UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
________________
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
Commission file number: 333-38177
<TABLE>
<CAPTION>
<S> <C>
MADE2MANAGE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1665080
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9002 PURDUE ROAD, INDIANAPOLIS, IN 46268
(Address of principal executive offices) (Zip Code)
REGISTRANT's TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 532-7000
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes [X] No
As of July 31, 1998, there were 4,272,382 shares of Common Stock, no par value,
outstanding.
<PAGE>
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
<S> <C> <C>
PART I FINANCIAL INFORMATION Page
ITEM 1. Financial Statements
Condensed Balance Sheets
As of June 30, 1998 and December 31, 1997 3
Condensed Statements of Income
For the three months and six months ended June 30, 1998 and 1997 4
Condensed Statements of Cash Flows
For the six months ended June 30, 1998 and 1997 5
Notes to Condensed Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II OTHER INFORMATION
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
<S> <C> <C>
June 30, December 31,
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 11,416 $ 16,805
Investments 5,580 --
Trade accounts receivable 6,396 5,799
Prepaid expenses and other 450 367
Deferred income taxes 485 648
Total current assets 24,327 23,619
Property and equipment, net 2,878 1,876
Deferred income taxes -- 65
Total assets $ 27,205 $ 25,560
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 819 $ 556
Accrued liabilities 466 595
Accrued compensation and related expenses 1,177 1,406
Deferred revenue 5,093 4,345
Total current liabilities 7,555 6,902
Deferred revenue 675 354
Total liabilities 8,230 7,256
Stockholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized, no shares
issued and outstanding in 1998 and 1997 -- --
Common stock, no par value; 10,000,000 shares authorized,
4,255,779 and 4,214,803 shares issued and outstanding in 1998
and 1997, respectively 19,952 19,927
Accumulated deficit (977) (1,623)
Total stockholders' equity 18,975 18,304
Total liabilities and stockholders' equity $ 27,205 $ 25,560
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unuadited)
<S> <C> <C> <C> <C>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
Revenues:
Software $ 3,472 $ 2,545 $ 6,094 $ 4,531
Services 2,193 1,188 4,224 2,285
Hardware 160 104 261 244
Total revenues 5,825 3,837 10,579 7,060
Costs of revenues:
Software 260 156 405 313
Services 1,187 885 2,212 1,513
Hardware 107 74 176 171
Total costs of revenues 1,554 1,115 2,793 1,997
Gross profit 4,271 2,722 7,786 5,063
Operating expenses:
Sales and marketing 2,254 1,509 4,112 2,730
Product development 929 550 1,702 1,071
General and administrative 736 470 1,371 904
Total operating expenses 3,919 2,529 7,185 4,705
Operating income 352 193 601 358
Other income (expense), net 149 (19) 326 (41)
Income before income taxes 501 174 927 317
Income tax provision 138 66 281 121
Net income $ 363 $ 108 $ 646 $ 196
Per share amounts:
Basic:
Net income per share $ .09 $ .28 $ .15 $ .51
Average number of shares 4,253 392 4,245 385
Diluted:
Net income per share $ .07 $ .05 $ .13 $ .09
Average number of shares 5,078 2,299 4,981 2,298
<FN>
See accompanying notes.
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<PAGE>
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<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<S> <C> <C>
Six Months Ended Six Months Ended
June 30, June 30,
1998 1997
Operating activities:
Net income $ 646 $ 196
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization of property
and equipment 422 159
Provision for doubtful accounts 218 160
Loss on disposition of property and
equipment 34 --
Deferred income taxes 228 104
Changes in assets and liabilities:
Trade accounts receivable (815) (502)
Prepaid expenses and other (83) (126)
Accounts payable and accrued
liabilities 134 (127)
Accrued compensation and related
expenses (229) (180)
Deferred revenue 1,069 854
Net cash provided by operating activities 1,624 538
Investing activities:
Purchases of investments (5,580) --
Purchases of property and equipment (1,458) (608)
Net cash used by financing activities (7,038) (608)
Financing activities:
Proceeds from long-term obligations -- 398
Proceeds from common stock options
exercised 25 26
Payments on long-term obligations -- (371)
Net cash provided by financing activities 25 53
Change in cash and cash equivalents (5,389) (17)
Cash and cash equivalents, beginning of period 16,805 1,139
Cash and cash equivalents, end of period $ 11,416 $ 1,122
Supplemental disclosures:
Cash paid for:
Interest expense $ 2 $ 56
Income taxes 176 22
<FN>
See accompanying notes.
</TABLE>
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. DESCRIPTION OF BUSINESS
Made2Manage Systems, Inc. (the Company ) develops, markets and supports
business management systems for small and midsize manufacturing companies
located primarily in the United States. The Company is dependent upon its
primary product, Made2Manage for Windows ( Made2Manage ), which is a fully
integrated, Windows NT-based business software Enterprise Resource Planning
system for manufacturing companies.
2. BASIS OF PRESENTATION
The accompanying interim condensed financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1997 Annual Report to Stockholders. In management's opinion, this
information has been prepared on the same basis as the annual financial
statements and includes all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of the information.
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.
The operating results for the interim periods are not necessarily indicative of
the results of operations for the full year.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents. Cash equivalents consist primarily of
U.S. government securities, municipal issues and interest-bearing deposits with
major banks. Such investments are valued at cost which approximates market
value.
3. EARNINGS PER SHARE
The earnings per share ("EPS") is determined in accordance with SFAS No. 128 and
is based upon the weighted average number of common and common equivalent shares
outstanding for the period. Diluted common equivalent shares consist of
convertible preferred stock (using the if converted method), 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.
<PAGE>
The reconciliation of basic EPS to diluted EPS for the three and six months
ended June 30, 1998 and 1997 follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Six
Months Months
Per Per
Share Share
Income Shares Amount Income Shares Amount
1998:
Basic EPS $ 363 4,253 .09 646 4,245 .15
Adjustment for diluted EPS -- --- 825 --- 736
effect of stock options
Diluted EPS $ 363 5,078 .07 $ 646 4,981 .13
1997:
Basic EPS $ 108 392 .28 196 385 .51
Adjustment for diluted EPS:
Effect of preferred stock 1,480 1,480
Effect of stock options 423 429
Effect of warrants 4 4
Diluted EPS $ 108 2,299 .05 $ 196 2,298 .09
</TABLE>
4. RECLASSIFICATIONS
Certain amounts in the 1997 unaudited condensed financial statements have been
reclassified to conform to the 1998 presentation.
5. SUBSEQUENT EVENT
On August 3, 1998, the Company acquired all of the outstanding capital stock of
Bridgeware, Inc. ("Bridgeware"), a privately held software company that
develops, markets and supports Advanced Planning and Scheduling software and
related services throughout North America, South America and Europe. The
transaction was consummated for approximately $3.4 million in cash and
approximately 91,000 shares of the Company's common stock, which had a market
value of $1.0 million at the time of acquisition. An escrow account was
established for $250,000 of the cash portion of the purchase price and is
subject to a closing balance sheet audit and resolution of certain defined
matters. The shares issue have not been registered and are subject to re-sale
in accordance with the provisions of Rule 144.
The acquisition will be accounted for as a purchase. Accordingly, the results of
operation of Bridgeware and the fair market value of the acquired assets and
assumed liabilities will be included in the Company's financial results as of
the date of acquisition. The amounts to be allocated to acquired assets and
assumed liabilities is not yet determined. However, it is anticipated, based on
indications of the value of in-process research and development by an
independent appraiser, that an amount in excess of $3 million will be determined
to represent technology which has not reached technological feasibility. Such
amount will be expensed in the third quarter of 1998. The amounts not allocated
to acquired assets and assumed liabilities or expensed as in-process research
and development will be allocated to an intangible asset which is expected to be
amortized on a straight-line basis over five years.
<PAGE>
ITEM 2. MANAGEMENT's DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report 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
Company's future profitability, (iii) the Company's policies regarding capital
expenditures, financing or other matters, (iv) industry trends affecting the
Company's financial condition and results of operations, (v) the Company's sales
or marketing plans and (vi) the Company's growth strategy. Actual results or
events could differ materially from those anticipated in any forward-looking
statements for the reasons discussed in this Item 2, and elsewhere in this
report, or for other reasons. In light of the uncertainties inherent in any
forward-looking statement, the inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company or the Company s
management that the Company's plans and objectives will be achieved.
The Company develops, markets, licenses and supports Made2Manage, an open
architecture, standards-based, client/server Enterprise Resource Planning
("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.
The Company's revenues are derived from software license fees, service and
support fees and hardware sales. Software revenues are generated from licensing
software to new customers, from the conversion of existing DOS or UNIX customers
to the Windows version of Made2Manage, from current customers increasing the
number of licensed users and from licensing new modules. The Company recognizes
revenue from software license fees and hardware upon shipment to the customer
following execution of a sales agreement. Service revenues are generated from
(i) annual fees paid by customers to receive the Company's customer support
services and Made2Manage software upgrades and (ii) implementation, education
and consulting services. Support is typically purchased with the initial
software license and is renewable annually. Support fees are recognized ratably
over the term of the agreement. Service revenues from implementation, education
and consulting services are generally included in the initial agreement. 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.
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.
<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.
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Three Six
Months Months
Ended Percent Ended Percent
June 30 Increase June 30 Increase
1998 1997 (Decrease) 1998 1997 (Decrease)
Revenues:
Software 59.6% 66.3% 36.4% 57.6% 64.2% 34.5
Services 37.7 31.0 84.6 39.9 32.4 84.9
Hardware 2.7 2.7 53.9 2.5 3.4 7.0
Total revenue 100.0 100.0 51.8 100.0 100.0 49.8
Cost of revenues:
Software 4.5 4.1 66.7 3.8 4.5 29.4
Services 20.4 23.1 34.1 20.9 21.4 46.2
Hardware 1.8 1.94 4.6 1.7 2.4 2.9
Total costs of revenues 26.7 29.1 39.4 26.4 28.3 39.9
Gross profit 73.3 70.9 56.9 73.6 71.7 53.8
Operating expenses:
Sales and marketing 38.7 39.3 49.4 38.9 38.6 50.6
Product development 16.0 14.3 68.9 16.1 15.2 58.9
General and
administrative 12.6 12.3 56.6 12.9 12.8 51.7
Total operating
expenses 67.3 65.9 55.0 67.9 66.6 52.7
Operating income 6.0 5.0 82.4 5.7 5.1 67.9
Other income (expense), net 2.6 (.5) NM 3.1 (.6) NM
Income before income taxes 8.6 4.5 187.9 8.8 4.5 192.4
Income tax provision 2.4 1.7 109.1 2.7 1.7 132.2
Net income 6.2% 2.8% 236.1 6.1% 2.8% 229.6
<FN>
NM Not Meaningful
</TABLE>
COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues
Revenues are derived from software license fees, service and support fees and
hardware sales. Total revenues increased by $2.0 million, or 51.8%, to $5.8
million for the three months ended June 30, 1998 from $3.8 million for the three
months ended June 30, 1997. Total revenues increased by $3.5 million, or 49.8%,
to $10.6 million for the six months ended June 30, 1998 from $7.1 million for
the six months ended June 30,1997. The increase for the three and six months
ended June 30, 1998 was primarily due to a greater volume of license
transactions, an increase in average contract amount, sales of new software
modules and an increase in the delivery of implementation, education and support
services. Revenues were also positively impacted by an increase in market
awareness and acceptance of the Company's Microsoft Windows-based product and an
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 $927,000, or 36.4%, to $3.5
million for the three months ended June 30, 1998 from $2.5 million for the three
months ended June 30, 1997. For the six months ended June 30,1998, software
revenues increased by $1.6 million, or 34.5%, to $6.1 million from $4.5 million
for the six months ended June 30 1997. Software license revenues constituted
59.6% and 66.3% of total revenues for the three months ended June 30, 1998 and
1997, respectively, and 57.6 and 64.2% of total revenues for the six months
ended June 30, 1998 and 1997, respectively. The increase in software license
revenues for the three and six months ended June 30, 1998 was primarily due to a
greater volume of license transactions and the increase in the average contract
amount. The decrease in the percentage of total revenues represented by
software revenue results from the more significant rate of growth in services
revenues.
Services Revenues. Services revenues increased by $1.0 million, or 84.6%, to
$2.2 million for the three months ended June 30, 1998 from $1.2 million for the
three months ended June 30, 1997. For the six months ended June 30,1998,
services revenues increased $1.9 million, or 84.9%, to $4.2 million from $2.3
million for the six months ended June 30,1997. These revenues constituted 37.7%
and 31.0% of total revenues for the three months ended June 30, 1998 and 1997,
respectively, and 39.9% and 32.4% of total revenues for the six months ended
June 30, 1998 and 1997, respectively. The increase in revenues for the three and
six months ended June 30, 1998 was due to (i) an increase in support fees
resulting from an expanded user base, (ii) delivery of expanded implementation
and consulting services offerings and (iii) delivery of expanded educational
offerings.
Hardware Revenues. Hardware revenues increased by $56,000, or 53.9%, to $160,000
for the three months ended June 30, 1998 from $104,000 for the three months
ended June 30, 1997. For the six months ended June 30,1998, hardware revenue
increased by $17,000, or 7.0%, to $261,000 from $244,000 for the six months
ended June 30, 1997. These revenues constituted 2.7%, 2.7%, 2.5%, and 3.4 % of
total revenues for the three and six month periods ended June 30, 1998 and 1997.
The Company limits the type of hardware equipment it sells to certain bar-coding
and data collection equipment necessary to utilize certain features of
Made2Manage.
<PAGE>
Costs of Revenues
Costs of Software Revenues. Costs of software revenues totaled $260,000 and
$156,000 for the three months ended June 30, 1998 and 1997, respectively,
resulting in gross profits of 92.5% and 93.9% of software revenues,
respectively. The slight decrease in the gross profit for the three months ended
June 30, 1998 was due to an increase in the sales of certain third party
software that the Company resells. For the six months ended June 30,1998, costs
of software revenues totaled $405,000 and for the six months ended June 30,1997,
costs of software revenues totaled $313,000, resulting in gross profits of 93.4%
and 93.1% of software revenues, respectively.
Costs of Services Revenues. Costs of services revenues totaled $1.2 million and
$885,000 for the three months ended June 30, 1998 and 1997, respectively,
resulting in gross profits of 45.9% and 25.5% of service revenues, respectively.
The dollar increases in cost 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. In 1997 there were non-recurring costs to
develop a DOS to Windows migration program which caused the margin percentage to
be lower compared to 1998. Cost of services revenues totaled $2.2 million and
$1.5 million for the six months ended June 30, 1998 and 1997, respectively,
resulting in gross profits of 47.6% and 33.8% of service revenues, respectively.
Costs of Hardware. Costs of hardware totaled $107,000 and $74,000 for the three
months ended June 30, 1998 and 1997, respectively. The gross profit from
hardware was 33.1% and 28.8% of hardware revenues for the three months ended
June 30, 1998 and 1997, respectively. Costs of hardware totaled $176,000 and
$171,000 for the six months ended June 30,1998 and 1997, respectively. Gross
profits were 32.6% and 29.9% of hardware revenues for the six months ended June
30,1998 and 1997, respectively.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses were $2.3 million and
$1.5 million for the three months ended June 30, 1998 and 1997, respectively,
representing 38.7% and 39.3% of total revenues, respectively. For the six months
ended June 30, 1998 and 1997, sales and marketing expenses were $4.1 million and
$2.7 million, respectively, representing 38.9% and 38.6% of total revenues,
respectively. The dollar 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 $929,000 and
$550,000 for the three months ended June 30, 1998 and 1997, respectively,
representing 16.0% and 14.3% of total revenues, respectively. Development
expenses were $1.7 million for the six months ended June 30,1998 and $1.1
million for the six months ended June 30,1997, or 16.1% and 15.2% of total
revenues, respectively. The increase was a result of increased staffing. The
Company did not capitalize any software development costs during these periods.
General and Administrative Expenses. General and administrative expenses were
$736,000 and $470,000 for the three months ended June 30, 1998 and 1997,
respectively, representing 12.6% and 12.3% of total revenues, respectively.
General and administrative expenses were $1.4 million and $904,000 for the six
months ended June 30,1998 and 1997, respectively, representing 12.9% and 12.8%
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.
<PAGE>
Other Income (Expense), Net
Other income (expense), net was $149,000 and $(19,000) for the three months
ended June 30, 1998 and 1997, respectively, representing 2.6% and (.5)% of total
revenues, respectively. For the six months ended June 30, 1998 and 1997, other
income (expense), net was $326,000 and $(41,000), representing 3.1% and (.6)% of
total revenues, respectively. Other income in 1998 is principally a result of
interest earned on the proceeds of the Company's initial public offering, which
was completed in December 1997. The other expense in 1997 was principally
interest on borrowings, which were subsequently repaid from proceeds of the
initial public offering.
Income Tax Provision
The income tax provision effective rate was 27.5% and 37.9% for the three months
ended June 30, 1998 and 1997, respectively. The income tax provision effective
rate was 30.3% and 38.2% for the six months ended June 30,1998 and 1997,
respectively. The effective rate is lower for the three and six months ended
June 30, 1998 compared to the three and six months ended June 30, 1997 due to
the impact of tax free interest included in other income (expense), net in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through equity capital,
including the Company's initial public offering of Common Stock in December
1997, debt and cash generated from operations. As of June 30, 1998, the Company
had $17.0 million of cash, cash equivalents and investments resulting
principally from the proceeds of the Company's initial public offering.
Cash flows from operations were $1.6 million and $538,000 for the six months
ended June 30, 1998 and 1997, respectively. Cash was used in investing
activities to purchase short term investments of $5.6 million and for the
purchase of computer and telephone equipment, office furniture and internal
software systems which aggregated $1.5 million and $608,000 for the six months
ended June 30, 1998 and 1997, respectively.
At June 30, 1998, the Company had working capital of $16.8 million, including
accounts receivable of $6.4 million. The average accounts receivable days sales
outstanding was 99 days as of June 30, 1998 and was 102 days at December 31,
1997. Deferred revenue increased to $5.8 million at June 30, 1998 from $4.7
million at December 31, 1997 due to (i) an increased number of contracts that
included service fees, which are deferred until provided, and (ii) a greater
number of support agreements for multiple years of support, which are recognized
on a straight-line basis over the support period. Deferred revenue is related to
support agreements or contracted services, and the current portion of deferred
revenue is expected to be recognized in revenue during the next twelve months.
The Company has a revolving credit agreement with a commercial bank, which
expires on July 1, 1999, under which borrowings bear interest at the prime rate
per annum (8.5% at June 30, 1998). Loans under the revolving credit agreement
are limited, in the aggregate, to the lesser of $1 million and a "borrowing
base" amount. As of June 30, 1998, the Company satisfied the borrowing base
requirements and was eligible to borrow up to the maximum of $1.0 million under
the revolving credit agreement. As of June 30, 1998, the Company had not
borrowed under the revolving credit agreement.
The Company acquired Bridgeware, Inc. on August 3, 1998 (see Recent Developments
below) in a purchase transaction which included a cash payment of approximately
$3.4 million.
Management believes that cash and cash equivalents, investments, 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.
YEAR 2000 COMPLIANCE
The Year 2000 issue relates to whether computer systems will properly recognize
and process information relating to dates in and after the year 2000. These
systems could fail or produce erroneous results if they cannot adequately
process dates beyond the year 1999 and are not corrected. Significant
uncertainty exists in the software industry concerning the potential
consequences that may result from the failure of software to adequately address
the Year 2000 issue.
<PAGE>
The Company continuously tests its newly developed software for Year 2000
compliance and, as of this date, is not aware of any problems related to Year
2000 compliance for software products it is currently distributing. The Company
s legacy DOS and UNIX products are not Year 2000 compliant and no further sales,
distribution or development of these products is, to the Company's knowledge,
taking place. The Company notified customers of these prior versions in 1996,
and subsequently, of this non-compliance and customers were offered
significantly discounted pricing and assistance to migrate to the current Year
2000 compliant Windows version.
The Company utilizes a combination of its own software and other commercially
available software for its internal operations. At this time, the Company
believes that there will be no significant costs associated with the Year 2000
issue for its internal operations. The Company is not presently aware of any
Year 2000 issues that have been encountered by a third-party provider whose
services are critical to the Company. The Company intends to continue to monitor
the efforts of such providers with respect to Year 2000 compliance.
Although, based on its on-going evaluations the Company does not believe the
Year 2000 will have a significant impact on the Company's internal operations or
on software developed by the Company for clients, there can be no assurance for
any company or industry, including the Company, that interruptions of operations
will not occur because of Year 2000 problems or that the Company will not become
involved in disputes with customers regarding Year 2000 problems involving
software licensed to clients.
ACCOUNTING PRONOUNCEMENTS
American Institute of Certified Public Accountants Statement of Position 97-2,
"Software Revenue Recognition" (SOP 97-2), was issued in October 1997. SOP 97-2
is effective for transactions entered into by the Company after December 31,
1997. SOP 97-2 provides guidance on the recognition of revenue for software
arrangements consisting of multiple elements. The revenue for an individual
element is allocated based on the relative fair market value of that element as
compared to the total price. Revenue is recognized on each element as that
element is performed or completed. SOP 97-2 did not have a material effect
upon the Company's 1998 financial statements.
RECENT DEVELOPMENTS
On August 3, 1998, the Company acquired all of the outstanding capital stock of
Bridgeware, Inc. ("Bridgeware"), a privately held software company that
develops, markets and supports Advanced Planning and Scheduling software and
related services throughout North America, South America and Europe. The
transaction was consummated for approximately $3.4 million in cash and
approximately 91,000 shares of the Company's common stock. An escrow account was
established for $250,000 of the cash portion of the purchase price and is
subject to a closing balance sheet audit and resolution of certain defined
matters. The shares issued are subject to a required one year holding period.
<PAGE>
BUSINESS ENVIRONMENT AND RISK FACTORS
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 closings of sales near the end of a quarter or product
delivery 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.
