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 March 31, 1999
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 April 30, 1999, there were 4,572,979 shares of Common Stock, no par value,
outstanding.
1
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<CAPTION>
MADE2MANAGE SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets --
As of March 31, 1999 and December 31, 1998............................................. 3
Condensed Consolidated Statements of Income --
For the three months ended March 31, 1999 and 1998..................................... 4
Condensed Consolidated Statements of Cash Flows --
For the three months ended March 31, 1999 and 1998..................................... 5
Notes to Condensed Consolidated Financial Statements................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 8
PART II OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.................................... 17
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 18
Signatures............................................................................. 18
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2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<S> <C> <C>
March 31, December 31,
1999 1998
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 10,675 $ 15,496
Marketable securities.......................................................... 4,750 1,150
Trade accounts receivable, net ................................................ 9,596 9,113
Prepaid expenses and other..................................................... 864 796
Deferred income taxes.......................................................... 551 551
---------- ----------
Total current assets........................................................ 26,436 27,106
Property and equipment, net........................................................ 3,921 3,509
Purchased technology, net.......................................................... 1,705 1,803
Excess of costs over net assets acquired and other intangibles, net................ 1,401 1,476
---------- ----------
Total assets................................................................ $ 33,463 $ 33,894
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 1,174 $ 990
Accrued liabilities............................................................ 1,194 1,411
Accrued compensation and related expenses...................................... 1,446 2,256
Deferred revenue............................................................... 8,082 7,961
---------- ----------
Total current liabilities................................................... 11,896 12,618
Deferred revenue................................................................... 703 821
Deferred income taxes.............................................................. 517 517
---------- ----------
Total liabilities........................................................... 13,116 13,956
---------- ----------
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized, no shares
issued and outstanding in 1999 and 1998..................................... -- --
Common stock, no par value; 10,000,000 shares authorized, 4,568,942 and
4,523,278 issued and outstanding in 1999 and 1998, respectively............. 21,478 21,417
Accumulated deficit............................................................ (1,131) (1,479)
---------- ----------
Total shareholders' equity.................................................. 20,347 19,938
---------- ----------
Total liabilities and shareholders' equity.................................. $ 33,463 $ 33,894
========== ==========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
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MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<S> <C> <C>
Three Months Ended
March 31,
1999 1998
Revenues:
Software.............................................. $ 4,430 $ 2,622
Services.............................................. 4,168 2,031
Hardware.............................................. 273 101
--------- ---------
Total revenues..................................... 8,871 4,754
--------- ---------
Costs of revenues:
Software.............................................. 385 145
Amortization of purchased technology.................. 98 --
Services.............................................. 2,243 1,025
Hardware.............................................. 191 69
--------- ---------
Total costs of revenues............................ 2,917 1,239
--------- ---------
Gross profit....................................... 5,954 3,515
--------- ---------
Operating expenses:
Sales and marketing................................... 2,896 1,858
Product development................................... 1,494 773
General and administrative............................ 1,076 635
Amortization of acquired intangibles.................. 75 --
--------- ---------
Total operating expenses........................... 5,541 3,266
--------- ---------
Operating income.......................................... 413 249
Other income, net......................................... 140 177
--------- ---------
Income before income taxes................................ 553 426
Income tax provision...................................... 205 143
--------- ---------
Net income................................................ $ 348 $ 283
========= =========
Per share amounts:
Basic:
Net income per share............................... $ .08 $ .07
========= =========
Average number of shares........................... 4,555 4,245
========= =========
Diluted:
Net income per share............................... $ .07 $ .06
========= =========
Average number of shares........................... 5,067 4,867
========= =========
<FN>
See accompanying notes.
</FN>
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MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<S> <C> <C>
Three Months Ended
March 31,
---------------------
1999 1998
---------- ----------
Operating activities:
Net income....................................................................... $ 348 $ 283
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment....................... 315 206
Amortization of purchased technology.......................................... 98 --
Amortization of costs over net assets acquired and other intangibles.......... 75 --
Provision for doubtful accounts............................................... 160 117
Loss on disposition of property and equipment................................. -- 34
Deferred income taxes......................................................... -- 117
Changes in assets and liabilities:
Trade accounts receivable.................................................. (643) 96
Prepaid expenses and other................................................. (68) 67
Accounts payable........................................................... 184 (140)
Accrued liabilities........................................................ (217) 461
Accrued compensation and related expenses.................................. (810) (297)
Deferred revenue........................................................... 3 (73)
---------- ----------
Net cash provided by operating activities..................................... (555) 871
---------- ----------
Investing activities:
Purchases of property and equipment.............................................. (727) (765)
Purchases of marketable securities............................................... (3,600) --
---------- ----------
Net cash used by investing activities......................................... (4,327) (765)
---------- ----------
Financing activities:
Proceeds from issuance of common stock........................................... 51 --
Proceeds from exercise of stock options.......................................... 10 11
---------- ----------
Net cash provided by financing activities..................................... 61 11
---------- ----------
Change in cash and cash equivalents.................................................. (4,821) 117
Cash and cash equivalents, beginning of period....................................... 15,496 16,805
---------- ----------
Cash and cash equivalents, end of period............................................. $ 10,675 $ 16,922
========== ==========
Supplemental disclosures - cash paid for:
Interest expense.............................................................. $ -- $ 2
Income taxes.................................................................. 355 46
<FN>
See accompanying notes.
</FN>
</TABLE>
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MADE2MANAGE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED 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, which is a fully integrated, Microsoft
Windows based business software system for manufacturing companies.
2. Basis of Presentation
The accompanying unaudited interim condensed consolidated 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 consolidated financial statements and
notes thereto included in the Company's 1998 Annual Report to Shareholders. 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 consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany balances have been eliminated.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
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.
3. Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Marketable securities consist of
debt instruments with maturities between three and twelve months and are
classified as available-for-sale. Cash equivalents and marketable securities are
valued at cost which approximates market value.
4. Net Income per Share
Net income per share ("EPS") is determined in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share", 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.
6
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The reconciliation of basic EPS to diluted EPS for the three months ended March
31,1999 and 1998 follows (in thousands, except per share amounts):
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Three Months
--------------------------
Net Per Share
Income Shares Amount
------ ------ ---------
1999:
Basic EPS................................................................ $ 348 4,555 $ 0.08
Adjustment for diluted EPS -- effect of stock options.................... -- 572
------ ------
Diluted EPS.............................................................. $ 348 5,067 0.07
====== ======
1998:
Basic EPS................................................................ $ 283 4,245 0.07
Adjustment for diluted EPS -- effect of stock options.................... -- 622
------ ------
Diluted EPS.............................................................. $ 283 4,867 0.06
====== ======
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains certain "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. These statements reflect our expectations regarding our
strategic plans, future growth, results of operations, performance, business
prospects and opportunities. Words such as, "estimates," "believes,"
"anticipates," "plans" and similar expressions may be used to identify these
forward-looking statements, but are not the exclusive means of identifying these
statements. These statements reflect our current beliefs and are based on
information currently available to us. Accordingly, these statements are subject
to known and unknown risks, uncertainties and other factors that could cause our
actual growth, results, performance and business prospects and opportunities to
differ from those expressed in, or implied by, these statements. 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
us that our plans and objectives will be achieved. Actual results or events
could differ materially from those anticipated in any forward-looking statements
for the reasons discussed in this section, in the "Business Environment and Risk
Factors" section below, and elsewhere in this report, or for other reasons. We
are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances or otherwise. Additional information
concerning factors that could cause actual results to differ materially from
those in the forward-looking statements is contained in the Company's SEC
reports, including the report on Form 10-K for the year ended December31,1998.
Results of Operations
The following table sets forth the percentage of total revenues and percent
increase or decrease represented by certain items included in our statements of
operations for the periods indicated.
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Three Months Ended
March 31, Percent
--------------------- Increase
1999 1998 (Decrease)
--------------------- ----------
Revenues:
Software..................................... 49.9% 55.2% 69.0%
Services..................................... 47.0 42.7 105.2
Hardware..................................... 3.1 2.1 170.3
-------- --------
Total revenue............................. 100.0 100.0 86.6
-------- --------
Costs of revenues:
Software..................................... 4.3 3.1 165.5
Amortization of purchased technology......... 1.1 -- NM
Services..................................... 25.3 21.5 118.8
Hardware..................................... 2.2 1.5 176.8
-------- --------
Total costs of revenues................... 32.9 26.1 135.4
-------- --------
Gross profit.............................. 67.1 73.9 69.4
-------- --------
Operating expenses:
Sales and marketing.......................... 32.7 39.1 55.9
Product development.......................... 16.8 16.3 93.3
General and administrative................... 12.1 13.3 69.5
Amortization of acquired intangibles......... 0.9 -- NM
-------- --------
Total operating expenses.................. 62.5 68.7 69.7
-------- --------
Operating income................................. 4.6 5.2 65.9
Other income, net................................ 1.6 3.7 (20.9)
-------- --------
Income before income taxes....................... 6.2 8.9 29.8
Income tax provision............................. 2.3 3.0 43.4
-------- --------
Net income....................................... 3.9% 5.9% 23.0%
======== ========
<FN>
NM - Not Meaningful
</FN>
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8
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Comparison of Three Months Ended March 31, 1999 and 1998
Revenues
Revenues are derived from software license fees, service and support fees and
hardware sales. Total revenues increased by $4.1 million, or 86.6%, to $8.9
million in 1999 from $4.8 million in 1998. The increase was primarily due to a
greater volume of license transactions, an increase in average contract size,
sales of new software modules, and expansion of our sales and marketing
organizations. We have not historically recognized significant annual revenues
from any single customer.
Software Revenues. Software revenues increased by $1.8 million, or 69.0%, to
$4.4 million in 1999 from $2.6 million in 1998. Software license revenues
constituted 49.9% and 55.2% of total revenues in 1999 and 1998, respectively.
The increase in software license revenues in 1999 and 1998 was primarily due to
a greater volume of license transactions and an increase in average contract
size.
Services Revenues. Services revenues increased by $2.1 million, or 105.2%, to
$4.2 million in 1999 from $2.0 million in 1998. These revenues constituted 47.0%
and 42.7% of total revenues in 1999 and 1998, respectively. The increases in the
dollar amount recognized were due to (i) increased support fees from an expanded
user base, (ii) increased delivery of implementation and consulting services
offerings and (iii) delivery of expanded educational offerings.
