EXHIBIT 10.13
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SERIES A CONVERTIBLE PREFERRED STOCK
AND CLASS A COMMON STOCK
PURCHASE AGREEMENT
between
PERITUS SOFTWARE SERVICES, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of March 15, 1996
TABLE OF CONTENTS
Page
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ARTICLE I -- THE SHARES...................................................... 1
SECTION 1.01 Issuance, Sale and Delivery of the Shares..................... 1
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SECTION 1.02 Closing....................................................... 1
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SECTION 1.03 Disclosure of Information by the Purchaser.................... 2
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ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 2
SECTION 2.01 Organization, Qualifications and Corporate Power.............. 2
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SECTION 2.02 Authorization of Agreements, Etc.............................. 3
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SECTION 2.03 Validity...................................................... 4
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SECTION 2.04 Authorized Capital Stock...................................... 4
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SECTION 2.05 Financial Statements.......................................... 5
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SECTION 2.06 Events Subsequent to the Date of the Balance Sheet............ 6
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SECTION 2.07 Litigation; Compliance with Law............................... 6
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SECTION 2.08 Proprietary Information of Third Parties....................... 7
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SECTION 2.09 Patents, Trademarks, Etc...................................... 7
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SECTION 2.10 Title to Properties........................................... 8
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SECTION 2.11 Leasehold Interests........................................... 8
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SECTION 2.12 Insurance..................................................... 8
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SECTION 2.13 Taxes......................................................... 8
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SECTION 2.14 Other Agreements.............................................. 9
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SECTION 2.15 Loans and Advances............................................ 11
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SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
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Persons...................................................... 11
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SECTION 2.17 Significant Customers and Suppliers............................ 11
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SECTION 2.18 Governmental Approvals........................................ 11
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SECTION 2.19 Disclosure.................................................... 12
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SECTION 2.20 Offering of the Shares........................................ 12
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SECTION 2.21 Brokers....................................................... 12
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SECTION 2.22 Officers...................................................... 12
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SECTION 2.23 Transactions With Affiliates.................................. 13
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SECTION 2.24 Employees..................................................... 13
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SECTION 2.25 U.S. Real Property Holding Corporation........................ 13
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SECTION 2.26 Environmental Protection...................................... 13
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SECTION 2.27 ERISA......................................................... 14
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SECTION 2.28 Foreign Corrupt Practices Act................................. 15
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SECTION 2.29 Federal Reserve Regulations................................... 16
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SECTION 2.30 Qualified Small Business Stock................................ 16
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SECTION 2.31 Equal Employment Opportunity.................................. 16
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SECTION 2.32 The Shares as Qualified Investments........................... 16
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SECTION 2.33 Labor Relations............................................... 17
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ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE
PURCHASERS................................................................... 17
ARTICLE IV -- CONDITIONS TO THE OBLIGATIONS OF THE
PURCHASERS................................................................... 19
ARTICLE V -- COVENANTS OF THE COMPANY........................................ 21
SECTION 5.01 Financial Statements, Reports, Etc............................ 22
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SECTION 5.02 Right of Participation........................................ 23
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SECTION 5.03 Reserve for Conversion Shares................................. 24
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SECTION 5.04 Corporate Existence........................................... 25
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SECTION 5.05 Properties, Business, Insurance............................... 25
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SECTION 5.06 Inspection, Consultation and Advice........................... 25
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SECTION 5.07 Restrictive Agreements Prohibited............................. 26
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SECTION 5.08 Transactions with Affiliates.................................. 26
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SECTION 5.09 Expenses of Directors......................................... 26
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SECTION 5.10 Use of Proceeds............................................... 26
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SECTION 5.11 Board of Directors Meetings................................... 26
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SECTION 5.12 Compensation Committee........................................ 26
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SECTION 5.13 Charter....................................................... 27
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SECTION 5.14 Performance of Contracts...................................... 27
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SECTION 5.15 Employee Nondisclosure and Developments Agreements............ 27
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SECTION 5.16 Activities of Subsidiaries.................................... 27
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SECTION 5.17 Compliance with Laws.......................................... 27
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SECTION 5.18 Keeping of Records and Books of Account....................... 28
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SECTION 5.19 Change in Nature of Business.................................. 28
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SECTION 5.20 U.S. Real Property Interest Statement......................... 28
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SECTION 5.21 International Investment Survey Act of 1976.................... 28
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SECTION 5.22 Rule 144A Information......................................... 28
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SECTION 5.23 Advisory Committee............................................ 29
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SECTION 5.24 Qualified Small Business Stock................................ 29
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SECTION 5.25 Equal Employment Opportunity.................................. 29
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SECTION 5.26 Status of the Shares as Qualified Investments.................. 30
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SECTION 5.27 Termination of Covenants...................................... 30
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ARTICLE VI -- MISCELLANEOUS.................................................. 30
SECTION 6.01 Expenses...................................................... 30
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SECTION 6.02 Survival of Agreements........................................ 31
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SECTION 6.03 Brokerage..................................................... 31
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SECTION 6.04 Parties in Interest........................................... 31
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SECTION 6.05 Notices....................................................... 31
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SECTION 6.06 Governing Law................................................. 32
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SECTION 6.07 Entire Agreement.............................................. 32
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SECTION 6.08 Counterparts.................................................. 32
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SECTION 6.09 Acknowledgment................................................ 32
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SECTION 6.10 Consent of MCRC............................................... 32
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SECTION 6.11 Amendments.................................................... 32
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SECTION 6.12 Severability.................................................. 32
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SECTION 6.13 Titles and Subtitles.......................................... 32
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SECTION 6.14 Certain Defined Terms......................................... 32
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INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Subsidiaries
SCHEDULE IV(A) Security Holders
SCHEDULE IV(B) Stock Registration and Voting Agreements
SCHEDULE V Agreements
INDEX TO EXHIBITS
EXHIBIT A Form of Registration Rights Agreement
EXHIBIT B Form of Stock Restriction Agreement
EXHIBIT C Form of Voting Agreement
EXHIBIT D Charter and All Amendments Thereto
EXHIBIT E Form of Employee Nondisclosure and Developments Agreement
EXHIBIT F Form of Non-competition Agreement
EXHIBIT G Form of MCRC Certificate
EXHIBIT H Form of Opinion of ▇▇▇▇ and ▇▇▇▇
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SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT dated as of March 15,
1996 between Peritus Software Services, Inc., a Massachusetts corporation (the
"Company"), and the several purchasers named in the attached Schedule I
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(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers an
aggregate of 1,903,525 shares of the authorized but unissued Series A
Convertible Preferred Stock, no par value, of the Company (the "Series A
Convertible Preferred Stock") and 71,775 shares of the authorized but unissued
Class A Voting Common Stock, no par value, of the Company (the "Class A Common
Stock") (collectively, the "Shares"); and
WHEREAS, the Purchasers, severally, wish to purchase the Shares on the
terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties agree as follows:
ARTICLE I
THE SHARES
SECTION 1.01 Issuance, Sale and Delivery of the Shares. The Company
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agrees to issue and sell to each Purchaser, and each Purchaser hereby agrees to
purchase from the Company, the number of Shares set forth opposite the name of
such Purchaser under the heading "Number of Shares to be Purchased" on Schedule
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I, at the aggregate purchase price set forth opposite the name of such Purchaser
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under the heading "Aggregate Purchase Price for Shares" on Schedule I.
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SECTION 1.02 Closing. The closing shall take place at the offices of
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▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, High Street Tower, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at or about 1:00 p.m., Boston time, on March 15, 1996, or
at such other location, date and time as may be agreed upon between the
Purchasers and the Company (such closing being called the "Closing" and such
date and time being called the "Closing Date"). At the Closing, the Company
shall issue and deliver to each Purchaser a stock certificate or certificates in
definitive form, registered in the name of such Purchaser, representing the
Shares being purchased by such Purchasers at the Closing. As payment in full
for the Shares being purchased by such Purchasers under this Agreement, and
against delivery of the stock certificate or certificates therefor as aforesaid,
on the Closing Date each Purchaser shall (i) deliver to the Company a check
payable to the order of the Company, in the amount set forth opposite the name
of such Purchaser under the heading "Aggregate Purchase Price for Shares" on
Schedule I, or (ii) transfer such sum to the account of the Company by wire
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transfer.