Product and Market Concentration
All of the Company's revenues are currently derived from licenses of
Made2Manage, including optional modules, and related sales of third-party
software, support, services and hardware. In the near term, Made2Manage and
related 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 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.
<PAGE>
Dependence on Third Party Technologies
Made2Manage uses a variety of third party technologies, including operating
systems, tools and other applications developed and supported by Microsoft
Corporation ("Microsoft"). There can be no assurance that Microsoft will
continue to support the operating systems, tools and other applications utilized
by Made2Manage or that they 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 otherwise fail
to support Visual Studio or any of its components. In addition, the Company uses
a number of other programming tools and applications, including ActiveX, OLE,
ODBC, OLEDB and Internet Information Server.
The Company sub-licenses and resells various third party products, including
Microsoft Visual Foxpro, Microsoft Project, InstallShield, Abra for Windows,
FRx, Cryptor 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.
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 that 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.
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 with numerous companies, including
larger, more established companies with significantly greater financial
resources than the 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.
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.
<PAGE>
Risks Associated with Acquisitions
As part of its business strategy, the Company expects to review acquisition
prospects that would complement its existing product offerings, augment its
market coverage or enhance its technological capabilities or that may otherwise
offer growth opportunities. Acquisitions by the Company could result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could materially adversely affect the Company's
operating results and/or the price of the Company's Common Stock. Acquisitions
entail numerous risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of management's attention to
other business concerns, risks of entering markets in which the Company has no
or limited prior experience and potential loss of key employees of acquired
organizations. No assurance can be given as to the ability of the Company to
successfully integrate any businesses, products, technologies or personnel that
might be acquired in the future, and the failure of the Company to do so could
have a material adverse effect on the Company's business and financial condition
or results of operations.
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,
many of which are public companies and also private companies. 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 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 for Made2Manage, the Company's business, financial
condition and results of operation would be adversely affected.
Relationships with Value Added Resellers
Historically, the Company has distributed its software products through a direct
sales force and a network of value added resellers ("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.
<PAGE>
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. 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.
Substantial Control by Single Stockholder
Hambrecht & Quist ("H&Q") and its affiliates, as a group, beneficially own
approximately 28.3% 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 stockholder 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.
Effect of Antitakeover Provisions
The Company's Amended and Restated Articles of Incorporation (the "Articles")
authorize the Board of Directors to issue, without stockholder 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 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. 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
stockholders 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.
<PAGE>
Possible Volatility of Stock Price
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 analysts 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 adversely
affect the market price of the Common Stock.
Shares Eligible for Future Sale; Registration Rights
The sale of a substantial number of shares of Common Stock in the public market
could adversely affect the market price of Common Stock. As of July 31, 1998,
the Company had 4,272,382 shares of Common Stock outstanding, of which 1.3
million shares of Common Stock are "Restricted Shares," which are subject to
volume and other limitations of Rule 144 and Rule 701 restrictions under the
Securities Act. As of July 31, 1998, there were options outstanding to purchase
1,450,340 shares of Common Stock at a weighted average price of $5.16 per share
under Made2Manage Systems, Inc. Stock Option Plan (the "Option Plan"), of which
options to purchase 586,769 shares of Common Stock were then vested and
exercisable. The Company has reserved 77,422 shares for future grant under the
Option Plan. The Company has reserved 100,000 shares of Common Stock for
issuance under the Made2Manage Systems, Inc. Employee Stock Purchase Plan (the
Stock Purchase Plan ). As of July 31, 1998, 2,247 shares have been issued under
the Stock Purchase Plan. The Company filed registration statements registering
shares of Common Stock issued pursuant to the Option Plan and Stock Purchase
Plan on January 30, 1998. Accordingly, shares issued pursuant to these plans
will be saleable in the public market upon issuance, subject to certain
restrictions.
Holders of approximately 1.2 million shares of Common Stock, have certain rights
with respect to the registration of their shares under the Securities Act. 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 Common Stock. If the Company
were required to include these 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.
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.
Investment Risk
Despite the high credit ratings on the Company's cash equivalents, there is no
assurance such agencies will not default on their obligations which could result
in losses of principal and accrued interest to the Company.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Acquisition
On August 3, 1998, the Company acquired all of the outstanding capital stock of
Bridgeware, Inc. ("Bridgeware"), a privately held software company that
develops, markets and supports Advanced Planning and Scheduling software and
related services throughout North America, South America and Europe. The
transaction was consummated for approximately $3.4 million in cash and
approximately 91,000 shares of the Company's common stock, which had a market
value of $1.0 million at the time of acquisition. An escrow account was
established for $250,000 of the cash portion of the purchase price and is
subject to a closing balance sheet audit and resolution of certain defined
matters The shares issue have not been registered and are subject to re-sale in
accordance with the provisions of Rule 144.
The acquisition will be accounted for as a purchase. Accordingly, the results of
operation of Bridgeware and the fair market value of the acquired assets and
assumed liabilities will be included in the Company's financial results as of
the date of acquisition. The amounts to be allocated to acquired assets and
assumed liabilities is not yet determined. However, it is anticipated, based on
indications of the value of in-process research and development by an
independent appraiser, that an amount in excess of $3 million will be determined
to represent technology which has not reached technological feasibility. Such
amount will be expensed in the third quarter of 1998. The amounts not allocated
to acquired assets and assumed liabilities or expensed as in-process research
and development will be allocated to an intangible asset which is expected to be
amortized on a straight-line basis over five years.
Board of Directors
On July 22, 1998, three software industry executives joined the Company's board
of directors, and the board was expanded to five members. The newly elected
board members are: Michael Cullinane, 48, executive vice president, chief
financial officer, and a director of PLATINUM technology, inc. (Nasdaq: PLAT), a
worldwide leader in software products and consulting services that manage and
improve the IT infrastructure; John Dillon, 48, president, chief executive
officer, and a director of Arbor Software Corporation (Nasdaq: ARSW), a leading
provider of enterprise OLAP software for management reporting, analysis and
planning applications; and, Richard Halperin, 50, chief executive officer and a
director of SmartMaps International, Inc., a GIS software company specializing
in the utility and telecom industries. Gregory F. Ehlinger, vice president and
treasurer of Irwin Financial Corporation and a director of Made2Manage since
1990, stepped down from the board. The resignation did not reflect any
disagreement with management with respect to the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index to Exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the current period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: July 31, 1998
<TABLE>
<CAPTION>
<S> <C>
MADE2MANAGE SYSTEMS, INC.
/s/ David B. Wortman /s/ Stephen R. Head
David B. Wortman Stephen R. Head
President, Chief Executive Officer Vice President, Finance and Administration,
and Director Chief Financial Officer
(Principal Executive Officer) Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
<S> <C> <C>
Number Exhibit Description of Exhibit
Assigned in Number
Regulation
S-K
Item 601
(2) 2.0 Stock Purchase Agreement, dated August
8, 1998, among Made2Manage Systems,
Inc and the stockholders of Bridgeware
Inc.
(3) 3.1 Amended and Restated Articles of
Incorporation of Made2Manage Systems,
Inc. (Incorporated by reference to Exhibit
3.1 to Registration Statement on Form
S-1, Registration No. 333-38177).
3.2 Amended and Restated Code of By-Laws
of Made2Manage Systems, Inc.
(Incorporated by reference to Exhibit 3.2
to Registration Statement on Form S-1,
Registration No. 333-38177).
(4) 4.1 Specimen Stock Certificate for Common
Stock (Incorporated by reference to
Exhibit 4.1 to Registration Statement on
Form S-1, Registration No. 333-38177).
4.2 See Exhibits 2.0, 3.1 and 3.2.
(10) 10.2 License Agreement by and between
Sourcemate Information Systems, Inc.
and Teksyn, Inc. dated April 1, 1986
(Incorporated by reference to Exhibit
10.4 to Registration Statement on Form
S-1, Registration No. 333-38177).
10.12 Form of Made2Manage Systems, Inc.
Stock Option Agreement (Incorporated
by reference to Exhibit 10.16 to
Registration Statement on Form S-1,
Registration No. 333-38177).
10.13 Made2Manage Systems, Inc. Employee
Stock Option Plan (Incorporated by
reference to Exhibit 10.17 to Registration
Statement on Form S-1, Registration No.
333-38177).
10.18 Made2Manage Systems, Inc. Employee
Stock Purchase Plan (Incorporated by
reference to Exhibit 10.22 to Registration
Statement on Form S-1, Registration No.
333-38177).
10.19 Third Amended and Restated
Modification Agreement between
Teksyn, Inc., the Series A. Purchasers,
the Series B Purchasers, the Series C
Purchasers and the Series D Purchasers
(ass as defined therein) dated as of April
12, 1991 (Incorporated by reference to
Exhibit 10.23 to Registration Statement
on Form S-1, Registration No.
333-38177).
10.25 Amended and Restated Credit Agreement
by and between
NBD Bank, N.A. and Made2Manage
Systems, Inc. dated May 29, 1998
10.26 Replacement Master Demand Business
Loan Note by and between
Made2Manage Systems, Inc. and NBD
Bank, N.A. dated May 29, 1998
10.27 Best Software, Inc. Linked Software
Dealer Agreement by and between Best
Software, Inc. and Made2Manage
Systems, Inc. dated May 14, 1998
(11) No Exhibit.
(15) No Exhibit.
(18) No Exhibit
(19) No Exhibit
(22) No Exhibit
(23) No Exhibit.
(24) No Exhibit.
(27) 27.1 Financial Data Schedule.
(99) No Exhibit.
</TABLE>
STOCK PURCHASE AGREEMENT
by and among
MADE2MANAGE SYSTEMS, INC.,
BRIDGEWARE, INC.
and
SHAREHOLDERS OF BRIDGEWARE, INC.
Dated as of , 1998
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement"), dated as of the _____ day of
________________, 1998, is by and among Made2Manage Systems, Inc., an Indiana
corporation (the "Acquiror"), Bridgeware, Inc., a California corporation
("Bridgeware") and the shareholders of Bridgeware set forth on Exhibit A
attached hereto and made a part hereof (the "Sellers").
W I T N E S S E T H:
WHEREAS, the Acquiror is engaged in the business of developing, marketing,
and supporting fully integrated business applications software;
WHEREAS, Bridgeware and its Subsidiaries are engaged in the business of
developing and marketing integrated software products for manufacturing supply
chain management (the "Business");
WHEREAS, each of the Sellers identified on Exhibit A hereto is the holder
of the number of common shares of Bridgeware (the "Shares") set forth opposite
each Seller's name on Exhibit Ahereto, which Shares constitute all of the issued
and outstanding shares of Bridgeware;
WHEREAS, the Acquiror desires to acquire from each of the Sellers, and each
of the Sellers desires to sell to the Acquiror, the Shares on the terms and
conditions set forth in this Agreement; and
WHEREAS, Article XI of this Agreement lists certain defined terms used in
this Agreement;
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants, representations and warranties contained in this Agreement, the
parties hereto do hereby agree as follows:
ARTICLE I.
PURCHASE AND SALE OF THE SHARES
Section 1.01. Purchase and Sale of the Shares. Upon the terms and subject
to the conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements contained herein, at the Closing, each of
the Sellers shall sell, convey, assign, transfer and deliver to the Acquiror the
Shares owned by the Seller, and the Acquiror shall purchase, acquire and accept
from the Sellers, all right, title and interest in and to the Shares.
<PAGE>
Section 1.02. Purchase Price. As payment in full of the purchase price
for the Shares, at the Closing, the Acquiror shall deliver to the Sellers
consideration in the amount of Four Million Five Hundred Thousand Dollars
($4,500,000) (the "Purchase Price") to be paid as follows:
(a) Subject to adjustment and limitation as provided herein, One
Million One Hundred Twenty-five Thousand Dollars ($1,125,000) of the Purchase
Price will be paid in Acquiror Common Stock (the "Consideration Shares"), the
number of which shall be equal to (i) $1,125,000 divided by (ii) the Value of
the Acquiror Common Stock as of the Closing Date. Notwithstanding the above,
the maximum number of Consideration Shares to be issued to the Sellers shall be
112,500 and the minimum number of Consideration Shares to be issued to the
Sellers shall be 86,538. No fractional shares shall be issued to the Sellers.
In the event that the Value of the Acquiror Common Stock as of the Closing Date
is less than $10 or more than $13 or in the event that the Sellers would
otherwise be entitled to receive fractional shares as a result of the
calculation contained herein, the Cash Consideration to be paid to the Sellers
as set forth below shall be adjusted, upward or downward, in an amount equal to
the Value of the Consideration Shares that would or would not have been issued
to the Sellers but for the limitations contained in this Section 1.02.
(b) Subject to adjustment as provided herein, Three Million One
Hundred Twenty-five Thousand Dollars ($3,125,000) will be paid to the Sellers at
Closing by wire transfer of immediately available funds to the Sellers'
Representative in accordance with his written instructions (the "Cash
Consideration").
(c) Two Hundred Fifty Thousand Dollars ($250,000) will be paid to
the Escrow Agent in accordance with Section 1.04, below.
(d) Each Seller shall receive at the Closing that number of
Consideration Shares and that portion of the Cash Consideration calculated by
multiplying his/her/its Fractional Interest by the total number of Consideration
Shares and the total amount of the Cash Consideration as determined herein.
Section 1.03. Purchase Price Adjustment. Notwithstanding anything to the
contrary in this Agreement, the Purchase Price shall be adjusted after the
Closing in the event that (a) Liabilities exceed Assets as of the Closing Date
or (b) the Tax Attribute Value as of the Closing Date is less than $221,200.
Bridgeware, or if prepared following the Closing Date, the Sellers, shall
prepare a balance sheet for Bridgeware as of the Closing Date (the "Closing Date
Balance Sheet") and an estimate of the Tax Attribute Value as of the Closing
Date, each within 30 days following the Closing so as to determine the amount of
Liabilities and Assets and the Tax Attribute Value. Pricewaterhouse Coopers LLP
shall audit (in accordance with generally accepted accounting principles
consistently applied) the Closing Date Balance Sheet and confirm the Tax
Attribute Value as soon as practicable following the Closing but in no event
later than 90 days following the Closing Date. In the event that the audited
Closing Date Balance Sheet indicates that Liabilities exceed Assets as of the
Closing Date, the Purchase Price shall be adjusted downward on a
dollar-for-dollar basis by an amount equal to (i) the amount by which the
Liabilities exceed the Assets as of the Closing Date and (ii) the amount by
which the Tax Attribute Value as of the Closing Date is less than $221,200.
<PAGE>
If the parties agree with the results of the audit by Pricewaterhouse
Coopers LLP, they shall indicate their agreement by notifying the Escrow Agent
in writing within 30 days after delivery of the audit results to the parties,
and the audit results and adjustment to the Purchase Price shall thereupon
become final. If no party disputes the audit results by delivering written
notice to the other parties within 30 days after delivery of the audit results
to the parties, the adjustment to the Purchase Price shall be final.
Notwithstanding any other provision of this Agreement, in the event there
is a dispute with respect to the audit by Pricewaterhouse Coopers LLP and the
adjustment to the Purchase Price to be made pursuant to this Section 1.03, the
disputing party shall provide written notice to the other parties stating in
reasonable detail the basis on which he, she or it, as the case may be, disputes
the audit results and Purchase Price adjustment. Such written notice shall be
delivered within 30 days after delivery of the audit results to the parties. In
the event of such dispute, the parties shall attempt in good faith to resolve
the dispute and shall, if they agree, deliver to the Escrow Agent written notice
of the agreed upon adjustment to the Purchase Price in accordance with the terms
of the Escrow Agreement, and the Purchase Price adjustment shall thereupon
become final. If the parties are unable to agree upon an adjustment to the
Purchase Price within 15 days following delivery of the notice of dispute as
provided above, either party may, by written notice to the other, submit the
matter for resolution to a nationally recognized accounting firm (other than
Pricewaterhouse Coopers LLP or KPMG Peat Marwick) mutually acceptable to the
parties and with which neither Bridgeware nor the Acquiror has a prior or
anticipated relationship. In the event that neither party submits the matter
for resolution as provided herein within 45 days after delivery of the notice of
dispute as provided above, the audit results of Pricewaterhouse Coopers LLP and
the Purchase Price adjustment as a result thereof shall become final.
In the event that the dispute is submitted to a third party accounting firm
as provided above, such third party accounting firm shall promptly render its
decision based only upon the written submissions of each of the parties and
written responses of the parties to such questions as the accounting firm deems
relevant or appropriate in its sole judgment. The questions shall be addressed
jointly to the parties. All parties agree to cooperate with the selected third
party accounting firm, and the determination by such firm shall be made within
30 days following the submission to it of the dispute. The third party
accounting firm shall deliver written notice of its determination to the
Acquiror, the Sellers' Representative and the Escrow Agent. The third party
accounting firm's decision shall be deemed to be an arbitration for all purposes
under this Agreement and shall be final and binding upon the parties for all
purposes. In the event that it is determined by the third party accounting firm
that an adjustment in an amount in excess of $10,000 is required, the party
against whom the dispute is resolved shall pay the fees of the third party
accounting firm; otherwise, the party that submitted the dispute to the
third-party accounting firm shall pay the fees of the firm.
<PAGE>
Section 1.04. Escrow. As a condition to Closing, $250,000 (the "Escrow
Sum") shall be deposited with the Escrow Agent pursuant to an escrow agreement
to be substantially in the form of Exhibit 1.04 hereto (the "Escrow Agreement").
In the event that an adjustment to the Purchase Price is required as set forth
in Section 1.03, the amount of the adjustment shall be paid first from the
Escrow Sum on the terms and conditions set forth in the Escrow Agreement. To
the extent that the Escrow Sum is insufficient to cover the amount of the
adjustment, the Sellers shall immediately pay to the Acquiror the deficiency by
wire transfer of immediately available funds.
Section 1.05. Other Actions. The Acquiror, Bridgeware and the Sellers
each shall take all such action as may be reasonably necessary or appropriate in
order to effectuate the transactions contemplated by this Agreement. If, after
the Closing, any further action by Bridgeware or the Acquiror is necessary or
desirable to carry out the purposes of this Agreement, the officers and
directors of Bridgeware or the Acquiror, as the case may be, shall have the
authority to take that action.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
WITH RESPECT TO BRIDGEWARE
As a material inducement to the Acquiror to enter into this Agreement, to
enter into all other agreements and documents executed by the Acquiror in
connection with this Agreement and to consummate the transactions contemplated
hereby and thereby, the Sellers jointly and severally represent and warrant to
the Acquiror that:
Section 2.01. Organization; Power; and Qualification. Each of Bridgeware
and its subsidiaries (each a "Subsidiary" and collectively the "Subsidiaries")
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority and
all governmental licenses, authorizations, consents and approvals necessary to
own, lease and operate its properties and to carry on the Business as it is now
being conducted. Each of Bridgeware and its Subsidiaries is duly qualified to
transact business as a foreign corporation and is in good standing in every
jurisdiction in which such qualification is necessary because of the nature of
the properties owned, leased or operated by it or the nature of the business
conducted by it, except in such jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect. The jurisdictions in which Bridgeware
and each Subsidiary are qualified to transact business are set forth on Schedule
2.01 hereto. Neither Bridgeware nor any of its Subsidiaries has any
subsidiaries or Affiliates other than as set forth on Schedule 2.01, and neither
Bridgeware nor any of its Subsidiaries owns any capital stock or other equity
interest of record or beneficially in any corporation, association, trust,
partnership, joint venture or other entity or has any agreement to acquire any
such capital stock or other equity interest. Complete and correct copies of the
Articles of Incorporation, Bylaws and other organizational documents of
Bridgeware and each Subsidiary, each as amended to the date hereof, have been
delivered to the Acquiror.
<PAGE>
Section 2.02. Authority; Power; and No Violation. The execution and
delivery of this Agreement by Bridgeware has been authorized by all necessary
corporate action on the part of Bridgeware. Bridgeware has the requisite
corporate power and authority to execute and deliver this Agreement, and to take
any and all other actions required to be taken, directly or indirectly, by it
pursuant to the provisions of this Agreement. This Agreement constitutes the
legal, valid and binding obligation of Bridgeware enforceable against Bridgeware
in accordance with its terms. The execution and delivery of this Agreement, and
the fulfillment and compliance with the terms and conditions hereof will not:
(a) conflict with, violate, result in a breach of, constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or give rise to any right of termination, cancellation, or acceleration
under any provision of the Articles of Incorporation or Bylaws of Bridgeware or
any of the terms, conditions or provisions of any note, lien, bond, mortgage,
indenture, license, lease, contract, commitment, agreement, understanding,
arrangement, restriction, or other instrument or obligation to which Bridgeware
is a party or by which Bridgeware's properties or assets or the Business may be
bound; (b) violate any law, rule or regulation of any government or governmental
agency or body, or any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental agency or body applicable to
Bridgeware or any of its properties, assets, or outstanding shares or other
securities; or (c) constitute an event which, with or without notice, lapse of
time, or action by a third party, could result in the creation of any Lien upon
any of the assets or properties of Bridgeware, or cause the maturity of any
liability, obligation, or debt of Bridgeware to be accelerated or increased.
Section 2.03. Capital Structure of Bridgeware and its Subsidiaries and
Related Matters. The total authorized, issued and outstanding capital stock of
each of Bridgeware and its Subsidiaries is set forth on Schedule 2.03. All of
the issued and outstanding shares of Bridgeware are owned by the Sellers, and,
except as set forth on Schedule 2.03, all of the issued and outstanding shares
of each Subsidiary are owned by Bridgeware. There are no classes of capital
stock of Bridgeware or any Subsidiary authorized, issued or outstanding other
than as set forth on Schedule 2.03. All outstanding shares of Bridgeware and
its Subsidiaries have been duly authorized and validly issued and are fully paid
and non-assessable. No class of shares of capital stock of Bridgeware or any
Subsidiary is entitled to preemptive rights. There are no outstanding options,
warrants or other rights of any kind to acquire any shares of Bridgeware's or
any Subsidiary's capital stock, nor any outstanding securities convertible into
or exchangeable for, or which otherwise confer on the holder thereof any right
to acquire, any shares of Bridgeware's or any Subsidiary's capital stock.