Hardware Revenues. Hardware revenues increased by $172,000, or 170.3%, to
$273,000 in 1999 from $101,000 in 1998. These revenues constituted 3.1% and 2.1%
of total revenues in 1999 and 1998, respectively. 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.
Costs of Revenues
Costs of Software Revenues. Costs of software revenues totaled $385,000 and
$145,000 in 1999 and 1998, respectively, resulting in gross profits of 91.3% and
94.5% of software revenues, respectively. The decrease in the gross profit in
1999 was due primarily to costs for upgrades to Made2Manage v3.0 for a portion
of our client base. The v3.0 upgrade includes costs for completely new
documentation and Microsoft development tools and database.
Costs of Services Revenues. Costs of services revenues totaled $2.2 million and
$1.0 million in 1999 and 1998, respectively, resulting in gross profits of 46.2%
and 49.5% of service revenues, respectively. The dollar increases were due
primarily to the growth in our installed customer base and related support
services revenue, which resulted in an increase in the staffing levels for
technical support, implementation, consulting and education services.
Costs of Hardware. Costs of hardware totaled $191,000 and $69,000 in 1999 and
1998, respectively. The gross profit from hardware was 30.0% and 31.7% of
hardware revenues in 1999 and 1998, respectively.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses were $2.9 million and
$1.9 million in 1999 and 1998, respectively, representing 32.7% and 39.1% of
total revenues, respectively. The increase in sales and marketing expenses was
primarily due to increased (i) staffing as we expanded our 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. The decrease in sales
and marketing as a percent of revenue in 1999 compared to 1998 was a result of
greater productivity.
9
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Product Development Expenses. Product development expenses were $1.5 million and
$773,000 in 1999 and 1998, respectively, representing 16.8% and 16.3% of total
revenues, respectively. We did not capitalize any software development costs
during these periods.
General and Administrative Expenses. General and administrative expenses were
$1.1 million and $635,000 in 1999 and 1998, respectively, representing 12.1% and
13.3% 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.
Amortization of Acquired Intangibles. This expense of $75,000 results from
amortizing excess costs over net assets acquired and assembled workforce related
to the acquisition of Bridgeware.
Other Income, Net
Other income, net was $140,000 and $177,000 in 1999 and 1998, respectively,
representing 1.6% and 3.7% of total revenues, respectively. The decrease in
other income in 1999 compared to 1998 was due primarily to a greater proportion
of interest earned on tax-free investments.
Income Tax Provision
The income tax provision effective rate was 37.1% and 33.6% in 1999 and 1998,
respectively. The effective rate is higher in 1999 due to the impact of
non-deductible excess costs over net assets acquired that resulted from the
Bridgeware acquisition.
Liquidity and Capital Resources
We have funded our operations to date primarily through equity capital,
including our initial public offering of Common Stock in December 1997, debt and
cash generated from operations. As of March 31, 1999, we had $15.4 million of
cash, cash equivalents and marketable securities resulting principally from the
proceeds of our initial public offering.
Cash used in operations was $555,000 in the first three months of 1999, compared
to $871,000 of cash provided by operations in the first three months of 1998.
Cash used in operations was impacted mainly by an increase in receivables and
payment of accrued compensation in 1999. Cash used in investing activities was
primarily due to the purchase of computer and telephone equipment and office
furniture and aggregated $727,000 and $765,000 in 1999 and 1998, respectively.
Additionally cash was used to invest in marketable securities with maturities
from three months to one year.
At March 31, 1999, we had working capital of $20.3 million, including accounts
receivable, net, of $9.6 million. The average accounts receivable days'
outstanding was 97 days as of March 31, 1999 and was 87 days at December 31,
1998. Deferred revenue of $8.8 million at March 31, 1999 remained the same as
December 31, 1998. 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.
We have a revolving credit agreement with a commercial bank which expires on
March 31, 2000, borrowings under which bear interest at the prime rate (7.75% at
March 31, 1999). Loans under the revolving credit agreement are limited, in the
aggregate, to $2 million. We have not borrowed under the revolving line of
credit.
We believe that cash and cash equivalents, cash flow from operations and credit
commitments will be sufficient to meet our currently anticipated working capital
and capital expenditure requirements at least through 1999.
10
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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.
The Year 2000 issue potentially impacts us in the following principal areas: (i)
software products, including third party products we resell; (ii) internal
technology systems; (iii) noninternal technology systems that contain embedded
computer devices; and (iv) the business systems of resellers and key suppliers.
Software Products. We continuously test our newly developed software for Year
2000 compliance. As of this date, all Made2Manage Systems, Inc. products
currently marketed are believed to be fully compliant. Our legacy DOS and UNIX
products are not year 2000 compliant and no further sales, distribution or
development of these products is, to our knowledge, taking place. We notified
customers of these prior versions in 1996, and subsequently, of this
non-compliance and customers were offered significantly discounted pricing and
implementation assistance to migrate to the current Year 2000 compliant Windows
version. We have requested certification of Year 2000 compliance from providers
of third party products that we re-sell. Based on responses to date, we believe
all third party products sold by the Company will be fully compliant before the
end of 1999. Despite the assurances we have received, it is possible that our
software and third party products we resell may contain undetected errors or
defects associated with Year 2000 date functions. Year 2000 errors from third
party products may result in:
o Delay or loss in revenue;
o Diversion of development resources;
o Damage to our reputation; and
o Increased services costs.
Any occurrence of the above may result in lost business or negatively impact our
operating results and financial condition.
Internal Technology Systems. We use a combination of our own software and other
commercially available software for our internal operations. At this time, based
on the results of our analysis, we believe that there will be no significant
costs associated with the Year 2000 issue for our internal operations. We
believe we have identified non-compliant technology products and corrective
action plans will be implemented as needed to mitigate disruption of internal
operations associated with the Year 2000 issue.
Noninternal Technology Systems. Noninternal technology systems include security
systems, elevators, and other systems that contain computer or computer like
devices used to control the operation of machinery or equipment. We completed
our assessment of noninternal technology systems and do not believe any
significant Year 2000 issues exist.
Third Party Resellers and Key Suppliers. The Company has inquired about the Year
2000 readiness of its resellers and suppliers. The results of our inquiries thus
far indicate no material impact on our ability to conduct business due to
reseller or key supplier Year 2000 issues. No one reseller is responsible for a
material amount of the Company's license fees.
Inflation
We believe that inflation has not had a material impact on its operations.
11
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Accounting Pronouncements
In February 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. SOP 98-1, which
is effective for the Company beginning January 1, 1999, does not materially
affect our financial position or results of operations.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions," which will retain
the limitation of SOP 97-2 on what constitutes vendor specific objective
evidence of fair value. SOP 98-9 will be effective for transaction entered into
in fiscal years beginning after March 15, 1999. We believe that our current
revenue recognition policies and practices are consistent with the provision of
the new guidance.
Business Environment and Risk Factors
Fluctuations of Quarterly Operating Results; Seasonality
We have experienced in the past, and expect to experience in the future,
significant fluctuations in quarterly operating results. A substantial portion
of our 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, our 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, we have experienced a seasonal pattern in our 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 our control, that may contribute to
fluctuations in quarterly operating results include the size of individual
orders, the timing of product introductions or enhancements by us and our
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 us or our 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 of our
control. Since software is generally shipped as orders are received, we have
historically operated without significant backlog.
Because our operating expenses are based on anticipated revenue levels and a
high percentage of our 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, we currently
intend to increase 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, our business, financial
condition and results of operations could be materially and adversely affected.
Product and Market Concentration
Our revenues are currently derived from licenses of Made2Manage, including
optional modules, licensing of Bridgeware's Advanced Planning and Scheduling
products and third-party software, and related support, services and hardware.
In the near term, Made2Manage and related services are expected to continue to
account for substantially all of the our 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 our business, financial condition and results of operations.
12
<PAGE>
Our 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 our target market to curtail or postpone capital expenditures
for business information systems. Any adverse change in the amount or timing of
software expenditures by our target customers could have a material adverse
effect on our business, financial condition and results of operations.
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 our 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, we use a number of other
programming tools and applications, including ActiveX, OLE, ODBC, OLEDB and
Internet Information Server.
We sublicense various third party products, including Microsoft Visual FoxPro,
Microsoft Project, products from Powerway, Best Software, FRx and EC Company 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 our target market.
The occurrence of any of these events could have a material adverse effect on
our business, financial condition and results of operations.
Product Development
Our growth and future financial performance depend in part upon our 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 that we develop in the future will be delivered on a timely basis
or ultimately accepted in the market. Any failure by us to anticipate or respond
adequately to technological development or end-user requirements, or any
significant delays in product development or introduction, could damage our
competitive position and have a material adverse effect on our business,
financial condition and results of operations.
Dependence on Key Personnel
Our success depends to a significant extent upon a number of key employees,
including members of senior management. No employee is subject to an employment
contract. Our ability to implement business strategy is substantially dependent
on our ability to attract, on a timely basis, and retain skilled personnel,
especially sales, service, support and development personnel. Competition for
such personnel is intense, and we compete for such personnel with numerous
companies, including larger, more established companies with significantly
greater financial resources. There can be no assurance that we 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 our business,
financial condition and results of operations.
13
<PAGE>
Management of Growth; International Expansion
We have experienced rapid growth in our business and operations. While we have
managed this growth to date, there can be no assurance that we will be able to
effectively do so in the future. Our ability to manage growth successfully is
contingent on a number of factors including our ability to implement and improve
operational, financial and management information systems and to motivate and
effectively manage employees. While in the long term we plan to distribute
Made2Manage in international markets, we have no significant experience in
international markets and there can be no assurance that such expansion can be
successfully accomplished. If we are unable to manage future growth effectively,
our business, financial condition and results of operations would be materially
and adversely affected.
Risks Associated with Acquisitions
As part of our business strategy, we expect to review acquisition prospects that
would complement our existing product offerings, augment market coverage or
enhance technological capabilities or that may otherwise offer growth
opportunities. Acquisitions 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 operating results and/or the price of
our common stock. Acquisitions entail numerous risks, including difficulties in
the assimilation of acquired operations, technologies and products, diversion of
management's attention from other business concerns, risks of entering markets
in which we have no or limited prior experience and potential loss of key
employees of acquired organizations. No assurance can be given as to our ability
to successfully integrate any businesses, products, technologies or personnel
that might be acquired in the future, and the failure to do so could have a
material adverse effect on our business and financial condition or results of
operations.