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SECTION 1.03 Disclosure of Information. The Company understands that the
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Massachusetts Capital Resource Company ("MCRC") is a special purpose limited
partnership organized under Chapter 109 of the General Laws of the Commonwealth
of Massachusetts and Chapter 816 of the Acts and Resolves of 1977 of the
Commonwealth of Massachusetts (the "Capital Resource Company Act"), and as such,
in accordance with such provisions, MCRC, in order to obtain certain benefits
for itself and its partners, is required to file certain reports and otherwise
disclose information relating to the business, financial affairs, and future
prospects of the Company and its affiliates (as defined in the aforesaid
legislation) with the Clerk of the Senate and the Clerk of the House of
Representatives of the General Court of the Commonwealth of Massachusetts, the
Secretary of Manpower Affairs, the Commissioner of Insurance and the Department
of Revenue of the Commonwealth of Massachusetts, and that such reports and other
information may constitute "public records" within the purview of Section 7 of
Chapter 4 of the General Laws of the Commonwealth of Massachusetts. In
addition, information relating to the business, financial affairs and future
prospects of the Company and its affiliates must be disclosed to others in order
to obtain independent confirmation that financing on substantially similar terms
to financing provided pursuant to this Agreement was not elsewhere available to
the Company. The Company hereby authorizes MCRC to disclose all such
information relating to the business, financial affairs and future prospects of
the Company and its affiliates as has been or may in the future be presented to
MCRC to all such persons as MCRC in good ▇▇▇▇▇ ▇▇▇▇▇ necessary or appropriate in
order to fulfill its obligations under the Capital Resource Company Act.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as set
forth in the Disclosure Schedule attached as Schedule II (which Disclosure
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Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken, which in each case shall constitute the sole
representation and warranty as to which such exception shall apply):
SECTION 2.01 Organization, Qualifications and Corporate Power.
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(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification and where the failure to be so licensed
or qualified would have a material adverse effect on the Company. The Company
has the corporate power and authority to own and hold its properties and to
carry on its business as now conducted and as proposed to be conducted, to
execute, deliver and perform this Agreement, the Registration Rights Agreement
with the Purchasers and Bull HN Information Systems Inc. ("Bull HN") in the form
attached
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as Exhibit A (the "Registration Rights Agreement"), the Stock Restriction
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Agreement with the Purchasers and the other parties thereto named in paragraph
(h) of Article IV of this Agreement, in the form attached as Exhibit B (the
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"Stock Restriction Agreement") and the Voting Agreement among the Purchasers in
the form attached as Exhibit C (the "Voting Agreement"), to issue, sell and
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deliver the Shares and to issue and deliver the shares of Class A Common Stock,
issuable upon conversion of the Series A Convertible Preferred Stock (the
"Conversion Shares").
(b) The attached Schedule III contains a list of all subsidiaries of
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the Company. Except for such subsidiaries, the Company does not (i) own of
record or beneficially, directly or indirectly, (A) any shares of capital stock
or securities convertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or other non-corporate
business enterprise or (ii) control, directly or indirectly, any other entity.
Each of the subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification and where the failure
to be so licensed or qualified would have a material adverse effect on the
Company. Each of the subsidiaries has the corporate power and authority to own
and hold its properties and to carry on its business as now conducted and as
proposed to be conducted. Except as set forth in Schedule III, all of the
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outstanding shares of capital stock of each of the subsidiaries are owned
beneficially and of record by the Company, one of its other subsidiaries, or any
combination of the Company and/or one or more of its other subsidiaries, in each
case free and clear of any liens, charges, restrictions, claims or encumbrances
of any nature whatsoever; and there are no outstanding subscriptions, warrants,
options, convertible securities, or other rights (contingent or other) pursuant
to which any of the subsidiaries is or may become obligated to issue any shares
of its capital stock to any person other than the Company or one of the other
subsidiaries. Unless otherwise specified, the term "Company" shall mean the
Company and each of the subsidiaries.
SECTION 2.02 Authorization of Agreements, Etc.
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(a) The execution and delivery by the Company of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement and the Voting
Agreement, the performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Shares and the issuance and
delivery of the Conversion Shares have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Restated Articles of Organization of
the Company, as amended (the "Charter") or the By-laws of the Company, as
amended, or any provision of any indenture, agreement or other instrument to
which the Company, any of its subsidiaries or any of their respective properties
or assets is bound, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other
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instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company or any of its subsidiaries.
(b) The Shares have been duly authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Series A Convertible Preferred Stock and Class A Common
Stock, as the case may be, with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement, the Voting Agreement and the Stock Restriction
Agreement. The Conversion Shares have been duly reserved for issuance upon
conversion of the Series A Convertible Preferred Stock and, when so issued,
will be duly authorized, validly issued, fully paid and nonassessable shares of
Class A Common Stock with no personal liability attaching to the ownership
thereof and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement. Neither the issuance, sale or delivery of the
Shares nor the issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company or to any right of first refusal
or other right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
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delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Registration
Rights Agreement, the Stock Restriction Agreement and the Voting Agreement, when
executed and delivered in accordance with this Agreement, will constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
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the Company consists of (i) 1,903,525 shares of Series A Convertible Preferred
Stock, no par value (ii) 9,828,313 shares of Class A Common Stock, no par
value, and (iii) 275,000 shares of Class B Non-Voting Common Stock, no par value
(the "Class B Common Stock" and, collectively with the Class A Common Stock, the
"Common Stock"). Immediately prior to the Closing, 5,844,538 shares of Class A
Common Stock and 99,288 shares of Class B Non-Voting Common Stock, will be
validly issued and outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof and no shares of Preferred Stock
will have been issued. The stockholders of record and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company, and
the number of shares of Common Stock and the number of such subscriptions,
warrants, options, convertible securities, and other such rights held by each,
are as set forth in the attached Schedule IV(A). The designations, powers,
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preferences, rights, qualifications, limitations and restrictions in respect of
each class and series of authorized capital stock of the Company are as set
forth in the Charter, a copy of which is attached as Exhibit D, and all such
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designations, powers, preferences, rights,
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qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws (subject, as to enforcement, to the
discretion of courts in awarding equitable relief as to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally and to general principals of equity). Except as set forth in
the attached Schedule IV(A), (i) no person owns of record or is known to the
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Company to own beneficially any share of Common Stock, (ii) no subscription,
warrant, option, convertible security, or other right (contingent or other) to
purchase or otherwise acquire equity securities of the Company is authorized or
outstanding and (iii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other such rights
or to distribute to holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Charter or as set forth in
the attached Schedule IV(A), the Company has no obligation (contingent or other)
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to purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as set forth in Schedule IV(B), for the Stock
Restriction Agreement and the Voting Agreement, to the best of the Company's
knowledge there are no voting trusts or agreements, stockholders' agreements,
pledge agreements, buy-sell agreements, rights of first refusal, preemptive
rights or proxies relating to any securities of the Company or any of its
subsidiaries (whether or not the Company or any of its subsidiaries is a party
thereto). All of the outstanding securities of the Company were issued in
compliance with all applicable Federal and state securities laws.
SECTION 2.05 Financial Statements. The Company has furnished to the
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Purchasers the unaudited consolidated balance sheet of the Company and its
subsidiaries as of December 31, 1995, and the related unaudited consolidated
statements of income, stockholders' equity and cash flows of the Company and its
subsidiaries for the year ended December 31, 1995, and the unaudited
consolidated balance sheet of the Company and its subsidiaries as of January 31,
1996 (the "Balance Sheet") and the related unaudited consolidated statements of
income, stockholders' equity and cash flows of the Company and its subsidiaries
for the one month ended January 31, 1996. All such financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements do not
contain all of the required footnotes) and fairly present the consolidated
financial position of the Company and its subsidiaries as of December 31, 1995,
and January 31, 1996, respectively, and the consolidated results of their
operations and cash flows for the year ended December 31, 1995 and the one month
ended January 31, 1996, respectively. Since the date of the Balance Sheet, (i)
there has been no change in the assets, liabilities or financial condition of
the Company and its subsidiaries (on a consolidated basis) from that reflected
in the Balance Sheet except for changes in the ordinary course of business which
in the aggregate have not been materially adverse and (ii) none of the business,
prospects, financial condition, operations, property or affairs of the Company
and its subsidiaries (on a consolidated basis) has been materially adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
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SECTION 2.06 Events Subsequent to the Date of the Balance Sheet. Since
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the date of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security, (ii) borrowed any amount or incurred or become subject
to any liability (absolute, accrued or contingent), except current liabilities
incurred and liabilities under contracts entered into in the ordinary course of
business, (iii) discharged or satisfied any lien or encumbrance or incurred or
paid any obligation or liability (absolute, accrued or contingent) other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the date of the Balance Sheet in the ordinary course of business, (iv)
declared or made any payment or distribution to stockholders or purchased or
redeemed any share of its capital stock or other security, (v) mortgaged,
pledged, encumbered or subjected to lien any of its assets, tangible or
intangible, other than liens of current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets except in
the ordinary course of business, or canceled any debt or claim, (vii) sold,
assigned, transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service ▇▇▇▇, copyright, trade secret or other
intangible asset, (viii) suffered any loss of property or waived any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation except in the ordinary course of business and
consistent with past practice, (x) made any material change in the manner of
business or operations of the Company, (xi) entered into any transaction except
in the ordinary course of business or as otherwise contemplated hereby or (xii)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
SECTION 2.07 Litigation; Compliance with Law. There is no (i) action,
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suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (iii) governmental inquiry
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit). The
Company is not in default with respect to any order, writ, injunction or decree
known to or served upon the Company of any court or of any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, where such litigation, proceeding or
investigation, either individually or in the aggregate, would have a material
adverse effect on the Company or which might call into question the validity of
this Agreement or the various transactions and agreements contemplated hereby.
