant to Rule 144 under the Securities Act.
1.9 EXPENSES OF REGISTRATION.
(a) All Registration Expenses incurred in connection with (i) the two
registrations pursuant to Section 1.5 and (ii) all registrations pursuant to
Section 1.6 shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
(b) All Registration Expenses and Selling Expenses incurred in
connection with a registration pursuant to Section 1.7 shall be borne pro rata
by the Holder or Holders requesting the registration on Form 5-3 according to
the number of Registrable Securities included in such registration.
1.10 REGISTRATION PROCEDURES. In the case of registration, qualification
or compliance effected by the Company pursuant to this Section l, the Company
will keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof. At
its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed.
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
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1.11 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of the Securities Act, with respect to which registration, qualification
or compliance has been effected pursuant to this Section 1, and each
underwriter, if any, and each person who controls any underwriter within the
meaning of the Securities Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation or proceedings, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on 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 any rule or regulation promulgated under the
Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, action
or expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company by an instrument duly executed
by such Holder, officer, director or partner, controlling person or underwriter
and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act, and each other such
Holder, each of its officers and directors and partners and each person
controlling such Holder within the meaning of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, partners, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information
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furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically fur use therein.
(c) Each party entitled to indemnification under this Section 1.11
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any claim or
any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section I unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) In the event of a conflict between the terms of any underwriting
agreement entered into by the Company and this Section 1.11, the terms of such
underwriting agreement shall govern.
1.12 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable securities held by
them and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 1.
1.13 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements);
-12-
<PAGE>
(c) So long as a Purchaser owns any Restricted Securities to furnish
to the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the Securities Act and the Securities Exchange Act of 1934 (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Purchaser may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Purchaser to sell
any such securities without registration.
1.14 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted Purchasers under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Purchaser (together with any
affiliate) provided that: (i) such transfer may otherwise be effected in
accordance with applicable securities laws, (ii) that the Purchaser obtains the
Company's prior written consent to effect such transfer, which consent shall not
be unreasonably withheld and (iii) that such assignee or transferee acquire at
least 20% of a purchaser's shares of Preferred Stock and Conversion Stock.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner or shareholder of a
Purchaser or affiliate of a corporate Purchaser, without compliance with items
(ii) and (iii) above provided written notice thereof is promptly given to the
Company.
1.15 STANDOFF AGREEMENT. Each Holder agrees in connection with the
Company's initial public offering of the Company's securities that, upon request
of the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred twenty (120) days) from the effective date of
such registration; provided that the officers and directors of the Company who
own stock of the Company also agree to such restrictions.
SECTION 2
PURCHASERS' AND COMPANY RIGHTS OF FIRST REFUSAL
2.1 RIGHT OF FIRST OFFER ON NEW SECURITIES. The Company hereby grants to
each Purchaser the right of first offer to purchase, pro rata, all or any part
of New Securities (as defined in this Section 2.1) which the Company may, from
time to time, propose to sell and issue. A pro rata share, for purposes of this
right of first offer, is the ratio that the sum of the number of shares of
preferred Stock and Conversion Stock held by each purchaser bear to the total
number of shares of preferred Stock and Conversion Stock held by all purchasers
with such right of first refusal.