Insufficient Customer Commitment
To obtain the benefits 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, our
reputation could be tarnished and our 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. We face 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 we use to develop Made2Manage are generally available and widely
known and include technologies developed by Microsoft. There can be no assurance
that competitors will not develop products based on the same technology upon
which Made2Manage is based.
Our competitors include a large number of software and system vendors, many of
which are public companies. In addition, there are numerous international,
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.
Compared to us, many of the 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. 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, our business, financial condition and results of operation
would be adversely affected.
14
<PAGE>
Relationships with Value Added Resellers
We distribute our 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
reduce their efforts to sell Made2Manage, promote competing products or
terminate their relationships with us, our 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
criticize us or our products to their customers, our reputation could be
damaged, which could have a material adverse effect on our business, financial
condition or results of operations.
Product Liability and Lack of Insurance
We market, sell and support software products used by manufacturers to manage
their business operations and to store substantially all of their operational
data. Software programs as complex as those we offer may contain undetected
errors, despite testing , 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 our 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. We have 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 us, if successful and of a sufficient magnitude, could have a material
adverse effect on our business, financial condition and results of operations.
Dependence on Proprietary Rights; Risk of Infringement
We rely primarily on a combination of trade secret, copyright and trademark
laws, nondisclosure agreements and other contractual provisions and technical
measures to protect our proprietary rights. There can be no assurance that these
protections will be adequate or that competitors will not independently develop
products incorporating technology that is substantially equivalent or superior
to our technology. Furthermore, other than pending United States patent
applications for software included in Made2Manage related to the Material
Requirements Planning regeneration feature and a navigational interface for the
enterprise, we have no patents or patent applications pending, and existing
copyright laws afford only limited protection. In the event that we are unable
to protect our proprietary rights, our business, financial condition and results
of operations could be materially and adversely affected.
There can be no assurance that we will not be subject to claims that our
technology infringes on the intellectual property of third parties, that we
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 our business,
financial condition and results of operations.
Substantial Control by Single Shareholder
As of April 30, 1999, Hambrecht & Quist ("H&Q") and its affiliates, as a group,
beneficially owned approximately 21.3% of our outstanding common stock. As a
result, H&Q and its affiliates will be able to exercise significant influence
over all matters requiring shareholder 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.
15
<PAGE>
Effect of Antitakeover Provisions
Our Amended and Restated Articles of Incorporation (the "Articles") authorize
the Board of Directors to issue, without shareholder approval, up to two million
shares of preferred stock with such rights and preferences as the Board of
Directors may determine in its sole discretion. The Company's stock option plans
provide that, unless the Board of Directors or a committee of the our 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. Further, certain provisions of Indiana law
impose various procedural and other requirements that could make it more
difficult for shareholders to effect certain corporate actions. The foregoing
provisions could discourage an attempt by a third party to acquire a controlling
interest without the approval of management even if such third party were
willing to purchase shares of common stock at a premium over its then market
price.
Possible Volatility of Stock Price
The trading price of our common stock could be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of
technological innovations or new applications by us or our competitors, the
failure of 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
The sale of a substantial number of shares of our common stock in the public
market could adversely affect the market price of the common stock. As of April
30, 1999, we had 4,572,979 shares of common stock outstanding, of which 976,793
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 April 30, 1999, there were options outstanding to purchase 1,558,944
shares of common stock at a weighted average price of $6.82 share under the
Company's stock option plans, of which options to purchase 659,047 shares of
common stock were then vested and exercisable. We have reserved 195,900 shares
of common stock for future grant under the Option Plan. We have reserved 100,000
shares of common stock for issuance under the Made2Manage Systems, Inc. Employee
Stock Purchase Plan (the "Stock Purchase Plan"). As of April 30, 1999, 11,994
shares have been issued under the Stock Purchase Plan. We have filed
registration statements registering shares of common stock issued pursuant to
the Made2Manage Systems, Inc. Stock Option Plan and Stock Purchase Plan on
January 30, 1998. We expect to file a registration statement for the Made2Manage
Systems, Inc. 1999 Stock Option Plan which was approved by shareholders on April
20, 1999. Accordingly, shares issued pursuant to these plans will be saleable in
the public market upon issuance, subject to certain restrictions.
Absence of Dividends
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently intend to retain earnings, if any, for the
development of our business.
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on April 20, 1999 at which the
stockholders approved the following two proposals.
Proposal 1 Election of Directors to serve until the next Annual
Meeting of Shareholders.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Votes Votes
For Against Abstentions
--------- ------- -----------
Ira Coron 3,101,945 -- 18,195
Michael P. Cullinane 3,101,945 -- 18,195
John M. Dillon 3,101,945 -- 18,195
Richard G. Halperin 3,101,945 -- 18,195
David B. Wortman 3,101,945 -- 18,195
</TABLE>
Proposal 2 Approval of Made2Manage Systems, Inc. 1999 Stock Option Plan.
<TABLE>
<CAPTION>
<S> <C>
Votes For 2,363,209
Votes Against 692,001
Abstentions 64,930
</TABLE>
17
<PAGE>
PART II - OTHER INFORMATION
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.
<TABLE>
<CAPTION>
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: May 7, 1999
MADE2MANAGE SYSTEMS, INC.
<S> <C>
/s/David B. Wortman /s/Stephen R. Head
- ------------------------------------ ----------------------------------------
David B. Wortman Stephen R. Head
President, Chief Executive Officer Vice President, Finance and
and Director Administration, Chief Financial Officer,
(Principal Executive Officer) Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Index to Exhibits
<S> <C> <C>
Number Assigned in
Regulation S-K Exhibit Number
Item 601 Description of Exhibit
(2) 2.0 Stock Purchase Agreement, dated August 3, 1998, among Made2Manage
Systems, Inc. and the stockholders of Bridgeware, Inc.
(Incorporated by reference to June 30, 1998 Form 10-Q).
(3) 3.1 Amended and Restated Articles of Incorporation of Made2Manage
Systems, Inc. (Incorporated by reference 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 Registration Statement on Form S-1,
Registration No. 333-38177).
(4) 4.1 Specimen Stock Certificate for Common stock (Incorporated by
reference to Registration Statement on Form S-1, Registration No.
333-38177).
4.2 Other rights of securities holders - see Exhibits 3.1 and 3.2.
(10) 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).
10.18 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).
10.27 Best Software, Inc. Linked Software Dealer Agreement by and
between Best Software, Inc. and Made2Manage Systems, Inc. dated
May 14, 1998 (Incorporated by reference to June 30, 1998 Form 10Q).
10.28 Business Loan Agreement by and between Bank One, Indiana, NA and
Made2Manage Systems, Inc. dated March 19, 1999.
10.29 Promissory Note by and between Bank One, Indiana, NA and
Made2Manage Systems Inc. dated March 19, 1999.
10.30 1999 Made2Manage Systems Inc. Employee Stock Option Plan.
(21) 21.1 List of Subsidiaries ( Incorporated by reference to December
31,1998 Form 10-K).
(27) 27.1 Financial Data Schedule.
</TABLE>
19
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$2,000,000.00 03-19-1999 03-31-2000 187699 001 0159246284 00582
<FN>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Borrower: MADE2MANAGE SYSTEMS, INC. Lender: Bank One, Indiana, NA
9002 PURDUE ROAD 111 Monument Circle
INDIANAPOLIS, IN 46268 Indianapolis, IN 46277
</TABLE>
THIS BUSINESS LOAN AGREEMENT between MADE2MANAGE SYSTEMS, INC. ("Borrower") and
Bank One, Indiana, NA ("Lender") is made and executed as of March 19, 1999. This
Agreement governs all loans, credit facilities and/or other financial
accommodations described herein and, unless otherwise agreed to in writing by
Lender and Borrower, all other present and future loans, credit facilities and
other financial accommodations provided by Lender to Borrower. All such loans,
credit facilities and other financial accommodations, together with all
renewals, amendments and modifications thereof, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties, and agreements,
as set forth in this Agreement; and (b) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of March 19, 1999, and shall continue
thereafter until all Loans and other obligations owing by Borrower to Lender
hereunder have been paid in full and Lender has no commitments or obligations to
make further advances under the Loans to Borrower.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code as adopted in
the State of Indiana. All references to dollar amounts shall mean amounts in
lawful money of the United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement, as may be
amended or, modified from time to time, together with all exhibits and schedules
attached hereto from time to time.
Borrower. The word "Borrower" means MADE2MANAGE SYSTEMS, INC.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral for any Loan, whether real or personal
property, whether granted directly or indirectly, whether granted now or in the
future, and whether granted in the form of a security interest, mortgage, deed
of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or title
retention contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law, contract, or
otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1
<PAGE>
Grantor. The word "Grantor" means and includes each and all of the persons or
entities granting a Security Interest in any Collateral for any of the Loans.
Guarantor. The word "Guarantor" means and includes each and all of the
guarantors, sureties, and accommodation parties for any of the Loans.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the
Note, including all principal and accrued interest thereon, together with all
other liabilities, costs and expenses for which Borrower is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus any
accrued interest thereon, owing by Borrower, or any one or more of them, to
Lender of any kind or character, now existing or hereafter arising, as well as
all present and future claims by Lender against Borrower, or any one or more of
them, and all renewals, extensions, modifications, substitutions and
rearrangements of any of the foregoing; whether such indebtedness arises by
note, draft, acceptance, guaranty, endorsement, letter of credit, assignment,
overdraft, indemnity agreement or otherwise; whether such indebtedness is
voluntary or involuntary, due or not due, direct or indirect, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be liable primarily or
secondarily or as debtor, maker, comaker, drawer, endorser, guarantor, surety,
accommodation party or otherwise.
Lender. The word "Lender" means Bank One, Indiana, NA, its successors and
assigns.