There is no action or suit by the Company pending or threatened against others.
The Company has complied with all laws, rules, regulations and orders applicable
to its business, operations, properties, assets, products and services, the
Company has all necessary permits, licenses and other authorizations required to
conduct its business as conducted and as proposed to be conducted, and the
Company has been operating its business pursuant to and in compliance with the
terms of all such
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permits, licenses and other authorizations where the failure to comply or to be
so licensed or qualified would have a material adverse effect on the Company.
SECTION 2.08 Proprietary Information of Third Parties. To the best of the
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Company's knowledge, no third party has claimed that any person employed by or
affiliated with the Company has (a) violated or may be violating any of the
terms or conditions of his employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed or may be disclosing or utilized
or may be utilizing any trade secret or proprietary information or documentation
of such third party or (c) interfered or may be interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. To the best of the Company's
knowledge, no person employed by or affiliated with the Company has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and to the best of the Company's knowledge,
no person employed by or affiliated with the Company has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company, and the Company has no reason to believe there will be any such
employment or violation. To the best of the Company's knowledge, none of the
execution or delivery of this Agreement, or the carrying on of the business of
the Company as officers, employees or agents by any officer, director or key
employee of the Company, or the conduct or proposed conduct of the business of
the Company, will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under any contract, covenant or
instrument under which any such person is obligated.
SECTION 2.09 Patents, Trademarks, Etc. Set forth in Schedule II is a list
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and brief description of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service ▇▇▇▇
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service ▇▇▇▇ applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know how (collectively,
"Intellectual Property") necessary or desirable to the conduct of its business
as conducted and as proposed to be conducted, and no claim is pending or, to the
best of the Company's knowledge, threatened to the effect that the operations of
the Company infringe upon or conflict with the asserted rights of any other
person under any Intellectual Property. No claim is pending or threatened to
the effect that any such Intellectual Property owned or licensed by the Company,
or which the Company otherwise has the right to use, is invalid or unenforceable
by the Company. To the best of the Company's knowledge, all technical
information developed by and belonging to the
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Company which has not been patented has been kept confidential. The Company has
not granted or assigned to any other person or entity any right to manufacture,
have manufactured, assemble or sell the products or proposed products or to
provide the services or proposed services of the Company.
SECTION 2.10 Title to Properties. The Company and its subsidiaries have
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good, clear and marketable title to their respective properties and assets
reflected on the Balance Sheet or acquired by them since the date of the Balance
Sheet (other than properties and assets disposed of in the ordinary course of
business since the date of the Balance Sheet), and, except as set forth in
Schedule II, all such properties and assets are free and clear of mortgages,
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pledges, security interests, liens, charges, claims, restrictions and other
encumbrances (including without limitation, easements and licenses), except for
liens for or current taxes not yet due and payable and minor imperfections of
title, if any, not material in nature or amount and not materially detracting
from the value or impairing the use of the property subject thereto or impairing
the operations or proposed operations of the Company and its subsidiaries,
including without limitation, the ability of the Company and its subsidiaries to
secure financing using such properties and assets as collateral. To the best of
the Company's knowledge after due inquiry, there are no condemnation,
environmental, zoning or other land use regulation proceedings, either
instituted or planned to be instituted, which would adversely affect the use or
operation of the Company's and its subsidiaries' properties and assets for their
respective intended uses and purposes, or the value of such properties, and
neither the Company nor any subsidiary has received notice of any special
assessment proceedings which would affect such properties and assets.
SECTION 2.11 Leasehold Interests. Each lease or agreement to which the
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Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement of the Company, duly authorized and entered
into by the Company, without any default of the Company thereunder and, to the
best of the Company's knowledge, without any default thereunder of any other
party thereto. No event has occurred and is continuing which, with due notice
or lapse of time or both, would constitute a default or event of default by the
Company under any such lease or agreement or, to the best of the Company's
knowledge, by any other party thereto. The Company's possession of such
property has not been disturbed and, to the best of the Company's knowledge
after due inquiry, no claim has been asserted against the Company adverse to its
rights in such leasehold interests.
SECTION 2.12 Insurance. The Company holds valid policies covering all of
---------
the insurance required to be maintained by it under Section 5.05.
SECTION 2.13 Taxes. The Company has filed all tax returns, Federal,
-----
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third
-9-
parties. The Company has established adequate reserves for all taxes accrued but
not yet payable. All tax elections, if any, have been made by the Company in
accordance with generally accepted practice. The Federal income tax returns of
the Company have never been audited by the Internal Revenue Service. No
deficiency assessment with respect to or proposed adjustment of the Company's
Federal, state, county or local taxes is pending or, to the best of the
Company's knowledge, threatened. There is no tax lien, whether imposed by any
Federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company. Neither the Company nor any of
its present or former stockholders has ever filed an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S corporation.
SECTION 2.14 Other Agreements. Except as set forth in the attached
----------------
Schedule V, the Company is not a party to or otherwise bound by any written or
----------
oral:
(a) distributor, dealer, manufacturer's representative or sales agency
agreement which is not terminable on less than ninety (90) days' notice
without cost or other liability to the Company (except for agreements which,
in the aggregate, are not material to the business of the Company);
(b) sales agreement which entitles any customer to a rebate or right of
set-off, to return any product to the Company after acceptance thereof or to
delay the acceptance thereof, or which varies in any material respect from
the Company's standard form agreements;
(c) agreement with any labor union (and, to the knowledge of the Company,
no organizational effort is being made with respect to any of its employees);
(d) agreement with any supplier containing any provision permitting any
party other than the Company to renegotiate the price or other terms, or
containing any pay-back or other similar provision, upon the occurrence of a
failure by the Company to meet its obligations under the agreement when due
or the occurrence of any other event;
(e) agreement for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) agreement for the employment of any officer, employee or other person
(whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, except normal
severance arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, agreement or
understanding pursuant to which
-10-
benefits are provided to any employee of the Company (other than group
insurance plans applicable to employees generally);
(h) agreement relating to the borrowing of money or to the mortgaging or
pledging of, or otherwise placing a lien or security interest on, any asset
of the Company;
(i) guaranty of any obligation for borrowed money or otherwise;
(j) voting trust or agreement, stockholders' agreement, pledge agreement,
buy-sell agreement or first refusal or preemptive rights agreement relating
to any securities of the Company;
(k) agreement, or group of related agreements with the same party or any
group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to issue, sell or
otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities;
(m) assignment, license or other agreement with respect to any form of
intangible property;
(n) agreement under which it has granted any person any registration
rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its right to
compete with any person in any respect;
(p) other agreement or group of related agreements with the same party
involving more than $10,000 or continuing over a period of more than six
months from the date or dates thereof (including renewals or extensions
optional with another party), which agreement or group of agreements is not
terminable by the Company without penalty upon notice of thirty (30) days or
less, but excluding any agreement or group of agreements with a customer of
the Company for the sale, lease or rental of the Company's products or
services if such agreement or group of agreements was entered into by the
Company in the ordinary course of business; or
(q) other agreement, instrument, commitment, plan or arrangement, a copy
of which would be required to be filed with the Securities and Exchange
Commission (the "Commission") as an exhibit to a registration statement on
Form S-1 if the Company were registering securities under the Securities Act
of 1933, as amended (the "Securities Act").
-11-
The Company, and to the best of the Company's knowledge after due inquiry, each
other party thereto has in all material respects performed all the obligations
required to be performed by it to date (or each non-performing party has
received a valid, enforceable and irrevocable written waiver with respect to its
non-performance), have received no notice of default and are not in default
(with due notice or lapse of time or both) under any agreement, instrument,
commitment, plan or arrangement to which the Company is a party or by which it
or its property may be bound. The Company has no present expectation or
intention of not fully performing all its obligations under each such agreement,
instrument, commitment, plan or arrangement, and the Company has no knowledge of
any breach or anticipated breach by the other party to any agreement,
instrument, commitment, plan or arrangement to which the Company is a party.
The Company is in full compliance with all of the terms and provisions of its
Charter and By-laws, as amended.
SECTION 2.15 Loans and Advances. The Company does not have any
------------------
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be incurred
by them in connection with their performance of services for the Company.