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<PAGE>
(a) Except as set forth below, "New Securities" shall mean any shares
of capital stock of the Company including common stock and preferred stock,
whether now authorized or not, and rights, options or warrants to purchase said
shares of common stock or preferred stock, and securities of any type whatsoever
that are, or may become, convertible into said shares of common stock or
preferred stock. Notwithstanding the foregoing, "New Securities" does not
include (i) Preferred Stock issued pursuant to the Series A Agreement, the
Series B Agreement, the Merger Agreement, the Series C Agreement, the Series C
Agreement No. 2, and the Series D Agreement, including Common Stock issuable
upon conversion of the Preferred Stock, (ii) Preferred Stock issued pursuant to
a warrant to purchase 14,063 shares of Series C Preferred Stock including Common
Stock issuable upon conversion thereof, (iii) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization whereby the Company or
its shareholders own not less than fifty-one percent (51%) of the voting power
of such corporation, (iv) up to 250,000 shares of the Company's Common Stock
(net of repurchases), or related options convertible into such Common Stock,
issued to (a) employees, officers and directors of, and consultants to, the
Company, pursuant to any arrangement approved by the Board of Directors of the
Company, or (b) to vendors, licensors or licensees, guarantors of debt or
equipment leases or pursuant to joint venture arrangements, (v) any security if
Purchasers holding at least 75% of the outstanding Preferred Stock (or the
Common stock issued in respect thereof, or any combination of such Preferred
Stock and such Common Stock) consent in writing that the right of first refusal
shall not apply to such securities, (vi) stock issued pursuant to the exercise
of any rights or agreements to acquire Common Stock including without limitation
convertible securities, options and warrants, provided that the rights of first
refusal established by this Section 2.1 apply with respect to the initial sale
or grant by the Company of such rights or agreements and (vii) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each purchaser written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Each Purchaser shall have twenty-one (21)
days from the date of receipt of any such notice to agree to purchase up to the
Purchaser's pro rata share of such New Securities for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
(c) In the event a Purchaser fails to exercise the right of first
refusal within said twenty-one (21) day period, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of such agreement) to sell the New Securities not
elected to be purchased by Purchasers at the price and upon the terms no more
favorable to the purchasers of such securities than specified in the Company's
notice. In the event the Company has not sold the New securities or entered
into an agreement to sell the New Securities within said ninety (90) day period
(or sold and issued New Securities in accordance with the foregoing within sixty
(60) days from the
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<PAGE>
date of said agreement), the Company shall not thereafter issue or sell any
New Securities, without first offering such securities to the purchasers in
the manner provided above.
(d) The right of first offer granted under this Agreement shall
expire upon the first to occur of the following: (i) the closing of the first
public offering of the Common Stock of the Company to the general public which
is effected pursuant to a registration statement filed with, arid declared
effective by, the Commission under the Securities Act at a minimum aggregate
gross offering price of $5,000,000 and minimum price per share of $5.56 (subject
to adjustment for stock splits, stock dividends or recapitalization); (ii) as to
a Purchaser if a Purchaser (when aggregated with any of such Purchaser's
wholly-owned subsidiaries or constituent partners or shareholders) no longer
holds 50% of the Preferred Stock issued to Purchaser or 50% of the Common Stock
issued upon conversion of the Preferred Stock or 50% of any combination of said
Preferred Stock and Common Stock issued to the Purchaser, all as adjusted for
stock splits, stock dividends, and recapitalizations.
(e) The right of first offer hereunder is not assignable except by
each of such Purchasers to any wholly-owned subsidiary or constituent partner
(including limited partners) or shareholders.
2.2 RIGHT OF FIRST REFUSAL. Before any shares of Preferred Stock and/or
Conversion Stock registered in the name of Purchaser may be sold or transferred
(including transfer by operation of law), such shares shall first be offered to
the Company (or its assignees) and to the shareholders of the Company as
follows:
(a) The purchaser shall deliver a notice ("Notice") to the Company
stating (i) such Purchaser's bona fide intention to sell or transfer such
shares, (ii) the number of such shares to be sold or transferred, (iii) the
price for which the Purchaser proposes to sell or transfer such shares, and (iv)
the name of the proposed purchaser or transferee.
(b) Within fifteen (15) days after receipt of the Notice, the Company
(or its assignee or assignees designated by the board of directors with the
written consent of holders, other than the Purchaser who delivered the Notice,
of not less than 75% of the outstanding shares of Preferred stock and/or
Conversion Stock of the Company) may elect to purchase any or all shares to
which the Notice refers, at the price per share specified in the Notice.
(c) In the event the Company (together with its permitted assignees)
elects under (b) above to purchase less than all of the shares to which the
Notice refers, the Company shall promptly (and in all events within the fifteen
day period specified in (b) above) give written notice to all holders of
outstanding shares of Preferred Stock and/or Conversion Stock setting forth the
terms of the notice and the number of shares to which the Notice refers which
are available for purchase. For a period of fifteen (15) days following
receipt of notice from the Company, each holder of Preferred stock and/or
Conversion Stock, subject to qualification under or other compliance with
applicable federal and state blue sky/securities laws, as reasonably determined
by counsel for the Company, shall have the right to purchase a pro rata portion
of any or all of such available shares as
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<PAGE>
specified in the Notice. Each holder's pro rata portion shall be based on
the ratio of the number of shares of Corporation Preferred Stock and/or
Conversion Stock owned by such holder to the total number of shares of
Preferred Stock and Conversion Stock of all holders other than the Purchaser
giving the Notice. Each holder electing to purchase shares shall specify the
maximum number of shares such holder is willing to purchase, including shares
available for purchase by reason of another holder's election not to purchase
or ineligibility to purchase by virtue of Federal and/or state blue
sky/securities laws.