Note. The word "Note" means any and all promissory note or notes which evidence
Borrower's Loans in favor of Lender, as well as any amendment, modification,
renewal or replacement thereof.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing indebtedness owed by Borrower to Lender; (b) liens for taxes,
assessments, or similar charges either (i) not yet due, or (ii) being contested
in good faith by appropriate proceedings for and which Borrower has established
adequate reserves; (c) purchase money liens or purchase money security interests
upon or in any property acquired or held by Borrower in the ordinary course of
business to secure any indebtedness permitted under this Agreement; and (d)
liens and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing.
Related Documents. The words "Related Documents" mean and include without
limitation the Note and all credit agreements, loan agreements, environmental
agreements, guaranties, security agreements, mortgages, deeds of trust, and all
other instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Note.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings or
other agreements, whether created by law, contract, or otherwise, evidencing,
governing, representing, or creating a Security Interest.
2
<PAGE>
Security Interest. The words "Security Interest" mean and include without
limitation any type of security interest, whether in the form of a lien, charge,
mortgage, deed of trust, assignment, pledge chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien or title
retention contract, lease or consignment intended as a security device, or any
other security or lion interest whatsoever, whether created by law, contract, or
otherwise.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each request for an advance or
disbursement of Loan proceeds, as of the date of any renewal, extension or
modification of any Loan, and at all times any indebtedness exists hereafter:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Indiana and is
duly qualified and in good standing in all other states in which Borrower is
doing business. Borrower has the full power and authority to own its properties
and to transact the businesses in which it is presently engaged or presently
proposes to engage.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents to which Borrower is a party have been duly authorized by
all necessary action; do not require the consent or approval of any other
person, regulatory authority or governmental body; and do not conflict with,
result in a violation of, or constitute a default under (a) any provision of its
articles of incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental regulation, court
decree, or order applicable to Borrower. Borrower has all requisite power and
authority to execute and deliver this Agreement and all other Related Documents
to which Borrower is a party.
Financial Information. Each financial statement of Borrower supplied to Lender
truly and completely discloses Borrower's financial condition as of the date of
the statement, and there has been no material adverse change in Borrower's
financial condition subsequent to the date of the most recent financial
statement supplied to Lender. Borrower has no material contingent obligations
except as disclosed in such financial statements.
Legal Effect. This Agreement and all other Related Documents to which Borrower
is a party constitute legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms, except
as limited by bankruptcy, insolvency or similar laws of general application
relating to the enforcement of creditors' rights and except to the extent
specific remedies may generally be limited by equitable principles.
Properties. Except as contemplated by this Agreement or as previously disclosed
in Borrower's financial statements or in writing to Lender and as accepted by
Lender, and except for property tax liens for taxes not presently due and
payable, Borrower is the sole owner of, and has good title to, all of Borrower's
properties free and clear of all Security Interests, and has not executed any
security documents or financing statements relating to such properties. All of
Borrower's properties are titled in Borrower's legal name, and Borrower has not
used, or filed a financing statement under, any other name for at least the last
six (6) years.
3
<PAGE>
Compliance. Except as disclosed in writing to Lender (a) Borrower is conducting
Borrower's businesses in material compliance with all applicable federal, state
and local laws, statutes, ordinances, rules, regulations, orders, determinations
and court decisions, including without limitation, those pertaining to health or
environmental matters, and (b) Borrower otherwise does not have any known
material contingent liability in connection with the release into the
environment, disposal or the improper storage of any toxic or hazardous
substance or solid waste.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against Borrower
is pending or threatened, and no other event has occurred which may in any one
case or in the aggregate materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events, if any,
that have been disclosed to and acknowledged by Lender in writing.
Taxes. All tax returns and reports of Borrower that are or were required to be
filed, have been filed, and all taxes, assessments and other governmental
charges have been paid in full, except those that have been disclosed in writing
to Lender which are presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have been
provided.
Lien Priority. Unless otherwise previously disclosed to and approved by Lender
in writing, Borrower has not entered into any Security Agreements, granted a
Security Interest or permitted the filing or attachment of any Security
interests on or affecting any of the Collateral, except in favor of Lender.
Licenses, Trademarks and Patents. Borrower possesses and will continue to
possess all permits, licenses, trademarks, patents and rights thereto which are
needed to conduct Borrower's business and Borrower's business does not conflict
with or violate any valid rights of others with respect to the foregoing.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes approved by Lender and such proceeds
will not be used for the purchasing or carrying of "margin stock" as defined in
Regulation U issued by the Board of Governors of the Federal Reserve System.
Ineligible Securities. No portion or any advance or Loan made hereunder shall be
used directly or indirectly to purchase ineligible securities, as defined by
applicable regulations of the Federal Reserve Board, underwritten by Lender or
any other affiliate of Banc One Corporation during the underwriting period and
for 30 days thereafter.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may have
any liability complies in all material respects with all applicable requirements
of law and regulations, and (i) no Reportable Event nor Prohibited Transaction
(as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower
has not withdrawn from any such plan or initiated steps to do so, (iii) no steps
have been taken to terminate any such plan, and (iv) there are no unfunded
liabilities other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's chief executive office if Borrower has more than one place of
business, is located at 9002 PURDUE ROAD, INDIANAPOLIS, IN 46268.
4
<PAGE>
Unless Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the Collateral.
Information. All information heretofore or contemporaneously herewith furnished
by Borrower to Lender for the purposes of or in connection with this Agreement
or any transaction contemplated hereby is, and all information hereafter
furnished by or on behalf of Borrower to Lender will be, true and accurate in
every material respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by omitting to
state any material fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees that
Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan advances to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect during the term
of this Agreement.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, (b) all existing and all threatened
litigation, claims, investigations, administrative proceedings or similar
actions affecting Borrower or any Guarantor which could materially affect the
financial condition of Borrower or the financial condition of any Guarantor, and
(c) the creation, occurrence or assumption by Borrower of any actual or
contingent liabilities not permitted under this Agreement.
Financial Records. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit Lender
to examine, audit and make and take away copies or reproductions of Borrower's
books and records at all reasonable times. If Borrower now or at any time
hereafter maintains any records (including without limitation computer generated
records and computer software programs for the generation of such records) in
the possession of a third party, Borrower, upon request of Lender, shall notify
such party to permit Lender free access to such records at all reasonable times
and to provide Lender with copies of any records it may request, all at
Borrower's expense.
Financial Statements. Furnish Lender with, as soon as available, but in no event
later than ninety (90) days after the end of each fiscal year, Borrower's
balance sheet, income statement, and statement of changes in financial position
for the year ended, audited by a certified public accountant satisfactory to
Lender, together with the management letter, if any, prepared by such
accountants promptly upon receipt, and, as soon as available, but in no event
later than forty five (45) days after the end of each fiscal quarter, Borrower's
balance sheet, income statement, and statement of changes in financial position
for the period ended, prepared and certified, subject to year-end review
adjustments, as correct to the best knowledge and belief by Borrower's chief
financial officer or other officer or person acceptable to Lender. All financial
reports required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
5
<PAGE>
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.
Insurance. Maintain fire and other risk insurance, public liability insurance,
business interruption insurance and such other insurance as Lender may require
with respect to Borrower's properties and operations, in form, amounts,
coverages and with insurance companies reasonably acceptable to Lender.
Borrower, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at least
thirty (30) days' prior written notice to Lender. In connection with all
policies covering assets in which Lender holds or is offered a Security Interest
for the Loans, Borrower will provide Lender with such lender loss payable or
other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
Insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties
insured; (e) the then current property values on the basis of which insurance
has been obtained, and the manner of determining those values; and (f) the
expiration date of the policy.
Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between Borrower and any other party and
notify Lender immediately in writing of any default in connection with any other
such agreements.
Loan Fees and Charges. In addition to all other agreed upon fees and charges,
pay the following: Facility Fee $2500.00.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations,
unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and
obligations, including without limitation all assessments, taxes, governmental
charges, levies and liens, of every kind and nature, imposed upon Borrower or
its properties, income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien or charge
upon any of Borrower's properties, income, or profits; provided however,
Borrower will not be required to pay and discharge any such assessment, tax,
charge, levy, lien or claim so long as (a) the legality of the same shall be
contested in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting principles. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
6
<PAGE>
Performance. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner, and
promptly notify Lender if Borrower learns of the occurrence of any event which
constitutes an Event of Default under this Agreement or under any of the Related
Documents.
Operations. Conduct its business affairs in a reasonable and prudent manner and
in compliance with all applicable federal, state and municipal laws, ordinances,
rules and regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans With
Disabilities Act, all applicable environmental statutes, rules, regulations and
ordinances and with all minimum funding standards and other requirements of
ERISA and other laws applicable to Borrower's employee benefit plans.
Environmental Compliance and Reports. Borrower shall comply in all respects with
all federal, state and local environmental laws, statutes, regulations and
ordinances; not cause or permit to exist, as a result of an intentional or
unintentional action or omission on its part or on the part of any third party,
on property owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental activity is
pursuant to and in compliance with the conditions of a permit issued by the
appropriate federal, state or local governmental authorities; and furnish to
Lender promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning any
intentional or unintentional action or omission on Borrower's part in connection
with any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all Security
Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Maintain Basic Business. Engage in any business activities substantially
different than those in which Borrower is presently engaged.
Continuity of Operations. Cease operations, liquidate, dissolve or merge or
consolidate with or into any other entity.
Indebtedness. Create, incur or assume additional indebtedness for borrowed
money, including capital leases, or guarantee any indebtedness owing by others,
other than (a) current unsecured trade debt incurred in the ordinary course of
business, (b) indebtedness owing to Lender, (c) borrowings outstanding as of the
date hereof and disclosed to Lender in writing, and (d) any borrowings otherwise
approved by Lender in writing.
Liens. Mortgage, assign, pledge, grant a security interest in or otherwise
encumber Borrower's assets, except as allowed as a Permitted Lion.
7
<PAGE>
Transfer of Assets. Transfer, sell or otherwise dispose of any of Borrower's
assets other than in the ordinary course of business.
Change In Management. Permit a change in the senior executive or management
personnel of Borrower.
Transfer of Ownership. Permit the sale, pledge or other transfer of any
ownership interest in Borrower.
Investments. Invest in, or purchase, create, form or acquire any interest in,
any other enterprise or entity.