Neither Bridgeware nor any Subsidiary is committed to issue any such option,
warrant, right or security.
Section 2.04. Consents and Approvals. Except as set forth on Schedule
2.04(a), the execution, delivery, and performance of this Agreement by
Bridgeware and the consummation by Bridgeware of the transactions contemplated
hereby will not require any notice to, or consent, authorization, or approval
from any court or governmental authority or any other third party. Except as
set forth in Schedule 2.04(b), any and all notices, consents, authorizations,
and approvals set forth on Schedule 2.04(a) have been or prior to the Closing
will be made and obtained.
Section 2.05. Transactions with Certain Persons. Except as incurred in
the ordinary course of business and disclosed on the Financial Statements or
except as set forth on Schedule 2.05, neither Bridgeware nor any Subsidiary is
owed any amount from, owes any amount to, has any contracts with or has any
commitments to: (a) the Sellers; (b) any key employee of Bridgeware; or (c) any
other Subsidiary or Affiliate. No officer or director of Bridgeware or any
Subsidiary (except in his or her capacity as such) has any direct or indirect
interest in (i) any property or assets of Bridgeware or any Subsidiary (except
as a shareholder), (ii) any competitor, customer, supplier or agent of
Bridgeware or any Subsidiary or (iii) any Person which is a party to any
contract or agreement with Bridgeware or any Subsidiary.
<PAGE>
Section 2.06. Financial Statements. Copies of the audited financial
statements of Bridgeware and its Subsidiaries as of December 31, 1994, 1995 and
1996 in each of the years then ended and of the unaudited financial statements
of Bridgeware and its Subsidiaries as of December 31, 1997 for the year then
ended (collectively the "Annual Financial Statements"), and the consolidated,
unaudited balance sheets and income statements of Bridgeware and its
Subsidiaries as of June 30, 1998 and for the six (6) months then ended (the
"Interim Financial Statements") are attached hereto as Schedule 2.06
(collectively the "Financial Statements"). The Financial Statements are true,
correct and complete in all material respects, and have been prepared from the
books and records of Bridgeware and its Subsidiaries in accordance with
generally accepted accounting principles, consistently applied. The balance
sheets included in the Financial Statements fairly present the financial
condition of Bridgeware and its Subsidiaries as of the date thereof, and the
income statements and statements of cash flow fairly present the results of the
operations and cash flows of Bridgeware and its Subsidiaries for the periods
indicated. The Interim Financial Statements are subject to normal year-end
adjustments necessary for a fair presentation of the financial condition or
results of operation of Bridgeware and its Subsidiaries. The Financial
Statements contain and reflect adequate provisions for all reasonably
anticipated liabilities and adequate reserves for all reasonably anticipated
losses, costs and expenses consistent with past practices, including reserves
for uncollectible Accounts Receivable and claims under warranties in effect on
the date hereof. A list of all Accounts Receivable owing to Bridgeware and its
Subsidiaries, which shall indicate the date upon which such Accounts Receivable
are or were due and payable, has been delivered to the Acquiror.
Section 2.07. Outstanding Debt and Related Matters. All outstanding Debt
of Bridgeware and its Subsidiaries is set forth in the Financial Statements
("Existing Debt"). There exists no default under the provisions of any
instrument evidencing such Existing Debt or of any agreement relating thereto.
Neither Bridgeware nor any Subsidiary has guaranteed any obligation of any
Person, and except as set forth on Schedule 2.07, neither the Sellers nor any
other Person has guaranteed any obligation of Bridgeware or any Subsidiary,
including obligations with respect to Existing Debt. All Existing Debt can be
prepaid at any time without penalty.
<PAGE>
Section 2.08. Taxes. Each of Bridgeware and its Subsidiaries has or will
have filed prior to or on the Closing Date all Tax returns, declarations,
statements, reports and forms (including estimated Tax returns and reports)
required to be filed by it or on its behalf on or before the Closing Date with
any Taxing Authority (collectively, the "Returns"). The Returns have been or
will be filed when due in accordance with all applicable laws and were or will
be correct and complete in all material respects. Each of Bridgeware and its
Subsidiaries has or will have timely paid, withheld or made reasonable provision
for all Taxes shown as due and payable in the Returns. Except as set forth on
Schedule 2.08, neither Bridgeware nor any Subsidiary has requested nor will it
request prior to or on the Closing Date an extension of time within which to
file or send any Return which has not since been filed or sent. Neither
Bridgeware nor any Subsidiary has and will not have granted prior to or on the
Closing Date any extension or waiver of the limitation period applicable to any
Returns to any Taxing Authority. Except as set forth on Schedule 2.08, there is
no claim, audit, action, suit, proceeding, or investigation pending or, to the
knowledge of the Sellers, threatened against, or with respect to Sellers or
Bridgeware or any Subsidiary in respect of any Tax. Neither Bridgeware nor any
Subsidiary has made any payments or is obligated to make any payments that are
not or will not be deductible under Section 280G of the Code. Neither
Bridgeware nor any Subsidiary is subject to any penalty by reason of a violation
of any order, rule or regulation of, or with respect to any Return or any other
return or report required to be filed with, any Taxing Authority. Neither
Bridgeware nor any Subsidiary has any pending requests for rulings with any
Taxing Authority. There are no Liens for Taxes upon the assets of Bridgeware or
any Subsidiary except Liens for current Taxes not yet due. Neither Bridgeware
nor any Subsidiary has been a member of an affiliated group (within the meaning
of Section 1504 of the Code) filing a consolidated federal income Tax Return, or
except for the obligations set forth in this Agreement, is currently under any
contractual obligation to indemnify any other Person with respect to Taxes or is
a party to any material agreement providing for payments with respect to Taxes.
None of the property owned or used by Bridgeware or any Subsidiary is subject to
a tax benefit transfer lease executed in accordance with Section 168(f)(8) of
the Code. The accruals and reserves for Taxes reflected in the Interim
Financial Statements (not including any reserve for deferred Taxes) are adequate
to cover all Taxes accruable through the date of such Interim Financial
Statements (including interest and penalties, if any, thereon) in accordance
with generally accepted accounting principles, consistently applied. None of
the Sellers are persons other than United States persons within the meaning of
the Code.
Section 2.09. Compliance with Laws; No Default or Litigation. Except as
set forth in Schedule 2.09:
(a) To the knowledge of Sellers, neither Bridgeware nor any
Subsidiary is in default or violation (nor is there any event which, with notice
or lapse of time or both, would constitute a default or violation) in any
respect (i) under any contract, agreement, lease, consent order, or other
commitment to which it is a party or to which the Business or its assets is
subject or bound, or (ii) under any law, rule, regulation, writ, injunction,
order or decree of any federal, state or local court or any federal, state,
local or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, including, without limitation, applicable
laws, rules and regulations relating to environmental protection, antitrust,
civil rights, health, and occupational health and safety;
(b) There are no actions, suits, claims, investigations, or legal
arbitration or administrative proceedings in progress, pending, or, to the
knowledge of the Sellers, threatened by or against Bridgeware or any Subsidiary
(or any of its assets or properties) whether at law or in equity, whether civil
or criminal in nature, or whether before or by a federal, state, local or other
governmental department, commission, board, bureau, agency, or instrumentality,
domestic or foreign or any Person;
(c) Neither Bridgeware nor any Subsidiary has been charged with or
received any notice of any violation of any rule, regulation, ordinance, law,
order, decree, or requirement relating to Bridgeware or any Subsidiary, its
respective properties or assets, or the transactions contemplated by this
Agreement; and
(d) No action, suit, or proceeding has been instituted or
threatened to restrain, prohibit, or otherwise challenge the legality or
validity of the transactions contemplated by this Agreement.
<PAGE>
Section 2.10. Title to Property. Each of Bridgeware and its Subsidiaries
has good, valid and marketable title to all of its properties, interests in
properties and assets (other than those held by lease), real or personal,
tangible or intangible, free and clear of all Liens, except for Liens for
property taxes not yet due and payable.
Section 2.11. Real Property. Neither Bridgeware nor any Subsidiary owns
any real property.
Section 2.12. Leased Real Property. Schedule 2.12 sets forth a list of
all real property leased by Bridgeware or any Subsidiary from any third party or
leased by a third party from Bridgeware or any Subsidiary (the "Leased Real
Property"; and the leases covering the Leased Real Property are collectively
referred to herein as the "Real Property Leases"). Bridgeware has delivered
true and complete copies of all Real Property Leases to the Acquiror. Except as
set forth on Schedule 2.12, (i) neither Bridgeware nor any Subsidiary is in
breach of or in default under any Real Property Lease; (ii) no party to any Real
Property Lease has given Bridgeware or any Subsidiary notice of or made a claim
with respect to any breach or default under any Real Property Lease; (iii) and
to the knowledge of Sellers no events have occurred which with or without notice
or lapse of time or both would constitute a breach or default under any Real
Property Lease. To the Sellers' knowledge, all of the Real Property Leases are
in full force and effect and constitute legal, valid and binding obligations of
Bridgeware or its Subsidiary, enforceable in accordance with their terms.
Except as set forth on Schedule 2.12, neither Bridgeware or any Subsidiary has
entered into any agreement relating to the sublease or any grant to any Person
of a right to the use, occupancy or enjoyment of the property or any portion
thereof. Except as set forth on Schedule 2.12, no consent of any lessor or
lessee of the Leased Real Property is required in connection in the transactions
contemplated by this Agreement.
<PAGE>
Section 2.13. Personal Property.
(a) Schedule 2.13 sets forth, lists or otherwise describes all
equipment, machinery, furniture, fixtures and improvements, tools, tooling,
spare parts, and vehicles owned or leased by Bridgeware or any Subsidiary
(including all leases of such property) or held for or use in the Business (the
"Personal Property"). Except as set forth in Schedule 2.13 and except for
property held under lease or license, each of Bridgeware and its Subsidiaries
has good, valid and marketable title to the Personal Property owned by it free
and clear of Liens, except for Liens for property taxes not yet due and payable,
or has, to the knowledge of Sellers, good, valid and transferable leasehold
interest in, the Personal Property. Schedule 2.13 identifies which Personal
Property is subject to a lease or license with total remaining obligations
(determined as of the date of the Interim Financial Statements) in excess of
$25,000. True and complete copies of all such leases have been or will be,
prior to the Closing, delivered to the Acquiror, and each of such leases is in
full force and effect and constitutes a legal, valid and binding obligation of
Bridgeware or a Subsidiary, enforceable in accordance with its terms. Except as
set forth in Schedule 2.13, no consent of any lessor of the Personal Property is
required in connection with the transactions contemplated by this Agreement.
(b) To the knowledge of Sellers, the Personal Property is in
conformance with all applicable laws, rules, regulations, writs, injunctions,
orders or decrees of any federal, state or local court or any federal, state or
local or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign including, without limitation, applicable
zoning, environmental, motor vehicle safety, occupational safety and health laws
and regulations.
Section 2.14. Contracts.
(a) Schedule 2.14 lists all contracts, agreements, arrangements,
commitments and leases, including all amendments thereto (other than those
listed on Schedules 2.05, 2.12and 2.13), to which Bridgeware or any Subsidiary
is a party or by which any of its assets or properties or the Business is bound
or subject which has total remaining obligations (determined as of the date of
the Interim Financial Statements) in excess of $25,000, other than contracts
which may be terminated at any time without penalty, including without
limitation, (the "Contracts"):
(i) All agreements, arrangements, licenses or commitments
relating to the Business including, without limitation, all software license and
maintenance agreements;
(ii) All agreements, arrangements or commitments relating to
loans, lines of credit, security agreements, mortgages, guaranties or other
payment obligations;
(iii) All agreements of guaranty or indemnification;
(iv) All agreements, contracts, and commitments containing
any covenant limiting the right of Bridgeware or any Subsidiary to engage in any
line of business or compete with any Person;
<PAGE>
(v) All leases with respect to any real or personal property
used in or necessary to the operation of the Business, including but not limited
to all leases for office space, tools, furniture, machinery, vehicles or
equipment;
(vi) All employment agreements, contracts, policies and
commitments with or between Bridgeware or any Subsidiary and any of their
respective employees, directors, or officers, including those relating to
severance and payment of commissions;
(vii) Contracts with suppliers and vendors of all items used
by Bridgeware and its Subsidiaries in the ordinary course of business; and
(viii) All joint venture or partnership agreements.
(b) To the knowledge of the Sellers, all of the Contracts are
valid and binding obligations of Bridgeware or a Subsidiary, are enforceable in
accordance with their respective terms, are in full force and effect and, except
as otherwise specified in Schedule 2.14, will continue in full force and effect
without the consent of any other party so that, after the Closing, Bridgeware or
a Subsidiary, as applicable, will be entitled to the full benefits thereof.
Except as set forth in Schedule 2.14, none of the Contracts contains any
provision that is triggered by a change in control of Bridgeware or by any of
the transactions contemplated by this Agreement. Except as listed on Schedule
2.14, none of the Contracts listed pursuant to paragraph (a)(ii) of this Section
2.14 contains a provision imposing a penalty if any of the amounts due
thereunder are prepaid. Except as disclosed in Schedule 2.14, there is no
existing default or event which, after notice or lapse of time, or both, would
constitute a default or result in a right to accelerate or loss of rights with
respect to the Contracts. Copies of the Contracts in written form have been
delivered or shall be delivered to the Acquiror prior to the Closing Date.
Section 2.15. Suppliers. No supplier, vendor or subcontractor of
Bridgeware or any Subsidiary accounting for 5% or more in aggregate purchases
during the preceding 12 months has notified Bridgeware or the Sellers that it
intends to terminate or change its relationship with Bridgeware or the
Subsidiary.
Section 2.16. Licenses and Permits. Schedule 2.16 lists all franchises,
licenses, permits, certificates, approvals, consents, clearances, notifications,
registrations, and other authorizations of Bridgeware and each Subsidiary (the
"Permits"), and, to Sellers' knowledge, no other Permits are necessary to
conduct the Business as now conducted. Except as set forth on Schedule 2.16,
all of such Permits are registered in the name of Bridgeware or a Subsidiary.
All such Permits are in full force and effect and will continue in full force
and effect without the consent of any other party so that, after the Closing,
Bridgeware and its Subsidiaries will be entitled to the full benefits of such
Permits. There are no proceedings pending or, to the knowledge of the Sellers,
threatened that may result in the revocation, termination, modification or
nonrenewal of any of the Permits. Except as set forth on Schedule 2.16, all of
the Permits will remain in full force and effect without the need to reapply
for, or make any modification to, any such Permit or to obtain the consent of
any other Person in the event that any of the Sellers ceases to be employed by
Bridgeware or the Acquiror.
<PAGE>
Section 2.17. Labor Relations: Employees. As of the date of the Interim
Financial Statements, Bridgeware and its Subsidiaries employed a total of 16
employees. Except as set forth in Schedule 2.17:
(a) Bridgeware and each Subsidiary has paid in full or accrued to
all of its employees all wages, salaries, commissions, bonuses, fringe benefit
payments, and all other direct and indirect compensation of any kind for all
services performed by each of them;
(b) Bridgeware and each Subsidiary is in compliance with (i) all
federal, state, and local laws, ordinances, and regulations dealing with
employment and employment practices of any kind, and (ii) all wage and hour
requirements and regulations;
(c) There is no unfair labor practice, safety, health,
discrimination, or wage claim, charge, complaint, or suit pending or, to the
knowledge of the Sellers, threatened against or involving Bridgeware or any
Subsidiary before the National Labor Relations Board, Occupational Safety and
Health Administration, Equal Employment Opportunity Commission, Department of
Labor, or any other federal, state, or local agency;
(d) There is no labor dispute, strike, work stoppage, interference
with production, or slowdown in progress, threatened against, or involving
Bridgeware's or any Subsidiary's work force as a group;
(e) There is no question of representation under the National
Labor Relations Act, as amended, or any state equivalent thereof, pending with
respect to the employees of Bridgeware or any Subsidiary;
(f) There is no grievance pending or, to the knowledge of the
Sellers, threatened which might have a material adverse effect on Bridgeware or
any Subsidiary or on the conduct of the Business;
(g) There exists no collective bargaining agreement to which
Bridgeware or any Subsidiary is a party, and there is no collective bargaining
agreement currently being negotiated, subject to negotiation, or renegotiation
by Bridgeware or any Subsidiary; and
(h) There is no dispute, claim, or proceeding pending with or, to
the knowledge of the Sellers, threatened by the Immigration and Naturalization
Service with respect to Bridgeware or any Subsidiary.
<PAGE>
Section 2.18. Employee Benefit Plans.
(a) Schedule 2.18 contains a list of each (i) employee welfare
benefit plan (as defined in Section 3(1) of ERISA (hereinafter referred to as
"Employee Welfare Benefit Plan") and (ii) employee pension benefit plan (as
defined in Section 3(2) of ERISA) (hereinafter referred to as "Employee Pension
Benefit Plan"), (A) which was maintained or administered by Bridgeware or any
Subsidiary immediately prior to the Closing, (B) to which Bridgeware or any
Subsidiary, contributed to, or was legally obligated to contribute to
immediately prior to the Closing, or (C) under which Bridgeware or any
Subsidiary had any liability immediately prior to Closing, with respect to its
current or former employees or independent contractors. Solely for purposes of
this Section 2.18, the Employee Welfare Benefit Plans and Employee Pension
Benefit Plans are collectively referred to as "Employee Benefit Plans" and
individually referred to as an "Employee Benefit Plan".
(b) Prior to the Closing, the Sellers will provide the Acquiror
with true and correct copies of (i) all Employee Benefit Plans listed on
Schedule 2.18, including all amendments thereto, (ii) the most recent summary
plan description for each Employee Benefit Plan, and (iii) the most recently
filed IRS Form 5500 for each Employee Benefit Plan.
(c) To Sellers' knowledge, each of the Employee Benefit Plans is
in compliance with the applicable provisions of ERISA and those provisions of
the Code applicable to the Employee Benefit Plans, and each Employee Benefit
Plan intended to be qualified under Section 401(a) of the Code is so qualified.
None of the Employee Benefit Plans is subject to Title IV of ERISA or to Section
412 of the Code. To Sellers' knowledge, all contributions to, and payments
from, the Employee Benefit Plans which may have been required to be made in
accordance with the Employee Benefit Plans or the Code have been timely made.
Each of the Employee Benefit Plans has been administered at all times in all
material respects in accordance with its terms. There are (i) no pending
investigations by any governmental agency involving the Employee Benefit Plans;
(ii) except with respect to this transaction, no termination proceedings
involving the Employee Benefit Plans, and (iii) to Sellers' knowledge, no
threatened or pending claims (except for claims for benefits payable in the
normal operation of the Employee Benefit Plans), suits, or proceedings against
any Employee Benefit Plan or assertion of any rights or claims to benefits under
any Employee Benefit Plan.
(d) No Employee Benefit Plan fiduciary has engaged in a
"prohibited transaction" (as that term is defined in Section 4975 of the Code or
Section 406 of ERISA) which could subject any Employee Benefit Plan to the tax
or penalty on prohibited transactions imposed by Section 4975 or the sanctions
imposed under Title I of ERISA.
(e) Bridgeware and its Subsidiaries are not obligated to
contribute to any multi- employer plan (as defined in ERISA Section 3(37)).
(f) Bridgeware and its Subsidiaries have complied with the
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and the rules and regulations thereunder.
Section 2.19. Environmental Compliance. Except as set forth in Schedule
2.19:
(a) To the knowledge of Sellers, Bridgeware and each Subsidiary
has at all times complied with all applicable Environmental Requirements in the
use of the Leased Real Property.
<PAGE>
(b) No Hazardous Material has ever been generated, manufactured,
refined, used, transported, treated, stored, handled, disposed, transferred,
produced, or processed by Bridgeware or any Subsidiary at, to, or on any Leased
Real Property, and no Hazardous Material has ever been incorporated into any
Leased Real Property by Bridgeware or any Subsidiary.
(c) To Sellers' knowledge, there are no existing or potential
Environmental Claims relating to any Leased Real Property. Neither Bridgeware
nor the Sellers have received any notification, nor do the Sellers have any
knowledge of, any alleged, actual, or potential responsibility for any disposal,
release, or threatened release at any location of any Hazardous Material
generated at or transported from any Leased Real Property by or on behalf of
Bridgeware or any Subsidiary.
(d) None of Bridgeware, the Subsidiaries or the Sellers has
received any notice issued pursuant to the citizen's suit provision of any
Environmental Requirement relating to any Leased Real Property.
(e) None of Bridgeware, the Subsidiaries or the Sellers has
received any request for information, notice, demand, letter, administrative
inquiry, formal or informal complaint, or claim with respect to any
Environmental Condition or violation of any Environmental Requirement relating
to any Leased Real Property.
<PAGE>
Section 2.20. Insurance.
(a) Schedule 2.20 sets forth:
(i) A list of all policies of title, liability, theft,
fidelity, life, fire, product liability, workmen's compensation, health, and
other forms of insurance held by Bridgeware and its Subsidiaries and specifies
the insurer, deductibles, type of insurance and policy number; and
(ii) A list of all pending claims under such policies.
(b) The policies listed in Schedule 2.20 are in full force and
effect, and all premiums due and payable with respect to such policies are
currently paid. The Sellers have delivered to the Acquiror copies of all
insurance policies listed on Schedule 2.20.
Section 2.21. Power of Attorney. Schedule 2.21 contains a list of the
names of all Persons holding general or special written powers of attorney from,
or having authority to incur indebtedness on behalf of Bridgeware and a summary
of the terms thereof.