(d) If all of the shares to which the Notice refers are not elected
to be purchased, as provided in subparagraph (b) above, the Purchaser may sell
the remaining shares to any person named in the Notice at the price specified in
the Notice or at a higher price, provided that such sale or transfer is
consummated within 60 days of the date of said Notice to the Company, and
provided, further, that any such sale is in accordance with all the terms and
conditions hereof and such purchaser or transferee agrees to be bound by all the
restrictions and provisions hereof.
The provisions of this Section 2.2 shall terminate on the closing date of a
registration statement filed by the Company under the Securities Act of 1933
with respect to an underwritten public offering of Common Stock of the Company
for a minimum aggregate gross offering price of $5,000,000 and a minimum price
per share of $5.56. The provisions of subparagraphs (a), (b) and (c) shall not
apply to a transfer of any shares of Preferred Stock and/or Conversion Stock by
a purchaser as a result of the dissolution of Purchaser, a reorganization or
acquisition of Purchaser in connection with which the shareholders or partners
or other equity owners of purchaser own, after consummation of such
reorganization or acquisition, at least 51% of the voting power of the
reorganized, acquiring or surviving entity, or as a distribution to a
constituent partner or shareholder of the Purchaser; provided, in each such case
a transferee shall receive and hold such shares subject to the provisions and
restrictions on transfer of this Agreement and there shall be no further
transfer of such shares except in accordance herewith.
SECTION 3
WAIVER OF RIGHTS
In consideration of the rights granted herein, (i) the registration rights
granted to the Series A Purchasers pursuant to Section 8 of the Series A
Agreement are amended in full to read as set forth in this Agreement, and such
registration rights as set forth in Section 8 of the Series A Agreement are null
and void and of no further force and effect, (ii) the Series A Purchasers waive
their right of first refusal as set forth in Section 9 of the Series A
Agreement, and such right of first refusal as set forth in Section 9 of the
Series A Agreement is null and void and of no further force and effect and is
amended in its entirety to read as set forth in this Agreement, (iii) the Series
A Purchasers waive compliance with the covenants set forth in Sections 7.6 and
7.7 of the Series A Agreement relating to Section 351 transfers, which covenants
are null and void and of no further force and effect, and (iv) the Series A
Purchasers, Series B Purchasers and Series C Purchasers waive their right of
first refusal as set forth in Section 2 of the Second Amended And Restated
Modification Agreement.
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<PAGE>
SECTION 4
MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the St-ate of Indiana.
4.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions of this Agreement shall inure to the benefit of, and be binding upon,
the successors, assigns, heirs, executors and administrators of the parties to
this Agreement.
4.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Series A Agreement,
the Series B Agreement, the Merger Agreement, the Series C Agreement, the Series
C Agreement No. 2, and the Series D Agreement constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged, or terminated other than (i) with respect to Section l of this
Agreement, by a written instrument signed by the Company and the holders of not
less than 75% of the Registrable Securities, and (ii) with respect to Section 2,
3 and 4 of this Agreement, by a written instrument signed by the Company and the
holders of not less than 75% of the Preferred Stock and Conversion Stock then
outstanding.
4.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Holder, to the address of such Holder as set forth on the records of the
Company, or to such address as such Holder shall have furnished to the Company
in writing, or, until any such Holder so furnishes an address to the Company,
then to the address of the last holder of such Registrable Securities who has so
furnished an address to the Company, or (b) if to the Company, one copy should
be sent to 8650 Commerce Park Place, Suite N, Indianapolis, Indiana 46268 and
addressed to the attention of the President, or at such other address as the
Company shall have furnished to the Purchasers.
4.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
omission to exercise any right, power, or remedy occurring to any Holder, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power, or remedy of such Holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, as of or in any
similar breach or default therein occurring, nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Holder of any breach or default under this
Agreement, or any waiver on the party of the Holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
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<PAGE>
4.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
4.7 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not considered in construing or
interpreting this Agreement.