CONDITIONS PRECEDENT TO ADVANCES. If Lender is obligated to make any Loan
advances or to otherwise disburse any Loan proceeds to Borrower, such obligation
shall be subject to the conditions precedent that as of the date of such advance
or disbursement and after giving effect thereto (a) all representations and
warranties made to Lender in this Agreement and the Related Documents shall be
true and correct as of and as if made on such date, (b) no material adverse
change in the financial condition of Borrower or any Guarantor since the
effective date of the most recent financial statements furnished to Lender, or
in the value of any Collateral, shall have occurred and be continuing, (c) no
event has occurred and is continuing, or would result from the requested advance
or disbursement, which with notice or lapse of time, or both, would constitute
an Event of Default, (d), no Guarantor has sought, claimed or otherwise
attempted to limit, modify or revoke such Guarantor's guaranty of any Loan, and
(e) Lender has received all Related Documents appropriately executed by Borrower
and all other proper parties.
ADDITIONAL AFFIRMATIVE COVENANT - MAXIMUM FUNDED DEBT TO EBITDA. Borrower
further covenants and agrees with Bank that, while this agreement is in effect,
Borrower will comply at all times with the following ratio: Maintain as of the
end of each fiscal quarter, a ratio of (a) funded debt, for the twelve month
period then ending, to (b) net income before taxes, plus depreciation,
amortization and interest, for the same twelve month period, of not more than
1.00 to 1.00. "Funded Debt" means (a) all obligations of Borrower (including,
without limitation, all fees, costs or unpaid accrued interest) for or with
respect to borrowed money or for the deferred purchase price of property or
services, except current accounts payable arising in the ordinary course of
business; (b) all obligations of Borrower treated or arising under any
conditional sale or other title retention agreement with respect to any property
acquired by Borrower and all obligations created or arising under such agreement
even though the rights and remedies of the seller or bank thereunder are limited
to repossession of sale of such property in the event of default; (c) all
obligations of Borrower under leases which shall have been or should be recorded
as capitalized leases in accordance with generally accepted accounting
principles; (d) all guarantees and other obligations (contingent or otherwise)
of Borrower to assure a creditor against loss (including, without limitation,
letters of responsibility or comfort letters, arrangements to purchase or
repurchase property or obligations to pay for property, goods or services,
whether or not delivered or rendered to maintain working capital equity capital
or other financial statement condition of, or to tend or contribute or invest
in, any other entity); (e) an endorsements of Borrower (other than in the case
of instruments for deposit or collection in the ordinary course of business);
(f) all obligations of Borrower for extensions of credit including the face
amount of letters of credit to or on behalf of Borrower, whether or not
representing obligation for borrowed money; and (g) all obligations or
Indebtedness described in clauses (a) through (f) secured by a lien on any
property owned by Borrower whether or not Borrower has assumed or become liable
for the payment thereof. The phrase "EBITDA" means the sum of net income before
taxes, plus interest expense, depreciation, and amortization.
8
<PAGE>
ADDITIONAL AFFIRMATIVE COVENANT - DEBT TO TANGIBLE NET WORTH RATIO. Borrower
further covenants and agrees with Lender that, while this Agreement is in
effect, Borrower will comply at all times with the following ratio: Maintain as
of the end of each fiscal quarter; a ratio of (a) total liabilities, to (b)
Tangible Net Worth of less than 1.2 to 1.00. For purposes of this Agreement and
to the extent the following terms are utilized in this Agreement: The term
"Tangible Net Worth" shall mean borrower's total assets excluding all intangible
assets (including, without limitation, goodwill, trademarks, patents,
copyrights, organization expenses, and similar intangible items) less total
liabilities excluding Subordinated Debt. The term "Subordinated Debt" shall mean
all indebtedness owing by Borrower which has been subordinated by written
agreement to all Indebtedness now or hereafter owing by Borrower to Lender, such
agreement to be in form and substance acceptable to Lender. The term "Working
Capital" shall mean Borrower's liquid Assets plus inventory, less current
liabilities. The term "Liquid Assets", shall mean borrower's unencumbered cash,
marketable securities and accounts receivable net of reserves. The term
"Adjusted Net Income" means earnings before interest, taxes, depreciation and
amortization, plus lease expense, and depletion, less any distributions. The
term "Distributions", shall mean all dividends and other distributions made by
borrower to its shareholders, partners, owners or members, as the case may be,
other than salary, bonuses and other compensation for services expanded in the
current accounting period. The term "Fixed Charges" mean interest expense plus
lease expense, current maturities of long-term debt and current maturities of
capital leases. The term "Cash Flow" shall mean net income after taxes, and
exclusive of extraordinary items, plus depreciation and amortization. Except as
provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or any other account), including without
limitation all accounts held jointly with someone else and all accounts Borrower
may open in the future. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on any
of the Indebtedness.
Other Defaults. Failure of Borrower, any Guarantor or any Grantor to comply with
or to perform when due any other term, obligation, covenant or condition
contained in this Agreement, the Note or in any of the other Related Documents,
or failure of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement now existing or hereafter
arising between Lender and Borrower.
9
<PAGE>
False Statements. Any warranty, representation or statement made or furnished to
Lender under this Agreement or the Related Documents is false or misleading in
any material respect.
Default to Third Party. The occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing by Borrower, Grantor or
any Guarantor to any third party under any agreement or undertaking.
Bankruptcy or Insolvency. If the Borrower, Grantor or any Guarantor: (i) becomes
insolvent, or makes a transfer in fraud of creditors, or makes an assignment for
the benefit of creditors, or admits in writing its inability to pay its debts as
they become due; (ii) generally is not paying its debts as such debts become
due, (iii) has a receiver, trustee or custodian appointed for, or take
possession of, all or substantially all of the assets of such party or any of
the Collateral, either in a proceeding brought by such party or in a proceeding
brought against such party and such appointment is not discharged or such
possession is not terminated within sixty (60) days after the effective date
thereof or such party consents to or acquiesces in such appointment or
possession; (iv) files a petition for relief under the United States Bankruptcy
Code or any other present or future federal or state insolvency, bankruptcy or
similar laws (all of the foregoing hereinafter collectively called "Applicable
Bankruptcy Law") or an involuntary petition for relief is filed against such
party under any Applicable Bankruptcy Law and such involuntary petition is not
dismissed within sixty (60) days after the filing thereof, or an order for
relief naming such party is entered under any Applicable Bankruptcy Law, or any
composition, rearrangement, extension, reorganization or other relief of debtors
now or hereafter existing is requested or consented to by such party; (v) fails
to have discharged within a period of sixty (60) days any attachment,
sequestration or similar writ levied upon any property of such party; or (vi)
fails to pay within thirty (30) days any final money judgment against such
party.
Liquidation, Death and Related Events. If Borrower, Grantor or any Guarantor is
an entity, the liquidation, dissolution, merger or consolidation of any such
entity or, if any of such parties is an individual, the death or legal
incapacity of any such individual.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor against
any collateral securing the Indebtedness, or by any governmental agency.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, Lender may,
at its option, without further notice or demand, (a) terminate all commitments
and obligations of Lender to make Loans to Borrower, if any, (b) declare all
Loans and any other Indebtedness immediately due and payable, (c) refuse to
advance any additional amounts under the Note, or (d) exercise all the rights
and remedies provided in the Note or in any of the Related Documents or
available at law, in equity, or otherwise; provided, however, if any Event of
Default of the type described in the "Bankruptcy or Insolvency" subsection above
shall occur, all Loans and any other Indebtedness shall automatically become due
and payable, without any notice, demand or action by Lender. Except as may be
prohibited by applicable law, all of Lender's rights and remedies shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedies shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Borrower or any Grantor shall not affect Lender's right to declare a default and
to exercise its rights and remedies.
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<PAGE>
MISCELLANEOUS PROVISIONS.
Amendments. This Agreement, together with any Related Documents, constitutes the
entire understanding and agreement of the parties as to the matters set forth in
this Agreement. No alteration of or amendment to this Agreement shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of Indiana. Subject to the provisions on arbitration, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Indiana without regard to any conflict of laws or provisions thereof.
JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER ARISING OUT OF OR IN
ANY WAY RELATED TO THIS DOCUMENT, AND ANY OTHER RELATED DOCUMENT, OR ANY
RELATIONSHIP BETWEEN LENDER AND THE BORROWER. THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER
RELATED DOCUMENTS.
ARBITRATION. Lender and Borrower agree that upon the written demand of either
party, whether made before or after the institution of any legal proceedings,
but prior to the rendering of any judgment in that proceeding, all disputes,
claims and controversies between them, whether individual, joint, or class in
nature, arising from this Agreement, any Related Document or otherwise,
including without limitation contract disputes and tort claims, shall be
resolved by binding arbitration pursuant to the Commercial Rules of the American
Arbitration Association ("AAA"). Any arbitration proceeding held pursuant to
this arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of any Collateral shall
constitute a waiver of this arbitration agreement or be prohibited by this
arbitration agreement. This arbitration provision shall not limit the right of
either party during any dispute, claim or controversy to seek, use, and employ
ancillary, or preliminary rights and/or remedies, judicial or otherwise, for the
purposes of realizing upon, preserving, protecting, foreclosing upon or
proceeding under forcible entry and detainer for possession of, any real or
personal property, and any such action shall not be deemed an election of
remedies. Such remedies include, without limitation, obtaining injunctive relief
or a temporary restraining order, invoking a power of sale under any deed of
trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property, including
exercising the right of set-off, or taking or disposing of such property with or
without judicial process pursuant to the Uniform Commercial Code. Any disputes,
claims, or controversies concerning the lawfulness or reasonableness of an act,
or exercise of any right or remedy, concerning any Collateral, including any
claim to rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated; provided, however that no arbitrator shall
have the right or the power to enjoin or restrain any act of either party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding, and the commencement of
an arbitration proceeding shall be deemed the commencement of any action for
these purposes. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
11
<PAGE>
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or
transfer, whether now or later, of one or more participation interests in the
Loans to one or more purchasers, whether related or unrelated to Lender. Lender
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any Information or knowledge Lender may have about
Borrower or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's expenses,
including attorneys' fees, incurred in connection with the preparation,
execution, enforcement, modification and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement. Lender may hire one
or more attorneys to help collect the Indebtedness if Borrower does not pay, and
Borrower will pay Lender's reasonable attorneys' fees.
Notices. All notices required to be given under this Agreement shall be given in
writing, and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address. For
notice purposes, Borrower will keep Lender informed at all times of Borrower's
current address(es).