Section 2.22. No Changes. Except as set forth on Schedule 2.22, since the
date of the Interim Financial Statements, neither Bridgeware nor any Subsidiary
has, directly or indirectly, (a) incurred any liability or obligation of any
nature (whether accrued, absolute, continent or otherwise) except in the
ordinary course of business; (b) incurred any indebtedness for borrowed money or
entered into any commitment to borrow money or guarantee, assumption,
endorsement of, or other assumption of any liability; (c) sold, transferred or
otherwise disposed of any assets other than in the ordinary course of business;
(d) declared or paid any dividend or made any distribution on any shares of its
capital stock; (e) made any bonus or profit sharing distribution of any kind;
(f) conducted the Business or entered into any transaction except in the
ordinary course of business consistent with past practice; (g) made any illegal
payments to any Person; (h) made any changes to its Articles of Incorporation or
Bylaws or other organizational document; (i) entered into any employment
contract; or (j) entered into any material contract to purchase any Real
Property.
Section 2.23. Absence of Certain Business Practices. To Sellers'
knowledge, none of Bridgeware, its Subsidiaries, Sellers or the personnel or
other Persons acting on behalf of any of them has given or agreed to give,
directly or indirectly, any gift or similar benefit to any customer, supplier,
governmental employee, or other Person who is or may be in a position to help or
hinder the business of Bridgeware or a Subsidiary (or assist Bridgeware or a
Subsidiary in connection with any actual or proposed transaction relating to the
Business), which might subject Bridgeware to any damage or penalty in any civil,
criminal, or governmental litigation or proceeding or which, if not continued in
the future, may have a material adverse effect on the Business.
Section 2.24. Rights Under Warranties. Schedule 2.24 contains a list of
all claims pending or, to the knowledge of Sellers, threatened, against
Bridgeware and its Subsidiaries under any outstanding warranty as of the date
hereof.
<PAGE>
Section 2.25. Minute Book and Stock Record Book. The minute books of
Bridgeware and each Subsidiary contain complete and accurate, in all material
respects, records of all official meetings and other official corporate actions
of its stockholders or members and board of directors or managers, including
committees of the board of directors. The stock record book of Bridgeware and
each Subsidiary contains a complete and accurate record of the current ownership
of all outstanding shares of capital stock of Bridgeware and each Subsidiary.
All other books and records of Bridgeware and each Subsidiary are complete and
accurate in all material respects.
Section 2.26. Directors and Officers. Schedule 2.26 attached hereto
identifies all of the directors and officers of Bridgeware and each Subsidiary
on the date hereof.
Section 2.27. Brokers' or Finders' Fees. Except as set forth on Schedule
2.27, no agent, broker, investment banker or other person or firm acting on
behalf of Bridgeware, the Sellers, and/or any of their respective directors,
executive officers or other representatives, or under the authority of any of
them, is or will be entitled to any broker's or finder's fee or any other
commission or similar fee, directly or indirectly, from any of the parties
hereto in connection with any of the transactions contemplated hereby.
Section 2.28. Customers. Schedule 2.28 contains a list of all significant
customers or clients of Bridgeware and its Subsidiaries which have paid
Bridgeware or a Subsidiary, as applicable, $25,000 or more since entering into
their contract or agreement with Bridgeware or its Subsidiary, as applicable, or
which are obligated to pay to Bridgeware or a Subsidiary, as applicable, $25,000
or more over the remaining life of their contract or agreement with Bridgeware
or its Subsidiary, as applicable (collectively, the "Customers"). The Sellers
do not have any knowledge that any Customer is terminating or considering
terminating its relationship with Bridgeware or its Subsidiary, as applicable,
or is contemplating materially reducing the level of its business with
Bridgeware or its Subsidiary, as applicable; provided, that, a Customer's
failure to renew a maintenance agreement at the end of its term shall not be
considered a material reduction in the level of its business for purposes of
this Agreement. No customer or client of Bridgeware or any Subsidiary has
claimed that any product of Bridgeware or its Subsidiaries has failed to perform
properly or to the customers' or clients' satisfaction or failed to function in
accordance with the product's specifications, user manuals and other
descriptions, and, to the knowledge of the Sellers, there exists no fault,
feature or circumstance which now or in the future could result in such a claim.
Neither Bridgeware nor any Subsidiary has any obligation (contractual or
otherwise) to support, maintain or make amendments to any products which it has
sold or licensed more onerous than those obligations contained in the standard
forms of maintenance and/or support agreements, copies of which have been
provided to the Acquiror and a list of which are contained in Schedule 2.28, and
neither Bridgeware nor any Subsidiary has agreed to take back any products or to
effect amendments or provide updates for any products free of charge or
otherwise or to issue any credit note or to write off or reduce indebtedness in
respect of any products it has sold or licensed.
Section 2.29. Disclosure. Neither this Agreement, nor the Exhibits and
Schedules attached hereto contains or will contain any untrue statement of a
material fact or, to Sellers' knowledge, omits or will omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
<PAGE>
Section 2.30. Intellectual Property.
(a) The patents and inventions, registered and material
unregistered trademarks and service marks, trade names and styles, logos and
designs, trade secrets, technical information, engineering procedures, designs,
know-how and processes (whether confidential or otherwise), software, copyrights
and other intellectual property (including applications for any of the
aforesaid), in each case under development, used or reasonably necessary to
permit satisfactory operation of the business of Bridgeware and its Subsidiaries
as presently constituted are collectively referred to hereinafter as the
"Intellectual Property."
(b) Schedule 2.30 identifies any and all Intellectual Property.
Other than as disclosed on Schedule 2.30 Bridgeware and its Subsidiaries are the
sole owners of all right, title and interest in and to the Intellectual
Property. Schedule 2.30 also identifies each license and other agreement, oral
or written, that: (i) relates to the granting by Bridgeware of any rights,
including without limitation rights of use and ownership, in any of the
Intellectual Property, other than standard software license agreements of
Bridgeware (which have been provided to the Acquiror), and (ii) requires the
payment to Bridgeware or a Subsidiary of at least $15,000 in the aggregate.
(c) Other than as disclosed on Schedule 2.30, to the knowledge of
the Sellers, no person has a right to receive a royalty, or has claimed a right
to receive a royalty, with respect to any of the Intellectual Property. Other
than as disclosed on Schedule 2.30, there are no claims or proceedings pending,
or, to the knowledge of Bridgeware, threatened, against Bridgeware or any
Subsidiary asserting that its use of any of the Intellectual Property infringes
upon the rights of any other person. There is no basis for any claim that the
use by Bridgeware or any Subsidiary of any of the Intellectual Property
infringes upon the rights of any other person.
(d) All patents, trademarks, trade names, service marks and
copyrights listed on Schedule 2.30 are registered with the U. S. Patent and
Trademark Office (or in the case of copyrights, with the U. S. Copyright
Office), are valid and in full force and effect. Other than as disclosed on
Schedule 2.30, the rights of Bridgeware and its Subsidiaries in and to the
Intellectual Property is, and at Closing will be, transferable as contemplated
by this Agreement.
(e) Except as disclosed on Schedule 2.30, Bridgeware is the sole
and exclusive owner throughout the world of the software products listed on
Schedule 2.30 ("the Products"), including without limitation all copyrights,
inventions, source code, object code and algorithms embodied therein. Except as
disclosed on Schedule 2.30, no person other than Bridgeware has the right to
market any source code of the Products to any person. Except as disclosed on
Schedule 2.30, the Products do not incorporate any software, source code, object
code or algorithms the rights of which are owned or controlled by an entity
other than Bridgeware.
<PAGE>
(f) (i) Except for Products reliant on a DOS operating system,
Bridgeware and its Subsidiaries, and all Products, are Year 2000 Ready.
Schedule 2.30 lists all customers and clients that have licenses for Products
reliant on a DOS operating system and specifies whether each customer or client
has been notified that such Products are not Year 2000 Ready. "Year 2000
Ready" means that the Products, and Bridgeware and its Subsidiaries' systems,
processes, products and services (including any software embedded in any
products) ("Services"), will correctly identify, recognize and process
multi-century dates, and the Products and Services will: (1) continue to
function properly with regard to dates before, during and after the transition
to year 2000 including, but not limited to, the ability to roll dates from
December 31, 1999 to January 1, 2000 and beyond with no errors or system
interruptions; (2) accurately perform calculations and comparisons on dates that
span centuries; (3) properly sort and sequence dates that span centuries; (4)
understand that the year 2000 starts on a Saturday; (5) recognize that February
29, 2000 is a valid date and that the Year 2000 has 366 days; (6) prohibit use
of date fields for any purpose other than to store valid dates; (7) preclude the
use of 12/31/99 or any other valid date to indicate something other than a date
(e.g., 12/31/99 in a date field means "do not ever cancel"); and (8) comply with
and conform to the specifications of American National Standard ANSI X3.30-1985,
Representation for Calendar Date and Ordinal Date for Information Interchange.
(ii) Bridgeware has conducted an audit of its critical
contractors and suppliers regarding their Year 2000 Readiness and, except as set
forth on Schedule 2.30, all critical contractors and suppliers are, to the best
of Bridgeware's knowledge, Year 2000 Ready.
(iii) Bridgeware has made no express or implied warranties
regarding the Year 2000 Readiness of itself, any Subsidiary or any of its
Products, except as set forth on Schedule 2.30.
Section 2.31. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.31, neither Bridgeware nor any Subsidiary has any indebtedness or
liability which is not shown or provided for in the Interim Financial
Statements.
Section 2.32. Accounts Receivable. To Sellers' knowledge, the Accounts
Receivable reflected in the Financial Statements, and all Accounts Receivable
arising since the date thereof, represent or shall represent, net of reserves
for doubtful accounts, bona fide claims against debtors for sales, services
performed or other charges arising in the ordinary course of business, and are
not subject to dispute or any counterclaim. All Accounts Receivable are
collectible in the ordinary course of business (without the necessity of legal
proceedings).
Section 2.33. Claims Against Third Parties. Schedule 2.33 contains a list
and brief description of all of Bridgeware's rights, claims and causes of action
against third parties related to the conduct of the Business of which the
Sellers are aware (the "Claims").
Section 2.34. Bank Accounts. Schedule 2.34 contains a list of all bank
accounts, escrow deposit accounts, money market accounts, brokerage accounts and
similar accounts and safe deposit boxes of Bridgeware, including all accounts or
other locations at which Bridgeware holds cash, cash equivalents or securities,
with an identification of the name of the bank or brokerage firm, account number
and the signatories thereto.
<PAGE>
Section 2.35. Survival. Notwithstanding any investigation conducted at
any time with respect thereto, all representations and warranties contained in
this Agreement, shall survive the execution, delivery, and performance hereof,
for a period of one year after the Closing and until the resolution of all
Indemnification Notices and Litigation Notices received by an Indemnifying Party
prior to the expiration of the one year period; provided, however, that (i) the
representations and warranties contained in Section 2.08 shall survive for a
period ending on the sixtieth (60th) day after expiration of the applicable
statute of limitations (after giving effect to any extensions thereof) has
expired and until the resolution of all Indemnification Notices and Litigation
Notices received by an Indemnifying Party prior to the sixtieth (60th) day after
expiration of the applicable statute of limitations, and (ii) the
representations and warranties contained in Article III, below, shall survive
for an indefinite period.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
As a material inducement to the Acquiror to enter into this Agreement, to
enter into all other agreements and documents executed by the Acquiror in
connection with this Agreement and to consummate the transactions contemplated
hereby and thereby, each of the Sellers severally represents and warrants to the
Acquiror with respect to itself, himself or herself (as the case may be) only
that:
Section 3.01. Title to Property. Except as set forth on Schedule 3.01,
such Seller has good and marketable title to the Shares owned by such Seller,
free and clear of all adverse claims and Liens, buy-sell agreements,
cross-purchase agreements, shareholder agreements or restrictions or rights of
any kind. The Shares owned by such Seller represent the percentage ownership of
Bridgeware set forth as such Seller's Fractional Interest on Exhibit A hereto.
Section 3.02. Authorization; Power; No Violation. Such Seller has the
full capacity, right, power and authority to enter into, execute and deliver
this Agreement, carry out his/her/its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Seller and constitutes a legal, valid and binding obligation
of such Seller, enforceable against such Seller in accordance with its terms.
No further action is necessary by the Seller to make this Agreement valid and
binding upon and enforceable against such Seller in accordance with the terms
hereof or to carry out the transactions contemplated hereby. The execution and
delivery of this Agreement, and the fulfillment and compliance with the terms
and conditions hereof will not: (a) conflict with, violate, result in breach of,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under any provision of the organizational documents
of such Seller, if applicable, or any of the terms, conditions or provisions of
any note, lien, bond, mortgage, indenture, license, lease, contract, commitment,
agreement, understanding, arrangement, restriction or other instrument or
obligation to which the Seller is a party or by which such Seller or its
properties or assets may be bound, (b) violate any law, rule or regulation of
any government or governmental agency or body, or any judgment, order, writ,
injunction, or decree of any court, administrative agency or governmental agency
or body applicable to such Seller or any of its properties, assets or
outstanding shares or other securities, or (c) constitute an event which, with
or without notice, lapse of time or action by a third party could result in the
creation of a Lien upon any of the assets or properties of the Seller, or cause
the maturity of any liability, obligation or debt of such Seller to be
accelerated or increased.
<PAGE>
Section 3.03. Consents and Approvals. The execution, delivery and
performance of this Agreement by such Seller and the consummation of the
transactions contemplated hereby will not require any notice to, or consent,
waiver, authorization or approval from, any court or governmental agency or body
or any other person or declaration to, or a filing or registration with, any
governmental agency or body or other person.
Section 3.04. Investment Intent. Such Seller is acquiring the Acquiror
Common Stock for his/her/its own account for the purpose of investment only and
not with a view to, or for sale in connection with, any distribution thereof
within the meaning of the Securities Act of 1933, as amended, and all rules and
regulations promulgated thereunder (the "Securities Act"). Such Seller will not
sell or otherwise dispose of any of the Acquiror Common Stock in a manner which
would require registration under the Securities Act or any applicable state or
local blue sky or other securities law unless such registrations are effected.
Such Seller acknowledges and agrees that the certificates representing the
Acquiror Common Stock shall bear a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR FOREIGN SECURITIES
LAWS AND MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE THEREWITH."
Section 3.05. Access to Information. Such Seller has received and
reviewed a copy of the audited financial statements of the Acquiror as of and
for the year ending December 31, 1997. Such Seller has had the opportunity to
ask questions of, and receive satisfactory answers from, the management of the
Acquiror concerning the operations and financial condition of the Acquiror and
its business necessary to make an informed decision to invest in the Acquiror
Common Stock.
Section 3.06. Sophistication of the Sellers. Such Seller has such
knowledge and experience in financial and business matters that such entity or
person is capable of evaluating the merits and risks of an investment in the
Acquiror Common Stock and has been advised by professional advisors, including
attorneys and accountants, with respect to all aspects of owning the Acquiror
Common Stock, including the impact of all relevant securities and tax laws on
such ownership.
<PAGE>
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
As a material inducement to Bridgeware and the Sellers to enter into this
Agreement and to consummate the transactions contemplated by this Agreement, the
Acquiror represents and warrants to Bridgeware and the Sellers that:
Section 4.01. Organization; Qualification. The Acquiror is a corporation
duly incorporated and validly existing under the laws of the State of Indiana
for which the most recent biennial report has been filed with the office of the
Secretary of State of Indiana and for which no articles of dissolution have been
filed with such office. The Acquiror has all requisite corporate power and
authority and all governmental licenses, authorizations, consents and approvals
necessary to own, lease and operate its properties and to carry on its business
as now being conducted. The Acquiror is duly qualified as a foreign corporation
and is in good standing to do business in every jurisdiction in which such
qualification is necessary because of the nature of the properties owned, leased
or operated by it or the nature of the businesses conducted by it, except in
such jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect.
Section 4.02. Authority; Power; and No Violation. The execution and
delivery of this Agreement by the Acquiror has been authorized by all necessary
corporate action on the part of the Acquiror. The Acquiror has the requisite
corporate power and authority to own, lease and operate its business as it is
now being conducted, to execute and deliver this Agreement, and to take any and
all other actions required to be taken by it pursuant to the provisions of this
Agreement. This Agreement constitutes the legal, valid and binding obligation
of the Acquiror enforceable against the Acquiror in accordance with its terms.
Except as set forth on Schedule 4.02, the execution and delivery of this
Agreement and the fulfillment or compliance with the terms hereof, will not (a)
conflict with, violate, result in a breach of, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or give rise to any right of termination, cancellation, or acceleration under
any provision of the Articles of Incorporation or Bylaws of the Acquiror or any
of the terms, conditions or provisions of any note, lien, bond mortgage,
indenture, license, lease, contract, commitment, agreement, understanding,
arrangement, restriction, or other instrument or obligation to which the
Acquiror is a party or by which the Acquiror or any of its respective properties
or assets may be bound; (b) violate any law, rule or regulation of any
government or governmental agency or body, or any judgment, order, writ,
injunction, or decree of any court, administrative agency, or governmental
agency or body applicable to the Acquiror or any of its respective properties,
assets, or outstanding shares or other securities; or (c) constitute an event
which, with or without notice, lapse of time, or action by a third party, could
result in the creation of any Lien upon any of the assets or properties of the
Acquiror or cause the maturity of any liability, obligation, or debt of the
Acquiror to be accelerated or increased.
<PAGE>
Section 4.03. Consents and Approvals. Except as required by the
Securities Act or as set forth on Schedule 4.03(a), the execution, delivery, and
performance of this Agreement by the Acquiror and the consummation by the
Acquiror of the transactions contemplated hereby will not require any notice to,
or consent, authorization or approval from any court or governmental authority
or any other third party. Except as set forth in Schedule 4.03(b), any and all
notices, consents, authorizations and approvals set forth in Schedule 4.03(a)
have been or prior to the Closing will be made and obtained.
Section 4.04. SEC Documents and Other Reports. The Acquiror is in
compliance with all applicable state and federal securities laws. Without
limiting the foregoing, the Acquiror timely has filed all periodic reports and
other filings required to be filed by it with the SEC (the "Acquiror SEC
Documents"). As of their respective dates, the Acquiror SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and none of the Acquiror SEC Documents
contained any untrue statement of a material fact or omitted to state any
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. The financial statements of the Acquiror included in the Acquiror
SEC Documents complied as to form in all material respects with the applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, were prepared in accordance with generally
accepted accounting principles (except, in the case of the unaudited statements,
as permitted by the regulations of the Commission) consistently applied
throughout the periods involved (except as may be indicated therein or in the
notes thereto) and fairly present in all material respects the financial
position, results of operations and cash flows of the Acquiror as of the dates
or for the periods indicated therein, subject, in the case of the unaudited
statements, to normal year-end audit adjustments and the absence of footnote
disclosure.
Section 4.05. Shares. The issued and outstanding shares of the Acquiror
Common Stock are, and, when issued, the Consideration Shares will be, duly
authorized validly issued, fully paid and non-assessable and issued in
compliance with all applicable state and federal securities laws. The
Consideration Shares will not be issued in violation of any preemptive rights
held by any shareholder of the Acquiror.
Section 4.06. Broker's or Finder's Fees. Except as set forth on Schedule
4.06, no agent, broker, investment banker or other person or firm acting on
behalf of the Acquiror or any of its directors, executive officers, or under the
authority of any of them, is or will be entitled to any broker's or finder's fee
or any other commission or similar fee, directly or indirectly, from any of the
parties hereto in connection with any of the transactions contemplated hereby.
ARTICLE V.
INDEMNIFICATION
<PAGE>
Section 5.01. Indemnification by the Sellers. Each of the Sellers,
jointly and severally except as expressly limited in this Article V, shall
indemnify and hold harmless the Acquiror and Bridgeware and their respective
successors, shareholders, officers, directors, Affiliates, Subsidiaries and
agents (the "Acquiror Parties") from and against any and all damages, losses,
obligations, demands, liabilities, claims, encumbrances, penalties, costs, and
expenses, including reasonable attorneys' fees (and costs and reasonable
attorneys' fees in respect of any action, including arbitration, to enforce this
provision) (each an "Indemnity Loss"), arising from or relating to (a) any
misrepresentation or omission in or any breach of any representation or warranty
by Bridgeware or the Sellers, or any breach or failure of Bridgeware or the
Sellers to perform or fulfill any covenant, agreement or obligation of
Bridgeware or the Sellers, contained in this Agreement, (b) any liability,
obligation or commitment of any nature (absolute, accrued, contingent or other)
imposed by the Office of the Chief Scientist of Israel and costs and expenses
related thereto ("OCS Liabilities"), (c) failure, prior to the Closing Date, to
file any Returns or to withhold or pay any Taxes due or payable on or before
the Closing Date (without regard to any extensions), (d) any obligation or
liability to a customer or client which arises from circumstances existing or
occurring on or before the Closing Date and (e) any and all actions, suits,
investigations, proceedings, demands, assessments, audits, and judgments arising
out of any of the foregoing.
Notwithstanding the foregoing, each of the Sellers severally and not
jointly shall indemnify and hold harmless the Acquiror and Bridgeware and their
respective successors, shareholders, officers, directors, Affiliates,
Subsidiaries and agents from any Indemnity Loss arising from or related to any
misrepresentation or omission in or any breach of any representation or warranty
contained in Article III of this Agreement or in any closing certificate or
other closing document delivered pursuant thereto by Bridgeware or the Sellers.
Section 5.02. Indemnification by the Acquiror. The Acquiror shall
indemnify and hold harmless the Sellers and any respective successors from and
against any and all Indemnity Losses resulting from or relating to (a) any
misrepresentation or omission in or any breach of any representation or
warranty, or any breach or failure of the Acquiror to perform or fulfill any
covenant, agreement or obligation of the Acquiror contained in this Agreement
and (b) any and all suits, actions, investigations, proceedings, demands,
assessments, audits, and judgments arising out of any of the foregoing.