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
------------------------------------------------------
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
-------
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 Significant Customers and Suppliers. No customer or supplier
-----------------------------------
which was significant to the Company during the period covered by the financial
statements referred to in Section 2.05 or which has been significant to the
Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
SECTION 2.18 Governmental Approvals. Subject to the accuracy of the
----------------------
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement, the Stock Restriction
Agreement or the Voting Agreement, the issuance, sale and delivery of the Shares
or, upon conversion of the Series A Convertible Preferred Stock, the issuance
and delivery of the Conversion Shares, other than (i) filings pursuant to state
securities laws (all of which filings have been made by the Company, other than
those which are required to be made after the Closing and which will be duly
made on a
-12-
timely basis) in connection with the sale of the Shares and (ii) with respect to
the Registration Rights Agreement, the registration of the shares covered
thereby with the Commission and filings pursuant to state securities laws.
SECTION 2.19 Disclosure. Neither this Agreement, nor any Schedule or
----------
Exhibit to this Agreement, contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact within the special knowledge of the Company which the Company
has not disclosed to the Purchasers and their counsel in writing and of which
the Company is aware which materially and adversely affects or could materially
and adversely affect the business, prospects, financial condition, operations,
property or affairs of the Company or any of its subsidiaries. Any financial
projections and other estimates prepared by the Company in the course of the
transactions contemplated hereby were based on the Company's experience in the
industry and on assumptions of fact and opinion as to future events which the
Company, at the date of any such projection, believed to be reasonable, but
which the Company cannot and does not assure or guarantee the attainment of in
any manner. As of the date hereof no facts have come to the attention of the
Company which would, in its opinion, require the Company to revise or amplify
the assumptions underlying such projections and other estimates or the
conclusions derived therefrom.
SECTION 2.20 Offering of the Shares. Neither the Company nor any person
----------------------
authorized or employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Shares or any security of the
Company similar to the Shares has offered the Shares or any such similar
security for sale to, or solicited any offer to buy the Shares or any such
similar security from, or otherwise approached or negotiated with respect
thereto with, any person or persons, and neither the Company nor any person
acting on its behalf has taken or will take any other action (including, without
limitation, any offer, issuance or sale of any security of the Company under
circumstances which might require the integration of such security with Shares
under the Securities Act or the rules and regulations of the Commission
thereunder), in either case so as to subject the offering, issuance or sale of
the Shares to the registration provisions of the Securities Act.
SECTION 2.21 Brokers. The Company has no contract, arrangement or
-------
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 Officers. Set forth in Schedule II is a list of the names of
-------- -----------
the officers of the Company, together with the title or job classification of
each such person and the total compensation anticipated to be paid to each such
person by the Company and its subsidiaries in 1996. None of such persons has an
employment agreement or
-13-
understanding, whether oral or written, with the Company or any of its
subsidiaries, which is not terminable on notice by the Company or such
subsidiary without cost or other liability to the Company or such subsidiary.
SECTION 2.23 Transactions With Affiliates. No director, officer, employee
----------------------------
or stockholder of the Company, or member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person, or
any member of the family of any such person, has a substantial interest or is an
officer, director, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof, is a party to any transaction with the Company (other
than in connection with an Employee Plan set forth in Schedule II) including any
------------
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm, other than employment-at-will
arrangements in the ordinary course of business.
SECTION 2.24 Employees. Each of the officers of the Company, each key
---------
employee and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employee Nondisclosure
and Developments Agreement substantially in the form of Exhibit E (collectively,
---------
the "Employee Nondisclosure and Developments Agreements"), and such agreements
are in full force and effect. No officer or key employee of the Company has
advised the Company (orally or in writing) that he intends to terminate
employment with the Company. The Company has complied in all material respects
with all applicable laws relating to the employment of labor, including
provisions relating to wages, hours, equal opportunity, collective bargaining
and the payment of Social Security and other taxes, and with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
SECTION 2.25 U.S. Real Property Holding Corporation. The Company is not
--------------------------------------
now and has never been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service, and the Company has
filed with the Internal Revenue Service all statements, if any, with its United
States income tax returns which are required under Section 1.897-2(h) of such
Regulations.
SECTION 2.26 Environmental Protection. The Company has not caused or
------------------------
allowed, or contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances (as defined below) in
connection with the operation of its business or otherwise. The Company has not
received any citation, directive, letter or other communication, written or
oral, or any notice of any proceeding, claim or lawsuit, from any person arising
out of the ownership or occupation of any real property that the Company owns,
leases or otherwise occupies or uses (the "Premises"), or the conduct of its
operations, and the Company is not aware of any basis therefor. The Company has
obtained and is maintaining in full force and effect all necessary permits,
licenses and approvals required by all Environmental Laws applicable to the
Premises and the business operations conducted thereon (including operations
conducted by tenants
-14-
on the Premises), and is in compliance with all such permits, licenses and
approvals. The Company has not caused or allowed a release, or a threat of
release, of any Hazardous Substance unto, at or near the Premises, and, to the
best of the Company's knowledge, neither the Premises nor any property at or
near the Premises has ever been subject to a release, or a threat of release, of
any Hazardous Substance. For the purposes of this Agreement, the term
"Environmental Laws" shall mean any Federal, state or local law or ordinance or
regulation pertaining to the protection of human health or the environment,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq., the Emergency
-- ---
Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and
-- ----
the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq. For
-- ---
purposes of this Agreement, the term "Hazardous Substances" shall include oil
and petroleum products, asbestos, polychlorinated biphenyls, urea formaldehyde
and any other materials classified as hazardous or toxic under any Environmental
Laws.
SECTION 2.27 ERISA.
-----
(a) Schedule II lists each Employee Plan that covers any employee of the
-----------
Company, copies or descriptions of all of which have previously been made
available or furnished to the Purchasers. With respect to each Employee Plan,
the Company has, to the best of the Company's knowledge, filed all required
Forms 5500, if any. The Company has provided the Purchasers with complete age
and service data as of the most recent practicable date for employees of the
Company.
(b) Schedule II also includes a list of each Benefit Arrangement of the
-----------
Company, copies or descriptions of all of which have been made available or
furnished previously to the Purchasers.
(c) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. The Company and its Affiliates have not incurred
any material liability under Title IV of ERISA arising in connection with the
termination of any plan covered or previously covered by Title IV of ERISA.
(d) None of the Employee Plans or other arrangements listed on Schedule II
-----------
covers any non-United States employee or former employee of the Company, except
as required by applicable law.
(e) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Employee Plan, or
such occurrence will not result in material liability to the Purchasers or the
Company.
(f) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and each trust forming a part thereof is exempt from
tax pursuant to Section 501(a) of the Code. The Company has furnished to the
Purchasers copies of the most recent
-▇▇-
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Service determination letters with respect to each such plan.
Each Employee Plan has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations, including but not limited to ERISA and the Code, which are
applicable to such plan.
(g) Each Employee Plan and each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Employee Plan and Benefit Arrangement.
(h) All contributions and payments accrued under each Employee Plan and
Benefit Arrangement, determined in accordance with prior funding and accrual
practices, as adjusted to include proportional accruals for the period ending on
the Closing Date, will be discharged and paid on or prior to the Closing Date
except to the extent reflected on the Balance Sheet. Except as disclosed in
writing to the Purchasers prior to the date hereof, there has been no amendment
to, written interpretation of or announcement (whether or not written) by the
Company or any of its ERISA Affiliates relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended prior to the date hereof.
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 280G of the Code.
(j) No material tax under Section 4980B of the Code has been incurred in
respect of any Employee Plan that is a group health plan, as defined in Section
5000(b)(1) of the Code.
(k) With respect to the employees and former employees of the Company,
there are no employee post-retirement medical or health plans in effect, except
as required by Section 4980B of the Code, or applicable state law.
(l) No employee of the Company will become entitled to any bonus,
retirement, severance or similar benefit or enhanced benefit solely as a result
of the transactions contemplated hereby.
(m) The Company does not have, nor is it reasonably expected to have, in
the reasonably foreseeable future any material liability under Title IV of
ERISA.
SECTION 2.28 Foreign Corrupt Practices Act. The Company has reviewed its
-----------------------------
practices and policies and to the best of its knowledge and belief it is not
engaged, nor has any officer, director, employee or agent of the Company
engaged, in any act or practice
-16-
which would constitute a violation of the Foreign Corrupt Practices Act of 1977,
and any rules or regulations promulgated thereunder.
SECTION 2.29 Federal Reserve Regulations. The Company is not engaged in
---------------------------
the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System), and no part of the proceeds of the Shares will
be used to purchase or carry any margin security or to extend credit to others
for the purpose of purchasing or carrying any margin security or in any other
manner which would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System.
SECTION 2.30 Qualified Small Business Stock. The Shares constitute
------------------------------
"qualified small business stock" as defined in Section 1202(c) of the Code.