4.8 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
TEKSYN, INC.
an Indiana corporation
By:
----------------------------
Gerald V. Roch
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<PAGE>
Miller Venture Partners
By:
----------------------------------
Title:
-------------------------------
Hamco Capital Corporation
By:
---------------------------------
Title:
------------------------------
H & Q London Ventures
By:
---------------------------------
Title:
------------------------------
H&Q Taiwan Ventures C.V.
By:
---------------------------------
Title:
------------------------------
The Independent Investment Company PLC
By:
---------------------------------
Title:
------------------------------
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<PAGE>
Hambrecht & Quist Incorporated
By:
---------------------------------
Title:
------------------------------
H & Q Group
By:
---------------------------------
Title:
------------------------------
The Hambrecht Revocable 1980 Trust
By:
---------------------------------
Title:
------------------------------
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<PAGE>
CREDIT AGREEMENT
NBD BANK, N.A., a national banking association (the "Bank") whose address is
One Indiana Square, Indianapolis, Indiana, 46266, has approved the credit
facilities listed below (collectively the "Credit Facilities," and
individually as designated below) to TEKSYN, INC. (the "Borrower"), whose
address is 9002 PURDUE ROAD, INDIANAPOLIS, INDIANA 46268, subject to the terms
and conditions set forth in this agreement.
1. CREDIT FACILITIES.
1.1 FACILITY A. The bank has approved a credit facility to the Borrower
in the principal sum not to exceed $250,000.00 in the aggregate at any one
time outstanding ("Facility A"). Credit under Facility A shall be in the
form of disbursements evidenced by credits to the Borrower's account and
shall be repayable as set forth in a Revolving Business Credit Note
executed concurrently. The proceeds of Facility A shall be used for
working capital purposes. Facility A shall expire on JULY 1, 1996 unless
earlier withdrawn.
1.2 FACILITY B (LINE CONVERTING TO A TERM LOAN). The Bank has approved
a credit facility to the Borrower in the principal sum not to exceed
$112,500.00 in the aggregate at any one time outstanding ("Facility
B"). Facility B shall be in the form of advances evidenced by the
Borrower's Business Credit Note. The proceeds of Facility B shall be
used to finance Borrower's acquisition of equipment. Interest on each
loan shall accrue at a rate to be agreed upon by the Bank and the
Borrower at the time the loan is made. Notwithstanding the aggregate
amount of Facility B stated above, the original principal amount of
each advance shall not exceed the 75.0% of the cost of the equipment
purchased with Facility B proceeds. Availability of advances under
Facility B shall expire on JULY 1, 1996 unless earlier withdrawn,
whereupon the outstanding balance of Facility B shall convert to an
amortizing three (3) year term loan.
The notes described above, together with any renewals, replacements, or
modifications thereof are referred to hereinafter as the "Notes").
2. CONDITIONS PRECEDENT. Before any extension of credit under this
agreement, whether by disbursement of a loan, or otherwise, the
following conditions shall have been satisfied:
A. REPRESENTATIONS. The representation contained in Section 9 shall
be true on and as of the date of the extension of credit;
B. NO EVENT OF DEFAULT. No event of default shall have occurred
and be continuing or would result from the extension of credit;
C. With respect to Facility A, the Bank shall be in receipt of a
borrowing base certificate indicating a Borrowing Base (as hereinafter
defined) sufficient to support all advances under Facility A, including
the requested advance.
D. With respect to Facility B, the Bank shall have received a copy
of the invoice for the equipment being financed with the proceeds of
Facility B. The Bank shall have received such other approvals,
opinions and documents as it may reasonably request.
<PAGE>
3. BORROWING BASE/REQUESTS TO BORROW.
3.1 BORROWING BASE. Notwithstanding any other provision of this
agreement, the aggregate principal amount outstanding at any
one time under Facility A shall not exceed the lesser of the
"Borrowing Base" or $250,000.00. "Borrowing Base" means 80%
of the borrower's trade accounts receivable in which the Bank
has a perfected, first priority security interest, excluding
accounts more than 90 days past due from the date of invoice,
accounts subject to offset or defense, government, bonded,
affiliate and foreign accounts, accounts from trade
debtors of which more than 25% is more than 90 days past due.