Severabillity. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which together shall constitute
the same document. Signature pages may be detached from the counterparts to a
single copy of this Agreement to physically form one document.
Successors and Assigns. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the benefit
of Lender, its successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest therein, without
the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by Borrower
to Lender under this Agreement shall be considered to have been relied upon by
Lender and will survive the making of the Loan and delivery to Lender of the
Related Documents, regardless of any investigation made by Lender or on Lender's
behalf.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor or Guarantor, shall
constitute a waiver of any of Lender's rights or of any obligations of Borrower
or of any Grantor as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
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<PAGE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS EXECUTED AS OF
THE DATE SET FORTH ABOVE.
BORROWER:
MADE2MANAGE SYSTEMS, INC.
- --------------------------------------------
Authorized Officer
LENDER:
Bank One, Indiana, NA
By:-----------------------------------------
Authorized Officer
13
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$2,000,000.00 03-19-1999 03-31-2000 187699 001 0159246284 00582
<FN>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Borrower: MADE2MANAGE SYSTEMS, INC. Lender: Bank One, Indiana, NA
9002 PURDUE ROAD 111 Monument Circle
INDIANAPOLIS, IN 46268 Indianapolis, IN 46277
</TABLE>
Principal Amount: $2,000,000.00 Date of Note: March 19, 1999
PROMISE TO PAY. For value received, MADE2MANAGE SYSTEMS, INC. ("Borrower")
promises to pay to Bank One, Indiana, NA ("Lender"), or order, in lawful money
of the United States of America, the principal amount of Two Million & 00/100
Dollars ($2,000,000.00) ("Total Principal Amount") or so much as may be
outstanding, together with interest on the unpaid outstanding principal balance
from the date advanced until paid in full.
PAYMENT. This Note shall be payable as follows: Interest shall be due and
payable monthly as it accrues, commencing on April 30, 1999 and continuing on
the same day of each month thereafter during the term of this Note, and the
outstanding principal balance of this Note, together with all accrued but unpaid
Interest, shall be due and payable on March 31, 2000. The annual interest rate
for this Note is computed on a 365/360 basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at the address designated by Lender
from time to time in writing. If any payment of principal of or interest on this
Note shall become due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day. As used herein, the term "Business
Day" shall mean any day other than a Saturday, Sunday or any other day on which
national banking associations are authorized to be closed. Unless otherwise
agreed to, in writing, or otherwise required by applicable law, payments will be
applied first to accrued, unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs, late charges and other charges, provided,
however, upon delinquency or other default, Lender reserves the right to apply
payments among principal, interest, late charges, collection costs and other
charges at its discretion. The books and records of Lender shall be prima facie
evidence of all outstanding principal of and accrued but unpaid interest on this
Note. If this Note is governed by or is executed in connection with a loan
agreement, this Note is subject to the terms and provisions thereof.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to fluctuation
based upon the Prime Rate of interest in effect from time to time (the "Index")
(which rate may not be the lowest, beat or most favorable rate of interest which
Lender may charge on loans to its customers). "Prime Rate" shall mean the rate
announced from time to time by Lender as its prime rate. Each change in the rate
to be charged an this Note will become effective without notice on the same day
as the Index changes. Except as otherwise provided herein, the unpaid principal
balance of this Note will accrue Interest at a rate per annum which will from
time to time be equal to the sum of the Index, plus 0.000%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
1
<PAGE>
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
fee all or a portion of the principal amount owed hereunder earlier than it is
due. All prepayments shall be applied to the indebtedness owing hereunder in
such order and manner as Lender may from time to time determine in its sole
discretion.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under this
Note or any other indebtedness owing now or hereafter by Borrower to Lender; (b)
failure of Borrower or any other party to comply with or perform any term,
obligation, covenant or condition contained in this Note or in any other
promissory note, credit agreement, loan agreement, guaranty, security agreement,
mortgage, deed of trust or any other instrument, agreement or document, whether
now or hereafter existing, executed in connection with this Note (the Note and
all such other instruments, agreements, and documents shall be collectively
known herein as the "Related Documents"); (c) Any representation or statement
made or furnished to Lender herein, in any of the Related Documents or in
connection with any of the foregoing is false or misleading in any material
respect; (d) Borrower or any other party liable for the payment of this Note,
whether as maker, endorser, guarantor, surety or otherwise, becomes insolvent or
bankrupt, has a receiver or trustee appointed for any part of its property,
makes an assignment for the benefit of its creditors, or any proceeding is
commenced either by any such party or against it under any bankruptcy or
insolvency laws; (e) the occurrence of any event of default specified in any of
the other Related Documents or in any other agreement now or hereafter arising
between Borrower and Lender; (f) the occurrence of any event which permits the
acceleration of the maturity of any indebtedness owing now or hereafter by
Borrower to any third party; or (g) the liquidation, termination, dissolution,
death or legal incapacity of Borrower or any other party liable for the payment
of this Note, whether as maker, endorser, guarantor, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice
or demand (i) declare the entire unpaid principal balance on this Note and all
accrued unpaid interest immediately due, (ii) refuse to advance any additional
amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv)
pursue any other rights, remedies and recourses available to the Lender,
including without limitation, any such rights, remedies or recourses under the
Related Documents, at law or in equity, or (v) pursue any combination of the
foregoing. Upon default resulting from the bankruptcy or insolvency of the
Borrower as described in clause (a) above under the heading "DEFAULTS", the
unpaid principal balance of this Note and all accrued but unpaid interest
thereon shall automatically become due and payable immediately and shall not be
subject to the discretion of Lender. Upon default, including failure to pay upon
final maturity, Lender, at its option, may also do one or both of the following:
(a) increase the variable interest rate on this Note to 3.000 percentage points
over the Index, and (b) add any unpaid accrued interest to principal and such
sum will bear interest therefrom until paid at the rate provided in this Note
(including any increased rate). The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire an attorney to help collect
this Note if Borrower does not pay and Borrower will pay Lender's reasonable
attorneys' fees and all other costs of collection, unless prohibited by
applicable law. This Note has been delivered to Lender and accepted by Lender in
the State of Indiana. Subject to the provisions on arbitration, this Note shall
be governed by and construed in accordance with the laws of the State of Indiana
without regard to any conflict of laws or provisions thereof.
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PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall be
used solely for business, commercial, agricultural or other similar purposes.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG THE BORROWER AND LENDER ARISING OUT OF OR IN ANY
WAY RELATED TO THIS NOTE, ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP
BETWEEN LENDER AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER
TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or any other account), including without
limitation all accounts held jointly with someone else and all accounts Borrower
may open in the future. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower may
request advances and make payments hereunder from time to time, provided that it
is understood and agreed that the aggregate principal amount outstanding from
time to time hereunder shall not at any time exceed the Total Principal Amount.
The unpaid principal balance of this Note shall increase and decrease with each
new advance or payment hereunder, as the case may be. Subject to the terms
hereof, Borrower may borrow, repay and reborrow hereunder. Advances under this
Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender.
ARBITRATION. Lender and Borrower agree that upon the written demand of either
party, whether made before or after the institution of any legal proceedings,
but prior to the rendering of any judgment in that proceeding, all disputes,
claims and controversies between them, whether individual, joint, or class in
nature, arising from this Note, any Related Document or otherwise, including
without limitation contract disputes and tort claims, shall be resolved by
binding arbitration pursuant to the Commercial Rules of the American Arbitration
Association ("AAA"). Any arbitration proceeding held pursuant to this
arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of any collateral shall
constitute a waiver of this arbitration agreement or be prohibited by this
arbitration agreement. This arbitration provision shall not limit the right of
either party during any dispute, claim or controversy to seek, use, and employ
ancillary, or preliminary rights and/or remedies, judicial or otherwise, for the
purposes of realizing upon, preserving, protecting, foreclosing upon or
proceeding under forcible entry and detainer for possession of, any real or
personal property, and any such action shall not be deemed an election of
remedies. Such remedies include, without limitation, obtaining injunctive relief
or a temporary restraining order, invoking a power of sale under any deed of
trust or mortgage, obtaining a writ of attachment or imposition of a
receivership, or exercising any rights relating to personal property, including
exercising the right of set-off, or taking or disposing of such property with or
without judicial process pursuant to the Uniform Commercial Code. Any disputes,
claims, or controversies concerning the lawfulness or reasonableness of an act,
or exercise of any right or remedy, concerning any collateral, including any
claim to rescind, reform, or otherwise modify any agreement relating to the
collateral, shall also be arbitrated; provided, however that no arbitrator shall
have the right or the power to enjoin or restrain any act of either party.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. The statute of limitations, estoppel, waiver, laches and
similar doctrines which would otherwise be applicable in an action brought by a
party shall be applicable in any arbitration proceeding, and the commencement of
an arbitration proceeding shall be deemed the commencement of any action for
these purposes. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
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ADDITIONAL PROVISION REGARDING LATE CHARGES. In the "Late Charge" provision set
forth above, the following language is hereby added after the word "greater":
"up to the maximum amount of One Thousand Five Hundred Dollars ($1500.00) per
late charge".
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this Note, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this Note without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
MADE2MANAGE SYSTEMS, INC.
- ----------------------------------------------
Authorized Officer
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MADE2MANAGE SYSTEMS, INC.
1999 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
Section 1.01. Establishment and Term of Plan. Made2Manage Systems, Inc., an
Indiana corporation, has established the Made2Manage Systems, Inc. 1999 Stock
Option Plan, effective as of April 20, 1999.
Section 1.02. Purpose of the Plan. The Plan is intended to promote the growth of
the Company by attracting and motivating key Employees, Directors, Consultants,
independent contractors, vendors, suppliers, and other persons providing
services to the Company whose efforts are deemed worthy of encouragement through
the incentive effects of stock options.
ARTICLE II
DEFINITIONS
When capitalized in this Plan, unless the context otherwise requires:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Board of Directors" or "Board" means the Board of Directors of the
Company. To the extent that the Board has delegated its authority hereunder
to a Committee pursuant to Section 3.01, any reference hereunder to the
"Board of Directors" or "Board" shall be deemed a reference to the
Committee.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(d) "Committee" means the committee, if any, designated by the Board pursuant
to Section 3.01.
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Made2Manage Systems, Inc.