SECTION 2.31 Equal Employment Opportunity. The Company has reviewed its
----------------------------
employment practices and policies and, to the best of its knowledge, the Company
is in full compliance with (a) all applicable laws of the United States, of the
Commonwealth of Massachusetts and of each other applicable jurisdiction,
relating to equal employment opportunity (including, without limitation, Title
VII of the Civil Rights Act of 1964, as amended (42 U.S.C. (S)2000e-17), the Age
Discrimination in Employment Act of 1967, as amended (29 U.S.C. (S)(S)621-634),
the Equal Pay Act of 1963 (29 U.S.C. (S)206(d)), and any rules, regulations and
administrative orders and Executive Orders relating thereto; Mass. Gen. Laws. c.
151B, Mass. Gen. Laws. c. 149 (S)24A et seq. and (S)1-5A et seq. and any rules
or regulations relating thereto; and (b) the applicable terms, relating to equal
employment opportunity, of any contract, agreement or grant the Company has
with, from, or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit
("Government Contract"), including, without limitation, any terms required
pursuant to Federal Executive Order No. 11246 and Massachusetts Executive Order
No. 74 (both as amended). To the best of the Company's knowledge, it has kept
all records required to be kept, and has filed all reports, affirmative action
plans and forms (including, without limitation and where applicable, Form EEO-1)
required to be filed pursuant to any such applicable law or the terms of any
such Government Contract. The Company has not been subject to any adverse final
determination or order, with respect to any charge of employment discrimination
made against it, by the United States Equal Employment Opportunity Commission,
the Massachusetts Commission Against Discrimination or any other governmental
unit (including, without limitation, any such governmental unit with which it
has a Government Contract), and the Company is not presently, to the best of its
knowledge, subject to any formal proceedings before, or investigation by, such
commissions or governmental units.
SECTION 2.32 The Shares as Qualified Investments. The Company has duly
-----------------------------------
authorized the execution and delivery to MCRC on behalf of the Company of the
certificate in the form attached as Exhibit G hereto, setting forth such
---------
statements, information and related data as are necessary to permit MCRC to
determine and
-17-
demonstrate that the Shares issued to MCRC pursuant to this Agreement will
constitute "qualified investments" within the meaning of that term as set forth
in the Capital Resource Company Act and that the full proceeds of the Shares
issued to MCRC will be used for purposes which will materially increase or
maintain equal opportunity employment in the Commonwealth of Massachusetts. All
such statements, information and related data presented in such certificate as
are not based on estimates and projections of future events are true and correct
as of the date of such certificate and all such statements, information and
related data based upon estimates or projections of future events have been
carefully considered and prepared on behalf of the Company (it being understood
that there is no assurance that the Company's future performance will be
consistent with such estimates or projections).
SECTION 2.33 Labor Relations. To the best of the knowledge of the
---------------
Company, no labor union or any representative thereof has made any attempt to
organize or represent employees of the Company. There are no unfair labor
practice charges, pending trials with respect to unfair labor practice charges,
pending material grievance proceedings or adverse decisions of a Trial Examiner
of the National Labor Relations Board against the Company. Furthermore, to the
best of the knowledge of the Company, relations with employees of the Company
are good and the Company does not believe that any labor difficulties will arise
in the foreseeable future.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule 501 under
the Securities Act and was not organized for the specific purpose of
acquiring the Shares;
(b) it has sufficient knowledge and experience in investing in companies
similar to the Company in terms of the Company's stage of development so as
to be able to evaluate the risks and merits of its investment in the Company
and it is able financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(d) the Shares being purchased by it are being acquired for its own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof;
(e) it understands that (i) the Shares and the Conversion Shares have not
been registered under the Securities Act by reason of their issuance in a
transaction
-18-
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof or Rule 505 or 506 promulgated under the Securities Act,
(ii) the Shares and, upon conversion thereof, the Conversion Shares must be
held indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration, (iii) the Shares and
the Conversion Shares will bear a legend to such effect and (iv) the Company
will make a notation on its transfer books to such effect; and
(f) if it sells any Shares or Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary steps in
order to perfect the exemption from registration provided thereby, including
(i) obtaining on behalf of the Company information to enable the Company to
establish a reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being relied upon
with respect to such resale.
(g) the Purchaser has no contract, arrangement or understanding with any
broker, finder or similar agent with respect to the transactions contemplated
by this Agreement.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Shares being
purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received from
----------------------------
▇▇▇▇ & ▇▇▇▇, counsel for the Company, an opinion dated the Closing Date, in
form attached as Exhibit H.
---------
(b) Representations and Warranties to be True and Correct. The
-----------------------------------------------------
representations and warranties contained in Article II shall be true,
complete and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such
date, and the President and Treasurer of the Company shall have certified to
such effect to the Purchasers in writing.
(c) Performance. The Company shall have performed and complied with all
-----------
agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Treasurer of the
Company shall have certified to the Purchasers in writing to such effect and
to the further effect that all of the conditions set forth in this Article IV
have been satisfied.
-19-
(d) All Proceedings to be Satisfactory. All corporate and other
----------------------------------
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory
in form and substance to the Purchasers and their counsel, and the Purchasers
and their counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.
(e) Purchase by Other Purchasers. Each Purchaser shall have purchased and
----------------------------
paid for the Shares being purchased by it on the Closing Date, and the
aggregate purchase price paid by all of the Purchasers for the Shares being
purchased by them on the Closing Date shall be at least $5,500,000.
(f) Supporting Documents. The Purchasers and their counsel shall have
--------------------
received copies of the following documents:
(i) (A) the Charter, certified as of a recent date by the Secretary
of State of the Commonwealth of Massachusetts, (B) a certificate of said
Secretary dated as of a recent date as to the due incorporation and good
standing of the Company, the payment of all excise taxes by the Company
and listing all documents of the Company on file with said Secretary; and
(C) a certificate of the Secretary of State of the jurisdiction of
incorporation of each of the Company's subsidiaries dated as of a recent
date as to the due incorporation and good standing of such subsidiary;
(ii) a certificate of the Secretary or an Assistant Secretary of the
Company dated the Closing Date and certifying: (A) that attached thereto
is a true and complete copy of the By-laws of the Company as in effect on
the date of such certification; (B) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Stock Restriction Agreement and the Voting Agreement, the issuance, sale
and delivery of the Shares and the reservation, issuance and delivery of
the Conversion Shares, and that all such resolutions are in full force
and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement, the Registration Rights
Agreement, the Stock Restriction Agreement and the Voting Agreement; (C)
that the Charter has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to clause
(i)(B) above; and (D) to the incumbency and specimen signature of each
officer of the Company executing this Agreement, the Registration Rights
Agreement, the Stock Restriction Agreement or the Voting Agreement, the
stock certificates representing the Shares and any certificate or
instrument furnished pursuant hereto, and a certification by another
officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (ii); and
-20-
(iii) such additional supporting documents and other information with
respect to the operations and affairs of the Company as the Purchasers or
their counsel reasonably may request.
(g) Registration Rights Agreement. The Company shall have executed and
-----------------------------
delivered the Registration Rights Agreement.
(h) Stock Restriction Agreement. The Stock Restriction Agreement shall
---------------------------
have been executed and delivered by the Company, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and Bull HN.
(i) Voting Agreement. The Company shall have executed and delivered the
----------------
Voting Agreement.
(j) Non-Competition Agreements. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ shall have entered into a
--------------------------
Non-Competition Agreement with the Company in the form attached as Exhibit F
---------
(collectively, the "Non-Competition Agreements"), and a copy thereof shall
have been delivered to counsel for the Purchasers.
(k) Charter. The Charter shall read in its entirety as set forth in
-------
Exhibit D.
---------
(l) Employee Agreements. Copies of the Employee Nondisclosure and
-------------------
Developments Agreements shall have been delivered to counsel for the
Purchasers.
(m) Election of Directors. The number of directors constituting the
---------------------
entire Board of Directors shall have been fixed at eight (8). As of the
Closing Date, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall each hold positions
as the directors elected solely by the holders of the Series A Convertible
Preferred Stock.
(n) Preemptive Rights. All stockholders of the Company having any
-----------------
preemptive, first refusal or other rights with respect to the issuance of the
Shares or the Conversion Shares shall have irrevocably waived the same in
writing.
(o) Fees of Purchasers' Counsel. The Company shall have paid in
---------------------------
accordance with Section 6.01 the fees and disbursements of Purchasers'
counsel invoiced at the Closing.
(p) Repurchase of Class A Common Stock. The Company shall have committed
----------------------------------
to repurchase, simultaneously with the closing hereof, up to 189,588 shares
of Class A Common Stock from certain shareholders (the "Repurchased Shares").
(q) Stock Option Agreement. The Company and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇
----------------------
Chan shall have entered into a Stock Option Agreement on even date herewith.
-21-
(r) Agreements with Bull HN. The Company shall have entered into an
------------------------
Agreement of Amendment with Bull HN regarding certain rights held by Bull HN
with respect to the Company satisfactory in form and substance to the
Purchasers and their counsel.
(s) MCRC Certificate. The Company shall have executed and delivered a
----------------
certificate to MCRC substantially in the form of Exhibit G attached hereto.