3.2 REQUESTS TO BORROW. The Borrower may authorize certain of its
officers and/or other agents to request advances by telephone
or other means of communication. Any such authorization shall
be on the Bank's form.
4. FEE. Upon execution of this agreement, the Borrower shall pay the
Bank a fee in the aggregate amount of Three Thousand and 00/100
Dollars ($3,000.00), all of which the Borrower acknowledges have
been earned by the Bank.
5. SECURITY.
5.1 Payment of the borrowing under the Credit Facilities shall be
secured by a first security interest and/or real estate
mortgage, as the case may be, covering the following property
and all its additions, substitutions, increments, proceeds and
products, whether now owned or later acquired (the
"Collateral").
A. ACCOUNTS RECEIVABLE. All of the Borrower's accounts, chattel
paper, general intangibles, instruments, and documents (as
those terms are defined in the Indiana Uniform Commercial
Code), rights to refunds of taxes paid at any time to any
governmental entity, and any letters of credit and drafts
under them given in support of the foregoing, wherever
located. The Borrower shall deliver to the Bank executed
security agreements and financing statements in form and
substance satisfactory to the Bank.
B. INVENTORY. All of the Borrower's inventory, wherever
located.
C. EQUIPMENT. All of the borrower's equipment, wherever
located. The Borrower shall deliver to the Bank executed
security agreements and financing statements in form and
substance satisfactory to the Bank.
5.2 No forbearance nor extension of time granted any subsequent
owner of the Collateral shall release the Borrower from
liability.
5.3 ADDITIONAL COLLATERAL/SETOFF. To further secure payment of the
borrowing under the Credit Facilities and all of the Borrower's
other liabilities to the Bank, the Borrower grants to the Bank
a continuing security interest in: (i) all securities and other
property of the Borrower in the custody, possession or control
of the Bank (other than property held by the Bank solely in a
fiduciary capacity) and (ii) all balances of deposit accounts
of the Borrower with the Bank. The Bank shall have the right
at any time after default to apply its own debt or liability
to the Borrower, or to any other party liable for payment of
the borrowings under the Credit Facilities, in whole or
partial payment of such borrowings or other present or
future liabilities, without any requirement of mutual maturity.
2
<PAGE>
5.4 CROSS-LIEN. Any of the Borrower's other property in which the
Bank has a security interest to secure payment of any other
debt, whether absolute, contingent, direct or indirect,
including the Borrower's guaranties of the debts of others,
shall also secure payment of and be part of the Collateral for
Credit Facilities.
6. SUBORDINATION. The Credit Facilities shall be supported by the
subordination of debt in the amount of $401,151.25 owing to
the Indiana Business and Modernization Technology Corporation,
in manner and by agreement satisfactory to the Bank.
7. AFFIRMATIVE COVENANTS. So long as any debt remains outstanding from
the Borrower to the Bank, the Borrower will:
7.1 INSURANCE. Maintain insurance with financially sound and
reputable insurers covering its properties and business
against those casualties and contingencies and in the types and
amounts as shall be in accordance with sound business and
industry practices.
7.2 EXISTENCE. Maintain its existence and business operations as
presently in effect in accordance with all applicable laws and
regulations, pay its debts and obligations when due under
normal terms, and pay on or before their due date, all taxes,
assessments, fees and other governmental monetary
obligations, except as they may be contested in good faith if
they have been properly reflected on its books and, at the
Bank's request, adequate funds or security has been pledged to
insure payment.
7.3 FINANCIAL RECORDS. Maintain proper books and records of
account, in accordance with generally accepted accounting
principles where applicable, and consistent with financial
statements previously submitted to the Bank.
7.4 COLLATERAL AUDITS. Permit the Bank or its agents to perform an
annual audit of the Collateral. The Borrower shall compensate
the Bank for such audits in accordance with the Bank's
schedule of fees as may be amended from time to time. The Bank
shall retain the right to inspect the Collateral and business
records related to it at such times and at such intervals as
the bank may reasonably require.
7.5 MANAGEMENT. Maintain David B. Wortman as President of the
Borrower.
7.6 FINANCIAL REPORTS. Furnish to the Bank whatever information,
books, and records the Bank may reasonably request, including
at a minimum: If the Borrower has subsidiaries, all financial
statements required will be provided on a consolidated and on
a separate basis.