<PAGE>
Section 5.03. Limitations on Indemnification. Notwithstanding any other
provisions of this Agreement, the indemnity obligations of the parties provided
for in this Agreement shall be subject to the following limitations and
conditions:
(a) The Acquiror Parties shall be entitled to indemnification only
to the extent that the aggregate amount of all Indemnity Losses suffered by the
Acquiror Parties taken as a whole exceeds $200,000, and the maximum aggregate
indemnification amount to which the Acquiror Parties shall be entitled shall be
$1,000,000; provided, however, that (i) the Sellers' obligation to indemnify the
Acquiror Parties against Indemnity Losses arising as a result of the
representations and warranties contained in Article III of this Agreement shall
not be subject to any indemnification threshold, and the maximum aggregate
indemnification amount to which the Acquiror Parties shall be entitled as a
result of the representations and warranties contained in Article III of this
Agreement shall be the amount of Purchase Price; and (ii) the Sellers'
obligation to indemnify the Acquiror Parties against OCS Liabilities shall not
be subject to the terms of this Section 5.03(a) but shall be subject to the
terms of Section 5.03(b).
(b) Notwithstanding the above, the Acquiror Parties shall be
entitled to indemnification against Indemnity Losses arising as a result of OCS
Liabilities only to the extent that the aggregate amount of OCS Liabilities
exceeds $300,000, and the maximum aggregate indemnification amount to which the
Acquiror Parties shall be entitled with respect to OCS Liabilities shall be
$475,000. The Sellers shall not have any liability for Indemnity Losses
relating to OCS Liabilities except to the extent that Indemnification Notices
and/or Litigation Notices relating thereto are received by the Sellers on or
before the second anniversary of the Closing Date.
(c) Notwithstanding any other provision of this Agreement, the
maximum amount which the Acquiror Parties may recover from any Seller with
respect to any Indemnity Loss shall be limited to an amount equal to such
Seller's pro rata portion of the Indemnity Loss, determined based upon such
Seller's Fractional Interest; provided, however, that such limitation shall not
apply in the case of an Indemnity Loss suffered as a result of the
representations and warranties contained in Article III of this Agreement.
Section 5.04. Notice. If an indemnified party (the "Claimant") believes
that it has suffered or incurred any Indemnity Loss, it shall so notify the
party which the Claimant believes has an obligation to indemnify (the
"Indemnifying Party") promptly in writing describing such loss or expense, the
amount thereof, if known, and the method of computation of such loss or expense,
all with reasonable particularity (the "Indemnification Notice"). If any action
at law, suit in equity, or administrative action is instituted by or against a
third party with respect to which the Claimant intends to claim any liability or
expense as an Indemnity Loss under this Article V, it shall promptly notify the
Indemnifying Party in writing of such action or suit describing such loss or
expenses, the amount thereof, if known, and the method of computation of such
loss or expense, all with reasonable particularity (the "Litigation Notice") in
lieu of an Indemnification Notice. After delivering the Indemnification Notice
or the Litigation Notice, as the case may be, the Claimant shall provide to the
Indemnifying Party such information as is reasonably requested by the
Indemnifying Party, including all documents filed with any court or governmental
agency, to assist the Indemnifying Party in determining whether to indemnify the
Claimant against such Indemnity Loss.
<PAGE>
Section 5.05. Defense of Claims. The Indemnifying Party shall have 30
business days after receipt of the Litigation Notice to notify the Claimant that
it acknowledges its obligation to indemnify and hold harmless the Claimant with
respect to the Indemnity Loss set forth in the Litigation Notice and that it
elects to conduct and control any legal or administrative action or suit with
respect to an indemnifiable claim (the "Election Notice"). If the Indemnifying
Party gives a Disagreement Notice or does not give the foregoing Election
Notice, the Claimant shall have the right to defend, contest, settle, or
compromise such action or suit in the exercise of its exclusive discretion. If
the Indemnifying Party gives the foregoing Election Notice, the Indemnifying
Party shall have the right to undertake, conduct, and control, through counsel
of its own choosing and at its sole expense, the conduct and settlement of such
action or suit, and the Claimant shall cooperate with the Indemnifying Party in
connection therewith; provided, however, that (a) the Indemnifying Party shall
not thereby consent to the imposition of any injunction against the Claimant
without the written consent of the Claimant; (b) the Indemnifying Party shall
permit the Claimant to participate in such conduct or settlement through counsel
chosen by the Claimant, but the fees and expenses of such counsel shall be borne
by the Claimant except as provided in clause (c) below; and (c) upon a
determination of such action or suit, the Indemnifying Party shall promptly
reimburse the Claimant, to the extent required under this Article V, for the
full amount of any Indemnity Loss incurred by the Claimant except for fees and
expenses of counsel that the Claimant incurred after the assumption of the
conduct and control of such action or suit by the Indemnifying Party in good
faith; (d) the Claimant shall have the right to pay or settle any such action or
suit, provided that in such event the Claimant shall waive any right to
indemnity therefor by the Indemnifying Party and no amount in respect thereof
shall be claimed as an Indemnity Loss under this Article V.
Section 5.06. Computation of Indemnity Losses. The amount of Indemnity
Losses hereunder shall be computed after giving effect to the receipt of any and
all insurance proceeds with respect thereto.
Section 5.07. Payment of Losses. The Indemnifying Party shall pay to the
Claimant in cash the amount to which the Claimant may become entitled by reason
of the provisions of this Article V, within 15 Business Days after such amount
is determined either by mutual agreement of the parties or pursuant to the
arbitration proceeding described in Article VIII of this Agreement.
Notwithstanding the above, if Sellers are the Indemnifying Party, they may pay
the Acquiror Parties in cash or with Consideration Shares which Consideration
Shares shall have the Value as of the date the payment obligation is determined.
If the Sellers do not pay the Acquiror Parties as provided herein, the Acquiror
may, at its option, reduce and cancel the Consideration Shares in satisfaction
of the amounts owed hereunder (subject to the limitations on indemnity provided
herein), and, for such purposes, the Consideration Shares shall have the Value
as of the date the payment obligation is determined.
ARTICLE VI.
TAXES
Section 6.01. Post Closing Taxes. The Sellers shall prepare and file any
Return related to Taxes for periods up to and including the Closing Date and
shall bear all liability with respect to Taxes due and payable for periods up to
and including the Closing Date to the extent not reflected in the Closing Date
Balance Sheet.
<PAGE>
Section 6.02. Transfer Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees incurred in connection with
this Agreement shall be paid by Sellers when due, and Sellers will, at their own
expense, file all necessary Returns and documentations with respect to such
Taxes.
ARTICLE VII.
CLOSING
Section 7.01. Closing Date. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Ice Miller
Donadio & Ryan, One American Square, Suite 3400, Indianapolis, Indiana on or
before August 4, 1998 (the "Closing Date"). The parties agree to use their best
efforts to close the transactions contemplated by this Agreement subject to the
terms and conditions provided herein.
Section 7.02. Deliveries by Bridgeware and the Sellers. At the Closing,
Bridgeware or the Sellers, as the case may be, shall deliver to the Acquiror the
following duly executed documents and other items. The Acquiror's obligations
hereunder are expressly conditioned upon delivery of each of such documents and
items in a form reasonably satisfactory to the Acquiror.
(a) A written opinion of Bridgeware's Counsel, in substantially
the form of Exhibit 7.02(a)(i), a written opinion of Fish and Ben-Ari, in
substantially the form of Exhibit 7.02(a)(ii), and a written opinion of Reed,
Elliot, Creech & Roth, in substantially the form of Exhibit 7.02(a)(iii).
(b) The resignations of all officers and directors of Bridgeware
and its Subsidiaries, dated as of the Closing Date.
(c) Nondisclosure, noncompetition and nonsolicitation agreements
between the Acquiror and each of the Sellers, in substantially the form of
Exhibit 7.02(c) .
(d) The Escrow Agreement, as specified in Section 1.04.
(e) Certificates of Good Standing of Bridgeware and each
Subsidiary, issued by the Secretary of State of the jurisdiction of
organization, dated within five days of the Closing Date.
(f) A Certified Copy of the Articles or Certificate of
Incorporation, including all amendments, of Bridgeware and each Subsidiary,
issued by the Secretary of State of the jurisdiction of organization, dated
within five days of the Closing Date.
(g) Copies of the Bylaws or Operating Agreement of Bridgeware and
each Subsidiary as in effect on the Closing Date certified by the Secretary of
each Company.
(h) Copies of the resolutions of Board of Directors and
shareholders of Bridgeware approving this Agreement and the transactions
contemplated hereby, certified by the Secretary of Bridgeware.
<PAGE>
(i) Copies of the resolutions of the Board of Directors of the
Subsidiary approving transfer of the BDL Share from Yaron Ben-Ari to the
Acquiror, certified by the Secretary of the Subsidiary.
(j) The certificates representing the Shares duly endorsed or
accompanied by stock powers duly executed in blank with appropriate transfer
stamps, if any, affixed, and any other documents that are necessary to transfer
title to the shares from the Sellers to the Acquiror, free and clear of all
Liens.
(k) Confirmation reasonably acceptable to the Acquiror that
Bridgeware's stock option plan has been terminated and all options previously
granted thereunder have either (i) been exercised and the former option holder
is selling the stock received upon the exercise of such options pursuant to this
Agreement or (ii) canceled.
(l) A fully executed original of this Agreement.
(m) Any Schedules called for in this Agreement must have been
delivered to the Acquiror at least five days prior to the Closing.
(n) A non-foreign affidavit, in a form mutually agreed upon by the
parties.
(o) Transfer of the BDL Share, as provided in Section 9.05.
(p) A copyright assignment, executed by Uzi Nitsan and Brain
Designs, Inc., substantially in the form of Exhibit 7.02(p).
Section 7.03. Deliveries by the Acquiror. At the Closing, the Acquiror
shall deliver to the Sellers the following duly executed documents and other
items. The Sellers' obligations hereunder are expressly conditioned upon
delivery of each of such documents and items in form reasonably satisfactory to
the Sellers.
(a) A letter to the Transfer Agent, executed by a duly authorized
officer of the Acquiror, instructing the Transfer Agent to issue the
Consideration Shares to the Sellers and to deliver certificates for the
Consideration Shares to the Sellers' Representative.
(b) The nondisclosure, noncompetition and nonsolicitation
agreements, as specified in Section 7.02(c).
(c) The Escrow Agreement, as specified in Section 1.04.
(d) The Cash Consideration, as set forth in Article I.
(e) A written opinion of Acquiror's Counsel, in substantially the
form of Exhibit 7.03(e).
<PAGE>
(f) A fully executed original of this Agreement.
ARTICLE VIII.
REMEDIES
Section 8.01. Dispute Resolution.
(a) If (i) in the case of an indemnification claim, an
Indemnifying Party does not agree that the Claimant is entitled to full
reimbursement for the amount specified in the Indemnification Notice or the
Litigation Notice or (ii) in the case of all other disputes concerning the
meaning, interpretation and application of this Agreement or arising out of the
transactions contemplated by this Agreement or any breach thereof, the parties
from whom recovery is sought do not agree that the parties seeking recovery are
entitled to full reimbursement for a claim, the parties from whom relief is
sought shall notify the parties seeking recovery in writing (the "Disagreement
Notice"). In the case of an indemnification claim, the Disagreement Notice shall
be delivered within 20 days of the Indemnifying Party's receipt of the
Indemnification Notice or Litigation Notice, as the case may be. In all other
cases, the Disagreement Notice shall be delivered within 20 days of delivery by
the parties seeking recovery of written notice of a claim to the parties from
whom relief is sought. In the case of an indemnification claim, failure to
deliver a Disagreement Notice in a timely manner shall be considered an express
acknowledgment by an Indemnifying Party of its obligation to indemnify and hold
harmless the Claimant with respect to the Indemnity Loss set forth in the
Indemnification Notice or the Litigation Notice, as the case may be. In all
other cases, failure to deliver a Disagreement Notice in a timely manner shall
also be considered an express acknowledgment by the parties from whom relief is
sought of its obligation to the parties seeking recovery with respect to the
claims set forth in the written notice of the claim.
(b) For 15 days following delivery of a Disagreement Notice (the
"Negotiation Period"), the parties shall negotiate to resolve the dispute in
good faith. The persons attending any settlement negotiations shall have the
authority to accept a settlement. After the end of the Negotiation Period,
either party may request, in writing, a non-binding mediation with the
assistance of a neutral mediator from a recognized mediation service. The party
requesting the mediation shall arrange for the mediation services, subject to
the approval of the other parties, which other parties shall not unreasonably
withhold, condition or delay approval. Mediation shall take place in a neutral
location in San Francisco County, California. Mediation may be scheduled to
begin any time after expiration of the Negotiation Period, but with at least 10
days written notice to all parties. The parties shall participate in the
mediation in good faith and shall devote reasonable time and energy to the
mediation so as to promptly resolve the dispute or conclude with the mediator
that they cannot resolve the dispute. The persons attending the mediation shall
have the authority to accept a settlement.
<PAGE>
(c) The parties shall submit the dispute to final and binding
arbitration 30 days following (i) the beginning of the mediation process
described in Section 8.01(b) or (ii) the end of the Negotiation Period, if no
party has requested mediation. Except as otherwise expressly provided herein,
arbitration shall be in accordance with the commercial rules of the American
Arbitration Association. Arbitration shall take place in a neutral location in
San Francisco County, California. The arbitrator(s) shall apply the substantive
law of the State of California to the dispute and shall have the power to
interpret the law to the extent that it is not clear. At the election of any
party, arbitration shall be conducted by three neutral arbitrators appointed in
accordance with the rules of the American Arbitration Association if (a) the
amount in controversy is greater than $50,000 (exclusive of interest and
attorneys' fees) or (b) a party sought to be enjoined disputes that he, she or
it has engaged in, or asserts that he, she or it should be able to engage in,
the actions sought to be enjoined. In all other cases, the matter shall be
arbitrated by a single neutral arbitrator selected in accordance with the rules
of the American Arbitration Association. Notwithstanding the above, the
arbitrators shall in all cases be reasonably experienced in the arbitration of
commercial disputes.
(d) All costs and expenses of mediation as provided in Section
8.01(b) above shall be born by the party requesting the mediation unless
otherwise agreed by the parties in writing or otherwise provided herein. All
costs and expenses incurred in conducting the arbitration proceeding provided
for in Section 8.01(c), including attorneys' fees, shall be borne exclusively by
the losing party as determined by the arbitrator(s); provided, however, that the
arbitrator(s) may determine that more than one party is a losing party in which
event the arbitrator(s) shall allocate the costs and expenses of the arbitration
among such losing parties as the arbitrator(s) deem just and fair.
Notwithstanding the above, if the arbitrator(s) determine(s) that the actions of
a party or its counsel have unreasonably or unnecessarily delayed the resolution
of the matter, the arbitrator(s) may require such party to pay all or part of
the cost of the arbitration or mediation proceedings otherwise payable by the
other party and may require such party to pay all or part of the attorneys' fees
of the other party. This provision permits an award of attorneys' fees against
a party regardless of which party is the prevailing party.
(e) There shall be no arbitration of any dispute that would
otherwise be barred by a statute of limitations if the dispute were to be
brought in a court of law. The arbitrator(s) shall not have the power to award
punitive, consequential, indirect or special damages. The arbitrator(s) shall
have the power to determine what disputes between the parties are the proper
subject of arbitration. At the request of any party, the mediators,
arbitrator(s), attorneys, parties to the mediation or arbitration, witnesses,
experts, court reporters or other persons present at a mediation or arbitration
shall agree in writing to maintain the strict confidentiality of the
arbitration. The parties may agree to consolidate claims in a single
arbitration, or, upon motion of any party, any arbitrator may order
consolidation of claims. A party may apply to the arbitrator(s) for prejudgment
remedies and emergency relief in the form of a temporary restraining order
pending final determination of a dispute in accordance with Section 8.01. Each
party has been represented by counsel in the negotiation of this Agreement.
<PAGE>
(f) The parties hereby irrevocably consent to be bound by the
determination of the arbitrator(s) with respect to all disputes hereunder. The
parties surrender and waive the right to submit any dispute to a court or jury
or appeal to a higher court. The parties have selected binding arbitration for
the final resolution of disputes among them to take advantage of the savings of
time and money that arbitration represents. The parties make this choice with
the understanding that there will be no appellate remedy if the arbitrator makes
a mistake in its findings of fact or its determinations of law.
(g) The award of the arbitrator(s) shall be enforceable according
to the applicable provisions of the California Code of Civil Procedure, sections
1280 et seq. A party who fails to participate in a negotiation, mediation or
arbitration instituted under this Section 8.01 or who admits to liability and
the amount of damage shall be deemed to have defaulted. Such default may be
entered and enforced in the same manner as a default in a civil law suit.
Section 8.02. Governing Law. This Agreement and all transactions
contemplated hereby shall be governed, construed and enforced in accordance with
the laws of the State of California, notwithstanding any state's choice of law
rules to the contrary. Each of the Acquiror, Bridgeware and the Sellers hereby
agrees and covenants to be subject to the jurisdiction of the federal and state
courts of the State of California in any suit, action or proceeding arising out
of this Agreement or the transactions contemplated hereby and agree that
jurisdiction and venue shall be exclusively in San Francisco County, California.
ARTICLE IX.
OTHER MATTERS
Section 9.01. Bridgeware Debt. As soon as reasonably possible following
the Closing, the Acquiror shall cause the parties identified on Schedule 9.01 to
be removed as guarantors of the credit facilities identified on Schedule 9.01.
Section 9.02. 401(k) Plan Transfer. Bridgeware shall cause the trustees
for the Bridgeware 401(k) plan to merge and transfer the assets representing the
account balances (vested or not) of the Bridgeware employees under the plan as
of the Closing to the Made2Manage Plan, and the Sellers shall indemnify and hold
the Acquiror, Bridgeware and the Made2Manage Plan harmless from and against any
and all liabilities and claims (including reasonable attorneys' fees and other
costs of litigation) with respect to such transfer.
Section 9.03. Other Employee Benefit Plans. As of the Closing and except
as otherwise provided in this Agreement, all Employee Benefit Plans shall be
terminated, and the employees of Bridgeware shall become participants in the
Made2Manage Plan, subject to all terms and conditions of the Made2Manage Plan.
<PAGE>
Section 9.04. Post-Closing Registration of Shares. If, after one (1) year
following the date of this Agreement, the Sellers desire to sell, but are unable
to sell, the Consideration Shares pursuant to Rule 144 of the Securities Act,
the Acquiror shall, upon written request of any of the Sellers, file with the
Commission a registration statement on Form S-3 seeking to cause the
registration of the Consideration Shares pursuant to applicable provisions of
the Securities Act and shall use its reasonable efforts to get such registration
effected. Upon a declaration by the Commission that such registration statement
is effective, such Form S-3 can be utilized by the Sellers for resale of such
previously unregistered shares as selling shareholder.
Section 9.05. Subsidiary Shares. At the Closing, Yaron Ben-Ari shall
sell, convey, transfer, assign and deliver to the Acquiror his single share of
capital stock in Bridgeware Development Limited (the "BDL Share"). Yaron
Ben-Ari represents and warrants to the Acquiror that he has good and marketable
title to the BDL Share, free and clear of all adverse claims and Liens, buy-sell
agreements, cross-purchase agreements, shareholder agreements or restrictions or
rights of any kind and that he has full power and authority to convey the BDL
Share to the Acquiror.
Section 9.06. Director and Officer Indemnification. Following the
Closing, the Acquiror shall assure that Bridgeware's Articles of Incorporation
and Bylaws shall not be amended, repealed or otherwise adjusted so as to
compromise the indemnification rights of the officers and directors of
Bridgeware for matters occurring prior to the Closing.
Section 9.07. Year 2000 Ready. On or before December 31, 1998, the
Sellers shall cause all Services and Products (other than Products reliant on a
DOS operating system) to correctly identify, recognize and process four-digit
year dates and to accept and properly process dates that could span more than
100 years (e.g., calculating a person's age from their birth date and the
current date).
ARTICLE X.
MISCELLANEOUS
Section 10.01. Counterparts; Signatures. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. The parties agree to accept facsimile copies of signatures to this
Agreement as originals.
<PAGE>
Section 10.02. Best Efforts; Cooperation. Subject to the terms and
conditions of this Agreement, each party shall use its best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. The parties each agree to execute
and deliver such other documents, certificates, agreements and other writings
and to take such other actions as may be necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement, and from time to time, upon the request of any other party to this
Agreement and without further consideration, to execute, acknowledge and deliver
in proper form any further instruments, and take such other action as such other
party may reasonably require, in order to effectively carry out the intent of
this Agreement.
Section 10.03. Expenses. Each of the parties hereto shall pay their own
expenses incurred in connection with the transactions provided for in this
Agreement, including, but not limited to, the fees and expenses of their
respective counsel and other advisors.
Section 10.04. Index and Captions. The index and the captions of the
Articles and Sections of this Agreement are solely for convenient reference and
shall not be deemed to affect the meaning or interpretation of this Agreement.
Section 10.05. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given and received (a) upon delivery, if personally delivered; (b) on the
fifth day after being deposited with the U.S. Postal Service, if sent by
certified or registered mail, return receipt requested; (c) on the next day
after being deposited with a reliable overnight delivery service; or (d) upon
receipt of an answer back, if transmitted by facsimile, postage prepaid in all
cases other than facsimile, addressed to the other party at the following
addresses, or facsimile numbers in the case of a facsimile:
If to Bridgeware or any of the Sellers: Bridgeware, Inc.
3566 Investment Blvd.
Hayward, California 94545
Attention: Kyle Sanford
Telecopy: (510) 782-7607
Copies to: Enterprise Law Group
4400 Bohannon Drive, Suite 280
Menlo Park, CA 94025
Attention: Denny S. Roja, Esq, and
Wayland M. Brill, Esq.
Telecopy: (650) 462-4747
If to the Acquiror, to: Made2Manage Systems, Inc.
9202 Purdue Road
Indianapolis, Indiana 46268
Attention: David B. Wortman
Telecopy: (317) 870-9074
Copies to: Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, IN 46282-0002
Attention: Steven K. Humke, Esq.