---------
(t) Common Stock Purchase Agreement. Certain of the Purchasers and ▇▇▇▇▇▇▇
-------------------------------
▇. ▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇ shall have executed a Common Stock Purchase Agreement
satisfactory in form and substance to the Purchasers and their counsel.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that:
SECTION 5.01 Financial Statements, Reports, Etc. The Company shall
----------------------------------
furnish to each Purchaser:
(a) within one hundred and eighty (180) days after the end of the 1995
fiscal year, and within ninety (90) days after the end of each fiscal year
thereafter, of the Company a consolidated balance sheet of the Company and
its subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for
the fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public
accountants of recognized national standing selected by the Board of
Directors of the Company;
(b) within thirty (30) days after the end of each month in each fiscal
year (other than the last month in each fiscal year) a consolidated balance
sheet of the Company and its subsidiaries and the related consolidated
statements of income, stockholders' equity and cash flows, unaudited but
prepared in accordance with generally accepted accounting principles (except
that such unaudited financial statements do not contain all of the required
footnotes) and certified by the Chief Financial Officer of the Company, such
consolidated balance sheet to be as of the end of such month and such
consolidated statements of income, stockholders' equity and cash flows to be
for such month and for the period from the beginning of the fiscal year to
the end of such month, in each case with comparative statements
-22-
for the prior fiscal year, provided that the Company's obligations under this
Section 5.01(b) shall terminate upon the completion of a firm commitment
underwritten public offering of the Company's securities;
(c) within thirty (30) days after the end of each month in each fiscal
year a report of projected cash receipts and disbursements expected over the
six months following the end of such month.
(d) at the time of delivery of each annual financial statement pursuant to
Section 5.01(a), a certificate executed by the Chief Financial Officer of the
Company stating that such officer has caused this Agreement and the Series A
Convertible Preferred Stock to be reviewed and has no knowledge of any
default by the Company in the performance or observance of any of the
provisions of this Agreement or the Series A Convertible Preferred Stock or,
if such officer has such knowledge, specifying such default and the nature
thereof;
(e) no later than sixty (60) days prior to the start of each fiscal year,
consolidated capital and operating expense budgets, cash flow projections and
income and loss projections for the Company and its subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a
monthly basis, and, promptly after preparation, any revisions to any of the
foregoing;
(f) promptly following receipt by the Company, each audit response letter,
accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its subsidiaries;
(g) promptly after the commencement thereof, notice of all actions, suits,
claims, proceedings, investigations and inquiries of the type described in
Section 2.07 that could materially adversely affect the Company or any of its
subsidiaries;
(h) promptly upon sending, making available or filing the same, all press
releases, reports and financial statements that the Company sends or makes
available to its stockholders or directors or files with the Commission; and
(i) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of
the Company and its subsidiaries as such Purchaser reasonably may request.
SECTION 5.02 Right of Participation. Subject to the termination provisions
----------------------
of Section 5.26 below, the Company shall, prior to any proposed issuance by the
Company of any of its securities (other than debt securities with no equity
feature), offer to each Purchaser by written notice the right, for a period of
thirty (30) days, to purchase for cash at an amount equal to the price or other
consideration for which such securities are to be
-23-
issued, a number of such securities so that, after giving effect to such
issuance (and the conversion, exercise and exchange into or for (whether
directly or indirectly) shares of Class A Common Stock of all such securities
that are so convertible, exercisable or exchangeable), such Purchaser will
continue to maintain its same proportionate equity ownership in the Company as
of the date of such notice (treating each Purchaser, for the purpose of such
computation, as the holder of the number of shares of Class A Common Stock which
would be issuable to such Purchaser upon conversion, exercise and exchange of
all securities (including but not limited to the shares of Series A Convertible
Preferred Stock) held by such Purchaser on the date such offer is made, that are
convertible, exercisable or exchangeable into or for (whether directly or
indirectly) shares of Class A Common Stock and assuming the like conversion,
exercise and exchange of all such other securities held by other persons);
provided, however, that the participation rights of the Purchasers pursuant to
this Section 5.02 shall not apply to securities issued (A) upon conversion of
any of the shares of Series A Convertible Preferred Stock, (B) as a stock
dividend or upon any subdivision of shares of Common Stock, provided that the
securities issued pursuant to such stock dividend or subdivision are limited to
additional shares of Common Stock, (C) pursuant to subscriptions, warrants,
options, convertible securities, or other rights which are listed in Schedule IV
-----------
as being outstanding on the date of this Agreement, (D) solely in consideration
for the acquisition (whether by merger or otherwise) by the Company or any of
its subsidiaries of all or substantially all of the stock or assets of any other
entity, (E) pursuant to a firm commitment public offering, (F) pursuant to the
exercise of options to purchase Common Stock granted or to be granted to
directors, officers, employees or consultants of the Company in connection with
their service to the Company, not to exceed in the aggregate 2,061,025 shares
(appropriately adjusted to reflect stock splits, stock dividends, combinations
of shares and the like with respect to the Class A Common Stock) less the number
of shares (as so adjusted) issued pursuant to subscriptions, warrants, options,
convertible securities, or other rights outstanding on the date of this
Agreement and listed in Schedule IV pursuant to clause (C) above (the shares
-----------
exempted by this clause (F) being hereinafter referred to as the "Reserved
Employee Shares"), (G) pursuant to the issuance of up to 100,000 shares
(appropriately adjusted to reflect stock splits, stock dividends, combinations
of shares and the like with respect to the Class A Common Stock) to officers and
employees of the Company, provided that a like number of shares of Common Stock
have been repurchased by the Company from ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, and (H) upon the
exercise of any right which was not itself in violation of the terms of this
Section 5.02. The Company's written notice to the Purchasers shall describe the
securities proposed to be issued by the Company and specify the number, price
and payment terms. Each Purchaser may accept the Company's offer as to the full
number of securities offered to it or any lesser number, by written notice
thereof given by it to the Company prior to the expiration of the aforesaid
thirty (30) day period, in which event the Company shall promptly sell and such
Purchaser shall buy, upon the terms specified, the number of securities agreed
to be purchased by such Purchaser. The Company shall be free at any time prior
to ninety (90) days after the date of its notice of offer to the Purchasers, to
offer and sell to any third party or parties the remainder of such securities
proposed to be issued by the Company (including but not limited to the
securities not agreed by the Purchasers to be purchased
-24-
by them), at a price and on payment terms no less favorable to the Company than
those specified in such notice of offer to the Purchasers. However, if such
third party sale or sales are not consummated within such ninety (90) day
period, the Company shall not sell such securities as shall not have been
purchased within such period without again complying with this Section 5.02.
SECTION 5.03 Reserve for Conversion Shares. The Company shall at all
-----------------------------
times reserve and keep available out of its authorized but unissued shares of
Class A Common Stock, for the purpose of effecting the conversion of the Series
A Conversion Preferred Stock and otherwise complying with the terms of this
Agreement, such number of its duly authorized shares of Class A Common Stock as
shall be sufficient to effect the conversion of the Series A Convertible
Preferred Stock from time to time outstanding or otherwise to comply with the
terms of this Agreement. If at any time the number of authorized but unissued
shares of Class A Common Stock shall not be sufficient to effect the conversion
of the Shares Series A Convertible Preferred Stock or otherwise to comply with
the terms of this Agreement, the Company will forthwith take such corporate
action as may be necessary to increase its authorized but unissued shares of
Class A Common Stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable state securities laws in connection with the issuance
of shares of Class A Common Stock upon conversion of the Series A Convertible
Preferred Stock.
SECTION 5.04 Corporate Existence. The Company shall maintain and, except
-------------------
as otherwise permitted by Section 5.17 cause each of its subsidiaries to
maintain, their respective corporate existence, rights and franchises in full
force and effect.
SECTION 5.05 Properties, Business, Insurance. The Company shall maintain
-------------------------------
and cause each of its subsidiaries to maintain as to their respective properties
and business, with financially sound and reputable insurers, insurance against
such casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated, which insurance shall be deemed by
the Company to be sufficient. The Company shall also maintain in effect "key
person" life insurance policy, payable to the Company, on the life of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇ (so long as he remains an employee of the Company), in the amount of $5
million. The Company shall not cause or permit any assignment or change in
beneficiary and shall not borrow against such policy. If requested by
Purchasers holding at least a majority of the outstanding Series A Convertible
Preferred Stock, the Company will add one designee of such Purchasers as a
notice party for each such policy and shall request that the issuer of the
policy provide such designee with ten (10) days' notice before such policy is
terminated (for failure to pay premiums or otherwise) or assigned or before any
change is made in the beneficiary thereof.