A. Within 60 days after each QUARTERLY period, an internally
prepared set of financial statements including a
compliance certificate and a balance sheet as of the end
of that period and a statement of profit, loss and surplus,
from the beginning of that fiscal year to the end of that
period.
B. Within 120 days after, and as of the end of, each of its
fiscal years, a detailed SET OF FINANCIAL STATEMENTS
including a balance sheet and statement of profit, loss
and surplus, AUDITED by an independent certified public
accountant of recognized standing.
3
<PAGE>
C. Within 30 days after and as of the end of each calendar
month, the following, each certified as correct by one of
its authorized agents:
(1) a list of accounts receivable, aged from date of
invoice;
(2) a borrowing base certificate in the form of Exhibit A.
8. NEGATIVE COVENANTS.
8.1 DEFINITIONS. As used in this agreement, the following terms
shall have the following respective meanings:
A. "Affiliate" shall mean shareholders, partners, owners, and
subsidiaries, and entities owned or controlled by such
parties.
B. "Cash Flow Coverage Ratio" shall mean, for any fiscal
period of the Borrower's operations the ratio of (i) the
Borrower's net income, plus depreciation and other non
cash expenditures, plus interest expense, less any
dividends and less any capital expenditures not funded by
permissible long term debt in such fiscal period, to (ii)
the sum of all interest payments and the principal
payments on long term debt made or accrued in such period,
including payments made under capitalized leases, during
such period.
C. "Subordinated Debt" shall mean debt subordinated to the
Bank in manner and by agreement satisfactory to the Bank.
D. "Tangible Net Worth" shall mean total assets less the sum
of intangible assets, due from Affiliates, and total
liabilities. Intangible assets include goodwill, patents,
copyrights, mailing lists, catalogs, trademarks, bond
discount and underwriting expenses, organization expenses,
and all other intangibles.
8.2 Unless otherwise noted, the financial requirements set forth
in this Section 11 shall be computed in accordance with
generally accepted accounting principles applied on a
basis consistent with financial statements previously
submitted by the Borrower to the Bank.
8.3 Without the written consent of the Bank, so long as any debt
remains outstanding under the Credit Facilities, the Borrower
will not:
A. TANGIBLE NET WORTH. Permit its Tangible Net Worth plus
Subordinated Debt to be less than $400,000.00 from and
after June 1, 1995.
B. TOTAL RATIO. Permit the ratio of its total liabilities less
Subordinated Debt to its Tangible Net Worth plus
Subordinated Debt to exceed 6.0 to 1.00 after June 30,
1995 and to 3.0 to 1.00 from and after December 31, 1995.
C. CASH FLOW COVERAGE RATIO. Permit the Cash Flow Coverage
Ratio to be less than 1.5 to 1.0 for any fiscal year of
the Borrower.
D. DEBT. Incur, or permit to remain outstanding, debt for
borrowed money or installment obligations, except debt
reflected in the latest financial statement of the Borrower
furnished to the Bank prior to execution of this agreement
and which is not to be paid with proceeds of borrowings
under the Credit Facilities, and debt to the Bank. For
purposes of this covenant, capitalized leases and the
sale of any accounts receivable shall be deemed the
incurring of debt for borrowed money.
4
<PAGE>
E. GUARANTIES. Guarantee or otherwise become or remain
secondarily liable on the undertaking of another, except
for endorsement of drafts for deposit and collection in
the ordinary course of business.
F. LIENS. Create or permit to exist any lien on any of its
property, real or personal, except: existing liens known
to he the Bank; liens to the Bank; liens incurred in the
ordinary course of business securing current nondelinquent
liabilities for taxes, worker's compensation, unemployment
insurance, social security and pension liabilities; and
liens for taxes being contested in good faith.
G. ADVANCES AND INVESTMENTS. Purchase or acquire any
securities of, or make any loans or advances to, or
investments in, any person, firm or corporation, except
obligations of the United States Government, open market
commercial paper rated one of the top two ratings by a
rating agency of recognized standing, or certificates of
deposit in insured financial institutions.
9. REPRESENTATION. Borrower represents that it is a corporation duly
organized, existing and in good standing under the laws of its state
of incorporation, and that the execution and delivery of this
agreement and the Notes, and the performance of the obligations they
impose, are within its corporate powers, have been duly authorized
by all necessary action of its board of directors and do not
contravene the terms of its articles of incorporation or by-laws.