Telecopy: (317) 236-2219
<PAGE>
Any party may change its address for purposes of this Section 10.05 by giving
the other parties written notice of the new address in the manner set forth
above.
Section 10.06. Entire Agreement. This Agreement and the agreements
expressly contemplated herein, including the Exhibits and Schedules referred to
herein which form a part of this Agreement, contain the entire understanding of
the parties with respect to the transactions provided for in this Agreement and
supersedes all prior agreements and understandings, written or oral, between the
parties with respect to the transactions contemplated by this Agreement.
Section 10.07. Access to Records. The Acquiror shall retain possession of
all files and records which relate to the Business before the Closing Date, for
a period equal to the longest period set forth in Section 2.35 hereof and shall
provide Sellers with reasonable access thereto. In addition, from and after the
Closing Date, upon reasonable notice and during normal business hours, the
Acquiror shall provide to the Sellers and their attorneys, accountants and other
representatives, at a Seller's expense, access to such files and records as the
Sellers may reasonably deem necessary to properly prepare for, file, prove,
answer, prosecute, and/or defend any return, filing, audit, protest, claim,
suit, inquiry, or other proceeding. The Sellers shall be entitled, at their own
expense, to make and to retain copies of any such records in existence as of the
Closing.
Section 10.08. Waiver of Compliance; Modifications. The party for whose
benefit a warranty, representation, covenant or condition is intended may in
writing waive any inaccuracies in the warranties and representations contained
in this Agreement or waive compliance with any of the covenants or conditions
contained herein and so waive performance of any of the obligations of the other
party hereto, and any defaults hereunder; provided, however, that such waiver
shall not affect or impair the waiving party's rights with respect to any other
warranty, representation or covenant or any default hereunder. No supplement,
modification or amendment of this Agreement shall be binding unless it is in
writing and executed by all of the parties hereto.
Section 10.09. Validity of Provisions. Should any part of this Agreement
be declared by any court of competent jurisdiction to be invalid, such decision
shall not affect the validity of the remaining portions of this Agreement, which
shall continue in full force and effect as if this Agreement had been executed
with the invalid portion thereof eliminated therefrom, it being the intent of
the parties that they would have executed the remaining portions of this
Agreement without including any such part or portion which may be declared
invalid.
Section 10.10. No Intention to Benefit Third Parties. The provisions of
this Agreement are not intended to, and shall not, benefit any Person other than
the parties to this Agreement, the provisions hereof are not intended to, and
shall not create any third party beneficiary right in any Person.
Section 10.11. Successors and Assigns. No party to this Agreement may
assign any of its rights or obligations under this Agreement, without the prior
written consent of all other parties, which consent shall not be unreasonably
withheld.
<PAGE>
Section 10.12. Construction.
(a) As used herein, "knowledge of the Sellers" and words of
similar import shall mean the actual knowledge of the Sellers as well as the
knowledge a Seller could be reasonably presumed to possess by virtue of such
Seller's relationship or position with Bridgeware or its Subsidiaries. It is
understood and agreed that such knowledge of any Seller, for purposes hereof,
shall be attributable to the other Sellers.
(b) The words "hereof", "herein", "hereto", "hereunder" and
"hereinafter" and words of similar import, when used in this Agreement, shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement.
(c) The parties have participated jointly in the negotiation and
drafting of this Agreement, and, in the event of an ambiguity or a question of
intent or a need for interpretation arises, this Agreement shall be construed as
if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
(d) Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
(e) The word "including" means "including, without limitation."
(f) Words of any gender used in this Agreement shall be held and
construed to include any other gender; words in the singular shall be held to
include the plural; and words in the plural shall be held to include the
singular; unless and only to the extent the context indicates otherwise.
Section 10.13. Sellers' Representative. Sellers hereby appoint Sellers'
Representative as their common representative and their true and lawful
attorney-in-fact with respect to all matters hereunder, including, without
limitation, adjustment of the Purchase Price under Article I and indemnification
proceedings under Article VIII, with full power and authority to act on their
behalf, including the settlement of any claim. Any action taken by the Sellers'
Representative shall be binding on the Sellers as if directly taken by each of
them. The Sellers further agree that any notice required to be delivered by the
Acquiror to the Sellers shall be deemed to have been duly given to all of the
Sellers if delivered to the Sellers' Representative.
ARTICLE XI.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings (such meanings applicable to both the singular and plural
forms of the terms defined):
<PAGE>
"Accounts Receivable" means all accounts and notes receivable, rights to
refunds and deposits of Bridgeware and its Subsidiaries.
"Acquiror" has the meaning set forth in the Preamble to this Agreement.
"Acquiror Common Stock" means common stock, without par value, of the
Acquiror.
"Acquiror's Counsel" means Ice Miller Donadio & Ryan.
"Acquiror Parties" has the meaning set forth in Section 5.01 of this
Agreement.
"Acquiror SEC Documents" has the meaning set forth in Section 4.04 of this
Agreement.
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such Person.
"Agreement" means this Stock Purchase Agreement as the same may be amended,
modified, restated or replaced from time to time.
"Annual Financial Statements" has the meaning set forth in Section 2.06 of
this Agreement.
"Assets" means tangible, current assets of Bridgeware including, without
limitation, cash and Accounts Receivable and also including the net book value
of automobiles leased by Bridgeware.
"BDL Share" has the meaning set forth in Section 9.05 hereof.
"Bridgeware" has the meaning specified in the Preamble of the Agreement.
"Bridgeware's Counsel" means Enterprise Law Group, Inc.
"Business" has the meaning set forth in the Preamble to the Agreement.
"Business Day" means any day other than a Saturday, Sunday and any day on
which commercial banks in Indianapolis, Indiana are authorized or required by
law to be closed.
"Cash Consideration" has the meaning set forth in Section 1.02 of this
Agreement.
"Claimant" has the meaning set forth in Section 5.04 of this Agreement.
"Claims" has the meaning set forth in Section 2.33 of this Agreement.
"Closing" and "Closing Date" have the meanings set forth in Section 7.01 of
this Agreement.
<PAGE>
"Closing Date Balance Sheet" shall have the meaning set forth in Section
1.03 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"COBRA" has the meaning specified in Section 2.18.
"Commission" means the United States Securities and Exchange Commission,
and any successor thereto.
"Consideration Shares" has the meaning set forth in Section 1.02 of this
Agreement.
"Contracts" has the meaning set forth in Section 2.14 of this Agreement.
"Customers" has the meaning set forth in Section 2.28 hereof.
"Debt" means any obligation for borrowed money (and any notes payable and
drafts accepted representing extensions of credit whether or not representing
obligations for borrowed money) or any obligation under any operating or capital
lease, but excluding trade payables and other obligations entered into in the
ordinary course of business.
"Disagreement Notice" has the meaning set forth in Section 8.01 of this
Agreement.
"Election Notice" has the meaning set forth in Section 5.05 of this
Agreement.
"Employee Benefit Plan(s)" has the meaning set forth in Section 2.18 of
this Agreement.
"Employee Pension Benefit Plan" has the meaning set forth in Section 2.18
of this Agreement.
"Employee Welfare Benefit Plan" has the meaning set forth in Section 2.18
hereof.
"Environmental Claims" means all accusations, allegations, investigations,
warnings, notice letters, notices of violations, liens, orders, claims, demands,
suits, or administrative or judicial actions for any injunctive relief, fines,
penalties, or any damage, including without limitation personal injury, property
damage (including any depreciation of property values), lost use of property,
natural resource damages, or environmental response costs arising out of
Environmental Conditions or under Environmental Requirements.
<PAGE>
"Environmental Conditions" means the state of the environment, including
natural resources (e.g., flora and fauna), soil, surface water, ground water,
any present or potential drinking water supply, subsurface strata, or ambient
air, relating to or arising out of the use, handling, storage, treatment,
recycling, generation, transportation, spilling, leaking, pumping, pouring,
injecting, emptying, discharging, emitting, escaping, leaching, dumping,
disposal, release, or threatened release of Hazardous Materials, whether or not
discovered which could or does result in Environmental Claims. With respect to
Environmental Claims by third parties, Environmental Conditions also include the
exposure of persons to Hazardous Materials at the work place or the exposure of
persons or property to Hazardous Materials migrating or otherwise emanating
from, to, or located at, under, or on the Real Property.
"Environmental Requirements" means all present and future laws, rules,
regulations, ordinances, codes, policies, guidance documents, approvals, plans,
authorizations, licenses, permits issued by all government agencies,
departments, commissions, boards, bureaus, or instrumentalities of the United
States, all states and political subdivisions thereof, and any foreign body, and
all judicial, administrative, and regulatory decrees, judgments, and orders
relating to human health, pollution, or protection of the environment (including
ambient air, surface water, ground water, land surface, or surface strata),
including (i) laws relating to emissions, discharges, releases, or threatened
releases of Hazardous Materials, and (ii) laws relating to the identification,
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, recovery, transport, or other handling of Hazardous Materials.
Environmental Requirements shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Superfund's Amendments and Reauthorization Act ("SARA"), the
Toxic Substances Control Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended
("RCRA"), the Clean Water Act, as amended, the Safe Drinking Water Act, as
amended, the Clean Air Act, as amended, the Atomic Energy Act of 1954, as
amended, the Occupational Safety and Health Act, as amended, and all other
analogous laws or regulations promulgated or issued by any federal, state,
foreign, or other governmental authority or body.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"Escrow Agent" means NBD Bank, N.A. as escrow agent under the Escrow
Agreement and any successors thereto in such capacity.
"Escrow Agreement" shall have the meaning specified in Section 1.04 hereof.
"Escrow Sum" shall have the meaning set forth in Section 1.04 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the regulations thereunder.
"Existing Debt" has the meaning specified in Section 2.07 of this Agreement
"Financial Statements" has the meaning set forth in Section 2.06 of this
Agreement.
"Fractional Interest" means the proportionate interest of each Seller in
and to Shares of Bridgeware as set forth on Exhibit A to this Agreement.
<PAGE>
"Hazardous Materials" means (i) any substance that is or becomes defined as
a "hazardous substance," "hazardous waste," "hazardous materials," pollutant, or
contaminant under any Environmental Requirements, including, but not limited to,
CERCLA, SARA, RCRA, and any other analogous federal, state, local, or foreign
law; (ii) petroleum (including crude oil and any fraction thereof); and (iii)
any natural or synthetic gas (whether in liquid or gaseous state).
"Indemnification Notice" has the meaning set forth in Section 5.04 of this
Agreement.
"Indemnifying Party" has the meaning set forth in Section 5.04 of this
Agreement.
"Indemnity Loss" has the meaning set forth in Section 5.01 of this
Agreement.
"Intellectual Property" has the meaning set forth in Section 2.30 of this
Agreement.
"Interim Financial Statements" has the meaning set forth in Section 2.06 of
this Agreement.
"Leased Real Property" has the meaning set forth in Section 2.12 of this
Agreement.
"Liabilities" means current and long-term liabilities of Bridgeware;
provided, however, that deferred revenue amounts recognized in accordance with
generally accepted accounting principles are excluded and that Shareholder Debt
and costs and expenses associated with the transactions contemplated by this
Agreement are also excluded.
"Lien" means any mortgage, deed of trust, lien, pledge, charge, claim,
option, right of first refusal or call, encumbrance, easement, encroachment,
right of a third party, security interest or other interest or restriction of
any kind or character.
"Litigation Notice" has the meaning set forth in Section 5.04 of this
Agreement.
"Made2Manage Plan" means, collectively, the employee benefit plans of the
Acquiror.
"Material Adverse Effect" means a material adverse effect on the assets,
properties, results of operations or financial condition of Bridgeware and its
Subsidiaries, taken as a whole.
"Negotiation Period" has the meaning set forth in Section 8.01 hereof.
"OCS Liabilities" has the meaning set forth in Section 5.01 of this
Agreement.
"Permits" have the meaning set forth in Section 2.16 of this Agreement.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a joint venture, an association, a trust or any other entity
or organization including a government or political subdivision or an agency or
instrumentality thereof.
<PAGE>
"Personal Property" has the meaning set forth in Section 2.13 of this
Agreement.
"Preamble" means the portion of this Agreement preceding Article I of this
Agreement.
"Products" has the meaning set forth in Section 2.30 of this Agreement.
"Purchase Price" has the meaning set forth in Section 1.02 of this
Agreement.
"Real Property Lease" has the meaning specified in Section 2.12 of this
Agreement.
"Returns" has the meaning set forth in Section 2.08 of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
regulations thereunder.
"Sellers" has the meaning set forth in the Preamble of the Agreement.
"Sellers' Representative" means Kyle Sanford; provided, that after one
year following the Closing Date, a majority of the Sellers may select a new
Sellers' Representative. Upon such selection, the Sellers shall notify the
Acquiror in writing. The Acquiror shall have the right to rely upon any such
notification signed by a majority of the Sellers (without a duty to verify that
the signatures are genuine).
"Service" has the meaning set forth in Section 2.30 of this Agreement.
"Shareholder Debt" shall mean all Debt owed by Bridgeware or Subsidiary to
any of its shareholders.
"Shares" has the meaning set forth in the Preamble of this Agreement.
"Subsidiary" and "Subsidiaries" have the meanings set forth in Section 2.01
of this Agreement.
"Tax" means and includes any United States federal, state, local or foreign
income, net income, alternative or add-on minimum, gross income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding on amounts paid
by Sellers or Bridgeware or a Subsidiary, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit, custom, duty, or any other tax obligation of Sellers or Bridgeware or a
Subsidiary of any kind whatsoever arising from its or their operations and
activities, together with any interest or penalty relating thereto, imposed by
any Taxing Authority.
<PAGE>
"Tax Attribute Value" means the sum of (i) the amount of available federal
research and development tax credits, (ii) the amount of available California
research and development tax credits, (iii) 5.75 percent of the amount of
California net operating loss carryforwards and (iv) thirty-four percent (34%)
of the amount of federal net operating less carryforwards; provided that after
the Closing, Bridgeware will file such amended Returns as may be necessary in
order to receive such Tax Attribute Value at Sellers' cost. Tax Attribute Value
will be calculated solely based on Returns with respect to Bridgeware's 1996 Tax
year and previous years.
"Taxing Authority" means any domestic or foreign governmental authority
having responsibility for the imposition of any Tax.
"Transfer Agent" means American Stock Transfer & Trust Co.
"Value" shall mean the average value per share for the ten (10) days
immediately preceding the applicable date of the average of the closing bid and
ask prices for the Acquiror Common Stock for each such day as reported on the
NASDAQ stock exchange.
"Year 2000 Ready" has the meaning set forth in Section 2.30 of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
THE ACQUIROR
MADE2MANAGE SYSTEMS, INC.
By:
David B. Wortman, President and
Chief Executive Officer
BRIDGEWARE
BRIDGEWARE, INC.
By:
Kyle Sanford, President
THE SELLERS
Yaron Ben-Ari
Kyle Sanford
Uzi Nitsan
Deborah Silva
Lazaro Fraiman
<PAGE>
Tom Day
William Cloud
Robert Goldman
John Christensen
Vibeke Cloud
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement is entered into by and between NBD
Bank, N.A., a national banking association (the "Bank") whose address is One
Indiana Square, Indianapolis, IN 46266, has approved the uncommitted credit
authorization(s) and Term Loan(s) listed below (collectively, the "Credit
Facilities", and, individually as designated below) to MADE2MANAGE SYSTEMS, INC.
(the "Borrower"), whose address is 9002 Purdue Road, Indianapolis, IN 46268
subject to the terms and conditions set forth in this agreement and the Bank's
continuing satisfaction with the Borrower's managerial and financial status.
Disbursements under the Credit Facilities are solely at the Bank's discretion.
Any disbursement on one or more occasions shall not commit the Bank to make any
subsequent disbursement.
WHEREAS, Borrower and the Bank entered into a Credit Agreement dated as of June
9, 1995, as amended by First Amendment dated September 27, 1995, as amended by
Second Amendment dated March 27, 1996, as amended by Third Amendment dated June
25, 1996, as amended by Fourth Amendment dated May 14, 1997 ("Original Credit
Agreement") pursuant to which the Bank agreed to extend uncommitted credit
facilities to Borrower upon the terms and conditions set forth therein (the
"Original Credit Facility"); and
WHEREAS, Borrower and the Bank wish to (a) restate the Original Credit Agreement
and any amendments to restructure the Original Credit Facilities and (b)to amend
various other provisions of the Original Credit Agreement; and
WHEREAS, pursuant to the terms of this Amended and Restated Credit Agreement (i)
the Original Credit Agreement shall be replaced by this Amended and Restated
Credit Agreement, (ii) all obligations of the Borrower, under the Original
Credit Agreement, to the extent not repaid, shall be deemed to be obligations of
the Borrower under this Agreement and all provisions of this Agreement shall be
effective;
NOW THEREFORE, in consideration of the above recitals and the terms and
conditions contained herein the Borrower agrees that (a) the Original Credit
Facilities arc restated as contained herein and (b) the Original Credit
Agreement is hereby amended and restated as follows:
1. Credit Facilities.
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, 1999
unless earlier withdrawn.
1.2 Facility B (Purchase Money Term Loans). The Bank has approved an
uncommitted Credit Authorization to the Borrower in the principal sum not to
exceed $100,000.00 in the aggregate at any one time outstanding ("Facility B").
Facility B shall be in the form of loans 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: 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. The maturity of each Note shall not
exceed 60 months from the Note date. Notwithstanding the aggregate amount of
Facility B stated above, the original principal amount of each loan shall not
exceed the lesser of 75% of the cost of the equipment purchased with loan
proceeds or $100,000.00. Facility B shall expire on July l, 1999 unless earlier
withdrawn.
2. Conditions Precedent.
2.1 Conditions Precedent to Initial Extension of Credit. Before the first
extension of credit under this agreement, whether by disbursement of a loan,
issuance of a letter of credit, or otherwise, the Borrower shall deliver to the
Bank, in form and substance satisfactory to the Bank:
A. Loan Documents. The Notes; and any other loan documents which
the Bank may reasonably require to give effect to the transaction contemplated
by this agreement
<PAGE>
B. Evidence of Due Organization and Good Standing. Evidence
satisfactory to the Bank of the due organization and good standing of the
Borrower and every other business entity that is a party to this agreement
and/or other loan documents required by this agreement. That evidence shall
include, in the case of a corporation, articles of incorporation, bylaws, and a
certificate of existence, in the case of a partnership, the partnership
agreement, and in the case of a limited liability company, the articles of
organization, the operating agreement and a certificate of existence; and
C. Evidence of Authority to Enter into Loan Documents. Evidence
satisfactory to the Bank that (i) each party to this agreement and/or the other
loan documents required by this agreement is authorized to enter into the
transactions contemplated by this agreement and the other loan documents, and
(ii) the person signing on behalf of each such party is authorized to do so.
2.2 Conditions Precedent to Each Extension of Credit. Before any
extension of credit under this agreement, whether by disbursement of a loan,
issuance of a letter of credit, or otherwise, the following conditions shall
have been satisfied:
A. Representations. The representations contained in Section 10
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. Continued Satisfaction. The Bank shall have remained satisfied
with the Borrower's managerial and financial status; and
D. Additional Approvals, Opinions, and Documents. The Bank shall
have received such other approvals, opinions and documents as it may reasonably
request.
3. Requests to Borrow.
3.1 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. That authorization shall be on the Bank's form.
4. Fees and Expenses.
4.1 Fees. 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: Closing Fee of $500 .00.
4.2 Out-of-Pocket Expenses. In addition to any fee set forth above,
the Borrower shall reimburse the Bank for its out-of pocket expenses (if any),
and reasonable attorneys' fees allocated to the Credit Facilities.
5. Collateral/Setoff. To secure payment of the borrowings 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 to apply its own debt or liability to the Borrowers
or to any other party liable for payment of the Credit Facilities, in whole or
partial payment of those Credit Facilities or other present or future
liabilities, without any requirement of mutual maturity.
6. 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 the
Credit Facilities.
7. Affirmative Covenants. So long as any debt remains outstanding under the
Credit Facilities, the Borrower, and each of its subsidiaries, if any, shall:
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 fluids or
security has been pledged to insure payment
<PAGE>
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 Management. Maintain David IL Wortman as Chief Executive Officer,
unless Borrower has prior Written approval of the Band.
7.5 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 45 days after each quarterly period' 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, certified as correct by
one of its authorized agents.
B. Within 90 days after, and as of the end of, each of its fiscal
years, a detailed audit including a balance sheet and statement of profit, loss
and surplus, certified by an independent certified public accountant of
recognized standing.
8. Negative Covenants.
8.1 Definitions. As used in this agreement, the following terms shall
have the following respective meanings:
A. "Subordinated Debt" shall mean debt subordinated to the Bank in
manner and by agreement satisfactory to the Bank.
B. "Working Capital" shall mean current assets less the sum of
current liabilities and due from Affiliates.
C. "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.
D. "Affiliate" shall mean shareholder, partners, owners, and
subsidiaries, and entities owned or controlled by such parties.
E. "Cash Flow Coverage" shall mean earnings before interest and
taxes plus depreciation and amortization less taxes less dividends less unfunded
capital expenditures plus extraordinary losses less extraordinary gains divided
by interest plus scheduled principal payments.
8.2 Unless otherwise noted, the financial requirements set forth in
this Section 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: (where
appropriate, covenants shall apply on a consolidated basis)
A. 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 not to be paid with proceeds of borrowings under the Credit
Facilities. For purposes of this covenant, the sale of any accounts receivable
shall be deemed the incurring of debt for borrowed money.
B. 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.
C. Liens. Create or permit to exist any lien on any of its
property, real or personal, except: existing liens known to 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.
D. 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 as listed on the attached Exhibit A.
E. Use of Proceeds. Use, or permit any proceeds of the Credit
Facilities to be used, directly or indirectly, for the purpose of "purchasing or
carrying any margin stock" within the meaning of Federal Reserve Board's
Regulation U. At the Bank's request, the Borrower will furnish a completed
Federal Reserve Board's Form U-l.