SECTION 5.06 Inspection, Consultation and Advice. The Company shall
-----------------------------------
permit and cause each of its subsidiaries to permit each Purchaser and such
persons as it may
-25-
designate, at such Purchaser's expense, to visit and inspect any of the
properties of the Company and its subsidiaries, examine their books and take
copies and extracts therefrom, discuss the affairs, finances and accounts of the
Company and its subsidiaries with their officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
such Purchaser and such designees such affairs, finances and accounts), and
consult with and advise the management of the Company and its subsidiaries as to
their affairs, finances and accounts, all at reasonable times and upon
reasonable notice; provided, however, that each Purchaser shall use its best
-------- -------
efforts to hold in confidence any proprietary or confidential information and to
use such information for monitoring the status of its investment in the Company
and for no other purpose.
SECTION 5.07 Restrictive Agreements Prohibited. Neither the Company nor
---------------------------------
any of its subsidiaries shall become a party to any agreement which by its terms
restricts the Company's performance of this Agreement, the Registration Rights
Agreement, the Stock Restriction Agreement, the Voting Agreement or the Charter.
SECTION 5.08 Transactions with Affiliates. Except for transactions
----------------------------
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any such person, or
any corporation, partnership, trust or other entity in which any such person, or
member of the family of any such person, is a director, officer, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof,
except for transactions on customary terms related to such person's employment.
SECTION 5.09 Expenses of Directors. The Company shall promptly reimburse
---------------------
in full, each director of the Company who is not an employee of the Company and
who was elected as a director solely or in part by the holders of Series A
Convertible Preferred Stock, for all of his reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors of the Company or
any Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds from the
---------------
sale of the Shares solely for (i) the repurchase of up to 189,588 shares of
Class A Common Stock from certain shareholders on even date herewith, (ii) the
purchase of up to 100,000 shares of Class A Common Stock from ▇▇▇▇▇▇▇ ▇. ▇▇▇▇,
(provided, however, that in each of (i) and (ii) above, the funds from the sale
of Shares to MCRC will not be used for such repurchase), (iii) working capital,
(iv) general corporate purposes and (v) acquisitions.
SECTION 5.11 Board of Directors Meetings. The Company shall use its best
---------------------------
efforts to ensure that meetings of its Board of Directors are held at least four
times each year and at least once each quarter.
-26-
SECTION 5.12 Compensation Committee. The Company shall establish and
----------------------
maintain a Compensation Committee of the Board of Directors, which shall consist
of no more than three (3) directors who are not employees of the Company and
will include the two (2) directors elected by the holders of the Series A
Convertible Preferred Stock and a non-employee director elected (if any) by a
plurality vote of the holders of the Series A Preferred Stock, voting as a
separate series, and a plurality vote of holders of the Class A Common Stock,
voting as a separate class. The Compensation Committee shall establish policies
regarding all executive compensation matters, including but not limited to
matters regarding salaries and bonuses and shall establish policies, subject to
approval of the Board of Directors, regarding employee stock option plans,
employee stock purchase plans, employee restricted stock plans or other employee
stock plans and any grants of stock or options pursuant to such plans. The
parties hereto agree that the compensation currently being paid to the executive
officers of the Company is reasonable.
SECTION 5.13 Charter. The Company shall at all times cause its Charter to
-------
provide that, unless otherwise required by the laws of the Commonwealth of
Massachusetts, any two directors shall have the right to call a meeting of the
Board of Directors or stockholders. The Company shall at all times maintain
provisions in its By-laws indemnifying all directors against liability and
absolving all directors from liability to the Company and its stockholders to
the maximum extent permitted under the laws of the Commonwealth of
Massachusetts.
SECTION 5.14 Performance of Contracts. The Company shall not amend,
------------------------
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employee Nondisclosure and Developments Agreement or the Non-Competition
Agreement with ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ without the unanimous written consent of those
members of the Company's Board of Directors elected solely by the holders of
Series A Convertible Preferred Stock.
SECTION 5.15 Employee Nondisclosure and Developments Agreements. The
--------------------------------------------------
Company shall use its best efforts to obtain, and shall cause its subsidiaries
to use their best efforts to obtain, an Employee Nondisclosure and Developments
Agreement in substantially the form of Exhibit E from all future officers, key
---------
employees and other employees who will have access to confidential information
of the Company or any of its subsidiaries, upon their employment by the Company
or any of its subsidiaries.
SECTION 5.16 Activities of Subsidiaries. The Company shall not permit any
--------------------------
subsidiary to consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may (i) consolidate or
merge into or with or sell or transfer assets to any other subsidiary, or (ii)
merge into or sell or transfer assets to the Company. The Company shall not
sell or otherwise transfer any shares of capital stock of any subsidiary other
than a minority interest in any such subsidiary, except to the Company or
another subsidiary, or permit any subsidiary to issue, sell or otherwise
transfer any shares of its capital stock or the capital stock of any subsidiary,
except to the Company or another subsidiary. The Company shall not permit any
subsidiary to
-27-
purchase or set aside any sums for the purchase of, or pay any dividend or make
any distribution on, any shares of its stock, except for dividends or other
distributions payable to the Company or another subsidiary.
SECTION 5.17 Compliance with Laws. The Company shall comply, and cause
--------------------
each subsidiary to comply, with all applicable laws, rules, regulations and
orders, noncompliance with which could materially adversely affect its business
or condition, financial or otherwise.
SECTION 5.18 Keeping of Records and Books of Account. The Company shall
---------------------------------------
keep, and cause each subsidiary to keep, adequate records and books of account,
in which complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.19 Change in Nature of Business. The Company shall not make, or
----------------------------
permit any subsidiary to make, any material change in the nature of its business
as set forth in the Business Plan.
SECTION 5.20 U.S. Real Property Interest Statement. The Company shall
-------------------------------------
provide prompt written notice to each Purchaser following any "determination
date" (as defined in Treasury Regulation Section 1.897-2(c)(i)) on which the
Company becomes a United States real property holding corporation. In addition,
upon a written request by any Purchaser, the Company shall provide such
Purchaser with a written statement informing the Purchaser whether such
Purchaser's interest in the Company constitutes a U.S. real property interest.
The Company's determination shall comply with the requirements of Treasury
Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company
shall provide timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any
successor regulation, that such statement has been made. The Company's written
statement to any Purchaser shall be delivered to such Purchaser within ten (10)
days of such Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.20 shall continue
notwithstanding the fact that a class of the Company's stock may be regularly
traded on an established securities market.
SECTION 5.21 International Investment Survey Act of 1976. The Company
-------------------------------------------
shall use its best efforts to file on a timely basis all reports required of it
under 22 U.S.C. Section 3104, or any similar statute, relating to a foreign
person's direct or indirect investment in the Company.
SECTION 5.22 Rule 144A Information. The Company shall, at all times
---------------------
during which it is neither subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from
-28-
reporting pursuant to Rule 12g3-2(b) under the Exchange Act, provide in writing,
upon the written request of any Purchaser or a prospective buyer of Shares or
Conversion Shares from any Purchaser, all information required by Rule
144A(d)(4)(i) of the General Regulations promulgated by the Commission under the
Securities Act ("Rule 144A Information"). The Company also shall, upon the
written request of any Purchaser, cooperate with and assist such Purchaser or
any member of the National Association of Securities Dealers, Inc. PORTAL system
in applying to designate and thereafter maintain the eligibility of the Shares
or Conversion Shares, as the case may be, for trading through PORTAL. The
Company's obligations under this Section 5.22 shall at all times be contingent
upon the relevant Purchaser's obtaining from the prospective buyer of Shares or
Conversion Shares a written agreement to take all reasonable precautions to
safeguard the Rule 144A Information from disclosure to anyone other than a
person who will assist such buyer in evaluating the purchase of any Shares or
Conversion Shares.
SECTION 5.23 Advisory Committee. The Company shall establish and maintain
------------------
an Advisory Committee of the Board of Directors, the purpose of which will be to
promote frequent communication between the management and the Board of
Directors. The Advisory Committee shall consist of not more than four (4)
directors, two (2) of whom shall be directors elected solely by the holders of
Series A Convertible Preferred Stock. The Company shall use its best efforts to
ensure that meetings of the Advisory Committee of the Board of Directors are
held at least eight times each year and at least twice each quarter. All
members of the Board of Directors shall be notified of meetings of the Advisory
Committee and those members of the Board of Directors who are not members of the
Advisory Committee shall be allowed to attend such meetings as observers with
the right to participate therein, but not vote thereat. The Company shall
distribute copies of the minutes of such meetings to the full Board of
Directors.
SECTION 5.24 Qualified Small Business Stock. The Company shall submit to
------------------------------
its stockholders (including the Purchasers) and to the Internal Revenue Service
any reports that may be required under Section 1202(d)(1)(C) of the Code and any
related Treasury Regulations. In addition, within ten (10) days after any
Purchaser has delivered to the Company a written request therefor, the Company
shall deliver to such Purchaser a written statement informing the Purchaser
whether such Purchaser's interest in the Company constitutes "qualified small
business stock" as defined in Section 1202(c) of the Code. The Company's
obligation to furnish a written statement pursuant to this Section 5.24 shall
continue notwithstanding the fact that a class of the Company's stock may be
traded on an established securities market.