(g) "Consultant" means any person who is engaged by the Company or a Parent or
Subsidiary to render consulting services.
(h) "Continuous Status" means the absence of any interruption or termination of
service as an Employee, Director, Consultant, or other person providing
services on a regular basis to the Company or a Parent or Subsidiary.
Continuous Status of an Employee shall not be considered interrupted in the
case of sick leave, military leave, or any other leave of absence approved
by the Board, provided that either (i) the leave is for a period not
exceeding 90 days or (ii) reemployment upon the expiration of the leave is
provided or guaranteed by contract or statute.
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(i) "Director" means any person serving on the Board.
(j) "Employee" means any person employed as a common law employee by the
Company or a Parent or Subsidiary.
(k) "Fair Market Value" means the fair market value of a Share on the
applicable date, as determined pursuant to this subsection. If the Common
Stock is publicly traded, Fair Market Value as of a date shall be the
average of the closing bid and asked prices of a Share on such date, as
reported by the market or exchange on which the Common Stock is traded, or
if the closing bid and asked prices are not reported, the closing sale
price as so reported. If the Common Stock is not traded publicly, the Fair
Market Value of a Share shall be determined, in good faith, by the Board,
taking into account such factors affecting value as it, in its discretion,
deems relevant.
(l) "Incentive Option" means a stock option issued pursuant to the Plan that is
intended to satisfy the requirements of Code Section 422.
(m) "Non-Employee Director" means any Director who is not an Employee.
(n) "Non-Qualified Option" means a stock option issued pursuant to the Plan
that is not intended to satisfy the requirements of Code Section 422.
(o) "Option" means a stock option issued pursuant to the Plan. Options may be
either Incentive Options or Non-Qualified Options.
(p) "Option Agreement" means the written agreement containing the terms and
conditions of an Option.
(q) "Optioned Shares" means the Shares subject to an Option.
(r) "Optionee" means a person who receives an Option.
(s) "Parent" means a parent corporation of the Company, whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(t) "Plan" means the Made2Manage Systems, Inc. 1999 Stock Option Plan, as
amended from time to time.
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(u) "Retire" or "Retirement" means, with respect to Employee Optionee, that the
employment relationship has terminated for a reason other than disability
or death either (i) after the Optionee has reached age 65 or (ii), with the
consent of the Board, before the Optionee has reached age 65.
(v) "Share" means a share of Common Stock.
(w) "Subsidiary" means a subsidiary corporation of the Company, whether now or
hereafter existing, as defined in Section 424(f) of the Code.
ARTICLE III
ADMINISTRATION
Section 3.01. General Provisions. The Plan shall be administered by the Board;
provided, however, the Board may delegate some or all of its responsibilities
and authority hereunder to a Committee consisting solely of two or more
Non-Employee Directors. The Board shall have full authority to administer the
Plan, including authority to construe any provision of the Plan and to adopt
such rules and regulations for administering the Plan as it may deem necessary
or appropriate. The Board may reserve to itself any of the authority granted to
the Committee, and it may perform and discharge all of the functions and
responsibilities of the Committee at any time that a duly constituted Committee
is not appointed and serving.
Section 3.02. Actions of the Board. All actions taken and all interpretations
and determinations made in good faith by the Board, including determinations of
Fair Market Value, shall be final and binding upon all Optionees, the Company,
and all other interested persons. No member of the Board shall be personally
liable for any action, determination, or interpretation made in good faith with
respect to the Plan, and all members of the Board shall, in addition to their
rights as Directors, be fully protected by the Company with respect to any such
action, determination, or interpretation.
Section 3.03. Powers of the Board of Directors. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion, (i) to determine,
upon review of the relevant information, the Fair Market Value of the Common
Stock; (ii) to determine the persons to whom Options shall be granted, the time
or times at which Options shall be granted, the number of Shares to be
represented by each Option, and the exercise price per Share; (iii) to interpret
the Plan; (iv) to prescribe, amend, and rescind rules and regulations relating
to the Plan; (v) to determine whether an Option shall be an Incentive Option or
a Non-Qualified Option, to determine the terms and provisions of an Option, and,
with the consent of the Optionee, to modify an Option, including reductions in
the exercise price thereof; (vi) to accelerate or defer, with the consent of the
Optionee, the exercise date of an Option; (vii) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; and (viii) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
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ARTICLE IV
ELIGIBILITY AND PARTICIPATION
Section 4.01. Eligibility. Options may be granted to any Employee, Consultant,
Non-Employee Director, independent contractor, vendor, supplier, or other person
providing services to the Company or a Parent or Subsidiary whose efforts are
deemed worthy of encouragement by the Board; provided, however, an Incentive
Option may be granted only to an Employee.
Section 4.02. Participation by Director. Board members who either are eligible
for Options or have been granted Options may vote on any matters affecting the
administration of the Plan or the grant of Options pursuant to the Plan, except
that no Director shall act on granting an Option to himself or herself;
provided, however, a Director may be counted in determining the existence of a
quorum at a Board meeting and may be counted as part of an action by unanimous
written consent granting an Option to him or her.
Section 4.03. Automatic Grants to Non-Employee Directors.
(a) Initial Grants. If an individual first becomes a Non-Employee Director
after April 19, 1999, he or she shall automatically be granted an Option
to purchase 5,000 Shares. Such grant shall be effective as of the date on
which the individual becomes a Non-Employee Director.
(b) Annual Grants. Each Non-Employee Director shall automatically be granted
an Option to purchase 5,000 Shares on each anniversary of the most recent
grant of options to such individual in his or her capacity as a
Non-Employee Director provided that he or she is a Non-Employee Director
on such anniversary date.
(c) Date Options Become Exercisable. Unless otherwise established by the
Board, each Option granted under this Section 4.03 shall be fully
exercisable as to all Shares subject to the Option on the effective date
of the grant.
(d) Termination of Option. Options granted pursuant to this Section 4.03 shall
terminate on the earliest of (i) ten years after the effective date of the
grant, (ii) as provided in Article VII, or (iii) such earlier date as
required by any other provision of this Plan.
(e) Option Price. The Option price for each Share granted to a Non-Employee
Director pursuant to this Section 4.03 shall be its Fair Market Value on
the effective date of the grant.
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ARTICLE V
TERMS AND CONDITIONS OF OPTIONS
Section 5.01. Exercise Price. The exercise price of any Option with respect to a
Share shall be not less than 100% of the Fair Market Value of a Share on the
date of the Option grant. If an Incentive Option is granted to an Optionee who
then owns stock possessing more than 10% of the total combined voting power or
value of all classes of stock of the Company or a Parent or Subsidiary, the
exercise price of such Incentive Option with respect to a Share shall be at
least 110% of the Fair Market Value of a Share on the date of the Option grant.
Section 5.02. Consideration. The exercise price shall be paid in full, at the
time of exercise, by personal or bank cashier's check or in such other form of
lawful consideration as the Board may approve from time to time, including,
without limitation, the transfer of outstanding Shares, the withholding of
Optioned Shares as provided in Section 7.03, or the Optionee's promissory note
in form satisfactory to the Company and bearing interest at a rate of not less
than 6% per annum.
Section 5.03. Form of Option Agreement. Each Option shall be evidenced by an
Option Agreement specifying the number of Shares that may be purchased upon
exercise of the Option and containing such terms and provisions as the Board may
determine, subject to the provisions of the Plan.
ARTICLE VI
SHARES OF COMMON STOCK SUBJECT TO PLAN
Section 6.01. Number. The aggregate number of Shares subject to Options that may
be granted under the Plan shall be 200,000, adjusted as provided herein. On
January 1, 2000, and on each following January 1 while the Plan is in effect,
the number of shares reserved for issuance pursuant to the preceding sentence
shall be increased by a number equal to 7% of the Base Shares (as defined
below), calculated as of the last day of the preceding fiscal year. The number
of Base Shares as of a date shall be equal to the sum of (i) the number of
shares of Common Stock outstanding on such date and (ii) the number of shares of
Common Stock reserved for issuance upon the exercise of options outstanding as
of such date. To the extent that any Option granted under the Plan shall expire,
terminate unexercised, or for any reason become unexercisable, the Shares
subject to the Option shall thereafter be available for future grants under the
Plan. The Shares available for issuance pursuant to the Plan may be authorized,
unissued, or reacquired Shares.
Section 6.02. Capital Changes. Except as hereinafter provided, no adjustment
shall be made in the number of Shares issued to an Optionee, or in any other
rights of the Optionee upon exercise of an Option, by reason of any dividend,
distribution, or other right granted to shareholders for which the record date
precedes the date of exercise of the Option. If any change is made to the shares
of Common Stock (whether by reason of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares, change in corporate structure, or otherwise), appropriate adjustments
shall be made in (i) the number of Shares subject to Options and the exercise
price with respect to such Shares and (ii) the aggregate number of Shares that
may be made subject to Options. If any of the foregoing adjustments results in a
fractional share, the fraction shall be disregarded, and the Company shall have
no obligation to make any cash or other payment with respect to the fractional
share.
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ARTICLE VII
EXERCISE OF STOCK OPTIONS
Section 7.01. Time of Exercise. Subject to the provisions of the Plan, including
without limitation Section 4.03, Section 7.04, and Article VIII, the Board, in
its discretion, shall determine when an Option, or a portion of an Option, shall
become exercisable, and when an Option, or a portion of an Option, shall expire;
provided, however, (i) an Option shall expire, to the extent not exercised, no
later than the tenth anniversary of the grant date, and (ii) an Incentive Option
granted to a person who owns shares possessing more than 10% of the total
combined voting power or value of all classes of stock of the Company or a
Parent or Subsidiary shall expire no later than the fifth anniversary of the
grant date.
Section 7.02. Notice of Exercise. An Optionee electing to exercise an Option
shall give written notice to the Company, as specified by the Option Agreement,
of his or her election to purchase a specified number of Shares. Such notice
shall be accompanied by the documents required by the Company and a tender of
the exercise price. If the notice of exercise is given by the executor or
administrator of a deceased Optionee, or by the person or persons to whom the
Option has been transferred by the Optionee's will or the applicable laws of
descent and distribution, the Company shall not be required to deliver Shares
pursuant to the exercise unless and until the Company is satisfied that the
person or persons giving such notice is or are entitled to exercise the Option.