Borrower represents that the execution and delivery of this
agreement and the Notes, and the performance of the obligations they
impose, do not violate any law, do not conflict with any agreement
by which it is bound, do not require the consent or approval of any
governmental authority or third party, and that this agreement and
the Notes are valid and binding agreements, enforceable in
accordance with their terms. Borrower also represents that the Notes
evidence business loans exempt from the Federal Truth In Lending Act
(15 USC 1601, et seq), the Federal Reserve Board's Regulation Z (12
CFR 226, et seq), and the Indiana Uniform Consumer Credit Code (IC
24-4.5-1-101, et seq). Borrower further represents that all balance
sheets, profit and loss statements, and other financial statements,
if any, furnished to the Bank are accurate and fairly reflect the
financial condition of the organizations and persons to which they
apply on their effective dates, including contingent liabilities of
every type, which financial condition has not changed materially
and adversely since those dates.
10. ACCELERATION.
10.1 EVENTS OF DEFAULT/ACCELERATION. If any of the following events
occurs:
A. The Borrower fails to pay within five business days of due
date any amount payable under the Credit Facilities or
under any agreement or instrument evidencing debt to any
creditor;
B. The Borrower (a) fails to observe or perform any other
term of this agreement or the Notes; (b) makes any
materially incorrect or misleading representation,
warranty, or certificate to the Bank; (c) makes any
materially incorrect or misleading representation in any
financial statement or other information delivered to the
Bank; or (d) defaults under the terms of any agreement or
instrument relating to any debt for borrowed money
(other than borrowings under the Credit Facilities) such
that the creditor declares the debt due before its
maturity;
C. There is a default under the terms of any loan agreement,
mortgage, security agreement or any other document
executed as part of the Credit Facilities, or any guaranty
of the borrowings under the Credit Facilities is revoked or
becomes
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unenforceable in whole or in part, or any Guarantor fails to
promptly perform under such a guaranty;
D. A "reportable event" (as defined in the Employee Retirement
Income Security Act of 1974 as amended) occurs that would
permit the Pension Benefit Guaranty Corporation to
terminate any employee benefit plan of the Borrower or any
affiliate of the Borrower;
E. The Borrower becomes insolvent or unable to pay its debts as
they become due;
F. The Borrower (a) makes an assignment for the benefit of
creditors; (b) consents to the appointment of a custodian,
receiver or trustee for it or a substantial part of its
assets; or (c) commences any proceeding under any
bankruptcy, reorganization, liquidation or similar laws
of any jurisdiction;
G. A custodian, receiver or trustee is appointed for the
Borrower for a substantial part of its assets without its
consent and is not removed within 60 days after such
appointment;
H. Proceedings are commenced against the Borrower under any
bankruptcy, reorganization, liquidation, or similar laws
of any jurisdiction, and such proceedings remain undismissed
for 60 days after commencement; or the Borrower consents
to the commencement of such proceedings;
I. Any judgment is entered against the Borrower and not released
in favor of Borrower within sixty (60) business days, or
any attachment, levy or garnishment is issued against any
property of the Borrower;
J. The Borrower, without the Bank's written consent, (a) is
dissolved, (b) merges or consolidates with any third party,
(c) leases, sells or otherwise conveys a material part of
its assets or business outside the ordinary course of
business, (d) leases, purchases, or otherwise acquires a
material part of the assets of any other corporation or
business entity, except in the ordinary course of business,
or (e) agrees to do any of the foregoing, (notwithstanding
the foregoing, any subsidiary may merge or consolidate
with any other subsidiary, or with the Borrower, so long
as the Borrower is the survivor);
K. There is a substantial change in the management or ownership,
or the existing or prospective financial condition of the
Borrower which the Bank in good faith determines to be
materially adverse; or
L. The Bank in good faith shall deem itself insecure;
then the Credit Facilities shall terminate and all borrowings under them
shall become due immediately, without notice, at the Bank's option.