SECTION 5.25 Equal Employment Opportunity. Comply, and cause each
----------------------------
Subsidiary to comply, with all applicable laws of the United States, the
Commonwealth of Massachusetts, and of each other applicable jurisdiction
relating to equal employment opportunity, any rules, regulations, administrative
orders and Executive Orders relating thereto and the applicable terms, relating
to equal employment opportunity, of any Government Contract; and keep, and cause
each Subsidiary to file, all reports, affirmative action plans and forms
required to be filed, pursuant to any such applicable law or the
-29-
terms of any such Government Contract; provided, however, the Company or any
-------- -------
Subsidiary shall not be considered to have failed to comply with the foregoing
during any period that any matter relating to the Company's or such Subsidiary's
employment practices is being contested by the Company or such Subsidiary in
appropriate proceedings, or thereafter, if the Company or such Subsidiary
complies with any final determination issued in such proceedings.
SECTION 5.26 Status of the Shares as Qualified Investments. In the event
---------------------------------------------
that any of the statements, information and related data provided by or on
behalf of the Company or any Subsidiary and relied upon by MCRC in determining
that the Shares constitute "qualified investments" within the meaning of that
term in the Capital Resource Company Act shall be put in issue in any formal or
informal proceedings initiated or conducted by or on behalf of the Commonwealth
of Massachusetts, the Company shall, upon reasonable notice and at its expense,
provide, and, cause each Subsidiary to provide, such additional information,
witnesses and related data as may be reasonably necessary or appropriate to
support the representations and warranties set forth in Article II.
SECTION 5.27 Termination of Covenants. The covenants set forth in Section
------------------------
5.02 above shall terminate upon the earlier to occur of (i) the closing of a
firm commitment underwritten public offering of the Company's Common Stock in
which the aggregate price paid for the shares by the public is at least $15
million, or (ii) at such time as there are fewer than 380,705 Series A
Convertible Preferred Stock outstanding. The covenants set forth in Sections
5.13, 5.20, 5.21, 5.22 and 5.24 shall terminate and be of no further force or
effect as to each of the Purchasers when such Purchaser no longer holds any
shares of capital stock of the Company. All of the other covenants set forth in
this Article V shall terminate and be of no further force or effect as to each
of the Purchasers when such Purchaser owns less than 50,000 Shares of Series A
Preferred Stock (appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and the like with respect to the Series A
Convertible Preferred Stock).
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own expenses in
--------
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the fees and disbursements of the Purchasers' special counsel, ▇▇▇▇▇, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇, in connection with such transactions and any subsequent amendment,
waiver, consent or enforcement thereof.
SECTION 6.02 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein or in the Registration Rights
Agreement, the
-▇▇-
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ Agreement, the Voting Agreement, or any certificate or
instrument delivered to the Purchasers pursuant to or in connection with this
Agreement, the Registration Rights Agreement, the Stock Restriction Agreement or
the Voting Agreement, shall survive the execution and delivery of this
Agreement, the Registration Rights Agreement, the Stock Restriction Agreement
and the Voting Agreement, the issuance, sale and delivery of the Shares, and the
issuance and delivery of the Conversion Shares, and all statements contained in
any certificate or other instrument delivered by the Company hereunder or
thereunder or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.03 Brokerage. Each party hereto will indemnify and hold
---------
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.04 Parties in Interest. All representations, covenants and
-------------------
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of Series A Convertible Preferred Stock.
SECTION 6.05 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, addressed as follows:
(a) if to the Company, at Peritus Software Services, Inc., ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: President, with a copy to
▇▇▇▇▇ ▇. ▇▇▇▇, Esq., ▇▇▇▇ and ▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇; and
(b) if to any Purchaser, at the address of such Purchaser set forth in
Schedule I, with a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇▇▇, ▇▇▇▇▇▇▇ &
----------
▇▇▇▇▇▇▇▇▇, High Street Tower, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Massachusetts.
SECTION 6.07 Entire Agreement. This Agreement, including the Schedules
----------------
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the
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subject matter hereof. All Schedules and Exhibits hereto are hereby incorporated
herein by reference.
SECTION 6.08 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.09 Acknowledgment. The Company and each Purchaser hereby
--------------
acknowledge that the Purchasers, other than MCRC, would not have provided to the
Company the financing being providing hereunder on the terms agreed to herein
had not MCRC agreed to participate for the amount on the terms agreed to herein.
SECTION 6.10 Consent of MCRC. Pursuant to Section 4.02(f) of that
---------------
certain Note and Warrant Purchase Agreement dated as of May 30, 1995 between
MCRC and the Company, MCRC hereby consents to the transactions as contemplated
in this Agreement.
SECTION 6.11 Amendments. This Agreement may not be amended or modified,
----------
and no provisions hereof may be waived without the written consent of the
Company and the holders of at least two-thirds of the then outstanding shares of
Class A Common Stock issued or issuable upon conversion of the Series A
Convertible Preferred Stock.
SECTION 6.12 Severability. If any provision of this Agreement shall be
------------
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.13 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
SECTION 6.14 Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Benefit Arrangement" means each employment, severance or other
-------------------
similar contract, arrangement or policy (written or oral) and each plan or
arrangement (written or oral) providing for severance benefits, insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (i) is not an Employee
Plan and (ii) covers any employee or former employee of the Company.
(b) "Employee Plan" means each "employee benefit plan," as such term is
-------------
defined in Section 3(3) of ERISA, that (A)(i) is subject to any provision of
ERISA and
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(ii) is maintained or contributed to by the Company, or (B)(i) is subject to any
provision of Title IV of ERISA and (ii) is maintained or contributed to by any
of the Company's ERISA Affiliates.
(c) "ERISA" means the Employment Retirement Income Security Act of 1974,
-----
as amended.
(d) "ERISA Affiliate" of any entity means any other entity that, together
---------------
with such entity, would be treated as a single employer under Section 414 of the
Code.
(e) "Multiemployer Plan" means each Employee Plan that is a multiemployer
------------------
plan, as defined in Section 3(37) of ERISA.
(f) "person" shall mean an individual, corporation, trust, partnership,
------
joint venture, unincorporated organization, government agency or any agency
or political subdivision thereof, or other entity.
(g) "subsidiary" shall mean, as to the Company, any corporation of which
----------
more than 50% of the outstanding stock having ordinary voting power to elect
a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the
Company, or by one or more of its subsidiaries, or by the Company and one or
more of its subsidiaries.
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Series A Convertible Preferred Stock and Class A Common Stock Purchase Agreement
as of the day and year first above written.
COMPANY:
PERITUS SOFTWARE SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------
[Corporate Seal] Title:
--------------------------
Attest:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Clerk
PURCHASERS:
MATRIX PARTNERS IV, L.P.
By: /s/ W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------
Name: W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: General Partner of Matrix IV Management
Co., L.P., the General Partner of
Matrix Partners IV, L.P.
MATRIX IV ENTREPRENEURS FUND, L.P.
By: /s/ W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------
Name: W. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: General Partner of Matrix IV Management
Co., L.P., the General Partner of
Matrix IV Entrepreneurs Fund, L.P.
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity GP Limited Partnership
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------
General Partner
MASSACHUSETTS CAPITAL
RESOURCE COMPANY
By: /s/ ▇▇▇ ▇▇▇▇▇▇ III
-----------------------
Title:
----------------------
▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------
Name: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇
Address: ▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇ and
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Name: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Name: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ #▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
MR. ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
MS. ▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
Name: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------
Name: Ms. ▇▇▇▇ ▇▇▇▇▇▇▇
Address: ▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇
----------------------------
Name: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇
Address: ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Name: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------
Name: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇
Address: ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
SCHEDULE I
----------
Purchasers
----------
Aggregate Number of
Series A Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
-------------------- --------------- --------------
Matrix Partners IV, L.P. 795,761 $2,228,130.80
Bay Colony Corporate Center
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Matrix IV Entrepreneurs 41,882 $117,269.60
Fund, L.P.
Bay Colony Corporate Center
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Greylock Equity Limited 837,643 $2,345,400.40
Partnership
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Massachusetts Capital 196,083 $549,032.40
Resource Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ 6,536 $18,300.80
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇ and 1,830 $5,124.00
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ #▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Aggregate Number of
Series A Convertible
Name and Preferred Stock Shares
Address of Purchaser to be Purchased Purchase Price
-------------------- --------------- --------------
Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇ and 1,830 $5,124.00
Ms. ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇ ▇▇▇▇ 18,300 $51,240.00
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and 3,660 $10,248.00
▇▇. ▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Aggregate Number of
Class A Common
Name and Stock Shares
Address of Purchaser to be Purchased Purchase Price
-------------------- --------------- --------------
Massachusetts Capital 71,775 $200,970.00
Resource Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