F. Current Ratio. Permit the ratio of its current assets to its
current liabilities to be less than 1.0 to 1.00.
<PAGE>
G. Cash Flow Coverage Ratio. Permit the ratio of its Cash Flow
Coverage to be less than 2.00 to 1.00.
H. Debt and Leases. Permit the aggregate amount of debt and\or
lease obligations, except debt owed to the Bank, exceed $500,000.00 in any one
fiscal year.
9. Representations by Borrower. Each Borrower represents that: (a) the
execution and delivery ,of this Agreement and the Notes and the performance of
the obligations they impose 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 ether third party; (b)this agreement and the Notes are valid and
binding agreements, enforceable according to their terms; and (c) all balance
sheets, profit and loss statements, and other financial statements furnished to
the Bank arc 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 agreement evidences a business loan exempt 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 natal 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 agreement and the Notes and the performance of the obligations
they impose (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.
10. Default/Acceleration.
10.1 Events of Default Acceleration. The Credit Facilities shall
terminate and all borrowings under them shall become due immediately, without
notice, at the Bank's option, if any of the following events occurs:
A. The Borrower of any of the Credit Facilities falls to pay when
due any amount payable under the Credit Facilities or under any agreement or
instrument evidencing debt to any creditor.
B. The Borrower (a) falls 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.
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
or for a substantial part of its assets without its consent and is not removed
within 60 days after the appointment.
H. Proceedings are commenced against the Borrower under any
bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction,
and those 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 or any attachment,
levy or garnishment is issued against any property of the Borrower.
J. The Borrower dies.
K. The Borrower without the Bank's written consent, which shall
not be unreasonably withheld, (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, (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).
L. The loan-to-value ratio of any pledged securities at any time
exceeds the Bank's limit for securities of the type pledged, and that excess
continues for five (5) days after notice from the Bank to the Borrower.
M. There is a substantial change in the existing or prospective
financial condition, of the Borrower which the Bank in good faith determines to
be materially adverse.
<PAGE>
N. The Bank in good faith shall deem itself insecure.
10.2 Remedies. If the borrowings under the Credit Facilities are not paid
at maturity, whether by demand, accelerated 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 tie 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 any 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 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.
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) Federal Express or-like overnight courier service or (d) fax, 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 The Borrower, if more than one, shall be jointly and severally
liable.
11.5 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.
11.6 Section headings are for convenience of reference only and shall
not affect the interpretation of this agreement.
12. 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 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 counter-claim 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 as of: May 29, 1998.
<TABLE>
<CAPTION>
<S> <C>
"BANK" "BORROWER":
NBD Bank, N.A. MADE2MANAGE SYSTEMS, INC.
By: _________________________ By: ______________________________
Janet K. Carter, Vice President
__________________________________
Printed Name Title
ADDRESS FOR NOTICES: ADDRESS FOR NOTICES:
NBD Bank, N.A. MADE2MANAGE SYSTEMS, INC.
One Indiana Square 9002 Purdue Road
Indianapolis, IN 46266 Indianapolis, IN 46268
Facsimile/Telex No. (317) 266-6505 Facsimile/Telex No. ____________________
</TABLE>
<PAGE>
EXHIBIT A
MADE2MANAGE SYSTEMS, INC
INVESTMENT POLICY AND INVESTMENT GUIDELINES
INVESTMENT POLICY
The excess fluids of Made2Manage Systems, Inc. (the Company) will be managed to
safeguard these corporate assets while concurrently generating a rate of return.
The investment portfolio will be diversified as required to address short-term
liquidity needs and conform with concentration limits established in the
following investment Guidelines. investments will be deployed in a manner
designed to enhance the corporation's long-term, strategic banking
relationships.
The Vice President, Finance and Treasurer is charged with the oversight of the
investment program. This includes authority as necessary to direct the program
including the authority to open accounts with investment institutions, to
establish safekeeping accounts or other arrangements for the custody of
securities, and to execute such documents as may be necessary. Vice President,
Finance and Treasurer also has the authority to delegate the daily investment
activities to the Controller. The Controller will be responsible for the
implementation of and continued compliance with this Investment Policy and the
investment Guidelines.
The primary objectives of the Company's investments are:
I. Portfolio Structure and Maturity Parameters
A. Internally Managed investments
A liquidity portfolio is maintained by Finance Department personnel
and is the primary source of cash for operations and unexpected requirements.
The liquidity portfolio is described as follows:
1. Purpose: To provide immediate liquidity
2. Horizon: Invested maturities of up to one month
B. Externally Managed Investments
The externally managed portfolios are maintained by outside investment
professionals and are the secondary source of cash. These investment Managers
are bound to these investment guidelines:
1. Purpose: To provide short term investment maturities.
2. Horizon: Average portfolio maturity of one year or less
with individual investment maturities of one (I) year or less from the
current fiscal quarter end
<PAGE>
II. Investment Institutions
Investment instruments may only be purchased from one of the approved
investment institutions listed in Appendix A. An investment institution is
defined as a bank or market dealer/brokerThe Board of Directors must approve any
additions to this list.
III. Investment Instruments
At the time of purchase of the investment instrument the investment
Instrument must meet or exceed all of the published short term investment
criteria listed below. These investment criteria assess the credit risk of the
investment instrument.- They do not assess the interest rate risk and
reinvestment risk of the investment instrument.
The currently approved investment instruments are listed below. The
maturities of these investment instruments must meet the maturity guidelines
listed in Section III - PORTFOLIO STRUCTURE AND MATURITY PARAMETERS. The
maturities of any investment can be based on a reset of the interest rate if
there is a put within the maturity guidelines that maintains the par value of
the investment. Any additions, deletions or modifications to this list must be
approved in writing by Vice President, Finance and Treasurer.
A. U.S. TREASURY SECURITIES - may invest in bills, notes, and bonds
that are direct obligations of the United States Treasury, or those for which
the full faith and credit of the United States is pledged for the payment of
principal and interest thereon.
B. U.S. GOVERNMENT AGENCY SECURITIES - may invest in bonds, notes,
debentures, or other obligations or securities issued by a specified U.S.
Federal Government Agency or a government-sponsored agency that have a line of
credit with the United States Treasury The specified Agencies are FNMA, FHLB,
FHLMC, and SLMC.
C. REPURCHASE AGREEMENTS - may invest in repurchase agreements that are
at least 100% collateralized by securities listed in Sections III.A. or III.B.
The securities collateralizing the repurchase agreement must be indicated a the
time of purchase as well as on the confirmation.
D. CERTIFICATES OF DEPOSIT - may invest in time certificates of
deposit, savings, or deposit accounts with the Company's commercial banks,
provided such deposits at any one institution total less than the dollar limit
for qualification for FDIC insurance ($100,000 as of June 1998).
E. MONEY MARKET FUNDS - may invest in a Money Market Fund having assets
of at least $100 million, short-term ratings of A-1/P-1, and whose investment
policies are consistent with the criteria outlined herein.
F. MUNICIPAL BONDS/NOTES - may invest in Municipal Bonds or Notes
issued by counties, cities, states, or governmental entities or by a financial
intermediary which are:
<PAGE>
1. rated in accordance with the following guidelines,
2. otherwise secured by letters of credit issued by the Company's
commercial banks, or
3. prerefunded or escrowed to maturity using U.S. Treasury
Securities or approved U.S. Government Agency Securities.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Short Term Long Term
Rating Agency Taxable Exempt Taxable Exempt
Standard & Poor A-I SP-I A A
Moody P-I MIG-I A A
</TABLE>
If these criteria are not met after purchase and if there is no
penalty for selling before maturity, then the Investment Instrument must be
sold. If these criteria are not met after purchase and if there is a penalty
for selling before maturity, then the Investment instrument may be either sold
or held to maturity based upon the written approval of the Vice President,
Finance and Treasurer.
G. AUCTION RATE MUNICIPAL BONDS - may invest in Auction Rate Municipal
Bonds in accordance with the ratings guidelines described in section F.
H. COMMERCIAL PAPER - may invest in Commercial Paper with short-term
ratings described in section F
I. AUCTION RATE PREFERRED STOCK - may invest in an Auction Rate
Preferred Stock issued by a domestic corporation or financial intermediary that
is over 100% collateralized by securities listed in Sections III.A. or III.B.
IV. Diversification
In order to minimize risk through effective diversification, the investment
portfolio must be maintained according to the parameters listed below:
A. Investment Managers are limited to $11,000,000 or 33% of the total
portfolio, whichever is greater.
<PAGE>
B. Investment instruments are limited to $1,000,000 with any one
issuer, except for U.S. Treasuries or U.S. Government Agencies which are limited
to $1,000,000 on any one issue.
V. Foreign Currency Hedging
Foreign currency financial instruments may be used for the purpose of
hedging, including the use of cash advances. The primary objective of such
hedge instruments or cash advances to a foreign currency is to manage foreign
exchange risk.
The Vice President, Finance and Treasurer shall have the short-term
(tactical) responsibility for execution of hedge instruments. The Vice
President, Finance and Treasurer also has ongoing responsibility to identify
alternative hedge instruments and minimize investment risk.
VI. Performance Measurement
Within practical limitations, the performances of the Company's portfolio
will be measured against one or more indices which reflect comparable
investments with respect to quality, liquidity, and diversification.
VII. Distribution
A copy of this Investment Policy and Investment Guidelines shall be
distributed to each of the approved Investment institutions. It shall be the
responsibility of each Investment institution to certify to the Company that
they have received both the Investment Policy and-the Investment Guidelines.
The form of certification is shown in Appendix B.
VIII. Reporting Requirements
At the end of each month (and more frequently if requested), the Controller
will provide the Vice President, Finance and Treasurer with a summary report of
investments. The report shall include the type of Investment Instrument, the
name of the Investment institution, the agent or broker, the yield to maturity,
the term, the principal, and the market value. In addition, the Controller
shall be prepared to present and discuss investment transactions for the month,
including the names of investment institutions, agents, or brokers involved in
each transaction, and with regard to sales, the gain or loss on each
transaction.
To the extent that the investment portfolio exceeds 25% of the company's
net equity position, the Controller's then current monthly report will be
included in quarterly information supplied to the Board of Directors as a
regular review item.
IX. Review of Taxability
<PAGE>
At least once every quarter, the Company's expected future tax position
will be assessed. Based upon the assessment, the investment guidelines will be
modified as appropriate to reflect the Company's expected tax position width
respect to tax exempt instruments. The Vice President, Finance and Treasurer
and Controller will participate in this assessment.
X. Method of Accounting
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. In accordance
with Statement of Financial Accounting Standards No. 115 (FAS 115), "Accounting
for Certain Investments in Debt and Equity Securities", the Company will
classify its investments among three categories: held-to-maturity securities,
which are reported at amortized cost; trading securities, which are reported at
&ir value, with unrealized gains and losses included ill- earnings; and
available-for-sale securities, which are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component of
stockholders' equity. If the Company has the ability, and management intends,
to retain all investments held to their stated maturities such investments will
be classified as held-to-maturity.
XI. Safekeeping
The Company will not take delivery of Investment instruments. The Company
does require a timely confirmation of sale and/or safekeeping receipt giving
11111 particulars of the transaction and security purchased. Where a
confirmation is accepted in lieu of a safekeeping receipt, such confirmation
must clearly state that the securities are held in safekeeping and the location
held if different from the bank, agent, or broker issuing the confirmation.
<PAGE>
Appendix A
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
INVESTMENT INSTITUTIONS
<S> <C>
Current Approved Advisors: NBD Bank
First Albany Corporation
Additional Approved Advisors: Van Kasper Advisors
Hambrecht and Quist
</TABLE>
<PAGE>
Appendix B
MADE2MANAGE SYSTEMS, INC
INVESTMENT INSTITUTION CERTIFICATION
I hereby certify that I have received the Investment Policy and the Investment
Guidelines of Made2Manage Systems, Inc. and that we will comply with the
Investment Guidelines when making investment recommendations.
Signature __________________________
Printed Name __________________________
Company __________________________
Date __________________________
REPLACEMENT MATER DEMAND BUSINESS LOAN NOTE
<TABLE>
<CAPTION>
<S> <C>
Due on Demand $ 1,000,000.00
Note No. 0201 Date: May 29, 1998
Account No. 0026624 Indianapolis, Indiana
</TABLE>
PROMISE TO PAY: For value received, the undersigned MADE2MANAGE SYSTEMS,
INC. (the "Borrower") promises 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) OR
SUCH LESSER AMOUNT OUTSTANDING FROM TIME TO TIME, plus interest computed on the
basis of the actual number of days elapsed in a year of 360 days at the rate of:
0.00 % 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
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 MAY 1, 1998.
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).
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 an Amended and
Restated Credit Agreement between the Bank and the Borrower dated as of MAY 29,
1998, and any amendments.
<PAGE>
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 Z (12 CFR 226, et seq), and the Indiana Uniform Consumer
Credit Code (IC 24-4.5-l-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 ACCELERATION: This Note shall become due immediately, without notice,
at the Bank's option, if any of the following events occurs:
1. The Borrower of this Note 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 (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.
4. A "reportable event" (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that could permit the Pension Benefit
Guaranty Corporation to terminate any employee benefit plan of the Borrower or
any affiliate of the Borrower.'
5. The Borrower becomes insolvent or unable to pay its debts as they become
due.
6. The Borrower (a) makes an assignment _____ 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 for a
substantial part of its assets without its consent and is not removed within 60
days after the appointment.
<PAGE>
8. Proceedings are commenced against the Borrower under any bankruptcy,
reorganization, liquidation, or similar laws of any jurisdiction, and they
remain undismissed for 60 days after commencement; or the Borrower consents to
the commencement of such proceedings.
9. Any judgment is entered against the Borrower or any attachment, levy, or
garnishment is issued against any property of the Borrower.
10. The Borrower dies.
11. 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
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 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 any 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 arid 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.
<PAGE>
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 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 any 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
the 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Address: 9002 PURDUE ROAD Borrower:
Indianapolis, IN 46268
MADE2MANAGE
SYSTEMS, INC.
By:_________________
______________________
Printed Name Title
Tax I.D. Number: 351665080
</TABLE>
BEST SOFTWARE, INC.
LINKED SOFTWARE DEALER AGREEMENT
This Agreement is made between Best Software, Inc. of 11413 Isaac Newton
Square, Reston, VA 20190 ("Best") and Made2Manage Systems, Inc. of 9002 Purdue
Road, Suite 200 Indianapolis, Indiana 46268 ("Made2Manage"), subject to the
general terms and conditions set forth in Schedule B (the "General Terms and
Conditions"). For purposes of this Agreement, the term Best shall mean Best
Software, Inc. and its wholly owned subsidiaries, including without limitation
Abra Software, Inc. d/b/a the Abra Products Group.
WHEREAS, Best publishes computer software products including those Best
products ("Best Products") and third party products ("Other Products") listed on
Schedule A, as such Schedule may be modified (collectively, the "Products").
Made2Manage publishes and/or distributes software that is complementary to the
Products. Best and Made2Manage desire that Made2Manage act as an independent,
nonexclusive dealer in the Products.
THEREFORE, the parties agree as follows:
1. APPOINTMENT.
1.1 Scope. Best hereby appoints Made2Manage, and Made2Manage hereby accepts
such appointment, as an independent, nonexclusive dealer in the Products. In
conjunction with such appointment, Best grants to Made2Manage a nontransferable,
nonexclusive license to demonstrate and distribute the Products to End-Users.
"End-Users" are existing Made2Manage software licensees or bona fide Made2Manage
software prospects that sublicense a Product from Made2Manage for their own use.
Distribution to End-Users shall be pursuant to Best's End-User license agreement
and, in the case of the Other Products, to any requirements of the applicable
third party vendors. Made2Manage's distribution license does not transfer any
rights in any Product to Made2Manage or to any End-User and excludes sublicense
of its distribution rights by Made2Manage to any third party; provided, however,
that Made2Manage shall have the limited right to distribute the Product through
its resellers with whom it has an agreement.
1.2 Reserved Rights. Best reserves the right, from time to time and in its
sole discretion, (a) to increase or decrease the number of authorized dealers,
(b) to distribute Products directly to independent resellers and End-Users, or
(c) to change, or to add to or delete from the list of Products. In addition,
Best may from time to time impose special conditions concerning Made2Manage's
licensing of certain Products, or change or terminate the type of service or
support that Best makes available, after giving prior written notice to
Made2Manage; provided that Made2Manage's End-Users shall at all times during and
after the term of this Agreement be entitled to receive the same support being
provided to Best's general customer base for the same Products, as long as they
pay the appropriate fee therefor.
<PAGE>
1.3 Export. Made2Manage will be solely responsible for compliance with any
applicable export control laws or regulations, and payment of any tariffs or
other fees that may be required in connection with distribution of any Product
outside of the United States. Best shall have no obligation under this
Agreement to directly distribute any Product outside of the United States. All
Products will be supported in US format only. Made2Manage shall be solely
responsible for international returns.
2. PRICE.
2.1 Prices. The current Best retail prices for the Products are as set
forth on the then-current applicable published Best Product Price Sheet. A copy
of the current applicable published Best Product Price Sheets have been provided
to Made2Manage as of the date of this Agreement. The discount applicable to the
Products is as set forth on Schedule A. Best may change the Best retail prices
at any time and may change the Made2Manage discount at any time after the
initial term of this Agreement; provided, however, that Best may increase the
price of Product to Made2Manage only after giving thirty days prior notice to
Made2Manage. Payment shall be made to Best by Made2Manage pursuant to the
payment policy set forth below. Made2Manage shall be solely responsible for
establishing the price at which Products are licensed or sold to its End-Users.
Discounts for training services, and professional services, and new SupportPlus
services are set forth in Schedule A.
2.2 Payment Terms. Full payment in U.S. dollars for Products received by
Made2Manage and related support contracts, is due and payable by Made2Manage to
Best within thirty (30) days of date of the invoice therefor; which invoice
shall be sent at the time of Product shipment. Interest shall accrue on any
delinquent amounts owed by Made2Manage at the lesser of 12% per annum or the
maximum rate permitted by law. If any portion of Made2Manage's outstanding
balance, not in dispute, is aged greater than 60 days (a "Late Payment
Condition"), Best may require full or partial payment in advance.
2.3 Taxes. Made2Manage shall pay any taxes (other than Best's income taxes)
which may arise by virtue of its distribution of the Products. The prices set
forth in this Agreement do not include any such taxes. Should any tax be
assessed against Best as a result of Made2Manage's distribution of the Products
hereunder, Made2Manage agrees to pay such tax. If, pursuant to this Agreement
and at the request of Made2Manage, Best ships Products to a state that has a
sales tax, Made2Manage agrees to provide Best with appropriate documentation
satisfactory to the applicable tax authorities for any claim of exemption from
any sales, use, value added or other taxes, duties or similar fees which may be
required upon delivery of Products or collection of payments due from
Made2Manage. Should Made2Manage fail to provide adequate exemption
documentation, or should any tax or levy be assessed against Best, Made2Manage
agrees to pay such tax or levy and indemnify Best for any claim for such tax or
levy.
2.4 Warranty. Best warrants to Made2Manage and the End Users that each
Product will reasonably conform to the documentation and materials supplied by
Best relating to the respective Product. If any Product fails to so conform,
Best shall correct the non-conformity within thirty (30) days or refund the End
User's purchase price.
<PAGE>
3. SUPPORT AND RESELLER CERTIFICATION.
3.1 Providers. Best shall serve as first line of support with End-Users and
shall instruct their End-Users to call their support line in connection with the
Products. If, however, a customer contacts Best for support, Best shall provide
the level of support that the End-User has purchased based on Best's records.
Best reserves the exclusive right to provide Product updates to End-Users, via
the applicable support program. Best and Made2Manage shall develop mutually
agreeable procedures for handling customers who contact the wrong party for
technical support. Upon termination of this Agreement, Best shall continue to
offer first and second line support for each End User who remains a SupportPlus
customer.
3.2 Initial Subscription and Renewal. In connection with initial Product
license sales, Made2Manage shall pay Best the applicable first year maintenance
cost on behalf of each new End-User less 15%. Renewals of support shall be
solely the responsibility of Best and neither Made2Manage, nor any Made2Manage
reseller, shall have the right to sell support to End-Users other than in
connection with the initial Product license sale. Best's obligation to support
any Made2Manage user shall be contingent on Made2Manage's provision of the
appropriate End-User information to Best pursuant to the terms of Section 4.3.
Best shall ship Product updates directly to those End-Users who subscribe to a
Best support program.
3.3 Certification of Made2Manage Resellers. Made2Manage shall use
commercially reasonable efforts to ensure that none of its resellers, VARs or
distributors shall provide implementation services to any End User without first
obtaining certification from Best.
4. ORDER AND REPORTING PROCEDURES.
4.1 Purchase Orders. Purchase orders must be submitted to Best by
Made2Manage in writing. All purchase orders shall be subject to acceptance by
Best and shall not be binding until the earlier of such acceptance or shipment,
and, in the case of acceptance by shipment, only as to the portion of the order
actually shipped. Order cancellations must be confirmed in writing.
4.2 Controlling Terms. This Agreement will apply to each order and the
provisions of Made2Manage's form of purchase order will not supersede any of the
terms of this Agreement.
4.3 Reporting. For each Product order filled by Made2Manage, and for each
training contract and professional services contract entered into by
Made2Manage, Made2Manage will, from the information it gathers from the End-User
or based on data provided by its resellers, inform Best, of the date and content
of the order or contract, the name, address and telephone number of the
End-User(s) for whom the order was placed, the number of network users to use
any Product, the number of active employees to be covered by any Product,
whether each End-User has subscribed to the applicable Best support program and
such other information as Best may reasonably request. Failure by Made2Manage
to use its best efforts to provide the required End-User information will
constitute a material breach of the terms of this Agreement subject to
termination pursuant to Section 10.4(a).
<PAGE>
5. SHIPMENT.
5.1 Shipment And Risk Of Loss. Best will ship all Products ordered directly
to the End-Users, in single or several lots, F.O.B. Best's point of shipment.