10.2 REMEDIES. If the borrowings under the Credit Facilities are not
paid at maturity, whether by acceleration or otherwise, the
Bank shall have all of the rights and remedies provided by any
law or agreement. Any requirement of reasonable notice shall
be met if the Bank sends the notice to the Borrower at
least seven (7) days prior to the date of sale, disposition
or other event giving rise to the required notice. The Bank
is authorized to cause all or any part of the Collateral to be
transferred to or registered in its name or in the name of any
other person, firm or corporation, with or without designation
of the capacity of such nominee. The Borrower shall be
liable for any deficiency remaining after disposition of any
Collateral. The Borrower is liable to the Bank for all
reasonable costs and expenses of every kind incurred in the
making or collection of the Credit Facilities, including, without
limitation, reasonable attorneys' fees and court costs.
These costs and expenses shall include, without limitation, any
costs or expenses incurred by the Bank in any bankruptcy,
reorganization, insolvency or other similar proceeding.
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11. MISCELLANEOUS.
11.1 Notice from one party to another relating to this agreement shall
be deemed effective if made in writing (including telecommunications)
and delivered to the recipient's address, telex number or facsimile
number set forth under its name below by any of the following means:
(a) hand delivery, (b) registered or certified mail, postage prepaid,
with return receipt requested, (c) first class or express mail,
postage prepaid, (d) Federal Express, Purolator Courier or like
overnight courier service or (e) facsimile, telex or other wire
transmission with request for assurance of receipt in a manner
typical with respect to communication of that type. Notice made in
accordance with this section shall be deemed delivered upon
receipt if delivered by hand or wire transmission, 3 business
days after mailing if mailed by first class, registered or certified
mail, or one business day after mailing or deposit with an overnight
courier service if delivered by express mail or overnight courier.
11.2 No delay on the part of the Bank in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by
the Bank of any right or remedy shall preclude any other future
exercise of it or the exercise of any other right or remedy. No
waiver or indulgence by the Bank of any default shall be effective
unless in writing and signed by the Bank, nor shall a waiver on one
occasion be construed as a bar to or waiver of that right on any
future occasion.
11.3 This agreement, the Notes, and any related loan documents embody
the entire agreement and understanding between the Borrower and the
Bank and supersede all prior agreements and understandings relating
to their subject matter. If any one or more of the obligations of
the Borrower under this agreement or the Notes shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining obligations of the Borrower
shall not in any way be affected or impaired, and such validity,
illegality or unenforceability in one jurisdiction shall not
affect the validity, legality or enforceability of the obligations
of the Borrower under this agreement or the Notes in any other
jurisdiction.
11.4 This agreement is delivered in the State of Indiana and governed
by Indiana law. This agreement is binding on the Borrower and its
successors, and shall inure to the benefit of the Bank, its
successors and assigns.
11.5 Section headings are for convenience of reference only and shall
not affect the interpretation of this agreement.
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12. WAIVER OF JURY TRIAL BY BANK AND BORROWER. The Bank and the Borrower,
after consulting or having had the opportunity to consult with counsel,
knowingly, voluntarily and intentionally waive any right either of them may
have to a trial by jury in any litigation based upon or arising out of this
agreement or any related instrument or agreement or any of the
transactions contemplated by this agreement or any course of conduct,
dealing, statements (whether oral or written), or actions of either of
them. Neither the Bank nor the Borrower shall seek to consolidate, by
counterclaim or otherwise, any action in which a jury trial has been
waived with any other action in which a jury trial cannot be or has not
been waived. These provisions shall not be deemed to have been modified
in any respect or relinquished by either the Bank or the Borrower except
by a written instrument executed by both of them.
Executed by the parties on the 9th day of June, 1995.
TEKSYN, INC.
By: /s/ David B. Wortman
------------------------------------
David B. Wortman President & CEO
------------------------------------
Printed Name Title
Address: 9002 Purdue Road
Suite 200
Indianapolis, Indiana 46268
NBD BANK, N.A.
By: /s/ Michael K. Dooley
------------------------------------
Michael K. Dooley AVP
------------------------------------
Printed Name Title
Address: One Indiana Square
Indianapolis, Indiana 46266
8
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[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-38177) of our reports dated November 12, 1997, on our audits of
the financial statements and financial statement schedules of Made2Manage
Systems, Inc. We also consent to the reference to our firm under the caption
"Experts."
/s/ Coopers & Lybrand L.L.P.
-----------------------------
Indianapolis, Indiana
November 21, 1997