Section 7.03. Exchange of Outstanding Stock or Optioned Shares. As part or full
payment for the exercise of an Option, the Board may, in its sole discretion,
permit an Optionee to (i) surrender to the Company Shares acquired by the
Optionee at least six months before such surrender or (ii) authorize the Company
to withhold Optioned Shares. Such surrendered Shares shall be valued at their
Fair Market Value on the date of exercise of the Option.
Section 7.04. Termination of Continuous Status. If an Optionee's Continuous
Status ends for any reason (other than an Employee or Non-Employee Director
Optionee's death or disability or an Employee Optionee's Retirement as provided
below), any Option then held by the Optionee or the Optionee's estate, to the
extent then exercisable, shall remain exercisable after the termination of
Continuous Status for a period of 30 days, beginning on the date of such
termination (or such longer period as the Board may allow, either in the form of
an Option Agreement or by Board action). If the Option is not exercised during
this period, it shall be deemed to have been forfeited and be of no further
force or effect. Notwithstanding the foregoing, if the Optionee's relationship
with the Company is terminated (i) for "cause" (as hereinafter defined) or (ii)
due to his or her expropriation of Company property (including trade secrets or
other proprietary rights), the Board may terminate the Option immediately by
notice to the Optionee. As used herein, "cause" shall mean that the Optionee has
(i) willfully and intentionally engaged in material misconduct or gross neglect
of duties or has been grossly negligent in failing to act, which act or failure
has materially and adversely affected the business or affairs of the Company,
(ii) has committed an act of fraud or an act not approved by the Board involving
a material conflict of interest or self-dealing adverse to the Company, (iii)
has been convicted of a felony or any offense involving moral turpitude, or (iv)
has unreasonably failed to comply with any reasonable direction from the Board
with respect to a major policy decision affecting the Company.
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Section 7.05. Retirement. If an Employee Optionee Retires, the Optionee may
exercise the unexercised portion of any Option, regardless of whether otherwise
exercisable on the date of the Optionee's Retirement, at any time or times
before the earlier of (i) the end of the original Option term or (ii) 12 months
after Retirement. Except as so exercised, the Option shall expire at the end of
such period.
Section 7.06. Disability. If an Employee or Non-Employee Director Optionee
becomes disabled (within the meaning of Section 22(e)(3) of the Code), the
Optionee may exercise the unexercised portion of any Option, regardless of
whether otherwise exercisable on the date of the Optionee's disability, at any
time or times before the earlier of (i) the end of the original Option term or
(ii) 12 months after the Optionee becomes disabled. Except as so exercised, the
Option shall expire at the end of such period.
Section 7.07. Death. If an Employee or Non-Employee Director Optionee dies, the
Optionee's executor or administrator or the person(s) to whom the Option is
transferred by will or the applicable laws of descent and distribution may
exercise the unexercised portion of any Option, regardless of whether otherwise
exercisable on the date of the Optionee's death, at any time or times before the
earlier of (i) the end of the original Option term or (ii) 12 months after the
Optionee's death (or such longer period as the Board may allow), and except as
so exercised, the Option shall expire at the end of such period.
Section 7.08. Disposition of Terminated Options. Any Shares subject to Options
that have been terminated as provided above shall not thereafter be eligible for
purchase by the Optionee, but they shall again be available for grant by the
Board to other Optionees.
Section 7.09. Registration of Optioned Shares. The Options shall not be
exercisable unless purchase of the Optioned Shares is pursuant to an effective
registration statement filed pursuant to the Act, or unless, in the opinion of
counsel to the Company, the proposed purchase of the Optioned Shares would be
exempt from the registration requirements of the Act.
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ARTICLE VIII
SPECIAL PROVISIONS RELATING TO INCENTIVE OPTIONS
The Company shall not grant Incentive Options to an Optionee to the extent that
the aggregate Fair Market Value of the Shares covered by such Incentive Options
that are exercisable for the first time by the Optionee during any calendar
year, when combined with the aggregate Fair Market Value of all stock covered by
incentive stock options (as defined in Code Section 422) granted to the Optionee
by the Company or a Parent or Subsidiary that are exercisable for the first time
during the same calendar year, exceeds $100,000. Incentive Options shall be
granted only to persons who, on the date of grant, are Employees. If the grant
of Options pursuant to this Plan causes the $100,000 limitation of this Article
to be exceeded for a year, the Options in excess of such amount shall be deemed
to be Non-Qualified Options. Whether a particular Option is to be deemed a
Non-Qualified Option pursuant to the preceding sentence shall be determined by
taking Options into account in the order in which they were granted.
ARTICLE IX
MISCELLANEOUS
Section 9.01. No Contract of Employment. Unless otherwise expressed in a writing
signed by an authorized officer of the Company, all Employees are considered to
be "at-will employees." Nothing in this Plan shall confer upon any Optionee the
right to continue in the employ of the Company or a Parent or Subsidiary, nor
shall it limit or restrict the right of the Company or a Parent or Subsidiary to
discharge the Optionee at any time, with or without cause.
Section 9.02. No Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any Shares subject to an Option.
Section 9.03. Nontransferability of Options; Death of Optionee. No Option
acquired by an Optionee shall be assignable or transferable by the Optionee,
other than by will or the laws of descent and distribution, and such Options are
exercisable, during the Optionee's lifetime, only by the Optionee. Subject to
Section 7.07, in the event of Optionee's death, the Option may be exercised by
the personal representative of the Optionee's estate, or if no personal
representative has been appointed, by the successor(s) in interest determined
under the Optionee's will or under the applicable laws of descent and
distribution.
ARTICLE X
LIQUIDATION OR MERGER OF THE COMPANY
Section 10.01. Liquidation. The Option shall terminate immediately before any
dissolution or liquidation of the Company, unless otherwise provided by the
Board. The Board, in its discretion, may declare that any Option shall terminate
as of a date fixed by the Board, and give each Optionee the right to exercise
his or her Option, as to all or any part of the Shares covered by the Option,
including Shares as to which the Option would not otherwise be exercisable.
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Section 10.02. Sale of Assets, Merger, or Consolidation. In the event of a
proposed sale of all or substantially all of the assets of the Company, or the
merger or consolidation of the Company with or into another corporation in a
transaction in which the Company does not survive, all Options shall vest
immediately and may be fully exercised without regard to the normal vesting
schedules of the Options; provided, however, that if the Board, determines,
after giving due consideration to the effects of any such sale, merger, or
consolidation on the Employees, that such immediate vesting is not in the best
interests of the Company, the Option shall be assumed or an equivalent Option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. If the Option becomes fully exercisable immediately,
the Board shall notify the Optionee that the Option will be fully exercisable
for a period of not fewer than 10 nor more than 60 days from the date of notice
and, if the Option is not exercised, the Option will terminate upon the
expiration of the period and be of no further force or effect.
ARTICLE XI
PLAN AMENDMENT AND TERMINATION
The Board may from time to time amend, suspend, or terminate the Plan, and may
make any changes that it deems appropriate; provided, however, no such action
shall adversely affect the rights of an Optionee with respect to outstanding
Options; and provided further, no such action shall, without the approval of the
Company's shareholders, (i) increase the maximum number of Shares that may be
made subject to Options (unless necessary to effect the adjustments required by
Article VI), (ii) change the limitations on the exercise price or the maximum
term of Options, or (iii) materially lessen the requirements for participation
in the Plan. No such amendment or termination shall materially adversely affect
the rights of any Optionee under any Option previously granted without such
Optionee's prior consent.
ARTICLE XII
TAX WITHHOLDING OBLIGATIONS
Section 12.01. General. The Company or a Parent or Subsidiary may take such
steps as it deems necessary or appropriate to withhold any taxes that the
Company or a Parent or Subsidiary is required by law or regulation to withhold
in connection with any Option, including but not limited to (i) requiring the
Optionee to pay such tax at the time of exercise, (ii) withholding Shares in
accordance with Section 12.02, or (iii), in the Company's sole discretion,
canceling the issuance of any portion of the Shares to be issued pursuant to the
Option in an amount sufficient to reimburse itself for the amount that it is
required to withhold.
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Section 12.02. Satisfying Taxes by Withholding Optioned Shares. Option
Agreements may, at the discretion of the Board, provide that all taxes required
to be withheld or collected from an Optionee upon exercise of an Option may be
satisfied by withholding a sufficient number of exercised Optioned Shares which,
valued at Fair Market Value on the date of exercise, would be equal to the
statutory minimum required tax withholding obligation of the Optionee for the
exercise of such Option; provided, however, if the Company is a public reporting
corporation, no person who is an "officer" of the Company, as such term is
defined in Rule 3b-2 under the Securities Exchange Act of 1934, may elect to
have tax withholding obligations satisfied by the withholding of Optioned
Shares, unless such election would, in the opinion of Company's counsel, satisfy
the requirements of applicable securities laws, including Rule 16b-3 of the
Securities Exchange Act of 1934. Such election shall be deemed made upon receipt
of notice thereof by an officer of the Company, by mail, personal delivery, or
by facsimile message, and shall (unless notice to the contrary is provided to
the Company) be operative for all Option exercises during the 12-month period
following election.
ARTICLE XIII
EFFECTIVE DATE AND TERM OF PLAN
The Plan is effective as of April 20, 1999. No Options shall be granted more
than 10 years after the effective date of the Plan; provided, however, Options
outstanding more than 10 years after the effective date of the Plan shall
continue to be governed by the provisions of the Plan until exercised or
terminated in accordance with the Plan or the respective Option Agreements.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF MADE2MANAGE SYSTEMS, INC. AS OF AND FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,675
<SECURITIES> 4,750
<RECEIVABLES> 10,233
<ALLOWANCES> 637
<INVENTORY> 237
<CURRENT-ASSETS> 26,436
<PP&E> 6,104
<DEPRECIATION> (2,183)
<TOTAL-ASSETS> 33,463
<CURRENT-LIABILITIES> 13,116
<BONDS> 0
0
0
<COMMON> 21,478
<OTHER-SE> (1,131)
<TOTAL-LIABILITY-AND-EQUITY> 33,463
<SALES> 273
<TOTAL-REVENUES> 8,871
<CGS> 191
<TOTAL-COSTS> 8,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 553
<INCOME-TAX> 205
<INCOME-CONTINUING> 348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 348
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