Best will select the carrier, provided that the carrier will be UPS or another
comparable carrier. Made2Manage will be responsible for and pay all shipping
and freight charges. All risk of loss of, or damage to, the Products shipped
will pass to Made2Manage upon delivery by Best to the carrier, freight forwarder
or Made2Manage, whichever comes first.
5.2 Delays. Should orders for t\'e Products exceed Best's available
inventory, Best will allocate its available inventory and make deliveries on a
basis Best deems equitable, in its sole discretion, and without liability to
Made2Manage on account of the method of allocation chosen or its implementation.
In any event, Best shall not be liable for any damages, direct, consequential,
special, or otherwise, to Made2Manage or to any other person for failure to
deliver or for any delay or error in delivery of the Products for any reason
whatsoever.
6. RETURNS OF PRODUCT. During the term of this Agreement, Made2Manage may
return unopened, superseded Products (support not included) to Best in exchange
for the then-current version of the same Product. If Made2Manage returns An
unopened Product to Best which has not been superseded, Best will grant
Made2Manage a credit equal to the price paid by Made2Manage for such returned
Product; provided, however, that a 20% restocking fee will be assessed for any
Products so returned. Prior to returning any Product, Made2Manage must obtain a
return authorization number from a Best representative. Made2Manage will be
responsible for and pay all shipping, freight and insurance charges for all
Products returned to Best and any Products to be returned to Made2Manage or an
End-User.
7. DATA LINK. Made2Manage shall be solely responsible for the definition
and development of links between the Products and Made2Manage's own software
products. Best shall provide all reasonably necessary technical information to
Made2Manage in order to enable it to develop and maintain the links.
8. MARKETING AND SALES.
8.1 Made2Manage User Solicitation. Best and Made2Manage will work together
in good faith to develop an announcement plan to Made2Manage End-Users and for
conducting joint mailings into the Made2Manage customer base. Best and
Made2Manage will share equally in production and mailing cost associated with
mutually agreed upon incentive programs. Made2Manage will handle telephone
follow-up and mailing administration at no charge to Best.
8.2 Demonstration Copies. Best will provide Made2Manage with demonstration
or evaluation copies of each Product, free of charge, for use by Made2Manage,
its VARs, distributors and dealers in connection with performing its obligations
under this Agreement. These copies may not be sold, further licensed or
modified.
<PAGE>
8.3 Marketing Materials. Made2Manage shall purchase marketing collaterals
from the standard Best price list.
8.4 Training. During the term of the Agreement, Best will work with
Made2Manage to educate its sales and marketing group and support personnel
regarding the features and functionality of the Products.
8.5 Sales Support. If Made2Manage so requests, Best shall provide National
Accounts sales support for presentations and demonstrations to large prospects,
defined as five or more sites. In consideration for such assistance, the
parties agree that the discount on any such sales shall be reduced by 10 percent
from that specified in Schedule A and that further accommodations may also be
made based on mutual agreement of the parties. Except as expressly provided
herein, Made2Manage acknowledges that as between it and Best, Made2Manage is
solely responsible for all sales and marketing activities related to the
Products.
8.6 Conferences. Each of Best and Made2Manage agrees to waive any
registration fees that would otherwise be paid by the other for vendor
representative or exhibits at its user conferences. Each of Best and
Made2Manage agrees to permit the other to present/demo at its sales conferences,
agenda and timeframe permitting.
8.7 Annual Product Plans. During the term of this Agreement and upon
Made2Manages's request, Best shall use reasonable efforts to provide annual
product plans for the Products to Made2Manage which set forth (i) information
regarding upcoming releases to the Products, (ii) information regarding changes
to the Products expected to affect the links between the Products and
Made2Manage's own software products, and (iii) any other information that is
reasonably necessary to enable Made2Manage to modify its own software products
to maintain compatibility with the Products. These annual product plans shall
be treated and considered as Best confidential and proprietary information in
accordance with Section H of Schedule B.
8.8 Updates and New Releases. During the term of this Agreement, Best shall
use reasonable efforts to deliver a copy of any update or new release of the
Products to Made2Manage prior to release of such update or new release by Best
to its customers.
8.9 Account Managers. Best and Made2Manage shall each designate an account
manager who will be responsible for managing the sales and marketing
relationship and for providing a first line of contact on such issues.
8.10 Certification. Made2Manage shall have on its staff at least one person
who has attended Best's Certification program. Best will provide a person to
help train Made2Manage's sales force.
9. DURATION AND TERMINATION OF AGREEMENT.
<PAGE>
9.1 Term. The term of this Agreement is twenty four months from the
effective date, subject to the terms of this Section 9, and shall automatically
renew for successive one year terms unless one party notifies the other in
writing at least ninety (90) days prior to the then current term that the
Agreement shall not be renewed.
9.2 Renewal. This Agreement is renewable, upon the mutual written agreement
of the parties, for a period of one calendar year at a time. The parties agree
that they will use all reasonable efforts to initiate negotiations relating to
renewal upon completion of the initial term no later than three months prior to
any Agreement expiration date.
9.3 Termination at Will. Either party may terminate this Agreement by
providing the other party with at least ninety days prior written notice of
termination.
9.4 Termination for Cause.
a. Either party will have the right to terminate this Agreement at any
time if the other party is in breach of any material term. Such termination
will become effective thirty days after the nonterminating party's receipt of a
notice of termination in the absence of a cure during such thirty day period.
b. Either party will have the right to terminate this Agreement at any
time if the other party (i) becomes insolvent; (ii) discontinues its business;
(iii) is merged, consolidated, or sells all or substantially all of its assets;
(iv) fails to pay its debts or perform its obligations in the ordinary course of
business as they mature; or (v) becomes the subject of any voluntary or
involuntary proceeding in bankruptcy, liquidation, dissolution, receivership,
attachment or composition for the benefit of creditors. Such termination will
become effective upon the nonterminating party's receipt of a notice of
termination at any time after the specified event.
c. Best will have the right to terminate this Agreement at any time if
any of the default conditions set forth below exist. Such termination will
become effective thirty days after Made2Manage's receipt of a notice of
termination in the absence of a cure during such thirty day period. Default
conditions are as follows:
i. Twenty percent (20%) of all Products orders placed by
Made2Manage in any six calendar month period during the term of this Agreement
are returned for credit/refund.
ii Made2Manage does not timely process customer refunds for the
Products or does not process such Product refunds in a commercially reasonable
manner resulting in documented customer complaints to Best and/or claims against
Best for such refunds.
<PAGE>
9.5 Orders After Termination Notice. In the event that any notice of
termination of this Agreement is given, Best will be entitled to reject all or
part of any orders received from Made2Manage after the date of such notice.
Notwithstanding any credit terms made available to Made2Manage prior to such
notice, any Products shipped thereafter shall be paid for by certified or
cashier's check prior to shipment.
9.6 Effect of Termination. Upon termination or expiration of this
Agreement:
a. Best may, at its option, reacquire any or all of the Products then
in Made2Manage's possession at prices not greater than the prices paid by
Made2Manage for such Products. Upon receipt of any Products so reacquired from
Made2Manage, Best shall issue an appropriate credit to Made2Manage's account.
b. The due dates of all outstanding invoices to Made2Manage for the
Products automatically will be accelerated so they become due and payable on the
effective date of termination or expiration, even if longer terms had been
provided previously. All orders or portions thereof remaining unshipped as of
the effective date of termination will automatically be canceled.
c. Each party shall cease using any trademark, logo or tradename of the
other and Made2Manage's right to market and license any Products shall
automatically cease and terminate, unless Best agrees otherwise.
d. For a period of one year after the date of termination or
expiration, Made2Manage shall make available to Best for inspection all sales
records of Made2Manage that pertain to Made2Manage's compliance with the terms
of this Agreement.
9.7 No Damages for Termination. Made2Manage acknowledges and agrees that
Made2Manage has no expectation and has received no assurances that its business
relationship with Best will continue beyond the stated term of this Agreement or
its earlier termination in accordance with this Section 9 and will make no
claims against Best for damages or expenses (including damages which may arise
from the loss of prospective customers of Made2Manage, or expenses incurred or
investments made in connection with the establishment, development, or
maintenance of Made2Manage's business as a Best distributor) in connection with
any permitted termination.
9.8 Survival. Made2Manage's obligations to pay Best all amounts due
hereunder, as well as either party's obligations relating to indemnification,
warranties, disclaimers of warranty, protection of proprietary rights and
confidential information shall survive termination of this Agreement.
10. RELATIONSHIP OF THE PARTIES. Made2Manage's relationship with Best
during the term of the Agreement will be that of an independent contractor with
no power to bind Best, or to create any obligation on behalf of Best.
11. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement and Schedules A, B and
C represent the entire agreement between Made2Manage and Best with respect to
their subject matter, superseding all previous communications or agreements
regarding such subject matter. This Agreement may be modified only by a writing
signed by the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the last date specified below.
<TABLE>
<CAPTION>
<S> <C>
BEST SOFTWARE, INC. MADE2MANAGE SYSTEMS, INC.
By:__________________________ By:_________________________________
William Donnelly Christopher D. Clapp
Vice President Vice President
Date:_________________________ Date:_______________________________
</TABLE>
<PAGE>
SCHEDULE A
PRODUCTS AND DISCOUNTS
Discounts:
Subject to Section 2.1 of this Agreement, the discount for the term of the
Agreement for all Products will be 50% at the beginning of each 12 month period
commencing retroactively on January 1, 1998. Once Product, training services,
professional services, and new SupportPlus revenues payable from Made2Manage to
Best under this Agreement ("Sales Revenues") exceed $200,000 in such 12 month
period, the discount rate will increase to 60% for the remainder of such 12
month period. Upon commencement of the next 12 month period, the rate will once
again be 50% and will increase to 60% when Sales Revenues exceed $200,000 in
such next 12 month period. For purposes of this Schedule A, Sales Revenues
shall be defined to mean all cash receipts actually received by Best from
Made2Manage in such 12 month period from all sources, including Product sales,
SupportPlus fees, training, and professional services. Made2Manage shall be
entitled to the discounts set forth in this Schedule A for so long as all
Products, SupportPlus, training, and professional services are ordered from
Best, who will then invoice Made2Manage. All discounts are from Best's retail
price list which may be modified from time to time as set forth in Section 2.1
of this Agreement.
Best training services, professional services, and new SupportPlus are subject
to a standard 15% discount, assuming such services are booked through Best who
will then invoice Made2Manage for such services.
Best Products:
FAS for Windows
FAS Encore
FASTrack
Abra Suite
<PAGE>
SCHEDULE B
GENERAL TERMS AND CONDITIONS
A. OBLIGATIONS AND REPRESENTATIONS OF MADE2MANAGE. Made2Manage agrees: (a)
to use commercially reasonable efforts to promote the marketing and licensing of
the Products using promotional material supplied by Best and to provide its
sales force with appropriate assistance; (b) to distribute the Products with all
sealed packaging, warranties, disclaimers and license agreements intact as
shipped from Best; (c) not to relicense any previously opened or used Products;
(d) to maintain, for at least two years after termination of this Agreement, its
records and accounts relating to distribution of the Products; (e) to conduct
business in a manner that reflects favorably upon the Products and Best
(although Made2Manage remains free to market products competitive with those of
Best); (f) not to engage in misleading practices or advertising detrimental to
the Products, Best or the public (although Made2Manage remains free to market
products competitive with those of Best); (g) to make no representations or
warranties with respect to the capabilities of the Products that are
inconsistent with the literature and licenses distributed by Best; and (h) to
comply with all applicable laws and regulations in any of its dealings with
respect to the Products; and (i) to use its best efforts to supply Best with
End-User names as required by this Agreement.
B. RESELLERS. Made2Manage represents to Best that each of its resellers
will be free to determine its own retail prices for the Products. During the
term of the Agreement, Made2Manage agrees that its resellers authorized to
distribute the Products shall assume obligations relating to its marketing of
the Products equivalent to those assumed by Made2Manage in these General Terms
and Conditions.
C. ADDITIONAL RESERVED RIGHTS.
C.1 Other Products. Made2Manage acknowledges that Best cannot guarantee
that its agreements with third parties for distribution of the Other Products,
if any, will continue. Best therefore reserves the right to discontinue
offering Other Products at any time without notice (though Best will use
reasonable efforts to give notice if the circumstances permit).
C.2 Order Cancellation by Best. Best may cancel or delay any purchase
orders placed by Made2Manage, without liability to Made2Manage, any reseller or
any other person, if Made2Manage if a Late Payment Condition exists, as defined
above in this Agreement or otherwise fails to comply with the material terms of
this Agreement, or if Best discontinues distribution of any Product ordered
(including support). Best shall give Made2Manage no less than thirty days prior
notice of its discontinuation of distribution of any Best Product, unless
reasonable Best business considerations dictate a shorter notice period. Any
cancellation or delay pursuant to the terms of this Section shall not be
considered a breach of this Agreement by Best.
<PAGE>
C.3 Security Interest. Until any Product has been paid for in full, Best
retains a purchase money security in such Product delivered to Made2Manage and
in the proceeds therefrom. If Best so requests, Made2Manage will promptly file
financing statements and any other appropriate documents required to perfect
Best's security interest in all such Products and the proceeds therefrom. If
Made2Manage does not file such statements within two weeks of Best's request
therefor, Best shall automatically be granted, without further action by either
party, the power of attorney to execute any and all financing statements on
behalf of Made2Manage with respect to Best's security interest in all such
Products and proceeds therefrom and expressly authorizes Best to file the same
with the appropriate authorities.
D. TRADEMARKS, TRADENAMES AND COPYRIGHTS. Made2Manage agrees that any use
of Best's trademarks, service marks or tradenames will be in connection with the
promotion of the Products only, and shall be subject to the approval of Best.
Made2Manage agrees not to alter or remove any proprietary rights notice on any
Product or advertising material provided by Best. This Agreement does not give
either party any interest in any of the other's trademarks, tradenames,
copyrights or other proprietary rights. Each party agrees that it will not
assert or claim any interest in or do anything that may adversely affect the
validity or enforceability of any trademark, trade name, copyright or logo
belonging to or licensed to the other party. Made2Manage acknowledges that Best
owns or licenses all of the Products. Each party agrees to protect the other
party's proprietary rights. Made2Manage will notify Best in writing of any
claim or proceeding involving the Products within ten (10) days after
Made2Manage learns of such claim or proceeding.
E. ASSIGNMENT. This Agreement shall not be assignable by Made2Manage
without the prior written consent of Best. The provisions hereof shall be
binding upon and inure to the benefit of the parties, their successors and
permitted assigns.
F. WARRANTY; DISCLAIMER OF WARRANTIES; LIMITED LIABILITY.
F.l Warranty of Title. Best represents and warrants that it either owns, or
has a valid license to sublicense to Made2Manage, the Products.
F.2 Disclaimer of Warranties. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT,
BEST MAKES NO WARRANTIES OR REPRESENTATIONS AS TO PERFORMANCE OF THE PRODUCTS TO
MADE2MANAGE, ANY RESELLER, END-USER OR ANY OTHER PERSON. THE BEST PRODUCTS AND
ALL RELATED MATERIALS ARE SOLD "AS IS" WITHOUT WARRANTY AS TO THEIR PERFORMANCE,
AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL EXPRESS WARRANTIES, AND ALL
IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT, ARE
HEREBY EXCLUDED. This disclaimer of warranties is restated in the License
Agreements included with the Products. This disclaimer of warranties and the
limitation of liability below will not be affected by Best's rendering of
technical, programming, or other advice or service or the provision of support
for the Products.
<PAGE>
BEST MAKES NO WARRANTIES WHATSOEVER WITH RESPECT TO THE OTHER PRODUCTS. If
any such warranties are provided by third party vendors, they are as set forth
in any literature provided by the vendors with the Other Products.
F.3 Limited Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER OR TO ANY
RESELLER, END-USER, OR ANY THIRD PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL, OR
SPECIAL DAMAGES, EVEN IF THE OTHER PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES OR LOSSES. IN NO EVENT SHALL THE LIABILITY OF EITHER PARTY FOR DAMAGES
RELATING TO ANY PRODUCT EXCEED THE ACTUAL AMOUNTS PAID BY MADE2MANAGE FOR SUCH
PRODUCT.
F.4 No Made2Manage Warranty. Made2Manage will make no warranty, guarantee
or representation, whether written or oral, on Best's behalf. Made2Manage and
its resellers have no right to make any distribution of the Products other than
under the terms of the License Agreement enclosed in each Product package.
F.5 Delays. Best shall not be liable for any damages, direct,
consequential, special, or otherwise, to Made2Manage or to any other person for
failure to deliver or for any delay or error in delivery of the Products for any
reason whatsoever.
G. INDEMNIFICATION.
G.1 Of Best. Made2Manage agrees to indemnify Best against and hold Best
harmless from, any and all claims (including reasonable attorneys' fees and
costs of litigation or defense incurred by Best) by any other party (including
any reseller or End-User) resulting from Made2Manage's acts, omissions or
misrepresentations (i) relating to Made2Manage's demonstration or distribution
of the Products or the Link, or (ii) arising out of Made2Manage's modification
of the terms of the license agreements included with the Products, regardless of
the form of action. Made2Manage's obligations hereunder survive termination of
this Agreement.
G.2 Of Made2Manage. Best agrees to indemnify Made2Manage against and hold
Made2Manage harmless from, any and all claims (including reasonable attorneys'
fees and costs of litigation or defense incurred by Made2Manage) by any other
party resulting from any inaccuracies made by Best in its marketing materials or
technical documentation. Notwithstanding the foregoing, Best shall not be
liable to Made2Manage for any claim arising from any alteration or modification
of any marketing materials or technical documentation made by Made2Manage.
<PAGE>
In addition, Best agrees that if notified promptly in writing and, upon
Best's request, given sole control of the defense and all related settlement
negotiations, it will defend and hold Made2Manage harmless against any claim
based on an allegation that Made2Manage's distribution of any Product pursuant
to Made2Manage's distribution rights as set forth in this Agreement, or any use
of a Product by Made2Manage or an End User, infringes a copyright, patent, trade
secret or any other proprietary right of a third party. Best will pay any
resulting costs, damages and attorneys' fees reasonably incurred by Made2Manage
or an End User with respect to any such claims. In consideration of such
indemnification, Made2Manage agrees that, if any Product or any portion thereof,
becomes, or in Best's reasonable opinion is likely to become, the subject of a
claim based on an allegation that it infringes a copyright or any other
proprietary right of a third party, Made2Manage will permit Best, at Best's
option and expense, either to (i) procure the right for Made2Manage to continue
distributing the Product, or (ii) modify or replace the Product so that it
becomes noninfringing. If neither of the foregoing alternatives is available on
terms Best deems reasonable, Best may terminate Made2Manage's right to
distribute the Product(s) at issue and require immediate return or destruction
of such Product(s), including all copies. Best shall have no obligation to
Made2Manage with respect to infringement of third party proprietary rights
beyond that stated in this Section G.2. Notwithstanding the foregoing, Best
shall not be liable to Made2Manage for any infringement claim arising solely
from any alteration or modification of any Product made by Made2Manage. Best's
obligations hereunder survive termination of this Agreement.
H. CONFIDENTIALITY. Made2Manage acknowledges that in the course of
performing its obligations it may receive information which is confidential
and/or proprietary to Best and Made2Manage agrees not to use such information
except in performance of this Agreement and not to disclose such information to
third parties. Best acknowledges that in the course of performing its
obligations it may receive information which is confidential and/or proprietary
to Made2Manage and Best agrees not to use such information except in performance
of this Agreement and not to disclose such information to third parties.
I. GENERAL.
I.1 Waiver. The waiver by either party of any default by the other shall
not waive subsequent defaults of the same or different kind.
I.2 Notices. Any notices required or permitted hereunder shall be given to
the appropriate party at the address first specified above or at such other
address as the party shall specify in writing. Such notice shall be deemed
given upon personal delivery to the appropriate address or three business days
after sent by certified or registered mail or Federal Express (or equivalent
overnight carrier).
I.3 Governing Law; Venue; Severability. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Virginia
(without regard to conflicts of laws). If any provision of this Agreement is
for any reason found by a court of competent jurisdiction to be unenforceable,
that provision will be enforced to the maximum extent permissible, and the
remainder of this Agreement shall continue in full force and effect.
I.4 Execution of Agreement. This Agreement shall become effective only
after it has been signed by both parties, and its effective date shall be the
date on which it is executed by the last party to sign.
<PAGE>
I.5 Section Headings. The section headings contained herein are for
reference only.
I.6 Equitable Relief. Each party acknowledges that any breach of its
obligations under this Agreement with respect to the proprietary rights or
confidential information of the other party may cause the other party
irreparable injury for which there are inadequate remedies at law, and therefore
each party will be entitled to seek equitable relief in addition to all other
remedies provided by this Agreement or available at law.
I.7 Force Majeure. Best shall not be responsible for any failure to perform
due to unforeseen circumstances or to causes beyond Best's control.
I.8 Controlling Terms. If there is any conflict between this Schedule B and
the main body of this Agreement, the main body of this Agreement shall govern.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11,416
<SECURITIES> 5,580
<RECEIVABLES> 6,396
<ALLOWANCES> 363
<INVENTORY> 73
<CURRENT-ASSETS> 24,327
<PP&E> 3,879
<DEPRECIATION> 1,001
<TOTAL-ASSETS> 27,205
<CURRENT-LIABILITIES> 7,555
<BONDS> 0
0
0
<COMMON> 19,952
<OTHER-SE> (977)
<TOTAL-LIABILITY-AND-EQUITY> 27,205
<SALES> 261
<TOTAL-REVENUES> 10,579
<CGS> 176
<TOTAL-COSTS> 2,793
<OTHER-EXPENSES> (326)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 927
<INCOME-TAX> 281
<INCOME-CONTINUING> 646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 646
<EPS-PRIMARY> .15
<EPS-DILUTED> .13
</TABLE>